In the European ranking of digital banks theItaly has become second, on the same step as France and inferior only to UK who had led the way in recent years. There are now 96 operating in Europe digital banks (or challenger banks) of which 64 through a full banking licence, in Italy and France 12, in the United Kingdom 37, Germany (8) and Spain (7).
This is the photograph that emerges from the report of theMediobanca Research Area, the second chapter of a planned series of reports on the world FinTech (the first, on PayTech, was published last December). In 2021 alone, a total of 3,5 billion euros (+129,5% on 2020) of capital was raised to support growth. The calculations for the first six months of 2022 are up by 82,3% on the same period of 2021, reaching 1,8 billion, albeit partially cooling.
Only nine are listed on the Stock Exchange: six English, 1 Italian Illimity Bank, one Estonian and one Norwegian (Aprila Bank) traded on an unregulated market (Euronext NOTC). Three other companies were de-listed following takeovers by incumbents or investment funds.
Italian digital banks: although smaller, they show revenues up by 22,8% in 2021
The photograph of the income statements of 2021 of this sector shows for Italy a intermediation margin grew by 22,8% on 2020 and an operating result of +75,2%, with the Net income which improved by +63,1%. Even the ROE it grew by almost 4 pp, reaching 9,4% in 2021, says Mediobanca.
About the 2020, Italian digital banks, which if anything are smaller than the European average Mediobanca observes, show double-digit growth in both the intermediation margin (+42,2% on 2019) and the operating result (>100%), while the containment of credit losses (past from -31,3 million in 2019 to -10,3 million in 2020) contributed to the improvement in the net result.
Equally positive were the performance of the balance sheet in 2020, with growth in loans to customers (+38,8% on 2019) and total aggregate assets (+35%) which partially lost momentum in 2021, although remaining in double-digit (+42,4% loans to customers and +18,2% total assets on 2020). The workforce is also increasing: +18% in 2020 on 2019 and +5,7% in 2021 on 2020.
European challenger banks revenues up 3,9% in 2020
The aggregate values of the European region refer to 2020 and the report highlights that «the revenues of challenger banks increased by 3,9% on 2019, while the aggregate net result it worsened by 12,7%, in line with the performance of the banks of the Eurosystem». If digital banks continue to increase volumes of assets, the same cannot be said of profitability which is negative on average. «With an already negative value in 2019 (-5,1%), the ROE total decreased by 0,4 percentage points to -5,5% in 2020 – reads the Mediobanca research area report – while total assets (+11,4%) and loans to customers increased ( +4,9%).
Fintech: the epochal transformation of the banking sector
For the banking world bank challenger, are a response to the epochal changes of the last decade: structural decline in revenues and margins due to flattening of rates and the effects of the new ones regulations, then aggravated by the pandemic and from the current geopolitical scenario which led to a profound renovation of distribution models, he observes Mediobanca.
For example, the reduction between 2010 and 2020 of the bank staff which in Italy was 14,8% and of the branches -30,1%. In the rest of Europe bank personnel saw -34,4% in Spain, -26,4% in the United Kingdom, and -13,9% in Germany and branches -48,3% in the United Kingdom, -48,1, 36,8% in Spain, -XNUMX% in Germany.
Furthermore, between 2008 and 2020 access to bank branches decreased, while the percentage of customers who use the online channel to carry out banking transactions is constantly growing: in Italy it is equal to 67% in 2020, +7 pp on 2019 and a good +40 pp on 2008.
“The main structural differences between challenger banks and Italian credit institutions lie in the incidence of labor costs and general expenses on total revenues” observes Mediobanca. “The former is less for challengers who, on the other hand, record a higher incidence of overheads. Analyzing the composition of the latter, a strong weight of consultancy costs, outsourced services and advertising emerges: the streamlined structure of the staff requires the challenger banks to turn to the outside to obtain services elsewhere carried out internally”.
Leading digital banks: those born before 2010
The report shows that around 65% of the European companies analyzed were established after 2013: in the three-year period 2014-2016, 26 companies were set up.
In more detail, the analysis highlights two different trends based on the date of birth of the digital banks (and on the different types). «The revenues of traditional, i.e. the established challenger banks before 2010, decreased by 7,1%, feeling the effects of the health containment measures. In fact, included in this group are some players who combine online operations with a streamlined physical presence».
On the contrary, again according to the Mediobanca report, «the spread of the pandemic has benefited the challenger banks purely digital, Or the subsidiaries (legal entities that manage the online initiatives of large Groups) and the neobanks (established after 2010), with revenue growth in the order of +19,9% for the former and +24,8% for the latter». But even in this case, profitability is still far away: le neobanks their profitability is still negative, (ROE at -13,9%, +0,1 pp on 2019).
"For them, the achievement of breakeven is linked to the increase of the customer base and the range of services offered (which depends on obtaining the full banking license), with the dimensional development that can act as a game changer," says the report. As for the most recent dynamics, and taking into account that at the end of June 2022 only 34 operators had already published their 2021 financial statements, the report highlights a general increase in revenues, but among the neobanks there are still numerous operators with negative net results.
Challenger banks and fundraising, raised 3,5 billion in 2021
If the relationship with the stock markets still appears modest, the challenger banks instead make extensive use of the venture capital. From 2016 to today, the resources raised through this form of financing amount to 11,6 billion euros. Only in 2021 were they overall raised 3,5 billion euros (+129,5% on 2020). The calculations for the first six months of 2022 are up by 82,3% on the same period of 2021, reaching 1,8 billion, but partially cooling.
