How Do Digital Banks Make Money? [20 Business Models of 2024]

Updated On: 09/21/2023 is reader-supported. When you buy via links on our site, we may earn an affiliate commission at no cost to you.

In today's world, where connectivity and convenience reign supreme, it's no wonder that banking has evolved beyond the traditional brick-and-mortar institutions.

You've likely noticed the emergence of digital banks, which promise the ease of financial transactions at your fingertips.

But you might ask, "How do digital banks make money?" The answer may surprise you as it differs quite a bit from the time-honored methods of traditional banks.

Lucky for you, we're going to break it all down. From interest margins to data monetization, we'll uncover how these savvy high-tech institutions keep their virtual doors open and continue innovating in an ever-changing financial landscape. Are you ready to satisfy your curiosity satisfied? Let's get this knowledge journey started!

How Do Digital Banks Make Money: 20 Business Models

Digital banks come with various business models to generate income. They are famously known for lower fees and greater interest rates, but how is money made?

Well, the art of their profiting lies in clever strategies that include leveraging technology and big data combined with traditional banking methods, all while keeping costs as low as possible.

Interest Rate Spread

Interest Rate Spread

The bread and butter of any banking system, traditional or digital, is the interest rate spread. Do you know how you deposit your hard-earned bucks in your savings account and earn some interest? Now think bigger, like thousands or even millions of users doing the same.

Digital banks use these deposits to offer loans to other customers at a higher interest rate. The difference between what they earn and pay you in interest is their profit.

Since digital banks have fewer overheads than their regular counterparts, they can afford to give you more on your savings while still making a considerable amount through loan interest.

Subscription Fees

Some digital banks make money by charging subscription fees for using their platforms. They offer a range of tier-based services where each tier gives additional benefits compared to the previous one.

Like your Netflix account - the more you pay, the better services you get, like access to unique features or higher transaction limits. Independent of transaction costs or success rates, this model remains a steady income for digital banks.

Expectantly so – it's an appealing win-win situation where you receive premium banking service in return for a small monthly fee, which keeps their virtual gears turning.

Also Read: Digital Banks vs Traditional Banks In 2024 [Which Is Better? 2023's Choice]

Transaction Fees

You've probably paid a transaction fee at one time or another, right? Well, think of them as a little piece of the financial pie that digital banks take each time you swipe your card or send money.

These mini charges accumulate over thousands, sometimes millions, of transactions, making for a hefty revenue stream.

Did you know that some digital banks also charge merchants fees for processing your purchases? They usually broker deals with their merchant services provider, lowering bank and retailer fees.

So, essentially, every purchase you make is helping to keep the virtual banking system humming along.

Foreign Exchange Markup

Ever traveled abroad and exchanged currency? Then, you've no doubt encountered foreign exchange markups.

These are differences between the wholesale rates banks get and the rates they pass onto their customers. Some digital banks offer multi-currency accounts with attractive exchange rates to stay competitive.

But while they may offer better rates than traditional banks, these still include small markups, which serve as another potential revenue source for digital banks.

Credit Card Issuance

Credit Card Issuance

Digital banks also make money through credit card issuance. This happens in two ways: Firstly, through annual fees that customers pay to use the card, then secondly, via interest accrued when customers don’t pay off their balance in full each month—ouch!

Whenever you use your credit card at a shop or restaurant, those businesses must pay interchange fees to your digital bank and credit card network like Visa or Mastercard; it might be just a few cents on every dollar spent, but those pennies can add up!

Personal Loans

Digital banks have disrupted the once tedious personal loan process. Traditional banks typically led you through a lengthy application process, review, and a nerve-wracking waiting period only to possibly offer high interest rates.

In contrast, digital banks make obtaining a personal loan as simple as a few clicks on your screen. Online application forms are processed more swiftly than paper documents, and their algorithms can provide approval in minutes rather than days.

With no physical branch overheads, digital banks often offer lower interest rates than some traditional counterparts.

Mortgage Origination

Ever tried applying for a mortgage at a traditional bank? It can feel like running a marathon without any training! Digital banks aspire to change that with an all-digital mortgage origination process.

Taking the entire journey online speeds up the approval process and offers clarity and transparency to you as a borrower. Here’s something exciting – some digital banks even offer pre-approvals in under an hour!

Business Loans

Entrepreneurs pay attention! Digital banking is turning the business loan landscape on its ear, too. Traditionally tied up by businesses presenting plans and jumping through hoops for approval of loans, forget about that with digital banking’s faster decision-making process.

Some innovative platforms even use AI to evaluate your business’ creditworthiness quickly, enabling you to get on with what you do best - growing your business.

Asset Management

Asset Management

These are services offered to customers where the digital bank handles financial assets on their behalf. It's a great way for banks to generate income. Here's how it works: you entrust your wealth to the bank, and in return, they invest that wealth in promising ventures such as stocks, bonds, and properties.

This is accomplished through investment funds managed by professional fund managers. They increase your wealth over time through calculated decisions based on market studies, trend analyses, and risk assessment.

Digital banks also enjoy a fee for managing these assets. The fees are generally a small percentage of the total funds managed and may vary depending on whether the asset management service is active or passive.

Also Read: Who Owns The 27 Biggest Digital Bank 2024? [Complete Guide]

Wealth Management Services

Wealth management services are another route digital banks take to generate income. This service involves creating a tailor-made investment strategy for high-net-worth individuals.

While Asset Management might be about financial growth, Wealth Management includes financial planning and advisory services as it typically involves more diverse elements like estate planning or tax advice.

Again, banks earn by charging a fee for these premium services that optimally preserve and grow the wealth of affluent clients.

Peer-to-Peer Lending Commissions

Peer-to-peer lending is an innovative idea brought about by the connectivity inherent in digital banking. In essence, peer-to-peer (P2P) lending is when one user lends money to another, somewhat akin to a private loan agreement.

In this scenario of P2P lending transactions, digital banks act as platforms that connect savers looking for profitable ways to lend their savings with borrowers seeking personal loans at reasonable rates.

Digital banks earn commission here - they charge one-off fixed costs or recurring percentages based on the total loan value or repayment amounts.

This form of earning remains highly lucrative despite taking away some control from digital banks concerning credit issuance and loan management compared with traditional banking practices.

Overdraft Fees

Like your brick-and-mortar banks, many digital banks offer an overdraft service to their customers. This service provides a safety net, allowing you to spend more than the amount present in your account.

But this convenience comes at a cost. Digital banks charge overdraft fees when you dip below zero. These fees serve as a significant revenue generator for them.

A 2019 Consumer Financial Protection Bureau report found that Americans pay approximately $17 billion annually in overdraft fees, illustrating just how much money is to be made from this single business line.

Partnership Commissions

Partnership Commissions

Digital banks often partner with various companies to offer you value-added services. Ranging from insurance providers to travel agencies, these partners work with the digital bank.

Every time you avail of these services through your digital banking app, the bank earns a commission. These partnerships don't just help improve customer experience but also pad up the bank's profits significantly.

Premium Service Tiers

Much like how popular online platforms offer you premium plans with added benefits, digital banks have joined this trend, too.

For a monthly or yearly subscription fee, they provide value-added services that regular free accounts won't receive.

These could range from access to higher interest rates on savings accounts, commission-free trading or discounted loan processing charges, and more.

They are tailored to cater to your high-end needs and serve as another income stream for these tech-savvy financial institutions.

Data Analytics Sales

Data analytics plays an integral role in the digital banking industry. Banking apps are a goldmine of invaluable consumer data.

When analyzed, it provides keen insights into spending patterns, credit behaviors, and financial trends. These insights can benefit many industries like retail, real estate, and even advertising tech companies.

Digital banks may sell this anonymized or aggregated data to interested parties. It's essential to note that this practice follows strict privacy laws; your personal information is kept discreet and private.

API Access Fees

An Application Programming Interface (API) is like a digital door allowing two software programs to communicate with each other. Digital banks frequently hold rich reserves of innovative technologies and systems powering their banking solutions.

Other businesses might be interested in using these technologies to enhance their operations or provide new services to clients. Digital banks could charge fees for API access to these valuable technologies.

API access fees serve as an essential income source, contributing largely towards the revenue of many digital banking platforms.

ATM Fees

While digital banks fundamentally operate online, you are still usually provided with a card that can be used at ATMs worldwide for withdrawals and deposits.

Though you might enjoy lower fees than traditional banks due to the saved infrastructure costs on the bank's end, some transactions like international withdrawals may still attract charges commonly known as "ATM fees."

Account Maintenance Fees

Account Maintenance Fees

Despite their digital nature, online banks also need to maintain your accounts. This maintenance involves the operation of superior technology systems that ensure secure and swift transactions each time you interact with your account.

They introduce account maintenance fees, an instrumental revenue source for these banks. Unlike traditional banks that may waive these fees if you maintain a minimum balance, digital banks charge them as standard. These fees are often significantly less than those imposed by traditional banks because of cost-saving from not operating physical branches.

In-App Advertising

Digital banking is all about providing a smooth user experience via application-based banking services. These apps are transactional platforms and strategic spaces for targeted advertising.

Banks earn revenue through in-app advertising, where other businesses pay them to display their ads on the bank's app interface. In-app ads can range from financial products to lifestyle-related promotions aligned with customer profiles based on data analytics.

It is a marketing strategy used often in the digital world and has proven quite lucrative for many businesses.

Also Read: Are Digital Banks Safe In 2024? [Complete Detailed Guide]

White-Labeling Services

Have you ever encountered a financial service that seems oddly familiar but operates under a different brand? You've experienced white-labeling! Digital banks often offer their platforms or some aspects of their service to third-party businesses under a different brand name - this method is referred to as white-labeling services.

The revenue generated through licensing fees from these partnerships forms a significant part of the digital bank's earnings. It offers two-fold benefits: the digital bank maximizes its existing technological framework.

At the same time, the partnering business gets access to an already well-established system without building one from scratch.

How Do Digital Banks Work?

How Do Digital Banks Work?

Digital banks operate primarily online and offer similar services to traditional banks, such as checking and savings accounts, credit cards, and loans. The key difference is the lack of physical branches. Instead, all transactions are carried out electronically via mobile apps or websites.

Digital banks leverage technology for efficiency, thereby reducing operating costs. These savings often translate to lower fees and better interest rates for customers. Transactions at digital banks can include transferring money, paying bills, depositing checks via mobile applications, and more.

Digital banks use secure encryption methods to ensure customer data privacy and security. Their features may also include 24/7 customer service, budgeting tools, and real-time notifications on transactions, among others.

While digital banking offers convenience through its 24/7 accessibility anywhere with an internet connection, potential users should still consider factors such as internet round-the-clock availability and their comfort level with technology-based transactions.

What Is The Future Of Digital Banking?

The future of digital banking is poised to be a transformative journey driven by advancements in technology and changing consumer expectations. Some key trends that are likely to shape the sector include:

Also Read: Reasons Why Digital Banks Are The Future Of Banking

  • Artificial Intelligence (AI) and Machine Learning (ML): These technologies will play a significant role in improving customer service, personalized marketing, detecting fraudulent transactions, and decision-making processes.
  • Open Banking: With open APIs, third-party developers can build services around the financial institution. This encourages innovation and offers customers a broader range of service providers.
  • Blockchain Technology: Blockchain could fundamentally change how banks conduct business, helping with solutions related to security, reduced costs, efficiency, and transparency.
  • Mobile-First Approach: As consumers increasingly rely on their mobile devices for banking transactions, a mobile-first approach will become even more important.
  • Neobanks: Fully digital banks or Neobanks will continue expanding their services and target traditional banking customers, offering them easy-to-use digital-only financial services.
  • Greater Focus on Cybersecurity: The heightened importance of robust cybersecurity measures comes with the increased adoption of digital technologies.
  • Sustainability: Banks may also start taking more social responsibility with sustainable finance - investing in projects with positive environmental impacts.

These trends indicate a shift towards more personalized and efficient financial services utilizing state-of-the-art technology while addressing emerging global challenges like sustainability.

How Much Does It Cost To Start A Digital Bank?

Starting a digital bank can cost anywhere between $50,000 to $500,000. This cost range accounts for crucial aspects such as banking software acquisition, compliance and regulatory expenses, marketing and promotion costs, and operational expenditures.

Bear in mind that the actual cost can vary based on the specific business model, regional regulations, technology choices, and strategic partnerships involved.

FAQs about how digital banks make money

Do digital banks earn from customer deposits?

Like traditional banks, digital banks use your deposits to lend to other customers and earn interest.

Do digital banks charge for transactions?

Some digital banks may charge nominal fees for certain transactions as part of their revenue model.

How do advertisements contribute to digital banking revenue?

Digital banks often display in-app advertisements from various businesses, earning a portion of their revenue from these paid promotions.

Is the subscription model common among digital banks?

Many online-only banks offer premium features or services for a monthly or annual subscription fee, contributing to their earnings.

Is White-labeling a major revenue source for digital banks?

Absolutely! By offering white-labeling services, where they license their technology to other businesses, digital banks can generate substantial income.


Digital banks have carved a promising niche for themselves in an age dominated by technology, thanks to their innovative revenue models.

They've changed the game of traditional banking by initiating concepts such as interest on loans, transaction fees, in-app advertising, and white-labeling services into the financial universe.

As these digitally-savvy banks continue to emerge and evolve, one thing is certain: their innovative strategies offer an intriguing glimpse into the dynamic future of finance.

Michael Restiano

I support product content strategy for Salt Money. Additionally, I’m helping develop content strategy and processes to deliver quality work for our readers.

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