From Disruption to Profit: The Rise of Digital

Banking in Europe's Profitability Paradigm

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C-Regional Report # 1 :
From Disruption to Profit: The Rise of Digital
Banking in Europe's Profitability Paradigm
by
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Executive Summary
European banks have shown improved profitability in 2022, with

01
expectations of further gains from higher interest rates in 2023.
However, their profitability remains relatively weaker than pre-2008
levels. To adapt, banks have embraced streamlined structures and
digital offerings.

In 2022, banking revenues reached approximately $1.6 trillion, driven by

growth in retail and corporate banking. Profit growth has been fueled by

02
increased net interest income, expanding customer bases, and cost-
cutting measures. These trends reflect the industry's response to the
evolving financial landscape.

France emerges as the best country for entering with a digital banking
offering, considering its strong financial market, high adoption of digital
banking, positive GDP projection, and reasonable Return on Equity (ROE).

03
However, the United Kingdom, Italy, and Spain also offer potential
opportunities depending on specific business objectives and strategies.

In the current economic climate, profitability is paramount for digital

banks to meet the expectations of investors and stakeholders. With a
highly competitive financial industry, digital banks face the challenge of
delivering sustainable revenue streams and generating returns.

04
Our research reveals that banks have recognized the importance of
lending as a critical income source, leading them towards profitability.
By significantly increasing their lending book compared to pre-covid
levels, digital banks have tapped into an additional revenue stream,
capitalizing on the potential for higher interest rates on loans compared
to deposits.
4
 Contents

1. 2.
Overview per
3.
Benchmarking of
4.
Selected Digital
5.
Overview of
Overview Country leading players Bank Profiles Findings
• Industry Profits • Aggregate assets Top • European digital • Revolut • Key take-aways
• Areas of revenue banks banking market • Monzo
• Lending • Lending and deposits • Value proposition & • Starling Bank
• Economic outlook • France app experience • N26
• Biggest players and • United Kingdom • Key performance • Openbank
main challenges • Italy indicators
• Size of the • Spain • Number of Customer
opportunity • Germany • Valuations
• A Tale of Prosperity • Revenues
and Untapped • Profitability
Potential • Deposits & Lending
• Product Strategy

C-INNOVATION
Countries haping urope’s Financial Landscape

United
France Germany Italy Spain
Kingdom
6
C-INNOVATION
The European digital banking market is now a crowded and highly competitive space.

$4.
5B

37
$3.
1B
12

7
$
1
B 12 7
7
Source: number of banks
Country Profile
Key Figures of Top Banks in Italy (Billions) Market share (2021)

SPAIN Deposits
(2022)
Loans customers
(2022)
Net Income millions
(2022)
21%

TOTAL POPULATION ACTIVE POPULATION 28%

€ 346Bn € 303Bn € 10

47 m 23 m € 235Bn € 212Bn
Others 19%
€6
GROSS DOMESTIC PRODUCT GDP GROWTH
5%
€ 114Bn 15%
US$1,43 Tr
€ 123Bn
5.5%
12%

GDP Projection (2023) WORLD ECONOMY €1

RANKING

1.5% 14th
Total Lending (2023) Financial assets (2023) Total Deposits (2023) Return on equity (2022) Share of assets held in
the EU (2022)
€692.06 Bn- 0.7% YoY €2.64 r+0.95% YoY €989.8 Bn+ 2.2% YoY 10.2% 7.3%
+470% YoY

Prominent Digital Brands

Competitive landscapes

Local
242 28 12
Number of Lending Digital Only Brands Number of retail products
Foreigner
Institutions in the country offered by digital brands 1.1m+ users 0.5m+ users

C-INNOVATION Source: Source: depositis euro-area, lending euro-area, financial assests euro-area, profile bancomundial, Information EU EBF, economy oec, thebanks
 Digital banking in Spain has experienced a significant evolution, with customers
increasingly adopting online banking services. Imagin Bank has emerged as a
pioneering force, taking the lead in the country's digital banking landscape. Imagin Bank
has captured the attention of Spanish consumers, reshaping their banking experiences.
Digital-Only Banks Market Share in Spain
Number of Users by Digital Only Banks in Spain
(Millions) Others

4% 4%
6%
31%
4.2 8%
14m +
Digital-Only Bank
12% users Market in
2.8
Spain

15% 20%
2
1.7

1.1
800 K
500 K
250 k 200 K 150 K
9
NUMBER OF CLIENTS IN MILLIONS
Source: information Profile INE, Cincodias,
We conducted a comprehensive benchmarking analysis of 25 prominent digital-only banks
across the top five European countries.

Three Key Elements

Value Proposition & Key Performance Product Strategy

App Experience Indicators

5 Main Countries

United Kingdom Germany Spain France Italy

10
C-INNOVATION
Key Performance Indicators | Number of customers
Digital banks in Europe are expanding their customer base at an astounding rate. Leading the way is
Revolut, with an impressive global customer count of 28 million. The emergence of digital banks
associated with traditional lenders is also a notable phenomenon. These banks, are leveraging their
resources and expertise to rapidly scale their operations in the digital space.

Number of customers by European Digital Bank

(Millions) Brand associated with a traditional lender
28

16

8 7.5 7
5.5 4.9 4.2 3.4 2.7 2 1.9 2.17
1.7 1.6 1.1 1

11

Note: While digital players as Wise and Lydia are not a bank it does provides "bank-like" services across European countries
Source: Ins and Outs of Digital Banks Report. Updated C-Innovation. May 2023
 Key Performance Indicators | Lending
While Starling Bank is the biggest lender of the independent featured Neo-banks driven by new
originations from Fleet Mortgages, following its successful acquisition of the business in 2021, Revolut
lending business is just starting.
Loans and advances to customers by Top Digital Banks
(£Millions)

£4,873
49%

£3,266
193% 67%
£2,258
£1,838 1,190%
£1,098
£760
£528
£54 £171 £19 £144 £105 £259 N/A N/A £0 £1 £18 £232
N/A
2019 2020 2021 2022 2023 2019 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023
2020 2021 2022 2023
• In 2022 lending grew as a direct result of • Customers had borrowed a total of • Revolut launched consumer lending
• Loans and advances to customers
new lending under the Government- £759.7m from Monzo as at the end services, In July 2020, Comprising now
amounted to EUR 2,134 million in 2021
backed BBLS and CBILS schemes and of FY2023, up £500.9m from personal loans, credit card limits and
(up from £1,274m).
Inclusion of mortgages. £258.8m in FY2022. pay later limits.
• Broken down into EUR 1,296m in
• In March 2023, lending increased driven by • Growth driven by more customers • Loans have been incorporated through
municipal loans, EUR 576.9m in
new originations from Fleet Mortgages, borrowing across all our lending banking subsidiary, Revolut Bank UAB.
mortgages and EUR 183m on
and supplemented by tactical portfolio products • These services have been extended on
overdraft facilities and installment
purchases. a gradual basis and loan portfolio
loans used by customers.
remained small. 12
Source: Players financial reports from 2018 to 2023.
Note. N/A refers to information not available at the time of research.
 Company Overview
Monzo provides a mobile app that enables individuals and Open Banking
small businesses to send money abroad at the real exchange
rate and track transfers in their accounts. - Connects all bank Wealth
Online banking and cards in-
accounts for full
app visibility. Plus and ‘Pots’ with up to 0.93% gross
2015
-
Premium feature only. annual interest
Multi-currency account
-
Founded - ISA (Individual Saving Account)
- Early salary feature
to avoid paying tax on interest
- Fast payments with Apple
$4.5B Pay and Google Pay
earned
$1.1B Valuation Post - Freeze and unfreeze card
- Withdraw at a day’s notice from
Cash ISA
Total Funding - Update virtual card at ease
Series E - Overdraft limit of up to 1,000
Raised funding round pounds
- 7.5% APR (Annual Percentage

7,5m 2,300 Instant payments worldwide Rate) on loans between 7,000

and 15,000 pounds
Customers Employees - Only GBP held in account,
instantly converted at Monzo Business

£355m 35 Mastercard’s rate

Revenues
Products offered:
PERSONAL:
Investments, loans, overdraft
options, debit cards,
access to Open APIs through
Developer Portal (Oauth 2.0)
- Exchange rate notifications - Invoices and bills payment in 35
Currencies - Payment links and QR codes currencies
supported for - Request payment / send - Business integrations supports
invoices with a tap using accounting platforms FreeAgent,
payments
Apple Pay and Google Pay Xero and QuickBooks
(Monzo Business feature Budgeting and analytics - 5 pounds/month for Business Pro
only) (Business Lite is free)
- Split bills feature - Spending limits - Tax ’Pots’ to set aside money
- Notifications - Multi-user access and business
BUSINESS: - Savings ‘Pots’ card for each user
- Smart analytics
Multiple cards, Integrated - Insights of spending habits
accounting platforms - Control subscription
13
available
Source: Monzo Website, Monzo 2021 Financial Report, Pitchbook, Mastercard
Newsroom, Monzo website. Tools and features for business and retail customers
(UK proposition).
 Company Overview
Recent events
Strategy
• Monzo joins forces with Plaid to open access
for US customers Drive up subscriptions and focus on enter the US
• After Santander, HSBC and Starling, Monzo
was the UK retail bank that logged the Success Factors Opportunities
highest net switching gains with 6,030. • Prioritizing growth in its main
• Monzo’s marketplace model its
• Monzo released financial statements wirth market was the key to
likely to supplement income,
revenue grow of 2.3x compared to financial becoming the top bank in the
as it provides a way to attract
UK
year 2022. new customers and maintain a
competitive point of
• The start-up has reached profitability in a • Monzo’s key offering is
difference compared to
monthly basis during 2023 simplicity, as well as a
other digital and incumbent
customer focus that has rarely
market players (that do not
been seen before
Product score compared to competitors on offer a full range of products
C-Innovation sample. and services approach).
• It listens to what its
customers want, providing
Retail products Business products
the best user experience on
•
The Business segment is a
profitable target and Monzo
the market.
has sign already 200K
businesses and is developing a
6 C-innovation Analysis relevant batch of features for
14 them
The strategic emphasis on lending has allowed Monzo to generate revenue and
accelerate its path towards financial sustainability. With a clear target in mind on
consumer lending and stepping deeper into the business segment, Monzo aims to
Out of 20 Out of 14 achieve annual profitability for 2023.
14

Source: HSBC Seminar, Monzo Revenue

Appendix I – Digital Brands included into the scope of this research

UK France Spain Italy Germany Others

Appendix II – Scope of Product analyzed
Retail Products Analyzed
• Mobile App
• Current Account
• Joint Account
• Teen / Kids Account
• Multi-currency Account
• Savings Deposits
• P2P Payments
• Cross-border Payments
• Debit Card
• Credit Card
• Personal Loans
• Overdraft
• Residential Mortgages
• Stock Trading
• Cryptocurrencies
• Commodities
• Insurance
• Rewards & Offers
• Third-party Marketplace
• Account Aggregation
Bold products are the most common
in retail app.
Business Products Analyzed
• Mobile App
• Web App
• Business Current Account
• Multi-currency Account
• Savings Deposits
• International Payments
• Debit Cards
• Credit Cards
• Business Loans
• Business Overdraft
• Business Tools
• Rewards & Offers
• Third-party Marketplace
• Open API
Bold products are the most
common in business app.
16
Appendix III – Scope of Product analyzed
Savings Investment
• Savings account • Crypto
• Moneypots • Stocks
• Split bills • Comodities
• Budgeting tool • Fixed term
• Rewards • Instant access
• Set limits
• Interest saving account
• Cashback Insurance
• Group Saving interest
• Joint accounts • Pets
• Home
• Phone (stolen or damaged)
Lendings • Health
• Credit card • Life
• Overdrafts • Car
• Loans • Travel
• Mortgage

17
The research team

Lina Jose Javier

Lina interest are various, she has a degree Jose is our new integrant at C- Innovation, Javier is co-founder and CEO of C-
in Law and since FinTech regulation is with interest in international landscape, his Innovation. Having worked with both
getting more comprehensive she focus is ESG politics and achievement, Jose technology companies and corporates such
research the financial industry globally focus in historic data and national webpages as HSBC and Santander, he has a unique
with a special focus in LATAM. information. view of the challenges from both sides of the
table.

18

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