Intel Report Digital Banking - Flipbook - Page 20
SUCCESS CHECKLIST
FIVE ELEMENTS OF SUCCESS FOR DIGITAL-ONLY BANKS
1. Superior technology
Digital-first banks and platforms rely on cloud-native technology to quickly stand up new products and services to meet customer needs as well as real-time access to data. In the this model,
the quality of the digital services is part of the product’s value.
2. Unique products that serve a niche customer base
“If you don’t solve a particular paint point extremely well, it’s hard to acquire customers at a
low cost,” Citi Ventures’ Purushotham says. “When you think about Chime, when you think about
Robinhood, when you think about many of these leading, at least, consumer-facing players, it turns
out that that’s actually an important aspect of it … Maybe it doesn’t serve everybody. It doesn’t
serve high net-worth individuals. But it serves [that] 20-something person with a single paycheck
that needs to do certain things but never wants to go to a bank.”
3. Scalability
“So, your first product was a success,” Purushotham says. “Or maybe your second was a success
… So do you continue that magic that you hit in the first or second product?” At some point,
your competitors start imitating the successful startup, as happened when Robinhood Markets
introduced commission-free trading. Now, the incumbent wealth managers such as Vanguard
Group, Fidelity Investments and a host of others offer it, too.
4. Sustainability
One of the more important aspects of a successful digital bank or banking platform is not just
scalability but sustainability. And a big part of that is compliance. Digital lenders generally pay
for compliance through partnerships with banks. Some in recent years have decided to become
banks, such as Varo and Social Finance (SoFi), in part to control their product offerings and
scale up without sharing revenues with a bank partner.
“So, when you’re operating in financial services, whether it’s in payments or lending, not only are
there compliance and regulations, but you fundamentally want to run a safe and reliable operation
because people are trusting you with their private information, with their money and with things
that they normally don’t do with other digital entities,” Purushotham says.
5. Experienced leadership
Closely related to the idea of sustainability is, of course, the importance of the founders and
management team. Purushotham wants to invest in companies that have strong leaders at the
helm. “We pay a lot of attention to how those CEOs and the management teams think about it,
how mature they are in their thinking about regulations, and about complexities that arise in the
financial services world,” he says.
18 | FINXTECH INTELLIGENCE REPORT
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