Digital banks no longer rely on traditional banking for profit; the real gold mine lies in stablecoins and identity verification

12월 15, 2025 22:02:56

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Original Title: Neobanks Are No Longer About Banking

Original Author: Vaidik Mandloi, Token Dispatch

Original Compilation: Chopper, Foresight News

Where Does the True Value of Digital Banks Flow?

Looking at the leading digital banks globally, their valuations are not solely determined by user scale, but rather by their ability to generate revenue per customer. The digital bank Revolut is a typical case: although it has fewer users than the Brazilian digital bank Nubank, its valuation has surpassed that of the latter. The reason lies in Revolut's diversified revenue sources, covering foreign exchange trading, securities trading, wealth management, and premium membership services. In contrast, Nubank's expansion mainly relies on credit business and interest income, rather than card transaction fees. China's WeBank has taken a different differentiated route, achieving growth through extreme cost control and deep integration into the Tencent ecosystem.

Valuations of Leading Emerging Digital Banks

Currently, crypto digital banks are reaching a similar development node. The combination of "wallet + bank card" can no longer be called a business model; any institution can easily launch such services. The differentiation competitive advantage of platforms is precisely reflected in their chosen core monetization paths: some platforms earn interest income from user account balances; some profit from stablecoin payment flows; and a few platforms pin their growth potential on the issuance and management of stablecoins, as this is the most stable and predictable source of income in the market.

This also explains why the importance of the stablecoin sector is becoming increasingly prominent. For reserve-backed stablecoins, their core profit source comes from the investment income of reserves, which is the interest generated from placing reserves in short-term government bonds or cash equivalents. This income belongs to the stablecoin issuer, rather than just being a function provided by the digital bank for users to hold and spend stablecoins. This profit model is not unique to the crypto industry: in traditional finance, digital banks also cannot earn interest from user deposits; the actual custodial banks enjoy this income. The emergence of stablecoins has made this "separation of income ownership" model more transparent and centralized, where the entities holding short-term government bonds and cash equivalents earn interest income, while consumer-facing applications mainly handle user acquisition and product experience optimization.

As the adoption scale of stablecoins continues to expand, a contradiction gradually emerges: application platforms that bear the responsibility of user acquisition, transaction matching, and trust building often cannot profit from the underlying reserves. This value gap is forcing companies to integrate into vertical fields, moving away from a purely front-end tool positioning towards controlling the core aspects of fund custody and management.

It is precisely for this reason that companies like Stripe and Circle are increasing their efforts in the stablecoin ecosystem. They are no longer satisfied with just distributing services but are expanding into settlement and reserve management areas, as this is the core profit segment of the entire system. For example, Stripe has launched its dedicated blockchain, Tempo, which is tailored for low-cost, instant transfers of stablecoins. Stripe does not rely on existing public chains like Ethereum or Solana but builds its own trading channels to control the settlement process, fee pricing, and transaction throughput, all of which directly translate into better economic benefits.

Circle has also adopted a similar strategy, creating a dedicated settlement network, Arc, for USDC. Through Arc, USDC transfers between institutions can be completed in real-time without causing congestion on public chain networks and without incurring high fees. Essentially, Circle has built an independent USDC backend system through Arc, no longer constrained by external infrastructure.

Privacy protection is another important driving force behind this layout. As Prathik explained in "Rebuilding Blockchain Glory," public chains record every stablecoin transfer on a publicly transparent ledger. This characteristic is suitable for open financial systems but has drawbacks in business scenarios such as payroll, vendor payments, and treasury management. In these scenarios, transaction amounts, counterparties, and payment methods are all sensitive information.

In practice, the high transparency of public chains allows third parties to easily reconstruct a company's internal financial status through blockchain explorers and on-chain analysis tools. The Arc network allows USDC transfers between institutions to be settled outside the public chain, preserving the advantages of fast settlement of stablecoins while ensuring the confidentiality of transaction information.

Comparison of Asset Reserves of USDT and USDC

Stablecoins Are Breaking the Old Payment System

If stablecoins are the core of value, the traditional payment system appears increasingly outdated. The current payment process requires multiple intermediaries: payment gateways are responsible for fund collection, payment processors complete transaction routing, card organizations authorize transactions, and the banks of both parties ultimately complete the settlement. Each link incurs costs and causes transaction delays.

Stablecoins bypass this lengthy chain directly. Stablecoin transfers do not require card organizations or acquiring institutions, nor do they need to wait for batch settlement windows; instead, they achieve direct transfers based on the underlying network. This characteristic profoundly impacts digital banks, as it completely changes user experience expectations—if users can achieve instant fund transfers on other platforms, they will not tolerate cumbersome and costly transfer processes within digital banks. Digital banks must either deeply integrate stablecoin trading channels or risk becoming the least efficient link in the entire payment chain.

This shift is also reshaping the business model of digital banks. In the traditional system, digital banks could earn stable fee income from card transactions because payment networks firmly controlled the core links of transaction flow. However, under the new system dominated by stablecoins, this profit margin has been significantly compressed: peer-to-peer transfers of stablecoins incur no fees, and digital banks that rely solely on card consumption profits are facing a completely fee-free competitive landscape.

Therefore, the role of digital banks is shifting from card issuers to payment routing layers. As payment methods transition from bank cards to direct stablecoin transfers, digital banks must become the core flow nodes for stablecoin transactions. Digital banks that can efficiently handle stablecoin transaction flows will dominate the market, as once users see them as the default channel for fund transfers, it will be difficult to switch to other platforms.

Identity Verification Is Becoming the New Generation of Account Carrier

As stablecoins make payments faster and cheaper, another equally important bottleneck gradually emerges: identity verification. In the traditional financial system, identity verification is an independent link: banks collect user documents, store information, and complete reviews in the background. However, in scenarios of instant transfers of wallet funds, every transaction relies on a trusted identity verification system; without this system, compliance checks, anti-fraud controls, and even basic permission management become impossible.

For this reason, identity verification and payment functions are accelerating their integration. The market is gradually abandoning the fragmented KYC processes of various platforms, moving towards a portable identity verification system that can be used across services, countries, and platforms.

This transformation is unfolding in Europe, where the EU digital identity wallet has entered the implementation stage. The EU no longer requires each bank or application to conduct independent identity verification; instead, it has created a unified identity wallet backed by the government, which all residents and businesses can use. This wallet is not only for identity storage but also carries various certified credentials (age, proof of residence, license qualifications, tax information, etc.), supports users in signing electronic documents, and has built-in payment functions. Users can complete identity verification, share information as needed, and make payments in one seamless process.

If the EU digital identity wallet is successfully implemented, the entire structure of the European banking industry will be restructured: identity verification will replace bank accounts as the core entry point for financial services. This will make identity verification a public good, diminishing the differences between banks and digital banks, unless they can develop value-added services based on this trusted identity system.

The crypto industry is also moving in the same direction. Experiments related to on-chain identity verification have been underway for years, and although there is currently no perfect solution, all explorations point to the same goal: to provide users with a way to verify their identity or related facts without being confined to a single platform.

Here are a few typical cases:

Worldcoin: Builds a global proof of personhood system that verifies users' real human identities without disclosing user privacy.
Gitcoin Passport: Integrates various reputations and verification credentials to reduce the risk of witch hunts in governance voting and reward distribution processes.
Polygon ID, zkPass, and ZK-proof frameworks: Support users in proving specific facts without disclosing underlying data.
Ethereum Name Service (ENS) + off-chain credentials: Allows crypto wallets to not only display asset balances but also associate users' social identities and certification attributes.

Most crypto identity verification projects share a common goal: to enable users to independently prove their identity or related facts, with identity information not locked to a single platform. This aligns with the EU's push for digital identity wallets: a single identity credential can flow freely with users across different applications without the need for repeated verification.

This trend will also change the operating model of digital banks. Currently, digital banks view identity verification as core control: user registration, platform review, ultimately forming an account belonging to the platform. However, when identity verification becomes a credential that users can carry independently, the role of digital banks shifts to service providers that access this trusted identity system. This will simplify user account opening processes, reduce compliance costs, and minimize redundant reviews, while allowing crypto wallets to replace bank accounts as the core carriers of user assets and identities.

Future Development Trend Outlook

In summary, the once core elements of the digital banking system are gradually losing their competitiveness: user scale is no longer a moat, bank cards are no longer a moat, and even a simple user interface is no longer a moat. The true differentiated competitive barriers lie in three dimensions: the profit products chosen by digital banks, the fund transfer channels they rely on, and the identity verification systems they integrate. Beyond that, other functions will gradually converge, and substitutability will increase.

Successful digital banks in the future will not be lightweight versions of traditional banks but will be wallet-first financial systems. They will anchor a core profit engine, which directly determines the platform's profit space and competitive barriers. Overall, core profit engines can be divided into three categories:

Interest-Driven Digital Banks

The core competitiveness of these platforms is to become the preferred channel for users to store stablecoins. As long as they can attract large-scale user balances, the platform can earn income through interest from reserve-backed stablecoins, on-chain yields, staking, and re-staking, without relying on a large user base. Their advantage lies in the profitability efficiency of asset holding being far greater than that of asset transfer. These digital banks may seem like consumer-facing applications, but they are essentially modern savings platforms disguised as wallets, with their core competitiveness being to provide users with a smooth experience of earning interest on deposits.

Payment Flow-Driven Digital Banks

The value of these platforms comes from transaction scale. They will become the main channels for users to receive and spend stablecoins, deeply integrating payment processing, merchants, fiat and cryptocurrency exchanges, and cross-border payment channels. Their profit model is similar to global payment giants, with thin profits per transaction, but once they become the default channel for users' fund transfers, they can accumulate considerable income through large transaction volumes. Their moat is user habits and service reliability, becoming the default choice when users have fund transfer needs.

Stablecoin Infrastructure Digital Banks

This is the deepest and potentially most profitable track. These digital banks are not just channels for stablecoin transfers; they are also committed to controlling the issuance rights of stablecoins or at least the underlying infrastructure, covering core aspects such as stablecoin issuance, redemption, reserve management, and settlement. The profit margins in this field are the richest, as control over reserves directly determines income ownership. These digital banks will integrate consumer-facing functions with infrastructure ambitions, evolving from mere applications to full-fledged financial networks.

In short, interest-driven digital banks make money from users depositing coins, payment flow-driven digital banks make money from users transferring coins, while infrastructure-driven digital banks can continuously profit regardless of what users do.

I predict that the market will split into two major camps: the first camp consists of consumer-facing application platforms that mainly integrate existing infrastructure, with simple and user-friendly products but very low user switching costs; the second camp will move towards the core areas of value aggregation, focusing on stablecoin issuance, transaction routing, settlement, and identity verification integration.

The latter's positioning will no longer be limited to applications but will be infrastructure service providers disguised as consumer-facing entities. Their user stickiness will be extremely high, as they will quietly become the core system for on-chain fund transfers.