LONDON, May 21, 2024 /PRNewswire/ -- The 1990s saw the
emergence of the first wave of Challenger Banks in the UK –
including Virgin Direct (1995), Sainsbury's Bank (1997) and Tesco
Personal Finance (1997). Their intention was to take on the
established big banking players. However, as time has passed, they
have moved in unintended directions. Auriemma Group has been
monitoring this space for years, and provides strategic insights
and advisory services to help clients navigate market dynamics and
regulatory changes.
With the recent purchase of Tesco
Bank by Barclays, the imminent purchase of Virgin Money by
Nationwide, and the ongoing process for Sainsbury's Bank to
identify an appropriate exit route for its full suite of banking
products, the established banking players have taken control of the
core original Challenger banks. The ownership of M&S Bank
as a wholly-owned subsidiary of HSBC (since 2004) can be added to
this list.
Increased regulation—including interchange restrictions, higher
capital requirements, the cost of capital, the cost of rewards, and
economic turbulence—has made it too challenging for these entities
to operate independently. What might this mean for the more recent
Challenger banks?
The newer wave of Challenger banks, including Monzo,
Starling, and Revolut have taken a very different approach to
differentiate themselves from the mainstream. Whilst the 1990s wave
focused on leveraging established brand names and existing
distribution channels, the more recent wave has emphasized
innovation, technology and a digital-first approach.
Slick, digital sign-up processes have attracted significant
customer volumes for these players (Monzo with more than 7 million
customers, Starling with 3.6 million, and Revolut with over 30
million globally). However, profitability remains a challenge for
many.
"If the mainstream players feel they need to compete more
directly, there are three possible approaches to consider," says
Simon Cottenham, Head of International Partnerships at
Auriemma. "Spin-off their own digital banks to compete head-on with
the Challenger banks, invest in the digital approaches and apply
these to their mainstream products, or ultimately look to invest in
or buy-out a Challenger bank and bring their capabilities
in-house."
The future of Challenger banks is murky at best. It remains to
be seen if the new wave will be able to compete in the long-term
with their largest competitors, or ultimately be absorbed by the
high street banks like the original Challengers.
About Auriemma Group
For 40 years, Auriemma's mission has been to empower clients
with authoritative data and actionable insights. Our team comprises
recognised experts in four primary areas: operational
effectiveness, consumer research, co-brand partnerships and
corporate finance. Our business intelligence and advisory services
give clients access to the data, expertise and tools they need to
navigate an increasingly complex environment and maximise
their performance. Auriemma serves the consumer financial services
ecosystem from our offices in London and New York
City. For more information, visit us at
www.auriemma.group or contact Simon
Cottenham at info@auriemma.group.
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