After months of controversy, the U.K.’s Banking Competition Remedies has awarded the first batches of the Royal Bank of Scotland’s $1 billion fund to competing banks in an effort to boost competition in the market, particularly for small to medium-sized business (SMB) services.
But the awards are likely to stir up more debate. Reports in Reuters late last week said Metro Bank, Starling Bank and ClearBank have been awarded funds to boost small business lending and banking competition. ClearBank had previously teamed up with challenger bank Tide to compete for the funds, with both Starling and Tide operating as industry newcomers on a digital-first strategy.
Notably absent from the winners’ list was CYBG, which owns Clydesdale Bank, Yorkshire Bank and Virgin Money.
In response to the snub, CYBG said in a statement that it would “continue with its successful existing [SMB] growth strategy” and would continue to “compete strongly” to promote small business bank switching by offering incentives for small businesses to leave RBS for one of its institutions.
Metro Bank, meanwhile, applauded the award decision, with chief executive Craig Donaldson saying in a statement that it intends to use the grant to “accelerate our plans to revolutionize banking for [SMBs].
“It will help us bring much needed competition to the underserved [SMB] hotspots in the north, while investing in our digital capabilities and creating new jobs,” he continued.
Yet Metro being awarded the largest portion of the funds is likely to ruffle some feathers, considering the bank’s revelations earlier this year that it misclassified commercial loans, which, reports in the Financial Times said, could mean the company will have to halt ambitious growth plans. There have been some calls among investors for Donaldson’s resignation, with the bank initially claiming it had discovered the accounting error independently, then later revealing that it had actually been the Bank of England which exposed the issue.
The awards also shine a spotlight on the U.K.’s growing challenger bank population. Starling said in a statement that the Banking Competition Remedies’ decision represents “a turning point in Britain’s banking industry,” while Tide Chief Executive Oliver Prill said the grant will help the bank “accelerate its strategy to capture a significant share of the market, and we plan to match this with further investment of our own.”
Amid the controversy and optimism, however, new research from Accenture reveals small businesses are resisting bank-switching, despite the efforts from the industry and regulators to encourage such actions. According to Accenture Head of U.K. Commercial Banking Stuart Chalmers, the research suggests competing banks have their work cut out for them, even with the grant money.
“The high level of [SMBs] unwilling to switch places the onus on competitors to develop a distinct offering and effectively communicate the long-term benefits,” he said in a statement emailed to PYMNTS. “With strong customer loyalty and unconvincing switching incentives, the RBS Remedies Package’s goal to disrupt the market looks currently unachievable.”
Below, PYMNTS breaks down the numbers of which banks secured RBS funds, how much they were awarded, and the data behind revelations that the grants may not be able to impact small business banking after all.
$365 million: the total sum of RBS grants awarded in the first round to Metro Bank, Starling Bank and Tide partner ClearBank. Metro scored the largest portion of the funds, being awarded nearly $156.8 million. Starling secured $130.7 million, with ClearBank landing $78.4 million.
16: the number of applications, submitted by six different banks, for RBS funds. According to Banking Competition Remedies, more grant recipients will be announced later this year.
5.7 percent: the amount that CYBG shares declined after news surfaced that the institution, which had been competing publicly for RBS funds, was not one of the winners in this round. UBS said it had expected CYBG to receive at least $78.4 million from the RBS fund “given its strong presence in the [SMB] market,” the institution said in a statement.
75 percent: the portion of small businesses surveyed by Accenture that said they are unlikely to switch banking providers in the next year — even for a bank with better services. Researchers also found that 41 percent of SMBs say they find it important to work with a “trusted and established” financial brand, potentially signaling resistance to switch to an industry newcomer like Tide or Starling. Only 29 percent of SMBs said bank-switching incentives like zero-fee periods are enough to persuade them to switch providers.
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