Digital banks provide banking services low in friction and high in transaction volume, typically focusing on generating revenue through credit-based services, fee-based income, or a blend of both.
A strong parent or partner ecosystem is crucial. Initial digital banking models underestimated client acquisition costs, including digital onboarding, marketing, and promotions.
It was common for digital banks to reach profitability within a 6-7 year timeframe. Today’s investment climate is far less forgiving, with a notable shift towards expecting profitability much sooner, often within two to three years.
The race to garner customers by offering attractive deposit rates has resulted in an intense competitive environment, squeezing credit product yields.
Digital banks are also contending with an increasingly complex regulatory environment that demands rigorous compliance while navigating technological advancements.
Digital banks thrive with calculated risks, evolving offerings, sustainable customer acquisition, and strategic agility. Balancing risk management while maintaining capital health is crucial for success.