European Fintech Challenger Banks Face their Own Challenges

DBRS Morningstar released a commentary focusing on eight selected fintech challenger banks in Europe.

Summary highlights from the commentary include:

• Fintech challenger banks have grown relatively quickly during the past decade thanks to external equity funding, which has allowed them to establish their businesses and acquire clients.

• Whilst these banks mostly target a younger demographic, the spread of COVID-19 accelerated the already existing shift towards digital banking with the number of retail accounts growing quickly.

• Despite the steady growth in revenues, some fintech challenger banks still struggle to make a profit and there are still many challenges ahead.

“DBRS Morningstar considers these institutions still lack sufficient scale in comparison to traditional banking groups as they mostly focus on niche areas,” said Arnaud Journois, Vice President, European Financial Institutions. “In addition, we consider the rise of fintech challenger banks has not entirely reshuffled the cards for the banking sector, as the regulatory constraints and other numerous challenges they face have so far prevented them from constituting a meaningful alternative to traditional banking.”