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Digital challenger banks in UK to triple customer base

Digital challenger banks are increasing their amount of customers fast, but face major challenges if they are to make serious in-roads into the banking sector

The UK’s digital challenger banks will have a combined customer base of 35 million in the next year, but they are currently losing money on the average customer.

According to research from Accenture, digital-only challenger banks in the UK will triple their customer bases from 13 million people today.

It found that in the first six months of this year, five million people opened an account with one of these challengers. Customer numbers and deposits are growing, with the average customer depositing £350, compared to £70 a year ago.

The average operating cost per customer is £20 to £50 at digital challengers, compared to more than £170 for a traditional banks on average.

But it is not all plain sailing, with digital challengers on average losing £9 per customer.
Tom Merry, managing director at Accenture Strategy, said: “While digital-only banks are popular, they are not yet universally profitable and customer acquisition alone does not guarantee long-term success or competitive agility. These banks evidently show great promise. They have been a catalyst for positive change in banking, but there are deeper issues that need to be addressed as they scale.” 
Accenture said digital-only banks are increasingly becoming the primary account choice for customers with larger balances in them, but added that the pace of growth is slow. To date, most people use accounts at digital banks as a secondary account, with traditional banks retaining the majority of their financial activity.

In an interview with Computer Weekly earlier this year, Ricky Knox, co founder and CEO at digital challenger bank Tandem, said that like with most challenger banks Tandem is a second bank for many of its customers. “Spend card behaviour is the main way challenger banks are being used,” he said.

Merry added: “Core challenges in terms of balance sheet scale and funding, risk management and compliance cast some doubt over whether convenience, customer experience and the cost advantages of digital-only banks are enough to ensure long-term success. It remains to be seen whether there will be a radical overhaul of the banking industry as a result of these new entrants, or simply a continued evolution.”

Read more about challenger banks

  • News that Tandem Bank has reached 500,000 customers is good for fintechs in that it shows consumers are looking at alternatives to traditional banks.
  • Challenger bank Starling enables companies outside the financial sector to offer their customers savings and current accounts via the bank’s APIs.
  • Could Atom bank’s deal with Thought Machine be a stepping stone for legacy replacement at BBVA?

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