Digital Banks - United Kingdom

United Kingdom

In the United Kingdom, the projected Net Interest Income in the Digital Banks market market is expected to reach US$125.70bn in 2024.
It is anticipated that the Net Interest Income will exhibit an annual growth rate, specifically a Compound Annual Growth Rate (CAGR 2024-2028), of 11.47%.
This growth is forecasted to lead to a market volume of US$194.10bn by the year 2028.
When compared globally, it is worth noting that in China is expected to generate the highest Net Interest Income.
In 2024 alone, in China is projected to generate a staggering US$969,200.0m.
The United Kingdom is witnessing a surge in the adoption of digital banks, with traditional banks facing increasing competition from innovative fintech startups.

Key regions: United Kingdom, Japan, China, United States, Brazil

Definition:

Digital Banks refer to the emerging market for purely digital banks that offer financial services via online and mobile platforms. Unlike traditional banks, digital banks also known as neobanks, do not have store-based branches and instead rely on technology to deliver their services. But in contrast to digital-only direct banks, which focus on providing traditional banking services in an online format, the digital banks/neobanks covered in this analysis prioritize cutting-edge features and a modern user experience.
Digital Banks offer a wide range of financial products and services, including savings and checking accounts, credit cards, personal loans, and investment products, among others. They aim to provide a more convenient, accessible, and user-friendly banking experience by leveraging technology such as mobile apps and artificial intelligence. They also provide a digital identification and onboarding process, often via smartphone.
The Digital Banks market is growing rapidly as consumers increasingly demand more convenient, digitally focused financial services. Neobanks/Digital Banks are able to offer these services at a lower cost compared to traditional banks, as they have lower overhead costs and a more efficient operating model.
However, digital banks face challenges in building trust and establishing their reputation in the financial services industry. They must also navigate the complex regulatory landscape and comply with the same rules and standards as traditional banks.
Overall, the Digital Banks market represents a growing and exciting opportunity for financial services providers to deliver innovative and convenient solutions to consumers.

Structure:

The market data comprises Net Interest Income, the value of Deposits, the value of Loans, Credit Card Interest Income as well as the number of ATMs.

Additional information:

The Banking market is highly competitive and characterized by the presence of large global players as well as regional and local banks. Banks are continually seeking ways to improve their offerings and remain competitive by leveraging technology and offering innovative financial products and services. Additionally, changes in regulations and the growing trend toward digitalization are shaping the retail and commercial banking market, creating opportunities for new entrants and forcing existing players to adapt.

Key players in this market are companies such as Bunq, Tomorrow, and Revolut.

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Analyst Opinion

The Digital Banks market in United Kingdom is experiencing a significant surge in popularity, with more consumers opting for digital banking solutions over traditional brick-and-mortar banks.

Customer preferences: Customers in the United Kingdom are increasingly drawn to the convenience and accessibility offered by digital banks. The ability to carry out banking activities anytime, anywhere through mobile apps and online platforms is a key driver for this shift in preferences. Additionally, digital banks often provide competitive interest rates, lower fees, and innovative financial products that cater to the tech-savvy population in the UK.

Trends in the market: One prominent trend in the UK's Digital Banks market is the rise of neobanks, which are fully digital and operate without any physical branches. These neobanks are disrupting the traditional banking sector by offering personalized services, seamless user experiences, and advanced digital features such as budgeting tools and real-time transaction notifications. Furthermore, partnerships between digital banks and fintech companies are on the rise, leading to the introduction of cutting-edge solutions like AI-powered chatbots and biometric authentication.

Local special circumstances: The regulatory environment in the United Kingdom, particularly the open banking initiative, has played a crucial role in shaping the Digital Banks market. Open banking regulations have encouraged competition and innovation by requiring traditional banks to share customer data with authorized third-party providers. This has paved the way for the emergence of new digital banking players and fostered a more dynamic financial ecosystem in the UK.

Underlying macroeconomic factors: The ongoing digital transformation across industries in the United Kingdom is fueling the growth of the Digital Banks market. As more aspects of daily life move online, from shopping to entertainment, consumers are becoming increasingly comfortable with managing their finances digitally. Moreover, the COVID-19 pandemic has accelerated the adoption of digital banking services, as social distancing measures and lockdowns have limited in-person interactions and highlighted the importance of remote banking solutions. This shift towards digital channels is expected to persist in the post-pandemic era, driving further expansion in the Digital Banks market in the UK.

Methodology

Data coverage:

Data encompasses B2B and B2C enterprises. Figures are based on Net Interest Income, Bank Account Penetration rate, the value of Deposits, the number of depositors, the value of Loans, the number of borrowers, Credit Card Interest Income, the number of ATMs as well as the number of Bank Branches.

Modeling approach / Market size:

Market sizes are determined by a combined Top-Down and Bottom-Up approach, based on a specific rationale for each market segment. As a basis for evaluating markets, we use data provided by the IMF, World Bank and the annual reports of the top 1000 Banks by asset size. Next we use relevant key market indicators and data from country-specific associations such as GDP, deposit interest rates, lending interest rates or bank account penetration rates. This data helps us to estimate the market size for each country individually.

Forecasts:

In our forecasts, we apply diverse forecasting techniques. The selection of forecasting techniques is based on the behavior of the particular market. For example, the S-curve function and exponential trend smoothing are well suited to forecast financial services for digital as well as traditional products and services.

Additional Notes:

The market is updated twice per year in case market dynamics change.