Last week, the Banking Competition Remedies (BCR), an independent group set up to manage RBS’ £775m Alternative Remedies Package to boost competition in banking, announced the first – and largest – recipients of the cash from its £425m Capability and Innovation Fund. Metro Bank, Starling and ClearBank have been awarded a grant worth a combined £280m, with Metro winning the largest share of £120m, Starling Bank with £100m and £60m for Clearbank who joined forces with Tide.
The fund was created as part of the terms following RBS’ £45bn bailout from the government at the height of the financial crisis.
The £775m is split into two funds. The first is a £350m Incentivised Switching Scheme to encourage up to 200,000 SMEs to ditch their RBS or NatWest business account for rival banks in which nine challenger banks have been approved to participate. The second, a £425m Capability and Innovation Fund that helps eligible bodies develop and improve their current account, lending and payment offerings to compete with RBS’ business services.
The three early winners are part of Pool A, and the rest of the grants, Pools B, C and D all serve different purposes to encourage competition among business offerings. Pool A facilitates the development of more advanced business current account offerings, Pool B facilitates the modernisation of existing accounts, Pool C facilitates the expansion of businesses offerings and the fourth pool – Pool D – facilitates the commercialisation of financial technology that’s relevant to SMEs.
What does this mean for the future of banking?
The funding marks a turning point in Britain’s backwards banking. Gone are the days of queuing outside the bank during your lunch break to deposit a cheque or waiting 5-7 working days for money to be cleared when transferring to friends.
The rise of digital banks has made banking near-on instantaneous, easy and for most, enjoyable. Thanks to its thriving fintech sector, Britain is leading the way in challenging the big four banks – who still control 80 per cent of current accounts – with new digital-only competitors.
Changing one’s bank, especially for businesses, is inconvenient, admin heavy and offers no real incentives aside from the occasional cashback offer. As a result, high street banks haven’t seen the need to offer better products. However, the introduction of Open Banking last year has played a pivotal role in enabling competition to thrive and motivate banks to offer better services.
The aim of Open Banking regulation is to transfer the ownership of account information from the banks to the customer and let people securely share their transaction data with third parties. The nine biggest banks are required to make their API (application programming interface) available to authorised third parties.
With this data, fintech companies and digital banks can build and offer useful platforms and tools that can transform banking for businesses and the general public. This ranges from money management tools, current accounts and investment portfolios, for example. Companies can understand money habits of their customers and then tailor their offerings to fit their business needs.
How digital banks can stand out
Competition is healthy and Britain’s thriving fintech sector is offering a range of new benefits to make business banking better and move away from traditional high street banking. The most important question, however, is how these digital and challenger banks can differentiate themselves in an increasingly competitive space.
Businesses are becoming savvier, so challenger banks need to create innovative offerings that give real business benefits. Hybrid intelligence assistants, invoice management, instant – and free – international money transfers are all being offered by companies like ANNA, Revolut and N26, to name just a few.
Metro Bank, Starling and ClearBank have set out how they will use the money from the Capability and Innovation Fund to improve their respective business offerings, and it’ll be interesting to see how it is escalated. The RBS Alternative Remedies Package opens great opportunities for young challenger banks to provide a better, more personalised service and finally rid us of the stereotypical Lehman Brother’s style bank. The future of banking is very much already here.