Neo-Banks continue to expand as UK Banks shrink

How could July 15 changes to regulations impact the sector?

Alex Speedie

June 24, 2025

The shift to digital banking is no longer a future trend. It is already happening. Neo-Banks, which offer banking services entirely online without any physical branches, are growing quickly. At the same time, many traditional banks are falling behind.

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Today, there are more than 500 Neo-Banks around the world. Over 20 percent of them are based in the United States. These digital-only banks are winning over customers with new features and lower costs. People often open accounts with Neo-Banks before going on a trip, attracted by tools like currency wallets that reduce fees when spending abroad. Recent projections estimate that by 2032, Neobanks will process over $3.4 trillion in global transactions, with the market growing at an average annual rate of 48.9%. With that, Neo-Banks are not just cheaper. They are also more user-friendly and secure. They offer:

Currency wallets that help customers avoid high exchange fees when they travel
Virtual cards that can be used once and then deleted, helping prevent fraud
Biometric login, such as face or fingerprint recognition, which makes access safer
Fast, AI-powered customer service that answers most questions without needing a call centre

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Because these banks do not run physical branches, they save on overhead costs. That allows them to offer better features or free services, even if it costs them in the short-term. Currency wallets, for example, can lose money for the bank, but help win new customers. In contrast, traditional banks are cutting back. Since 2015, more than 6,000 bank branches and building societies have closed in the UK. Some of the largest banks are planning more cuts:

Lloyds Banking Group will close 136 branches between May 2025 and March 2026
Santander will shut 95 branches and shorten hours at 36 more
TSB may soon be sold, which could result in even more closures if the buyer decides to reduce its network
As a result, nearly three million people in the UK are expected to live in areas without a single physical bank branch by the end of this year.

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Neo-Banks are also growing their list of services. Revolut is currently in the "mobilisation stage" of its UK banking license, following its authorisation with restrictions from the Prudential Regulation Authority (PRA). Once approved, it will be able to protect customer deposits up to £85,000 through the Financial Services Compensation Scheme. It will also start offering loans, overdrafts and mortgages. At the same time, many Neo-Banks are adding investment features. Customers can already use some of these apps to buy and sell crypto, stocks or commodities. This means that banking, saving and investing are all available in one place.

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To stay competitive, major high street banks are asking the government to relax some regulations. At the top of their list is the request to remove "ring-fencing" rules. These rules were introduced after the 2008 financial crisis. They require retail banks to keep their everyday banking services separate from riskier investment operations. Bank leaders argue these rules make it harder for them to compete with new digital rivals. The Chancellor is expected to announce updates to financial services regulation on July 15. If the ring-fencing rules are changed, big banks could shift more resources and possibly attract more savings by offering better interest rates than Neo-Banks can. Neo-Banks have been quick to win over users with better technology, faster service and lower fees. Traditional banks still have bigger customer bases and more experience with regulation and lending. Equally, looking ahead, they need to determine strategically how they can provide a better product or solution than the Neo-Banks in order to win back market-share, as if they don’t start implementing a strategy to win, the Neo-Banks will continue their relentless march.

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Neo-Banks continue to expand as UK Banks shrink

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