Digital banking (2024)

1. Does digital banking need GenAI?

   We’re beginning to see neobanks adding generative AI features to their consumer-facing products.

   Initially, we saw a lot of caution in this sector on AI; now, however, companies are making the leap.

   Dutch neobank Bunq rolled out its “conversational” digital assistant Finn in May. Denmark’s Lunar also recently unveiled its AI-powered financial assistant which gives insights into customer spending habits and breakdowns of holiday spending.

   Lunar’s CTO Kåre Kjelstrøm recently told Sifted that he wants the chatbot to handle sensitive requests such as guiding a user to change a PIN code, examining spending habits to create automated savings accounts and providing information on the day’s top trading stocks.

   These all feel like nice add-ons rather than killer apps, so we’ll have to wait and see if someone comes up with a compelling, must-have GenAI feature for the sector.

2. What comes after profitability?

   Europe’s neobanks have benefited from high interest rates — and investors pushing them to seek profitability.

   This month, UK neobank Starling reported its third year of profitability thanks to a 2020 push into SME lending. Meanwhile, Revolut this week announced it made a pre-tax profit of £438m in 2023, up from losses of £25m the year before. Monzo also reported a pre-tax profit of £15.4m for the 12 months to the end of March this year — the first time it’s been able to do so.

   What's next? New product lines and territories: Monzo plans to expand to the US and Starling is pushing its software-as-a-service side hustle with the expansion of Engine, a SaaS platform that helps other banks create digital operations of their own. Revolut is moving into areas such as advertising.

3. To IPO in Europe or not? It’s a big moment

   Nubank's 2021 listing achieved the IPO ambitions held by many European counterparts. But the path to IPO in Europe isn’t so clear cut. While Starling called the London Stock Exchange a “natural home”, Revolut and Monzo have yet to indicate a preference.

   Europe’s neobanks missed the narrow IPO window available during the 2021 fintech funding boom, said General Catalyst's Yavuz.

   Former Revolut board member Martin Mignot, a partner at Index Ventures, also told the Sifted podcast recently that he thought that the digital bank would certainly consider the US when it came to listing.

   If Revolut does decide to IPO someday but swerves a London listing, then expect to read a lot of anguished opinion pieces on the future of European tech.

4. Regulatory scrutiny grows

   Recent years have seen Europe’s digital bankers contend with tougher regulatory scrutiny.

   For example, Germany's N26 has operated as a bank since 2021 but hasn’t been without complications. Failure to install adequate anti money-laundering controls (AML) saw the bank landed with a €4.25m fine and a cap placed on monthly customer acquisitions in 2021. This month, the regulator levied another €9.2m fine against it for its failure to file AML reports on time.

   Revolut applied for a banking licence in 2021 but has yet to get the stamp of approval from financial regulators. It’s had better luck with regulators outside the UK — it’s operated as a licenced bank across the European Economic Area since 2021.

   But new baking entrants beware: regulators are it’s a market with tougher requirements than was previously the case. Regulators in many European countries have taken a critical view on neobanks’ anti-financial crime capacities which in some cases have not evolved at the same speed as these startups were attracting new users.

Who early stage startups are up against