Last week TSB urged the Competitions and Markets Authority (CMA) to help break the stranglehold the big five banks had on the market. 

Despite the challenger bank reporting record growth, TSB still felt alternative lenders were struggling to break the dominance of the mainstream banks.

These claims were backed up by Andrew Tyrie, Chairman of the Treasury Committee who wrote to the CMA to express his concern after the watchdog found no strong evidence to show the government’s new corporation tax would impact smaller lenders.

“The Committee remains deeply concerned about the current inadequate level of competition in banking. 

“The PCBS was also very concerned. 

“The Committee will scrutinise the CMA's conclusions, on both the banking surcharge and of its market study more broadly, in due course.”

Rishi Khosla, CEO and co-founder of OakNorth Bank commented: “This surcharge should be withdrawn or reduced for banks below a certain size in the interests of creating a more competitive and diverse banking system that better supports British business and the economy. 

“As a new challenger bank, OakNorth has higher capital requirements than larger banks and finds it more difficult to access schemes such as Funding for Lending due to our shorter lending history, both of which increase our costs. 

“The Funding for Lending Scheme should require less collateral to be pledged as this, on top of capital and liquidity requirements, further disadvantages new banks which don’t pose a systemic risk to the UK economy, unlike their large counterparts. 

“This change would increase competition in the banking sector and give SMEs that are seeking debt finance a better deal.”

Jon Hall, Managing Director of newly-licensed challenger lender Masthaven Bank, said there remained significant competition issues in the current account market, but elsewhere, the picture was brighter. 

“Savings customers, mortgage intermediaries and borrowers have demonstrated their awareness of the new entrants by increasingly turning their backs on the legacy banks when thinking about their next financial decision. 

“The more that these new entrants, including Masthaven Bank, can do to provide products and services that place the customer in control, then this trend can only accelerate.”

Rishi felt that challenger banks could take away business from the big banks, but competition would not improve through relentless focus on commoditised services and low prices.

“We need more providers offering products and services that cater to the unique needs of specific market segments. 

“As far as the current account market goes, the public are aware of alternative providers and while the big four still dominate, their grip on the market is loosening.”