Fierce competition in retail banking is driving choice and lowering prices for consumers and small businesses according to the UK financial watchdog.
Digital innovation and changing consumer behaviour is helping to weaken the stranglehold of large banks over the industry according to a report published today by the financial conduct authority (FCA). The FCA revealed that digital challengers upped their share of personal and micro-business current accounts across 2020 and 2021 causing large banks to lose out.
“Competitive pressures and innovation are starting to deliver for retail banking customers, with greater choice, lower prices and more convenient ways to bank,” said Kate Collyer, chief economist for the UK’s financial watchdog.
The regulator credited the adoption of digital innovations by banks and their customers with improving service quality and satisfaction, particularly amongst mobile and app-based users. Collectively, digital challengers now have around eight per cent market share for personal current accounts according to the FCA study.
“As this FCA report highlights, FinTech challenger banks have increased their share of the market by putting customers back at the center of their proposition: creating products that give customers what they need, when they need it, all available digitally at the tip of their fingers,” said Janine Hirt, the chief executive of Innovate Finance.
“With rising adoption of digital banking during the pandemic, greater innovation, and new forms of customer platforms, we can expect this trend of an increasingly diversified market to continue,” she added, noting that increased competition could create incentives for partnerships between FinTechs and incumbents in the banking space.
While the FCA praised digital innovation it also warned that changes should not come at the expense of high quality customer care.
“Changes that may benefit many of us can also be a risk to those in vulnerable circumstances, which is why we have put in place guidance on the closure of branches and ATMs,” said Collyer, noting that the FCA is consulting on a new consumer duty to set higher expectations for the standard of care that firms provide.
“As the high street giants have closed branches and moved online, they’ve lost the things that gave them an edge over their newer counterparts,” said Sarah Cole, senior personal finance analyst, Hargreaves Lansdown.
“At the same time, online banks have been able to offer innovations to set their apps apart, which has accelerated the rise of these banks,” she continued.