Are the UK’s Challenger Banks in Trouble?

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We’ve often talked about the ‘challenger banks’ – new financial institutions that are trying to offer consumers a new way of banking. Some, like Monzo and Revolut, differentiate themselves through jazzy apps that provide a range of money management tools beyond the usual offerings. Others, like Metro Bank, are smaller high street chains that aim to provide customer with better deals or service.

Over the past few years, these banks have gained popularity with disenchanted consumers who are tired of traditional banking; for a while, it seemed as though they would be completely unstoppable. Recently, though, the traditional banks have started to take notice. While banks like NatWest, Lloyds and HSBC work to improve both their products and their tech to meet the demands of savvy modern customers, there are signs that some of the challenger banks might be in trouble.

What’s the story?

The big news comes from Metro Bank which, has seen shares fall by about 75% this year. At the start of the year the bank had plans to build 200 new branches across the UK, in a move that would have cemented their reputation for putting customer service first in contrast with many banks that are actively closing branches. Now they are admitting that these numbers could be over-ambitious and, despite recent investment to the tune of £375 million, it’s likely that they’ll have to scale back.

The 375 million cash injection is a good sign that they’re not going under yet, and there’s no indication that Metro customers need to worry any time soon. But the overall trend does show that challenger banks are going to have their work cut out continuing to differentiate themselves.

Who else has been affected?

Another bank to fall foul of negative headlines this year is Revolut, which has been the subject of some high-profile investigations and reports about toxic workplace culture and overly relaxed attitudes to checking transactions for regulatory compliance. This is not a good look for a bank that prides itself on being a modern and forward-thinking alternative to traditional institutions. It also shows that younger banks need to be extra vigilant in ensuring that they have the processes in place to meet regulatory requirements and protect customers’ money.

But as with Metro Bank, this appears to be a minor setback in an otherwise positive growth story: Revolut continues to expand and has more than 4 million users worldwide. Meanwhile, Monzo have just reached 2 million customers in the UK alone – showing that plenty of people are still more than happy to store their money with these types of institution.

What’s the verdict?

Although it’s clear that banks like Metro and Revolut are going to have to stay on their toes if they want to maintain their market share, we don’t think it’s likely that challenger banks are going anywhere anytime soon. In fact, the increased competition from high street banks can only be a good thing: it means that more customers are benefiting from modern tech and great service, which is always alright by us.

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