Current accounts battle: large banks cede more market share to digital rivals

The days of high street banks dominating the current accounts market may be coming to an end as digital banks gain a larger market share. Here’s why.

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High street banks have long held a firm grip on the UK current accounts market. But a significant shift appears to be underway. New data shows that the big banks are being challenged by a growing force: digital challenger banks.

These online banks are gradually gaining a larger share of the current accounts market. But why is this happening? What advantages do these banks have over traditional banks? And should you think about switching to one of these banks? Let’s find out.

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What are digital challenger banks?

As the name suggests, they are new online banks that essentially want to challenge the old world order. More specifically, they want to disrupt the dominance of the traditional big four banks: Barclays, Lloyds, HSBC and NatWest.

Digital challenger banks include the likes of Monzo, Revolut, Starling, Atom and Monese. The core characteristic of these banks is that they are unburdened by legacy systems and complex organisational structures.

Other unique features that set them apart from traditional banks include:

  • Transparent and low fees
  • Faster service
  • An enhanced user experience through digital interfaces

Some of these digital banks specialise in certain areas or target customers who are underserved by the big banks.

Why are digital banks taking up a larger share of the UK current account market?

The Financial Conduct Authority (FCA) reports that there are currently 100 million current accounts in the UK.

Nearly one in 10 accounts (8%) are now held by new digital challenger banks. This is up from one in 100 (1%) in 2018. Moreover, over the same period, the big banks have gone from running 68% of current accounts to 64%.

So, why are high street banks losing their strong grip on the current accounts market?

Well, according to the FCA, it boils down to changing consumer behaviour and the acceleration of digitalisation. As the FCA points out, these factors have opened up the possibility of branchless banking, reducing the importance of large bank networks, which has traditionally given them an edge over newer digital banks.

The regulator goes on to add that digital challenger banks have been able to attract more customers in part “by offering innovative mobile apps which make the experience of banking easier and more convenient and help consumers manage their money.


Should you consider switching to a digital bank?

This is, of course, a personal decision.

However, as Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, suggests, the big banks’ loosening grip on UK current accounts is “great news for those customers who are able to get a better deal”.

She continues, “Switching your current account doesn’t just offer the chance to find somewhere with lower fees or more attractive features. It also has the power to free you from the tyranny of the high street when it comes to saving and borrowing.”

What does this mean exactly? Well, as Coles explains, current accounts are vital to the way traditional banks operate. Apart from making them money, these accounts also give them a “captive audience” for their other products.

For instance, Hargreaves Lansdown research shows that 40% of people hold both their savings and current accounts at the same bank. A third usually go to their existing bank when they are planning to open a savings account. Among this latter group, half do not consider going anywhere else at all.

Unfortunately, this kind of blind loyalty means that many customers could be losing out on much better deals or solutions for their financial needs.

That is why it is always a good idea to shop around, not only for current accounts but also for other financial products commonly offered by banks, including loans, mortgages and credit cards. Shopping around remains the single best way to make sure you get the best possible deal for your needs.

Of course, before you make a bank account switch or even open a secondary account with another bank, make sure you read the terms and conditions to understand exactly what you are signing up for.

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