Digital banks are one of the hottest investment sectors in fintech right now, as Revolut’s recent $66 million series B shows. However, look more closely and it’s clear the era of digital-only challenger banks may actually be coming to a close. Systemic difficulties in turning profits with pure digital-only banking will drive more businesses to adopt a broad-based approach focusing on digital financial services, of which banking is part
Across Europe the 10 largest digital bank financings have totalled $500 million so far, with Atom alone raising more than half that amount. And several €50 million+ financings are already being planned: You see Revolut adopting this approach, and in fact all manner of ambitious fin-tech companies are becoming digital banks. Klarna, the Swedish payments company, has recently been granted a banking license, and Zopa, the peer-to-peer lender, has just raised £32 million (~$41.4 million) to do the same. Meanwhile, TransferWise and FairFX, foreign exchange businesses, have moved into multi-currency banking accounts. Soon, ambitious fintechs that aren’t trying to become banks will be the minority. Fintech companies often need to embrace digital banking to operate profitably at scale. Consumers who deposit cash are far less prone to “churn out” compared to a single-use tool for currency conversion or peer-to-peer loans.
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