- The global digital banking market size exceeded USD $800B in 2018, and is anticipated to reach over USD $1610B by 2027, at a CAGR of just under 9.0%.
- In North America, the digital banking sector surpassed USD $376B in 2019 and is expected to reach roughly USD $721.3B by 2027.
- The sovereignty of traditional banking is being vigorously challenged by the digital financial services and fintech sectors.
The rapidly emerging digital banking sector has become a significant competitor to the traditional banking market.
Its growth initially stemmed from a plethora of market responses, including the vast majority of millennials solely relying on digital banks, but has arguably been further driven by the shifts in consumer spending that the world's economies have seen following the COVID-19 pandemic.
The unprecedented lockdowns enabled consumers to experience the conveniences that are coupled with online shopping, and has propelled the growth of the UK's and U.S.'s e-commerce industries on a global level.
Therefore, it seems quite logical that these same consumer habits would extend to the banking sector- with more and more customers actively shifting towards Neo banks such as Monzo or Revolut. In fact, today's tight consumer protection regulations leave little room for doubt or weariness in this area, and this has further helped facilitate the aforementioned trend.
So how are traditional banks responding to irrevocable changes in consumer behaviours, as well as to the innovative features that have been introduced by some former Big Four bankers who segued into the digital financial services market?
Below we will examine the most prominent challenges that the 'traditional' banking sector is currently facing, and then move on to consider the efficacy of its response from a financial standpoint.
Traditional Banking Sector: What are the Challenges?
Serving as a warning to the more conventional banking models, a report produced by the deVere Group- a financial consultancy firm, revealed that an enormous amount of millennials primarily- or in some cases solely, use Neo banking services.
Further reports indicated that roughly 60% of all millennials in the U.S., Europe, and Australasia are only relying on digital banks- completely omitting any use of the traditional banking sector.
Of course, for many persons around the world, digital banks remain a convenient secondary option, often being used as a 'spending' account.This is likely to keep changing in light of the aforementioned shifts in consumer behaviours.
Undoubtedly, there has been an increasingly growing demand for neo banking financial services for a plethora of years- and not just with millennials. Even though millennials tend to make up a very significant demographic, the explosive innovations and pragmatic benefits that can be reaped from the digital banking sector can benefit consumers of all ages.
Field analysts have pointed out how this highlights the fundamental importance of even the most traditional banks choosing to make plans that will in the future allow them to at least partially segue into the digital economy- so as to stay as relevant as possible in the long term.
Contactless payments, for example, accounted for over a quarter of total payments within the UK last year (due to the COVID-19 pandemic), and this trend has continued with research conducted by UK Finance showing that over 80% of individuals in the UK now primarily rely on contactless payments, with no age demographic falling below 75%.
Traditional Banking Sector Response: Business Checking Accounts
In response to the aforementioned pressures that the traditional banking sector has faced from its digital counterpart, conventional banks have begun launching a variety of exclusive new features in an attempt to 'hold their own'.
Startupsavant, a division of The Really Useful Information Company (TRUiC), has developed a report in this area, which critically compared business bank accounts around the U.S. and UK, and analytically concluded on the best ones for young startups and first time entrepreneurs.
Business bank accounts allow business owners to adequately manage their payrolls, business insurance, and ample merchant accounts and consequently picking the right one can be an extremely fruitful decision for your business- or an extremely poor one.
Such benefits can include: a significant savings interest rate on your balance, no monthly or transactional fees, no hidden costs or costs incurred via ATM withdrawals, and a dedicated 24/7 support team that can be accessed via your online mobile banking app..
The best business checking account for you will indubitably be dependent on your specific business model, as well as your chosen sector. Nevertheless, we believe that TRUiC's report can provide a rather in-depth approach, and ultimately greatly assist you in making ideal, profitable, and informed choices.
Final Words: A Future Outlook
Growing confidence in the fintech and e-commerce sector is likely to continue- a trend which should significantly propel the already prolific global interest in digital banks.
Nikolay Storonsky- the current Chief Executive of Neo bank Revolut, recently gave an interview in the Financial Times where he announced that he expects his digital bank to remain robustly profitable regardless of any short term enthusiasm in the sphere of cryptocurrencies.
As he correctly pointed out, the unprecedented COVID-19 pandemic inadvertently allowed the digital banking sector to discover exactly how resilient they were to shock, economic tragedies, and economic declines and consequently has further sparked global enthusiasm for the industry.