Digital-only banks operating in the U.K. are projected to amass 35 million new customers globally within the next 12 months – up from 13 million today, according to new research from Accenture which tracks the performance of U.K. digital banks.
In the first six months of 2019 alone, five million people opened an account with a digital-only bank, with customer acquisition accelerating at a growth rate of 170%.
Digital-only banks have been making gains in acquiring primary account holders, with the average deposit balance increasing fivefold from around £70 to £350 per customer in the first half of 2019.
Other areas of progress among digital banks include the customer profile, which is broadening beyond millennials as they gain more market traction. A number now cite their average customer as being in their mid-40s and increasingly outside of London.
Also, the customer experience advantage of digital banks is reflected in an average Net Promoter Score of 62 compared to just 19 for traditional banks, highlighting the draw of these user-friendly brands to consumers.
These players retain a significant cost advantage, with the average operating cost per customer at £20 to £50, compared to over £170 for a traditional bank.
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Despite this strong performance, there are notable challenges. The majority are still not profitable, with the average digital bank losing £9 per customer.
Account switching remains low across the industry and while digital banks are now gaining primary account customers and larger balances, the pace is slow. Scrutiny has also already been drawn to governance and control issues as these banks scale, suggesting regulatory hurdles could increase in response. Furthermore, incumbent banks are investing heavily in digital, with an initial focus on transforming their existing infrastructure, and several are now launching their own new digital banks.
Tom Merry, managing director at Accenture Strategy, said: “While digital banks are popular, most are not profitable. On the face of it, these banks show great promise as being a catalyst for positive change in banking, putting pressure on incumbent banks to invest in technology, convenience and customer experience. But with competition mounting and most digital banks continuing to be unprofitable, customer acquisition alone does not guarantee long-term success.
“How these banks convert more customers to primary account holders and manage core challenges in terms of balance sheet scale and funding, risk management and compliance, will ultimately be the critical deciding factors to their future success.”