Digital challenger bank Starling has issued a warning about the Treasury’s move on putting RBS’ new SME fund up for grabs to the highest bidder.
Starling Bank CEO Anne Boden has come out swinging today, as she criticises the UK Treasury’s decision to allow big traditional banks to bid for awards from a fund designed to boost competition in the SME business banking sector.
The £425m fund from the Royal Bank of Scotland, named the Capability and Innovation fund, is due to be split into different grants to help smaller banking players and other financial institutions develop their business banking offerings for SMEs. RBS, alongside the other big four banks in the UK, currently hold a total of 80 per cent of that market share.
However Boden has said that the limit placed on a bank’s eligibility to qualify as a smaller institution for the fund is far too high, and could lead to some already well established banks preventing achievement of the fund’s primary goal of diversifying the market.
“Banks such as Santander, Clydesdale and TSB are all signalling their intent to bid for some of the largest awards,” she wrote in today’s City A.M. “If they are awarded money from the RBS fund, an important opportunity to really disrupt the market by channeling the money to the new generation of startup, or challenger, digital banks, will have been lost.
“Santander has £300 billion, TSB £42.5 billion and Clydesdale £43.2 billion. Even the largest award of £120 million will have little impact on banks that have attained this mass.”
Currently, banks with assets up to £350bn in the UK are eligible to bid for awards from the RBS fund.
Boden believes that the majority of those institutions, should they be awarded funds, would be likely to put forward a use case that involves more money for branch expansion, or upgrading their own technology systems. But in these cases, she argues, even the largest award of £120m wouldn’t make a dent in achieving the level of technology that we are now familiar with from challenger banks like Starling, Tide or Tandem.
She goes on: “The RBS fund has a chance to help truly disrupt the market by supporting real innovators. Because they are starting from scratch, building their own proprietary technology from the ground up and based on consumer needs, they can deliver more with certainty at a lower cost and in less time.
“They can give SME customers accounts that can be opened in a matter of minutes without the traditional bureaucratic trappings of business banking which favours bigger companies. But there remains a risk that it could merely further entrench the big players, at the cost of entrepreneurs and small business owners.”
Fellow challenger bank OakNorth has also tweeted its support this morning, saying that it "fully agrees" with Boden. It continued to say that the fund should be reserved only for "new, independent banks" (or in other words, not white-labelled), with balance sheets of no more than £50bn.
Starling Bank's own business accounts went live last month, after starting with a beta-testing period in October last year. Its users are able to make both local and international payments to suppliers, see monthly categorised breakdowns of transactions and set aside funds for purposes such as tax within the app using its Goals feature, as well as make use of its business third-party marketplace.