[Financial Essay] Overseas Internet Banks Are Experiencing Poor Performance... Why?

Travel and Consumption Decline Due to COVID-19... Losses Expected to Increase Further

[Asia Economy Reporter Kim Min-young] Global internet-only banks, which have experienced rapid growth over the past few years, are recently facing poor performance.

According to a recent report titled ‘Background and Evaluation of Poor Performance of Some Digital Banks (Internet Banks)’ by Park Ji-eun, a senior researcher at the International Finance Center, there are currently internet banks in various countries worldwide: 25 in the United States, 3 in Canada, 11 in the United Kingdom, 8 in China, 10 in Japan, 8 in Hong Kong, and 35 in emerging countries. This number continues to increase, and in South Korea, following KakaoBank and K Bank, Toss Bank recently obtained approval and is preparing to launch services next year.

However, some banks in the UK and parts of Asia are experiencing difficulties such as poor performance. In the UK, challenger banks continue to show weak results. Revolut, which has secured over 12 million customers across 35 countries, recorded a loss of 107 million pounds last year, tripling from 33 million pounds the previous year. There are strong doubts about its ability to generate profits.

Park, the senior researcher, predicted that losses are expected to increase further this year due to reduced travel (currency exchange) and consumption (card usage) caused by the COVID-19 pandemic.

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Monzo also saw its market value drop by about 40% from 2 billion pounds to 1.25 billion pounds in May. In July, it continued to face difficulties, including laying off 120 employees. With debt surging from 19.2 million pounds to 143.9 million pounds, doubts about the sustainability of its business are growing.

The UK government has ordered Monzo to raise its minimum capital ratio from the existing 9% to 13.5%.

Global Internet Banks Struggle Across Europe and Asia Due to COVID-19

The situation is similar for internet banks in Asia. “Due to the economic impact of COVID-19, opportunities to attract target customer groups for newly established internet banks have decreased, making short-term business setbacks inevitable,” Park said.

Additionally, in markets dominated by traditional banks such as Australia, Hong Kong, Japan, and Singapore, internet banks are struggling to surpass existing banks that are investing in digitalization.

Park summarized the recent causes of poor performance among internet banks into three main points: ▲ acceleration of digitalization by traditional banks due to COVID-19 ▲ distrust in the operational capabilities of internet banks ▲ lack of an established sustainable profit model.

Park advised, “For internet banks to emerge as competitors to traditional banks, transparency and continuous efforts to strengthen competitiveness are necessary. Distrust toward internet banks includes anxiety about the unknown and concerns about control capabilities due to the rapid pace of technological advancement. If internet banks demonstrate very high transparency with consistent and trustworthy attitudes, these issues can be resolved.”

This content was produced with the assistance of AI translation services.