Digital Banks Outpacing Traditional Rivals

As technological advancements provide increased speed and accessibility to services, new research shows that traditional financial institutions need to find ways to keep up as digital banks and fintechs outpace them in attracting consumer interest.

New Research by Datos Insights in collaboration with Galileo Financial Technologies found that nearly half of checking accounts opened in the United States were with digital banks and fintechs. And in early 2024, the world’s top 20 fintechs had 3.8 billion customers while the top 20 banks had just 2.7 billion.

Generally, consumers say they still turn to traditional financial institutions, Galileo and Datos said, with consumers reporting high levels of trust and satisfaction with their primary institution.

Some consumers however, – especially millennials – are increasingly drawn to the more modern features fintechs and digital banks possess, resulting in many using modern fintech tools alongside traditional banking services.

The trend toward fintechs and digital banks signals the need for traditional financial institutions to review their strategies to navigate market challenges presented by technology, the research says.

“As digitally-enabled FIs [financial institutions] put highly-relevant financial services right at the customers’ point of need, they make it increasingly easy for customers to choose their own suite of financial service providers,” reads the report. “Being at the point of need requires data that can be used to create nimble, timely, hyper-personalized experiences.”

“While digital banks account for only 6 percent of all primary FI relationships today, remember neobanks aren’t just favored by low earners and young people just starting their financial journey,” the research says. “Galileo’s research shows Gen X is the largest user of digital banks as their primary FI (12 [percent]).”

Using methods such as digital assistants and adopting artificial intelligence-powered digital solutions that can adapt and scale to consumers’ needs are one way that traditional institutions can stay relevant and competitive, Galileo and Datos said, noting that 60 percent of consumers said they prefer to not interact with a human when managing their finances.

“Transforming the customer experience through seamless digital interactions is paramount to long-term success,” the report reads. “Customers want to control their ‘low contact experience’ and it’s happening on mobile today. FIs need to use AI and enable smart, automated experiences on mobile first.”

Other methods include focusing on return on investment when looking to retain customers; moving away from misaligned products and toward highly curated offerings; improving and maintaining data-driven visibility into customer engagement with financial services; and reevaluating legacy systems and looking into API-centric and cloud-based platform approaches to adapt with customers.