Why digital banks in financial services are gaining ground

A WAVE of digital startups in financial services are waging war on behalf of dissatisfied bank customers.

With their low-cost structure and freedom from legacy IT systems and regulatory burdens, digital firms target specific customer needs rather than specific competitors. Their founders are hungry, aggressive and comfortable with rapid change and disruption.

This growing eco-system of startups aims to siphon off banks' more profitable lines of business, especially the pools of lazy profits such as foreign exchange fees and card-not-present fees. That's why most traditional banks need to quicken their own digital reinvention if they want to hang onto their profit pools.