High street banks have lost £100 billion in deposits over the past five years, as UK savers increasingly turn to online challengers, specialist lenders and building societies offering more competitive interest rates, according to a new report by KPMG.
The professional services firm said the traditional banks’ share of the UK deposit market fell from 84% in 2019 to 80% in 2024, as customers shifted their savings away from the major names like Lloyds, Barclays, NatWest and HSBC.
The migration follows a period of public backlash, where banks were accused of profiting from rising interest rates by failing to pass on increases to savers—while mortgage and loan rates surged.
Executives from the UK’s biggest lenders were called to face regulators and MPs in 2023, amid mounting pressure to offer fairer returns for customers during the ongoing cost of living crisis.
KPMG also revealed that the UK banking sector recorded a £3.7 billion fall in pre-tax profits last year—its first significant downturn since the pandemic recovery began.
Meanwhile, the sector’s average return on equity—a key measure of profitability—is forecast to drop by more than a third from 13% in 2023 to just 8% by 2027, equivalent to an £11 billion annual decline.
Peter Westlake, a partner at KPMG UK, said the sector must urgently adapt to the “lower-growth, higher-cost environment” that lies ahead.
“Banks are facing a lower-growth, higher-cost environment that demands transformation at pace. While we can expect profitability to broadly remain sound this year, the entire sector needs to show how they are preparing for challenges ahead.”
The report also highlighted a 6% rise in bank operating costs during 2024, alongside falling productivity among workers—both factors expected to further squeeze margins and hinder growth.
Westlake noted that while some cost-saving initiatives may help in the short term, true competitiveness would come from more radical changes, such as the adoption of artificial intelligence and broader business model transformation.
“The winners will be those that move beyond tactical cost-cutting and proactively address oncoming market headwinds,” he said.
Despite public anger and political pressure, the UK government has so far resisted calls to introduce a windfall tax on banks—unlike countries such as Spain, Lithuania and the Czech Republic, which imposed levies to claw back profits made during the interest rate hikes.
However, KPMG’s report suggests that British banks can no longer rely on customer inertia or legacy advantages to maintain profitability. As consumer trust erodes and savers become more financially savvy, digital-first and customer-centric providers are poised to seize even more market share.
