Digital-only fintech banks are growing in popularity, with a notable proportion using them as their main current account, according to the new State of Pay report from Vocalink, a Mastercard company.
The biennial report reveals that competition in banking may be beginning to increase with digital fintech banks - such as Monzo and Starling - accounting for over one in ten (13%) new bank accounts opened in the last six months. A quarter (24%) of these are being opened to be used as main current accounts, while the remainder are being used as a secondary account.
Many respondents in our survey hold multiple current accounts to manage their money - four in ten (40%) of these hold a secondary current account, increasing to nearly half (48%) among respondents aged 25-34. Of these secondary current accounts, 3% are with digital banks (such as Monzo or Starling) although this doubles for the 16-34 age group (6%) and increases to 8% among respondents in London.
While the mainstream banks are clearly still retaining the vast majority of their customers, the State of Pay report suggests the influx of new banks in recent years may be starting to have an impact. The research also shows there has been a 5% drop in new accounts among the ‘big banks’ in 2019 compared to 2018.
When looking at the typical customer of a digital-only fintech bank, the average age is slightly younger (31 years vs 48 years) and they are more likely to live in an urban area (66% vs 56%). They are also over twice as likely to use mobile payments (68% vs 30%) and tend to have a higher household income (£46k vs £33k).
The report reveals two main factors that may be behind the increasing popularity of the new digital banks: improved functionality of digital banks’ apps and being able to use the card abroad for free. These factors may particularly appeal to the younger generations - indeed nearly a third (30%) of respondents aged 25-44 are considering opening a digital-only account. However, it’s not solely younger respondents using them - one in twenty (6%) respondents aged 55-64 also have an account with a digital fintech bank.
Gregor Dobbie, CEO of Vocalink (a Mastercard company) comments: “After years of discussion around increasing competition in the banking sector, our latest State of Pay report suggests this is finally coming to fruition. While at present the rise in digital-only banks might be most common in urban areas and among younger generations, we expect to see this trend occurring more widely among other demographics in years to come. Many are choosing digital-only banks for the improved technology and lack of charges abroad, and it will be interesting to see how the traditional players respond to these new customer expectations.”