Challenger banks are small, recently created retail banks that compete directly with the longer-established banks in the UK, sometimes by specialising in areas underserved by the "big four" banks (Barclays, HSBC, Lloyds Banking Group, and NatWest Group). As well as new entrants to the market, some challenger banks were created following divestment from larger banking groups (TSB Bank from Lloyds Banking Group) or wind-down of a failed large bank (Virgin Money from Northern Rock).
The banks distinguish themselves from the historic banks by modern financial technology practices, such as online-only operations, that avoid the costs and complexities of traditional banking.
Prior to changes in the regulatory landscape in the UK financial services industry, setting up a new bank with a full UK banking licence was extremely expensive and time-consuming. This led to a very small number of banks, colloquially referred to as the "Big Four", dominating the UK market with virtually no competition at all. When Metro Bank received their license in 2010 it was the first new high street bank in a century.
In the wake of the 2008 financial crisis, the UK's government decided to open the market up to new banks. After a period of consultation, the regulation to enable this formed part of the Financial Services Act 2012, which came into force on 1 April 2013.
To guide new firms through the process of entering the banking market, the Bank of England's Prudential Regulation Authority (PRA), set up a New Bank Start-up Unit. The process begins with an expression of interest, moving to "authorisation with restrictions" if appropriate, and finally to those restrictions being lifted and the firm being granted a full banking licence.
In July 2014 the PRA, together with their co-regulators the Financial Conduct Authority, published a review of the requirements, one year on.
This list contains companies that received authorisation from the PRA to operate as banks in the UK.