Digital banks, otherwise known as disruptor banks or neobanks, are mobile-first, app-based banks that have no physical location. Because of the much lower overheads associated with running a digital business, online-only banks can often offer much lower fees, higher interest rates, cashback, and rewards to customers than traditional incumbent banks. With the digital banking industry having the potential to offer high returns to investors, and the need for new players to expand quickly and gain customers quick in order to turn a profit, the funding of specific banks has been both aggressive and continuous. The
were worth billions of U.S. dollars in 2023, with
Only banking usage
In the United Kingdom,
over 85 percent of adults used online banking in 2022. A combination of speed, convenience, ease of use and the continued rise of non-cash payments have meant that mobile banking apps have become household names within a matter of years. Banks, including the London-based Revolut and Berlin-born N26, have seen
customer numbers explode over a very short period in Europe, a trend that has been
forecast to continue.
Profitability of digital banks
In order to gain as many customers as quickly as possible, some disruptor banks have
turned their intentions toward global expansion in recent years. For disruptor banks to truly compete, they have to work toward making a profit. The need to make a profit for mobile-based banks lies in direct correlation with the number of customers they have. Every open bank account has an annual cost of running. Calculated as a contribution margin, the more accounts that are open and active, the more likely banks will make money per account. In 2021, for the first time since 2017,
Revolut had a profitable year, and Starling reported their
first profitable year in 2022. Monzo Bank, despite the
sharp revenue growth, still ended the year with a significant loss.
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