Challenger Banks Metro, Starling, ClearBank Win RBS Competition Funding

Three of the UK’s main challenger banks, Metro, Starling and ClearBank have won a total of £280 million from a fund offered by RBS to promote competition in lending to small British firms.

The capability and innovation fund awarded each bank a different amount. For example, Metro Bank gained £120 million, Starling £100 million, and ClearBank £60 million. This funding was awarded by The Board of Banking Competition Remedies.

What’s the Fund for?

The Royal Bank of Scotland put together a £775 million scheme that’s aimed at increasing the amount of competition in Britain’s banking sector. The fund is part of RBS’s £45 billion government bailout that they needed in the wake of the 2008 financial crisis.

This award is the first of several that we expect to see this year, as there are several other grants and pools that RBS have to offer.

The intention of the capability and innovation fund is to give smaller banks and financial institutions the opportunity to develop certain core areas of their businesses. These areas include current accounts, lending and payments for their customers.

Metro Bank in Trouble

Metro, the big winners from this grant, needed to raise around £300 million. This significant sum comes after they miscalculated the risk weighting on some of their commercial loans. Craig Donaldson, Metro’s chief executive, hoped that the grant will:

Accelerate our plans to revolutionise banking for SMEs. It will help us bring much-needed competition to the underserved SME hotspots in the north, while investing in our digital capabilities and creating new jobs.

Source: Metro Bank Online

New Jobs

Metro isn’t the only one to promise additional employment opportunities. Starling, awarded £100 million, have pledged to create nearly 400 new jobs based in the UK. This is positive news in the face of plenty of Brexit uncertainty.

Starling also aims to invest around £95 million of its own money. With this investment, they hope to expand the products they can offer to small and medium-sized enterprises (SMEs) in the UK.

Their goal is to corner around 6.7% of the UK’s business banking market over the next five years. Such an achievement would see them offering a total of £913 million to SMEs.

For ClearBank to secure the funding, they teamed up with Tide, a platform specialising in SME lending. Together, they hope that they can increase their foothold in the market

Changing the Banking Landscape

The Royal Bank of Scotland’s various funds are set to boost the chances of challenger banks in the UK market. For example, in December 2018, eleven banks including Starling and Monzo won shares of a £350 million fund. This incentive was meant to encourage SME customers to switch from RBS bank accounts to smaller ones.

However, whether or not this will promote uptake in challenger banks remains to be seen. Some feel that even with such a large investment from RBS, brand loyalty and a lack of other incentives may prevent people from switching.