Britain’s smaller banks are lining up to apply for multi-million pound grants the government hopes will help them compete in the corporate banking market.
For years the government has wanted to reduce the dominance of big banks in the small-to medium-sized business (SME) banking sector. The four largest — HSBC, Barclays, RBS and Lloyds Banking Group — control over 70 percent of business current accounts.
Royal Bank of Scotland was directed by the government and the European Commission to set up two funds worth a combined £775 million following its £45.5-billion bailout during the financial crisis, seen as an unfair boost to RBS.
“A consequence of the 2008-9 crisis was that there was huge consolidation in financial services,” said Anne Boden, CEO of digital Starling Bank, which launched in 2014.
Applications for grants from the funds open next year. One, worth £350 million, will be used to encourage customers to switch providers, while the other £425-million fund will help challenger banks invest in their SME offerings.
The fiercest competition is expected to be over six grants making up the bulk of the second fund and focused on current or soon-to-be business current account providers.
At least 12 banks are likely to be eligible for just the first two pools of funding containing the six biggest grants.
Virgin Money and Starling Bank have set out plans to enter business banking in recent months while the CEO of app-based bank Monzo said it was now also tempted to move into the sector, having previously ruled this out.
Virgin Money will be able to bid for a pool of grants including one worth £15 million and two worth £15 million and open to firms new to the sector.
Its Chief Commercial Officer Hugh Chater recently told investors that its proposition, offering customers access to partners’ services, would provide a “compelling case” for funding.
Starling plans to have its service off the ground before it applies, allowing it to bid for one of the three biggest grants ranging from £60 million-£120 million and earmarked for firms already up and running. Unsuccessful firms will be considered for other pools of grants.
“We are very uniquely placed in this ... and confident of our ability to win,” said Starling’s Boden, while agreeing competition was heating up.
“I think that (the funds) are probably not enough. It could have been much more.”
Another digital player Tandem is set to acquire a banking license and business banking unit if its takeover of Harrods Bank is approved and plans to apply for all four pools of funds on offer.
“It (competition) is kicking off now,” said Ricky Knox, CEO of Tandem.
“It’s not reached a scale where there is serious acknowledgement of it, but we’re going to see a really interesting 2-3 years.”
Clydesdale and Yorkshire Bank (CYBG), TSB and Metro Bank are also in the running.
CYBG is currently piloting a business e-lending service and expanding in Birmingham and the West Midlands, moves that set it up to apply for the three biggest grants.
TSB also has plans to expand. Its CEO Paul Pester said in November it will be at the “front of the queue” for funding.

Source: arabnews