As U.K. consumers become ever-more open to digital banking, the range of services offered by digital-first banks has been expanding to meet that demand. But depending on the products and services offered, traditional banks have not completely lost consumers to disruptive FinTech players, as consumers’ expectations of neobanks and traditional banks tend to vary based on their needs.
For example, in a recent PYMNTS study, 21.6% of survey respondents said they expected cardless ATM withdrawals from a digital bank, while a slightly higher number, 22.1%, expected it from a traditional bank.
Get the report: How Consumers Use Digital Banks
But on other features like taking out a loan, expectations diverged significantly, with 41.2% of consumers expecting to get financing from a traditional bank, compared to only 28.6% who expected they could obtain the same from challenger banks.
Overall, the financial service where the report revealed the biggest difference in expectations was around mortgage lending: 34.2% of consumers surveyed expected traditional banks to provide them, while 18.6% had the same expectation of digital banks.
Although the PYMNTS data was collected from U.S. consumers, there are reasons to believe that similar differences can be observed in the U.K.
Both the U.S. and U.K. neobank markets are dominated by a handful of firms that have experienced unprecedented growth in user numbers but have sometimes struggled to monetize their large user bases.
For example, while traditional banks make large portions of their revenue from interest on loan repayments, U.S.-based neobanks like Chime and Varo and the U.K.’s Revolut and Monzo continue to depend largely on interchange fees for their income.
The slow, but nonetheless steady, efforts of digital-only banks to break into the lucrative lending business has seen them introduce a range of credit cards, consumer loans and buy now, pay later (BNPL) products in recent years. And in the sector’s latest frontier, several U.K. neobanks are vying for a slice of the country’s mortgage market, too.
From Digital Banks to Digital Mortgage Lenders
Launched in April 2016, the U.K.’s first branchless bank designed for mobile devices, Atom Bank, included mortgages as part of its suite of products from an early stage.
Following Atom, the country’s first fully-digital buy-to-let mortgage lender, Molo Finance, arrived on the scene in 2018, offering a range of residential mortgages with up to 95% loan-to-value ratio for between 15 and 45 years.
While Atom remains the only neobank in the U.K. to offer mortgages, it appears that won’t be the case for long. Last month, U.K. FinTech firm Perenna announced the closing of a $30 million funding round as part of plans to launch its own digital mortgage service as soon as its banking infrastructure and licensing issues are sorted.
Related: UK Digital Mortgage Lender Perenna Closes $30M Series A
Popular U.K. neobank Starling made its foray into the mortgage market in July 2021 with the acquisition of Fleet Mortgages, a buy-to-let specialist that sells mortgages through brokers and intermediaries.
Although there are currently no plans to introduce mortgage lending under the Starling banner, at the time of the Fleet acquisition, Starling CEO Anne Boden said that it represented “the start of our move into mortgages as an asset class.”
Read more: Starling Bank Buys Fleet Mortgages In $69.1M Deal
Nik Storonsky, the CEO of the U.K.’s biggest neobank, Revolut, has also hinted at an interest in mortgage lending. In April, he told Reuters that home loans were “an important part of consumer financial life” that could be included within the scope of the bank’s super app ambitions.
See also: Revolut Looks to Expand to Crypto Wallets, Mortgages
With neobanks’ products and services increasingly available on the market, incumbent banks will likely up their game and provide digital mortgage offerings to compete with the emerging FinTech players.
The growing digitization of the market is bound to result in a plethora of options for consumers. Online mortgage brokers like Mojo are stepping in to help by providing a platform where U.K. homebuyers can compare and apply for mortgages from over 90 lenders, with around 10,000 mortgage deals on offer between them.
Another online broker, Habito, which launched in 2016 as an end-to-end digital homebuying solution, is also helping to connect buyers to lenders, and Habito’s solicitors and case managers can also guide homebuyers through the process of applying for mortgages, building surveys and conveyance.
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