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Accenture highlights growth and challenges for digital-only banks

Sep 30
Tags: Accenture
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Accenture highlights growth and challenges for digital-only...

One of the most attention-grabbing trends in the UK financial services industry in recent years has been the emergence of digital-only banks, which are giving consumers an alternative to the established institutions that have dominated the sector for decades.

These challengers to the status quo have the potential to achieve exciting growth in the coming year, but also have some significant obstacles to overcome, according to Accenture.

Rapid expansion

Digital-only banks operating in the UK - such as Starling, Monzo and Revolut - already have 13 million customers, but current growth rates indicate that could increase to 35 million within the next 12 months.

Accenture's findings showed that five million people opened an account with one of these providers in the first six months of 2019 alone.

The firm's research highlighted a number of positive trends in the so-called 'challenger bank' sector, such as a current growth rate of 170 per cent in customer acquisition. This is being driven by product launches, expansion of the typical customer base beyond millennials and growth into new markets.

Furthermore, the average deposit balance for digital-only banks increased fivefold during the first half of this year, from around £70 to £350 per customer. These businesses also enjoy a clear cost advantage, with average operating costs of between £20 and £50 per customer, compared to over £170 for traditional banks.

Users of these new providers tend to give them strong recommendations, with an average net promoter score of 62 for digital-only banks, compared to just 19 for established institutions.

While this all looks very encouraging for the emerging providers, Accenture also highlighted the obstacles these firms face on the road to long-term success.

'Deeper issues'

One of the clear challenges facing digital-only banks is the fact that, for the most part, they are unprofitable, losing on average £9 per customer.

They are gaining momentum and delivering positive consumer experiences, but face an uphill battle when it comes to prising customers away from established brands, with most UK adults still relying on traditional providers for their primary bank accounts.

Furthermore, some incumbent banks are responding to the emergence of new competitors by launching their own digital-only brands, and investing in their digital infrastructure to meet modern consumer expectations.

Tom Merry, managing director at Accenture Strategy, said: "While digital-only banks are popular, they are not yet universally profitable and customer acquisition alone does not guarantee long-term success or competitive agility.

"These banks evidently show great promise. They have been a catalyst for positive change in banking, but there are deeper issues that need to be addressed as they scale."

He went on to say it remains to be seen whether these new entrants will herald a "radical overhaul" of the banking industry or simply a "continued evolution".

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