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Brits moving to digital banking channel faster than people in the US

Digital banking services rapidly gain popularity, but digital banks face major challenges to make deeper inroads into traditional banks’ customer bases

Nearly three-quarters of UK residents now do most of their banking online, 77% are considering switching to a digital-only bank and only 21% expect to visit a bank branch in the next three months, according to research.

The research, conducted by Propeller Insights on behalf of fintech card issuing platform Marqeta, questioned 800 people in the UK and more than 1,000 in the US.

More UK respondents (72%) do most of their banking online compared with those questioned in the US (62%), and 21% of UK respondents expect to visit a physical bank branch in the next three months, while 30% in the US expect to do so.

The survey also found that 65% of 18-34-year-olds in the UK use a digital bank as either a primary or secondary banking option.

But although digital challenger banks have quickly built up their customer bases, most customers use them as secondary accounts, usually as an additional card for everyday spending. These users still have their salaries paid into traditional banks, which they use for banking services such as loans and mortgages.

Speaking to Computer Weekly earlier this year, Ricky Knox, CEO at digital challenger bank Tandem, said this is a challenge for neo banks. He admitted that, like most challenger banks, Tandem is a second bank for many of its customers.

But consumers are getting used to the new banks’ services, which are often easier to use and more personalised. The survey found that of those who use a digital bank alongside a traditional option, 56% said they were more satisfied with the service provided by their digital bank. 

But there are hurdles to overcome in the UK if digital banks are to make deeper inroads into the traditional banks’ customer bases. More than half (51%) of UK consumers said they felt that a digital bank was a riskier place to store their money, while 41% said they would limit how much money they deposited in a digital bank.

Most UK respondents (78%) said the security and reputation of banks are essential to know before they move their banking, which could hold digital banks back because they don’t have a track record for consumers to measure these factors.

Read more about challenger banks

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  • Could Atom bank’s deal with Thought Machine be a stepping stone for legacy replacement at BBVA?

“This research demonstrates that UK consumers are ready to go digital with their finances, but digital banks still must work hard to innovate as we become an increasingly cashless, mobile-first society,” said Ian Johnson, head of Europe at Marqeta. “Apps and payments cards account for an overwhelming majority of spending and money-management actions, and the rapid rise of new-wave challenger banks is a major driver of this of this.”

In 2013, the Current Account Switching Service (Cass) was introduced, which reduced the time it takes to change current account supplier from 30 days to seven days. This was an attempt to stimulate competition in the UK current account market at a time when new banks were emerging.

Including consumers and businesses, about six million account switches have taken place on Cass since it was launched, with almost 247,000 accounts added in the second quarter of this year.

And it is not just consumers who are switching accounts. There was an acceleration in the number of businesses moving their accounts this year, with twice as many businesses switching bank account provider using Cass in the second quarter of this year compared with last year.

According to recent figures from Pay.UK, which operates Cass, 17,687 businesses switched bank account providers in the second quarter, compared with 8,000 in the equivalent period in 2018.

According to research from Accenture, published in September, digital-only challenger banks in the UK will triple their customer bases over the next year from about 13 million.

It found that in the first six months of 2019, five million people opened an account with one of the challengers. Customer numbers and deposits are growing, it said, with the average customer depositing £350, compared with £70 a year ago.

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