The UK’s biggest lenders have had to pull up their socks recently as a growing number of small and mid-sized banks enter the scene with more competitive savings and lending rates.
PCF Bank, which became a fully operational bank in July 2017, admits the high street competition is tough and for this reason, it focuses on niche markets.
“I’m afraid to say that in this market there’s not a lot of product differentiation other than the rate to the marketplace and the service that you offer,” chief executive Scott Maybury said.
PCF specialises in motor finance and loans for business assets. It lends to consumers and small and medium-sized companies wanting to buy such items as cars, commercial vehicles, engineering equipment, motorhomes and horse boxes.
PCF expands into media
The bank is set to extend its reach to the broadcast and media industry after agreeing to buy Azule Limited for up to £5.6mln at the end of October.
The company said the deal would allow it to tap into a market that brings in the £50mln worth of new business each year.
In the year to 30 September 2018, PCF brought in record new business originations of £148mln, up 75% from £85mln a year ago.
Pre-tax profit jumped 44% to a record of £5.2mln from £3.6mln a year ago.
Retail deposits more than trebled to £191mln from £53mln last year as the number of customers rose to 4,500 from 1,060.
The lending portfolio rose 50% to about £219mln from £146mln last year, putting it on track to meet its target of £350mln by September 2020.
The next level PCF aims to reach is a lending portfolio worth £750mln by September 2022.
“To get there you’ll see us diversify into a couple of different asset classes or a couple of new markets,” Maybury said.
“How we do that and which markets they will be in, we can’t tell you that yet, but the likelihood is they will be through a further acquisition in complementary markets or they will be through acquiring a specialist team of people from within one of our competitors and setting up an operation organically in-house.”
PCF attracts 'high quality' customers
PCF was founded in 1994 as a finance company, which borrowed money from banks and used it to provide funding to companies and consumers for purchases of vehicles and business assets. By being authorised as a bank, the company now has access to retail deposits, which comes at a lower cost.
PCF plans to use the benefits of cheaper cost of funds from retail deposits towards its sales and marketing efforts to lure in customers.
Maybury said PCF targets “high quality” customers including consumers who have a spotless credit history and many years of work behind them as well as UK-based businesses that are profitable and have a strong balance sheet. Customers with prime credit grades accounted for 70% of new business originations in fiscal year 2018.
“That’s a strategic decision to fit our risk appetite,” he said, adding that he feels it is the right approach given the uncertainties facing the UK economy with Brexit fast approaching.
PCF well placed to withstand possible financial shocks
The worry for many UK-focused lenders is the possibility of an economic downturn after Britain leaves the European Union in March 2019. PCF believes it is well placed to withstand any future financial shocks due to its capital strength, low-risk customer base and ability to react quickly to any pressures.
Maybury said PCF stayed profitable through the financial crisis and has become increasingly profitable over the past five years.
“On top of that, you layer a banking licence with a cheaper cost of funds and the ability to always borrow from the retail market, whereas our experience in the global financial crisis was that the banks shut themselves to lending so we weren’t able to borrow. That won’t happen again so it gives us a resilience going forward.”
PCF Bank, which savings products are available online or by post, offer an annual savings rate of 2.40% on four-year term deposit accounts and an annual rate of 1.7% on its 100-day notice account.
Despite the challenge of keeping customers once their fixed-rate savings account matures, Maybury said PCF has a high retention rate that he thinks is due to the good technology and customer service the bank offers.
“I think we’re a different generation of bank that is a lot quicker on our feet, a lot quicker at reacting to what customers want and are a lot more attractive to the savings market,” he said.