The fast-changing face of UK banking

How challenger banks are winning customers and forcing innovation.

They might still hold the lion’s share of consumer current accounts in the UK, but it’s clear that the UK’s big four banks (RBS, Barclays, Lloyds, and HSBC) are sitting up and taking notice of the new upstarts in the sector.

Quite right too, as, last time we looked, 14 million people in the UK had opened a digital-only bank account, and a further 5.7 million intended to do so in 2021¹. Keeping an eye on future growth, banks will be aware that the data looks even rosier when you break it down by age - 46% within Generation Z (aged 24 and younger) now use a digital-only account¹.

The appeal of digital banks is pretty obvious: convenience first, with simple applications, 24/7 support, seamless processes, and transparent pricing. Most of the popular digital bank accounts come with a suite of funky features that make for rewarding interactions – including smart authentication, free international transactions, stocks and crypto trading, and access to an integrated marketplace of digital providers of adjacent products and solutions.

Solutions are often built on cloud-based infrastructure without clunky legacy systems, so product developments can be built and tested at speed through a customer base that’s engaged and open to ideas and feedback. A tech-first workforce and no history of ‘the way things have always been done’ translates into a greater level of organisational innovation and less resistance to change than within traditional banks.

Despite all this, the neo-banks still have a mountain to climb, with low brand awareness in the market - only 7% of people asked had heard of either Starling or Revolut². And perhaps the biggest obstacle of all is this: a whopping 58% of UK bank account holders¹ declared that loyalty to their existing bank prevents them from applying for a digital-only account.

It’s clear then that the big banks still hold immense power and opportunity to retain their customers. The innovation and agility displayed by digital banks are actually helping the traditional players to improve their propositions and customer experience, as they’ve been forced to keep up. Smart features like real-time spend notifications and card freezing may have started with the newbies, but they’re now popping up on high street bank accounts everywhere you look.

The digital banks are well-funded and stacked with innovation. They sport vibrant, colourful brand identities and are constantly transforming and improving to delight customers. Their growth during the pandemic has been accelerated by the rapid digital adoption the UK has seen more widely, but let’s not write off the traditional banks just yet. They’re learning and copying fast, but it remains to be seen whether they can transform their operations and deliver at the pace increasingly demanded by consumers and so ably provided by the newer digital players in UK banking.

Cashflows partners with all kinds of financial services organisations, helping them to quickly process card payments to and from their customers, putting them in control of their funding, and improving their cash flow.

Talk to our team about how we can help you to unlock maximum value from your payments.

Sources:

^1* Finder.com research January 2021 (https://www.finder.com/uk/digital-banking-adoption)

² Money Supermarket (https://www.moneysupermarket.com/current-accounts/digital-banking/)