Digital Banks vs. Incumbents: Who Is Winning the Retail Deposit War — TGB Intelligence Report Q1 2026

The scoreboard: fast growth from a small base

The ECB identified about 60 digital-only banks in the euro area at the end of 2024, seven of them subsidiaries of traditional banks. Their share of euro area bank assets rose from 3.1% in 2019 to 3.9% in 2024, which the ECB attributes to the expansion of established players and the entry of new competitors. That is a gain of 0.8 percentage points in five years. In October 2025 a member of the ECB's Supervisory Board said traditional banks and their digital subsidiaries still dominate the EU banking landscape and that fintech firms remain a minor player in terms of deposit volumes.

The funding model of the challengers is narrow. About 80% of digital bank funding in the euro area comes from retail depositors, and more than 90% of those retail deposits are covered by deposit guarantee schemes. The ECB notes that the average deposit at a digital bank is smaller than at a traditional bank, reflecting the low share of customers who use a digital bank as their primary account. This is the crux of the contest: digital banks have won accounts and attention, but most customers still keep their main salary account and larger balances with an incumbent. Monzo's own figures illustrate the point: its average deposit balance per retail customer grew from £1.0k to £1.2k during its latest financial year, and per business customer from £3.8k to £4.2k. Balances of that size are consistent with a secondary spending and savings account rather than a household's main store of liquidity.

The United Kingdom offers the clearest test. Monzo held £16.6bn of customer deposits at 31 March 2025, up 48% from £11.2bn, an increase of £5.4bn in a single financial year. Starling's customer deposits rose to £12.1bn from £11.0bn over the same period. Together the two banks held £28.7bn. Lloyds Banking Group's Retail division alone held £325.2bn of customer deposits at the end of 2025, after adding £5.5bn during the year. On these figures Monzo's deposit base was equal to about 5.1% of Lloyds' retail book, even though its annual deposit inflow was similar in size. The reporting periods differ by nine months, so the comparison is indicative rather than exact.

Selected digital banks: deposits and customer balances

Source: Revolut Group Holdings Ltd, Annual Report 2024 (consolidated financial statements for the year ended 31 December 2024), 30 April 2025; Monzo Bank Holding Group, Monzo Annual Report and Accounts 2025 (year ended 31 March 2025), 2 June 2025; Starling Bank, Starling reports strong revenue and invests for growth (press release), 28 May 2025; bunq, bunq Annual Report 2024, 31 March 2025; N26 Group, N26 Group Reports First Quarterly Profit As Growth in Customer Numbers Accelerates Strongly (press release), 19 November 2024; Nu Holdings Ltd., Nu Holdings Ltd. Reports Fourth Quarter and Full Year 2025 Financial Results, 25 February 2026; SoFi Technologies, Inc., SoFi Reports Fourth Quarter 2025 (earnings release), 30 January 2026.

The table mixes definitions and dates, because the challengers report on different calendars and several are private companies that publish only annually. Revolut's figure includes savings held off its balance sheet with partners, which makes it a measure of balances under management rather than of deposits. Even so, the direction is consistent: every challenger in the table that reports a prior-year figure shows growth of about 10% or more, with Starling at the low end.

How the challengers are gathering deposits

Revolut: balances outrun the banking licence

Revolut's total customer balances, including those held with partner institutions, rose from £18.2bn to £30.2bn in 2024, a 66% increase. Its range of savings products, including instant access savings, drew in £9.8bn of deposits during the year. The group added 14.5 million customers to reach 52.5 million, and reported a 59% increase in customers using Revolut as their main bank. On-balance-sheet customer liabilities were about £22.5bn at the end of 2024, against about £15.2bn a year earlier.

The economics differ from those of a conventional deposit-taker. Revolut's 2024 interest income was £790.2m, while its interest expense was £42.8m, roughly unchanged on the year. Interest expense was therefore equivalent to about 5.4% of interest income. Part of the explanation is that a large share of customer balances sits with partner institutions rather than on Revolut's own balance sheet, as the gap between £30.2bn of total balances and about £22.5bn of customer liabilities shows. Revolut said it was a licensed bank in 30 countries, and in 2024 its UK bank entered the mobilisation period after being authorised with restrictions by the Prudential Regulation Authority (PRA). Group revenues reached £3.1bn in 2024, up 72%, and profit before tax surpassed £1bn. Revolut is therefore profitable on a model that earns a spread on balances while paying relatively little interest on its own balance sheet. The main-bank figure matters more for the deposit contest than the headline customer count, because a customer who is paid into an account brings the stable, low-cost balances that incumbents prize.

Monzo and Starling: savings products do the work

Monzo's growth came mainly from savings rather than current accounts. Of its £16.6bn of deposits at 31 March 2025, £7.7bn sat in current accounts and £8.9bn in Instant Access deposits. The bank reported more than 12 million customers, including over 2.3 million with Instant Access savings. Loans and advances to customers were only £1.6bn, so most of the deposit base was invested elsewhere: interest income on deposits held with the Bank of England rose 71% to £418.6m. That places Monzo closer to the ECB's money-market-fund model, in which deposits are invested in high-quality liquid assets, than to a traditional lender.

Starling grew more slowly but on a similar pattern. Its on-demand deposits rose 12.1% to £11.8bn, helped by an Easy Saver account that had attracted over £1.5bn by the year end, while fixed-term deposits fell 41.1% to £253.6m. Its loan-to-deposit ratio fell from 42.7% to 39.5% as deposits outgrew lending. Starling itself described the market for savers and current accounts as increasingly competitive.

The euro area challengers

In the euro area, bunq's customer deposits grew from €6.9bn at the end of 2023 to €8.0bn at the end of 2024. The bank introduced bonus savings rates in 2024 in response to the ECB's decision to lower interest rates. N26 passed €10bn of customer deposits for the first time in the third quarter of 2024 and expected interest revenues to account for around 50% of its revenue that year. Both cases show interest income on retail balances becoming central to challenger revenue models.

Global challengers at scale

Outside Europe, two digital banks have built much larger deposit bases. Nubank's total deposits reached $41.9bn at the end of 2025, up 29% on a year earlier, with a cost of funding of 87% of interbank rates. It served 131 million customers in Brazil, Mexico and Colombia, including 113 million in Brazil, equivalent to 62% of the adult population. Its available funding of $38.8bn was roughly twice its net credit portfolio of $19.0bn. It also earned money: net income was $894.8m in the final quarter of the year and its return on equity was 33%. That stands in sharp contrast to the ECB's finding that euro area digital banks earn lower returns than traditional banks. Nubank therefore shows that a digital bank can become a mass-market bank with deposits to match.

SoFi's total deposits grew $4.6bn in the fourth quarter of 2025 to $37.5bn, compared with $26.0bn a year earlier. That is annual growth of about 44%. Almost all of these deposits bear interest: interest-bearing balances were about 99.7% of the total. SoFi said the average rate it paid on deposits in the fourth quarter was 181 basis points lower than the rate on its warehouse facilities. Its deposit growth was driven primarily by member deposits. Its membership rose 35% to 13.7 million.

The two cases point in different directions. Nubank's funding cost below interbank rates suggests it has gained some of the pricing power of an incumbent, whereas SoFi's almost wholly interest-bearing base shows deposits gathered by paying interest, with the saving measured against wholesale funding rather than against cheap current accounts.

Incumbents: slower growth, wider margins

The large UK banks added deposits in 2025, though at low single-digit rates. Lloyds Banking Group's customer deposits rose by £13.8bn, or 3%, to £496.5bn, with £5.5bn of growth in Retail and £8.5bn in Commercial Banking. Retail recorded net inflows to limited-withdrawal and fixed-term savings, including about £7.5bn of additional ISA balances. NatWest Group's customer deposits excluding central items rose £10.4bn to £441.7bn, including £7.8bn in Retail Banking. Barclays UK's deposits rose £0.4bn to £244.6bn, as growth in Retail Banking was partly offset by lower Business Banking current account balances. Its loan-to-deposit ratio edged up to 94% from 92%. Momentum differed at the end of the year. Lloyds' deposits fell £0.2bn in the fourth quarter, as £1.0bn of growth in Retail current accounts was offset by a £1.5bn fall in Commercial Banking. NatWest's rose £7.0bn in the same quarter, mainly through savings balances.

The more striking change was in margins. Lloyds' banking net interest margin rose to 3.06% from 2.95%, an increase of 11bp, helped by stronger structural hedge income as eligible balances were reinvested at higher rates. NatWest's group margin rose 21bp to 2.34%. Barclays UK's margin rose to 3.63% from 3.29%, a gain of 34bp, and its net interest income rose 15%, as higher structural hedge income and the impact from Tesco Bank were partly offset by what the bank called retail deposit dynamics.

The structural hedge is the incumbents' main advantage. Lloyds' sterling hedge stood at £244bn at the end of 2025 and generated £5.5bn of income in the year, against £4.2bn in 2024. The group expects hedge earnings of about £7.0bn in 2026 and about £8.0bn in 2027. A hedge of that size is possible only because a large share of current account and savings balances behaves as stable, low-cost funding. Monzo has started to build the same tool, expanding its structural hedge from £4.8bn to £7.3bn during its 2025 financial year, but at a fraction of the scale.

The incumbents are not untouched by competition. Lloyds cited continued deposit churn headwinds in its Retail division, and Barclays named retail deposit dynamics as a drag on net interest income. NatWest's Retail Banking deposit growth of £7.8bn was helped by balances acquired from Sainsbury's Bank. The pattern is one of incumbents holding their share through mix management and acquisitions while customers move money towards higher-paying savings accounts.

Incumbent deposit books and margins, 2025

Source: Lloyds Banking Group plc, 2025 results (RNS 8122Q, FCA National Storage Mechanism), 29 January 2026; NatWest Group plc, NatWest Group 2025 Annual Results (company announcement), 13 February 2026; Barclays PLC, 2025 Results Announcement (RNS 3207S, FCA National Storage Mechanism), 10 February 2026; ING Groep N.V., 4Q2025 and FY2025 results (press release), 29 January 2026.

In continental Europe, ING grew net core deposits by €38.1bn in 2025, a 5.5% increase, with €30.1bn coming from Retail Banking. In the fourth quarter Retail Banking added €11.3bn, helped by targeted campaigns in the Netherlands, Spain and Poland. Unlike the UK banks, ING's net interest margin fell, to 1.36% from 1.45%, a decline of 9bp, and the bank pointed to the impact of a normalising liability margin. The contrast is consistent with lower policy rates in the euro area: the ECB's deposit facility rate stood at 2.00% in March 2026, against a Bank Rate of 3.75%, leaving a narrower spread to earn on deposits.

The price of a deposit

The ECB's analysis of euro area digital banks is the most direct evidence on who pays more. It finds that digital banks remain less profitable than traditional banks because of their higher cost of deposits and high fixed expenses, and that their cost of deposits rose steeply as they passed on higher rates, particularly at independent digital banks seeking market share. The price elasticity of household deposits is significantly higher at online banks than at traditional peers. In the fourth quarter of 2024 the median return on equity of traditional banks was 9.9%, 2.9 percentage points above that of digital banks, implying a digital-bank median of about 7.0%.

Costs compound the problem. In the fourth quarter of 2024 online banks' administrative expenses excluding staff were 1% of total assets, twice the 0.5% at traditional banks, with IT costs of 2.4% against 1.3% and advertising and marketing of 0.9% against 0.3%. The ECB adds that digital banks hold unusually high liquidity buffers, possibly to prepare for online runs and reflecting their reliance on more price-sensitive depositors. The ECB says investors' valuations of digital banks can be justified only if they achieve the scale to operate more efficiently, which would require a substantial share of the euro area banking market.

Company accounts tell the same story. Monzo's net interest margin fell to 4.09% from 4.41%, a decline of 32bp, which the bank attributed to a greater mix of lower-margin Instant Access balances. Its interest expense on customer deposits rose to £258.8m from £134.0m, an increase of about 93%. Starling's cost of deposits rose to 0.78% from 0.38%, an increase of 40bp, while its net interest margin eased to 4.12% from 4.34%. Both banks still earned margins above those of the incumbents, but the direction of travel shows the cost of growing through savings products.

Incumbents, by contrast, have so far been able to price their largest balances well below policy rates. In January 2026 the effective rate on the UK stock of household sight deposits was 1.73%, against a Bank Rate of 3.75%. In the euro area, the rate on new household overnight deposits was 0.25%, against a deposit facility rate of 2.00%. The ECB said in November 2025 that household deposit rates at many banks were still just marginally above zero, and that deposit funding substantially supports bank income even with policy rates at half their peak. It added that the decline in rates had been stronger for term deposits, and that deposit rate sensitivity overall had been weaker in this cycle than in previous ones. In other words, incumbents passed on less of the rate rises to sight deposits and have had less to give back as rates fell. The UK regulator found in September 2024 that the largest firms continued to pay below the market average on easy access accounts.

Policy rates and household deposit rates

Source: Banco de España (Eurosystem), ECB keeps interest rates unchanged in March, 19 March 2026; Bank of England, Bank Rate maintained at 3.75% - March 2026 Monetary Policy Summary and Minutes, 19 March 2026; European Central Bank, Euro area bank interest rate statistics: January 2026 (press release), 4 March 2026; Bank of England, Money and Credit - January 2026, 2 March 2026.

The UK and euro area series are not strictly comparable: the UK sight rate is an effective rate on the outstanding stock, while the euro area overnight rate covers new business. Both show a gap of roughly two percentage points between policy rates and what banks pay on their most liquid household balances. That spread is the prize in the deposit war, and it is the spread that challengers erode when they win balances with higher savings rates.

Where the money is moving

Recent flows show savers still adding to deposits, but with a preference for tax-advantaged and liquid accounts. UK households added £4.2bn to bank and building society deposits in January 2026, after £4.5bn in December. The January inflow comprised £5.2bn into ISAs, £3.1bn into non-interest-bearing accounts and £2.5bn into interest-bearing sight deposits, partly offset by £0.8bn of withdrawals from time accounts. The effective rate on new time deposits was 3.77%, against 3.34% on the stock.

In the euro area, household deposits grew at an annual rate of 3.2% in January 2026, up from 3.0% in December. Growth of M1, which comprises currency and overnight deposits, rose to 5.3%, while short-term deposits other than overnight deposits contracted by 0.6% on the year. The ECB has said that deposit flows reversed again after the first rate cut, leading to a further build-up of overnight deposits, which skews bank funding towards its cheapest source. Between 2008 and 2025 the share of household and corporate overnight deposits in euro area banks' total funding rose from about 11% to 24%.

For incumbents this mix shift is favourable: money is pooling in accounts that pay little. In the UK the picture is more mixed, because the largest single inflow in January went into ISAs, which are savings products rather than transaction accounts. For challengers, it means competing on rate in a segment where rates are falling, which is harder to sustain. The ECB has warned, however, that economic uncertainty could create volatility in deposits and revive competition, and that a handful of banks are already paying substantially higher overnight rates because their funding is skewed towards market sources.

Incumbents are going digital

The line between challenger and incumbent is blurring. Seven of the euro area's digital-only banks are subsidiaries of traditional banks. The ECB's supervisory remarks in October 2025 described traditional banks and their digital subsidiaries as still dominant. ING reported that its mobile primary customer base rose by more than 1.0 million in 2025 to 15.4 million, out of nearly 41 million customers. BBVA said in December 2025 that its digital bank in Italy served more than 800,000 customers, with a goal of passing one million before the end of 2026, and that it had recently started operating in Germany.

These moves use incumbent balance sheets to fight on the challengers' ground. A digital subsidiary of a large group can price aggressively for deposits in a new market without repricing its home deposit base, and it carries the parent's capital and brand. The ECB notes that digital subsidiaries place a sizeable part of their assets with other credit institutions in their own group.

Rules that shape the contest

Several regulatory changes alter the terms of competition. From 1 December 2025 the UK deposit protection limit rose to £120,000 from £85,000, the level set in 2017, and firms must update their disclosure materials by the end of May 2026. A higher limit extends full protection to larger balances at any authorised deposit-taker, which may reduce the weight savers place on the size of the institution, though its effect on switching is untested. The ECB noted that more than 90% of retail deposits at euro area digital banks are covered by deposit guarantee schemes.

The UK ring-fencing threshold also matters for the fastest-growing challengers. An order in force from 4 February 2025 raised the core deposit threshold in the ring-fencing regime from £25bn to £35bn. At £16.6bn and £12.1bn respectively, Monzo and Starling were below the old threshold as well as the new one at their latest year ends.

Tax changes will shape where savings go. From 6 April 2027 the annual cash ISA limit will fall to £12,000 for savers under 65, while remaining £20,000 for those aged 65 and over. From the same date income tax rates on savings income rise to 22%, 42% and 47% for basic, higher and additional-rate taxpayers. Since ISAs drew £5.2bn of household deposits in January 2026 alone and lifted Lloyds' retail savings in 2025, the change may alter the flow of savings between cash and investments.

In the euro area the main concern is cross-border. The ECB warns that many digital banks are based in small countries and have numerous non-exclusive customers who may move deposits quickly, so their expansion may create a new channel for cross-border spillovers as long as deposit insurance remains national. It also cautions that if incumbents rapidly lost the deposit franchise that funds their lending, they could be pushed into taking more risk to offset higher funding costs.

What would change the balance

Three developments would shift the contest towards the challengers. The first is lending. Monzo's loans of £1.6bn were equivalent to about 9.6% of its £16.6bn of deposits, and Starling's loan-to-deposit ratio was 39.5%, so most of their deposits are not lent out to customers. A challenger that recycles deposits into its own loans earns a wider and more durable spread, as Nubank's returns suggest.

The second is primacy. Revolut's 59% increase in customers using it as their main bank and ING's addition of more than 1.0 million mobile primary customers both point to competition for the salary account, which carries the cheapest balances. The third is the rate path: the ECB finds that franchise values are higher when rates are high, and that more competition could erode them. Each of these would narrow the incumbents' structural advantage without requiring the challengers to win a large share of total deposits.

Verdict: the incumbents are holding, the price is rising

The evidence supports a split verdict. On flows, digital banks are winning: Monzo, Revolut, SoFi and Nubank all grew deposits or balances at double-digit rates, against 3% at Lloyds and 5.5% at ING. On stocks and on profitability, incumbents are winning: the euro area digital sector held 3.9% of bank assets in 2024, and the median traditional bank earned a return on equity 2.9 percentage points higher.

The ECB's work on deposit franchises explains why the incumbents' position is durable. Strong franchises are a key source of bank profitability and are associated with market concentration and market power, and positive franchise values have been observed when long-term interest rates exceeded 1.8%. The ECB also finds that franchise value rises with interest rates; in the low-for-long period the deposit franchise was an economic liability for virtually all euro area banks. The same analysis warns that more competition for deposits, or more households investing directly in markets, could erode franchise values. That is the channel through which challengers matter, even if their market share remains small.

Policy rates will decide how fast that erosion happens. The Bank of England's Monetary Policy Committee held Bank Rate at 3.75% at its meeting ending on 18 March 2026 and noted that the market-implied path for Bank Rate had risen significantly. The ECB held its deposit facility rate at 2.00% on 19 March 2026. If rates stay at these levels, the incumbents' hedges will keep rolling into higher yields, as Lloyds' guidance implies, while challengers must keep paying up to grow. The deposit war is therefore less a contest for customers than for the spread on their balances, and on current evidence the incumbents still own most of it.

Primary sources: European Central Bank, Digital banking: how new bank business models are disrupting traditional banks (box in Financial Stability Review, May 2025), 21 May 2025; Banco de España (Eurosystem), ECB keeps interest rates unchanged in March, 19 March 2026; Lloyds Banking Group plc, 2025 results (RNS 8122Q, FCA National Storage Mechanism), 29 January 2026; Monzo Bank Holding Group, Monzo Annual Report and Accounts 2025 (year ended 31 March 2025), 2 June 2025; NatWest Group plc, NatWest Group 2025 Annual Results (company announcement), 13 February 2026; ING Groep N.V., 4Q2025 and FY2025 results (press release), 29 January 2026; Nu Holdings Ltd., Nu Holdings Ltd. Reports Fourth Quarter and Full Year 2025 Financial Results, 25 February 2026; SoFi Technologies, Inc., SoFi Reports Fourth Quarter 2025 (earnings release), 30 January 2026; Barclays PLC, 2025 Results Announcement (RNS 3207S, FCA National Storage Mechanism), 10 February 2026; European Central Bank (Banking Supervision), Time is on our side: Embracing digital change while ensuring stability (keynote speech by a Member of the Supervisory Board of the ECB), 16 October 2025; Starling Bank, Starling reports strong revenue and invests for growth (press release), 28 May 2025; Revolut Group Holdings Ltd, Annual Report 2024 (consolidated financial statements for the year ended 31 December 2024), 30 April 2025; bunq, bunq Annual Report 2024, 31 March 2025; N26 Group, N26 Group Reports First Quarterly Profit As Growth in Customer Numbers Accelerates Strongly (press release), 19 November 2024; Starling Bank Limited, Annual Report and Accounts 2025 (year ended 31 March 2025), 28 May 2025; Bank of England, Bank Rate maintained at 3.75% - March 2026 Monetary Policy Summary and Minutes, 19 March 2026; Bank of England, Money and Credit - January 2026, 2 March 2026; European Central Bank, Euro area bank interest rate statistics: January 2026 (press release), 4 March 2026; European Central Bank, Financial Stability Review, November 2025, 26 November 2025; Financial Conduct Authority, FCA publishes update on cash savings market and fair value (statement), 18 September 2024; European Central Bank, Monetary developments in the euro area: January 2026 (press release), 26 February 2026; BBVA, BBVA's CEO underscores the bank's commitment to expanding its presence in Europe through its digital banking model in Italy and Germany, 4 December 2025; Bank of England (Prudential Regulation Authority), PRA confirms FSCS deposit limit to be increased to £120,000 from 1 December (news release), 18 November 2025; legislation.gov.uk (UK Statutory Instruments), The Financial Services and Markets Act 2000 (Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions) (Amendment) Order 2025 (SI 2025/30), 13 January 2025; HM Revenue & Customs (GOV.UK), Tax-free savings newsletter 19 — November 2025, 22 December 2025; European Central Bank, The deposit franchise value of euro area banks (box in Financial Stability Review, May 2025), 21 May 2025.