The true value of digital banking is flowing into stablecoins and identity

Author: Vaidik Mandloi Translation: Shan Ouba, Golden Finance

The true commercial value is now focusing on stablecoins, payment systems, and identity verification. Last month, Tejaswini wrote an article about crypto digital banks, analyzing the reasons why these platforms are now able to successfully implement. She outlined three major trends: the improvement of stablecoin regulatory frameworks, the lowering of access thresholds for bank card infrastructure, and the increasing number of people storing a significant proportion of assets on-chain. With multiple factors stacking up, payments completed via on-chain wallets now far surpass traditional bank accounts in operational experience.

This article clearly points out that the underlying infrastructure for building banking services on-chain has fully matured, and related models are no longer just theoretical. But now that infrastructure is running smoothly, new questions arise: where does the real value in this market actually flow? The answer is clearly not just issuing a bank card or supporting USDC spending — these functions have long become industry standard.

Some digital banks generate revenue through interest-bearing services and savings products; others profit from payment transaction volumes and stablecoin circulation; yet a few platforms choose to align with infrastructure layers to access entirely different profit margins.

This article will delve into the next development stage of the digital banking track, analyzing how the industry, based on the distribution logic of commercial value, gradually diverges into different directions.

Where Does the Core Value of Digital Banking Actually Flow?

Looking at leading digital banks worldwide, platform valuation is not necessarily proportional to user numbers, but depends on the actual revenue contribution per user. Revolut is a typical example: although its user base is smaller than Nubank’s, its valuation is higher because its income sources span multiple sectors such as forex trading, securities trading, wealth management, and premium memberships. In contrast, Nubank builds its massive business empire mainly through credit services and interest income, rather than relying on bank card fees. WeBank’s model is different again: it achieves differentiation through extreme cost control, deeply embedding into Tencent’s ecosystem.

Data source: @Multiples

Currently, crypto digital banks are also approaching this critical turning point. A wallet linked to a bank card is hardly a complete business model — any institution can easily launch such a product. The core competitive advantage of a platform lies in choosing which business segment to focus on for profit: some focus on interest income from user deposits, some on transaction fees from stablecoin payments, and a few place their growth potential on issuing and managing stablecoins — because this is the most lucrative and predictable area.

This also explains why the strategic position of the stablecoin track is becoming increasingly important. For reserve-backed stablecoins, the real profit comes from the interest income generated by their reserve assets (such as short-term government bonds or cash equivalents). This income belongs to the stablecoin issuer, not just a digital bank providing stablecoin holding and spending functions to users. This profit distribution differentiation is not unique to the crypto industry: in traditional finance, digital banks also cannot earn interest from user deposits; the actual custodians of user funds are partner banks. The emergence of stablecoins simply makes this profit-sharing more explicit and centralized — holders of reserve assets like short-term government bonds earn interest, while consumer-facing applications mainly focus on user acquisition and product experience optimization.

As the scale of stablecoin applications continues to grow, a contradiction gradually becomes apparent: front-end applications responsible for user registration, transaction promotion, and trust building often cannot profit from the underlying reserve assets. This value gap pushes related companies to transform towards vertical integration — no longer satisfied with being mere traffic entry points, they aim to control core links such as fund custody and management.

This is also why companies like Stripe and Circle continue to deepen their investments in stablecoin infrastructure. They are no longer limited to user outreach but extend into settlement, clearing, and reserve asset management, aiming to control the core profit points of the industry chain. Stripe launched a new blockchain called Tempo, designed specifically for low-cost, instant stablecoin transfers. Instead of choosing existing public chains like Ethereum or Solana, Stripe built a dedicated transaction channel, achieving full control over settlement processes, fee pricing, and transaction throughput — these directly determine the platform’s profitability.

Circle has adopted a similar strategy, creating a dedicated settlement network for USDC called Arc. Through Arc, USDC transfers between institutional users can be completed instantly, avoiding network congestion and high fees. Essentially, Circle is building a “backend operating system” for USDC that does not rely on external infrastructure.

Privacy protection is another major driving force behind stablecoin infrastructure development. As Prathik explained in “Reshaping the Core Advantages of Blockchain,” public blockchains record every stablecoin transfer on a transparent ledger. While this feature suits open financial systems, it has obvious drawbacks in scenarios like corporate payroll, vendor payments, and fund management — transaction amounts, counterparties, and payment modes are sensitive corporate information.

In practical applications, the transparency of public chains allows third parties to easily reconstruct a company’s internal financial situation through block explorers and on-chain data analysis tools. The Arc network, by moving USDC transfers between institutions off-chain for settlement, retains the advantages of high-speed stablecoin clearing while maintaining transaction confidentiality.

Stablecoins Are Disrupting Traditional Payment Systems

Since stablecoins are at the core of the industry chain, traditional payment systems are becoming increasingly outdated. Current traditional payment processes involve multiple intermediaries: payment gateways handle fund collection, payment processors route transactions, card organizations authorize transactions, and the banks of both parties settle — each step incurs additional costs and causes delays.

Data source: @Panagiotis Kriais

Stablecoins can bypass this lengthy chain. A stablecoin transfer does not require card organizations or acquirers, nor does it need to wait for batch clearing windows; instead, it achieves direct peer-to-peer transfer through the underlying settlement network. This feature is crucial for the development of digital banks because it fundamentally changes user 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 will either deeply integrate stablecoin payment channels or become the least efficient link in the entire payment chain.

This transformation also reshapes the business model of digital banks. In traditional payment systems, transaction fees from bank card transactions are a stable profit source for digital banks — because the payment network monopolizes the core transaction flow. But in the new system dominated by stablecoins, this profit margin is greatly compressed: peer-to-peer stablecoin transfers do not generate card swipe fees. As a result, digital banks that rely solely on card transaction fees will have to compete with fee-free stablecoin payment channels.

Ultimately, the role of digital banks will shift from “bank card issuer” to “payment routing hub.” Stablecoins are driving payment methods from card-based to peer-to-peer transfers, so digital banks must become the core nodes for stablecoin transaction flow. Digital banks capable of efficiently handling stablecoin payments will hold a decisive market advantage — once users see a particular digital bank as the default platform for fund transfers, user stickiness will significantly increase, making it difficult for other platforms to replace it.

Identity Verification Is Becoming the New “Bank Account”

As stablecoins make payments faster and cheaper, another equally important constraint emerges — identity verification. In traditional finance, identity verification is a relatively independent process: banks collect user ID documents and store them securely, completing compliance checks in the background. But in scenarios where funds can be transferred instantly across platforms via wallets, the security of each transaction depends on a trusted identity verification system. Without this foundation, compliance review, anti-fraud measures, and basic permission management become impossible.

Therefore, identity verification and payment functions are accelerating their integration. The market is moving away from the old model of platform-specific KYC reviews towards building portable, cross-service, cross-country, and cross-platform verified identity systems.

This trend is well exemplified by the European Digital Identity Wallet (EUDIW) project. The EU did not require each bank, app, or service provider to build separate identity verification systems but instead created a unified, government-backed identity wallet. All EU residents and businesses can use this wallet, which stores identity information and carries various credentials such as age, residence proof, professional qualifications, and tax data. It supports electronic document signing and has built-in payment functions. With a single identity verification, users can selectively share necessary information to complete the payment process in one go.

Data source: @Panagiotis Kriais

If the European Digital Identity Wallet (EUDIW) is successfully implemented, the entire European banking architecture will be reshaped — user identity verification will replace bank accounts as the core entry point for financial services. This will turn identity verification into a public infrastructure, making banks and digital banks interchangeable roles unless they can build differentiated services based on this trusted identity system.

The crypto industry is also heading in the same direction. On-chain identity verification has been explored for years, and although there is no perfect solution yet, the underlying logic of all projects is highly consistent:

• Worldcoin: aims to build a universal global proof of personhood system, verifying real, independent identities without revealing user privacy.
• Gitcoin Passport: consolidates various reputation and identity verification data to reduce sybil attacks during governance voting and reward distribution.
• Polygon ID, zkPass, and zero-knowledge proof frameworks: support users in proving specific facts (e.g., “I am of legal age,” “I live in Germany,” “I completed KYC”) without revealing underlying data.
• ENS domain + off-chain credentials: enable wallet addresses not only to represent asset balances but also to link social identities and various qualification proofs.

Most projects in the crypto identity verification space aim to solve the same core problem: allowing users to prove “who I am” or “I have certain attributes,” while avoiding the monopolization of identity information by a single platform. This aligns with the EU’s push for the European Digital Identity Wallet (EUDIW) — users can carry their own identity credentials and seamlessly switch between applications without repeated verification.

Once this model becomes industry standard, the operational logic of digital banks will also change. Currently, digital banks regard identity verification as a core control step: user registration, platform review, ultimately forming an “account” belonging to the platform. But when identity verification becomes a user-held “passport,” the role of digital banks shifts to service providers that access this trusted identity system. This can simplify account opening, reduce compliance costs, and minimize repeated reviews, while wallets will replace digital bank accounts as the core carriers of user assets and identity.

Future Development Outlook

From the above analysis, it can be concluded that the factors once determining the competitiveness of digital banks are no longer important. User scale is not a moat, the right to issue bank cards is not a core barrier, and even sleek, attractive interfaces cannot be a unique advantage. The real differentiator lies in the profitability products, fund transfer channels, and identity verification systems of digital banks — other functions will ultimately become interchangeable, homogeneous modules.

Future successful digital banks will not be “lightweight versions” of traditional banks. They will revolve around wallets, building new financial service systems, anchored to a core profit engine — because this is the key to determining platform profitability and risk resilience. Overall, these core profit engines can be divided into three main types:

1. Interest-bearing Digital Banks

The core strength of these platforms is becoming the preferred wallet for users to store stablecoins. As long as they can attract large-scale user deposits, they can generate profits through reserve-backed stablecoin interest, on-chain financial yields, staking, and re-staking, without relying on a large user base. Their advantage lies in the high efficiency of fund custody earnings, far exceeding the revenue from transaction fees. These digital banks are more like modern savings platforms disguised as wallets, with the main competitive edge being to provide users with a smooth “deposit and earn” experience.

2. Payment and Transaction-Oriented Digital Banks

These platforms derive value from stablecoin transaction flows. They become the main channels for users to send, receive, and spend stablecoins, establishing deep cooperation with payment processors, merchants, fiat-to-crypto exchanges, and cross-border payment networks. Their profit model is similar to global payment giants: although individual transaction margins are low, once they become the primary payment channel for users, they can achieve substantial revenue through large transaction volumes. Their moat lies in user habits and service reliability, making them the default choice for fund transfers.

3. Infrastructure-Focused Stablecoin Digital Banks

This is the deepest and most growth-potential segment of the industry chain. These digital banks do not settle for merely providing stablecoin circulation services but aim to control core links such as issuance, redemption, reserve management, and clearing & settlement. The profit margins in this area are the highest because the income generated from reserve assets is the largest profit source across the entire industry chain. These digital banks combine consumer-facing functions with infrastructure layout, aiming to become a complete financial network rather than just a single application product.

In short: interest-bearing digital banks profit from “saving money,” payment-oriented digital banks profit from “transferring money,” and infrastructure-focused digital banks can profit regardless of user operations.

It is expected that future markets will split into two main camps: the first camp focuses on end-user applications, mainly integrating existing infrastructure with simple operation and familiar experience, but with very low user switching costs; the second camp moves toward the core value segments of the industry chain, focusing on stablecoin issuance, transaction routing, clearing & settlement, and identity verification integration.

These platforms will be more like infrastructure providers than mere applications — equipped with consumer-facing interfaces but primarily serving as operating systems for capital inflows and outflows within on-chain ecosystems.