The number of people with a digital-only bank account has stalled for the first time in four years; new research from Finder shows.

In 2022, 27 per cent of the UK population, around 13.9 million people, say that they currently have an account with a digital-only bank; a figure that has remained unchanged from the previous year. This is the first time during four years of tracking digital banking adoption in the UK that Finder’s poll has shown the figure flatlining.

But the comparison site reports how growth appears to have been slowing for a while, with the number of digital-only banking users rising from nine per cent in 2019 to 23 per cent in 2020 before a more modest rise last year, when it rose to 27 per cent.

The reasons behind traditional banks’ fightback

During a survey of 2000 UK adults, 31 per cent of respondents stated how they have no intention of opening a digital-only bank account in the future. The reasoning for this change was elaborated upon throughout their responses.

The top factor was that 55 per cent of respondents feel like they have always been treated well by their current bank. On a similar note, 16 per cent said their traditional bank had been helpful throughout the course of the pandemic.

As the turbulence of the pandemic slowly begins to settle, the data suggests how 35 per cent of customers prefer having the option of face-to-face communication with their bank; an area in which challenger banks severely lag behind.

What’s more, 25 per cent of respondents reported feeling a lack of trust towards challenger banks, a feeling that has prevented them from switching to their services.

It appears that the retention of traditional banking customers has been saved by the incumbents’ reputation for trust, transparency and superior communication.

Is there any hope for the future of digital-only banks?

According to the research, despite the slowdown in new recruits, digital-only banks can still look forward to welcoming 18 per cent of the population over the next five years. This includes 10 per cent of UK citizens who are forecast to open an account sometime within the next 12 months.

If these predictions came to fruition, 23.2 million people would have a digital-only bank account by 2027, equalling 44 per cent of the total population.

For the fourth year running, the top reason behind the shift to digital-only banking was the convenience of the service, a reason that was cited by 27 per cent of respondents. Linked to this, 24 per cent who sought to establish a new account thought that turning to a digital-only bank was the easiest option.

In light of convenience, 21 per cent stated how they wanted to be able to transfer money more easily, whilst 18 per cent regarded the apps associated with digital-only banks as superior to any other service.

On the other side of the coin to their incumbent counterparts, a lack of trust isn’t just a factor for those who prefer to utilise more traditional services, as 11 per cent of customers, or potential customers, of digital-only banks stated how they don’t trust the services of traditional alternatives.

Young generations continue to be the biggest market for digital-only banks

Digital banks are still most popular with younger generations, with 41 per cent of Gen Z respondents stating that they have a digital bank account, with a further 34 per cent intending to get one within the next five years. This would mean that by 2027, 75 per cent of Gen Z could have a digital bank account.

The silent generation (born between 1928 and 1948) remains the generation that is the least welcoming of digital-only banks, as a mere seven per cent reported utilising their services.

Commenting on the findings, Michelle Stevens, Finder’s banking specialist said: “This is the first year that our research hasn’t seen growth in the number of people using digital-only banks and it’s clear that traditional banks are adapting to an increasingly digital landscape. This seems to have played a significant role in the dropoff of new customers for digital-only banks as their first-mover advantage in the app space gets diminished.

“Traditional banks such as Halifax have also seen net gains after improving their digital products and offering switching incentives – including to existing customers – something that digital-only banks haven’t done yet. Halifax has just won Finder’s Banking Customer Satisfaction Awards for 2022, with some customers in our survey praising its app.

“It isn’t all about digital though as there’s also a significant number of Brits who value having a physical branch to visit and trust traditional banks more. While the digital-only banks may not be able to compete with having a presence on the ground, they will be concerned at the lack of trust some customers appear to have in them.”