Challenger banks united in call for support from regulators to scale up

Challenger banks need dedicated support from regulators if they are to scale up beyond their initial success, David Jarvis, CEO of Griffin, said this week.

“One of the things that is frequently discussed in the closed circle of challenger banks is: where is the new bank growth unit at the Prudential Regulation Authority (PRA)?”Jarvis said during a panel at the Innovate Finance Global Summit 2025 (IFGS) in London.

The lack of one meant “you end up with banks that enter the market and then have some initial success and then very quickly find themselves tripping into the sort of regulatory frameworks that are built for established [banks]. And that can be really punishing,” he added.

Emma Hagan, CEO of Clearbank UK, agreed, adding that regulators needed to “actively partner” with challenger banks to shape regulation to remove the “huge glass ceiling” that hinders them scaling up into larger players.

The pair echoed comments last year by challenger banks giving evidence to the House of Lords Financial Services Regulation Committee, when Richard Davies, chief executive of Allica Bank, told lawmakers that challenger banks were prepared to pay a higher fee for a dedicated scale-up unit.  

Chancellor of the Exchequer Rachel Reeves has tasked the UK’s financial regulators with reducing regulatory burdens on financial firms so they can help drive growth in the economy. Both the Financial Conduct Authority (FCA) and PRA have committed to doing more to help UK financial firms but to date, this has not included the requested scale-up unit.

Success story

Atom Bank CEO Mark Mullen said challenger banks were achieving success and profitability by differentiating themselves with customer-centric and tech-driven offerings. According to data from the British Business Bank, challenger banks now account for 60% of all lending to small and medium-sized enterprises (SMEs) in the UK, while their proportion of total lending to SMEs has exceeded that provided by the big five banks in every year since 2021.

Mullen said challenger banks were also taking market share from big incumbent banks in mortgage lending. “In the last 12 years, the big banks have essentially reduced from about 80% to 83% market share of mortgage lending to about 70% today,” he said.

Growth

Tandem Bank CEO Alex Mollart agreed challenger banks were “winning”.

“Now itʼs about how to improve profits,” he said. “Obviously, weʼve won in terms of acquiring customers [but] you canʼt continue to win new customers indefinitely. At some point, you have to start to do more with the customers that you have or move into products and services that you donʼt currently offer. Thatʼs one of the trends youʼre now seeing,”

Tandem was starting to develop products and services to “resell and cross-sell” to its existing customers, he added, as the bank was attempting to move from a “transactional to a relationship” model.