New research released by multinational conglomerate Accenture has revealed the rapid growth of digital-based banks, otherwise known as neobanks.
The research tracked the performance of UK-based challenger banks across the first six month of 2019, where over five million people opened an account with a digital-only bank.
Predictions from the research for total figures of digital-only customers topple 35 million globally within the next 12 months as these challenger banks continue to boast incredible growth rates (170%).
Tom Merry, managing director, Accenture Strategy, commented: “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.”
Accenture analysed market data from a representative sample of 30 UK banks; all data utilised was sourced from publicly available information, including financial reports and media publications.
Emphasis on user experience appears to be clear appetiser for customers, with neobanks average Net Promoter Score reaching 62 compared to just 19 for traditional banks.
They also retain a significant cost advantage with the average operating cost per customer at £20 to £50, compared to over £170 for a traditional bank.
Despite the many positive, Accenture made clear the issue faced by neobanks; profitability. On average, the firm found neobanks to be losing £9 per customer.
Accenture also found many people staying with what they know with traditional banks often holding a person’s primary account, although the firm acknowledged the slow growth of those who have fully transitioned.
“Core challenges in terms of balance sheet scale and funding, risk management and compliance cast some doubt over whether convenience, customer experience and the cost advantages of digital-only banks are enough to ensure long-term success,” continued Merry.
“It remains to be seen whether there will be a radical overhaul of the banking industry as a result of these new entrants, or simply a continued evolution.”