For much of the past decade, digital banks were judged by how fast they could grow. User numbers, app downloads, and deposit milestones dominated press releases and investor decks, reinforcing the idea that scale would eventually solve everything else.
That phase is ending.
Across the sector, digital banks are now under pressure to show that growth can translate into sustainability. As customer acquisition slows and operating costs rise, the focus has shifted decisively toward digital banks’ profitability, forcing players to confront questions they were once able to defer.
From rapid expansion to tougher scrutiny
The early promise of digital banks rested on a straightforward proposition: technology-led operations would make banking cheaper, faster, and more scalable than traditional models. In pursuit of that promise, many digital banks invested heavily in user acquisition, offering high-interest savings, cash incentives, and frictionless onboarding to accelerate growth.
That strategy worked — but only up to a point.
As the market matures, however, digital banks are finding that easy growth is harder to sustain. Competition has intensified not only among digital-only players but also from traditional banks that have significantly upgraded their mobile and online platforms. Customer acquisition costs are rising, while incremental growth is slowing.
This shift has sharpened regulatory attention. The Bangko Sentral ng Pilipinas has repeatedly emphasized that licensed digital banks are expected to meet the same prudential standards as traditional lenders, including capital adequacy, asset quality, and sound risk management. Growth without a credible profitability path is no longer sufficient.
The real cost of running a digital bank
Despite their lean branding, digital banks face substantial operating costs that challenge the assumption of structurally cheaper banking.
Technology remains a major expense. Core banking platforms, cybersecurity systems, cloud infrastructure, and continuous product development require sustained investment. While digital banks may avoid legacy system costs, they must constantly upgrade and scale systems to remain competitive and secure.
Compliance is another unavoidable cost. Like traditional institutions, digital banks must comply with know-your-customer rules, anti-money laundering requirements, and detailed reporting obligations. As transaction volumes grow, compliance operations expand alongside them.
Credit risk further complicates digital banks’ profitability. Many players have moved into consumer and small-business lending to improve margins, but this exposes them to defaults and provisioning requirements—particularly in a higher-rate environment. Managing credit risk demands analytics, data infrastructure, and conservative balance sheet management, all of which add to costs.
Unit economics under the microscope
As investor sentiment tightens globally, attention has shifted to unit economics: how much it costs to acquire and serve each customer, and how much revenue that customer ultimately generates.
In theory, digital banks should benefit from lower cost-to-serve once customers are onboarded. In reality, monetization has proven more difficult. Deposit-heavy models rely on net interest margins that can be squeezed by competition and funding costs, while fee-based income remains limited for many players.
Customer behavior also complicates the picture. Many users maintain accounts primarily for savings or promotional interest rates, with limited cross-selling into higher-margin products such as loans, insurance, or investments. Without deeper engagement, average revenue per user remains low, making it harder to offset acquisition and operating costs.
This has forced digital banks to reconsider earlier assumptions that scale alone would deliver profitability.
Smaller players face a steeper climb
Not all digital banks are under equal pressure. Larger players with stronger capital backing and diversified product lines may be better positioned to absorb losses while refining their models. Smaller digital banks, however, face tougher trade-offs.
Limited scale can make it harder to spread fixed costs, while constrained capital reduces flexibility to experiment or weather prolonged periods of low profitability. In a crowded market, smaller banks may also struggle to differentiate themselves beyond pricing incentives, which further compress margins.
The result is growing speculation that consolidation may be unavoidable. While no formal consolidation wave has yet materialized, industry observers increasingly view mergers, acquisitions, or strategic partnerships as a likely next phase — particularly if profitability remains elusive for weaker players.
Rethinking sustainability in digital banking
As the narrative shifts, sustainability is being redefined. Instead of aggressive expansion, digital banks are focusing more on cost discipline, product focus, and customer quality rather than quantity.
Some are narrowing their target markets, concentrating on specific segments such as underserved consumers or small businesses where traditional banks are less competitive. Others are emphasizing cross-selling and deeper engagement to improve lifetime customer value.
Partnerships are also gaining traction. Collaborations with fintech firms, payment platforms, or even traditional banks can help digital banks expand offerings without bearing the full cost of in-house development.
For regulators, the emphasis is clear: digital banks must demonstrate that innovation does not come at the expense of financial stability. For investors, the question is increasingly about resilience rather than growth speed.
A more mature, less forgiving phase
The pressure now facing digital banks reflects a broader maturation of the sector. The easy wins—rapid sign-ups, promotional deposits, and early mover advantages—have largely been claimed. What remains is the harder work of building durable, profitable institutions.
Customer growth still matters, but it is no longer the primary story. Profitability, unit economics, and long-term viability have taken center stage, forcing digital banks to confront the same realities that traditional lenders have long faced.
Whether all players can make that transition remains uncertain. What is clear is that the digital banking sector has entered a more demanding phase — one where sustainability, not scale, will determine who survives.
