Challenger banks give BCR progress report

The board of Banking Competition Remedies (BCR) has published the first update on progress against commitments made by the challenger banks it gave grants to.

Metro Bank, Starling Bank and ClearBank were the winners in Pool A of the Capability and Innovation Fund, designed to promote competition in the market for banking services to UK small and medium-sized enterprises (SMEs) through expansion of business capacity, product offering and/or target markets.

In August 2016, Royal Bank of Scotland abandoned plans to spin off Williams & Glyn as a stand-alone business, stating that the new bank could not survive on its own due to Brexit. The group was to sell the unit to another bank as an asset transfer, but in February 2017, HM Treasury and the European Commission reached an agreement in which RBS would be able to retain Williams & Glyn assets in return for investing £833 million into a fund aimed at increasing small business lending by challenger banks and for RBS agreeing to allow SME customers of challenger banks to use its branch network for cash and cheque handling.

BCR chairman Godfrey Cromwell commented: “Following the distribution of funds, our focus has now turned to the monitoring and compliance of how those funds are being used – whilst it is early days, it is reassuring to see the mobilisation effort underway”.

Metro Bank – £120 million

Metro Bank got the largest piece of the Pool A pie, and explained that it is currently building new branches in Manchester, Liverpool and Sheffield, with a further 11 potential sites being worked on.

Recruitment activity to support this expansion to the North of England is underway, with over 100 new vacancies and 10 apprenticeship roles planned so far.

“Our artificial-intelligence led insights capability is already being trialled by customers in a beta launch and will available to all SME customers later this year,” read the statement. “Our mobile cash pick up and drop off service has completed a proof of concept and will launch to SME customers by the end of this year.”

Work on Metro Bank's straight-through business current account online application is under way, with plans to make it available to customers in 2020. “Our new tax submission, bookkeeping, invoicing and receipts mobile and online banking proposition, together with our cloud accounting service have both completed proofs of concept and will launch to SME customers in 2020.”

Work on end-to-end payments and accounts receivable solution began this summer and is on track to deliver in 2021.

“Enhancements to our trade finance and foreign exchange capabilities are on track to go live to SME customers this year,” the update noted, adding that new liquidity management tools will be made available to SME customers, starting in 2020 as planned. “We will commence design for a new secured lending platform for 2021 this summer and are on track.”

Starling – £100 million

Starling is investing £95 million of its own funds alongside its grant over the next four years, raising £50 million and investing £1.67 million to date.

By investing in proprietary, cloud-based technology and extending its engineering capabilities, the mobile-only challenger is rolling out things like flexible deposit accounts, multi-user card functionality, instant invoicing, VAT management, advanced invoice financing, smart FX, supply chain finance using blockchain-based technology and secured business lending.

“Starling is building a full suite of 52 digital banking products over four years to meet the needs of its SME customers,” it stated, adding that 10 of the 13 products scheduled for 2019 are underway in either design or development, while work has begun on a further six products scheduled for delivery in 2020.

SME customers will be able to move between digital channels to originate, authorise and manage transactions on the go with team banking for multi-user accounts. Its web portal will launch in September, featuring instant advice 24/7, including virtual assistance, relationship manager matching and micro scheduling to book ‘to the minute’ appointments.

Starling also promised to develop ‘My Financials’, an AI-based predictive tool showing cash-flow forecasting and, where appropriate and with consent, recommendations for banking solutions.

It is also building a suite of lending products using automated and secure processes that deliver loans in minutes to boost SME growth and productivity. The bank committed to having made £913 million of additional lending available to SMEs by the end of 2023.

“To date, we have made available a lending facility of more than £600,000 as part of this test environment,” it wrote. “Starling is directly partnering with leading SME lenders to make more facilities available and is also working with selected lending providers on integration and origination of SME loans through the Starling Marketplace, while it builds up its own product base.”

Starling has set a goal of attracting over 450,000 customers by the end of 2023. This will allow it to have the market size to make an enduring change to competition. By the end of June 2019 Starling had 50,774 SME customers, almost meeting its full year commitment for 2019 of 51,000 customers.

“Over the course of this initiative Starling has committed to recruiting an additional 398 staff within the UK,” it pledged, with 84 of them engineers. Where possible, it is purchasing from UK-based SME financial services and software companies expertise outside its own core competencies is required.

“Starling has continued to champion UK based technology companies, and has engaged Softwire, BJSS, and Infinity Works to supplement its in house engineering capability.”

ClearBank – £60 million

ClearBank has been leveraging the SME-only Tide brand to build upon its current one per cent business banking market share, towards the aim of having at least an eight per cent share by 2023.

“We are fully on track to achieve the next percentage market penetration (to two per cent) in early Q4 2019,” it noted.

To help with this, a new switching proposition has been built to allow even faster onboarding for existing businesses, along with trial switching - allowing closed account histories to be maintained - dedicated personal onboarding assistance and temporary pop-up onboarding stores. Both of these are at an advanced planning stage and will be implemented as planned before year end.

As part of the administration proposition, ClearBank will offer a range of Tide-branded solutions (Tide Tools) as well as integrations to popular third party solutions (Tide Connect) integrated with the business current account, building on the strong base of its existing functionality.

“Here the original plan envisaged Tide Tools for expense management and payroll in 2019,” it stated. “Both of these projects are at an advanced planning stage and will enter the development phase in July – go live continues to be projected as planned before end 2019.”

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