More than one in ten British citizens are planning to move their banking operations to digital-only institutions this year
UK consumers are embracing the digital revolution in personal banking, with digital-only banks offering modern conveniences and catering to contemporary needs. A recent survey reveals the advantages and challenges of these new financial institutions compared to traditional banks.
Advantages of Digital-Only Banks
Digital banks are increasingly seen as more attuned to the needs of UK businesses and consumers, with a focus on mobile-first and app-based financial management. Over two-thirds of UK business leaders find digital banking easier and value the ability to manage finances entirely on mobile apps with slick user experiences.
Challenger banks like Monzo, Revolut, and Starling offer modern, customer-centric services, including minimal fees, transparent pricing, and personalized financial tools, challenging traditional banks’ legacy systems. These digital banks provide fast, seamless user experiences and prioritize transparency in transactions, appealing to younger customers especially.
Typically, digital-only banks operate with minimal physical infrastructure, potentially enabling lower fees or better financial incentives for customers. However, some traditional banks still offer lucrative incentives as well.
Disadvantages or Challenges Compared to Traditional Banks
Despite their advantages, digital banks generally lack branch networks, which may reduce options for face-to-face interactions and services valued by some customers. Customer service access is another area where traditional banks often retain an advantage, with direct access to advisors remaining important for many users and business leaders.
While digital banks leverage modern technology, some traditional banks struggle with legacy systems that delay innovation but maintain established trust and broad service networks. Additionally, although digital banks focus on technology and usability, traditional banks sometimes offer financial incentives such as cash rewards and in-credit interest that digital challengers do not commonly provide.
The Future of Digital-Only Banks
David Webber, managing director of Intelligent Environments, predicts digital-only banks will cause major disruption to traditional providers. Within five years, 34% of those surveyed expect more people to have an account with a digital-only bank than a traditional provider. Almost a third (31%) said that a digital-only bank would offer better mobile and digital banking services than a traditional bank.
One in eight UK banking customers (13%) plan to switch to digital-only banks when they launch, with 14% saying they would trust a digital-only bank more than a traditional bank. More than half (52%) of UK banking customers don't like the idea of not being able to speak to someone in person if they have a problem.
The shift toward digital banking is pronounced among younger generations and business users who value app functionality. However, customer support remains an area where traditional banks can maintain relevance if they invest in digital improvements.
Digital-first banks like Atom and Starling are set to launch in the UK this year without physical branches. As digital-only banks continue to grow and innovate, they are likely to reshape the UK banking sector, offering more convenience and modern services, while traditional banks focus on improving their digital and mobile services to remain competitive.
- Digital-only banks, such as Monzo, Revolut, and Starling, are favored by UK businesses and consumers due to their focus on mobile-first and app-based financial management, providing easier management for more than two-thirds of business leaders.
- A potential disadvantage of digital-only banks is the lack of branch networks, which might limit face-to-face interactions and service options for some customers, despite their modern, customer-centric services and fast, seamless user experiences.
