Setting up or running a challenger bank is not for the faint of heart. For those that successfully complete the authorisation process the rewards can be immense, but the risks of not completing are substantial.
Anyone who has paid attention to the financial services sector over the past couple of years will know what we’re talking about.
On the one hand, well-known propositions like Metro, Starling and Monzo have heralded an exciting new culture in digital banking. Their headline successes have arguably inspired a generation of startups to enter the space.

On the other hand, there have been several high-profile failures caused by significant swings in interest rates, depository flights to safety and shifts in investor sentiment.
That said, challenger bank C-suites do have a high degree of agency over their fate.
With an ‘informed’ approach to launching and growing, it is possible to head off potential problems around capital and liquidity requirements, as well as prepare for the higher compliance costs of being a bank.
Pre or post-banking licence, financial modelling adds value in unique ways
TriFidus supports banks with financial modelling tools that are bespoke to their lending and borrowing structure and enable institutions to test a range of stress scenarios.
There are two types of businesses to which financial modelling adds value. The first are those planning to secure a banking licence. The second are businesses that already have a licence.
Let’s take a look at aspiring banks. Becoming a financial institution takes a lot of time - on average anything between 18 months and four years – and it is expensive.
It’s expensive because it requires a skilled management team with specialist knowledge of the process of becoming a bank, in addition to significant operational expenditure (OpEx) on compliance and regulatory processes.
An aspiring bank also needs to demonstrate an ability to meet capital requirements and secure an equity injection at the point at which the licence is granted by the Bank of England.
So how does TriFidus make this process easier for would-be banks?
Let’s say you’re a lending business that wants to start offering deposit accounts that require a banking licence.
A well-prepared financial model shows the impact of higher capital and liquidity requirements, as well as the margin by which you would need to increase your OpEx. It would also produce insights on the capital impact of requisite personnel, processes, procedures and policies.
Ideally, TriFidus should be engaged at the beginning of the banking licence application process.
TriFidus creates bespoke financial models that replicate the specific corporate structure, lending, borrowing (including deposits) and other operational flow that are unique to your business.
It gives confidence to robust ICAAP (internal capital adequacy assessment process) and ILAAP (internal liquidity adequacy assessment process), informing risk playbooks for the Board to sign-off on.
Businesses with a banking licence also need to build resilience
Already licensed challenger banks understand the costs and the compliance requirements that go with running a fully-fledged financial institution.
They would, however, also benefit from a risk playbook created by a robust financial model that represents their business and is used to stress test capital and liquidity scenarios.
Once created, the model should be integrated into their FP&A (Financial Planning & Analysis) processes to effectively support ICAAP and ILAAP.
TriFidus utilises its extensive experience and know-how in FP&A transformation to work with banks to efficiently design integrated risk and financial planning processes.
In a way, the playbook forms part of the corporate storytelling to the Board, a topic we discussed in this blog.
Minimising risks to maximise rewards
With the relevant financial modelling adopted at the appropriate time in a challenger bank’s development, businesses stand a much better chance of success.
If you’re setting up a financial institution, our advice is to engage an expert in this field at the beginning of the journey.
And if you’ve already completed the process of becoming a bank, then it’s worth thinking about deploying a playbook underpinned by robust models to protect against the next set of economic headwinds.
To find out more about how TriFidus supports challenger banks, contact us
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