Barclays, Lloyds, NatWest and HSBC’s stranglehold on the UK banking market leaves little room for upstarts. Most of those who have tried to challenge their dominance have failed – seriously, in some cases.
In 1998, Prudential started Egg, an online lender that offered generous interest rates and claimed it would revolutionize banking services by operating only online or phone accounts. But the business collapsed and was eventually sold bit by bit.
More recently, online challengers such as Revolut and Monzo have been more successful but still take significant losses, and the Big Four banks still hold 70% of UK current accounts.
Enter JP Morgan and his digital retail bank Chase. The Wall Street giant has embarked on its first retail expansion outside of North America and has chosen Britain as its first stop before a global rollout.
The move will put pressure on major incumbents already grappling with ultra-low interest rates and rival digital start-ups. Can Chase turn the UK banking industry upside down, or are his eye-catching sweeteners just a gimmick?
What is the problem?
To set itself apart, Chase is offering customers 1pc cash back on debit card spending for their first year and 5pc interest on “loose change”.
The latter will take place when a customer uses their debit card to make a purchase and the amount deducted from the account is rounded to the nearest pound. The difference is then deposited into a separate savings pot where it will earn interest at 5pc for 12 months.
Sanoke Viswanathan, general manager of the new branch, says Chase’s offering is very competitive and will allow customers to experience banking for the first time with a checking account based on “simplicity” and “hassle-free rewards.”
Gary Greenwood, Banking Analyst at Shore Capital, said: “I think the need to offer such interest rates and reward features reflects how competitive the UK banking industry is already, despite comments to the contrary that there remains a kind of oligopoly.
A competitive industry
Viswanathan’s appointment suggests that JP Morgan is serious about the business. He is one of its principal bankers in London, having previously served as an administrative director overseeing technology and operations in merchant and investment banking.
Still, the UK may seem like an odd market to launch the new business given its ultra-low interest rates and low margins. And unlike other areas, UK banks usually offer checking accounts and basic services for free.
Viswanathan says Britain’s appeal lies in the high level of consumer demand for digital banking services, its strong regulatory regime and its pool of fintech talent.
His vote of confidence in the UK has a somewhat different tone from recent interventions by JP Morgan boss Jamie Dimon, who has drawn a number of broadsides against Brexit.
In April, he warned he could move all bankers serving EU clients out of London, adding that Brexit “cannot” stimulate the UK economy.
Chase says he intends to introduce a wide range of banking products, including new features for checking accounts, savings and investment accounts, and loans.
Become a “serious player”
It will aim to emulate the British success of rival Wall Street giant Goldman Sachs, which launched retail savings accounts under its Marcus brand in 2018. The account offers an interest rate of 1.5 pc – the market on highest available at launch – and resumed. billion pounds in savings.
“I’m sure Chase will attract a good number of new customers, but the question is whether they can retain them and ultimately make the business a profitable one,” says Greenwood.
Meanwhile, Nic Ziegelasch, of broker Killik & Co, said that with a robust technology platform, significant financial resources and a global brand, JP Morgan could be a “serious player” in UK banking.
JP Morgan himself has struggled to generate interest in digital banking with other companies. Just two years ago, it closed its American online bank Finn just 12 months after launching.
Shore Capital’s Greenwood adds, “JP Morgan’s financial firepower and know-how mean it needs to be taken seriously, unlike some of the smaller startup banks that may have struggled until present to go from an interesting start-up to a viable business. and a profitable operation.