The UK banking sector is undergoing a transformation as neobanks and fintechs continue their rapid ascent, reshaping consumer behaviour, loyalty and financial decision-making.

According to the latest research from RFI Global, digital banks like Monzo, Starling and Revolut have expanded their market share from 16% in 2018 to 50% in 2024, a remarkable shift that underscores the growing preference for fintech solutions over traditional banking institutions.

This shift signals a generational transformation in how UK consumers engage with financial services, driven by rewards, digital convenience and the increasing need for financial flexibility amid rising living costs.

Neobanks Gain Market Share as Traditional Banks Decline

RFI Global’s UK banking study, which surveyed 4,000 consumers, found that neobanks are gaining traction as consumers’ primary debit card providers.

At the end of 2020, only 1% of UK consumers held their main debit card with a neobank. By the end of 2024, this figure had surged to 9%, while the market share of the Big Six banks fell from 85% to 71% in the same period.

This trend is largely driven by Gen Z and millennials, who prioritise user-friendly digital experiences, instant payments and AI-powered financial tools.

While traditional banks continue to hold the majority share of financial services, neobanks are proving to be highly competitive in spending habits.

Consumers with a neobank as their primary debit card provider tend to spend 20% more per month than those banking with a traditional institution.

Despite the success of digital banks, RFI Global’s Petka cautions that traditional banks remain resilient by adapting their offerings to compete in the digital space.

As fintech continues to evolve, traditional banks may need to accelerate their digital transformation efforts to retain consumer engagement.

Rewards Drive Loyalty and Switching Behaviour

Historically, UK consumers were known for their loyalty to their primary bank, often remaining with the same institution for decades.

However, this landscape is shifting rapidly as financial incentives become a key factor in banking decisions.

The study found that consumers are now more likely to switch banks for cashback offers, sign-up bonuses and enhanced rewards programs.

Among those considering switching in the next 12 months:

• 50% cited incentives and better rewards as their primary reason for moving to a new provider.
• 48% of consumers choose their primary credit card based on cashback, discounts, or loyalty perks.
• Rewards drive higher spending, with debit card users earning rewards spending 85% more per month than those without incentives.

With consumers actively comparing financial incentives, UK banks must innovate to remain competitive. Traditional institutions need to enhance loyalty programs, integrate AI-powered budgeting tools and streamline digital experiences to maintain engagement.

Rising Cost of Living Drives Financial Pressures

The cost-of-living crisis in the UK is putting financial pressure on households, forcing many to dip into savings or rely on credit.

The report highlights that:

• 49% of UK consumers are withdrawing from their savings to cover essential costs – the highest level in 12 years.
• 27% expect to rely more on credit in 2025, turning to credit cards and Buy Now, Pay Later (BNPL) solutions to manage rising expenses.
• Among the 43 million savers in the UK, more than one-third (predominantly millennials) have less than £1,000 in savings, while 29% have under £500.

In contrast, the top 25% of savers – largely Baby Boomers – hold an average of £91,500, highlighting the widening wealth gap.

This shift in savings behaviour reflects a change in financial priorities, with more people using their savings for household expenses and unexpected costs instead of discretionary spending like travel or entertainment.

The report notes that new savings account openings surged when interest rates rose but have since tapered off, suggesting that financial institutions need to offer better savings incentives, budgeting support and spending insights to help consumers navigate economic uncertainty.

Younger Generations Are Less Loyal to Banks

One of the most striking trends from the report is the generational divide in banking loyalty. While older generations tend to stick with their long-time banking providers, younger consumers are more open to switching financial institutions.

• Gen Z and millennials drive over 50% of all banking churn.
• They are twice as likely as Gen X and three times more likely than Baby Boomers to have switched their primary bank in the past five years.
• 1 in 5 consumers (18%) lack confidence in managing their finances, with 69% citing limited financial knowledge as the reason.

This signals an urgent need for financial education and digital-first banking solutions tailored to younger demographics.

Banks that invest in AI-driven financial planning tools, real-time spend tracking and personalised financial coaching will be best positioned to retain and attract Gen Z and millennial consumers.

The UK banking sector is at a critical inflection point, with neobanks and fintech disruptors reshaping consumer behaviour.

RFI Global’s latest research confirms that digital convenience, rewards programs and economic pressures are key factors influencing where and how consumers manage their finances.

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