The number of people saying they have an account with a digital-only bank has stalled for the first time in 4 years, new research from personal finance comparison site finder.com shows.

Around a quarter of the population (27%), equivalent to 13.9 million people, say they currently have an account with a digital-only bank, which is the same figure as last year. This is the first time during 4 years of tracking digital banking adoption in the UK that Finder’s poll has shown the figure flatlining.

But growth appears to have been slowing for a while, with the number of digital-only banking users rising from 9% in 2019 to 23% in 2020 before a more modest rise last year, when it rose to 27%.

The reasons behind traditional banks’ fightback

3 in 10 (31%) respondents said they have absolutely no intention of opening a digital-only bank account in the future and gave reasons why.

The top factor was that over half (55%) of these people feel like they have always been treated well by their current bank. Similarly, around 1 in 6 (16%) also said their traditional bank had been helpful during the COVID pandemic.

As the world begins to return to normal, the second most common reason was that customers prefer having the option of face-to-face communication with their bank (35%).

A worrying finding for the digital-only banks is that a quarter (25%) of those not intending to switch cited a lack of trust in new banks as the reason. 

Growth still on the horizon for digital-only banks though

Despite the slowdown in new recruits, digital-only banks can still look forward to welcoming 18% of the population over the next 5 years, according to the research. This includes 1 in 10 (10%) UK citizens who plan to open an account within the next 12 months.

If everyone followed through with their intentions, 44% of the population would have a digital-only bank account by 2027, equalling a whopping 23.2 million people.

For the fourth year running, the top reason for those who have gone, or intend to go digital-only with their banking is convenience (27%). Linked to this, 1 in 4 (24%) wanted a new account and thought doing so with a digital bank was the easiest option.

1 in 5 (21%) said they want to transfer money more easily, and 18% thought the apps of digital-only banks are better.

A lack of trust isn’t just a factor for those who prefer traditional banks - 1 in 10 ( 11%) customers, or potential customers, of digital-only banking say they don’t trust traditional banks.

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

Digital banks are still most popular with younger generations, with 41% of Gen Z saying they have a digital bank account and a further third (34%) intending to get one within the next 5 years. This would mean that by 2027, three-quarters of gen Z (75%) could have a digital bank account. The silent generation (born between 1928 and 1948) remains the generation that is least keen on digital-only banks. Just 7% said they have an account currently.

Commenting on the findings, Michelle Stevens, banking specialist at the personal finance comparison site finder.com, 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.