Monzo achieved its first full-year profit in March 2024. Starling has been profitable for four consecutive years, and Revolut recorded a £1.5 billion profit last year. So, the model is proven to work.
But profitability creates problems of its own. And the forces that made incumbents such easy targets are starting to slow the challengers down, too.
For almost a decade, the pitch was simple. Challengers move fast. Incumbents drag behind, weighed down by legacy tech and regulatory burden. That pitch struck a chord with the market.
We know why traditional banking was so easily disrupted. Ring-fencing alone cost billions to implement. And half of IT budgets went to compliance rather than innovation, so the Big Four lost market share as a result.
But the same profitability that proved the challenger model also ended the conditions that made it possible.
When you’ve got nothing to protect, you can experiment freely. When you’ve got margin to defend, every experiment is that bit riskier. Customers rightly always expect stability. Regulators expect compliance at scale. And boards want to know the return before you ship.
How many startups have founders who stay close to the work? Who are present in every room? Involved in the code and the copy? And how many, once they hit profitability, get nudged toward stepping back? Toward delegating? Toward treating departments as black boxes?
The first approach builds things. The second protects things.
In June 2025, Monzo disclosed that 33% of its customers use it as their primary bank. Which means 8 million people completed onboarding, passed KYC, received a card, and then…didn’t really show up. They’re on the books, and they require compliance. But they generate minimal revenue.
The FCA’s strategic review found that only 25% of digital challenger accounts function as main accounts, compared to 55% across the broader market. Three-quarters of those headline customer numbers are secondary accounts, dormant accounts, or people who opened an account out of curiosity and never came back.
Starling is more transparent than most. Its 2025 annual report states that 79% of core accounts are active. That’s better than the industry standard, but it still means there are around one million accounts that are idle and require regulatory oversight.
Revolut’s average consumer deposit is £575. Starling’s is £2,600. That gap tells you something about the depth of those customer relationships. The challengers are carrying the cost of twelve million customers while generating revenue from four million.
And those eight million disengaged customers aren’t loyal or locked in. They’re sitting there waiting for someone to give them a reason to move.
Anne Boden founded Starling, built its culture, and led it to profitability in 2022. In July of that year, she explained that Starling had grown from an aspiring challenger to an established bank, and the role of CEO and major shareholder “ultimately differ and require distinct approaches.” She stepped down as CEO in September 2023. By 2024, she’d left the board entirely.
Predictably, changes came quickly. Starling’s new CEO rolled out a compulsory return-to-office policy, which, to be fair, was in step with the wider industry. For Starling, though, it was also an external signal of the transition. One employee summed it up on record: “Starling has lost its unique culture. It’s no longer a startup. It’s a traditional bank.”
Monzo’s story is different, but the lesson’s the same. The CEO departed over reported disagreements about IPO timing. The underlying conflict seems to have been about the strategy appropriate for a profitable company. Internal sentiment suggested that the bank was suffering from growing pains, with one team member stating that “Monzo has increasingly felt more like a traditional bank. Compliance plays a significant role in every aspect.”
Compliance.
There it is again.
Every dimension of scale slows you down that little bit more.
Monzo grew from 30 employees to over 2,000. Starling went from 60 to more than 3,000. Product lines grew to match, with current accounts, savings, loans, investments, mortgages, business banking and international transfers on offer. Each product has dependencies. Each change introduces administration, technology and compliance, but on systems that didn’t exist five years ago.
The velocity problem is illustrated best by product releases. All three banks shipped current accounts within two to four years of founding, and business banking took four to five years. But tertiary products show the issue. Starling is nine years old and still hasn’t launched lending or investment products.
There’s a subtler signal, too. Revolut announced mortgages for H1 2025, but the Irish launch has now slipped to 2026, twelve months overdue. Monzo used to publish detailed release notes for every app version. They stopped after 2018. When velocity was a competitive advantage, they shouted about it.
Now they don’t mention it.
Why would they?
Teams that once built features now build compliance systems, resilience plans, and regulatory reports. Early products shipped quickly. Later products stalled. Or never arrived.
Regulatory burden used to be an incumbent problem. Not anymore.
The FCA fined Monzo £21 million for AML failures. The firm had “onboarded customers on the basis of limited, and in some cases, obviously implausible information.” Starling was fined £29 million for “shockingly lax” financial sanctions screening.
Both banks had operated under Voluntary Requirements for years before these fines, restricting their ability to onboard high-risk customers for this very reason.
The hiring data tells the same story. In 2026, compliance and risk roles account for more than half of all banking vacancies in UK fintech, up from roughly 20-25% historically. The pattern has held for three consecutive years, suggesting a structural shift in how these companies allocate resources.
And the FCA’s December 2025 review made the position clear: “We remain of the view that there are limited differences in the inherent financial crime risks faced by challenger banks, compared with traditional retail banks.”
In other words, the challengers are now saddled with the same restrictions as everyone else, and the teenage years, when these can be treated fairly laxly, are over.
Nobody is building “the new Monzo” to attack Monzo’s retail position. The threat is more nuanced, with specialists targeting specific customer segments rather than competing across the board.
SumUp has 4 million merchants and €1 billion in customer deposits. They’re applying for banking licences in the EU and UK with explicit plans to move into SME banking. Using payments data that challengers don’t have.
Challengers won broad markets with better tech and better experience. Now specialists are attacking the profitable niches with sharper tools and tighter focus.
And the challengers’ response, so far, has been to defend margin rather than defend territory.
That’s the pattern. That’s what settling down looks like.
According to O’Reilly and Tushman, companies that run innovation and operations as separate units achieve breakthrough innovation more than 90% of the time. Those using traditional structures manage it about a quarter of the time.
Banks keep trying it…and it keeps failing.
Goldman Sachs built Marcus as a structurally separate digital bank. It had different leadership and a different ‘fresh’ culture, and it was kept away from the investment banking core. By 2021, it had $100 billion in deposits and 14 million customers. But by 2023, it had accumulated $3 billion in losses, cycled through three leaders, and begun selling off the assets. Similarly, ING launched Yolt with genuine independence and a head start on open banking, but it shut down after failing to reach scale.
There’s a clear pattern here. Separate innovation units in banking produce either spectacular losses or impressive-sounding programmes that never really see the light of day.
What works is full transformation. DBS didn’t build a lab and hide its team away. It restructured the entire organisation around 33 platforms, each with joint business-technology leadership. Innovation was measured against cost-to-income ratio and customer satisfaction – proper metrics that demonstrate impact. And Euromoney named it World’s Best Digital Bank three times.
But DBS was an incumbent. It had to learn transformation from scratch. Challengers don’t because they started ‘transformed’. That was the whole point. They were born in the end state that traditional banks can’t reach.
The danger now is to respond to scale by copying the incumbent playbook and protecting the margin, while hoping a separate team will figure out the future. That approach has a consistent track record in banking, and it’s not a great one.
Challengers have something incumbents never will – they’ve seen the digital utopia, and they’ve transformed an industry. That muscle memory exists somewhere. The question is whether they can do it again at scale, while managing compliance burdens, board expectations, and margin protection.
The banks that thrive over the next five years will be the ones that find a way to move fast again. Not by ignoring compliance. But by refusing to let it become an excuse for standing still.
That’s harder than it sounds.
But not standing still was exactly why the challengers succeeded in the first place.
We’re tracking how UK banks—challenger and incumbent alike—are navigating the tension between innovation velocity and operational scale. Our upcoming Top UK Banks Digital Maturity Report 2026 benchmarks where the industry stands today: which banks are still moving fast, which have settled, and what separates the two.
Pre-register to download the report
Want to discuss what digital maturity looks like at scale, or how to maintain innovation momentum while managing compliance and growth? Get in touch—we’d love to hear your perspective.
