THE FULLY DIGITAL BANK
This type of bank is fully digital from the ground upwards and usually has no branches, human sales force or call centre that a multi-channel traditional bank uses to offer its products and services to customers.
Everything is delivered via a mobile phone app. That includes account opening, on-boarding (including Know Your Customer and anti-money laundering processes), card ordering and PIN delivery, product maintenance and secondary product or service opening.
It may have a customer service function that relies upon in-app robotic mobile phone chat capabilities, augmented by artificial intelligence and human supervisors.
Pricing
New entrants, financed by venture capital investments, seek to grow their user bases as quickly as possible.
Most services are initially offered for free or cheaper than traditional banks to build customer numbers quickly, which drives valuations and venture capital investments. Their challenge is to generate sustainable revenue, and most new entrants are currently losing money.
To improve their revenue streams, many are offering packages that offer holographic or metal cards plus add-ons such as free insurance. We discuss these in more detail later.
They generate revenue on debit or credit card interchange fees received from the card scheme when the customer uses their card for transactions. This varies from 0.2 per cent in Europe to 2.0 per cent is the US.
| Fully Digital Bank | Characteristics |
| Target customers | Individuals Micro SMEs |
| Services | Transactional account with debit card for payments and mobile phone app-based channel; Narrow range of other products such as simple borrowing (loans and overdrafts), savings, and general insurance |
| Value proposition | Access to basic banking services; Efficient customer-facing processes and service; Enhanced customer experience through mobile app and money management. |
| Revenue Model | Debit card interchange fee from card scheme; Fees and interest from packaged account or additional products. |
| Business logic | No physical infrastructure and highly automated processes reduces operational costs and enables rapid growth without significant operating costs; Free account and no or low transaction fees incentivises the use of card use and digital payments; Transactional data helps tailor and cross-sell products. |
| Dependencies | If it operates like a traditional bank, it will require a banking licence but can offer simple transaction services under other regulations; Dependent on mobile phone technology providers approving their mobile banking app. |
Fully digital banks can be further segmented:
Digitally Native Competitor
- Greenfield banks launched as a new competitor in a market;
- Typically funded by venture capital and run as a tech start up;
- Typically, they are proud to be unlike banks in terms of strategy, customer experience, operations, and culture;
- Sometimes may benefit from specific licencing regimes e.g. virtual banks in Singapore and Hong Kong, and eMoney licences in EU.
Examples include NuBank (Brasil and Mexico), N26 (Europe) & Monzo (UK).
Digital brand
- Greenfield banks launched as an offshoot of an incumbent bank;
- Funded and often staffed by the parent bank;
- Some deploy in the same market as their parent bank to pursue new segments and or explore the potential of a digitally native offering;
- Some are launched in new markets as a low-cost way to expand the parent bank’s geographic footprint;
Examples include Marcus by Goldman Sachs (US and UK) and Buddybank (which is part of UniCredit in Europe).
Digitised incumbents
- These are incumbent banks that pursue a total digital transformation;
- The short-term goals are to reduce operating costs and increase revenue. Medium-term goals are to compete with digital challengers by acquiring their capabilities;
- Segment traditional and customers: seek to move them from former to latter.
Examples include BBVA USA (formerly BBVA Compass) and DBS (Singapore).