Neobanks Are Disrupting the UK Banking Industry – And They’re Doing It Fast

For Britons – and especially younger Britons – the term NEO brings to mind more than just the Matrix trilogy. Within just a few years, there has been a surge of new millennial-friendly challenger banks (known as neobanks) that are shaking up the conventional form of banking in the UK. These app-only banks boast quicker and easier financial transactions compared with the long-established banks on the high street. But are the waves they’re making getting bigger and stronger?

We looked at the digital performance of the top 10 banking brands in the UK (seven traditional banks and three neobanks) to see where things have been heading since January 2017.

• The top 2 neobanks – Monzo and Revolut – are experiencing tremendous app growth, while traditional banks such as NatWest and RBS are slowing down.
• Barclays continues to have the highest amount of DAUs, but Monzo is increasing at 3x the user growth rate.
• Millennials are an important target audience for both types of banks and are responsible for most of the growth in app usage.
• On average, traditional banking sites have seen an 18% decrease in traffic to their login pages in the last two years. Meanwhile, some disruptor banks have successfully expanded into business accounts.

Monzo, Revolut See Massive Install Penetration Growth

Based on our data, traditional banks still have the highest install penetration rates in the UK but are losing relevance in the mobile banking space. Two, in particular, have experienced declines in the past year: NatWest fell from an install penetration of 8.8% in 2018 to 8.3% in 2019 and RBS from 2.0% to 1.8%.

Meanwhile, neobanks are experiencing rapid growth in install penetration. Monzo, a four-year-old neobank, rose from an install penetration of 2.0% in 2018 to 5.1% in 2019 (YoY growth of 151%). Similarly, Starling Bank, the oldest neobank, founded in 2014, had an install penetration of 1.0% in 2018 and advanced to 1.9% in 2019 (+97%), and Revolut, a popular challenger that offers banking and debit card services, rose YoY by 67% to a 3.2% install penetration rate in 2019.

They’re Also Being Used More

In terms of Daily Active Users (DAUs), Barclays leads the set with 827K in October 2019. Lloyds is in a distant second place with 494K. Monzo, Revolut, and Starling Bank come in seventh, eighth and tenth with 190K, 99K, and 46K, respectively. Yet, as the graph below shows, there is a general upward trend in DAUs for these neobanks, as opposed to a downward trend for traditional banks – indicating that the challengers are not only experiencing growth in install penetration but also in usage.

Traditional Banks Are Undergoing Double-Digit Declines

Looking at traditional banks’ website traffic to the online banking subdomains we see a further indication of this shifting competitive landscape. Comparing November 2017 to October 2018 against November 2018 to October 2019 reveals an average 17.7% decrease in traffic to the login pages of the five traditional banks. Lloyds Bank experienced the steepest decline (-24.52%) and was closely followed by HSBC (-22.44%) and Halifax (-19.14%). Barclays had the smallest decline, but it was still more than 10%.

Who’s Accountable for the Change?

Millennials are increasingly grabbing the attention of the banking industry, and for a good reason. This technologically savvy generation is an important consumer base that is known for being particularly reliant on mobile devices.

Both traditional and neobanks are targeting this age group. Sixty to seventy percent of all app users are aged 25-34, with Monzo capturing 77% of millennials, the highest percentage in the set. Gen Z (15 to 22-year-olds) is the next age group for all the banks with an average of 22% of users. This is not surprising considering that millennials are on track to becoming the largest age group in the UK’s workforce.

Moving Into the Business World

However, youngsters aren’t challenger banks’ only target audience. An interesting development is the expansion of some of the neobanks into the well-established online banking segment. Revolut launched a web-based business offering in 2017, designed to allow small and medium-sized enterprises (SMEs) to manage their finances easier and faster, and is leading the pack with close to 600K page views to its business account pages from April to September 2019 (an increase of 23%). Yet Monzo, which introduced its business offering in February, is already closing the gap with 191K page views in the same timeframe.

Conclusion

Neobanks in the UK – which are 100% digital and do not have physical branches – are winning the race for millennials’ finances. Traditional banks are working to keep up with the trend by also focusing on this target group. Still, most of the app growth in the online banking sector has come from several increasingly popular apps that arrived on the scene a few years ago, and are continuing to upend the traditional banking model at a very fast pace.

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* This post was co-written with Tomas Seliokas, Similarweb’s Strategic Consultant for telecom and finance.

Want to learn more about how neobanks are changing the UK’s banking landscape? Download the full report.