Bank North: SME neobank goes bust after failing to raise Series B

One of the newest-minted UK digital banks, Bank North last raised money in a £20m Series A round in 2021 when it also secured a full banking license but this year’s markedly tougher market has prompted it to wind down its operation as regulatory capital requirements were unlikely to be met.

Bank North, an SME-focused UK neobank, is set to wind down after failing to raise a new funding round. 

Bank North has been trying to raise a £50m series B funding round, according to documents seen by AltFi, from investors since May at a valuation of £106m. At the same time, worsening economic conditions amid high inflation have made venture funding volumes drop.

While Bank North secured its banking license in 2021, when it also rebranded from B-North, it needed to continue to secure new funding to comply with its license.

In a letter to shareholders, seen by the Daily Mail, which originally reported the story,  chairman Ron Emerson said the bank had not been able to close critical capital in time to meet Bank of England requirements.

“It is therefore with great regret that I have to inform you that… the board of Bank North has decided to initiate a solvent wind-down of the bank, with immediate effect,” Emerson said.

The letter notes that the bank is currently in talks with a third party to sell its £17m loan book as well as transfer its lending team, who make up a third of its 60-strong staff.

“Completion of this transaction is critical to ensuring a solvent wind-down, where the priority will be to ensure full payment of our creditors, including staff, and that all outstanding liabilities are paid,” Emerson said.

The company was founded in 2018 by Jonathan Thompson, its CEO, David Broadbent (chief financial officer) and Nancy Butler (commercial director).

The bank made its first loan in January of 2022 having secured a £50m debt facility one year ago and a bank license around the same time.

This was proceeded by its £17.1m Series A round, at a £25m pre-money valuation, in August of 2021.

It also raised £30m of equity capital from the likes of Growth Capital Ventures, LHV, Skipton Building Society, Insight Investment, Greater Manchester Combined Authority, and Channel4 Ventures.

County Durham-based Growth Capital Ventures owned the largest outside stake at 16.1 per cent. LHV owned just under 15 per cent of the bank while Skipton owned 13 per cent. Its management had a combined stake worth c.20 per cent. Greater Manchester Combined Authority and Channel 4 Ventures owned the smaller stakes at 3.7 per cent and 2.6 per cent, respectively. 

It was competing in a market still dominated by legacy banks but saw itself among the specialist cloud-native banks such as OakNorth, Allica Bank and Recognise.

It launched via a variety of fintech partnerships; with Mambu, which provided its core banking system, ncino (loan origination, Tru Narrative (AML/KYC) as well Clear Bank (clearing services), Wiserfundiung (risk grading) and Validis (risk monitoring).  

Offering loans of up to £5m, it also had development finance, bridge funding and short-term loan divisions. In terms of its customer segment, it was seeking to compete in a ‘missing middle’ segment of SME borrowers paying 3.5-6 per cent above the base rate. Incumbent banks such as HSBC and Lloyds tend to operate at a lower level of interest whereas non-bank lenders such as ThinCats operate at a higher rate of interest over 6 per cent.

A differentiator was its decision speed on loans which it said would be scaled at 24 hours with cash arriving in 14 days. While its digital credentials were front and centre of its proposition, the bank also operated satellite offices in regional business centres starting with Manchester which launched this year.