The rise of multi-banking: challenges and opportunities for traditional banks.
By Ane Unamuno
Engagement Manager
Recent research reveals that UK banking customers are more likely than their European counterparts to hold multiple bank accounts, with 63% using more than one bank. They also switch primary accounts more frequently, with 15% doing so in 2023, often migrating from traditional banks to digital challengers. Notably, 33% of UK respondents reported having a primary or secondary account with a digital bank1. This shift is especially pronounced among younger customers, who increasingly favour fintech solutions over traditional banking providers to manage their finances.
Multi-banking refers to consumers holding accounts across multiple financial institutions, instead of relying on a single provider for all their financial needs; personal current accounts, savings accounts, credit cards, loans, mortgages etc. This trend presents a significant challenge for traditional banks, as they struggle to maintain customer loyalty in an increasingly fragmented banking landscape. As customers distribute their financial activities across various providers, traditional banks face declining revenue and diminished cross-selling opportunities.
Why Are Consumers Turning to Multi-Banking?
There is no single reason driving the rise of multi-banking in the UK; rather, multiple factors contribute to this trend:
- Different Financial Needs: Consumers use different banks for different purposes, such as one for everyday spending and another for savings.
- Convenience & Access: Branch locations and ease of access to digital banking services influence consumers’ choice to use multiple providers.
- Cost Savings & Rewards: Competitive rates, switching incentives, cashback offers, and zero foreign exchange (FX) fees drive consumers to spread their finances across banks.
- Specialisation: Some banks excel in specific financial products (e.g., mortgages), attracting customers for those specific needs.
- Better UX & Innovation: Digital banks offer intuitive apps, seamless onboarding, and improved customer experiences, making them a preferred choice for those seeking convenience and innovation.
- Trust & Diversification: Security concerns prompt customers to mitigate risk by spreading their money across multiple banks, reducing exposure to system outages or financial instability.
What Does This Mean for Traditional Banks?
As competition intensifies, traditional banks face several challenges:
- Erosion of Loyalty: Customers no longer feel tied to a single provider, making it harder for banks to retain primary banking relationships.
- Reduced Cross-Selling Opportunities: With consumers managing finances across multiple banks, they are less likely to take up new products from a single provider.
- Pressure on Profit Margins & Revenue Loss: To stay competitive, traditional banks may need to offer better rates and rewards, impacting profitability. Additionally, as customers shift to other providers for specific services, banks lose revenue opportunities.
What Traditional Banks Need to Do
To remain competitive, traditional banks must rethink their approach and adapt to evolving consumer behaviours:
- Personalised Rewards & Offers: Move beyond generic loyalty programs to tailor incentives based on individual customer behaviours and preferences.
- Bundled & Integrated Products: Create attractive multi-product packages (e.g., current accounts, savings, credit cards, and insurance) to encourage customers to consolidate their financial activities within a single bank.
- Enhanced Digital Experience & Convenience: Invest in seamless, user-friendly digital banking experiences to rival fintech innovations.
- Open Banking & Fintech Partnerships: Leverage open banking to integrate fintech solutions, offering customers greater convenience while maintaining control over the banking relationship.
- Data-Driven Customer Engagement: Use analytics to understand behaviours and proactively offer relevant solutions, improving retention and satisfaction.
Best-in-Class Spotlight: Bank of America
A standout example of customer retention and cross-selling strategy is Bank of America’s Preferred Rewards program. This U.S.-based initiative rewards customers who maintain a certain balance across their accounts, offering increasing benefits as their combined balance grows.
Key features of the program include:
- No fees on select banking services
- Extra rewards points on credit cards
- Dedicated priority customer service
- Discounted or zero FX fees
- Interest rate discounts on loans and mortgages
- Preferential interest rates on savings accounts
By linking rewards across multiple financial products, Bank of America encourages customers to consolidate their financial activities within the bank, reducing the likelihood of multi-banking behaviour. This model offers valuable lessons for traditional banks seeking to enhance customer retention and engagement2.
The rise of multi-banking is reshaping the financial landscape, driven by consumer demand for flexibility, better services, and enhanced digital experiences. While this trend presents challenges for traditional banks, it also creates opportunities for those willing to adapt.
Understanding customer behaviour is key. By leveraging data-driven insights, improving digital offerings, and creating compelling loyalty programs, banks can successfully navigate the evolving market and maintain strong, lasting relationships with their customers.
How KAE can help
KAE specialises in helping payment, financial services and business technology companies to uncover deep insights about their customers, enabling them to design products, services, and strategies that better support different segments, including younger customers. If you want to talk about how KAE can help you, get in touch.