KUALA LUMPUR (June 2): The majority of digital banks worldwide have not managed to reach a break-even point despite their lofty valuation, says commercial strategy consultant Simon-Kucher.

Noting that there are close to 400 digital banks globally serving nearly one billion client accounts, the firm said even the more renowned digital banks are barely making money.

Simon-Kucher’s analysis of 25 of the largest digital banks in the world found that only two have achieved profitability, and that a majority of them earned less than US$30 (about RM131.73) in annual revenues per customer.

"Moving from 'get reach' to 'get rich' requires a dramatic mindset shift that can be difficult to orchestrate," said Christoph Stegmeier, senior partner at Simon-Kucher, in a statement.

"Yet it is critical that these digital banks make that leap before their sixth and seventh year in operation. The risk of failure rises exponentially at that point if the business is not even breaking even," he said.

This observation is in line with Bank Negara Malaysia’s eligibility criteria for digital banks in Malaysia, where the five awarded banks are required to showcase a clear projected path towards healthy returns, said the firm’s APAC banking lead Silvio Struebi.

“Many digital bank clients are inactive after opening their accounts despite high acquisition costs. Therefore, a superior customer experience combined with an attractive loyalty programme and ecosystem will make the difference in delivering long-term profitability,” he said.

The study also revealed that digital banking penetration is lower than expected in Malaysia when compared to other similar markets, indicating significant growth potential for market players in the country.

Simon-Kucher said it will be crucial for new players to get the value proposition right and develop the monetisation strategy before product launch.

The firm said introducing undifferentiated digital offerings like high interest saving accounts, credit cards, and loans will not be enough to win the under-served segment and digital-savvy customers in Malaysia as incumbent banks have increased their digital capabilities to better service the clients in recent years.