Finance 21 July 2016

Banking on an alternative: The rise of challenger banks

challenger banks
Challenger banks often have experts in place to help solve niche problems

Mark Sismey-Durrant, CEO at Hampshire Trust Bank, discusses the diversification of the challenger bank sector and what this means for SMEs.

Challenger banks have been shaking up the banking world over the past few years, transforming the way small businesses access the vital finance and capital needed for them to grow. Despite recent economic upheaval, this new wave of banks continues to offer a real alternative for smaller businesses.

They have been revolutionising the world of finance over the past few years and stealing market share from banking heavyweights. Offering a combination of flexible, diverse and competitive products combined with a more personal service, these banks are becoming increasingly popular with smaller firms.

However, as a study by the Enterprise Research Centre found, one-quarter of all business owners within the UK still say finance is their biggest barrier to growth and there is more to be done to meet the needs of smaller firms. That’s why we are witnessing a diversification within the challenger bank space, including an emergence of institutions that specialise in a particular sector or are focused on an audience group. As a result, these banks offer a more specialist proposition to smaller business leaders, with experts in place to help solve niche problems that firms couldn’t necessarily solve with another bank.

Specialist challenger banks offer a personalised service and approach which has proven necessary for smaller companies to operate successfully. Research from the University of Bristol has found that small businesses in particular want a named contact at their bank to personally deal with their business banking needs. In comparison to the banking heavyweights, specialist challenger banks often have expert teams, that have decades of experience in certain sectors, which can support on delivering the right finance at the right time for firms.

In addition to this personalised service and expertise, such banks can offer bespoke financial solutions for small firms. For example, providing £5m of block discounting funding to an independent asset finance provider, which will use the funding for onward lending to businesses and asset finance brokers serving the SME sector, as well as private individuals. This niche type of financing works for businesses to create an ongoing stream of funding for further agreements, helping UK small business owners achieve their growth ambitions.

With SMEs representing almost 50 per cent of the UK economy, supporting small businesses is vital to ensure our country continues to prosper and grow for the long-term. As we navigate a challenging economic and political landscape following the outcome of the EU referendum, it is more important than ever that hard working smaller firm leaders have access to the right financial products. By reducing the barriers many small business owners are facing when trying to find funding, challenger and specialists banks such alike can provide a major lifeline not only to UK businesses, but to the UK economy at large.

Mark Sismey-Durrant is the chief executive officer of Hampshire Trust Bank

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