Lloyds Banking Group is feeling the heat from the growth of challenger banks. Halfway through a three-year, $3.8 billion digital transformation plan, the London-based institution said it’s ahead of schedule in turning itself into a simplified digital bank residing on the cloud. It may not be a moment too soon, as the group’s big three brands — Lloyds Bank, Halifax and Bank of Scotland — are facing increased competition  for digitally savvy customers from well-funded challenger banks.

The latest figures from Current Account Switch Service, which helps U.K. banking customers switch banks, show that Lloyds’ brands lost a net of nearly 32,000 users in the second quarter. Overall, roughly 250,000 U.K. customers left their bank for somewhere new during the quarter. In the meantime, challengers Monzo and Starling Bank added a net of 7,292 users and 5,233 users, respectively.

With 15.9 million digitally active users, of which 9.8 million are mobile users, Lloyds reported on Wednesday that its market share in digital banking actually went down from 21% to 18% in the second quarter. “The challenger banks, in general, have been opening lots of current accounts and, of course, that impacts our market share in spite of us continuing to open current accounts,” George Culmer, CFO of Lloyds, said on the bank’s earnings call.

It should be noted, however, that Nationwide Building Society and HSBC were the biggest winners for the quarter, with net gains of 38,788 and 26,043, respectively.

“The switching data is not everything,” Culmer said. “You have the openings and closures, which do not show on the switching data. [Lloyds’] number of active current accounts continues to increase and, much more importantly, the quality of those current accounts is improving very significantly.”

The number of current accounts across Lloyds’ brands has climbed to 17.2 million in 2019 from 15.9 in 2014. Average account balance has jumped up to $4,400 from $2,900 over the same period. Culmer said the convenience, rather than pricing, of Lloyds’ digital offerings has been a “big contribution” to that growth.

“Everybody’s opening current accounts on the challengers because, as you know, the price is zero,” Culmer said. “I think the right criteria to monitor going forward is the quality of those accounts, the average balances and the potential revenues that they produce.”

Lloyds’ technology spend equated to 19% of its operating cost base in the first half of 2019, an increase of more than 20% year over year. More than 70% of the technology spend so far this year has been weighted toward creating new capabilities and enhancing existing ones, said António Horta-Osório, executive director and group CEO. He also touted the bank’s “modular approach” to the transformation, which he claimed has allowed for faster, more cost-effective changes. “We have repositioned the business to be a truly customer-focused organization,” he said.

Virtual assistants across Lloyds’ brands are now managing up to 5,000 conversations daily, the bank noted. Up to 75% of these queries still are being handed off to a human colleague for completion, but Horta-Osório said he expects that rate to continue improving.

Lloyds is also ahead of schedule in terms of migrating apps to its private cloud, Horta-Osório noted. “We have transformed around 40% of our customers, up from 12% in 2017,” he said. “We are on course to meet our target of greater than 70% by the end of 2020.”

Also see: Why Lloyds Bank Is Moving Its Core to the Cloud in 2019

Additionally, three of every four Lloyds products are now originated digitally. Meanwhile, the bank’s digital efforts are complemented by what Horta-Osório called a “refocusing” of the bank’s branch network “to meet more complex and value-added needs,” including mortgages, financial planning, retirement and business banking.