One biggest reason – collateral, and traditional banks have no mercy when you cannot pay up, they will always seize your assets and give you a miserable return.
There is totally no mercy, they will sue up to bankruptcy for every loan you take.
Now I changed all the rules.
With Digital Banks you do not need collateral. Everything is covered by default insurance. If you cannot pay up you will get a bad credit record, but the banks do not have the time to sue you for bankruptcy since everything is covered by insurance and you need to pay for it.
True the interest may be slightly higher but it will be extremely popular with SMEs and individuals with good credit records.
Digital Banks will be highly liquid and can provide more leeway because they have a higher base of lenders and those who require a loan. Their business will not only be marginally higher but will dominate all the industries in the digital economy.
Nobody wants to default because the credit ratings means 3 times you may end up paying for up to 50% interest and if your credit records are good you end up borrowing more at lower interests. There will be a blacklist for those who commit fraud and those who do not respect their privileges will be banned. The public database will be readily available and if other financial firms want to file a claim which is not true will be hotly contested, because it controls everyone ability to access to cheap funds.