The Great British Banking Revolution – Are the Digital Challenger Banks here to stay?

Clearbank, Monzo, Revolut, Starling and Tandem; if you haven’t heard of these, you soon will as they represent 5 of the most successful digital challenger banks of 2018, all of whom have just been ranked in LinkedIn’s Top UK Startups 2018.

A Great British success story?

Traditional UK retail banks have not enjoyed the easiest of times in recent years. The cost of Payment Protection Insurance has dragged on, low interest rates have continued to squeeze lending margins and the occasional data breach or online banking system crash has not helped their reputation along the way.

The latter is where the new digital challengers have a key advantage. Unlike their traditional forefathers, digital challenger banking tech is new, intuitive, and not built on top of old, in many cases outdated, computing infrastructure.

The digital challengers have also been commended for their response to the data breaches of other companies, reacting swiftly, by contacting affected customers via mobile apps, freezing cards and sending out replacements with minimal hassle.

Are there any issues?

Though the customer base of all the digital challengers is increasing dramatically, this brave new world is not without its difficulties. The principal issue can be summed up in one word, deposits. Most digital challenger banks can only expect an average deposit of £100-150 per customer. This is far less than amounts held by traditional high street banks and impacts profitability.

What does the future hold?

Sustainable operating profits are an aspiration of all digital challengers, but due to the low customer deposit levels, this may take some time to achieve.

Reports surrounding two of the biggest digital challenger banks anticipate a valuation in excess of £1.5 billion in their next rounds of investment. If realised, this will certainly make the traditional banking sector sit up and pay attention and will be yet another indication digital only banking is moving towards the mainstream.