FCA: High street giants losing their grip on current accounts

There are 100 million current accounts held in the UK. Around 8% are now held with newer online banks – up from 1% in 2018. Over the same period, the big banks have gone from running 68% of current accounts to 64%.

The FCA has published its 2022 final report on the retail banking market:Strategic review of retail banking business models | FCA

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown: “High street banks are losing their vice-like grip on the UK’s current accounts. Almost one in ten accounts are now held with a digital bank – up from 1 in 100 just four years ago. This is great news for those customers who are able to get a better deal, and are encouraged to look elsewhere for mortgages and savings too. However, it has been a real blow for those who rely on bank branches.

As the high street giants have closed branches and moved online, they’ve lost the things that gave them an edge over their newer counterparts. At the same time, online banks have been able to offer innovations to set their apps apart, which has accelerated the rise of these banks.

Current accounts are vital to how the banks do business. They don’t just make them money – although between 2018 and 2020 a typical current account made the big banks £104 each in charges and fees. They also give them a captive audience for all their other products. Separate HL research shows that 40% of people hold their savings with the same bank as their current account, a third go to their existing bank when they’re planning to open a savings account, and among this group over half don’t even consider anywhere else.

It means switching your current account doesn’t just offer the chance to find somewhere with lower fees or more attractive features. It also has the power to free us from the tyranny of the high street when it comes to saving and borrowing, encouraging more people to shop around for more competitive deals.

Banks are losing their grip on current account customers, but they haven’t let go just yet. At the moment, we hold an average of 1.9 current accounts each, and new digital banks are more likely to be our second account (only 25% are main accounts). Instead of switching overnight, we’re trying before we buy, and then gradually moving over. In spring last year Starling said that average balances had doubled in a year to £2,000.

But while changes in the market have often meant better deals for the switchers, they’ve not been  beneficial for everyone. Plenty of people aren’t yet ready to bank online, especially older customers. People aged 25-34 are most likely to switch to a digital bank, while those aged 45 and over are least likely.

And as more people switch out, it will pile the pressure on high street banks to close branches and move online in order to cut costs and compete more effectively. This causes enormous problems for those who rely on the branch network who stick with a high street bank through thick and thin, only to watch it disappear from their high street entirely.”