F E AT U R E S T O R Y THE FINTECH TIMES
F
or years, the UK’s biggest banks – Barclays, Lloyds, HSBC and RBS – dominated the marketplace, accounting for 85 per cent of UK personal current accounts. But over the past decade, digital transformation has revolutionised the banking sector with the updated Financial Services Act 2012 kickstarting innovation and improving customer choice.
By traditional definition, challengers are a ‘relatively small’ retail bank set up with the intention of competing for business with large, long-established national banks. Yet, according to the latest data from the UK’s financial watchdog, challenger banks are increasingly taking over traditional banking services from these distinguished financial institutions. The Financial Conduct Authority has identified signs that large banks’ historic advantages are starting to weaken, driven by digital innovation and changing consumer behaviour. The share of
personal and micro-business current accounts held by digital challengers rose between 2020 and 2021, while the largest banks saw their share fall. Around one in 12 (eight per cent) personal current accounts are now held with a digital challenger bank, up from just one per cent in 2018. Large banks accounted for 64 per cent of personal current accounts in 2021, while larger challengers accounted for 24 per cent and mid-size banks made up the remaining four per cent share.
THE IMPACT OF THE PANDEMIC
For Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, the onset of the pandemic has eroded many of the reasons given for banking on the high street.
“In the early months, many of them shut up shop entirely,” says Coles. “Some never reopened, and many of those that did, operated shorter and less predictable hours. Many of them encouraged customers to move online to the apps. “If you’re going to bank online, then it makes sense to consider the challengers, because they were able to build themselves from the ground up as digital first. For individuals there are useful budgeting and saving tools, while for small businesses they offer the ability to integrate with accounting software.
By traditional definition, challengers are a ‘relatively small’ retail bank set up with the intention of competing for business with large, long-established national banks 6
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