United Kingdom (UK) Retail Banking Market Sizing and Opportunities 2022

The UK retail banking sector has been resilient despite COVID-19. Residential mortgages and retail deposits showed weaker compound annual growth rates (CAGR) than comparable markets, although consumer credit lending recorded stronger CAGRs for both credit cards and personal loans than comparable markets (with the exception of Germany). The UK has witnessed a double threat to the economy in the form of uncertainty and external shocks caused by the 2016 Brexit referendum and the COVID-19 pandemic.

The UK retail banking market research report explores the key trends in the UK retail banking sector and offers insight into consumer preferences and changes in behavior regarding financial services providers. It also examines channel preferences and covers overall satisfaction and importance levels of the main banking attributes. In addition, the report analyzes cross-selling opportunities by looking at customer tenures and areas of dissatisfaction.

What was the impact of COVID-19 on the UK retail banking market?

Since 2015 only Barclays, NatWest, and The Co-operative Bank have been able to decrease their cost/income ratios. All other providers covered saw costs rise relative to income. This was particularly true in 2020 due to the impact of non-performing loans, losses, and provisions as a result of COVID-19 as well as increased investment in digital channels and technology as bank operating models underwent one of the most significant periods of evolution they have ever faced.

COVID-19 and associated lockdown measures accelerated the shift in use and preference for digital channels as branch closures were implemented. In the UK these effects were particularly pronounced, specifically during Q1 and Q2 2020, as branch services closed or began operating on a reduced-hours basis. As customers had no option but to switch to using digital banking channels, many likely realized how antiquated incumbent legacy channels and products are. In recent years, a digital gap has been emerging between digital challengers and incumbent banks. The ease of signup and functionality offered by alternative providers showcased a new type of banking to UK customers – a factor that has likely contributed to preference rates moving away from traditional banks in favor of alternative providers. While the strong shift in preference can be attributed to the pandemic, it is likely that such trends will persist over the long term as rates of internet and smartphone penetration in the UK continue to rise, favoring digital providers.

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Which are the key providers in the UK retail banking market?

The key providers in the UK retail banking market are traditional banks & building societies, digital-only banks, digital wallets, big tech companies, digital investment platforms, telecommunications companies, new digital service providers, retailers/supermarkets, and a financial intermediary.

Traditional banks and building societies have seen a significant shift in preference for their services, such gains have not been taken advantage of by digital-only banks, digital wallet providers, and big tech companies, which are widely considered the three most likely types of provider to challenge incumbents for the primary account relationship. Despite being the best resourced and positioned challengers to threaten incumbents, preference for their services has not increased as many would have expected.

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Who are the key disruptors in the UK retail banking market?

The key disruptors in the UK retail banking market are Starling Bank, Monzo, and Revolut.

Starling Bank

Starling Bank was founded in 2014 by Anne Boden, a veteran banker with around 40 years of experience in the industry. Starling’s main aim is to create the best current account in the world – a consequence of the founder deciding she could offer a better service to customers and beat incumbents at the same time. Unlike Monzo, which has moved towards a big tech approach to branding, Starling has placed greater emphasis on generating a degree of respectability in line with incumbents.

Monzo

Monzo was originally founded as Mondo in 2015 by Tom Blomfield and a team who met while working at Starling Bank. In February 2016,

Revolut

Headquartered in London, Revolut was founded in 2015 by Nikolay Storonsky and Vlad Yatsenko. It has shifted from being a fintech that predominantly focused on offering currency exchange to a financial super app now offering debit cards, virtual cards, Apple Pay, interest-bearing Vaults, commission-free stock trading, cryptocurrency trading, commodities, and other services, with a full retail banking suite expected to be available within the next 24 months.

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UK retail banking market overview

Scope

• GlobalData’s 2021 Financial Services Consumer Survey found that the preference for current accounts from traditional providers in the UK declined by 12 percentage points (pp) compared to the previous year.
• Banks have prioritized the elements of service customers rank as most important, but greater attention should be paid to offering competitive prices and loyalty rewards as these are areas digital challengers thrive in.
• Between 2020 and 2021 online channels saw a 3pp decrease in use, while mobile channels saw a 3pp increase.

Reasons to Buy

• Understand and analyze UK mortgage, deposit, and lending market trends based on present and forecast growth up to 2025.
• Analyze data from GlobalData’s 2021 Financial Services Consumer Survey by looking at consumer preferences and behaviors in the UK retail banking market.
• Identify critical data points for customer retention and acquisition through three core areas in banking: financial services provider preference and movements, digital and alternative channel preferences, and cross-selling opportunities based on tenure and satisfaction levels.