A survey of industry figures by GlobalData’s Retail Banker found that digital banks featured heavily in forecasts for the coming year.
“As retail bank branches continued to close, Amazon, Apple, Uber Money and others understood that by being hyper-relevant to multiple moments in their customers’ daily lives, they could drive value of their brand and become an integrated and trusted partner,” said Adrian Cannon, CEO of Omnio.
“These [digital challengers] are poised to increasingly extend their product range to the financial services sector, challenging the big banks to quickly up their game.”
Significant investments in the fintech sector have better positioned digital banks to disrupt the traditional banking market. There are already six challenger banks worth more than $1 billion, including Brazil’s Nubank ($10.4 billion), US Chime ($5.8 billion) and N26 from Germany ($3.5 billion).
“2020 could be the year that a traditional bank takes the plunge and acquires a rival bank to take advantage of the brand loyalty, as well as the scalable cloud native systems owned by these banks,” said Ian Bradbury, CTO of financial services at Fujitsu.
However, digital banks now face challenges that go beyond raising capital and offering new applications.
“They need to expand their product lines into more profitable areas of the market. At the same time, they need to increase the number of customers signing up to use their premium subscription products,” said GlobalData banking editor Douglas Blakey.
“Despite the hype, UK challengers such as Monzo, Starling, Tandem, Revolut and N26 are not yet eating the incumbent banks’ lunch when it comes to primary banking relationships. The majority of challengers are also not close to breaking even, but on their own, in terms of profitability.
