The Quiet Takeover of Banking by Apps That Have No Branches at All

Think for a moment about the last time you actually walked into a physical bank branch, stood patiently in a long queue, and spoke to a teller from behind a glass counter. For a rapidly growing number of people all around the world, that once completely ordinary experience is now quickly becoming a distant and almost quaint little memory. In its place has risen a whole new kind of bank, one that exists entirely inside a smartphone application and does not operate so much as a single physical branch anywhere in the world at all.

Banking without a single branch

These new institutions, widely known today as neobanks or simply as digital banks, have cleverly reimagined almost everything about how ordinary people go about managing their own money from one day to the next. Instead of sprawling and costly networks of expensive high street branches staffed by long rows of employees, they offer a sleek and remarkably simple application that lives permanently in your pocket, allowing you to open an account, send money, and track your spending with just a few quick taps on a glass screen.

The core idea sitting behind this whole model is as genuinely powerful as it is wonderfully simple to grasp at first glance. By doing away almost entirely with the enormous ongoing costs of running physical branches, these banks can then pass a great deal of those very same savings directly on to their customers in the form of much lower fees, far better exchange rates, and a whole range of clever little features that the big traditional banks have been frustratingly slow to ever offer.

A user base in the hundreds of millions

The sheer speed at which these app based banks have grown in recent times is genuinely very difficult to overstate in any meaningful way. According to several recent estimates, the total number of people using a neobank somewhere around the world has now soared to somewhere in the region of 350 million in the space of just a few short years, a truly staggering leap upward from well under 150 million back in the year 2021. Some broader counts place the real global figure even higher still.

Sitting quietly behind all of these impressive headline numbers are some truly enormous individual companies that few people outside finance could even name. One digital bank originally founded over in Brazil now proudly serves well over a hundred million customers across Latin America all on its own, while a hugely popular app that was first launched in London counts many tens of millions of active users spread right across dozens of different countries. In China, a single digital bank is believed to serve several hundred million people entirely by itself.

Why so many are switching over

There are several very concrete and eminently practical reasons lying behind this genuine mass migration of customers away from the big traditional banks. The most immediate and obvious one of them all is simply cost, since a great many of these digital accounts charge little or nothing at all in the way of monthly fees, and they also typically offer far cheaper rates for sending money abroad, a feature that has proven especially popular with frequent travellers and with those who regularly deal across international borders.

Speed and sheer everyday convenience together form the other important half of the appeal for most of these new customers. Opening a brand new account with one of these clever apps can very often be done in just a matter of a few short minutes from the comfort of your own sofa, rather than the days of tedious paperwork and awkward in person appointments that a traditional bank might otherwise demand. The neat budgeting tools that automatically sort and track your spending have also become a real favourite.

A young generation leads the way

When you take the time to look a little more closely at exactly who is really driving this remarkable banking revolution forward, one particular pattern tends to jump out almost immediately from all of the available data. The overwhelming majority of all neobank customers, by some counts nearly four out of every five of them, belong squarely to the younger generations who grew up with a smartphone almost permanently in their hands and who feel entirely comfortable managing every single aspect of their lives through a screen.

For these particular younger customers, the very idea of having to physically visit a branch during its limited opening hours can honestly feel almost absurdly outdated and deeply inconvenient. They have simply come to fully expect that absolutely everything, from quickly paying a friend back for dinner to easily setting up a little savings pot for an upcoming holiday, should always be instant, effortless, and readily available at any hour of the day or night, which is exactly the kind of experience these apps deliver.

Giants rising around the world

Although this whole phenomenon is now truly global in its enormous reach, some particular regions of the world have embraced it far more enthusiastically and rapidly than certain others. Europe currently accounts for the single largest share of all users, with many tens of millions of people right across the continent having already made the switch, while the fast moving markets across both Asia and Latin America are now growing at an even more breathtaking pace than the more established western ones.

What first began life as a small and scrappy cluster of young technology startups has, in a remarkably short span of time, blossomed into an extremely serious and very well funded industry now worth many hundreds of billions of dollars in total. Vast sums of investment money have steadily poured into the sector over recent years, as eager investors race to back the particular companies they firmly believe could one day grow large enough to seriously challenge the old banking giants that have dominated finance for centuries.

The profitability puzzle

For all of their genuinely spectacular growth in raw customer numbers, these digital banks have nonetheless long faced one rather awkward and stubbornly persistent challenge that simply refuses to quietly go away. For many years now, a surprisingly large share of them have simply struggled to turn any kind of actual profit at all, because signing up many millions of users who each pay very little in the way of fees is one thing, but then reliably making real money from all of those accounts has proven to be a considerably harder puzzle to solve.

Encouragingly though, the overall picture does now finally appear to be slowly changing for the better, as several of the very biggest names in the entire sector have recently started to report genuinely healthy profits for the very first time in their history. Whether the many smaller players out there can eventually manage to follow down that very same path will likely go a long way toward determining just how far this quiet revolution can ultimately go, but app based banking is clearly here to stay for good.