We have seen a number of new challenger banks merge over recent years. Some have a bolt from other brands such as Virgin Money, with their takeover of Northern rock, and Tesco bank. Others are developing themselves from fresh such as Metroline.
These challenger banks are helping to address the needs of UK small business. In this piece will take a look at some of the ways they are helping.
More choice
Traditional banks account for around 90% of all banking. This has led to a relative lack of competition in the marketplace compared to many other sectors. Challenger banks are providing more choice in terms of product options and innovations.
Forcing down rates
By their very nature, challengers are trying hard to break into the UK market. As such they are offering relatively attractive interest rates and fees on their loans. Their products have wide market access in many cases, therefore offering massive market penetration potential, such as with Tesco and Sainsbury banks, and therefore they are willing to be very competitive in order to build their banking brand.
Easy switching more loan access
Although lending to businesses is still relatively subdued, challenger banks are facilitating increasing known levels through easier access to loans and easy switching to their accounts. With loans more easily attainable small businesses are able to gain the funding they require in order to fuel growth within their sectors.
There is no doubt that it will take time for confidence to return to the market, and the challenger and incumbent banks to fully commit to sufficient borrowing to spark a massive revival in the economy. It is right for banks to be cautious; it was after all lack of caution that led to irresponsible lending practices.
Continued growth signs
Signs are positive that the emergence of this new wave of bank is beneficial to both personal and commercial lending.
The UK has seen a recent spate of positive financial data. In fact, the IMF, who were so famously downbeat on Osbourne’s austerity plan, have said that the UK will be the fastest growing advanced economy in the world for 2014.
While the man on the street is still feeling the effect of inflation, salaries have failed to keep pace as prices have increased significatnly on key items like food and fuel, the economy in general has picked up marketedly. And in particular, it is services doing much of the legwork again. Jobs are coming back in this sector as it roars ahead: there are nearly 900 jobs advertised on the Randstad Financial and Professional section alone at the time of writing.
More competition is always good for a sector and newcomers provide innovative products and keen pricing levels. How this affects the broader economy as lending begins to free up remains an unknown, but signs are pointing up.
Cover photo credit: Virgin Money / Flickr
