Digital credit providers: will banks catch up?

The big bank retreat continues. Citibank will look to exit its stake in Mexico’s Banamex as it continues to pull out of overseas retail franchises, with its stake now likely to go to Mexican financier Chico Pardo, chief executive of private equity group Promecap and former chief executive of Grupo Financiero Inbursa, the business of Carlos Slim. “The transaction announced today also advances Citi’s goal of divesting its international consumer businesses and simplifying the firm to focus on its five interconnected businesses,” said Citibank. “Outside of the Banamex divestiture, with the recent announcement of the entry into an agreement to sell Citi’s Poland consumer business, the exit from these consumer businesses is now complete or close to completion.” The bank will sell a 25 per cent stake for $2.3 billion at 0.95 book value, with the sale expected to close in the second half of next year.

HSBC says it has agreed to sell its Sri Lanka retail banking operation to local Nations Trust Bank, which will include credit cards and retail loans. It has around 200,000 customers. “The divestment comes as the Asia-focused lender continues to shed less-profitable businesses globally, following a strategic review launched in October 2024 to simplify its business and shrink its geographical footprint,” said Reuters. “HSBC said the sale, expected to be completed in the first half of 2026 without a material impact on its profit gain, is subject to regulatory approvals.” Like Citi in Mexico, it will retain its institutional business.

HSBC is also in the news claiming a world-first breakthrough using IBM machines and quantum computing. (Crypto supporters have nightmares about quantum computers breaking the bitcoin blockchain, while others fear that breakthroughs in quantum computing will accelerate the arrival of Skynet and conquest of humanity by machine overlords.) The world’s biggest banks including HSBC, Citi, Goldman Sachs and JPMorgan have been quietly working on quantum computing, while tech companies sink vast amounts of capital into growing the world’s computing power. “The London-headquartered bank said Thursday that it used International Business Machines Corp.’s most-advanced Heron quantum processor to attain a 34% improvement in predicting how likely a bond will trade at a given price,” reports Bloomberg. “‘Is this a ‘Sputnik moment’ for quantum? My instinct is yes,’ said Philip Intallura, group head of quantum technologies at HSBC, referring to the pivotal event that sparked a space race between the US and Soviet Union during the Cold War, Bloomberg reports. ‘It will create a flurry of activity’ as others step up efforts to harness the technology, he added.”

US stablecoin operator Circle, which wants to be the bank-friendly blockchain business, is exploring making payments reversible. “Circle, which currently has $74bn of USDC in circulation, has begun testing a new blockchain, called Arc, intended for use by financial institutions, in which companies, banks and asset managers could use stablecoins to make payments in foreign exchange deals,” reports the FT. “However, some executives and developers have criticised Arc for being too centralised and contrary to one of the original goals of blockchain technology, which was to bypass intermediaries such as banks. Circle said payments could not be directly unwound on its Arc blockchain but instead it could add another layer in which parties could agree to make counter-payments, akin to refunds on a credit card.” Heath Tarbert, president of Circle, told the FT that there were some things that the crypto industry could learn from the traditional financial system.

There’s nothing driving European innovation quite as much as the US. As new US regulations about stablecoins drive adoption and interest, the European Central Bank is about to launch several months of discussions and consultations about a central bank digital currency. According to ECB Executive Board member Piero Cipollone, discussions are going well with five months of discussions planned, and the ECB looking at a potential launch date in the middle of 2029. (Not a typo.) European banks have decided not to wait around and are collaborating to launch a Euro stablecoin. “A consortium of nine European banks – including ING and UniCredit – announced on Thursday that they are forming a new company to launch a euro-denominated stablecoin,” says Reuters. “The new company is based in the Netherlands and aims to be overseen and licensed by the Dutch central bank. ‘We are contributing to fill the need for a trusted, regulated solution for on-chain payments and settlement, paving the way for a new standard in the digital asset space that will support Europe's growth and financial sovereignty,’ said UniCredit head of strategy Fiona Melrose.

Asset finance-based digital lender Watu is seeing smartphone lending overtake motorcycle financing as its biggest offering. The business is targeting $340 million in lending this year. “Watu has built its model around lending to informal operators and low-income earners without access to formal credit,” reports Techcabal. “While the model has enabled scale, it has exposed the company to income shocks and competition from rivals such as M-KOPA, Aspira, and Ampersand. Despite its expansion, Watu has cut its headcount. Employee numbers fell 3.6% last year to 2,465, suggesting heavier use of digital channels to manage millions of small-ticket loans.” The company now operates in Kenya, Tanzania, Rwanda, Uganda, Democratic Republic of the Congo, Nigeria and Sierra Leone. It says its expects to deliver loans to 900,000 women this year as it seems a demographic shift from motorcycles to smartphones. “While gross revenues surged 67% in 2024, net profit slumped 85% to $1.2 million. The drop signals default and repayment pressure in the company’s core markets like Kenya and Uganda, and higher operational costs, revealing the risks of scaling microlending targeting low-income borrowers.” In its 2024 sustainability report, Watu notes the risk of customer indebtedness due to rapid credit expansion and insufficient affordability checks.

Ghana’s central bank will start taking applications for digital credit providers on 3 November as it moves to regulate the sector. “The move, according to the Bank of Ghana, is a part of measures to aid financial inclusion in the country and improve regulations for players in that sector,” reports MyJoyOnline. “It also wants to go ahead to broaden access to the financial system with the view to promote financial inclusion.” Although digital credit providers will be classified as non-bank financial services, they’ll be competing with banks to issue loans. Thirty per cent of new businesses must be held by a Ghanaian national, and companies will be required to have a minimum threshold of GH¢2 million. Traditional lending in Ghana is based on credit scores from XDS Data Ghana and Transunion though estimates suggest that under one in five people has a comprehensive credit file. Digital credit providers rely on behavioural scoring and algorithms and can leverage smartphone data as a proxy for credit scoring.

Digital credit is where neobanks, newly spun-out bank digital payments businesses, mobile money business, and standalone digital lenders meet and compete. Anyone looking to understand the sector better can examine the July 2025 report from the World Bank’s CGAP (Consultative Group for Assisting the Poor), which suggests that bringing digital credit providers under supervision is a critical move. “Increased digitization can exacerbate and introduce new and evolving consumer risks in personal digital credit,” says the report. “These include fraud, data misuse, unfair treatment, lack of transparency, and inadequate redress – often intensified by behavioral vulnerabilities. Cross-cutting risks such as network downtime, agent related risks, and other third-party risks pose further challenges Without adequate consumer protection, behavioral vulnerabilities can be exploited, increasing consumers’ exposure to risks in digital credit. These risks may lead to overindebtedness and other negative customer outcomes such as privacy violations, which could undermine the financial health of borrowers.” Digital Credit and Digital NPLs will feature in the opening panel of the next Retail Banking Council.

The EU is finalising its new Financial Data Access legislation which builds on the idea that consumers should be able to control and share their financial data. While PSD2 covered payments, the new laws will extend that to savings, loans, and other accounts including crypto assets, and add a new category called Financial Information Service Providers (FISPs) to AISPs and PISPs. But led by Germany, it appears that the new rules will exclude Big Tech companies. “Such a decision would hand a significant boost to banks in their efforts to fight off a competitive threat from Big Tech groups, which they fear will use their data to disintermediate them from their customers while extracting much of the value of knowing people’s spending and saving behaviour,” the FT reports. “After more than two years, negotiations on the Financial Data Access (FiDA) regulation are entering the final stages in coming weeks, with Big Tech groups facing almost certain defeat, according to diplomats.” Tech lobby groups said these proposals go against the vision of providing people with control over their own data, and suggested their exclusion mean the EU is bowing to incumbent banks. The FT reports that Germany’s plan is to protect “digital sovereignty” in the EU and to create a level playing field to develop European digital services. “Kay Jebelli from the Chamber of Progress, another tech lobbying group, said: ‘Big banks are the current gatekeepers here, not the digital platforms. Discriminating against US tech companies would not only deny Europeans new digital services, it would also stoke transatlantic tensions’.”

UAE bank Mashreq has launched a new digital retail bank in Pakistan that will offer sharia-compliant products and services. Pakistan has a goal of launching a fully shariah-complaint banking sector by 2025, and is reported to have a 70 per cent unbanked population. It will be the first international foray for Mashreq into fully-digital banking. “Products announced include Mashreq NEO for personal customers and Mashreq NEOBiz for small and medium-sized enterprises, offering round-the-clock, paperless services,” reports Global Data. “Mashreq said that customers will be able to complete onboarding digitally, and access fee-free ATM withdrawals. Customers will also receive debit cards at no charge and benefit from AI-powered risk controls. Additionally, the bank plans to facilitate account opening and remittances for Pakistanis living in the UAE.” Arab News reports that 2.5 million Pakistanis live and work in the UAE.

DBS has created a platform for “family offices” which sits halfway between a bank wealth management business and a family office, and has named it a ‘foundry’, a phrase more commonly associated with minting metals or chips. “The milestone by DBS Multi Family Office Foundry VCC (DBS MFO) reflects Singapore's appeal as a base for family wealth at a time of growing global economic uncertainty and market volatility,” reports Reuters. “DBS MFO lets wealthy families set up a Singapore-based investment vehicle without building a single-family office from scratch, with DBS handling the administration while clients choose their own investments. ‘In the last nine months, we've seen more things happen than maybe the last nine years,’ DBS Private Bank's Group Head of Wealth Planning, Family Office and Insurance Solutions Lee Woon Shiu told Reuters.” The offering uses Singapore’s 2020 VCC or Variable Capital Company, a corporate structure for investment funds. It can be set up as an umbrella fund with two or more sub-funds, each holding a portfolio of assets and liabilities segregated from the other sub-funds. Clients who want some investments in digital assets also have the option to invest in cryptocurrencies such as Bitcoin via the DBS Digital Exchange.

US tech companies brought a does of optimism to the UK last week during a visit by US President Donald Trump. "Nvidia is making a major push into the UK AI scene with a £2 billion investment aimed at accelerating innovation among startups across the country," reports Tech Funding News. "The newly launched 'Nvidia AI Foundry' program will provide funding, early access to the company’s most advanced GPUs, cloud computing credits, and technical support to about two dozen promising startups working in sectors ranging from healthcare and finance to retail and defence." Among the businesses is UK fintech Revolut. CEO Jensen Huang highlighted the vision behind the program: “The United Kingdom is in a Goldilocks moment, where world-class universities, bold startups, leading researchers and cutting-edge supercomputing converge. There has never been a better time to invest in the U.K. — AI is unlocking new science and sparking entirely new industries. With new capital and advanced infrastructure, we are doubling down to empower the U.K. to lead the next wave of AI innovation.” The UK press, normally a solid wall of gloom, is trying to come to terms with the sunny picture painted by Nvidia chief executive Jensen Huang.

The UK small business fintech Tide has sold shares worth $120 million to fund its expansion in a move that values the business at $1.5 billion. Oliver Prill, the chief executive of the ten-year old business, told Bloomberg that the funding validates the progress that the business has made and will enable it to push into Europe. Tide was one of the first digital-only UK banks to offer banking services to businesses. Prill said that the company would stay private for now as it tackles what he called the "enormous opportunity". The company plans to launch more products and to invest in AI. "Tide’s UK business has been profitable, Prill said, meaning the firm is able to invest its own cash in expansion," reports Bloomberg. "The fresh funds, though, will go toward a new line of products, investments into AI, and further international growth. The firm’s next focus is to 'give continental Europe a big push,' Prill said." Tide has 1.6 million customers in the UK, Germany and India and is launching in France. Its previous valuation was $650 million in 2021.

PayPal and Google have launched a partnership to develop new customer experience in shopping and payments, and it's increasingly looking likely that the customer is being represented by an AI agent or software robot. "The digital payments company's solutions, including PayPal-branded checkout, Hyperwallet and Payouts solutions, will now be integrated into a range of Google products," says Reuters. Sundar Pichai, CEO of Google parent Alphabet, said the partnership would integrate PayPal's payment services into Google products and platforms. PayPal's recent announcements include building a global digital wallet ecosystem and developing its stablecoin offering. Google last week announced a new called the Agent Payments Protocol (AP2) to allow software agents to represent customers. The system is meant to be interoperable between AI platforms, payment systems and vendors, providing a traceable paper trail for each transaction. "The protocol is built for a future in which AI agents routinely shop for products on customers’ behalf and engage in complex real-time interactions with retailers’ AI agents," reports Techcrunch. "One example in Google’s post imagines a chatbot user asking their agent to shop for a bike trip, which triggers a spontaneous time-sensitive bundle offer from a bike shop’s agent." Call it the automation of the comparison engine. It's getting hard to know what will be left for us humans to do.