One in 10 new accounts opened with challengers
Written by Hannah McGrath
More than one in 10 new bank accounts opened are with digital banks, as 2019 marked a “tipping point” for the growth of UK FinTechs.
A report from Vocalink, a Mastercard company, showed a steady rise in the popularity of digital-only banks, with around one in three (30 per cent) of consumers aged 25 to 44 considering opening an account with an app-based challenger.
Competition in banking is being driven by the rapid growth of new entrants, with digital banks accounting for 13 per cent of all new bank accounts opened in the last six months.
In a sign of the growing maturity of FinTechs, a quarter (24 per cent) of these are being opened to be used as main current accounts, with salary payments being directed into these accounts, while the remainder are being used as a secondary account.
A total of 40 per cent of respondents said they are using multiple accounts to manage their money, with this increasingly to nearly half (48 per cent) among respondents aged 25 to 34.
Of these secondary current accounts, three per cent are with digital banks, although this doubled for the 16 to 34 age group (six per cent) and increases to eight per cent among those living in London.
While mainstream banks are clearly still retaining the vast majority of their customers, the research also showed a five per cent drop in new accounts in 2019, compared to 2018.
When looking at the typical customer of a digital-only bank, the average age is slightly younger (31 years vs 48 years) and they are more likely to live in an urban area (66 per cent vs 56 per cent). They are also over twice as likely to use mobile payments (68 per cent vs 30 per cent) and tend to have a higher household income (£46,000 vs £33,000).
According to the report, the two main factors that may be behind the increasing popularity of the new digital banks are improved functionality of apps and being able to use the card abroad for free.
Gregor Dobbie, chief executive of Vocalink, said: “While at present the rise in digital-only banks might be most common in urban areas and among younger generations, we expect to see this trend occurring more widely among other demographics in years to come.
“Many are choosing digital-only banks for the improved technology and lack of charges abroad, and it will be interesting to see how the traditional players respond to these new customer expectations,” he concluded.