Digital Banking Trend Analysis - The Quest for Profitability Driving Strategies and Product Development of Digital-Only Providers

Digital Banking Trend Analysis - The Quest for Profitability Driving Strategies and Product Development of Digital-Only Providers

Summary

This report provides an overview and analysis of the current state of play among digital-only banks across the world. To achieve this, the business models of 11 digital-only providers are analyzed and assessed on the basis of their successes, failures, strengths, weaknesses, and future prospects. Alongside this, analysis of the regional contexts these banks operate in is also included, with a time series of consumer attitudes towards digital banking provided for each region covered.

While the COVID-19 pandemic has proved that digital banking is essential for consumers and business’ access to finance, the past year has shown that digital challengers are not taking their customers for granted and behaving under the assumption that their growth and sustainability is guaranteed. Most of the banks discussed in this report have taken significant steps to strengthen and/or adapt their strategies over the past two years. While some banks have doubled down on their emphasis on customer acquisition and expanding their offering, others have taken a more targeted approach aimed at diversifying their revenue streams. Moreover, achieving profitability in the near future has increasingly become the top priority of many of those managing digital challengers, most of which remain loss-making. Ultimately, the path towards profitability will not only depend on digital challengers’ strategies and product development but also on consumer attitudes, the regulatory environment specific to each country/region, and the overall competitiveness of the markets within which they operate.

Scope

• Digital challengers are increasingly providing loans and becoming less reliant on transaction fees. Starling Bank in the UK and bunq in the Netherlands are two examples of digital challengers that have introduced loan products over the past two years. In doing so, they have joined other banks such as KakaoBank in South Korea and ubank in Australia in adopting a more traditional balance sheet approach based on net interest income.
• Whereas a balance sheet approach is associated with profitability, a strategy based on aggressive customer acquisition is not. The two banks that have managed to generate profit - Starling Bank and KakaoBank - have largely managed to do so because of their lending activities. Other actors that have expanded aggressively in terms of market share (such as Revolut) are still struggling to make profit.

• Gain insight into the strategies, product bundles, and messaging digital banks are trying in each market, with their associated strengths and weaknesses.
• Learn about threats to incumbents and newer digital challengers, as well as potential opportunities for acquisitions and partnerships.
• Understand the relative viability of different digital banking models across different contexts.
• Gain an awareness of the general trends affecting the digital banking space.
• Compare the performance and strategic direction of your firm against competitors.