Digital-Only Banks: Threat or Motivator?

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The emergence of digital-only banks has piqued the interest of valuable and cheap-to-serve customer segments. Their efficient operating model has staved off the necessity of achieving scale for the meantime, enabling them to build propositions around specific customer segments whilst offering competitive rates, services, or value-added money management features. Hitherto, customer inertia and low brand awareness have shielded incumbents from fierce competition. This will not last forever. It is a window of opportunity that incumbents must seize to reduce the functionality gap with digital-only banks and improve their future retention prospects.

This report assess the threat posed by digital-only banks and highlights changes incumbents could make to their digital banking platforms to mitigate the risk by –
– Analyzing the unique environments shaping demand across a range of different markets.
– Identifying customer segments most at risk within affluence and generational bandings
– Highlighting the PFM tools and mobile banking features that are most in-demand.


– Indian consumers are the most willing to use a digital-only bank as their primary banking relationship. The potential pool of customers for digital-only banks in India is 800m+.

– The most valuable customers in terms of products and assets held are also the most interested in switching to a digital-only bank.

– The industry is shedding its reputation for undifferentiated propositions. Innovation is now the second most common reason consumers give for switching provider.

– 1 in 3 of the customers segments identified as most at risk believe digital-only banks offer better rates, better service, better digital banking functionality, and better security.

Reasons to Buy

– Build a more targeted retention strategy

– Make more informed decisions about investments in PFM tools

– Determine which mobile banking features to implement first.

Commonwealth Bank of Australia
Simplii Financial
Ally Bank
Lloyds Bank
Paytm Bank
86 400
Bank Norwegian

Table of Contents

Table of Contents


1.1. Market summary 2

1.2. Key findings 2

1.3. Critical success factors 2


2.1. Demand for digital-only 6

2.1.1. Incumbents in India and the Nordic markets are most at risk from digital-only challengers 7

2.1.2. Digitally savvy millennials, generation X, emerging, and mass affluent customers are most at risk 11

2.1.3. The customer segments most at risk are the most valuable 13

2.2. The perception of digital-only banks and the reality of the threat 16

2.2.1. At-risk customer segments believe digital-only banks offer better rates and digital banking functionality 16

2.2.2. At-risk customer segments cite innovation and poor digital banking functionality as reasons for switching provider 17


2.3. Reduce the functionality gap 18

2.3.1. Mobile banking features that remove pain points in customer journeys are most in-demand 18

2.3.2. Examples of new mobile banking features 19

2.3.3. Offer PFM tools that provide financial clarity and help customers achieve their goals 19



4.1. Definitions 23

4.2. Methodology 23

4.3. Bibliography 23

4.4. Further reading 24


List of Tables

Table 1: Summary of digital-only banks across markets 10


List of Figures

Figure 1: Percentage of consumers globally willing to use a digital-only bank as their primary banking relationship 6

Figure 2: Percentage of consumers willing to use a digital-only bank across different geographies 7

Figure 3: Percentage of consumers willing to use a digital-only bank across generational and affluence customer segments 12

Figure 4: Percentage of consumers who prefer to use digital channels for main banking activities 13

Figure 5: Profiles of customer most at risk from digital-only providers: generation 14

Figure 6: Profiles of customer most at risk from digital-only providers: affluence 15

Figure 7: Attitudes towards digital-only banks by vulnerable customer segments 16

Figure 8: Reasons given for switching by customer segments most at risk from digital-only providers 17

Figure 9: Level of demand for individual mobile banking features 18

Figure 10: Level of demand for individual personal financial management tools 21

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