Digital Banks - Southern Europe

Southern Europe

In Southern Europe, the Digital Banks market market is estimated to witness a substantial growth in Net Interest Income, with projections indicating that it will reach a staggering €37.60bn by 2024.
Furthermore, it is expected that this segment will maintain a strong annual growth rate (CAGR 2024-2029) of 0.16%, leading to an impressive market volume of €37.90bn by 2029.
When comparing this market to the global landscape, it is worth noting that China will generate the highest Net Interest Income, reaching a remarkable €424.9bn in 2024.
Spain's digital banking market is experiencing rapid growth, with new players emerging and traditional banks investing heavily in digital transformation.

Key regions: Singapore, Germany, United Kingdom, South Korea, China

Definition:

Digital Banks refer to the emerging market for purely digital banks that offer financial services via online and mobile platforms. Unlike traditional banks, digital banks also known as neobanks, do not have store-based branches and instead rely on technology to deliver their services. But in contrast to digital-only direct banks, which focus on providing traditional banking services in an online format, the digital banks/neobanks covered in this analysis prioritize cutting-edge features and a modern user experience.
Digital Banks offer a wide range of financial products and services, including savings and checking accounts, credit cards, personal loans, and investment products, among others. They aim to provide a more convenient, accessible, and user-friendly banking experience by leveraging technology such as mobile apps and artificial intelligence. They also provide a digital identification and onboarding process, often via smartphone.
The Digital Banks market is growing rapidly as consumers increasingly demand more convenient, digitally focused financial services. Neobanks/Digital Banks are able to offer these services at a lower cost compared to traditional banks, as they have lower overhead costs and a more efficient operating model.
However, digital banks face challenges in building trust and establishing their reputation in the financial services industry. They must also navigate the complex regulatory landscape and comply with the same rules and standards as traditional banks.
Overall, the Digital Banks market represents a growing and exciting opportunity for financial services providers to deliver innovative and convenient solutions to consumers.

Structure:

The market data comprises Net Interest Income, the value of Deposits, the value of Loans, Credit Card Interest Income as well as the number of ATMs.

Additional information:

The Banking market is highly competitive and characterized by the presence of large global players as well as regional and local banks. Banks are continually seeking ways to improve their offerings and remain competitive by leveraging technology and offering innovative financial products and services. Additionally, changes in regulations and the growing trend toward digitalization are shaping the retail and commercial banking market, creating opportunities for new entrants and forcing existing players to adapt.

Key players in this market are companies such as Bunq, Tomorrow, and Revolut.

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Analyst Opinion

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.

Methodology

Data coverage:

Data encompasses B2B and B2C enterprises. Figures are based on Net Interest Income, Bank Account Penetration rate, the value of Deposits, the number of depositors, the value of Loans, the number of borrowers, Credit Card Interest Income, the number of ATMs as well as the number of Bank Branches.

Modeling approach / Market size:

Market sizes are determined by a combined Top-Down and Bottom-Up approach, based on a specific rationale for each market segment. As a basis for evaluating markets, we use data provided by the IMF, World Bank and the annual reports of the top 1000 Banks by asset size. Next we use relevant key market indicators and data from country-specific associations such as GDP, deposit interest rates, lending interest rates or bank account penetration rates. This data helps us to estimate the market size for each country individually.

Forecasts:

In our forecasts, we apply diverse forecasting techniques. The selection of forecasting techniques is based on the behavior of the particular market. For example, the S-curve function and exponential trend smoothing are well suited to forecast financial services for digital as well as traditional products and services. The scenario analysis is based on a Monte Carlo simulation approach generating a range of possible outcomes by creating random variations in forecasted data points, based on assumptions about potential fluctuations in future values. By running numerous simulated scenarios, the model provides an estimated distribution of results, allowing for an analysis of likely ranges and confidence intervals around the forecast.

Additional Notes:

The market is updated twice per year in case market dynamics change.