Three UK ‘challenger banks’ have been granted a total of £280 million as part a larger Royal Bank of Scotland fund.

The total £775 million has been made available as part of conditions dating back to its £45 billion 2008 UK government bailout.

Banking Competition Remedies (BCR) has been set up to oversee the funding, which is designed to increase competition in lending to small businesses.

It is awarding London-headquartered Metro Bank £120m, app-based challenger bank Starling £100m and ClearBank, which was set up by FinTech entrepreneur Nick Ogden, £60m.

The funds have been granted on condition that they are spent on improving the financial products and services available to small and medium-sized companies.

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Metro said that it will use the funds to expand in northern England and bring forward the introduction of “game-changing digital capabilities to help SMEs thrive.”

In January, London-based Starling told BusinessCloud it was gearing up to target tens of millions on new customers as it works towards euro accounts and a European launch.

Challenger bank CYBG, which was tipped to be one of the three banks awarded the funds, said it had put forward the “strongest possible case to explain how large scale additional investment in its SME business would accelerate the group's ability to increase the scale of its business”.

BCR said it received 16 applications from six applicants including UK FinTech unicorn Monzo, and further grants will be awarded later this year.

The first grants awarded by BCR relate to what it terms the Capability and Innovation Fund.

“These awards seek to increase competition in the business banking market,” said BCR chairman Godfrey Cromwell.

“Following the successful launch of the Incentivised Switching Scheme by BCR last year, Pool A is the first group of grants from the Capability and Innovation Fund.”