Functionality-based differentiation is ultimately unsustainable for new banks, according to Alex Letts, CEO of U Account .
The past few years has seen a number of new banks enter the market, with some looking to challenge the established elite, while others target underserved areas.
But how can they stand out and attract customers from more traditional institutions?
Launching with a niche has been one such tactic to help increase market share.
These niches can range from high-tech online or mobile-only capabilities to championing the human approach with more branches or regional managers.
However, Alex Letts, CEO of U Account, believed that while functionality-based differentiation may be useful for immediate visibility, it was ultimately unsustainable.
â€œIf new entrants don't have a DNA-based differentiation, then they don't deserve to succeed, and almost certainly won't."
How important is it for new banks to have a niche?
CivilisedBank received its banking licence in May this year and is using a network of local bankers with delegated lending authority to provide bespoke loans, overdrafts and offer deposits to businesses in their local communities.
â€œAny new bank must offer something different if it is to succeed,' said Philip.
â€œThe banking market in the UK needs real alternatives.
â€œIt is very important that new banks provide excellent service either through a niche product or by serving a niche market.
â€œThat is the only way to succeed long term.'
OakNorth launched in September 2015 and its co-founder Joel Perlman felt it was very important to have a niche, not just to stand out, but also to survive.
â€œThere are now tens of new banks in the UK, so without a clear and unique proposition, it will be impossible to compete.
â€œAt OakNorth, we focus on a portion of the market that has been underserved and neglected for decades: bespoke lending to SMEs.
â€œWe're not trying to replace the clearing banks by offering current accounts, credit cards etc, we just want to do bespoke lending really, really well.'
Jon Hall, managing director of Masthaven, didn't believe banks should launch with a niche just for the sake of brand attention.
â€œFrom my point of view, the banks â€“ or financial services brands â€“ who do choose this route to market do so based on deep customer insight â€“ they have identified a clear customer need which is not being met by existing providers.
â€œAny brand that decides to fish in a small pool â€“ with a niche customer base â€“ has to be very sure it is deep enough to support an entire business.'
Mike Kirsopp, CEO at Cambridge & Counties, said that while it was important to launch with a clear niche proposition, the quality of the delivery of that proposition was more important.
â€œThe branding, the vocabulary and the tone of voice can all help position a new bank in its unique spot within the market.
â€œ[However], the new entrant needs clarity around what it is there to provide and why that deserves the attention of both business partners and direct customers.
â€œHow it does what it does is as important as what it provides.'
SIGN UP TO OUR NEWSLETTER TO RECEIVE MORE NEWS LIKE THIS STORY
Coutts partners with Mortgage Brain to offer products to intermediaries
Private bank Coutts has partnered with Mortgage Brain to make its products available – via the latter’s platforms – to UK intermediaries...
Charter Savings Bank launches two new accounts
Charter Savings Bank has introduced two new accounts: a 95-day notice account and a three-year fixed rate cash Isa...
FP Show reveals its largest and most diverse conference programme
The Finance Professional Show has confirmed its largest conference programme to date, hosting a selection of varied sessions throughout the event next month...
47% of SMEs prepared to move away from traditional banks
Almost half of SMEs in the UK (47%) would move to a challenger/digital bank or non-banking brand if they decided to switch, according to the latest research by Unisys Corporation...
Monese launches business account
Monese has launched a business account in the UK which will be bundled with its personal banking account...
Metro Bank provides £14m facility to support London office acquisition
Metro Bank has provided Kingsway Properties London with a £14m investment facility to support the acquisition of a five-storey office building in central London...
Tandem introduces new credit card blocking feature
Tandem has created a new card-blocking feature for its banking app which allows customers to react instantly to a misplaced card...
Trinity College Dublin secures €100m EIB facility
The European Investment Bank (EIB) has provided a €100m long-term loan to Trinity College Dublin for four capital developments across the campus...
Arbuthnot Banking Group completes testing phase of direct deposits business
Arbuthnot Banking Group has announced that the internal pilot offering of its direct deposits business will commence soon...
Anna to launch business current account for creative UK SMEs
Hybrid digital assistant Anna has announced plans to launch a UK business current account aimed exclusively at supporting SMEs in the creative industries...
Masthaven reaches £500m in assets
Masthaven has announced that it has generated £500m in assets driven by the growth in its diversified lending across short-term and long-term property finance...