UK banks have lost at least a third of market share to fintechs

A couple of things hit my radar late last week. The first was a prediction by Bain & Co that challenger banks would own a third of the UK banking market by 2030. This coincided with the news of Revolut finally getting their UK banking licence. It’s only taken five years. Let’s dive in.

The Bain report states that “traditional banks have slipped from capturing 95% of the addressable revenue pool in the early 2000s to about 80% today. By 2030, we estimate they could hold only 65%, further ceding ground to fast-moving challengers emphasizing asset outperformance”. In other words, boring old banks have lost a third of their market share in 25 years.

According to Bain, and a few other insights, this is how challenger banks are redefining the industry landscape:

Speed and Accessibility: Challenger banks (e.g., Revolut, Monzo, Starling) focus on app-first, user-friendly experiences, acquiring customers eight times faster than legacy banks.

From Digitalisation to Truly Digital: While incumbents often "digitised" by merely moving analogue processes online, challengers built native digital platforms from the ground up, avoiding clunky legacy tech.

Niche Targeting: Digital challengers are successfully targeting specific segments that were historically deemed too expensive or underserved by traditional retail banks, such as specialized SME lending.

Customer Experience: Challengers offer 24/7 service with quick account setups and modern budgeting tools, often enabling actions in three taps or less.

Data Usage: The use of new data sources—including social media, behavioural data, and biometrics—allows challenger banks to offer highly personalized services.

From "Us vs. Them" to Hybrid Ecosystems: The initial battlefield of fintechs attacking incumbents is maturing into a more complex landscape where challengers leverage fintech advantages, while some legacy players try to build or acquire their own digital-native capabilities.

Big Tech Invasion: The next major threat to both incumbents and challengers is the looming entry of big tech companies, which have the capital, data, and user base to trigger a "seismic shift" in the market.

Profitability Pressure: As the market cools, challengers are facing a "profitability trap," needing to move beyond rapid growth to proving long-term sustainable business models, a challenge that some earlier, smaller challengers failed to meet.

While over 62% of UK banking customers now use at least one challenger bank, only 14% have fully abandoned traditional institutions, leaving the battlefield competitive as traditional banks try to retain loyalty through improved digital offerings.

The war is not over or, with Revolut getting their banking license finally – it just took five years – does this change the game even more?

In the UK, Revolut has over 13 million customers. If they could convert them all to use their full banking services, now they have a license, what would this mean?

Well, their press release provides some interesting insights.

For example, getting their license confirms their commitment “to invest £3bn ($4bn) and create 1,000 high-skilled jobs in the UK”. That will cheer up the Chancellor and HMRC.

“Revolut Bank UK Ltd will be able to start offering accounts as a fully licensed bank for both retail and business customers. It enables Revolut to offer deposit accounts protected by the FSCS on eligible deposits and paves the way for a wider range of services in the future, including lending and other products.”

The lending aspect is the key reason why Revolut wanted a license.

The key challenge for Revolut is that they want to convert 13 million payments users into bank accounts. N26 and Monzo both messed this up by missing key aspects of the KYC processes, e.g. when you switch a payments user to a bank account, you have to fully re-onboard them with all the pain in the arse processes that go with that.

This means that Revolut will need full identity and utility bills and more from 13 million people as they switch them over to banking. That is no small challenge, and is probably why it has taken them five years to get that license.

Bob’s Guide https://www.bobsguide.com/revoluts-long-road-to-bank-status/ looks into this, and the fact that “the primary question echoing through the City of London and Wall Street is why a company of Revolut’s scale took over 1,800 days to secure a license that typically takes two years”.

The answer is that Revolut has a complex share structure, has had issues with corporate reporting of revenues and auditing, and a supposedly ‘toxic’ corporate culture. There have been lots of insults thrown at Revolut over the years … until now. Now, the company is one the UK’s most highly valued with the latest estimates forecasting a valuation of over £100 billion.

Congratulations to Nik Storonsky and Vlad Yatsenko.

From two guys sitting in an office with an idea in Canary Wharf, they’ve built one of the biggest fintech breakouts that are now going global … but getting a banking license in the UK was key to their strategic plan.

As Francesca Carlesi, UK CEO at Revolut, says: “becoming a bank in our home market marks a defining moment in our journey.”

Well done guys, and let’s convert 13 million customers into banking customers, taking that extra market share away from traditional banks which, as mentioned, Bain believes is at least 15% more of the market available … or maybe a lot more?