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Digital Banks (also known as Neobanks) are fully licensed banks or e‑money institutions that provide retail and/or business banking services exclusively or predominantly through digital channels, such as mobile apps and web platforms, without maintaining traditional physical branch networks.
They typically offer core banking products including payment accounts (current/checking accounts), savings/deposit accounts, payment cards, and in some cases, consumer or small‑business loans. All account opening, verification (KYC), and customer support are handled digitally through applications, video identification, or online chat.
For this analysis, Digital Banks or Neobanks are defined by the following criteria: A digital‑first operating model with no or minimal physical branches available to the general public. Direct relationships with customers (B2C or B2B) under their own banking brand. Possession of a banking or equivalent e‑money license, enabling them to hold customer funds and/or issue payment accounts.
This market focuses on modern, app‑centric providers that distinguish themselves from traditional banks through superior user experience, rapid product innovation, and technology‑driven operations. Additional information:
Notes: Data was converted from local currencies using average exchange rates of the respective year.
One of the primary reasons for the growth of digital banks/neobanks is the increasing adoption of digital technologies and the changing preferences of customers, especially millennials and Gen Z, who are more likely to use digital channels for their financial transactions. Modern digital banks have been able to capitalize on this trend by offering simple and convenient mobile and online banking services that cater to the needs of tech-savvy consumers. Another factor driving the growth of digital banks is the lower cost structure compared to traditional banks. Neobanks/ digital banks have lower overhead costs as they do not operate physical branches, which allows them to offer competitive rates and fees to their customers. They also have faster and more efficient processes, which helps reduce operational costs and enables them to offer faster and more personalized services. The digital banks industry is highly competitive, with many players competing for market share. Some of the leading digital banks include Chime, Revolut, N26, Monzo, and Varo Bank, among others. These digital banks have gained popularity due to their innovative offerings, such as budgeting and savings tools, cashback rewards, and other incentives, which have helped them attract a large customer base. While digital banks have been successful in attracting customers, they still face several challenges. One of the primary challenges is regulatory compliance, as digital banks must adhere to the same regulations as traditional banks while also complying with additional regulations specific to their digital operations. This can be a significant hurdle for digital banks, especially those operating in multiple jurisdictions. Another challenge facing digital banks is profitability. While digital banks have lower costs, they also have lower revenue streams compared to traditional banks, as they rely on transactional fees and interest income rather than other sources of revenue such as cross-selling products or services. As a result, digital banks must find innovative ways to generate revenue, such as offering premium services or partnering with other companies to offer value-added services. Despite these challenges, the new digital banking industry is expected to continue its growth trajectory in the coming years. With increasing consumer demand for digital banking services and the rise of fintech innovation, digital banks are well-positioned to become a significant player in the financial services industry. However, to succeed, digital banks must continue innovating, adapting to changing customer needs, and navigating regulatory challenges to ensure long-term viability. Additionally, the peak of inflation in 2022 affected the market. For more details about the impacts of inflation on the financial industry read more here.
Notes: Based on data from IMF, World Bank, UN and Eurostat
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