Before Covid-19, the digital banks were starting to see significant customer growth, but from a competition perspective the power dynamics haven’t changed much over the years. The big four’s market share has barely moved in decades.

Although they are growing in number, the challengers are all dwarfed by their high street counterparts, and there is doubt as to whether they will ever grow enough to break the oligopoly.

It is a simple fact that few people move bank accounts.

Will Covid-19 prove to be a catalyst?

Currently, the need for banks that can provide swift lending has never been more urgent, with businesses scrambling for cash to survive the pandemic.

However, the market leaders were the ones immediately accredited to hand out emergency loans. This meant that customers of newer banks could not obtain loans quickly. Access to cheap funding and higher capital requirements are a problem for new banks too.

“Small and medium business banking competition is still unacceptably weak,” says Lord Tyrie of the Competition and Markets Authority (CMA). “The speed and strength of the recovery will, among other things, depend on the extent to which small and challenger businesses can obtain access to a variety of sources of finance. Getting more competition into banking will be an even more important part of the economic reconstruction after Covid-19.”

Rock bottom interest rates make it difficult to compete on price, and regulation, capital requirements and taxes hit small and medium sized banks harder than big rivals, stifling growth.

Numerous attempts to create competition have stumbled, whilst the £775m RBS competition fund has not got off to a great start – although the process is now being accelerated given the pressing need for challengers to support small businesses.

Even if the RBS fund does not change market share, the cash will help boost digital banks. Fintech banks may be small but they have forced the big banks to sharpen up. Starling is a good example, opening about 1,800 business accounts a day during the lockdown. It has approved £273m in bounce back loans and teamed up with peer-to-peer site Funding Circle to lend £300m under CBILS.

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(source of article – Sunday Times)