Digital Bank Subsidiaries: What’s Cooking?
Updated: Sep 24
The post-pandemic world is well-versed with astounding and demanding developments, met across unrealistic time frames, universally. The Digital Banking sphere is one such guest that managed to knock at the door towards revising its legacy-bound ways, so as to adapt to consumer shifts in an attempt to sustain its dominance in the race for the future.
To initiate the foundation for the same, traditional banks took the path of innovation and agility to establish Digital Bank Subsidiaries, which are separate organizations of said larger, traditional banks, with emphasis on providing a more modular and streamlined end-to-end consumer experience as opposed to the current rigid structures.
In fact, the observable trend this year is the upsurge of digital banks, the advent of which began in the West, and in recent years banks in Eastern geographies across the Asia Pacific, Middle East, and Africa are also spinning off digital banking arms at a rapid pace. This is already piquing the curiosity of many customers in the US, Europe, and Latin America as well.
Why the urgency for such a swift transformation, you ask?
The First Layer: Bittersweet Background
In the wake of the debased reputation caused by factors of increased regulation, low interest rates, and a catastrophe that unsettled what was known of banking systems, the financial crisis of 2008 formed the first ingredient in this recipe for evolution. Along with digital disruption brought about by the influx of FinTech and platform-based competitors, COVID-19 also served to be a catalyst. It became critical for traditional banks to jump on the bandwagon of advancement so as to retain a name in the brewing competition.
The Second Layer: Sweet Successes
Lenders were quick to leave no stone unturned to attain the same. As customers’ reliance on smartphones and online modes escalated immensely, the demand to have the convenience of financial services at the comfort of their devices also increased.
Amongst the crowd of the successes, a few noteworthy names in the list include Marcus by Goldman Sachs, Hello Bank by BNP Paribas, Digibank by DBS, and YONO by SBI, offering glittering goodies of no-fee personal loans, highly competitive rates, cardless cash withdrawals, and consumer credit cards, to name a few.
The result: A monumental hike in numbers across varying segments of transactions, loans, and registrations. Marcus itself was able to take the leap with a gigantic consumer business worth $60 billion in the US and UK and over four million customers.
The Final Layer: Flavoursome Fizzling
Sadly, the rainbow doesn’t shine without a little rain. Even though digitization has its grounding impact, minor failures were also observed. For JP Morgan Chase, the decision of constructing a digital bank based on the same backend framework as its mobile banking app cost it the end of its subsidiary, Finn. Accompanying it was the Royal Bank of Scotland's (RBS) attempt through Bó, which failed to stay afloat in the game due to “the crowded nature and maturity” of the UK’s digital banking market.
Despite such turbulence, incumbent banks have a long road ahead to curate a menu of assorted methodologies. Whether it is a combination with fintechs or challengers, or a novel idea in the making, the dynamic world of digital banking and finance will keep us on the edge with its next new flavors.