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Outbyte Driver Updater FREEFix the driver behind crashes, sound loss and screen glitchesFind Drivers →Outbyte PC Repair FREEClear out junk files and repair common Windows errorsFree Scan →Digital-only banks are gaining ground in some markets, but the evidence does not show that they universally outperform traditional banks. In the euro area, their share of banking assets rose through 2024 while their median return on equity remained lower. In the United Kingdom, a selected group of eight leading neobanks recorded strong deposit growth and reported or estimated profits by 2025. The answer depends on the country and whether “outpacing” means deposits, assets, customers or profits.
What counts as a digital-only bank—and what does “outpacing” mean?
The European Central Bank (ECB) defines digital banks as banks that operate solely online without developing physical branches. Its euro-area sample excludes some online deposit-taking institutions that do not fit its profile. The term “neobank” can be broader: France’s ACPR historically used it for financial actors and intermediaries offering banking or related services online or through mobile-only apps. Those definitions cover different populations, so their figures should not be combined.
There is no single measure of outperformance. Faster deposit or asset growth shows expansion, not necessarily higher profits or better outcomes for customers. The evidence available for this comparison is strongest for the euro area and the UK; it does not establish a global ranking.
Where digital-only banks are gaining ground
Euro area: a growing, still limited asset share
The ECB identified about 60 digital-only banks in the euro area at year-end 2024; seven were subsidiaries of traditional banking groups. Their share of total euro-area banking assets increased from 3.1% in 2019 to 3.9% in 2024. That is evidence of a rising footprint, not dominance of the banking system. ECB, May 2025.
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United Kingdom: rapid growth among eight leading neobanks
A 2026 McKinsey analysis reports that deposits at eight leading UK neobanks grew about fivefold, from roughly £15 billion in 2020 to 2025. It puts the group’s combined 2025 profits above £1.2 billion, compared with combined losses of about £250 million in 2020. The figures include reported or estimated data and describe this selected group—not every UK digital bank or the whole banking sector. McKinsey & Company, 2026.
Why the digital model can attract deposits and customers
Online distribution lets customers access banking without visiting a branch, and mobile-first services can compete on convenience and ease of use. More competition can also pressure established banks to improve their services. The growth figures show that digital-only providers have expanded in the cited markets; they do not, by themselves, establish which particular features caused that growth or prove that every customer benefits.
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Digital banks also use different balance-sheet strategies. Some fund consumer, mortgage or business lending with retail deposits. Others make relatively little material lending and place funds mainly in high-quality liquid assets, including central-bank reserves. Some digital subsidiaries hold significant assets within traditional banking groups. Their growth therefore does not always represent an entirely independent alternative to incumbent banking.
Why growth has not meant higher profitability everywhere
In the ECB’s euro-area comparison, traditional banks’ median return on equity was 9.9% in Q4 2024—2.9 percentage points above the digital-bank median. Digital-bank profitability varied widely, but the overall comparison shows why asset growth should not be mistaken for superior returns. ECB, May 2025.
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Without branches, a digital bank may avoid some physical infrastructure costs, but that does not eliminate the costs of acquiring customers, running technology or funding deposits. In the ECB sample, online banks’ administrative expenses excluding staff were 1% of total assets in Q4 2024, versus 0.5% at traditional banks. IT-related operating expenses were 2.4% versus 1.3%; advertising, marketing and communication expenses were 0.9% versus 0.3%.
- Deposit costs: Price-sensitive customers can make it harder to build a stable, low-cost funding base.
- Technology and marketing: IT requires ongoing investment, and attracting and retaining active customers can be expensive.
- Scale and capital: Limited scale can leave fixed costs spread across fewer assets, while higher capital ratios can weigh on returns.
These trade-offs help explain why a provider can grow quickly without matching traditional banks’ profitability. An ACPR survey of 15 institutions, conducted in 2019, likewise described IT investment, customer subsidies and the cost of acquiring and retaining active users as obstacles to positive net results at the time. That historical survey is context, not a current profitability measure; its categories also included businesses that are not necessarily digital-only banks under the ECB definition. ACPR, 2019.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What the trend means for customers—and for stability
More competition may bring customers better access or service, but a growing digital sector also raises system-level questions. The ECB’s sample found that about 80% of digital-bank funding came from retail depositors through Q4 2024; more than 90% of those retail deposits were covered by deposit-guarantee schemes. Those are sample-wide figures, not a guarantee about a particular bank or account. Coverage depends on the applicable scheme and the depositor’s circumstances.
Online access and concentrated funding can also make deposits move quickly, potentially increasing run risk and cross-border spillovers. The ECB’s warning concerns possible effects on financial stability as a system, not a claim that an individual digital-only account is inherently unsafe. As the authors of its May 2025 analysis put it: “The continued growth of digital banks could bring benefits for customers but, by displacing incumbents, may also threaten financial stability.”
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For an individual choosing an account, compare the actual terms and protections that apply in your country rather than relying on the label “digital bank.” Check the provider’s legal and regulatory status, the deposit-guarantee scheme and its coverage rules, fees and interest terms, and whether its service and support channels suit your needs. The market-level evidence here does not establish current rates, fees or eligibility for any named provider.
Bottom line: outpacing depends on the measure
Digital-only banks are expanding by some measures: their euro-area asset share rose through 2024, and eight leading UK neobanks recorded substantial deposit growth through 2025. But the euro-area profitability comparison favors traditional banks, while the UK figures describe a selected group and include estimates. The evidence supports a qualified conclusion—digital banks are gaining scale in particular markets, not universally outperforming traditional lenders.
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