The modern banking landscape is dramatically different than it looked 50 years ago. Instead of regional banks that had extremely close connections to the communities they serve, the banks that are commonplace in town centres today are likely to belong to a vast, multi-national financial organisation.
Each business has their own unique challenges and opportunities that require equally personalised financial products and services. As global lenders are unable to offer this granular level of specialisation, new challenger banks and specialist lenders are spreading across the UK to provide localised services.
New players such as Birmingham Bank, which gained a full banking license last year after purchasing Bira Bank, are hoping to attract customers who feel overlooked by major brands and want a more personalised touch. The big four High Street banks dominate the market in the UK, unlike other European nations and the US where there is a far more fragmented market.
A range of new regional lenders are currently at different stages in their development in the UK. Bank North in Manchester received its banking license in August last year and recently raised more than £1.5 million on a crowdfunding website. In Scotland, Alba Bank intends to target SME customers with a personalised level of service that differs from the automated, call centre approach of big banks.
GBB in Newcastle is looking to target regional property developers and construction firms with secured loans, as well as offer a savings product to local residents. While some of these banks may have a different target market in mind, they all have one thing in common – offering a local service that is significantly different from the experience of other incumbents.
There’s no question that these new banks face considerable obstacles in gaining a foothold in what a competitive market. Through utilising effective automation solutions and cloud-based technologies, these banks hope that costs can be reduced as much as possible, while still offering a top end service to clients.
Ravi Anand is Managing Director of ThinCats, a leading alternative lender in the UK providing accessible funding to entrepreneurs. Ravi comments on how alternative lenders can utilise technologies and fill the funding gap:
“Clearing banks have the simplified offering which any large bureaucratic organisation demands. As a result, the days of the local branch manager being able support all the needs of business has gone. This has created a significant funding gap, which a number of agile and focused lenders are filling. Using a more bespoke credit mindset with data and slick tech is allowing these lenders to provide a better customer experience at scale”.
By providing a local and knowledgeable service to clients, which cannot be matched by many traditional financial institutions, the investors and backers of regional banks believe that customers will value this offering and remain loyal.
With data from Move Your Money showing that “bank branch closures dampen SME lending growth by 63% on average in postcodes that lose a bank branch”, the reintroduction of bank branches in areas where they are in short supply is likely to raise the prospects of many SMEs.
The introduction of these banks fits with the current ‘Levelling Up’ agenda pursued by central government, with these financial institutions playing a role in reducing regional inequities and enhancing financial inclusion.
Specialist lenders are also identifying opportunities overseas to improve finance options for individuals and businesses, particularly in Africa. 4G Capital supports micro-enterprises in East Africa by providing financial literacy training and working capital loans to help build economies and generational success.
Ross Breadmore, Chief Product Officer at 4G Capital explains how their personalised services benefit communities in East Africa:
“We are helping businesses grow across Kenya and Uganda, using a combination of working capital and knowledge. By educating our customers on key topics such as book-keeping and business ethics, they are able to put their loans to good use and build sustainable businesses.”
It may be too early to tell what impact this new wave of regional and specialist lenders will have on lending in the UK. But it is clearly a positive development for those small businesses, enterprises and individuals that feel left behind and unable to access much needed capital and funding.
We will continue this discussion at FTT Lending 3.0 on 30th March in London. Join us for our live show, exploring the key innovations, trends and technologies that are improving lending services for the next generation of borrowers.
Written by Finbarr Toesland, Editorial Contributor.