In this post, we explore the latest changes in the Italian digital banking landscape, focusing on the strategies of digital-only banks and the broader expansion of digital financial products. Over the past year, we’ve witnessed a steady rise in innovative banking services and a growing number of Italians choosing digital banks. An in-depth analysis will highlight the strengths and key factors driving this shift towards digital banking.
We’ll explore the following topics:
How has the digital banking market evolved in Italy over the past 12 months? Using the latest data, we’ll track the growth of digital banking adopters in Italy’s crowded market, featuring both neobanks and digital services from traditional banks. We’ll also highlight the key characteristics of the most prominent digital banks in the country.
What are the key strengths and innovations driving the prominent growth of digital banks? We’ll take a closer look at Revolut, which has emerged as the leader in the Italian digital banking scene, and other three digital banks representing each of them a unique, different solution for the Italian market.
What’s next? We’ll explore the future of banking in Italy, focusing on recent digital advancements and the direction of the market.
This update builds upon the content of our earlier post, “Shaping Italy’s Financial Future: Traditional Banking Meets Digital Innovation”. For a deeper dive into Italy’s banking and digital landscape, subscribe to our newsletter and join C-Innovation today for comprehensive access to in-depth reports and exclusive insights into the world of digital banking.
The Arena of Digital Banks in Italy
In Italy, where the largest banking institutions like Intesa San Paolo and UniCredit still dominate, digital banking continues to grow at a rapid pace. The infographic below charts the growth of customer bases for Italy’s major digital banks from September 2023 to September 2024, with an overall 12% increase of adopters over the year. This data, which today represents the most up-to-date and reliable view of the sector, confirms that everything we've discussed in these past months has been proven true: digital offerings are far from being just an alternative. They signify a genuine paradigm shift in both fintech and banking.
Based on official bank reports, Revolut stands out, having doubled its user base to 2 million customers. BBVA (operating in Italy since 2022 with a fully digital offering) and Banca Aidexa have also seen their customer numbers more than double, though from smaller starting points. Isybank, Intesa San Paolo’s promising digital venture, has made a strong entry, while HYPE, Banca Sella’s digital bank, shows steady growth.
No digital bank in Italy experienced a decline in its customer base, confirming last year’s sentiment saying there is “substantial market demand for digital banking solutions but also potential for remarkable growth within the Italian market”. However, the growth of Revolut and the launch of isybank have reshaped the market segmentation of the existing banks. Revolut has solidified its dominant position, aiming to reach a fifth of the market share by 2025. Meanwhile, isybank, with its aggressive introduction backed by Intesa San Paolo, quickly captured 4%, reducing the market share of banks that have struggled to attract new customers over the past 12 months.
What’s fuelling this expansion? Let’s explore the key players:
Revolut: The undisputed leader, firmly established in Italy with the goal of becoming the benchmark for digital banking.
Isybank: A newcomer from an established player, Intesa San Paolo’s digital bank has ambitious goals in line with its parent company’s authority.
N26: A unique case, as the pioneering German digital bank faced forced regulatory stoppages in several countries, exposing the vulnerabilities of a whole sector.
Flowe: A digital bank that has created a niche with an eco-friendly value proposition focused on sustainability.
Revolut: Italy’s Favourite Digital Bank
Revolut entered the Italian market in September 2017 and reached its first million customers by late 2022. It now boasts 2 million users and was the most downloaded financial app in Italy in May 2024. Though not yet fully integrated to the Italian market, Revolut plans to introduce Italian IBANs (currently only Lithuanian IBANs are supported) and personal loans by the end of 2024.
Revolut’s financial solutions today are very appealing, offering low operational costs, zero monthly fees for the basic account, and fee-free withdrawals. Its intuitive, commission-free currency exchange system, along with cashback for travellers, has made it a favourite among users. Revolut has embraced user-friendliness as a core tenet, and its popularity has largely grown also because of this. The app also includes investment options, both traditional and crypto, and offers services for parents and under-18s. Personal loans of up to €50,000 are also in the pipeline, currently in a pilot phase.
A large part of Revolut’s success is due to substantial investments in marketing, communication, and advertising. Earlier this year, the company announced a €450 million investment in strategic marketing and sales initiatives across Europe, with the ambitious goal of reaching 50 million global customers by the end of 2024. Central to this effort is the “The Future of Banking” campaign, Revolut’s largest advertising push to date, combining both offline and online channels.
Another key driver of success has been Revolut’s partnership with Visa, which has been instrumental in facilitating global expansion by enabling seamless cross-border transactions and innovations like instant card transfers, but not only. A unique strategic initiative from this partnership was the opportunity for travellers to instantly buy debit cards at Italy’s top airports (Rome Ciampino and Milan Malpensa), even before any other European country, showing a certain interest for the Italian market. The Revolut card dispenser has been initially tested at Rome Fiumicino Airport, with highly positive results: for one year, more than 100,000 Revolut cards have been freely collected by passengers.
For more insights into how Revolut and Visa are reshaping the digital-physical landscape, read our latest blog post.
Isybank: Intesa San Paolo’s Digital Bank
Isybank officially launched in 2023, though its origins trace back to Banca ITB, which provided banking services exclusively to tobacconists in Italy. In 2023, Intesa San Paolo (which acquired a majority stake in Banca ITB in 2016) transformed it into Isybank, opening it to all customer segments. Today, Isybank has around 450,000 users and boasts one of the fastest adoption rates among Italy’s digital banks.
Similar to Revolut, Isybank offers various current account options, including a zero-fee basic account and a discounted premium account for younger customers. Isybank also provides personal loans and salary advances. According to Intesa San Paolo, Isybank’s competitive edge comes from its eco-friendly card, made from sustainable materials.
Source: 1H24 Results. Intesa Sanpaolo. 2024
Despite its rapid growth, some expected a more innovative digital-physical banking bridges, leveraging the fact to be backed-up by the dominant traditional bank in the market, such as the one Revolut has forged with Visa. Instead, much of isybank’s remarkable growth is due not to its premium services but to a controversial strategic plan by Intesa San Paolo in 2023: the bank attempted to transfer 2.4 million customers from traditional Intesa accounts to isybank without prior notice, triggering a regulatory response. Of the affected customers, 15% opted for the switch, giving Isybank over 350,000 new accounts overnight. Additionally, nearly 100,000 customers have voluntarily signed up for Isybank’s services, marking strong, though not exceptional, organic growth.
Source: 1H24 Results. Intesa Sanpaolo. 2024
It may be too early and somewhat reckless to claim that Intesa San Paolo has missed the mark. However, it is equally valid to say that they could have proposed a complementary solution to their existing physical banking services by examining and not overlooking the traits and behaviours of users more inclined toward a digital offering, thus avoiding a move that feels like a punishment. Isybank remains very young, but it has the resources to deliver compelling and certainly more innovative solutions. It’s a bank worth monitoring as we kick off this new year.
N26: The Unwelcome Guest
N26 has established itself as the fourth-largest digital bank in Italy, with its roots tracing back to 2017. This was a pivotal period when competitors like Revolut and Hype were still in the process of acquiring their banking licenses. N26’s offering includes a range of typical digital banking services, such as SEPA transfers and three free withdrawals per month, all without monthly fees. Premium accounts feature the popular “Spaces” function, allowing users to create virtual areas for better fund management, and are competitively priced against the market.
Source: In Pursuit of Profit N26s Urgent Drive to Stay Competitive. C-Innovation. 2024
Despite its early entry, N26 has struggled to leverage its “first-mover advantage” effectively. In June 2021, the German Federal Financial Supervisory Authority (BaFin) imposed a €4.25 million fine on N26 for significant weaknesses in its anti-money laundering (AML) controls. This was followed in March 2022 by the Bank of Italy, which sanctioned the bank for notable compliance failures in AML regulations. These regulatory setbacks have severely restricted N26’s operations in Italy, preventing the opening of new accounts and limiting the sale of financial products. This exposed a significant flaw in N26’s approach—overlooking identity verification, a critical step in any banking system. These limitations in Italy and Germany not only restricted N26’s customer acquisition but also dealt a blow to its reputation, as security and trust are paramount in banking.
Flowe: The Greenest Digital Banks
Flowe, part of the Mediolanum Group, operates as an Electronic Money Institution (EMI) and differentiates itself through a strong commitment to sustainability. As Italy’s first fintech B Corp (certified by B Lab for its social impact) and a Benefit Corporation, Flowe is dedicated to publishing an annual impact report on its environmental and social performance. As also stated in the company’s charter: “The organization aims to establish a resilient and sustainable infrastructure that enables regenerative innovations, while raising awareness of the impact of individual behaviours on society and the Planet.”
Flowe’s appeal lies in its focus on eco-conscious customers, who are willing to pay higher fees for services that align with their values. However, its management fees and service costs are somewhat less competitive than those of other digital banks, with limited free withdrawals and paid instant transfers.
Nevertheless, Flowe has successfully captured the interest of younger, environmentally aware users. Its connection to the financially stable Mediolanum Group also lends it credibility, a factor that has perhaps made it more convincing than what Intesa San Paolo has done with isybank.
What’s Next?
The study of the players mentioned above reveals a range of strategies and choices among various digital banks that have emerged as key players in Italy's financial landscape over the past few years. While the core offerings of these banks, such as current accounts, prepaid cards, and debit cards, are quite similar, significant differences arise from the nature of the institutions themselves. Banks with a banking license, like Revolut and isybank, can provide credit lines, while electronic money institutions, such as Hype, Flowe, and Tinaba, do not possess this capability. As a result, the unique selling propositions (USPs) for each bank often rely on aspects that may appear secondary, suggesting a wealth of options in the Italian digital banking environment. What awaits these digital banks in the future?
As discussed in one of our previous posts, the role of AI will be central to personalized customer advisory services, both for individuals or businesses, and also in the internal management of the banks themselves. Across Europe, Klarna has successfully reduced its annual costs by over $10 million through the implementation of AI, cutting marketing expenses by more than 37% without sacrificing results. Other examples include enhanced personalized financial management (Bunq) and real-time insights for business spending (Brex).
Aside from technological progress, the core values represented by each bank will profoundly affect user decision-making. Flowe, and to a certain degree isybank, has tailored its offerings to emphasize sustainability, distinguishing itself from both digital and traditional banks. Additionally, new financial tools are redefining the digital banking landscape: options such as Buy Now Pay Later (BNPL) along with salary advances and microcredit solutions, will be soon essential for customers.
In conclusion, Italy is witnessing a dynamic expansion in digital banking, with electronic money institutions and subsidiaries of well-established giants fighting for market share. The central theme of this evolving ecosystem will be the customization of services, designed not only to meet daily needs but also to align with the values that banks aspire to embody.
At C-Innovation, we constantly study technological developments in the banking sector. If you love the applications of GenAI in this field, stay tuned. In the meanwhile, read our article “Redefining Digital Banking: How Generative AI is Shaping the Future” here.
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