Online Banks’ Rate Advantage Shrinks as They Defend Market Share

Online banks have shown they can capture market share from brick-and-mortar rivals in a rising rate environment. Now the question is whether they can do that as rates fall.

Digital lenders now make up roughly 10% of the deposit market in the U.S., more than double what they made up a decade ago as customers flocked to higher rates and more technologically advanced platforms, analysts at Evercore ISI said in a note last month. But the rate gap is narrowing as the Federal Reserve eases its monetary policy amid concerns about growth.

Online savings rates are down 18 basis points ...