The results of the UK Competition and Markets Authority’s latest banking satisfaction survey, published on August 15th, were illuminating. The survey by the government’s competition regulator, covering the 12 months to June 2024, is designed to show how personal and business account holders rate the quality of services across a number of core areas.
What’s illuminating is that digital challenger banks took top spots for both retail and business services. Chase UK, the digital banking subsidiary of JPMorgan Chase launched in 2021, ranked third for personal current accounts in Great Britain (GB), the first time it’s been in the ranking. It came in behind domestic challenger banks Monzo Bank and Starling Bank.
Meanwhile, Zempler Bank (the recently renamed cashplus bank, itself the trading name of Advanced Payment Solutions) was another new entrant, ranking fifth for business current accounts behind Monzo, Starling, Tide, and Handelsbanken (the UK subsidiary of the Swedish banking group).
Not a large or medium-sized UK legacy bank among them.
The survey for GB covers personal bank account providers with 150,000 or more active account holders and 20,000 or more business current accounts. The business category covered SMEs with turnover of up to £25 million (US$32.46 million). Financial institutions are obliged to collect and publish customer satisfaction data and the CMA requires banks and building societies to prominently display its survey results online (or in-branch for those that have them) so that customers can see whether they can get a better experience elsewhere.
Beyond the fact that digital banks came out on top, what’s even more a sign of the Open Banking/App/API-driven/Banking-as-a-Service era we’re entering is that Tide (third in the business category) isn’t even a bank. It’s a financial platform that offers third-party digital business services. Its business bank accounts are provided by ClearBank, which is a licensed bank.
Interestingly, ClearBank doesn’t have any customer-facing activities of its own. It’s a cloud-based API-driven payments platform connected to all UK payment systems. All client balances are held directly at the Bank of England. When it was awarded its banking licence in 2017, it was the first UK clearing bank to be licensed for 250 years, breaking the UK’s four-bank payments oligopoly.
Chasing the chasers
Speaking of Chase UK, its trajectory has been impressive. While it’s classified as a digital challenger bank (which it technically is), it can’t remotely be compared with the start-ups it’s competing against, which are financed predominantly by venture capital, private equity and hedge funds. Launched in 2021, Chase already attracted around two million customers and £15 billion in deposits. It’s expected to turn profitable in 2025.
The bank has been aggressively advertising on UK TV (slogan: say hello to rewarding banking). Oddly enough, the ad doesn’t specifically mention that it’s a subsidiary of the world’s biggest bank by market cap, although it does casually drop in that it has 56 million digital customers in the US! As such, it was always destined to do well. And as a mass-retail bricks and mortar bank as well as a mass-retail digital bank, the likelihood of Chase falling down the rabbit hole that Goldman Sachs disappeared into with its ill-fated Marcus retail banking adventure is very low.
The question as to where Chase’s deposits came from is very pertinent. On the basis that the UK Big Four (Barclays, HSBC, Lloyds Bank and NatWest) saw deposit outflows of £80 billion in the year to June 2023 (according to an FT article) as customers chasing higher returns voted with their feet when interest rates shot up and the big banks refused to follow suit, I guess that’s one answer.
But while the reasonably large group of domestic challenger banks will also have benefited, Chase will also have drawn deposits away from customers who might otherwise have considered experimenting with homegrown challengers, which over time have also reported consistent increases in customer deposits. It will be interesting to see how the deposit growth rates of the challenger banks/neobanks evolve from here – especially now that Revolut has finally been granted a UK banking licence and so will be allowed to upgrade its suite of services from those of an Electronic Money Institution.
While the Big Four still hugely dominate the UK deposit market, Chase has already joined the ranks of large UK challenger banks starting to breathe down the necks of mid-sized UK legacy banks.
With £15 billion in deposits, Chase has seen longer-standing smaller digital pretenders (Atom, Monzo, Zopa, Allica, Tandem, Kroo), as well as legacy banks with mid-single-digit billions in deposits fading further in the rearview mirror. Chase has joined the chasing group of leading legacy and challenger banks. It stands neck and neck with Metro Bank and Aldermore Bank but has overtaken other lead challengers Shawbrook Bank (£14 billion) and Starling Bank (£11 billion) as well as legacy retail banks Paragon Bank (£13 billion) and Danske Bank’s Northern Irish Northern Bank unit (£11 billion).
The next target will be the longstanding The Co-Operative Bank (£19 billion), which has had a torrid time in recent years following its rescue by a group of hedge funds in 2017. More medium-term targets will be the UK’s largest building societies and One Savings Bank, albeit they currently stand at some distance with deposits in the mid-20-billion-pound bracket.
Above those banks, albeit at some distance, sits TSB Bank (£35 billion), the bank that split from Lloyds Banking Group a decade ago and is now owned by Spain’s Banco de Sabadell. Sabadell itself is embroiled in a hostile takeover offer from BBVA, making TSB’s future uncertain. Potentially intriguing since BBVA is also the largest shareholder in UK digital challenger Atom Bank.
