Why digital banking platforms no longer profit from traditional banking: the real opportunity lies in stablecoins and authentication systems

Global digital banks are undergoing a radical transformation. Offering a simple wallet linked to a bank card is no longer enough: true profit potential lies elsewhere, in stablecoin management and next-generation identity verification systems.

The “wallet + card” model is no longer competitive

Looking at market leaders, a clear picture emerges: the valuation of digital banks depends not on the number of users, but on the ability to generate revenue per user. Taking Revolut and Nubank as case studies: despite having fewer users than the Brazilian platform, Revolut maintains a higher valuation thanks to diversified revenue streams from currency trading, stock trading, wealth management, and premium services.

Nubank, on the other hand, built its business mainly on credit and interest, relying less on transaction fees. WeBank achieved growth through extreme cost control and deep integration into Tencent’s ecosystem.

Today, even crypto platforms are reaching a similar point of no return. The simple combination of wallet functions and bank cards no longer provides a substantial competitive advantage: any financial intermediary can easily launch similar services. The real competitive divide forms around the choice of the core monetization pathway.

Some platforms generate revenue from interest on user account balances. Others depend on transaction volume in stablecoins. However, a limited number of players have identified the most stable and predictable profit source in the market: issuing and directly managing stablecoins.

The real gold mine: controlling stablecoin reserves

For stablecoins backed by reserves, the main profit flow comes from interest generated by the investments of those reserves, typically allocated in short-term government bonds or cash equivalents. This income belongs to the stablecoin issuer, not just a simple digital bank offering custody and spending functions.

In traditional finance, a similar mechanism already exists: digital banks cannot earn interest on user deposits—they are the institutions that actually hold the funds that benefit from these earnings.

With the emergence of stablecoins, the “separation of income ownership” model has become more transparent. Entities controlling short-term government securities earn interest, while consumer-facing applications mainly focus on user acquisition and optimizing the product experience.

However, a gradual contradiction is emerging: application platforms that handle user acquisition, transaction matching, and trust-building often cannot profit from the underlying reserves. This value gap is pushing companies toward vertical integration, abandoning the simple front-end tool position to move closer to direct custody and fund management control.

This is why giants like Stripe and Circle have intensified efforts within the stablecoin ecosystem. They are not content with distribution alone but are expanding into regulation management and reserve control.

Stripe launched its dedicated blockchain, Tempo, specifically designed for instant, low-cost stablecoin transfers. Instead of relying on public networks like Ethereum or Solana, Stripe built its own transaction channel to control settlement processes, fee structures, and throughput capacity—elements that directly translate into higher economic advantages.

Circle adopted a parallel strategy by creating Arc, a dedicated settlement network for USDC. Through Arc, inter-institutional USDC transfers are completed in real-time, without congestion on public blockchains and without high fees. Circle built an independent backend system for USDC, freeing itself from external infrastructure constraints.

Privacy as a strategic driver

Data protection is another crucial motivation behind this strategy. Public blockchains record every stablecoin transfer on a fully transparent ledger. While this feature is suitable for an open financial system, it has significant disadvantages in commercial scenarios like payroll payments, supplier transactions, and financial asset management—contexts where amounts, counterparties, and payment models are highly sensitive information.

The contractual and excessive transparency disadvantages of public blockchains allow third parties to easily reconstruct a company’s internal financial situation via blockchain explorers and on-chain analysis tools. The Arc network enables inter-institutional USDC transfers to be settled off-chain, preserving the benefits of stablecoin settlement speed while ensuring transaction confidentiality.

How stablecoins are transforming the payment system

If stablecoins represent the core value, the traditional payment system is becoming increasingly obsolete. The current payment process involves multiple intermediaries: the receiving gateway manages fund collection, the payment processor handles routing, the card network authorizes the transaction, and finally, banks settle everything. Each step involves costs and delays.

Stablecoins bypass this chain entirely. Transfers do not rely on card circuits or acquirers, nor do they require waiting for batch settlement windows; instead, they use the underlying network for direct peer-to-peer transfers.

This change profoundly impacts digital banks because it radically alters user expectations: if they can transfer funds instantly to other platforms, they will never tolerate slow, costly processes within a single digital bank. Platforms must therefore deeply integrate stablecoin transaction channels or risk becoming the least efficient link in the entire payment chain.

In the traditional system, digital banks generated stable revenue through card transactions, as the payment network tightly controlled the flow. In the new stablecoin-dominated ecosystem, this profit margin has drastically shrunk: peer-to-peer stablecoin transfers involve no fees, and platforms relying solely on card expenses face a competitive situation with no margin.

The role of digital banks is thus transforming: from card issuers to payment routing layers. Platforms that efficiently manage stablecoin transaction flows will dominate the market, as once they become the users’ preferred channel for fund transfers, it will be difficult to abandon them.

Identity verification: the new foundation of next-generation wallets

While stablecoins make payments faster and cheaper, a bottleneck is gradually emerging: identity verification.

In the traditional financial system, identity verification is an autonomous process: banks collect user documents, store information, and conduct background checks. In the scenario of instant wallet transfers, each transaction relies on a reliable identity verification system; without it, compliance checks, fraud prevention, and even basic permission management become impossible.

Identity verification and payment functions are rapidly converging. The market is moving away from separate KYC processes across various platforms toward a portable authentication identity system, usable across services, countries, and platforms.

This transformation is already underway in Europe, where the European Union’s Digital Identity Wallet has entered the implementation phase. The EU no longer requires each bank to perform identity verification independently but has created a unified government-backed identity wallet, usable by all residents and businesses.

This wallet is not only for identity storage but also transports authenticated credentials (age, proof of residence, professional qualifications, tax information), supports electronic signatures, and integrates payment functions. Users can complete identity verification, share information, and perform payment operations in a seamless process.

If the EU Digital Identity Wallet is successfully implemented, the entire European banking architecture will be reshaped: identity authentication will replace bank accounts as the central entry point for financial services. This will make identity authentication a public good, weakening the distinction between traditional and digital banks unless they develop value-added services based on this reliable identity system.

The crypto sector is also moving in the same direction. On-chain identity authentication experiments have been conducted for years, and although no perfect solution exists yet, all explorations converge toward the same goal: providing users with a way to authenticate their identity without being tied to a single platform.

Worldcoin is building a global identity verification system that verifies real human identity without compromising privacy. Gitcoin Passport integrates multiple reputations and credentials to reduce Sybil attack risks. Polygon ID, zkPass, and ZK-proof frameworks allow users to prove specific facts without revealing underlying data. Ethereum Name Service (ENS) combined with off-chain credentials enables crypto wallets to associate social identities and authentication attributes.

The goal of these projects is identical: to allow users to autonomously prove their identity or relevant facts, ensuring that identity information is not tied to a single platform. This aligns crypto vision with that of the EU: a circulating identity credential that moves freely with the user across different applications.

This trend will also transform the operational model of digital banks. Today, they see identity authentication as a central control mechanism for registration and supervision. When identity authentication becomes a portable credential, the role of digital banks shifts to service providers accessing this trusted identity system.

This will simplify onboarding, reduce compliance costs, minimize redundant checks, and enable crypto wallets to replace bank accounts as the main container for user assets and identity.

The three profit engines of future digital banks

The previous core elements of the digital banking system are gradually losing competitiveness: user scale is no longer a divide, bank cards are no longer a divide, and even a simple user interface is no longer a divide.

The true competitive barrier resides in three dimensions: the profitable products chosen by the platform, the fund transfer channels used, and the identity authentication system accessed. All other functions will tend to converge, and substitutability will increase progressively.

Interest-driven digital bank

These platforms aim to become users’ preferred channel for holding stablecoins. By attracting a large user balance, they can generate revenue through interest on reserve-backed stablecoins, on-chain rewards, staking, and re-staking, without relying on a broad user base.

Their advantage is that the profitability of asset holding is significantly higher than asset circulation. Although these platforms may appear as consumer-oriented apps, they are in fact modern savings platforms disguised as wallets.

Payment flow-driven digital bank

These platforms derive value from transaction volume, deeply integrating into payment processing, merchant services, fiat-crypto exchange, and cross-border payment channels. Their profit model resembles that of global payment giants: minimal profit per transaction, but high volume generates significant revenue.

Their competitive moat is user habit and service reliability, becoming the default choice for fund transfers.

Infrastructure-driven stablecoin bank

This is the deepest and potentially most profitable path. These platforms are not just circulation channels but aim to control the issuance authority of stablecoins or at least their underlying infrastructure, covering crucial aspects like issuance, redemption, reserve management, and settlement.

The profit potential is the most substantial, as reserve control directly determines profit allocation. These platforms combine consumer-facing functions with infrastructural ambitions, evolving toward a comprehensive financial network rather than simple applications.

The future: specialization and convergence

Interest-driven digital banks earn from user deposits, payment-driven banks earn from transfers, and infrastructure-driven banks can derive sustainable profit from any user action.

The market will split into two major categories: the first composed of consumer-oriented application platforms mainly integrating existing infrastructure, with simple, user-friendly products but extremely low user conversion costs. The second will move toward core value aggregation areas, focusing on stablecoin issuance, transaction routing, settlement, and identity authentication integration.

The positioning of these latter platforms will no longer be limited to applications: they will be providers of infrastructural services disguised as consumer-oriented entities, showing extremely high user engagement while quietly becoming the central systems for on-chain fund transfers.