Here are the BCR’s 3 options for Metro Bank’s returned £50m

After a tumultuous year, high street challenger Metro Bank finally relinquished £50m of the £120m it was awarded 12 months ago from the Banking Competition Remedies (BCR) fund.

Given Metro Bank’s share price deteriorated nearly 90% in that time to just 98p today, on account of an accounting scandal which rocked the business and led to the ousting of the bank’s former management team, it’s only surprising it took so long.

But the obvious question on everyone’s mind now is, what happens to this cash?

What happens next?

Metro Bank originally won the full £120m grant in Pool A of the BCR’s Capability and Innovation Fund, cash earmarked for challenger banks to develop “more advanced business current account offerings and ancillary products for SMEs” (with a preference for banks with existing business current accounts).

Besides BCR chairman Godfrey Cromwell’s comment that the BCR would “redeploy” Metro’s £50m, no more details have been given.

Several senior insiders at fintechs that applied for BCR funding told AltFi that the organisation was hardly known for being quick in its decision-making and is, as one executive put it, “not very nimble”.

With that in mind, we decided to look at the three most likely outcomes for Metro Bank’s returned millions.

Find another Pool A runner-up

Sarah Kocianski, head of research at 11:FS, told AltFi that “one option is for the BCR to approach previous applicants for the round and see if they want to apply again, giving them priority over others.”

This is by far the most likely outcome for the extra £50m, not least because it could be the quickest route to redeploy with the lowest cost for the BCR.

However the BCR has long struggled with allegations of a lack of transparency in the award process, so if mishandled this route could further damage its reputation.

“The other option is to open applications up to everyone, which would be a poor decision in my mind if they hadn't already approached previous applicants," said Kocianski.

Opening up Pool A to new applicants might be opposed by some, but would certainly be championed by others, not least the likes of Monzo which last time wasn’t able to apply for Pool A funds as its business bank account wasn’t live yet.

Double-down on existing Pool A winners

Obviously the favoured option of Starling and Tide/ClearBank is to redeploy the £50m to existing Pool A winners, and it’s an argument that makes a certain amount of sense.

As Starling’s head of corporate affairs Alexandra Frean told AltFi, the challenger bank has “demonstrated that we have the ability and appetite to deploy large capital injections highly effectively.”

Frean pointed to the laundry list of features that Starling has launched for its business current account customers in recent months including multi-owner accounts, a web portal, an expanded Marketplace, unsecured loans of up to £250,000 and more.

However, critics of the bank point to the fact that of the £913m it pledged to lend to SMEs by 2023, only £1.03m had been made available as of February 2020.

Tide’s CEO Oliver Prill told AltFi that Metro Bank’s BCR setback was “a great opportunity for the BCR to reassess and look at the organisations that are able to deliver on their objectives to diversify the business banking market.”

Prill’s belief is that Tide is “completely on target” with its pledges and that Tide is redeploying funds and signing up new business account customers more efficiently than his rivals.

While some questions linger, there’s no doubt that the BCR has evidence that Starling and Tide/ClearBank can deploy funding and work towards their targets.

Another question on either awarding the cash to a Pool A runner-up or doubling down on an existing Pool A winner is whether £50m is enough to move the needle on Pool A’s objectives given the award would be even smaller than Tide/ClearBank’s £60m, which leads us to the final option…

Put the funds in another Pool/create a new Pool

Highly unlikely, but £50m is the same size as the entire funds awarded in Pool C (to expand lending or international payments for SMEs) and double the size of Pool D (to commercialise financial technologies relevant to SMEs).

Given what the BCR has learnt from the process so far, especially around the need for transparency which it originally came under fire for.

The obvious criticism of this option would be the costs of creating, running and awarding funds to an entirely new group of companies—both the cost to the BCR and the cost to those companies.

Given the current coronavirus pandemic, it’s unlikely there’ll be news from the BCR anytime soon.

In the weeks and months ahead however, it’s likely that Godfrey Cromwell and the BCR’s advisors will pour over the pros and cons of the three options outlined.

So which do you think they should choose?