(31 August 2020 – United Kingdom) Digital banks operating in the United Kingdom (UK) have become anxious for profits after the Bank of England (BoE) sets a deadline for profitability. The Prudential Regulatory Authority (PRA) supervisory division of the BoE has expressed the need for new digital lenders to concentrate on being independent instead of depending on investor’s capital.
The PRA will expect all new digital start-ups to be in profit, or close to profit, within the next five years. Capital reserves are also set to increase towards the end of this year, which will reduce bank’s lending ability; all the more reason for digital banks to climb up the profitability ladder as soon as possible.
Incumbent digital banks have already incurred severe losses over the past year with Monzo and Revolut amongst those who have experienced losses in the 100’s of millions.
“We have seen a proliferation in the number of start-up Neobanks in the UK market seeking to capitalise on the digital banking momentum. However, many have underestimated the development and investment required to become an established bank in a fiercely competitive market” commented East & Partners Europe Market Analyst, Pierre Sokoya.