Computer meltdowns. Unexplained holes in accounting. Personnel management scandals.
For smaller banks that want to compete with historic giants of global fame, UK finance has proven to be a minefield.
When visiting their local branch or going online, Britons have struggled to break their habit of relying on a big bank with an established name.
Britain‘s Big Five — Barclays, HSBC, Lloyds, Royal Bank of Scotland and Santander UK — hold a commanding 63-percent share of the retail banking market, according to the Centre for Economics and Business Research.
This dominance remains despite years of hardship that followed the 2008 financial crisis, which saw interest rates fall to historic lows and consumers finding little point in keeping money parked in savings accounts.
“The last 20 years have seen significant consolidation in the UK retail banking market,” Stephen Jones, chief executive of the UK Finance banking trade association, wrote in a report.
“The structure of UK retail and commercial banking is relatively concentrated, with a notable absence of mid-tier competitors of scale.”
Small but crowded field
Paradoxically, this market grip was cemented by the very same crisis that tarnished the big banks’ reputations a decade ago.
The Big Five, along with mortgage-specialist Nationwide, together have about £1.8 trillion ($2.3 trillion, 2.0-trillion-euros) in retail banking assets.
Their competitors have a combined total of £360 billion.
While relatively small, the field of also-rans is crowded with names such as Metro Bank, TSB (a subsidiary of Spain’s Banco Sabadell) and CYBG, which has just merged with Richard Branson’s Virgin Money.
They each have millions of clients and are joined by “fintechs” such as Revolut and Monzo — two digital banks with big ambitions that want to expand beyond their young, city-dwelling consumer base.
The upstarts have little in common beyond a shared experience of suffering scandals that make newspaper headlines.
The most recent involved Metro Bank, which has been losing its lustre after a bright launch in 2010 by the US banker Vernon Hill, perhaps best known for calling his clients “fans”.
Hill has been busy trying to reassure his 1.7 million fans that Metro Bank is still standing, after raising funds, seeing a drop in profits, and coming under the scrutiny of regulators for classifying unsavoury real estate loans as “low risk”.
Metro Bank’s troubles came a few months after TSB suffered a comprehensive computer failure caused by a software update, which saw millions of clients lose access to the bank’s site and app.
The breakdown forced TSB to part ways with its general manager and cost nearly $300 million — a hefty sum for a bank that broke away from the Lloyds Banking Group to try its own luck in 2013.
Digital banking wave
Britain’s digital banking sector has not been spared either, as it rides the wave of changing consumer habits.
Perhaps none experienced more damage than Revolut, which had to take a stern look at its personnel management after a whistleblower accused it of forcing job applicants to work for free.
Revolut’s Russian-born boss and founder Nikolay Storonsky now wants to evolve to a more consumer-friendly business model.
Beyond these individual problems, which companies in other fields know just as well, smaller banks have to overcome more regulator hurdles, which carry an especially high cost.
They must further be financially strong enough to convince investors to follow them — a task complicated by the gloom of the seemingly endless Brexit crisis.
A decade of low interest rates has even forced behemoths such as Goldman Sachs to venture past their established niches and into the digital space.
Goldman’s new Marcus online savings account offers higher interest rates than established competitors and is partnering with Apple to launch a credit card.
Marcus has attracted more than $35 billion in online consumer deposits in the past years, a result that Goldman views as a success.
Industry watchers see benefits in the added competition, which creates more options as brick-and-mortar branches disappear.
But a report by parliament’s Treasury committee cautions that branch closures are making the elderly feel cut off from their cash.