When Goldman launched Marcus, its direct-to-customers retail bank, in the UK in 2018 and JPMorgan followed suit with Chase last year, they both offered market-beating perks around savings rates and cashback on everyday spending to entice customers.
But now, US banks are facing pressure from shareholders over the costs of their overseas operations, and they are looking to justify their ventures as a recession bites.
Having seen off smaller challenger lenders in recent years, will Britain’s incumbents come out on top once again in their battle with a new generation of upstarts?
The stranglehold that Barclays, Lloyds, NatWest, HSBC and Standard Chartered continue to have on Britain’s banking market has left little room for upstarts – most who have tried to challenge their dominance have failed.
In 1998, Prudential launched Egg, an online lender that offered generous interest rates and claimed it would revolutionise banking by only operating accounts online or over the phone. But the business flopped and was ultimately sold off bit by bit.
This time, at least, ministers are keen to give the new challengers a helping hand. The Government has proposed to relax the rules for smaller banks that require them to separate their retail banking services from investment and international banking activities.
It will do so by raising the threshold at which the ring-fencing regime applies from £25bn to £35bn. Banks that cross the limit can’t use the funds in their riskier investment bank and trading arms.
Goldman’s online bank Marcus stopped taking new deposits in the UK in 2020 after it came close to reaching the limit, and although Chase UK only launched last year, Somani says it has already snapped up more than £10bn in deposits. The rule change will give both lenders greater scope to look after Britons’ savings in the coming years.
But the ring-fencing reforms are likely to create tension with Britain’s high street lenders. At a meeting with then-Chancellor Kwasi Kwarteng in October, the chief executives of some of Britain’s biggest banks complained that the ring-fencing regime already put the domestic incumbents at a competitive disadvantage to their Wall Street rivals. The latest ring-fencing overhaul will also have no impact on the UK’s five biggest banks.
They will also be worried about the rapid growth of Marcus and Chase. Goldman’s venture has hoovered up 750,000 UK customers and £23bn in savings since its launch in 2018, while Chase has already amassed more than a million UK users in just over a year.
After money saving expert Martin Lewis declared in May that Chase was the “best bank account” in the UK and had “smashed the competition with its perks”, Chase was inundated with requests to set up an account, according to Somani.
