The Abrupt Closure of Milli: What It Means for Digital-Only Banks

Digital banking has completely transformed the financial industry, with 73 percent of all banking transactions now occurring digitally. Today’s consumers want access to their finances and financial services at the touch of a button, making digital offerings increasingly necessary for banks to stay competitive. This shift has made digital-only banks rise in popularity over the last decade, and many progressive brick-and-mortar banks launched their digital-only brand over the last few years. 

First National Bank of Omaha was one of these banks and launched Milli in 2022. Milli offered customers some very enticing offers, such as high-yield savings accounts with no fees or minimum balance, no interest checking accounts, and customized strategies for smarter saving. Despite its optimistic start, Milli abruptly ceased operations on November 15, 2024, leaving other digital banks wondering what went wrong and whether a separate digital bank model alongside a traditional institution is truly a viable strategy or just an inefficient, operational headache that ultimately leads to more headaches than bottom line success.

Challenges for Digital-Only Banks

While digital-only banks have many unique advantages, there are also unique challenges they face and must overcome, to last long term. 

• Online-Only Infrastructure: To effectively operate entirely digital, these banks must be able to continuously keep up with new technologies. As quickly as technology evolves, digital-only banks must ensure they are keeping up to date on new APIs to ensure the most advanced infrastructure, security systems, and verifications are up to date, which can become expensive. 
• Customer Acquisition Cost: Digital-only banks also rely heavily on digital advertising, which can make competing in this market very expensive. The digital advertising market is expected to grow, with the total spend reaching $460.5 billion by 2028. This growth will increase competition among online-only banks, further driving up the cost of digital ad placements. Channels like paid search and social media have seen their costs to acquire continue to rise not only thanks to competition in recent years but continued attribution challenges within the platform and across digital account opening tools. 
• Out-Digital The Traditional Bricks: With many traditional brick-and-mortar banks launching comparable digital services to their digital-only counterparts,, the experience gap between traditional and digital banks is closing. While 52 percent of Americans would be happy to never go back to a physical bank location, there are still only about 11 percent of Americans using online-only banks as their primary bank. This hints that Americans are open to online banking services, but that they may not be fully ready to give up the in-person assistance and guidance that traditional banks offer. 

Lessons Learned and Ensuring Longevity 

The closure of Milli serves as a cautionary tale for digital-only banks and highlights several crucial lessons that the industry must embrace to ensure long-term sustainability and success.

• Importance of Customer-Centric Services: Digital-only banks must prioritize understanding their customers’ needs and preferences. While attractive offers like high-yield savings accounts can draw customers in, providing a holistic banking experience that includes personalized financial advice, robust customer support, and easy-to-use interfaces is essential. Engaging with customers through feedback loops and surveys can provide valuable insights into what features and services they truly value.
• Building Trust through Security: Security remains a top concern for consumers when it comes to digital banking. Digital-only banks need to invest in advanced security measures and demonstrate their commitment to protecting customer data. With 30 percent of consumers worried about how digital banks are securing their accounts, transparency about security protocols and regular communication regarding updates or incidents is imperative to build customer trust.
• Adapting to Regulatory Changes: The financial landscape is heavily regulated, and digital banks must stay informed about changing regulations. Compliance with the Bank Secrecy Act and Anti-Money Laundering regulations is crucial. Building a robust compliance framework can help avoid legal pitfalls that may arise from regulatory oversight.
• Strategic Partnerships: Forming partnerships with fintech companies, payment processors, and other financial institutions can provide digital-only banks with access to new technologies and customer bases. These collaborations can also help reduce customer acquisition costs by leveraging established platforms and networks.
• Diversifying Revenue Streams: Relying solely on traditional banking products can limit growth. Digital banks should explore diverse revenue streams, such as premium service offerings, financial planning tools, and investment platforms. By providing a broader range of services, they can attract a wider audience while enhancing customer loyalty.
• Continuous Innovation: To remain competitive, digital-only banks must prioritize innovation. This includes integrating emerging technologies such as artificial intelligence, machine learning, and blockchain to streamline operations and improve customer experiences. Regularly updating features and services based on market trends can help attract and retain customers.

The closure of Milli is a stark reminder of the volatility in the digital banking sector. As digital-only banks navigate their unique challenges, those that prioritize customer-centric services, security, regulatory compliance, strategic partnerships, revenue diversification, and continuous innovation will be better positioned for success. The future of banking is undoubtedly digital, and those who can adapt to and embrace these changes will thrive in this rapidly evolving landscape.

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The information provided in this blog is for informational purposes only and should not be considered financial advice. HIFI is a marketing agency and not a licensed financial advisor. Always consult with a qualified financial advisor or professional before making any financial decisions. HIFI is not responsible for any financial decisions made based on the content of this blog.