PwC says ‘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.

In a report produced in collaboration with the British Bankers' Association, PwC says that 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.

The study finds that the new breed of banks are in the main bidding to pinpoint customer needs that are currently underserved by incumbents, rather than usurp them altogether.

In a survey of 2000 consumers conducted for the report, 54% said they would prefer to bank with multiple providers in return for the best deal on products they offer.

John Lyons, head of retail and commercial banking at PwC, says: “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."

He says that at least eight new banking licenses are currently being processed by the regulators, 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,” he adds.

Nor is the influx of new entrants likely to slow down. While new banks face considerable structural challenges around capital requirement and regulatory issues, the move to Open Banking is expected to create even more opportunities for smart startups to enter the market.

“Open Banking is set to drive a fundamental change in the banking landscape," says Lyons. "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.”

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