On Oct 5, Monzo announced that it will abandon its bid to acquire a US banking licence following a two-year discourse with regulatory authorities. In a statement, the bank says: “Following recent engagement with the OCC (Office of the Comptroller of the Currency), we’ve decided to withdraw our banking license application for our US start-up. While this isn’t the outcome we initially set out to achieve, this allows us to build and scale our early-stage product offer in the US through existing partners and invest further in the UK.”

In July this year, Monzo issued another warning about its ability to continue as a going concern after reporting a £115 million loss for 2020/21. it also revealed that it is under investigation by the Financial Conduct Authority over its compliance with money laundering rules. Monzo is one of the earliest digital-only banks in the UK.


See: Interest in digital bank licences high; applicants see opportunity as local banks extend their lead


Grab, which was awarded a digital-full bank (DFB) licence by the Monetary Authority of Singapore in Dec 2020 reported a net loss of US$815 million in 2QFY2021, for the three months to June 30. Grab’s loss widened from US$718 million a year ago. Similarly Sea’s loss in 2QFY2021 to June 30 widened to US$433.7 million, from US$393.5 million a year ago. Sea was also awarded a DFB by the MAS. To date, neither Grab nor Sea have announced their DFB plans.

“Rapid growth in users in the initial few years may not translate to profitability for digital banks. A large part of the growth in customers will likely be in products where profit margins are low, or via distribution of third-party products. Moreover, market share does not always lead to profitable business, such as when digital banks offer no-commission remittance services to win volumes but make no profits directly,” Fitch Ratings cautions in a recent report.  

Loans, which bring in more substantial recurring revenue, will also be limited by the digital banks' risk appetite, underwriting capacity and capital – even for well-resourced ones, Fitch warns. Digital banks are individually very unlikely to wrestle more than a few percentage points of market share within the next five years given the size of incumbent banks, the rating agency points out.

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In a June report, Boston Consulting Group (BCG) says that there are around 249 Digital Challenger Banks (DCG) globally as at end-2020. “It’s estimated that more than two-thirds of that number entered operations since 2010, showing the rapid rise of these emerging operators,” BCG says.

Asia Pacific (APAC) is home to 20% of global DCBs as of the end of 2020, with 50 DCBs operating in markets in the region, according to BCG. Many of these operators are relatively new to the market, with more than 70% established in the five years from January 2016 to December 2020.

BCG points out that only 5% or 13 of the global DCBs have achieved break-even. Of these, 10 are based in APAC. Many of them are in China -WeBank, MyBank, Aibank, XW Bank—and Japan—Rakuten Bank, Sony Bank, Jibun Bank, PayPay Bank. Two are in the UK including OakNorth Bank which counts GIC and SMBC as investors, KaokaoBank in Korea, and one each in Russia and India.


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Those DCBs which have achieved profit generation have strong lending propositions, and a leveraged ecosystem on which to base their customer acquisition and operations the BCG report indicates. “Notably, none of these successful DCBs have yet to capture a market share greater than 2% in terms of total value of deposits and loans of their target segments—typically retail customers and SMEs,” BCG points out.

Of APAC’s ten profitable DCBs, four entered from a digital payment space first, then evolved to reach the status of a DCB with extended financial services. “What unites these ten profitable players is that they are all backed by established companies with substantial ecosystems. The investors backing these digital players boast significant business experience and valuable ecosystems that unlock significant advantage. This has been a major factor of success,as they leverage on strong brand recognition with established customer bases and rich data to drive customer insights and customisation” BCG says.