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U.K Challenger Banks Have Momentous Growth Potential Albeit Metro’s Slump

U.K. Challenger bank industry has been growing at a robust past pace over the past five years, driven by their strategy of facilitating medium to small size entrepreneurs along with the full adoption of digital and mobile services.

These banks have been gaining the confidence of small business owner; the banks are expanding their services to new markets such as independent contractors, freelancers and early-stage tech entrepreneurs, which had been previously ignored by biz size banks.

These challenger banks have also been presenting a profit-making opportunity for stock market investors. The substantial revenue growth potential along with rosy outlook supports their share price movements.

Anthony Da Costa of stockbrokers Peel Hunt said, “For small investors keen on shares in financial companies, the listed challenger banks may offer an interesting alternative to big-name lenders. Traditional banks tend to offer a low return on capital. In part, this is because they still have costly branch networks, despite closing down hundreds in recent years.

Although the entire industry has experienced a bearish trend at the beginning of 2019 amid concerns over Metro banks – which is one of the largest players in the U.K. Challenger bank industry.

Metro Bank share plunged more than 80% in the last twelve months amid miscalculations in accounting and funding problems.

However, these problems are only limited to Metro Bank. The rest of the industry has strong growth prospects. The rebound in their share price after a short selloff indicates that investors are confident about the industry growth.

For instance, the shares of challenger bank OneSavings bounced sharply since the start of this year following a selloff. Its substantial revenue growth is adding to investor’s confidence.

The small size bank like Revolut has also been generating considerable revenue growth over the years. It has generated fivefold revenue growth in the past year. Revolut has close to three million users in fiscal 2018 and its average per day account opening stood around 7,000 new accounts per day.

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Based in Saudi Arabia, Siraj has a strong understanding of and passion for accounting and finance. He has worked for international clients for many years on several projects related to the stock market, equity research and other business, accounting and finance related projects. Siraj is a published financial analyst on the world's leading websites including SeekingAlpha, TheStreet, MSN, and others.