Cascade Commentary

August 2020

A number of new banks have entered the market since 2010 as the regulator has sought to increase competition in the market while enhancing the provision of deposit and lending products for savers and borrowers respectively. Metro Bank and Virgin Money entered the market in 2010 and have been followed by a range of specialist lenders including Cambridge & Counties Bank, Shawbrook Bank, OakNorth Bank, Masthaven Bank, OneSavings Bank (Kent Reliance) and Paragon Bank to name but a few. There have also been some digital entrants including Atom Bank, Starling Bank and Monzo Bank which have received much attention as they have captured a meaningful market stake from the incumbent providers with leading mobile-app technology and user-based offerings. Recently, Allica Bank (formerly Civilised Bank) has been offering competitive rates in the market for personal and business savers and these have been a welcome addition in a challenging saving environment. 

Here at Cascade we monitor all non-ISA UK savings rates and have done so for 8 years. This provides us with the largest rates dataset for non-ISA UK savings. Our data tells us that it is the Challenger Banks that are providing the better rates for savers. Over the last 3 years while interest rates have been at all time historic lows, challenger banks have outperformed the big four incumbents (namely Barclays, Lloyds, RBS and NatWest) on average by 0.43% on Instant Access, 1.27% on 120 days, 0.63% on 1 year, 0.79% on 3 year and 2.07% on 5 years. These are big additional savings returns for savers during a low-interest rate environment where the government has been actively incentivising spending and investment as opposed to savings.

With interest rates even lower following further quantitative easing during the coronavirus lockdown as well as a tightening of rates as banks prepare for increasing default rates on their lending books, it is again the challenger and new banks where savers look for enhancing their rates. In 2020, a number of new banks are approaching obtaining their banking licence authorisation or have obtained their licence and will be launching shortly. These include: 

• Zopa – Zopa is well known as a peer-to-peer lender and obtained their banking licence in December 2018. Their initial restrictions were lifted in December 2019 following a £140m investment from IAG Capital. Zopa has delayed its launch due to Covid-19 but is expected to enter the deposits market in the next 12 months.
• Castle Trust – Castle Trust raised £711m via corporate bonds for property lending and acquired their banking licence becoming Castle Trust Bank in March of this year. Currently, they are offering savings products to their existing customers whose accounts are maturing but they expect to launch new products for new customers in the Autumn of 2020.
• GBB – GBB, the soon-to-be Great British Bank, was co-founded by our Managing Director Dr Emma Black and is expected to obtain authorisation with restrictions in the Autumn of 2020. GBB will provide development finance to SMEs in the underserved regions of the UK and will offer fixed term savings products from launch.
• Alba – Alba will target SMEs with a relationship banking approach with Michael Harriman (formerly of Redwood Bank) as the interim Chief Information & Technology Officer. Alba submitted its application in January 2020 and is expected to obtain authorisation with restrictions from the Autumn of 2020.

The fundraising environment for new banks is challenging but some of these new providers have strong propositions and have already secured the funding necessary for obtaining authorisation. The greater the diversity of options for savers and borrowers, the better the outcomes. We will watch closely and keep you updated of new options to consider for your cash savings.