Around one in 12 (8%) personal current accounts are now held with a digital “challenger” bank, up from just 1% in 2018, according to the City regulator.
The Financial Conduct Authority (FCA) said these banks have “attracted customers in part by offering innovative mobile apps which make the experience of banking easier and more convenient and to help consumers manage their money”.
While there are signs that some of the historic advantages of large banks may be starting to weaken amid innovation and changing customer behaviour, the big players are still in a strong position, the regulator said.
Large banks accounted for 64% of personal current accounts in 2021, while larger challengers accounted for 24% and mid-size banks made up the remaining 4% share.
People are also increasingly having more than one bank account, enabling them to “try out” more than one provider at the same time.
Over the past four years, the number of personal current accounts has ballooned by 15%, from 87 million to more than 100 million.
This means that, on average, each adult across the UK now has 1.9 current accounts.
The FCA said: “We believe that this is a positive development for competition as it allows consumers to try out different products and build trust in other brands.”
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown, said: “High street banks are losing their vice-like grip on the UK’s current accounts.
“Almost one in 10 accounts are now held with a digital bank – up from one 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.”
Ms Coles said Hargreaves Lansdown research has found that 40% of people hold their savings with the same bank as their current account.