Neobanks edge close to 20m customers as growth slows

The latest survey of the digital banking market from Accenture found that 19.6 million customers worldwide have signed up for neobanks, with UK providers adding more than six million new customers in the second half of 2019.

Accenture tracks market data from a representative sample of 30 UK banks every six months to assess the performance of digital challenger banks - those that offer financial products via digital channels – compared to incumbents and traditional challenger banks - which operate with a physical presence.

The analysis found that in the last year, neobanks have nearly tripled their customer base from 7.7 million customers in 2018 to almost 20 million in 2019. This current growth rate of 150 per cent outpaces the two per cent growth for traditional challenger banks and one per cent for incumbents.

The customer growth rate fell in the second half of 2019 from 170 per cent to 150 per cent in the first half of the year and the average deposit balance dropped by 25 per cent, from £350 to £260 per customer.

The report said the apparent lag between customer acquisition and money deposited creates challenges for these banks when it comes to long-term profitability.

In 2019, UK FinTech investments grew 63 per cent to almost £5 billion – nearly eclipsing the total for 2018 and 2017 combined. Neobanks attracted £1.4 billion of this funding, but Accenture said that those which fail to convert customer acquisition and outside investment into profit may struggle under less favorable funding rounds and market conditions.

Tom Merry, managing director at Accenture Strategy, commented: “While there is no denying their popularity, profitability and competitive agility continue to be a challenge for neobanks – the fall in average deposits shows they still struggle to replace incumbents as the primary destination for monthly salaries.

“To succeed, neobanks will have to convert their rapid customer acquisition and cost-to-serve advantages into profit, and to remain competitive with new players, incumbents will need to accelerate their move to lower-cost operating models and take advantage of their scale.”

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