Digital challenger banks set to treble customers

Digital challengers banks are on track to treble customer numbers to 35 million in the next year as they catch up with incumbents’ market share, according to Accenture.

Analysts at the professional services firm surveyed data from 30 UK banks, finding that in the first half of 2019, mobile-only banks added five million new customers in the UK. The acceleration of customer acquisition has reached a growth rate of 170 per cent, the analysis found.

The average amount of deposit balances has also increased five-fold, rising to £350 from £70.

In addition, challengers’ digital infrastructure means that operating costs remain low, at between £20 and £50 per customer, compared to £170 for a traditional bank – representing a three-fold increase.

Other signs of the advance of digital banking include the changing customer profile, which is broadening beyond Millennials to include an average customer aged in their mid-40s, and increasingly outside of London.

However, despite the rapid growth and apparent competitive advantage they enjoy, a majority of digital banks are still not profitable, prompting Accenture to predict that core challenges remain for them in maturing their business models.

The study found that the average digital bank loses £9 per customer, with further challenges of low levels of account switching. Scrutiny has also already been drawn to governance and control issues as these banks scale, suggesting regulatory hurdles could increase in response.

In addition, many incumbent banks are investing heavily in digital, with an initial focus on transforming their existing infrastructure, with several now launching their own new digital banks, such as RBS’ digital bank Bo.

Tom Merry, managing director at Accenture Strategy, noted that while digital banks are popular, most are not profitable.

“On the face of it, these banks show great promise as being a catalyst for positive change in banking, putting pressure on incumbent banks to invest in technology, convenience and customer experience.

“But with competition mounting and most digital banks continuing to be unprofitable, customer acquisition alone does not guarantee long-term success,” he added.

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