They did not need banking licences. Instead, they built on top of banks, quietly plugging into the system while presenting a very different face to customers. But now that model is changing.

After years of back-and-forth with regulators, Revolut finally getting its UK banking licence feels like more than just a company milestone. It’s a sign of where the industry is heading. Fintechs are no longer happy sitting in the middle. They want to run the whole show, as banks themselves.

But this is not a simple story of disruption. Nor is it a clean, linear shift. It is, as some experts suggest, something more uneven, more conditional and, perhaps, more fragile than it first appears.

Inside the numbers

To really get a sense of how big this shift is, you just have to look at what companies like Revolut are doing today.

It is no longer just a payments app. Over time, it has quietly expanded into savings, currency exchange, stock and crypto trading, and now even lending. It operates across Europe, the UK, the US, and parts of Asia-Pacific, less like a regional player and more like a global financial platform in the making.

The scale is hard to ignore. Revolut says it has around 70 million customers worldwide, with about 13 million in the UK alone. That’s massive for a company that, not too long ago, wasn’t even a bank.

Traditional banks have noticed. Over the years, many have either partnered with fintechs or invested in them, not just to compete, but to stay relevant as the industry evolves.

At the same time, more fintechs are going all in. Players like Monzo and Starling Bank in the UK, N26 in Europe, SoFi in the US, and Nubank in Latin America have already secured banking licences. This isn’t happening in one market; it is happening everywhere.

Even traditional banks are not just sitting back. Big names like JPMorgan Chase and DBS Bank are putting serious effort into digital and AI. They are starting to feel a lot more like fintechs than old-school banks.

When you step back and look at it, the gap really isn’t what it used to be. Fintechs and banks are slowly meeting somewhere in the middle.

Not a shift, but a wave

For Ron Shevlin, Chief Research Officer at Cornerstone Advisors, one of the United States’ leading independent investment consulting firms, the narrative of a sweeping transformation may be overstated.

“It’s more a wave than a shift,” he told International Finance, pointing to the influence of regulatory cycles. In his view, the current momentum is tied in part to a more accommodating political and regulatory environment, one that could easily change.

“The ‘wave’ will subside with the next change in the White House,” he said.

This framing matters. It suggests that the move toward banking licences is not inevitable, but contingent, shaped by external conditions as much as by internal strategy. Still, even a wave has direction. The direction, at least for now, is clear.

Limits of the partner-bank model

In order to understand why fintechs are moving toward licences, it helps to look at how they started.

In the early days, most fintechs did not bother becoming banks. They simply teamed up with licenced institutions, more or less ‘borrowing’ their infrastructure to get going. It helped them move fast, skip the heavy regulatory burden, and focus on building a smooth user experience.

“The partner bank model was always a workaround. A way to access banking infrastructure without the regulatory overhead. It was fine for early-stage fintechs that needed to move fast,” Shevlin explains.

But as these companies scaled, the limitations became harder to ignore.

Relying on sponsor banks, often smaller institutions, introduced friction. Product development could be constrained. Strategic flexibility could be limited. Most importantly, control was never fully in the fintech’s hands.

“If a sponsor bank changes its risk appetite, or gets acquired, or gets regulatory heat, the fintech suffers,” Shevlin notes.

In other words, the very structure that enabled rapid growth can become a bottleneck at scale.

The economics of becoming a bank

Beyond control, there is a more fundamental driver, which is ‘money’.

“Why now?” Shevlin explains: “Two reasons: the regulatory environment and profitability.”

At the heart of this is lending.

“The profits in banking come from lending. Without a licence, you cannot lend,” Shevlin noted.

This is a critical point. Many fintechs built their businesses around payments, earning revenue from interchange fees or subscriptions. But these revenue streams have limits. Margins are thin. Competition is intense.

A banking licence changes the equation. It basically changes the game for fintechs.

They can raise cheaper funds by holding deposits, move into lending products like loans and credit cards, keep more of the revenue instead of sharing it, and plug directly into payment systems. This isn’t a small upgrade; it fundamentally reshapes how their business works.

From fintech to bank

If the economics explain the ‘why’, the evolution of the industry explains the ‘how’.

According to Chris Skinner, CEO of The Finanser, the shift toward licences is particularly evident among neobanks.

“You cannot put all fintechs in the same bracket. But those who are neobanks, light banking services, have all started moving into getting banking licences in the past few years,” he told International Finance.

This distinction is important. Not all fintechs want to be banks. Payment specialists, infrastructure providers, and enterprise platforms may continue to operate through partnerships.

But for neobanks, companies that already resemble banks in everything but regulation, the move toward licences feels like a natural progression. As they make that transition, the line between fintech and traditional banking begins to blur.

“Totally,” Skinner says when asked whether the distinction is disappearing.

“There are many fintechs that are no longer fintechs. They are banks,” he added.

He cites Monzo and Starling Bank.

A changing competitive landscape

This blurring of boundaries has significant implications for competition. For years, traditional banks dismissed fintechs as niche players, useful for innovation, perhaps, but not a serious threat to core business lines. That view is becoming harder to sustain.

“It has been a slow burn,” Skinner observes, citing data suggesting that a growing share of traditional banking services is shifting toward fintech providers.

The trend is expected to accelerate in the coming years. The scale is already substantial.

For example, Revolut has millions of customers in the UK alone, and tens of millions globally. If even a fraction of those users transition to full banking relationships, the impact could be significant.

For traditional institutions like HSBC or Barclays, this is not just a competitive challenge; it is a structural one.

Technology as a differentiator

One reason fintech banks may be well-positioned to compete is technology. Traditional banks, in many cases, still operate on legacy systems built decades ago, long before the internet, let alone mobile or cloud computing. Fintechs, by contrast, started from scratch.

“The critical thing about neobanks is that they began with no legacy infrastructure. The new banks built theirs specifically to leverage today’s technologies,” Skinner explains.

This gives them an edge in areas such as user experience, product development speed, data analytics, and integration with emerging technologies like AI.
As the industry enters what Skinner describes as ‘another big change with AI’, this technological foundation could become even more important.

“The new banks have far more ability to use intelligence,” he said.

Regulation: Supportive or cautious?

If tech and money are pushing fintechs toward licences, regulation is the one thing that can still slow things down, or change the direction.

On one hand, there are signs of support. Regulators in markets like the UK have actively encouraged innovation, creating frameworks that allow fintechs to experiment and grow.

“Regulators are now pretty comfortable with fintechs. In fact, they want to encourage more innovation in finance,” Skinner said.

On the other hand, the relationship is not without tension. Things like KYC checks have actually become a sticking point, especially for fintechs trying to move from simple payments or prepaid models into full-fledged banking. Customers who signed up with minimal documentation may suddenly be required to provide detailed identification, leading, in some cases, to account closures and dissatisfaction.

At a broader level, regulatory attitudes can shift with political cycles.

“It’s a back-and-forth thing,” Shevlin notes, particularly in the US context. This creates uncertainty. What looks like a supportive environment today may not remain so tomorrow.

Do Customers Even Care?

Amid all this discussion of licences, regulation, and strategy, there is a simpler question: does it matter to customers?

Shevlin offers a blunt perspective: “Americans do not really care if a fintech has a charter or not, until that fintech fails.”

It is a reminder that, for most users, the appeal of fintech lies in experience, ease of use, transparency, and convenience. Regulatory status is largely invisible, at least until something goes wrong.

This creates an interesting dynamic. Fintechs may pursue licences for economic and strategic reasons, but the customer-facing narrative may not change much. At least, not immediately.

Not all fintechs will follow

Despite the momentum, not every fintech will or should become a bank.

“There are different paths,” Skinner says.

For example, companies like Stripe, Adyen, and Airwallex focus on payments and financial infrastructure, often in partnership with banks. For these firms, a banking licence may offer limited additional value relative to the complexity it introduces.

Even among neobanks, timing matters.

“Fintechs need to scale to a certain point before the economics make sense,” Shevlin argues, suggesting that pursuing a licence too early can be risky.

Historically, obtaining a licence has been a lengthy and expensive process, one that requires significant resources and regulatory engagement. The current environment, with faster approval cycles, may not last.

Toward a new banking landscape

Both Shevlin and Skinner see a landscape in flux, but not necessarily one that follows a single trajectory. For Skinner, the long-term vision is expansive.

“The landscape of 2035 is one where many fintechs have worked together to build a new world of global banking. It’s a brave new world,” he said.

In this vision, the dominance of traditional banks could give way to a more diverse ecosystem, one that includes global digital banks, regional challengers, and specialised fintech platforms.

For Shevlin, it is a bit more measured. This wave of fintechs chasing licences may continue for now, but it won’t be steady or last forever.

What really comes through is that this isn’t a simple disruption story. Fintechs aren’t just trying to replace banks anymore. In many cases, they are becoming them. But it is not a straight path. It is shaped by regulation, economics, timing, and all of it. Getting a licence opens doors, but it also brings new pressures.

More than anything, it shows a mindset shift. Fintechs are no longer operating outside the system; they are stepping right into it. Whether that truly reshapes banking is still an open question.

For now, what is clear is that the boundaries are changing. And in finance, as in many industries, when boundaries shift, everything else tends to follow.

The post When fintechs stop playing nice, and start becoming banks appeared first on International Finance.

As one of Europe’s leading digital banks, Bunq hoped for quick approval when it applied for a US banking licence in 2023. One year later, the Amsterdam-based fintech withdrew that application due to a misalignment between American and Dutch regulators. Now Bunq is trying a different route. In April 2025, it filed for a US broker-dealer licence, which would allow its American users to invest in stocks, mutual funds, and ETFs.

This two-step approach is only the first move in an ambitious American adventure, a Bunq spokesperson says, adding that the company will “start by making investing effortless and fully transparent, with no hidden fees.” It’s possibly a jab at some US competitors’ less transparent practices.

Prioritising growth above all else

Bunq is not the only European digital bank casting eyes across the Atlantic. UK-based neobanking leaders Revolut and Monzo have also been plotting entry into the US market, riding a wave of renewed investor interest following a post-pandemic fintech funding crunch.

The strategy is a no-brainer for these firms, given slowing customer acquisition in Europe after a decade of breakneck growth and intensifying competition that has compressed margins. After years of explosive expansion in their home markets, growth at home has cooled.

A sense of urgency now permeates the fintech sector as it matures, and it’s expected that only a few digital banks (also known as neobanks) will ultimately dominate globally. Many players have spent years in the red chasing scale, but now some are finally in the black. For example, 2024 was Bunq’s second consecutive year of profitability, reporting €85.3 million net profit (up 65% from 2023’s €51.6 million).

Bunq achieved this feat by capitalising on higher interest rates (earning yields on customer deposits) and maintaining lean operations. It’s a trend mirrored by peers like Germany’s N26 and the United Kingdom-based Monzo, which have also edged closer to breakeven as investor pressure to show viable business models mounts.

One persistent problem for neobanks is that they lag far behind traditional incumbents in the quintessential banking business, i.e., lending. These fintech upstarts have relatively small loan books, so they generate far less revenue from credit products than established banks.

Instead, much of their income comes from sources like interchange fees on card payments, subscription fees for premium accounts, and other transactional charges. This model worked during growth phases, but as expansion slows, the limitations become clear, especially since interchange fees in Europe are capped at low levels (around 0.3–0.4% of a transaction), unlike in the United States, where they average closer to 2%. In other words, European neobanks have been operating with thinner margins on payments and must convince investors they can find new revenue streams.

Compounding these business challenges, funding conditions have tightened, and regulators have toughened up in Europe, creating a more hostile environment for fintechs. Venture capital investment in European fintech plunged in 2023 (falling about 65%, from $24 billion in 2022 to just $8.4 billion in 2023), leaving many startups strapped for cash and under pressure to become self-sustaining.

Navigating the regulatory maze

Obtaining a full banking licence in the US requires approval from multiple authorities, as well as securing federal deposit insurance and meeting strict capital requirements. In practice, a foreign fintech that wants to operate nationally as a bank might need a US banking charter that can be federal (through the Office of the Comptroller of the Currency) or state-by-state. This might include obtaining FDIC (Federal Deposit Insurance Corporation) deposit insurance to protect customers’ deposits, securing a state money transmitter licence, and demonstrating sufficient funding and compliance.

This multi-layered regime creates a regulatory minefield for newcomers. It’s no wonder that rising American economic nationalism adds an extra barrier, warns Hatami, “Current instability in engagement with foreign providers is possibly making the rollout of a European fintech in the US problematic.” In short, even if laws are becoming more fintech-friendly in theory, foreign applicants may face subtle protectionist scepticism.

Dealing with the American payment infrastructure can also be tricky for entrants accustomed to Europe’s more modern systems. In Europe, neobanks benefit from near-instant interbank payment networks (such as SEPA Instant) that let customers move money seamlessly 24/7.

By contrast, US banks have been slower to adopt real-time payments, and the Federal Reserve’s new FedNow instant payment system launched in mid-2023; the decades-old reliance on paper cheques persists.

European fintech executives who view the United States as one single market often struggle, notes Dave Glaser, CEO of US payments firm Dwolla. Indeed, past attempts by European neobanks to crack the United States have proved traumatic. Monzo withdrew its US banking licence application in 2021 after regulators signalled that approval was unlikely.

Berlin-based neobank N26 also pulled the plug on its US operations in 2021, having failed to gain traction, in part because it never managed to offer its lucrative premium accounts or bring its full feature set stateside.

Revolut, meanwhile, has been stuck in regulatory limbo; a long delay in obtaining a British banking licence made pursuing a US banking licence impractical until recently. Without their own American banking charters, these digital banks have been unable to offer credit products or hold customer deposits directly, limiting their revenue opportunities in America.

“Previous attempts faltered due to underestimating the complexity of US regulation, overestimating brand pull, and launching without a compelling local value proposition,” observes David Donovan, head of financial services for North America at consulting firm Publicis Sapient.

For fintechs that cannot obtain their own banking charter, the shortcut into the market is partnering with an American bank, a model known as Banking-as-a-Service (BaaS) or using a sponsor bank. Monzo, for example, has partnered with Ohio-based Sutton Bank to hold American customer deposits, allowing Monzo to offer accounts without a licence of its own.

Similarly, smaller British fintech Cleo (which provides a personal finance chatbot) entered the United States by teaming up with community banks (Thread Bank and WebBank) and now serves over seven million customers in North America. These arrangements let fintechs piggyback on a licensed bank’s infrastructure.

However, the compromise is that the partner bank typically retains a slice of the interchange fees and imposes its own compliance requirements. Given that interchange fees on the American credit and debit cards are significantly higher than in Europe, those fees are a major revenue source, and splitting them “eats into your margins,” notes Stephen Greer, a banking industry consultant at SAS.

Recent events have also highlighted the risks of the partnership route. In early 2024, the American fintech world was rocked by the collapse of Synapse, a once-promising BaaS (Backend as a Service) provider that sat in the middle between fintech apps and their partner banks.

Synapse’s “gross mismanagement” of customer funds led to around $85 million going missing and the firm filing for bankruptcy. One of Synapse’s key partner institutions, Evolve Bank & Trust, became embroiled in the fiasco as customers of various fintech apps lost access to their deposits. Regulators have since intensified scrutiny of these bank-fintech partnerships.

The US Office of the Comptroller of the Currency (OCC) and the FDIC have even solicited public input on tightening oversight of BaaS arrangements, and the FDIC proposed new rules requiring daily reconciliation of funds between tech firms and banks to prevent another Synapse-style incident. The lesson for ambitious neobanks: hitching your American expansion to a partner bank can carry significant compliance and reputation hazards if that partner or an intermediary mismanages funds.

Given these constraints, more ambitious European neobanks have decided that going it alone with a full licence is a bet worth taking, despite the up-front pain. Revolut, for instance, still offers its cards and accounts in the US via a partner (Missouri-based Lead Bank) and holds a US broker-dealer licence, but it has made clear it is pursuing its own US banking licence. Bunq also views the broker-dealer move as a prelude to eventually launching a fully licensed US bank of its own.

“The best strategy for a European fintech is to create a US entity and nurture this by tapping into the US investor markets, from venture capital all the way to IPO. And to play down its European roots as far as possible,” Hatami advises.

In other words, treat the US expansion almost like founding a new company, build a dedicated local team and product, raise money from American investors who understand the market, and don’t lean too heavily on your European brand if it doesn’t resonate locally. The subtext is that American consumers (and regulators) might be more receptive if a service feels homegrown rather than an import.

Cut-throat competition in the USA

Even with a charter in hand and funding secured, European neobanks will land in a fiercely competitive arena. The US retail banking market is crowded with over 4,000 institutions, from giants like Chase and Bank of America to regional banks, credit unions, and community banks, all fiercely guarding their customer bases.

New entrants must be prepared for slower growth and higher customer acquisition costs than they faced in the relatively consolidated markets of Western Europe. US fintech darlings like Venmo, SoFi, Zelle, and Chime have set a high bar with massive marketing budgets and ubiquitous branding.

On the other hand, the sheer size and diversity of the US market mean new entrants can aim for niche segments that are still large in absolute terms. Unlike in smaller European countries, in the United States, a niche play can yield millions of customers. European neobanks can try to differentiate by offering one-stop, digital-first banking solutions to Americans who are hungry for modern user experiences.

This might include slick apps that combine checking, savings, investing tools, real-time spending analytics, budgeting features, and more under one roof, something many US legacy banks have struggled to deliver.

Publicis Sapient’s Donovan said, “Many US fintechs are built on banking-as-a-service models that limit control and innovation. European firms, having built more of their stack in-house, can differentiate on both cost and customisation.”

In other words, a neobank that owns its own tech and platform can potentially out-innovate competitors who rely on white-label banking providers. For example, a European entrant might roll out features Americans aren’t used to seeing from their bank, think instant international transfers with low fees, or multi-currency accounts that update exchange rates in real time.

One obvious opportunity area is remittances and cross-border banking, given the large population of immigrants and expats in the United States. Roughly 20 million US residents are foreign-born Americans from countries in Europe, Africa, and elsewhere. These globally mobile customers often face steep fees and frustration when sending money abroad or managing finances across borders. A case in point is the success of Wise (formerly TransferWise), a London-based platform that has gained a strong US following by offering international money transfers with transparent fees and exchange rates.

“Wise addresses international money movement with a clarity and fee structure that is still uncommon in the US,” Hatami notes.

Bunq, for its part, explicitly says it is targeting digital nomads and expats. The company points out that “nearly five million European expats, entrepreneurs, and professionals” live in the US and often struggle with banking bureaucracy.

Those users are frustrated by traditional banks that aren’t set up for cross-border life. Bunq’s hope is that its experience serving such customers in Europe (with features like travel accounts and easy international transfers) will resonate strongly with this segment in America.

However, cultural differences in consumer expectations also come into play. American customers tend to be far more credit-focused than Europeans. Decades of aggressive credit card marketing have conditioned US consumers to expect rich rewards programmes (cashback, airline miles, points, etc.), sign-up bonuses, and easy credit.

New entrants who only offer debit cards and basic accounts might find it hard to lure customers away from incumbent banks or specialist credit card issuers unless they, too, dangle attractive perks that can be expensive to provide.

Additionally, Americans exhibit a certain stubborn loyalty to traditional banks. Despite the prevalence of fintech options, most consumers are not itching to switch their primary bank. A recent survey by Phoenix Synergistics found that 81% of US consumers considered themselves “loyal” to their main financial institution. Lerner from Javelin agrees, “Americans are largely satisfied with their financial institutions. They are not eager to switch banking relationships.”

According to Javelin’s research, roughly three-quarters of consumers say they are unlikely to move their primary account to a new provider.

This inertia indicates that a foreign neobank requires a compelling proposition or significant incentive to encourage Americans to give it a try. It might require offering significantly better interest rates, zero fees, or unique products to entice customers to overcome the hassle of switching, especially when many Americans have multiple products like direct deposits, bill pays, and maybe a safe deposit box tied to their current bank.

Some industry insiders believe that European neobanks focusing exclusively on direct-to-consumer services face significant challenges in the US due to high customer acquisition costs and established brand loyalties.

“Without a pivot to some differentiated credit product, prepaid and debit offerings often don’t generate enough revenue to warrant those costs,” notes Kevin Fox, chief revenue officer at Thredd, a UK payments processor that expanded to the United States and has helped several neobanks scale internationally.

Fox suggests that fintechs stand a better chance if they expand into business services (B2B) or partner more closely with businesses. For example, some challengers have found success offering expense management cards and software to small companies, or white-labelling their tech to employers and other brands.

These business customers can be more lucrative and cheaper to sign up than millions of individual consumers. Indeed, several European fintech “unicorns” have been extending into SME banking or payments (even Revolut has rolled out business accounts and tools for companies). This B2B focus could provide a beachhead in the United States where pure retail banking might be hard to crack.

Money lies in the stock market

Beyond immediate revenues, a major prize that comes with a US expansion is the possibility of a public listing on a US stock exchange. New York’s capital markets remain the deepest in the world, and IPOs in the US tend to achieve higher valuations and attract a bigger pool of investors than those in Europe.

For Europe’s most valuable fintechs, a US footprint makes it more plausible to court American investors and eventually float on the Nasdaq or NYSE. Both Revolut and Monzo, for instance, are widely expected to go public by the end of the decade, and their leaders have hinted at preferring a US listing over a London one.

Revolut’s CEO, Nik Storonsky, has even publicly complained about the UK’s business climate and suggested the company might list in the US if conditions in London don’t improve.

Such decisions have political undercurrents: European governments are eager to have their “unicorn” fintech champions list at home, while founders and early investors often lean toward the higher liquidity and valuations available in New York.

“Revolut was recently granted a UK banking licence, probably in part because of a promise to list in London, not in the US. Most companies want to list on Nasdaq or the NYSE, raise a ton of money, and cash out. But governments want to keep their unicorns close to home,” Azizov observes.

He adds that if a European fintech truly wants to win in the US market, “they will need to go all in, full teams, full infrastructure, full commitment. They may even need to move their HQ.” In other words, dabbling in the US with a small satellite office won’t cut it if the goal is to become a global player, as it requires a fundamental shift to treat the US as core to the company’s identity.

The holy grail for digital banks is proving that their tech-first, product-led model can generate consistent profits even in the world’s most competitive and entrenched banking market. If a European neobank can crack that code in the US, achieving American-scale profitability while keeping true to its innovative roots, it would validate the entire fintech disruption playbook. But that remains a big “if.” Until then, Europe’s neobanks will continue eyeing American wallets, cautiously optimistic that they can bring something new to the land of red, white, and plenty of green.

The post Neobanks aim to conquer America appeared first on International Finance.

In plain words, a digital-only bank provides banking facilities exclusively through digital platforms such as mobile, tablets, and the internet. It offers basic services in the most simplified manner with the help of electronic documentation, real-time data, and automated processes.

In the West, where consumers demand flawless digital experiences and smartphone usage is almost ubiquitous, neobanks are gathering at an unheard-of speed. Deloitte claims that over 25% of banking consumers in the United Kingdom and over 15% in the United States now primarily or secondarily source their financial needs from digital-only institutions.

Reflecting rapidly evolving consumer behaviour and paving the way for a redefined financial ecosystem, these figures are projected to quadruple by 2030. Neobanks are ready to satisfy a generation used to on-demand services and real-time responsiveness, while traditional banks struggle to remove decades of bureaucratic baggage and antiquated technology.

Fintech integration: The neobank engine

Fundamentally, neobanks are fintech: the combination of finance and technology that lets them provide flawless, quick, highly customised banking services. Unlike conventional banks, hampered by antiquated IT systems, neobanks are designed around cloud-native, API-first technology.

Their quick response to customer feedback, fast rollout of new features without long downtime or integration lags, and rapid innovation (enabled by this technological edge) allow them to stay ahead of customer expectations. Standard options now are real-time transaction alerts, predictive budgeting tools driven by artificial intelligence, dynamic savings objectives, and frictionless account registration.

Consider Monzo as a case study, its gamified savings pots and segmented cost tracking simplify and even make budgeting fun. Conversely, fintech giant Revolut has become a worldwide financial super-app, combining crypto trading, stock investing, travel insurance, budgeting tools, and even foreign money transfers into one simplified platform. These features enter financial lifestyle management beyond banks.

Also, Revolut will now be investing over €1 billion in France over the next three years, marking a significant milestone in its expansion strategy across the European Economic Area (EEA).

Apart from their natural characteristics, neobanks have adopted the platform model: partnership with specialised fintech companies via open APIs. The marketplace of Starling Bank lets users combine outside solutions for chores ranging from tax filing to asset management, therefore depicting how neobanks may provide breadth without compromising central competency. Through partnerships and data monetisation, this ecosystem strategy not only improves user experience but also generates fresh income sources.

Regulatory difficulties: Managing the compliance maze

Neobanks are not immune to regulatory difficulties, notwithstanding their promise and polish. Their lack of physical infrastructure sharpens the scrutiny. Working just online calls for rigorous adherence to Know Your Customer (KYC), Anti-Money Laundering (AML), fraud prevention, and data privacy policies, often across several countries.

Recent controversy highlights these difficulties. The UK’s Financial Conduct Authority fined Starling Bank £29 million in 2024 for AML compliance breakdowns. Concurrent with this, Revolut paid the Bank of Lithuania €3.5 million in penalties for similar failings. These incidents expose a trend: fast-growing digital banks can surpass their internal systems for control.

Many neobanks scale before confirming controls, unlike traditional institutions that have spent decades creating compliance infrastructure and auditing procedures. The outcome is rising pressure from central banks to improve due diligence and openness, as well as regulatory backlash. For example, the European Banking Authority has started closely monitoring digital-only banks and imposing capital adequacy rules and improved reporting requirements.

The Office of the Comptroller of the Currency has cautioned fintech-backed banks in the United States about poor risk management policies, which have resulted in probes and increased regulatory friction.

Developing confidence in digital domain

Any banking relationship is built mostly on trust. Neobanks have to provide a feeling of permanence and dependability even while they offer speed, convenience, and creativity. Lack of physical presence can lead to psychological distance; outages, however brief, can inspire mistrust.

Synapse’s demise in 2024 exposed this frailty. Providing backend technology for hundreds of neobanks, their unexpected bankruptcy left thousands of clients unable to access their money. This crisis made clear the systematic reliance many digital banks have on outside vendors.

Neobanks are creating strategic alliances with chartered institutions more and more in order to guarantee deposit insurance and regulatory protection, therefore boosting confidence. While their counterparts in the UK depend on FSCS coverage, many Americans work with FDIC-insured banks. These guarantees provide consumers concerned about losing access to funds some peace of mind.

Another battlefield is security. Advanced cybersecurity tools such as biometric authentication, behavioural analytics, fraud detection engines, and encrypted communication channels are being included by several of the top digital banks. Given the frequency of phishing and social engineering attempts, customer education also becomes important.

McKinsey reports that more than 70% of consumers base their bank choice on digital security. Neobanks that mix strong security with open communication are gaining user trust more and more.

Driving the frontier of digital banking

Many digital-only banks not only survived but also changed industry expectations. Each has a different strategic approach catered to their consumer groups and markets.

Based in London, Revolut is the best worldwide financial super-app available. Having over 55 million customers and a presence in more than 35 countries, it provides retail banking, crypto, travel, and small business support, among other things. Its €1 billion investment in France helps Paris to be its European anchor following Brexit.

Targeting underprivileged consumers, Chime, American-based, aims to offer features like fee-free overdraft, early paycheck deposits, and automatic savings to help low-and middle-income consumers solve actual pain issues. It is now a major participant in mobile banking downloads and has over 20 million customers.

Lovable in the UK for its openness and clever in-app communications, Monzo crossed into profitability in 2024 and has since started its US operations. The bank’s open policy has helped them build a very devoted clientele; their vibrant debit cards have become a cultural phenomenon.

Berlin-based N26 appeals to European Union (EU) citizens with a simple UI and understated feature set. Following Brexit-related licensing problems out of the UK, it turned even more focused on continental Europe and lately revealed intentions to re-enter the American market via alliances.

Notable also is Varo, the first US neobank granted a national banking charter. Varo controls more than Chime, which runs through partner banks, since it manages deposits alone. This increases its regulatory risk but also its control.

How countries approach neobanks

Every area presents different consumer habits and legal systems that influence neobank approaches. Early Open Banking rules and the Financial Conduct Authority’s (FCA) creative approach have helped the United Kingdom lead in digital banking. From this rich environment, Monzo, Starling, and Revolut all emerged.

By contrast, the United States offers a more fractured scene. Although the market is vast, state-level licenses and federal monitoring hamper national implementation. Usually, using organisations like The Bancorp Bank or Stride Bank, most neobanks follow a partner bank model. But as Synapse shows, this dependence model can turn into a serious weakness.

With its harmonious Single Market, the European Union offers a middle ground. Uniform restrictions enforced by the European Central Bank and European Banking Authority include consumer protection rules and capital buffers. Still, compliance is not simple, especially given rigorous General Data Protection Regulation enforcement.

Cultural variations are important as well. Though they value privacy more highly than bells and whistles, European consumers often demand fewer of them. Gamified tools and prizes appeal to American customers. These subtleties influence marketing approaches, product development, and app design.

Market forecasts and growth pathways

Consensus among market experts is that digital-only banking is not a fleeting trend. With Europe and North America leading the way, Statista projects global neobank transaction volumes to reach $1.5 trillion by 2027. Adoption rates in the 18–34 age range are currently over 40% in metropolitan areas and rising yearly.

Money moves are still strong. Neobanks drew about $15 billion in venture finance worldwide in 2023 alone. Interest is still strong even if investor attention is moving from growth-at-any-cost to sustainable unit economics, especially in embedded finance bets in developing countries.

Still, for most, profitability is elusive. Apart from Monzo and Starling, many neobanks burn money in consumer acquisition.

Long-term sustainability depends critically on monetising consumers through lending, wealth services, or subscription tiers.

What the analysts say

Author of Bank 4.0, futurist Brett King argues, “We’re seeing a change from banks as places to banks as platforms. Neobanks are only a starting point.”

The next stage, according to CB Insights, will be “contextual finance,” in which services, from ride-sharing to online shopping, are immediately included in user paths.

Bain & Company stresses client retention, meanwhile: “Users may be fickle with digital banks, but the right UX and emotional branding can inspire loyalty.”

According to Accenture’s 2025 research, if given equal services, 60% of Generation Z would rather bank with a tech business than a conventional institution. This should be a warning as well as a chance, since neobanks have to keep changing to stay ahead of major tech invasions.

For neobanks, the road ahead is one of complexity and potential. They have to develop from transactional tools into complete financial systems if they are to flourish.

Improving compliance systems will not be negotiable, not only to prevent fines but also to draw institutional collaborations. Radical openness, constant uptime, and proactive client assistance all help to develop trust. One must be quite diversified.

Offering mortgages, buy-now-pay-later choices, or robo-advice services will generate fresh income sources. Smart pricing, cross-selling, and automation all help to engineer profitability. At last, reach and relevance will depend on ecosystem integration—that is, including services in various digital settings.

Neobanks and challenger banks are changing finance, not only how it is done but also what it entails. They have questioned the idea that banking had to be intimidating, physical, or sophisticated. Though obstacles in trust, profitability, and regulation still exist, their path is upward.

These institutions will not only upset but also change the financial system as we enter a mobile-first, data-driven age. They represent the present of banking, fast approaching a world in which every financial contact is intuitive, ingrained, and empowering rather than its future.

The post Shaping the future: Rise of digital-only banks appeared first on International Finance.

Or what if you could provide online loans to your consumers for their airline tickets right on your website? This way, your customers could finance their holiday without ever having to interrupt their customer journey. You could increase the number of flight tickets you sell which can directly influence how much money your customers spend. In business, a loan also represents much deeper customer interaction with more touchpoints than just a single sale.

There are a number of ways non-banks can increase consumer satisfaction and revenue by offering their own financial services. However, practically every country in the world mandates that you have a banking licence if you wish to provide banking services effectively. But such a licence is challenging to obtain because of the systemic relevance of banks to the functioning of the economy. Acquiring a licence imposes not only significant capital requirements, but more importantly compliance with strict regulations on money laundering, banking secrecy and deposit protection. This is where BaaS comes in.

The term ‘BaaS’ refers to a business model in which authorized banks include their online banking solutions right into the offerings of other non-bank companies. In this manner, a non-bank company, like your airline, can provide its consumers with digital banking services like mobile bank accounts, debit cards, loans, and payment services without having to obtain their own banking licence.

Your customer can access banking services through the website or app of your airline because the bank’s and airline’s systems are connected via Application Programming Interfaces (APIs) or webhooks. Your airline only serves as an intermediary and doesn’t really handle the customer’s money, therefore it is exempt from all of the regulatory requirements that banks must meet.

So, with BaaS, practically any company can start offering financial services with just a few lines of code. Due to the fact that banking services are provided through a non-branded bank’s product, the term ‘BaaS’ is also frequently used to refer to ‘white-label banking’. In Europe, BaaS market is expanding vigorously. Banks like Solarisbank, ClearBank, RailsBank, and Starling Bank are prominent BaaS players in Europe’s expanding market. Established banking behemoths on the other side of the Atlantic are also introducing BaaS projects alongside their current offerings, like BBVA in the US.

BaaS need to get regulated?

Experts think that licensing and regulation of financial institutions in the banking sector is important. Know Your Customer (KYC), anti-money laundering (AML), OFAC sanctions lists, and data privacy and security are a few of these requirements that need to be carried out. RegTech, a class of software applications for managing regulatory compliance must be incorporated into the BaaS process for it to work as intended and for banks to continue to be in compliance with regulatory requirements. RegTech also aids in the detection of online fraud.

The BaaS is mostly used by Neobanks, these are online-only banking platforms without physical locations or a banking licence. ‘Challenger banks’ are another name for neobanks. These neobanks are non-bank FinTech firms with a focus on particular facets of banking, such as checking and savings accounts and the issuance of credit cards rather than loans.

What is the BaaS model?

The BaaS concept enables third-party providers (TPPs) and non-bank FinTech companies to incorporate financial services into their product offerings. These partners employ API integration to connect with a bank’s infrastructure system, using the licenced bank or middleman FinTech software business as a BaaS provider. The players in the BaaS concept can share customers and generate revenue streams.

Examples of top-rated BaaS providers

Top-rated BaaS providers include the banks BBVA and the non-banks Railsbank, Finastra, and Marqueta. They provide global and BaaS-embedded finance services. Through their BaaS platforms, third-party BaaS providers enhance the user experience.

Railsbank

The United Kingdom, Europe, and the United States are all served by London-based BaaS provider Railsbank. Contrary to its rivals, Railsbank built its own proprietary infrastructure that doesn’t rely on old software stacks. Railsbank connects directly to payment rails to expedite payments while providing a range of BaaS offerings. Railsbank provides the Buy Now Pay Later (BNPL) feature. Railsbank, which has raised tremendous amounts of money in debt and venture capital rounds from investors like Visa, is looking to raise an additional $100 million in funding this year.

Finastra

Through its FusionStore, the BaaS provider Finastra offers FusionFabric.cloud, an open developer platform, and an app marketplace. With its worldwide headquarters in London, Finastra also has offices in the United States. According to recently released data, Finastra serves 90 of the top 100 banks in the world and has introduced Finastra Managed Services (FMS) on Amazon Web Service (AWS).

Marqueta

Marqueta provides personalized rewards, card controls, and client preferences via its real, virtual, and tokenized credit cards, debit cards, and prepaid debit cards. Marqueta serves digital bank and non-bank customers across a variety of industries utilizing its cutting-edge, embedded, open-API BaaS platform, which is also a payments processor. Through strategic alliances, Marqueta serves as a card-issuing partner for Uber, Uber Eats, DoorDash, and other well-known companies.

BBVA

BBVA is a cutting-edge pioneer bank in the BaaS industry. A BaaS platform serving both domestic and international consumers is through BBVA Open Platform. In Mexico, the Uber app incorporated BaaS from BBVA. A Driver Partner debit card is provided by the BBVA Uber app for Mexico. It makes it possible for delivery and Uber drivers to earn money, access loans, and get gas discounts. Bank-created BaaS platform BBVA Open Platform powers digital-only banks and non-bank applications in the United States.

Future trends for BaaS

BaaS is expected to grow with increased adoption across industries, more FinTech companies and applications, modernized banking systems, more connections between providers and non-banks, and new financial services like Buy Now, Pay Later.

BaaS is growing extremely fast and is predicted to reach $7 trillion by 2030. The BaaS platform market is also expected to reach $12.2 billion by 2031 with a 15.7% CAGR.

The global BaaS market is predicted to reach USD 74.55 billion by 2030 due to the increasing integration of digital services in the financial sector and the expansion of financial services worldwide. Improvements in fund transaction services in the US and emerging nations are also contributing to the growth of the industry. Dock, a Brazilian fintech business, recently acquired BPP Payment Institution SA to improve their digital banking and payment services in Brazil.

BaaS has emerged as the dominant market force, driven by the rise of digital financial services and the adoption of cloud-based platforms, allowing companies to enhance customer experiences and large enterprises to bolster customer service.

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The use of digital banking is growing enormously. Does it mean this is the end of traditional banking?

The answer is Yes, and these financial institutions need to be proactive, to ensure their survival. Every industry experiences the standard life cycle phases of growth, maturity, and decline, and the traditional banks, after reaching their maturity phase till the early 2000s, are standing at the declining stage. Every Industry should think of delaying the decline stage and in the case of traditional banking it has become crucial to take immediate action. In order to maintain relevance in the tech-driven 21st century, they must rethink and reshape their entire ecosystem.

Digital Transformation & Service Innovation Need To Be Quickened Up

Legacy banks are often known for their slow production and reform/transformational measures and this applies to the aspect of going digital too. Their online presence has mostly been restricted to providing the most fundamental services like bill payments, transfers, deposits, and credit applications.

As a result, banks are unable to fully benefit from next-generation IT technologies. In order to cope with the digital era, traditional banks need to come up with more innovative and customer-friendly solutions and personalised services like providing short-term and long-term loans, mortgage services, automobile financing etc. These financial institutions need to walk those extra steps, rather than just deploying fintech solutions like AI-powered chatbots, virtual assistants, data and threat analytics.

Yes, a report from the Massachusetts Institute of Technology (MIT) states that going digital can reduce the banks’ operational costs by a massive 60–80%, but things like data analytics should be stretched to their limits, in order to understand the customers’ financial priorities and offering them personalised products/services as per their requirements. It’s not like the banks are not doing the above-mentioned things, but they have to accelerate their efforts, given the current economic headwinds the world is in.

A recent Moody’s report has found that the banks in Southeast Asia have progressed significantly in their digital transformation journey and are now better placed against fintech. While the report mentioned a sharp spike in digital adoption of customers from these banks, new customer acquisitions across retail and small and medium businesses products have also increased significantly.

Remember, fintech became popular with SMEs as the latter used to face rejections from legacy lenders, in terms of acquiring capital. This report can show the roadmap for the banks in other parts of the world on how to onboard customers from specific socio-economic segments, understand their requirements and offer products/services based on those needs.

Diversity Still Matters

Yes, 21st-century customers do not want to stand in long queues, submit tedious documents or deal with complex systems and they prefer simple ‘register and get the services’ kind of mechanisms. These customers are now flocking to third-party applications (Fintech companies like Paytm, and Google Pay) which provide enriching customer experiences at the click of a single button.

While the legacy banks need to re-evaluate their strategy, they also need to maintain the factor called ‘diversity’ in their customer services.

A 2018 study from tech giant Samsung found that while 75% of consumers aged 18-29 use mobile banking, it decreases to 29% for the ones above 60. The bank visits range from 74% (18-29 years) to 85% (60-plus years).

The fact is that still in some corners of the world, senior citizens lack the technological access required for mobile banking and no financial institution can ignore this segment. These senior citizens still prefer branch visits to get things like updating account passbooks, renewing recurring deposits after maturity, withdrawing pension money etc. The bank branches need to transform and simplify their operational procedures to give hassle-free experiences to these senior citizens. While running physical offices in the digital age can be an expensive affair for a financial institution, a revolutionary idea like having ‘Smart Branches’ only for senior citizens will improve their brand diversity further.

Tech Giants Taking Over

Similar to its Fintech counterparts, a number of tech giants have started to encroach on the banking industry. These tech companies are gradually changing how individuals typically invest, save, borrow, and pay by providing rapid, effective, and user-friendly services. With the use of cutting-edge technology, companies like Google, Facebook, Microsoft, Alibaba, Apple, and Amazon have brought banking to the doorstep of their customers. The inclusive, open, and reachable ‘Neobanks’ (banks without any physical location, present entirely online) also have support in this effort.

What I think is traditional banks are left with no choice except to attempt to use the strength of digital partnerships to combat this technological invasion.

The Way Forward

The only realistic way for traditional banks to deal with any of the aforementioned problems is to quickly modernize. Banks need to embrace new technology wholeheartedly in addition to redesigning their current innovation strategy, as challenges galore.

This adoption shouldn’t be limited to service provision alone. Instead, it needs to be present on all major fronts, including those involving consumer perception, resource use, routine operations, and business models. Additionally, collaborating with Fintech companies and Neobanks can be a smart move. Such partnerships often result in win-win outcomes for all participants in the ecosystem, and they can arm banks with the tools they need to kick-start a better digital transformation.

The best way to assist traditional banks in maintaining their strengths and overcoming their flaws without fear or favour is to use both of these solutions and use them to navigate during this uncertain time.

The post IF Insights: Existential crisis for traditional banks as technology takes over appeared first on International Finance.

In a blog post, Revolut said, “You asked for new tokens, we’ve delivered. We’ve been tracking hot tokens and top movers to bring our UK and EU customers 11 new cryptocurrencies.”
Last year, the neobank added cryptocurrency trading to its platform, accessible by its clients in the US. In order to launch the new service, Revolut partnered with New York-based trust company Paxos.

The neobank made its entry into the US market earlier in March last year and also plans to expand in Southeast Asian countries such as Singapore and Japan and Australia.
Last month, Revolut exited Canada after 18 months of launching its beta version in the country. The neobank has been aggressively expanding around the globe in the past two years. After 18 months in Canada with the beta version, the company sent out emails to their customers stating the withdrawal from the country.

According to a local media, the email cited, “This has been a difficult decision, but we’ll do everything we can to make this process as smooth as possible for you. We really appreciate your support and trust as we work on our global expansion and we hope to be able to return to Canada in the future.”

The post Revolut adds 11 new cryptocurrencies for customers in US and UK appeared first on International Finance.

However, a wave of new fintechs, neobanks and even telecom operators are creating their own digital lending systems to better serve SMBs. But how can they ensure they overcome the existing challenges? And with so many players contending for banking licenses, who will win the race to support SMB lending?

Data is key to build trust
Small businesses in Southeast Asia face the same struggle when accessing credit: it is crucial for them to have a credit history to prove their creditworthiness. It’s a vicious cycle. Financial institutions are cautious and have strict risk policies which do not match the reality and needs of this vibrant but potentially underserved sector.

Data is the missing link. Traditionally, SMBs would need to provide a multitude of data for the bank to score their creditworthiness and underwrite a loan—but this is often not available in the same way as it is for larger businesses.

Recognising this challenge, new entrants into the market have experimented with alternative ways of scoring businesses using different types of data. In Southeast Asia, Mobile Network Operators (MNOs) have access to vast amounts of data on customers compared to banks. Alternative data such as phone airtime consumption, bill payments and other customer behaviours are being used where traditional credit scoring data points are not available.
Other players are similarly shifting toward community or behaviour-based data to assess businesses using the data that is available. Advancements in data science and machine learning are giving new players a predictive power to assess the ability to repay a loan.
Neobanks reinvent SMB lending
Among those looking to overhaul current SMB lending practices are neobanks. Typically birthed out of the idea of challenging the current processes of the incumbents, neobanks are not bounded by legacy systems, or burdened by branch networks. New neobanks like TONIK in the Philippines boast lower operating costs than the incumbents, meaning they can generally offer lower rates on business loans.
Business owners are open to a purely digital proposition. However, it is simply not enough to provide digital channels to access financial services. Similarly, neobanks will need to find creative ways to assess businesses looking for a loan.

In addition to neobanks entering the Asian market, there are several non-banks looking to reinvent themselves in this sector. Many are seeking to acquire a digital banking license including Grab in Singapore and Gojek in Indonesia increasing competitiveness; both companies have started out as ride-hailing service providers in their respective markets.

With that, both of them have recognised the opportunity and are now repositioning themselves as neobanks to start provisioning loans to underserved businesses. Once again, the common factor here is data. Grab and Gojek already have large volumes of data on their customers and are using that knowledge to effectively boost lending to small businesses.

Local market offers meaningful insights
Understanding the intricacies of the local market is essential if neobanks and other new players are to get SMB lending right. They need to look at what factors make most sense when underwriting a small business loan. They need to sync with what data is available and the likelihood of the repayment based on the local circumstances.

Where traditional banks have gone wrong is mandating small businesses to comply with pre-existing policies and rigid systems. New players must understand the challenge first and then build a solution. They must consider many alternative models and data sources if they hope to meet the needs of small businesses across Southeast Asia. After all, neobanks have made a great start, but the race is far from over—and it requires them to build from a true understanding of the local market.

The post Neobank diary: Data is everything appeared first on International Finance.

Monzo carried out an extensive trial period for its new current account services that lasted around 12 months and saw participation from 2500 businesses in the UK.

Tom Blomfield, chief executive at Monzo told the media, “We’ve heard how difficult it is to find a business account that delivers what businesses need—and have also heard over and over that, it can take days, and even weeks, to get an account up and running.”

“Companies need stress-free banking that just works, so they can focus on what’s important—growing their business.”

Monzo has introduced two new segments in this current account category. Firstly, a free Business Lite account which includes a basic business account, receipt scanning, and web access, and secondly a £5/month business Pro account that adds tax pots for automatically saving towards a tax bill, invoicing, multi-user accounts and more.

In order to access the new current account services, businesses will be required to have a Monzo personal account.

According to reports published earlier this year, Monzo is planning to re-launch its premium bank account services. Monzo launched the product in April 2019; however, it was taken offline in September after poor customer feedback.

Monzo, along with Revolut and Starling Bank are preparing for a potential shutdown to curb the spread of the Covid-19 virus. Reportedly, most of these neobank’s staff are working from home.

Monzo, which is yet to make profits, is planning to add 500 new members to its workforce this year. This neobank currently has 4.8 million customers in the UK.

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