New banks shed “challenger” label and sharpen focus on distinctive offerings

Published at 08:00 AM on 03 March 2017

  • ‘Challenger’ CEOs say distinctive offerings avoid the need to compete directly with the main high street players – many don’t see current account switching market as being critical
  • At least eight banking licences in the pipeline as of January 2017- PwC is working with ca. 15 potential entrants
  • Customers are increasingly willing to multi-bank- 54% prepared to diversify to get the best deals vs 30% who would prefer one bank for everything
  • Only 1 in 10 of customers switched banking provider because of customer service issues. 57% switched due to financial carrots  
  • 39% of consumers would consider opening an account with a bank that shared financial data with third parties in return for benefits e.g. a view of all accounts held in a single app- Open Banking is set to drive fundamental change and fuel competition

So-called ‘challenger’ banks in the UK are casting off the tag as they continue building their market share by focusing on customers who prefer multiple accounts in order to get the best deals, fresh analysis from PwC finds.  

The “Who are you calling a challenger?” report, produced in collaboration with the BBA, revealed some CEOs of these organisations said being their customers’ primary bank was not their main focus.  Neither were they trying to replace the main high street banks as current account providers- rather they were looking to pinpoint customer needs currently being underserved.

Challenger banks can range from new ‘digital’ banks offering specific online services, to banks that have emerged from players in other industries, such as major supermarket chains with strong and trusted brands and an extensive archive of customer data.

PwC also surveyed more than 2000 consumers. When asked to choose, 54% said they would prefer to bank with multiple providers in return for the best deal on products they offer. This was compared to only three in 1o (30%) who would bank with just one provider even if it meant they might not always get the best deal.

The survey evidence forms part of PwC’s analysis, which focused on those organisations typically described as ‘challenger' banks, dispelling some of the assumptions made about this market segment. Alongside the consumer poll, interviews were conducted with CEOs of more than 20 banks in the wake of continuing economic and political uncertainty as the UK prepares for Brexit.

These ‘challenger’ banks are driving innovation and improving customer service levels in the market, and this has  translated into steadily growing market share in retail and commercial lending, the report finds.

As a result of policymakers driving increased competition, there has been a rise in the number of new banking licences and change in authorisations issued, including 15 in the last three years, and the emergence of new players with a range of propositions and business models.

In 2015, ‘challenger’ banks supplied 200,000 British consumers with mortgages, and increased their share of small and medium-sized enterprise gross lending to 20%, providing new loans and overdrafts to around 50,000 SMEs.

So the term ‘challenger bank’ does not reflect the breadth of these banks’ offerings and varied strategies, PwC suggests.  

John Lyons, head of retail and commercial banking at PwC, said:

“The term ‘challenger’ implies the ‘plucky underdog’, a label that doesn’t hold for what are in some cases long-established and significant businesses. Many of these banks’ distinctive offerings mean they do not need to compete directly with the large high street banks to succeed.

“Their USPs are often around client franchise or need, geographic location or product specialism. Specialist lenders in particular aspire to operate in the gaps left by other banks, typically addressing customers with more complex needs rather than the ‘vanilla prime’ segments.

“Many of these banks don’t anchor their propositions around current accounts as they recognise that customers are willing to multi-bank. This was substantiated by our survey, with over half of British consumers surveyed preferring to use a range of banks for different products and services, according to which is best placed to serve them.

“At least eight new licences are also currently being processed, reflecting the attractiveness of the sector. Additionally PwC is also working with close to 15 firms who are preparing to apply for a banking authorisation. ”

The consumer survey revealed only 11% of customers who switched banking provider in the last three years did so because they were dissatisfied with the level of customer service. 57% of consumers who changed their bank switched due to financial incentives such as better rates, cash incentive, cashbacks and discounts.

A significant number of customers surveyed (39%) would consider opening a financial account with a bank that would share their financial data with other banks and third parties (e.g. Amazon, Apple, etc). In return they would receive benefits such as an overall view of all accounts in a single app, or being able to compare product offers from third parties which are tailored for them (e.g. savings accounts with better rates, cheaper utilities providers, credit card offers, personal loans when getting close to becoming overdrawn). 

However, banks and third party providers will need to reassure consumers that they have the appropriate security measures in place to safeguard their data and respect confidentiality. 58% of respondents said they would not open a current account with any financial provider, new or established, if it shared their financial data with third providers.

Branches are still important for the majority of customers across products - 68% of customers think a branch is essential for them to open a new current account vs only 25% of customers who think a mobile app is essential. Many of the digital players are offering a different type of current account that helps customers control their finances and also access the best value non-banking products from third parties.


Challenger Bank Sub-sectors

The ‘catch-all’ idea of a challenger bank masks the very significant differences between many of the banks it attempts to describe, the report finds. These banks can be split more accurately into four broad groups with varying target markets and service models:

Mid-sized high street banks tend to be the banks with well-known brands, with single-digit millions of customers and between 2,000 and 9,000 employees.

Specialist banks have propositions anchored around lending and saving for customers who they believe are underserved by others in the market, eg certain types of SMEs and the buy-to-let market. They normally employ 500-1000 staff and serve hundreds of thousands of customers.

Digital-only banks, which recognise the trend of customers shifting to digital channels and are building their business to serve both digital natives and converts. They typically have fewer than 150 employees and fewer than 100,000 users.

Non-bank brands have parent companies that are strong players in other industries, such as major supermarket chains. They have strong and trusted brands and as a result of their established banking lineage- some started as a joint venture with main high street banks ) can have a significant number of customers (between 1 million and 8 million) and 1,000-3,000 employees.

Bank CEOs surveyed appreciated regulatory efforts to open the market to new entrants and foster further competition, for instance through the recent investigation by the Competition and Markets Authority (CMA) into the retail banking market.

However, they highlighted a number of areas that could drive progress, specifically: 1) less disparity in capital treatment; 2) more regulatory proportionality; 3) increased access to payments systems; and 4) increased transparency of products to improve customer understanding of product value.

Capital requirements

By far the most commonly cited structural challenge in our CEO interviews was the regulatory approach to capital requirements, particularly in the mortgage market. For example, regarding a less than 50% loan-to-value buy-to-let mortgage, average internal ratings based (IRB) weighting is 7.8% and current standardised approach (SA) weighting is 35%. Some banks using the SA model must (relatively) hold up to five times the capital of main high street banks using the IRB model. It is currently difficult for challenger banks to become IRB approved because of the data requirements and significant costs of obtaining and maintaining approval.

Other examples highlighted included proportionality issues around Know Your Customer (KYC) and Anti-Money Laundering (AML) regulation. Currently, the same rules apply whether customers open an account with £200 or £20,000.

Newer banks in particular believe they have performed more KYC/AML checks than they feel are productive. Others argue that the pace of regulation has not kept up with the way in which challenger banks operate.

In terms of the future, Open Banking is set to drive a fundamental change in the banking landscape, giving rise to new business models, with some providers choosing to specialise in narrow areas rather than offer a traditional suite of products or attempt to manage the customer’s end-to-end experience. Some may compete by making it possible to integrate niche offerings from a number of different companies in a seamless way.


John Lyons, head of retail and commercial banking at PwC added:


“To be successful, each bank needs to overcome specific -and not insignificant- challenges. For example, mid-tier high street banks face pressure to transform their operating models and differentiate their propositions, while digital-only players seek to build awareness with customers and attract them with distinctive service offerings.


“Open Banking is set to drive a fundamental change in the banking landscape. If the regulators take action to further develop competition, the future market will be increasingly varied resulting in a very different banking experience for customers. While new players must work hard to prosper, we believe there will be room in the market for many different banks and non-banks to succeed.”

The full report can be accessed here:

Download Challenger bank 2017



Notes to editors:


  1. PwC thanks the BBA for its collaboration in producing this report.
  2. The Consumer Survey was undertaken by YouGov plc on behalf of PwC:  All figures, unless otherwise stated, are from YouGov Plc.  Total sample size was 2023* adults. Fieldwork was undertaken between 20th - 23rd January 2017.  The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).


About PwC


At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 223,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see for further details.


©2017 PwC. All rights reserved


About PwC

At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 208,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at

PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see for further details. © 2016 PwC. All rights reserved

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