Panagiotis Kriaris’ Post

Digital banks are no longer niche-only start-ups. They have come of age, competing head-to-head with traditional banks. Here are the models and their playbook. The news from Revolut’s 2024 financial results is still fresh: net profit of $1.4 bn (149%+ yoy) with a margin of 35.5%! Nubank has 109 mn customers, more than double vs Barclays and 3+ as much as Societe Generale. The success and proliferation of digital #banking models around the globe is a clear sign of agile, digital-first, product-niche strategies prevailing over traditional, monolithic, vertical banking business models. But they are no longer niche. They have massively evolved, both in terms of scope and scale. Whereas different patterns can be identified in their evolutionary path, the successful models can be aggregated into two broad categories: —    𝗚𝗿𝗲𝗲𝗻𝗳𝗶𝗲𝗹𝗱 𝗽𝗹𝗮𝘆𝗲𝗿𝘀 starting completely from scratch by means of identifying a niche market or segment, often neglected by incumbents, and focusing on seamless customer experience, attractive design, competitive pricing and a digital or mobile only set-up. In terms of strategy two elements clearly stand-out: 1) hyper-growth and scale as the core - sometimes only - metrics (which explains why so many have been unprofitable) 2) an ecosystem play, driven by horizontal partnerships (vs the vertical traditional model). N26, Revolut and Nubank are typical examples of this model. —    𝗟𝗮𝗿𝗴𝗲, 𝗰𝗹𝗼𝘀𝗲𝗱-𝗹𝗼𝗼𝗽 𝗲𝗰𝗼𝘀𝘆𝘀𝘁𝗲𝗺 𝗽𝗹𝗮𝘆𝗲𝗿𝘀 with a non-finance business geared on #technology and an anchor in e-commerce launching (digital) banking spin-offs as a means of converting (and monetizing) their existing client-base. Most (or almost all) of the examples here come from Asia (i.e. Webank, Kakaobank), mainly due to the set-up of the economy (lacking a traditional finance architecture and, in effect, benefiting private, BigTech players covering the gap). Webank, for example, is owned by Tencent, China’s largest social-media BigTech company (owner of WeChat, China’s equivalent of Facebook). It has managed to reach a $33 billion valuation and a base of more than 400 million active users by focusing on building a modern IT stack (as a competitive edge to traditional banks) and leveraging on the #data generated by the Tencent ecosystem (i.e. retail lending credit scoring built on Tencent data, resulted in a non-performing loan ratio of just 1.2%, about half (or less) of the industry average for such non-secured loans). Irrespective of their origins, both models have been (fast) converging to what has become the new holy grail of modern finance: platform economics and ecosystem plays. Opinions: my own, Graphic source: C-Innovation 𝐒𝐮𝐛𝐬𝐜𝐫𝐢𝐛𝐞 𝐭𝐨 𝐦𝐲 𝐧𝐞𝐰𝐬𝐥𝐞𝐭𝐭𝐞𝐫: https://lnkd.in/dkqhnxdg