A year ago this month, Open Banking was launched in the UK. This new form of banking, in which open APIs are used to enable third party developers to build applications and services around the financial institution, is part of a wider trend away from traditional banking.
With the rise of fintech, digital and challenger banks are growing in popularity, with at least a quarter of Brits expected to have an account with a digital-only bank within the next five years, according to new research from personal finance comparison website finder.com.
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Currently, almost one in ten adults say they have already opened an account with a digital challenger, with digital-only banks such as Monzo becoming significant competitors for their high street counterparts.
Some have seen this change in attitudes towards banking as reflective of a growing distrust in traditional banks. According to a poll conducted by YouGov, 66% of UK adults do not trust banks to work in the best interests of society, and this lack of confidence has created a gap in the market for alternatives looking to redefine banking.
In contrast, according to a recent survey by Which? challenger banks have the highest level of customer satisfaction, with digital-only bank Monzo topping the rankings at 86% customer satisfaction.
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The growing popularity of challenger banks only looks set to grow. The research revealed that a further 8.5 million people intend to get an account with a digital-only bank within five years. The research found that Londoners are the most likely to get an account within the next five years with a planning to do so. Younger generations are the most likely to have already gone digital, with one in eight Millennials having done so, compared to six percent of baby boomers.
A major driving factor behind this appears to be convenience. The top reason for those who have gone digital is that they feel doing everything online is more convenient. A third of people also believe they will get better rates than with traditional banks.
Some have attributed the decline in physical banks to the the rise of digital-only banks, with 2,868 bank branches closing in the UK between 2015 and the end of 2018. However, the research also highlighted that digital banking is not quite there yet, with one in five Brits not knowing what digital banking is. This suggests that a lack of awareness may impact their growth, with one in five believing it would be too much hassle to switch accounts and direct debits.
In addition to this, some prefer the traditional element of banking, with half of those surveyed valuing face-to-face contact when managing their money, suggesting that there is still a place for conventional banking in a move towards digital.
However, a further 21% said they would consider a digital-only bank once they have more information.
“The speed that digital challenger banks have established themselves has been very impressive”
Over the next five years digital banking looks set to grow, with 16% of the population intending to open an account with a digital-only bank, meaning that almost 13 million people will have at least one fully digital account by the end of 2023.
Speaking about the findings, Jon Ostler, CEO of finder.com said:
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“When you consider how long the banking industry went without any real technological advances or change to the status quo, the speed that digital challenger banks have established themselves has been very impressive. When done right, digital banking can offer customers the speed, convenience and transparency that is becoming increasingly important for consumers in most sectors.
“However, our research also showed that a lot of Brits still aren’t interested in taking all of their finances online. Open banking, for example, is only a year old and some people may not be comfortable with having their data shared between companies yet – the problems that large banks have had with ‘digitalising’ their services also doesn’t help the image of online banking.
“It will be fascinating to see how the sector evolves over the next few years, and if it can cope with the increasing consumer demand that we expect to see.”