Lending from challenger banks hits record £115bn in 2019

By Aisling Finn on Wednesday 5 February 2020

Digital Banking

They are well and truly set to plug the gap between them and traditional banks.

Lending from challenger banks hits record £115bn in 2019
Image source: Monzo


Challenger banks have more than doubled the amount of money they are lending to customers in the last five years after a record £115bn was lent in 2019.

Challenger banks have hugely disrupted the industry over the past few years by using innovative technology and infrastructure to revolutionise the way we bank. 

They tend to target previously neglected areas of the market such as SMEs, who, since the credit crunch, have often struggled to secure funding because of bigger banks shying away from riskier loans.

Leigh Treacy, Head of Financial Services Advisory at BDO, said: “Challenger banks’ use of disruptive technology in digital banking services and improving customer service has helped them quickly acquire new customers.”

Despite the record figure, lending by challenger banks rose by just three per cent last year, the slowest annual growth rate since 2012/13. 

Treacy added that: “Brexit uncertainty and the economic slowdown seems to be causing some of these banks to temporarily slow down their lending growth.”

This figure comes just days after the news that Revolut, one of the UK’s most prominent digital bank, will offer its users an easy-access saving account with an interest rate of 1.35 per cent. 

Digital banking giant Monzo failed to make a profit from lending in 2019, according to their annual report they were set to lose £3.1m, largely from overdrafts and other small loans. 

Similarly, Metro Bank was ejected from the FTSE 250 after its value nosedived because of an accounting error that saw them misclassify low-risk loans it was holding. 

The Prudential Regulation Authority (PRA) has recently written to all CEOs at challenger banks urging them to maintain high standards of loan underwriting to reduce the impact of a potential market downturn.

While lending may not be going smoothly for some challenger banks, we can’t deny that this record figure will make traditional banks take a second look at their own lending habits.

Sign up for our newsletters

Your daily 7am download of all things alternative finance and fintech.

Fintech and alternative finance headlines with an exclusive Editor's Note each week. Delivered Monday at midday.

AltFi's new weekly US newsletter breaking down the ins and outs of America's burgeoning fintech sector. Delivered Monday 9am EST/ 6am PST.