The Fintech Boom Survey: Where are the Opportunities for Fintechs and Digital Banks?
Despite the tough economic climate of late, consumer digital banking tool adoption — which accelerated during the pandemic — is poised to continue expanding. This is especially true among certain groups of customers, who present promising targets for fintechs, digital banks and embedded finance platforms.
Two-thirds of consumers have used fintech or embedded banking services in the last year and 185 million consumers use some form of digital banking — with higher adoption rates among millennials and Gen Z. That’s a key finding in a recent report by Treasury Prime and PYMNTS. We surveyed 2,124 consumers in the U.S. to get an in-depth view of the state of fintech and neobanks.
While consumers still rely on traditional banks as their primary bank — less than 10 percent used a fintech app as their primary tool to access bank accounts — a high percentage of respondents expressed interest in using fintech to access banking services tools.
“Fintech isn’t replacing traditional banking — it’s complementing it,” said Treasury Prime CEO Chris Dean. “It’s taking the tools that are already central to the banking system, and building on them to create products that bring convenience customers previously could not have dreamed of.”
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Fintech Adoption Rate
A lot of people are using fintech apps, with big names like Venmo, Paypal, and Chime leading the charge. Adoption is especially strong among younger users, small businesses, and consumers facing financial stress.
- 85% of freelancers reported using a fintech app within the last year
- 83% of small business owners
- 84% of millennials and Gen Z
- 73% of consumers who make more than $100K
“The short version of all this data is that people who are more receptive to technology, or who are less well-served by traditional banks, tend to gravitate more towards neobanks. As these groups grow and mature, so will the market for fintech,” said Dean.
Looking forward, you see that this particular segment is prime for the adoption of digital financial services in the near future.
The study finds that 57% of millennials and 45% of Gen Z say they are “extremely or very interested” in using a digital bank in the next 12 months.
And, 59% of freelancers/ independent contractors and 58% of small business owners are “extremely or very interested” in using a digital bank in the next 12 months. This presents opportunities for digital banks and embedded finance enterprises.
Neobank adopters tend to be highly satisfied.
More than three-quarters of respondents who used a neobank in the last year said they would be interested in using a neobank in the coming year. The percentage was even higher for those that primarily access their bank accounts via a neobank.
While fewer than one in 10 respondents reported using fintechs as their primary access to bank accounts, PYMTS finds that 90 percent of them are satisfied, compared to 84 percent that primarily use a community bank and 81 percent that use a national bank.
“Once consumers make the digital-only switch, they are typically very satisfied with their decision,” says the report.
Among users in all groups, 59 percent said they were interested in using a neobank in the next year, and more than a third said they were very interested.
“Fintech is just getting started. Right now, fintechs control about $75 billion of US deposits. I would expect that to one day top out at $1 trillion. It’s a small fraction of total US deposits, but still a lot of money and a huge opportunity,” says Dean.
What fintech users want
We know that a lot of people have used fintech apps and they’re generally having good experiences with them. So what are they looking for when they start exploring neobanks?
Fintech users want lower costs, faster transfers, and more transfer options ranked among the top reasons why consumers consider switching to neobanks.
Consumers also expressed different expectations for neobanks versus traditional banks. They were more likely to expect fintechs to offer tools and features like cash advances and the ability to send money to others. They also expected more next-generation features like peer-to-peer payments and the ability to purchase cryptocurrency. Finally, people were more likely to expect fintechs to align with their occupation or values than they were of banks.
The next step for neobanks
Despite user satisfaction, consumers rarely reported using a neobank as their primary portal to banking. Their biggest reason? They like their traditional bank. More than half reported they were satisfied with whatever they were already using and close to two-fifths said they liked having access to a physical branch.
It’s hard to compete with the consumer tendency to cling to what’s familiar. But other insights point the way for neobanks to overcome resistance and rise to greater prominence as users’ primary portals to banking.
More than a third of consumers said they didn’t trust neobanks to be reliable. A similar proportion said they didn’t feel their money and information would be safe with a neobank. And around one in seven said neobanks lagged in customer service quality.
These negative perceptions show what neobanks must treat as table stakes to get to the next phase of growth, where more users start to adopt them as their primary access to bank accounts.
“Fintechs that have these bases covered perform well over time. This was also reflected in some of the responses we received from survey participants. Millennials told us they believed fintechs were more secure. Small business owners told us they felt neobanks were better at sending them important notifications when they needed them,” said Dean.
Whether fintechs can meet these expectations largely boils down to their partners on the back end. Your banking as a service partner is especially critical. The right BaaS partner will enable strong integration with your partner bank or partner banks, as well as a close relationship. They’ll also empower you to tailor compliance to your platform’s specific needs.
Fintechs need close relationships and open lines of communication with their partners to ensure consistent high-quality user experience. This includes expediting solutions to customer problems through fast collaboration with your bank partner and vendor partners.
Treasury Prime stands apart from other companies in the BaaS space in several ways: We offer the largest network of bank partners in the market, we facilitate close fintech-bank relationships, and we partner with top-of-line compliance vendors like Unit 21 and Alloy to enable our fintech customers to tailor their compliance setup.
Wondering how embedded banking could help your business? Contact Treasury Prime — we have a true multi-bank network, the deepest bank core integrations, and extensive compliance experience. Tearsheet named us the Best Banking as a Service company for the second year in a row. Talk to the best embedded finance team in the industry.