Can UK challenger banks ever replace incumbent banks as our primary bank account?

CFTE took a look into our own books, researching which banks we are currently using the have our salary paid into. What we found is a strong trend towards UK challenger banks.

In 2019, Monzo hit a total of 2 million customers on its app, growing at over 30,000 account openings a week. However, despite this, critics opine that such growth in the number of Monzo accounts does not call for celebration. After all, it is difficult to ascertain how many of these accounts are actually primary accounts. The app based bank themselves have in fact stated in their annual report that only 30% of their active users deposit at least £1,000 per month.

The trend we hear: There is an increasing adoption of challenger banks’ services, but consumers remain unwilling to rely on them as primary bank accounts

Monzo is not alone. Such a phenomenon can be applied to the rest of the challenger banks as well. According to Propeller Insights, we see around 72% of consumers doing the majority of their banking online. However, as seen in Business Insider, 51% of UK consumers still feel that neobanks are a riskier place to store their money as compared to traditional banks. Furthermore, 41% of them will opt to limit the amount of money that they deposit into a digital bank. 

Therefore, it can be observed that consumers in the UK are more than willing to use the services of digital banks when it comes to smaller daily transactions, but hesitant to rely on them for crucial financial matters, such as the depositing of their salaries. Instead, incumbent retail banks remain the go-to for such matters. This is an issue for concern in challenger banks as the reduced deposit volume arising from the insufficient number of primary accounts in these banks results in lower profit margins. 

CFTE, being an education platform which finds its roots in the UK, was extremely curious on whether such a common sentiment is true. Therefore, we decided to see if such a phenomenon takes place in our own company as well by looking at the sort codes provided by our UK employees for their salary deposits. The results are shown below:


Our findings show that our UK employees use a wide variety of banks as their primary account. Out of the 60 UK employees we have,13 banks were used. Indeed, the majority of CFTE’s UK employees still opt for traditional incumbents (55%), such as Barclays, HSBC, NatWest, Nationwide, Lloyds, Santander, First Direct, TSB and Halifax. However, it is also noteworthy that the incumbent banks only won by a minimal margin of 10%.

Interestingly, there are actually quite a number of employees who have their salaries deposited into challenger banks (45%), such as Revolut, Monzo, Monese and Starling. Contrary to popular belief, quite a large proportion of our employees are already utilizing challenger banks as their primary accounts.

Of course, these numbers need to be taken with a grain of salt since these CFTE employees are younger than the average and all live in London. Moreover, even if they were not all Fintech aficionados when they joined CFTE, they were certainly more aware of challenger banks than the average. Depending on one’s view, these results could be seen as a canary in a coal mine or just a random fact.

Challenger banks are not so far behind

Challenger banks have already won the hearts of many with the greater convenience that they provide to consumers. While many consumers still may opt to use traditional banks as their primary accounts, challenger banks are also increasingly being adopted as primary accounts as well. Some of the challenger banks today are also being rolled out by the incumbents, with examples including Marcus rolled out by Goldman Sachs and Hello bank! which was launched by BNP Paribas.

To catch up to the incumbent banks, challenger banks now need to work on winning the trust of more consumers. It is particularly imperative that challenger banks ensure that their digital infrastructure —given that they do not have brick and mortar branches like incumbents— are well-secured and free from data breaches. Incidents like the service outages by Chime in 2019 will only further erode the trust that consumers have in neobanks and should be avoided. Furthermore, challenger banks can also look into collaborations with incumbent banks in order to build greater credibility for themselves.

In time to come, should challenger banks be able to build stronger trust with its consumers as well, the high usage of digital banking by UK consumers today shows that they are open and ready to put more of their financial matters in the hands of these neobanks. After all, based on CFTE’s findings, it can be seen that the number of employees using incumbent banks for their primary bank account is only marginally higher than those using challenger banks.

Final food for thought: The definition of a primary bank account is changing

Lastly, in today’s highly saturated finance scene where consumers have the choice of multiple incumbent and challenger banks, CFTE would also like to recognise that the definition of a primary account is no longer merely the bank that one has his/her salary deposited into. It is perfectly imaginable that consumers have multiple bank accounts for different purposes in their lifestyles. Therefore, an account that has your salary paid may simply serve as a transactional account and not one that you use the most for your daily purchases.

In such a changing landscape, both incumbent and challenger banks need to recognise the place that they stand in the lifestyles’ of their consumers and resolve to fill in the gaps in their user journey. Banks who neglect their consumers will eventually be eliminated by the competition as consumers are increasingly spoilt for choice today, desiring for greater personalised banking services. Challenger or incumbent, it seems that ultimately, a bank which understands its consumers will win its consumers over.

If you would like to find out more about challenger banks and how they started thriving, do check out CFTE’s FinTech specialisation. Learn from distinguished lecturers, such as Andrei Kirilenko, Director of the Centre for Global Finance and Technology at Imperial College London, and Janos Barberis, Founder of Supercharger FinTech Accelerator. Through the courses, you will also gain an understanding about the significance of challenger banks and how they distinguish themselves from their incumbent competitors.

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