The proliferation of licensed digital-only banks has elicited a determined response from incumbent commercial banks. They are fighting back with their own stand-alone virtual offerings, developed as in-house experiments or run as independent subsidiaries. To track this increasing array of mobile based virtual contenders, TABInsights has launched the world’s first comprehensive assessment of global digital banks that ranks them according to a balanced scorecard derived from an objective and transparent set of evaluation criteria.

Over the last decade since the start of the fintech boom, the financial services sector has seen the rise of more than a hundred stand-alone digital banks globally. They have transformed the way digitally inclined consumers save, borrow, transact and invest.

Despite the hype, predictions of these tech led consortia and venture capital backed startups displacing incumbent banks have proven vastly premature. Changes to the status quo have not only been perceptibly slow, but many of these digital challengers with limited product sets are finding it hard to turn a profit.

Notwithstanding doomsday comparison to industries that had ceased to exist, banking will not go the same way. Banking remains a highly essential, complex and regulated business. It will take a lot more than superior technology, customer experience and net promoter score to displace banks.

Incumbent banks wield undeniable market power in terms of access to capital, a wide and integrated scope of products and services, risk management capabilities and most importantly their skills in navigating ever evolving regulation and compliance, given the integral role they play in the financial system. They sit at the heart of the fractional reserve banking system that has funded modern global finance for the last few centuries. And because of this, regulators would want to ensure their continuing health and stability, despite their occasional missteps and malfeasance.

Even without the regulatory cover, commercial banks can excel in technology, customer service and engagement. One of the most successful digital banks evaluated in this ranking of global digital bank was started by an incumbent commercial bank as a first-generation internet or direct bank that can be traced more than two decades earlier to the internet or dot.com boom of the late 1990s and early 2000s.

ING Direct, ING’s branchless retail business, was launched in 1997 in Canada, and expanded into Australia, France, Germany, Italy, Spain, United Kingdom (UK) and the United States (US).

Although the operations in Canada, the UK and the US were subsequently sold off in the 2010s, ING Direct became the precursor of the bank’s successful direct banking businesses in the other markets, which were rebranded to ING between 2017 and 2019. A number of these are highly placed in the global ranking.

While it may not be the first direct bank in the world, ING’s direct banks have nevertheless outlived many of its peers, including its earlier internet banking con-temporaries such as First Direct/Midland Bank and Prudential/Egg in the UK and Security First Network Bank in the US, as well as those that emerged later from the fintech boom with much fanfare such as Atom Bank in the UK and Simple and Moven in the US. It has evolved into a profitable modern digital bank. Interestingly, ING Direct in Canada which was acquired by Scotiabank in 2012 also continues to operate today, as Tangerine.

In Japan, most of the country’s first internet banks also continue to operate profitably today and are equally well placed in the ranking, such as Rakuten Bank launched in 2001 and SBI Sumishin Net Bank in 2007, both operate under existing commercial banking licensing requirements. The first internet bank, Japan Net Bank, recently rebranded as PayPay Bank started in 2000 and was born out of financial deregulation in the 1990s.

But the first signs of a mobile first strategy were already apparent in 2008, with the launch of Jibun Bank in Japan as the perhaps first mobile only bank. From 2011 onwards, a second-generation of cutting- edge smart app-based providers emerged, such as Chime and now defunct Simple and Moven in the US; Revolut and Starling in the UK and the Chinese giant platforms; Baidu, Alibaba Tencent (BAT) led banks such as aiBank, MYBank and WeBank, from 2014 onwards. Driven by their cloud native architecture, they aptly exploited the mismatch between customers’ expectation and traditional banks’ laggard service level to set new standards of what would appeal to consumers, especially of the younger more tech savvy ones.

It is this second wave of pure tech driven mobile neo banks that got traditional banks to sit up and pay attention, inducing fundamental changes to an entire industry and forcing these incumbents to abandon their legacy operating models.

Now, this second wave of innovators appear to have come to the end of their developmental cycle and are at the cusp of the next stage of evolution. Game changing technologies such as cryptography and blockchain that create new crypto/digital assets; the internet of things (IoT), and augmented/virtual reality (A/VR), combined with innovative business and operating models encapsulated in decentralised finance (DeFi) and the metaverse portend to the next generation of banks and financial players that some are starting to call crypto banks that promise to bridge the fiat and crypto worlds. Their development cycles however are fraught with considerable regulatory uncertainties and hurdles.

Nevertheless, barriers to entry have come down in many markets, and regulators have created supporting frameworks for fintechs and neo banks to operate and compete.

WeBank, Ally Bank and ING received top scores in this year’s inaugural global ranking
Table 1. Global digital bank ranking

Click here to see the full Global Top 100 Digital Bank Ranking 2022

Source: TABInsights 

The global digital bank ranking

The ranking contains a diverse group of first- and second-generation digital banks, and stand-alone digital subsidiaries of commercial banks. They operate as consortia or stand-alone entities, as pure play, purpose-built wholesale or small and medium sized enterprise (SME) business lenders (e.g. OakNorth in the UK), as digital banks with consumer finance as their main business line (e.g. Alex Bank in Australia), as large platform banks (e.g. LINE in Asia) or fully-Shariah-compliant digital banks (e.g meem in Saudi Arabia).

The scorecard assessment covers capabilities mapped across five key dimensions: customer experience, market/product coverage, profitability, asset and deposit growth and funding. Scale and size are not the main determinant, and are balanced with profitability, operational efficiencies, the ability to raise funds and the way these digital banks grow a healthy loan book and balance sheet.

WeBank of China, Ally Bank in the US, and the retail arm of ING Group, top the 2022 global ranking of leading digital banks – and it shouldn’t come as a surprise. With the rise of digital tech driven banks since 2014 it is easy to miss the strong performance and transformation that leading first-generation digital banks underwent since the global financial crisis in 2008.

WeBank, the largest all-digital bank in China with total assets of $69 billion, takes this year’s crown as best digital bank in the world. Tightly integrated with the social media and payment platforms WeChat and WeChatPay, it has built a strong financial balance sheet since its launch in 2015, driven by its retail and SME micro loan business. WeBank logged record setting results in 2021 that demonstrated growth momentum across all indicators. The bank with its blockchain enabled open banking platform has become a super connector to most financial institutions in China. It is the first bank in the world that built a large scale and commercially viable blockchain infrastructure ecosystems supporting more than 360 million transactions per day.

It recently launched the WeBank Blockchain brand to drive the deployment and application of blockchain technology for environmental, social and governance (ESG) and sustainability related programmes. Since 2017, the bank has led the development of the open-source FISCO BCOS financial-grade consortium chain platform. It has attracted more than 3,000 institutions and over 70,000 individual members that have deployed several hundred blockchain applications in various industries such as finance, healthcare, law and justice, agriculture and manufacturing.

Ally Bank, the largest all-digital direct bank in the US with total assets of $182 billion is placed second in the global digital bank ranking. It not only counts a strong balance sheet and robust financials but has adapted to the changing consumer trends and competitive landscape. Since its rebranding from General Motors Acceptance in 2009, the bank has been successfully pivoting to a diverse product set which increasingly attracts millennial and gen-z consumers. Sixty-nine percent of new deposit customers in 2021 came from the millennial and gen-z segment. Ally Bank reported record-setting results in 2021 that demonstrated growth across home loans, lending, investment and insurances.

This achievement has been on the back of a 96% leading customer retention rate, which is increasingly spilling over into multi-product relationships.

Key insights to draw from the ranking

Aggregated assets that make up the world’s top 100 digital banks exceeded $1.2 trillion in 2021. To put this in context, the world’s 100 biggest traditional commercial banks have combined assets of $114 trillion.

They generated annual gross revenues of more than $51 billion, and offer on average of 5.4 top line products. The five largest revenue generating banks in the ranking contributed 60% of total revenue, indicating the small revenue of most digital banks.

However, leading digital banks have accelerated their revenue growth in 2021 compared to 2020. For example, digital banks in China responded better to extended lockdowns, and were able to leverage their strengths more than traditional banks. The five banks included in the ranking achieved an average year on year (yoy) growth in total revenue 41% in 2021 compared to 28% in 2020. This compares to an industry revenue growth of 7% in 2021.

Only 29 digital banks are profit making as of 2021. Average return on equity (ROE) for this segment stood at 15% with Tinkoff Bank of Russia leading the field at 53%. Digital banks with a focus on personal finance, wealth management and SME banking are among the most profitable ones.

Sixteen of profitable banks are from Asia Pacific, nine from Europe, three from North America, and one from the Middle East. Slightly more than half, or 52%, are first-generation digital banks.

The average time to profitability, the time from launch to break even, fell considerably from about five years for first generation digital banks to between two and three years for the best second-generation banks launched after 2014. WeBank leads in this regard, with time to profit of a mere 24 months. The average age of profitable digital banks is about 11 years.

The average cost to income ratio (CIR) of profitable digital banks in 2021 was relatively high at 62% for first generation digital banks. While second generation digital banks are more efficient with an average CIR of 46%.

In terms of liquidity, the average loan to deposit ratio (LDR) of first generation digital banks stood at 77%. The LDR among second generation digital banks varies widely. This could be largely due to them being new and not having fully scaled up their lending businesses. For example, in Hong Kong, average LDR stood at 25% with a range of 0.7% to 82%, while in the UK it ranges from 3% for Monzo to 169% for OakNorth.

Despite the pandemic, leading digital banks in the US, Europe and Asia Pacific have demonstrated they can raise funds and pursue public listings for global expansion. (see figure 3)

Empire building – the global ambitions and failures of digital banks

In the wake of N26’s exit from the US market in November 2021, barely two years after it launched in July 2019, industry observers pointed to a range of ill-fated business assumptions. When N26 launched in Germany in 2010, it was the first neo-bank there, but 10 years later things looked fundamentally different. Part of its US challenge was that it entered at a point in the industry cycle where neo-banks such as Chime, Varo, Marcus as well as Robinhood had already established themselves, and incumbent banks had also introduced very
competitive mobile propositions.

UK digital banks too have had mixed responses to the US market. Revolut which launched its financial super app in March 2020 has yet to announce a more transparent strategy, Monzo has been defocusing since the pandemic, and Starling voiced no plans to enter the market. Internationally, UK and European digital banks with the exception of Revolut, have yet to enter markets beyond Europe and the US.

Being successful in a home market is not a straightforward recipe for success. For example, Monzo has become one of the most successful digital banks in the UK,known for offering the best service quality together with Starling Bank. Yet, this stands in stark contrast to its US venture. Based on its group financial statement in 2021, its US operations counted only 22 full-time employees and 4,000 customers.

Revolut was able to manage a more successful entry into the US market based on a feature rich tailored proposition. It claimed to have grown its user base upwards of 300,000 by end of 2021. Besides its debit and junior account, users can avail of more than 20 features. An application for a full US banking licence is currently under review. Revolut ranked second best digital bank in the UK after Wise in the world’s top 100.

Across the pond, Marcus by Goldman Sachs entered the UK in 2018 and was recently joined by JPMorgan Chase. They aim to take on incumbents and a series of established digital banks where new to market challenger, Bo by RBS, tried and failed to make an impact on the overcrowded and mature market. Any challenger expecting to create a significant service and product differentiation in the saturated market will have their work cut out for them.

That’s the reason why JPMorgan Chase’s entry into UK is a huge strategic commitment. JP Morgan had some success in leveraging its capabilities in cards to launch a blue card for the mid-market which wasn’t previously available. Ultimately the UK market will serve as a testbed for their move into continental Europe and Latin America. The bank took a 40% stake in the full-service Brazilian digital bank C6 in February 2022.

Marcus UK appears more of a disappointment. It has fallen behind other UK digital banks and ranks only 75 in the top 100. Unlike its rich US offering, its UK proposition pales in comparison to ING’s product scope and appears primarily focused on deposits in the last four years. Results have been below expectations. Having collected only about $30 billion in deposits, it is pivoting currently to investment and wealth.

Beyond regional expansion, the prospect of digital banks operating on a global scale and disrupting incumbent retail finance players as Amazon did to high street shopping establishment at the start of the ecommerce boom in the early 2000s remains to be seen. There are however a handful of players, including Klarna and Revolut, that certainly have the ambitions to build global financial super apps. Revolut operates in 28 European Union (EU) markets and has set foot on four Asia Pacific markets; Australia, India, Japan and Singapore. Its more than 18 million customers around the world make more than 150 million transactions a month.

Rise of super challenger banks: Kakao Bank, Nubank and Tinkoff

Of the top global digital banks, only three super challengers have become real threats to incumbents in their home markets, and they are not necessarily the one with the widest international coverage. As they rapidly gained scale, they have built full-scale deposit and lending businesses.

In South Korea, incumbent banks face mounting competition from three digital counterparts. It is likely the only country on the planet where the combined power of challenger banks, namely K-bank, Kakao Bank and Toss Bank, poses a real threat to the incumbents’ anemic retail finance business.

It is telling of the state of the industry, when a mobile only bank such as Kakao Bank managed to accumulate outstanding personal loans of $26 billion in just over four years. South Korea’s digital banks also took advantage of the country’s open banking framework to grab user share.

Another super challenger bank is Nubank, which operates out of South America. It became globally only the second digital bank to be listed on the New York Stock Exchange, in December 2021. Nubank has focused aggressively on customer growth, achieving a total client base of more than 54 million. However, Nubank’s primary user base, those who use the bank for the majority of their services, is estimated to be between 20% and 30% only.

Russia’s Tinkoff Group leads the global ranking in profitability with a return on equity (ROE) of 53%. The bank has been building a complete set of consumer financial services from SME to mortgage loans since 2009. Its investment arm has become synonymous with retail investment in Russia. Tinkoff Bank has become the second largest lender in credit card lending and short-term consumer financing, receiving on average four million credit applications a month.

Rise of pan-Asian digital banks

While the majority of digital banks in Asia Pacific choose to focus on their home markets, there are signs some of them may branch out into the region at some point, such as Kakao Bank. It certainly has the capital strength as the best funded second-generation digital bank on the planet. There are a few other notable exceptions in building a regional business.

LINE Bank which evolved from LINE Pay, the Japanese payments platform, has expanded rapidly in the region. It obtained a digital banking licence and launched in Taiwan in 2021. It also entered a partnership with Hana Bank Indonesia to launch in Indonesia in 2021. In Thailand, LINE BK, a joint venture between Kasikornbank and LINE, is one of the rare examples of a well-executed partnership between a leading incumbent and a tech platform. It reportedly serves about 5.7 million customers in the three markets.

Indonesia, which has the highest growth potential for digital banks in Asia outside China, is seeing the emergence of a first major wave of tech driven digital banks. Tech companies, such as Grab, Line, Sea Group, Akulaku, Gojek, Kredivo and WeLab have acquired stakes in smaller banks to evolve them into digital banks.

They will face fierce competition from BTPN’s Jenius and blu by BCA Digital as well as successful mobile apps such OCBC NISP’s Nyala and Permata Bank’s PermataMe. Banks in general have been busy since the pandemic in relaunching their mobile banking services, including new payments, financial planning and lifestyle features.

WeLab Hong Kong is building its pan-Asian digital bank network out of HongKong, where it received its digital banking licence in 2019 and will launch in Indonesia towards the latter half of 2022. This move is driven by a three-year market strategy that includes a joint consumer finance venture, Maucash, in collaboration with PT Astra International, one of Indonesia’s largest conglomerates.

DBS Digibank, UOB TMWR and CIMB were the only digital banks by incumbents in the Asia Pacific that attempted to build a regional network, and they did succeed in some markets such as CIMB in the Philippines. CIMB launched its digital bank in the Philippines and Vietnam but it is only in the Philippines that it is on a more credible path to success.

UOB TMWR had some reasonable success in Thailand, supported by the strong competitive position of its parent bank. But the lack of ecosystems it could plug into effectively in the region is haunting TMWR. However, its acquisition and integration of Citi’s consumer franchises, including merchant services, in the key markets of Indonesia, Malaysia, Thailand and Vietnam over the next two years will elevate TMRW as the main digital platforms to serve the additional 2.4 million customers.

Incumbents often see their digital bank offering as a channel that has to fit into their existing network strategy, instead of a separate customer proposition, with independent management and corporate governance. Shinhan Bank in South Korea launched a mobile only bank ‘SunnyBank’ in 2015 but it was merged just a few years later back into its main digital platform.

Similar to SunnyBank, Bo by RBS UK, an app-based account accompanied by a yellow payment card was wind down in May 2020, after only six months of operations. It had apparently underperformed the bank’s main digital app which was experiencing faster growth and had millions of users.

These ventures not only faced fierce competition from digital peers but also their parents’ more successful prevailing digital banking services. They result in banks offering multiple digital propositions in the same market with only marginal or no differentiation. By just comparing the app score between them and stand-alone digital banks, the differences are very apparent to end users.

There are increasingly efforts by commercial banks to build controlling stakes in well-developed digital banks. In Brazil, BBVA has reached an agreement in February 2022 to invest $300 million in Neon, a digital bank with 15 million users, bringing its total stake close to 30%. Likewise, JPMorgan Chase took a 40% stake in the full-service Brazilian digital bank C6 in the same month. In Asia, South Korean and Japanese banks, which have been building strategic stakes in emerging market commercial banks for many years, have been investing into fintechs too. MUFG Bank announced in 2020 that it will invest up to $706 million in Grab. In Hong Kong, leading commercial banks have invested via consortia in some of the eight digital banks.

Will digital banks in Hong Kong stand up to the challenge?

For the latest generation of digital banks, developments out of Hong Kong will be instrumental in showing how successful these ventures can be. The eight digital banks collected $1.2 billion of new deposits in 2021 bringing total digital bank deposits to $3.25 billion , accounting for just 0.3% of the city’s total. However, 49% of market share went to only two banks, ZA Bank and MOX Bank. And grabbing those deposits came with a hefty price tag. MOX bank’s interest expense grew 3.6 times to $4.7 million in 2021, and representing the main cause for total operating revenue loss.

Since digital banks’ advertised interest rates already have come down from their first year in operation, there was a partial reverse fund flow back to incumbents. Losses have widened for all eight banks in their second straight year of operation.

Those digital banks are highly commoditised businesses. They will remain, among themselves, fairly undifferentiated and basic in their propositions in the first few years before their differences become more distinct.

In addition, their product suites remain limited. Most of the digital banks in HongKong haven’t even started a credit card business in a market where credit cards are the absolute dominant payment instrument. True, they are making some inroads into payments and forex services, but where banks really make their money are the full suite of solutions including wealth management and advisory, mortgages and unsecured lending. Unless those digital banks find a niche or products that really sticky with customers, it is overstated to believe that these digital banks will become challenger banks in the next years.

Critical for them will be to balance their book and grow its lending business. The average loan to deposit ratio among them stood at 25% with the exception of PAOB Bank, which strategically targets local SMEs. Having said this, their user interface/experience (UI/UX) capabilities are by far better than the incumbents’ offerings. Both sides are racing fast to close their respective gaps with some larger banks already undertaking next generation UI/UX platform roll-outs in the near future, and digital banks eyeing a more substantial expansion into the wealth management business for the mass market.

Elsewhere in Asia Pacific, digital banks in Australia have failed to make any inroads to date with a retail deposit share of less than 1% by end of 2021 – after about three years in the market. It is only in the US where digital banks, including first generation ones, accounted for around 10% of domestic US dollar deposits as of 2019.

In Malaysia, Bank Negara Malaysia (BNM), the country’s central bank, awarded three financial and two Islamic digital banking licenses to five consortia in April 2022. Three out of the five are majority-owned by Malaysians including Boost Holdings and RHB Bank Berhad, Sea Limited and YTL Digital. The third bid for non-Islamic banking services went to a consortium led by GXS Bank, a Grab-Singtel alliance and Kuok Brothers, a Malaysian operating international conglomerate which has interests in hotels, real estate and commodities. In Singapore, the Grab-Singtel digital bank joint venture is ramping up operations and getting ready to launch in Singapore in 2022.

All direct bank-driven bids dropped out of the race in the last few years, as BNM made clear prior to the selection that it will favour those with a clear and large existing target market. BNM’s choices in the retail financial services segment reflect well on this premise. Boost was the fastest growing e-wallet in Malaysia in 2021 with 9.6 million users. Grab in Malaysia owns the food delivery space and already offers a variety of financial services to its merchant base. Sea is an interesting choice as it is not only Grab’s biggest competitor in Southeast Asia but also by revenue size. Sea‘s three business lines are spread over digital entertainment, e-commerce and financial services. Financial services revenue stood at $469.8 million in 2021, up 673% year-on-year on the back of 46 million active paying users for its mobile wallet service contributing 5% to group revenue. By contrast Grab’s revenue from financial services stood at $27 million. Both are still loss-making.

Creating a path to profitability

Unfortunately, most digital banks don’t have the leverage of a Kakao Bank in South Korea or a WeBank in China that have evolved from popular social media platforms. Digital banks that cannot leverage a captive user base need to focus on superior NPS and low operational expenditure (OPEX). But focusing on that alone will only commoditise their propositions. Winners need to bring a distinctive set of critical characteristics beyond superior UI/UX capabilities into their market of operation if they want to succeed in the long term:

Key success factors of profitable digital banks:

• The ability to address inefficiencies and consumer gaps
• Strong payment capabilities
• Focus on building a strong net interest income business
• A focus on lending and engagement with alternative data is a must
• A product or service that is sticky with users
• Taping into large ecosystems that give unparalleled advantage in acquisition and usage
• A lean IT/operating model for long-term sustainability

In addressing market inefficiencies, for instance, Malaysia is a well-banked population with 92% of its population having a bank account, but the underbanked segment is a large space containing sub-segments (i.e., foreign workers, students, gig workers) which haven’t been adequately served. Those segments require a digital and targeted business model with a new set of IT infrastructure.

Challenger banks that turned rapidly profitable in the past had a strong focus on building their net interest income business in combination with alternative data, and augmenting their risk assessment mechanism with innovative technology (see figure 6). Net interest income for the likes of Rakuten Bank, Kakao Bank and WeBank contributes anything between 67 % and 94% of total revenue, and they achieved a balanced loan to deposit ratio (LDR) per customer of around 80%, the same ratio seen in well run commercial banks. Nubank in South America is still some time away from achieving total cost neutrality (see figure 3) but its annual revenue per customer is already higher than the combined cost of acquisition and annual servicing cost. While it continues to prioritise growth, the company is confident that it can raise monthly average revenue per user from $4.5 in fiscal year (FY)2021 to over $20 through cross selling in the future.

Nubank has been steadily increasing user engagement in the last few years. Their ratio of monthly active users (MAU) stood at 76%, compared to Kakao Bank’s 83% and 74% at Tinkoff. NuHolding reported a financial loss before income taxes of $170 million for its FY2021, a slight improvement from $193 million it reported in FY2020.

Payment banks in India have increasingly managed to turn around in the last two years despite the restrictions they are operating under. Today, three of six are profitable. Paytm Payments Bank already makes a small profit of 2.5 million after tax in FY2021. Airtel Payments Bank claimed that the bank turned profitable in the quarter ended September 30, 2021 and Fino Payments Bank broke even for the first time in FY2021.

A good example in exploiting consumer gaps by applying predictive analytics on reams of real time customer data are PAObank and WeLab Bank in Hong Kong. Ping An OneConnect Bank (“PAOB”), a virtual bank strategically targeting local SME customers, aims to create a one-stop portal for SMEs. The bank offers two loan facilities in particular for cross-border trade for SMEs by leveraging on ‘Tradelink’, the largest e-customs declaration service provider in Hong Kong through up-to-date trade data. With this approach, they built an alternative credit assessment engine and business continuity approach as good proxy for credit default.

A crucial indicator for future success is a cloud native architecture. While digital banks by technology companies are set up in almost all cases 100% on the cloud, the majority of digital banks by commercial banks, even if they offer a stand-alone proposition in the market often ride on the core banking system of the parent bank, greatly reducing their agility and growth potential. For CBA Australia, public cloud migration stood at 48% of total computing capabilities. It also allows those banks to truly harness the power of artificial intelligence (AI) in predicting and forecasting cashflows and providing unprecedented advantage in credit risk modelling.

Looking at the profit and loss trajectory over the last three years some digital banks may tip into profitability in 2022. And a growing number of digital banks have been issuing statements pegging 2024 as a key year to break even. Starling Bank broke into the black in November 2021. Losses declined from $68 million to $41 million between 2019 and 2021. Atom Bank might be a bit behind Starling but it has also seen a gradual reduction of losses since 2019. K-Bank attained profitability in 2021 and has seen faster user growth compared to Kakao Bank in the same year. In Australia, Judo Bank, an SME focused digital bank may break even in FY2022 by June too, reducing its net loss before tax from $38 million in 2020 to $3 million in 2021.

While Revolut’s overall losses have escalated in 2020, its upcoming 2021 financials will show if it can take a more certain path to profitability, Wise (former Transferwise) has been steadily growing its profit from $13 million to close to $54 million by 2021. On the downside, out of all the banks in the ranking, Klarna fell deeper into loss, rapidly deteriorating from $115 million in 2019 to over $767 million in 2021.

Incumbents watch this space: Global ambitions of digital banks and more disruptions ahead

Most digital banking services by traditional banks and stand-alone digital banks, suffer heavy losses while making only marginal inroads in most markets. But being large is no longer good enough. Getting a lot of customers is easy by throwing money at them, but they do not contribute to reaching profitability at a reasonable scale. That realisation came for many digital banks in Europe and the US in 2020 when the global investment community increasingly turned the screw on fintechs to demonstrate a clear path to profitability. And leading incumbents have been gaining momentum in closing the gap to digital banks in UI/UX, agile working and cloud-based architecture. There is no longer an obvious or easy route to win the game for digital banks.

As digital banks set aside enough capital for ambitious international expansion plans, the failure of their European peers is a cautionary tale. Rapid expansion is difficult to do well. It is not without irony, that some of the best digital banks neither have very large customer bases nor have set up overseas operations, such as WeBank, Ally Bank, Tinkoff Bank and Kakao Bank.

Commercial banks may be relieved, at least for now, that most digital banks don’t own a large primary customer base, customers who consider the bank as their main account. Users are clearly testing out their digital banks before making a more substantial commitment in placing funds or extending their financial relationship. Digital banks must not fail their customers in the crucial first year, especially in minimising if not eliminating platform downtime and cybersecurity breaches altogether. If successful, they can evolve from undifferentiated providers at the fringes to become the superior and preferred choice who truly have the pulse and wallet of the customers.

Why did we create the digital bank ranking?

There is no shortage of articles covering digital banks but most remain selective both in regards to themes, country coverage and rankings without aiming for a more consolidated global perspective. This inaugural global ranking, which will be an annual edition, aims to address this gap.

For a full view on the digital bank rankings go to www.theasianbanker.com/best-digital-bank-rankings

What does it mean to be in the list, or not?

The global digital bank ranking focuses on the most successful first and second generation digital only banks. We also include digital banks which have limited networks of physical outlets or hubs. The differentiation to traditional banks is that the physical location is integral to the digital experience and does not provide a separate experience where non-digital customers can also use them. We only include digital banking services by banks if they are stand-alone subsidiaries (e.g., Tangerine by Scotiabank in Canada, Ubank by NAB in Australia). The reasons are, while majority owned by commercial banks, this type of digital banks have their own brands, onboarding processes, products and services that are designed only for their unique users/customers and are not available to other customers of their parent banks. This is different from mobile apps which can be used by all customers of the parent banks (e.g. Yono by SBI, Digibank by DBS).