Following the feature, Specialist Banking ran a poll to gauge opinion among the wider industry.

Over three-quarters of respondents (78%) claimed that there was room for more specialist banks in the market.

In light of this result, Specialist Banking endeavoured to find out which products and services were currently needed in the market.

Which areas of banking are underserved?

“…If there's one area where borrowing has been slightly more restricted in recent years, it's for medium-sized businesses seeking growth capital,” said Ayan Mitra, CEO at Code Investing.

“These firms often fall into the lending equivalent of a no-man’s land. 

“They are a little too big for the comfort zone of the alternative lenders and a little too small and 'risky' to meet the stringent underwriting criteria of the high street banks.

“Thankfully, things are now starting to change for the better. 

“For example, over the past year, we have seen a rise in the number of major institutional lenders [starting to make] loans directly to established UK businesses seeking growth capital.”

Simon Healy, industry director for EMEA at Unisys Financial Services, believed that the subprime consumer segment – which targets borrowers with tarnished or limited credit history – was underserved.

“Subprime lending is a challenging segment to get right in terms of pricing and assessment of risk, in which borrowers have typically been limited to extremely expensive options – such as payday lending – as a result. 

“A much-needed regulatory clamp down in this space would create opportunity for new entrants.”

Kristjan Kangro, CEO at Change, added: “Millennials hold their savings in cash because straightforward ways to invest small amounts are lacking and there aren’t as yet the companies and systems available to support with this.

“This is where we see the biggest opportunity: provide simple access to various assets with no minimum balances or transaction fees.

“People can start investing with one euro and in addition to cryptos, gold, stocks and already known asset classes basically anything can be publicly available.

“Like stocks of any company in the world – small or big – so their customers and partners could invest and support who they believe.”

Ian Smith, CEO at 1pm PLC, commented: “Challenger banks are increasingly becoming very similar to the ‘big five’ traditional banks and there’s little difference in service from a customer’s point of view. 

“This leaves a significant part of the economy – UK SMEs and, in particular, smaller businesses – underserved in terms of access to finance they need.” 

What opportunities are there for new specialist banks?

Peter Heywood, partner of financial services at Genpact, mentioned a specific opportunity for banks to serve the SME market.

“SMEs struggle to get capital in a timely manner.” 

“Overdraft and small loans typically take between 30-40 days to originate, price and book,” Peter claimed.

He explained that this resulted in a gap between when funding was needed and when it could be available. 

“Often this can result in missing new contracts or failing to pay suppliers, which can be detrimental to a small business.”

Chris Oatway, director at LDNfinance, stated that the commercial finance market had space for new entrants, including those that could fund assets where the perceived reputational risk was higher, such as care homes.

“Due to the number of variables in development finance, there is plenty of opportunity for new lenders to enter the market with certain niches, where they can secure interest from new clients.”

Chris Allen, director of digital innovation at Axis Corporate, highlighted how digital banking had enabled the financial services industry to engage with highly diverse customers much more closely.

“This presents a real opportunity for challenger and specialist banks to offer a tailored, focused experience to specific sub-segments of their client base rather than a diluted ‘one-size-fits-all’ offering.”

Jason Blick, CEO at EQIBank, concluded: “The inability to bank cryptocurrency is the major challenge facing crypto exchanges and investors around the globe. 

“To solve this, we need to make banking across national currencies and crypto simple, safe and accessible. 

“However, currently traditional banks tend to be sceptical of crypto.”

What new services and products are needed from new specialist banks?

“In terms of specific banking products, it would be great to see lenders experimenting with a unified ‘development-to-investment’ type product,” said Sam Le Pard, adviser at Arc & Co.

“Very few lenders are competitive in both development and investment debt, and so there is potentially a niche to fill. 

“Given the recent trend of stagnant house prices and increasing rents, more developers are looking to retain (at least a proportion of) their developments on completion. 

“A lender willing to offer a development-to-investment facility would be able to take advantage of this trend and keep the money ‘in-house’ rather than seeing it go elsewhere.”

Simon Lyons, COO at The Slide App, commented that small businesses were losing out when it came to existing banking services.

“Helping someone develop a savings plan for their next holiday is much more useful than telling them how much they spent on the last one. 

“The same logic can be used in the business world: helping finance teams understand when they will be in a position to pay their suppliers, as opposed to notifying them when they fail to do so.

“By empowering people to understand the past, present and future of their bank balance, we can take the guesswork out of financial management.”