First new banking licence of 2022 awarded - with more to come
The first new banking licence of 2022 has just been awarded, the 37th since the global financial crisis, to AM-MN Holdings (trading as Ashman Finance). Six new banking licences were awarded in 2020, five in 2021, so is it a sign that the rush to become a bank is waning that it's taken until 13th June for the first licence of 2022 to be authorised? The answer to this is a bit of both. There are very few firms at the start of the process to get a banking licence. Given that the time taken from the initial meeting with the regulator to being live in the market is now taking 3 - 4 years, and in some cases much longer, firms have got to have deep pockets and a lot of patience to want to start the process. Also, with the number of new licences likely to head towards 50 in the next 12 - 18 months, the market is getting pretty saturated and there are only a few niches where there is still a strong consumer or market demand for new entrants. However, there are plenty of firms still working through the process.
What is the process? The NBSU goes in to a lot of detail (which you can read here) but, as someone who has worked through it with multiple firms, here (briefly) are what I consider the five key stages to becoming a bank:
- Stage 1 - Early stages: this is where a firm will engage with the Bank of England's 'New Bank Start Up' (NBSU) unit and get valuable feedback on their high-level summary document, outlining their reasons for seeking a banking licence and their strategy
- Stage 2 - Pre application: this is where a firm will submit a formal Regulatory Business Plan (RBP) and other regulatory documents (e.g., ICAAP and ILAAP) to the NBSU. This stage can see multiple submissions of the regulatory business plan, where feedback is provided and the applicant firm re-submits in response to this.
- Stage 3 - Application – when the regulator is happy with the firm’s plans, a formal invitation to apply will be issued and a full application needs to be submitted. If the application is complete (this is determined by the regulators) then a decision should be provided in six months.
- Stage 4 - Authorisation with restrictions (AWR) / Mobilisation: most firms go down the route of getting a banking licence with restrictions, which allows them to mobilise to a live environment. There will be conditions which need to be fulfilled to go live and, until then, they can only hold up to £50,000 in total of deposits. This mobilisation period can last up to 12 months, but firms are able to apply for the 'restrictions' to be lifted as soon as they feel they are ready
- Stage 5 - Fully authorised: once all the restrictions and conditions of mobilisation have been satisfied, or for firms who do not go through stage 4 but go for ‘straight authorisation’ instead, the firm becomes a fully authorised bank
Let's take a look at the firms still in the process:
Stage 4 firms
There are now five banks in the mobilisation stage and, bar Ashman, they are all close to the end of the 12 month period permitted for mobilisation.
Formerly B-Social, Kroo was the 33rd new bank to be authorised. Unlike most of its predecessors, it’s planning on going after the UK current account market like Monzo and Starling. Expect to see it offer other personal banking products such as overdrafts, personal loans and credit cards too. Savings are likely to be part of their offering but expect those to come later, probably at the back end of 2023 or in 2024. We wrote about Kroo at the time they got their licence here and much still stands. Kroo raised £17.7m Series A funding in August 2021 and this should see it through to go live - which given Kroo entered mobilisation on 7th July last year, should be imminent.
Bank North submitted its banking licence application back in September 2019 but has taken longer than hoped to raise the necessary funding. However, Jonathan Thompson and his fellow co-founders have got over the line with LHV Group, LHV Asset Management, Skipton Building Society, Channel 4 Ventures, and the Greater Manchester Combined Authority as main investors in its Series A funding round of £20m, alongside oversubscribed crowdfunding rounds.
Bank North will use Mambu and nCino as it enters the SME lending market, starting via a regional pod in Manchester with savings supported by Newcastle Strategic Solutions Ltd. The Bank is likely to be one of the first truly regional lenders, focusing its support on SMEs in the Greater Manchester area. It made a round of promotions and hires in May as it gears up for full launch, which we expect to be in September this year.
Bank of London
Authorised on 7th October 2021, The Bank of London is only the second new clearing bank to come through the process, following ClearBank's authorisation in December 2016. Bank of London aims to be the world’s first purpose-built global clearing, agency, and transaction bank - effectively it will be a bank for other banks, financial firms, payment networks and more. Led by Anthony Watson, the Bank has recently announced it is creating a centre of excellence in Belfast employing 232 people and has received investment of $120m. Expect to see the Bank of London exit its restrictions in Q4 2022.
Another regionally focused bank, GBB intends to get Britain building by supporting regional SME property developers with development financing. GBB submitted its application in January 2020 but a change in CEO delayed its approval, with Sue Hayes joining in February to replace Steve Deutsch who left late in 2020. Hayes got the bank authorised (with restrictions) in October 2021 but has been poached by Nottingham Building Society to be their new CEO. With CIO and co-founder, Stephen Lancaster, appointed to the top job in May, Megan McCraken appointed as Senior Independent Director and new Middlesborough offices opened for its team of 55, it is expected that GBB will be live in the autumn. Having secured another £28m of investment from Teesside Pension Fund last August, on top of their initial investment of £20m, capital and funding requirements won't be an issue.
Ashman Finance (AM-MN Holdings)
Ashman started its journey in 2018 and is thought to have applied for its banking licence in 2019. Having gone quiet during 2020, it made senior hires (ex Monzo CRO Lisa Nowell and ex Aldermore Savings MD Simon Healy) at the end of the year and burst to life in the middle of 2021 with new branding and a continuous flow of new recruits joining over the past 12 months as the Birmingham based bank geared up for authorisation with restrictions earlier this month. It's likely it will be 2023 until Ashman is live in the market but they will offer SME lending for residential and commercial real estate with Newcastle Strategic Solutions expected to support its deposits acquisition.
Stage 3 firms
Alba submitted its application in January 2020 and is using Temenos as its core banking platform. It annouced a £5m Series A fundraising round in February 2021 but it is not clear how successful that was. Scottish Industralist, Jim McColl, is a founding shareholder and driving force behind it, with former Airdrie Savings Bank CEO Rod Ashley leading the executive team. However, Alba has been quiet for the past 15 months and McColl's proclamation that Alba 'will start lending in the second half of 2021' looks way off the mark. Although McColl's £1bn net worth, accoding to the Sunday Times Rich List, means he has the financial clout to finance the bank, the lack of activity must raise doubts about whether the firm will get authorised.
Aspinall Financial Services
Founded by Alan Jarman and Ruth Doubleday, Aspinall are looking to be build the only dedicated platform lending bank, providing funding support to non-bank lenders and building societies. Rather than serve customers direct, they are looking to support the growth and competitiveness of existing market participants. They submitted their application in September 2020 and were hoping to be authorised in 2021. However, they've made key hires including recently, including Mark Evans as Head of Product, and are thought likely to be authorised later in 2022.
The Welsh government are working with Monmouthshire Building Society to build Banc Cambria, a community bank for Wales which will provide full banking services. It is estimated that Wales will only have 277 branches by the end of 2022 and the Banc hopes to established 30 outlets over the next decade. It had hoped to secure a banking licence later in 2021 but is now targeting a 2023 launch. Although it has not been formally confirmed if the Banc has applied for a banking licence, it's timescales suggest that they have.
Founded by Dr Marko Sjoblom, Fiinu is seeking to change the way bank customers get overdrafts by using Open Banking to give them the choice of where they get their financing from, without needing to switch banks. It also intends to use a ‘Fiinu score’ instead of credit scoring to give better results and have less impact on customer’s credit scores. It applied for its banking licence in December 2021 and appointed Chris Sweeney CEO), Philip Tansey (CFO), Huw Evans (Independent Non-Executive Director) and Wan Chuen Lau (Chief Culture and Culture Officer) this month in anticipation of receiving authorisation shortly.
Griffin is very different from other applicants in the process in that it is building the first platform bank. It is building banking as a service so that other firms can use its platform to provide financial services to their customers. Griffin is led by David Jarvis and has former Zenith Bank CEO John Weguelin as Chair. It submitted its banking licence application in May 2022 so is unlikely to get authorised until the end of 2022 at the earliest. It completed a £6.5m funding round in November 2020, on top of an initial seed round of £3m but will need more investment to go live but will likely have secured commitment for this on authorisation.
The Estonian bank has been operating in London since 2018 but formally applied for a UK banking licence in February 2022 after 12 months of preparation. It plans a fintech and SME focused bank here which will be based in Leeds and London. Earlier this month, it made three key appointments in anticipation of being authorised. Erki Kilu is CEO of LHV UK with Gary Sher as CFO and Sally Veitch joined last week as the third non-executive director. LHV have also confirmed £30m of funding from the LHV Group this month so look in good shape to be authorised early in Q4 this year.
In May this year, Pennyworth announced they had completed the pre application process in just 12 months, to the astonishment of many who have been through the process, and that their application is being assess for authorisation. Ex-Barclays duo Jeremy Takle and Ben Harvey are beta testing their app which is targeting aspiring affluent young professionals with promises of to serve people with complex financial needs that would benefit from better planning but don’t yet have sufficient income or savings to warrant wealth management or private banking services. Pennyworth say they are putting a digital bank manager in peoples’ pockets and providing an alternative financial planning process fee-free. It is unclear whether they will offer savings accounts or credit facilities.
Pennyworth have just closed their crowdfunding having raised over £750,000 of funding - 127% of their target - from 332 investors.
Perenna were invited to apply for its banking licence in July 2020 but is believed to have only submitted its application at the start of 2022. It plans to issue 30 year fixed rate mortgages financed using the Danish covered bond system, rather than traditional deposits used by the rest of the market. It has secured $10m of start-up finance although will need to secure tens of millions of pounds more, to meet its capital needs.
Led by Arjan Verbeek, it is hoping to be authorised later this year and is targeting £100m a month in lending.
Although already a licenced EU bank in Lithuania, Revolut does not hold a UK banking licence. It applied for one in January 2021, having appointed ex Standard Charterered Chief, Richard Holmes, to oversee the application and act as Chair of the UK entity (if approved) and James Radford as UK CEO in March 2020. Revolut CEO and co-founder Nik Storonsky criticised the FCA for the slow progress on its application earlier this month, for what maybe understandable frustration to those who have been through the process, but a move which is unlikely to ender the UK regulatory authorities to him - or speed up their authorisation. Revolut are here to stay in the UK but whether the UK regulatory authorities believe they are worthy of a banking licence remains to be seen.
Stage 2 firms
One of the firms who have spent some time in the process, ActivTrades is believed to be close to submitting its banking licence having made a number of key hires, including Jean-Pierre Flais from Ashman Finance as the Head of its banking application and ex Shawbrook and Hodge CEO Steve Pateman.
Already operating a successful bridging business alongside its highly acclaimed and highly profitable core trading offering, it’s understood to have recently changed core banking platform in a renewed push ahead with the banking project.
Another regionally focused bank, Avon is looking to be a full-service retail bank for the West of England offering current accounts, savings, loans and mortgages to local individuals, SMEs and not for profits. Avon has raised £100k funding from Bristol City Council, after a year long review by accounting firm RSM, on top of a previous £200k tranche and almost £2m of funding in total. Ex Al Rayan CEO, Peter Horton, has replaced Chris Weller in the hot seat and Avon are understood to have submitted their final regulatory business plan and are fundraising for £500k to move to the challenge sessions with the regulator ahead of submitting their full banking licence application.
Inspired by the former minister of health and housing and the creator of the NHS, Bevan Money aims particularly to help current and former public sector workers with residential mortgages. Bevan will also offer later life lending and first time buyer mortgage products including those with secured gifted deposits. It will focus on sectors of the market which are generally lower risk and therefore lose out to the ‘one size fits all’ approach of many mainstream residential lenders. It has a very strong leadership team with several members having bought multiple new banks to market and experienced leaders from the specialist lending and building society sectors. It is very close to finalising a significant funding investment which will enable it to submit its banking licence application in Q4 this year.
Hampshire Community Bnk
Based on the German model of regional lending banks, Hampshire Community Bank has had significant investment from several local councils and universities, including £5m from Portsmouth City Council and a £10m lending facility. However, things look bleak for the firm and there's serious doubts as to whether it will ever submit its banking licence application, let alone get licenced. The company has had seven directors leave in less than a year, including Bernd Grund, who served less than a year as CEO. In Februray, Portsmouth council leader Gerald Vernon-Jackson, after being told the Hampshire Community Bank will not be fully operational for at least another year (six years behind its original schedule and eight years since the council became involved) suggested the council may pull out. ‘This organisation worries me,’ Vernon-Jackson said. ‘It has taken eight years to achieve precisely nothing. I would be looking in detail about whether we should continue to be part of this organisation or not.’
Lintel Financial Services
Another firm which has spent some time in the process, having begun in 2014, and having previously submitted an application in 2020 which did not culminate in a licence being awarded. Officially still in the process and on looking to apply again but we've yet to see a firm spend so long in the process ultimately get a banking licence and get through mobilisation to launch.
South West Mutual
Aiming to provide the first high street cooperative bank for Cornwall, Devon, Dorset and Somerset, South West Mutual did submit a draft regulatory business plan in 2020 but covid has hit its fundraising plans and it hasn't progressed yet to submitting a full application.
Stage 1 firms
Greater Manchester Mutual
Focused on the Greater Manchester area, this mutual is seeking to start the authorisation process to provide personal and business current accounts, savings and loans for the area with a branch network as well as online and mobile banking. It has support from several local councils and is being led by local current and ex councillors and prominent local figures. Although only established in 2019, the lack of visible activity in the past 12 months doesn't suggest that this will be one that comes to fruition.
North West Mutual
Funded by Wirral, Liverpool and Preston City Council’s in 2021, North West Mutual is looking to offer community banking in the north west region. However, there's little sign of activity in 2022 and this looks like another that may not come to fruition.
Vida Homeloans / Belmont Green
The specialist lender has previously wound down a banking licence application project in 2020 but restarted the process at the back end of 2021 with several senior appointments including a retail savings director. It is seeking the necessary fundraising to support its application, which will be key to its success, as it already has many of the key requisites in place.
The North of Tyne Combined Authority signed off on £35,000 of funding in August 2019 for a feasibility study with plans for then progress to a banking licence application. However, there's been no visible signs of progress since and this looks like a non-runner.
Like Perenna, Vega are seeking to offer 20 year plus fixed interest mortgages using covered bonds. However, it's another one that has gone quiet and, with it's website not operational, looks to be one that isn't going to make it through the process.
There are of course other firms in the process that we are not aware of and also some we are, which we cannot name for confidentiality reasons. We do not believe there are any firms who have applied for a banking licence that we have not featured in this update, and indeed the regulators own figures released support our view that we have likely captured all those who have submitted an application. We suspect there are another 4-5 firms in the early pre application stages. Our view is that the number of new applications will severely diminish now. We expect to see further licences in 2022 and for 2023 to see 5 or 6 new licences, with the numbers dropping to 1 or 2 from 2024 onwards. Our expectation is that there will be more regionally focus banks come through the process but that the flood of specialist lenders will come to an end.
About Savings Guru
Savings Guru is a specialist savings consultancy which works with new entrant and established banks, building societies and fintechs. We support new entrants to help them work through the regulatory authorisation process and build out their savings propositions and operations. We work with authorised banks and building societies looking to replace technology platforms, change strategy in the savings market and improve their savings propositions to savers. Please get in touch if we can help support you with any savings related projects.