Can Digital Banks Stay Digital Only?


Lines blurring in digital bank strategies: Do digital banks need branches?

Mercator Advisory Group releases new research on sustainability of the digital-only bank model.

Author: Tristan Hugo-Webb
Published on: December 9, 2015


In the past five years, the ways in which consumers interact with their primary financial institution have evolved and they continue to evolve as consumers’ dependence on smartphones and other digital channels grows. The increased use of digital channels is a trend that is not isolated to mature retail banking markets such as the United States and the United Kingdom. Rather, it is a global sensation that has forced traditional retail banking service providers to reconsider how to maximize the effectiveness of each available banking channel.

However, to transition from their status as niche banking service providers to competitors that are a true challenge to traditional primary financial institutions, digital-only banks may need to rethink their operating model and include some physical component whether it is directly through their own branch network or in some other form to ensure their long-term sustainability as traditional banking channels like physical branches still remain a popular and important sales and communication channel for financial institutions in Europe and around the world.

Mercator Advisory Group’s latest research note, Can Digital Banks Stay Digital Only? examines the prospects for digital banks and whether they can successfully remain digital only or whether, to ensure their long term success, they must expand their presence beyond just digital channels and employ a similar omnichannel approach to that of traditional retail banking service providers.

“Despite increased consumer use of digital channels, survey data clearly shows that consumers across Europe and the U.S. still value the human touch when it comes to banking, and as a result, a pure digital-only solution may fail to generate sufficient traction. So for digital banks to be successful until consumers ultimately switch their banking channel preferences to rely less on physical branches, they may need to reconsider the digital-only approach and embrace an omnichannel philosophy as banks across Europe and around the world are doing,” comments Tristan Hugo-Webb, Associate Director, Global Payments Advisory Service at Mercator Advisory Group and the primary author of the research note.

This document contains 9 pages and 4 exhibits.

Companies mentioned in this research note include: Atom Bank, Fidor Bank, Hello Bank, and mBank.


Highlights of the research note include:

  • Overview of evolving retail banking strategies including monochannel, multichannel, and omnichannel 
  • Statistics on preferred banking communication channels as expressed by European and U.S. consumers surveyed in 2014
  • Case studies of digital banks that have opted to open physical branches to significant success 



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