Digital Challenger Banks – The Dawn of Profitability

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Digital Challenger Banks Market Report Overview

Digital-only banks have become commonplace across the world, offering a digital-first approach to banking that focuses on an improved customer experience. Historically, these banks have focused on customer acquisition at all costs, placing doubt on their ability to turn a profit in the long run. However, the tide seems to be changing, with a number of the neobanks examined in this report seeing their first glimpse of profitability. This review focuses on some of the most interesting neobanks (including Monzo, Revolut, Nubank, and KakaoBank) and covers a range of categories, such as financial performance, product offering, and funding. It also examines two notable neobank failures and what other challengers can do to avoid such a fate.

The type of provider consumers would choose if opening a new account, 2020-23

The type of provider consumers would choose if opening a new account, 2020-23

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The year 2023 saw a remarkable transformation in the fortunes of digital challenger banks-particularly in the context of surging interest rates driven by global efforts to tackle inflation through monetary policy. In our preceding report, Digital Challenger Banks: The Quest for Profitability, many neobanks were still on the journey towards generating a profit. However, a notable shift unfolded in 2023, with a significant majority of digital players not only anticipating but also realizing a full year of profit. This trend was largely propelled by a substantial increase in the net interest income. The shift underscores a pivotal turning point for digital challengers, marking their increasing financial sustainability and resilience in an ever-evolving market landscape.

Key Regions •       The UK

•       The European Economic Area

•       Americas

•       Asia-Pacific

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Digital Challenger Banks – Critical Success Factors

The critical success factors affecting the Digital Challenger Banks market are as follows:

  • Obtaining a full banking license is crucial: Obtaining a banking license is a crucial milestone for digital banks, giving them the regulatory approval to significantly broaden their financial services offerings. This also provides customers with security via government deposit protection schemes, enhances credibility, and opens interbank lending channels that can help improve liquidity.

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Digital Challenger Banks Market- Regional Overview

The key regions in the Digital Challenger Banks market are the UK, the European economic area, Americas, and Asia-Pacific.

The UK: The UK’s digital banking landscape has undergone a profound transformation in recent years, continuously reshaping the way both individuals and businesses manage their finances. A wide range of neobanks have disrupted the traditional banking sector, challenging long-established incumbents with a focus on user-friendly interfaces, customer-centric service propositions, and a commitment to meet the rapidly evolving needs of a tech-savvy customer base.

The European Economic Area: In Europe, the combination of negative interest rates and distrust stemming from the eurozone and financial crises has made it hard for a traditional balance sheet approach of banking to pay off. As such, most of the digital challengers in Europe have instead adopted payment- and subscription-based revenue models that seek to generate income from transaction and subscription fees. This model is less reliable than the balance sheet approach as it requires both a massive user base to generate enough transaction-based income and for consumers to be willing to pay subscription fees for added benefits. It is perhaps unsurprising that digital challengers in the European Economic Area have struggled with profitability.

Americas: The evolving dynamics in the US banking landscape, characterized by a wave of consolidations among traditional banks, is poised to significantly impact neobanks. This shift is primarily driven by a confluence of factors, including the aftermath of the 2008 financial crisis, rising interest rates, and increased regulatory scrutiny. Smaller banks—facing mergers or acquisitions to navigate changing economic and regulatory landscapes—may usher in a financial ecosystem marked by fewer, but potentially stronger, competitors. This consolidation is likely to intensify competition among surviving neobanks, emphasizing innovation, enhanced digital experiences, and personalized services as critical differentiators in attracting and retaining customers.

Asia-Pacific: The Asia-Pacific region embraced neobanks at a later stage than the West, and in a more cautious manner, with a limited number of digital bank licenses being granted in countries such as Singapore and Malaysia. This can prove beneficial for neobanks that operate in the region, which can take a lot from the learnings of earlier neobanks across the globe. Furthermore, the Asia-Pacific region has the highest proportion of consumers who would prefer to open a new transaction or savings account with a digital-only provider compared to all other regions. More than half of consumers in Indonesia would choose a digital wallet or digital bank as their new provider; over 40% of consumers in Thailand, the Philippines, and Taiwan (Province of China) would do the same.

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Key Highlights

  • Traditional banks and neobanks alike have reaped the benefits of increased interest rates. Neobanks with lending products have experienced a stark increase in net interest income. However, rates are expected to begin falling in 2024, so neobanks will need to acquire more customers to generate similar revenues.
  • Neobanks face a crucial opportunity to strategically allocate profits from this prosperous period. With the upcoming decline in interest rates, it is imperative for them to wisely invest in expanding lending portfolios and acquiring income-generating assets such as treasuries. This proactive approach is essential for neobanks to not only sustain but enhance their profitability, showcasing strategic foresight in the evolving financial landscape.
  • Successful neobanks have begun exploring new revenue streams, such as launching investment and cryptocurrency trading products, premium accounts for the mass affluent, and even white labeling their in-house software.

Reasons to Buy

  • Identify some of the strongly performing digital banks across the world.
  • Learn about the key factors that are essential to building a successful neobank.
  • Discover why neobanks fail and what they can do to avoid it.

Starling Bank
ZA Bank
GXS Bank
Chase UK
Trust Bank
Alex Bank
Orange Bank

Table of Contents

  • 1. Executive Summary
  • 1.1 Overview
  • 1.2 Key findings
  • 1.3 Critical success factors
  • 2. The Global Digital Challenger Bank Market
  • 2.1 Neobanks are a global force in retail banking
  • 3. The UK
  • 3.1 Monzo
  • 3.2 Starling
  • 3.3 Chase UK
  • 4. The European Economic Area
  • 4.1 Revolut
  • 4.2 bunq
  • 4.3 N26
  • 5. Americas
  • 5.1 Chime
  • 5.2 Nubank
  • 6. Asia-Pacific
  • 6.1 Trust Bank
  • 6.2 KakaoBank
  • 6.3 GXS Bank
  • 6.4 ZA Bank
  • 6.5 Alex Bank
  • 7. Neobank Failures
  • 7.1 Xinja
  • 7.2 Orange Bank
  • 8. Appendix
  • 8.1 Abbreviations, acronyms, and initialisms
  • 8.2 Methodology
  • 8.3 Secondary sources
  • 8.4 Further Reading
  • 9. About GlobalData
  • 10. Contact Us


Figure 1: Digital providers have seen an increase in popularity since the COVID-19 pandemic

Figure 2: Neobanks have been consistently growing their asset portfolios

Figure 3: Monzo has drastically increased its net interest income

Figure 4: Monzo’s newly unveiled investment offering

Figure 5: Starling’s balance sheet approach has led to two full years of profitability

Figure 6: Starling’s lending portfolio now consists mostly of mortgages

Figure 7: Revolut offers five different current account tiers

Figure 8: Countries in which Revolut operates

Figure 9: bunq offers three paid current accounts and one free savings account

Figure 10: Asia-Pacific consumers are the most positive towards digital providers

Figure 11: KakaoBank’s rapid expansion of its lending products has facilitated income growth

Figure 12: GXS gamifies everyday banking tasks via a bingo competition

Figure 13: ZA Bank’s loan book saw only limited growth in 2022

Figure 14: ZA Bank customers are unhappy with the digital services they receive

Figure 15: Alex Bank has consistently attracted deposits and loans since its reporting started

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