High street banks in the UK have seen a significant loss equivalent to £100 billion in savings as customers increasingly move away from traditional lenders towards online banks and building societies. According to KPMG, these rival banks, which include new challenger banks, specialist lenders, and building societies, have attracted customers with higher savings rates. This shift has caused the traditional banks’ market share in deposits to drop from 84% in 2019 to 80% in 2024.
In addition, the banking sector as a whole experienced a £3.7 billion combined drop in total pre-tax profits last year, marking the first major decline since the recovery from the pandemic. The sector’s average return on equity, a crucial performance indicator, is expected to decrease by more than a third, from a peak of 13% in 2023 to 8% by 2027. This is equivalent to an £11 billion decrease in annual profits.
KPMG has warned that banks are under pressure to adapt to significant changes in the sector, including increased competition and rising costs. This movement of customers away from high street lenders comes at a time when banks were accused of “profiteering” from rising interest rates by offering inadequate returns for savers.
Bank executives from major high street names, such as Lloyds Banking Group, NatWest, HSBC, and Barclays, faced meetings with regulators and MPs in 2023 over concerns that the interest offered on savings deposits lagged behind the surging interest rates for mortgages and loans. This sparked a debate over whether the government should impose a windfall tax on banks to compensate consumers during the cost of living crisis. However, UK politicians have so far declined to adopt such measures, which have been implemented in countries like the Czech Republic, Lithuania, and Spain.
Peter Westlake, a partner in KPMG UK’s banking strategy team, stated, “Banks are navigating a low-growth, high-cost environment that necessitates swift transformation. While profitability is expected to remain generally stable this year, the entire sector must demonstrate how it is preparing to confront future challenges.”
Bank costs surged by 6% in 2024, which, combined with declining worker productivity, could further strain bank profits, according to KPMG’s report. Westlake suggested that banks may need to explore unconventional strategies to enhance profits, such as embracing artificial intelligence. “The winners will be those who move beyond tactical cost-cutting and proactively address upcoming market challenges through business model transformation,” he said.
Source: https://www.theguardian.com/business/2025/aug/04/high-street-banks-lose-100bn-deposits-uk-savers-shift-online-rivals
