The unstoppable rise of the challenger bank: Canary Wharf’s retail giants have reasons to be worried
If traditional retail banks have paid any attention to the latest data from the City watchdog, they have reasons to be worried, because challenger banks are increasingly taking over traditional banking services from established financial institutions.
In fact, nearly 10 per cent of all accounts are now held with a so-called digital “challenger” bank.
A remarkable jump as this number was just 1 per cent in 2018.
While traditional banking players are still in a strong position, there are signs that some of the historic advantages of large banks may be starting to weaken amid innovation and changing customer behaviour.
Challenger banks have “attracted customers in part by offering innovative mobile apps which make the experience of banking easier and more convenient and to help consumers manage their money”, the FCA said.
When it comes to personal current accounts, large banks accounted for 64 per cent of personal current accounts last year, while larger challengers accounted for nearly one in four and mid-size banks made up the remaining 4 per cent share.
No longer with one bank
People are also increasingly having more than one bank account, enabling them to “try out” more than one provider at the same time.
Over the past four years, the number of personal current accounts has ballooned by 15 per cent, from 87 million to more than 100 million.
This means that, on average, each adult across the UK now has 1.9 current accounts.
“We believe that this is a positive development for competition as it allows consumers to try out different products and build trust in other brands,” the FCA said.
Losing their grip
Looking at the latest FCA findings, City analyst Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown, said: “High street banks are losing their vice-like grip on the UK’s current accounts.”
“Almost one in 10 accounts are now held with a digital bank, up from one in 100 just four years ago,” Coles stressed.
“This is great news for those customers who are able to get a better deal, and are encouraged to look elsewhere for mortgages and savings too. However, it has been a real blow for those who rely on bank branches.”
“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.City analyst Sarah Coles, 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.
“Current accounts are vital to how the banks do business. They don’t just make them money – although between 2018 and 2020 a typical current account made the big banks £104 each in charges and fees,” Coles added.
“They also give them a captive audience for all their other products.”
Coles concluded that Hargreaves Lansdown research has found that 40 per cent of people hold their savings with the same bank as their current account.