Challenger bank

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Challenger banks are small, recently created retail banks that compete directly with the longer-established banks in the country,[1][2][3] sometimes by specialising in areas underserved by the "big four" banks (Barclays, HSBC, Lloyds Banking Group, and NatWest Group).[3] As well as new entrants to the market, some challenger banks were created following divestment from larger banking groups (TSB Bank from Lloyds Banking Group) or wind-down of a failed large bank (Virgin Money from Northern Rock).[4][5]

The banks distinguish themselves from the historic banks by modern financial technology practices, such as online-only operations, that avoid the costs and complexities of traditional banking.[6] In order to be defined as a "bank", the company must be authorised to accept retail deposits by the UK financial regulator the Prudential Regulation Authority (PRA).[7]

The term Challenger Bank is used interchangeably with Neobank and Online/Digital/Mobile Bank.


Prior to changes in the regulatory landscape in the UK financial services industry, setting up a new bank, with a full UK banking licence, was extremely expensive and time-consuming. This led to a very small number of banks dominating the UK market - the so-called Big Four - with virtually no competition at all. Indeed, when Metro Bank received their license in 2010, it was the first one to have been issued by the UK government in 100 years.[8]

In the wake of the 2008 financial crisis, it was decided to open the market up to new banks. After a period of consultation,[9] the regulation to enable this formed part of the Financial Services Act 2012, which came into force on 1 April 2013. A summary and assessment from Harvard Law School can be accessed online.[10]

To assist new firms to enter the banking market, the PRA, part of the Bank of England, set up their New Bank Start-up Unit which guides firms through the process from an expression of interest, through the application process, to 'authorisation with restrictions' if appropriate, and finally to those restrictions being lifted and the firm being granted a full banking license.

In July 2014, the PRA, together with their co-regulators, the Financial Conduct Authority published a review of the requirements, one year on.[11]

List of challenger banks[edit]

This list contains notable companies that have received PRA authorisations to operate as banks in the UK.

A list of US B2C banks can be found here.

Bank Established Status
Aldermore[12] 2009 Aldermore does not appear on the official Bank of England list of challenger banks as it gained its banking license through the acquisition of Ruffler Bank in 2009. It has since been sold to First Rand of South Africa.
Atom Bank[13] 2015 Offering savings and mortgages, and is entirely app-based.
Focus FS Limited / Monzo Bank Limited[14] 2016 One of the early app-based banks, Monzo had 3.5 million customers as of February, 2020.
Metro Bank[15] 2010 The first high street bank to launch in the UK in over 150 years. Metro Bank posted losses in 2019 of £130.8m after an accounting issue, in stark contrast to profits of £40.6m in 2018. As a result, they have scaled back plans for new branches from 71 over the next three years to just 24.
N26[16] 2016 Based in Berlin, this app-based bank passported in to the UK and is now experiencing cyber-security issues, losing customers as a result. It announced in February 2020 that it would be closing all UK accounts on April 15, 2020, due to difficulties around Brexit.
OakNorth[17] 2015 Provides business and property loans to SMEs.
Shawbrook Bank[18] 2011 Provides savings, business finance, property finance, personal loans.
Starling Bank[19] 2014 Starling Bank was founded by former Allied Irish Banks COO, Anne Boden, in January 2014.
Tandem[20] 2015 In January 2018, Tandem Money Limited acquired Harrods Bank Limited (‘HBL’) and then changed the name to ‘Tandem Bank Limited’.
Tide 2015 Tide is a UK financial technology company specialising in accounts for small and medium-sized businesses. Tide offer FSCS protected bank accounts provided by ClearBank.
Virgin Money[21] 1995 Virgin Money UK plc is a holding company that owns Clydesdale Bank plc, which in turn trades as Clydesdale Bank, Yorkshire Bank and Virgin Money. It was originally set up by National Australia Bank (NAB) in February 2016, when it was called CYBG plc.

See also[edit]


  1. ^ "Challenger bank". Oxford University Press. 2017. Retrieved 18 August 2017.
  2. ^ Zhuplev, Anatoly V., ed. (2018). "Challenger Banks". Disruptive Technologies for Business Development and Strategic Advantage. IGI Global. p. 106. ISBN 9781522541493 – via Google Books.
  3. ^ a b Wallace, Tim (December 29, 2015). "Are challenger banks the saviours of British banking?". The Daily Telegraph. Retrieved August 18, 2017.
  4. ^ Bowman, Andrew (2014). The End of the Experiment?: From Competition to the Foundational Economy. Manchester University Press. p. 92. ISBN 978-0-7190-9633-4 – via Google Books.
  5. ^ Moore, James (October 4, 2018). "As watchdogs approve CYBG and Virgin Money's merger, should the big five banks be worried?". The Independent. Retrieved March 12, 2019.
  6. ^ Flinders, Karl (January 21, 2015). "Six challenger banks using IT to shake up UK retail banking". Computer Weekly. Retrieved March 13, 2019.
  7. ^ "New Bank Start-up Unit". Bank of England. January 15, 2019. Retrieved March 13, 2019.
  8. ^ Wallop, Harry (5 March 2010). "Metro bank granted FSA licence". The Telegraph. Retrieved 19 July 2019.
  9. ^ "A new approach to financial regulation: transferring consumer credit regulation to the Financial Conduct Authority". UK Government. 16 January 2014. Retrieved 19 July 2019.
  10. ^ Noked, Noam (24 March 2013). "Financial Services Act 2012: A New UK Financial Regulatory Framework". Harvard Law School Forum on Corporate Governance and Financial Regulation. Retrieved 19 July 2019.
  11. ^ "A review of requirements for firms entering into or expanding in the banking sector: one year on" (PDF). Prudential Regulation Authority. July 2014. Retrieved 19 July 2019.
  12. ^ English, Simon (March 12, 2019). "Aldermore boss: Challenger banks need stimulus". Evening Standard. Retrieved March 12, 2019.
  13. ^ O'Hear, Steve (April 6, 2016). "Atom is the first of the new UK challenger banks out the gate — sort of". TechCrunch. Retrieved March 12, 2019.
  14. ^ {{cite web|url=, a UK digital-only challenger bank, granted full banking license|first=Steve|last=O’Hear|website=[[TechCrunch |accessdate=July 29, 2019}}
  15. ^ Wallop, Harry (February 1, 2010). "First high street bank 100 years, but will Metro Bank get a licence?". The Daily Telegraph. Retrieved March 12, 2019.
  16. ^ Dillet, Romain (March 16, 2016). "Number26 Grabs $10.6 Million To Bring Its Bank Of The Future To Everyone". TechCrunch. Retrieved March 13, 2019.
  17. ^ Scuffham, Matt (March 9, 2015). "OakNorth gets banking licence, appoints Adair Turner to board". Reuters. Retrieved March 13, 2019.
  18. ^ Goff, Sharlene; Arnold, Martin (March 18, 2014). "UK 'challenger' banks plan listings worth £10bn". Financial Times. Retrieved March 12, 2019.
  19. ^ Moskvitch, Katia (February 7, 2019). "Legacy banks are fighting back against the Monzo insurrection". Wired UK. Retrieved March 13, 2019.
  20. ^ Williams-Grut, Oscar (December 1, 2015). "Britain just got a new digital bank and it's raising tens of millions of pounds". Business Insider. Retrieved March 13, 2019.
  21. ^ "CYBG improves bid for Virgin Money". BBC News. June 3, 2018. Retrieved March 13, 2019.