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

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Digital Banking Trend Analysis Market Overview

Digital banking has entered the mainstream across the globe. Digital banks have gradually become big enough to challenge conventional incumbents in markets including Brazil and South Korea. However, in other markets such as Hong Kong, digital banking is gradually commencing.

The digital banking trend analysis market research 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 based on their successes, failures, strengths, weaknesses, and future prospects. Alongside this, an 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.

The report is split into five separate sections to cover the UK, the EEA, the Americas, Asia-Pacific, and Australia separately.

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Digital Banking Critical Success Factors

  • Many neobanks across the world have experienced rapid growth. On the other hand, banks that have followed a payment-based approach have struggled to balance monetization and customer acquisition.
  • Many of the interchange fee- or subscription-based banks in this report have garnered a large user base. The prime example of this is the difference between Monzo and Starling in the UK. Despite having half the number of customers, Starling has twice the deposit holdings and has attained profitability (whereas Monzo has not).
  • The banks that have had the most success have not necessarily been the banks with the largest portfolio of products. They have instead been the banks that have tailored their product offering and monetization strategy to market-specific pain points that need addressing.

For more critical success factors insights on digital banking, download a free report

Digital Banking – Key Competitors

The key competitors in digital banking are Monzo, Starling Bank, Revolut, N26, bunq, Chime, Current, Nubank, KakaoBank, Mox, ubank, and others.

Monzo: Monzo has taken several decisions that have helped in the massive upscaling of the company’s marketing. In addition, Monzo has massively ratcheted up its lending. On top of this, instead of letting its deposits sit idle as it had done previously, Monzo has massively increased its investments in treasury assets. Monzo’s subscription model has also witnessed popularity in recent years.

Starling Bank: In July 2022, Starling Bank announced its first full year of profitability. This is a major milestone not just for the company but for neobanks more generally. The success of Starling is evidence that there exists a path to profitability for neobanks. Integral to understanding what this path looks like is understanding Starling’s commitment to a balance sheet approach to digital banking. Furthermore, Starling can and does proudly boast about the consistent level of support it receives from customers. Starling has won best current account at the British Banking Awards for five years in a row. The company’s popularity with customers is not without justification.

Revolut: Revolut is also notable for putting a far greater emphasis on wealth management than other neobanks. Cryptocurrencies have increasingly become the focal point of this strategy, with Revolut now offering the ability to trade over 40 cryptocurrencies. The company has even gone as far as to establish a “learn to earn” program whereby users can educate themselves on cryptocurrencies and earn up to GBP10 ($12.10) in DOT cryptocurrency tokens.

For more competitor insights on digital banking, download a sample report

Key Highlights

  • 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 a profit.

Reasons to Buy

  • 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.

bunq
Revolut
Monzo
Starling Bank
KakaoBank
N26
Current
Chime
Nubank
Mox
ubank
Standard Chartered
National Australia Bank

Table of Contents

  1. Executive Summary

1.1 Overview

1.2 Key findings

1.3 Critical success factors

1.4 Competitor overview

  1. The Global Digital Challenger Bank Market
  2. The UK

3.1 Monzo

Monzo’s overhaul has renewed investor confidence

Monzo’s subscription model has seen recent success

Monzo has dethroned Starling as customer darling

Monzo’s fortunes are much improved, but it is not out of the frying pan just yet

3.2 Starling Bank

Mortgage and SME lending have facilitated profitability

Well-designed products are enhanced by complementary features

Questionable due diligence undermines an otherwise strong position

Slow and steady proves to be profitable

  1. The EEA

4.1 Revolut

Expansion, expansion, expansion is the aim of the game for Revolut

Revolut has a messy product suite built around the central pillar of currency exchange

Profitability problems and alarm around auditors are causes for serious concern

Revolut is banking on the size of its customer base

4.2 N26

N26 is following an unsuccessful subscription-based strategy

N26’s product portfolio lacks a guiding strategy

Poor management has led to avoidable scandals

Management has its head in the sand about N26’s biggest problems

4.3 bunq

A new investor prompted bunq to change course

bunq has a simple product line that sells itself on its eco-credentials

bunq’s new strategy puts the bank in a stronger position

bunq’s future depends on the success of its new direction

  1. The Americas

5.1 Chime

Chime continues to target the underbanked

Chime’s product portfolio is simple but well suited to the US market

Chime’s revenue strategy comes with long-term risks

The US success story facing a catch-22

5.2 Current

The pandemic facilitated Current’s position as the second-largest US neobank

A savings account is the company’s primary value proposition

Current is in a better position to address long-term problems than Chime

Current needs to be more than a bank that was in the right place at the right time

5.3 Nubank

Nubank is focusing on profitability and diversification rather than regional expansion

Nubank’s basic product portfolio is growing and diversifying

Profitability is a challenge that is only likely to get bigger

Nubank’s profitability push is likely to pay off

  1. Asia

6.1 KakaoBank

A balance sheet approach coupled with rapid customer acquisition has proven to be a potent mix for KakaoBank

KakaoBank has been purposefully cautious in releasing products

KakaoBank’s business model is fairly unassailable

KakaoBank’s successes will more than likely multiply

6.2 Mox

Mox’s strategy is carefully tailored to customer needs

Well-targeted products address Hong Kong customers’ pain points

Mox is lagging behind its biggest competitor ZA

There is a decent chance Mox will survive, but only if it keeps up with the competition

  1. Australia

7.1 ubank

ubank’s strategy is basic and unambitious

ubank’s product line is fairly barebones as far as neobanks go

ubank strongly benefits from being a subsidiary of NAB

The lack of competition in Australia affords ubank the space to rest on its laurels

  1. Appendix

8.1 Abbreviations and acronyms

8.2 Currency conversions

8.3 Methodology

GlobalData’s annual Financial Services Consumer Survey

8.4 Secondary sources

bunq

Chime

Current

KakaoBank

Monzo

Mox

N26

Nubank

Revolut

Starling Bank

ubank

8.5 Further reading

| About GlobalData

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Table

List of Tables

Table 1: Products and features offered by the digital banks covered in this report

Figures

List of Figures

Figure 1: UK consumers have an increasingly positive attitude towards digital banking but still seek banks that have branches and an established reputation

Figure 2: European consumers’ positive attitudes towards digital banks are becoming more pronounced over time, but so too is their preference for traditional non-digital services

Figure 3: bunq’s tiered account offering

Figure 4: Much like Europeans, consumers in the Americas have an increasingly favorable opinion of digital-only banking but their preference for traditional banking is growing increasingly pronounced

Figure 5: Consumers in Asia increasingly want a bank with an established reputation

Figure 6: KakaoBank’s product suite

Figure 7: Australian consumers have a strong preference for banks with an established reputation

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