New fintech tool flags customers likely to switch to Neobanks

The research identifies education level, digital preferences, income, and relationship status as key demographic factors influencing neobank adoption. Users with bachelor’s or master’s degrees were significantly more inclined to use neobanks exclusively. Single individuals and those accustomed to digital services were also more likely to embrace neobanking. Conversely, self-employed users, lower-income earners (EUR 500–1000/month), and those aged 30–50 were less likely to shift to neobanks.

Researchers have developed a new predictive model capable of identifying individuals most likely to switch from traditional banking institutions to neobanks, potentially reshaping competitive strategies in the global financial sector. The research, titled "A Tool for Detecting Neobanking Users", is published in the International Journal of Financial Studies, offering new insight into the characteristics and motivations driving user migration in a rapidly digitalizing banking landscape.

The study analyzed responses from 2,166 banking and neobanking users across 28 European countries and the UK. Utilizing a multinomial logit model, the researchers segmented users into three categories: traditional bank users, exclusive neobank users, and those using both. The resulting predictive tool demonstrated an impressive 81.3% accuracy in classifying banking behavior, offering financial institutions a powerful asset in customer retention and acquisition.

The research identifies education level, digital preferences, income, and relationship status as key demographic factors influencing neobank adoption. Users with bachelor’s or master’s degrees were significantly more inclined to use neobanks exclusively. Single individuals and those accustomed to digital services were also more likely to embrace neobanking. Conversely, self-employed users, lower-income earners (EUR 500–1000/month), and those aged 30–50 were less likely to shift to neobanks.

Geographic origin emerged as a strong determinant. Respondents from Slovenia, Austria, Romania, Hungary, and Spain were less likely to use neobanks, suggesting national infrastructure, local fintech ecosystems, and cultural attitudes play substantial roles in shaping banking preferences.

From a behavioral perspective, customers managing multiple bank accounts were found to be more prone to adopt neobanks. Individuals using two or three banks, particularly those conducting banking digitally or through both physical and digital means, showed a significantly higher likelihood of using neobanks. Preference for phone-based payments and frequent checks on a bank's financial stability also correlated with greater neobank usage.

The researchers found that motivations for using neobanks were rooted in perceived advantages: lower costs, faster payment processing, convenience, and innovative service offerings such as crypto integration and automated budgeting. Users who expressed satisfaction with transaction speed or believed neobanks were secure were more likely to bank exclusively through digital platforms.

Trust played a pivotal role. While trust in traditional banks reduced the likelihood of neobank use, high trust in neobanks increased it. Attitudes toward digitalization and data privacy also influenced decisions. Respondents wary of AI-driven systems or concerned about data misuse were significantly less likely to use neobanks. Similarly, those who viewed the absence of physical contact, branches, or personalized services as disadvantages were disinclined to adopt neobanks.

The study draws attention to the concept of “partial attrition,” where customers retain traditional bank accounts only for essential services such as salary deposits while migrating other financial activities to neobanks. This shift has substantial implications, as neobanks typically generate revenue from value-added services like investment tools, insurance products, and international transfers.

It further emphasizes that the innovative tool can help traditional banks identify high-risk customers likely to transition fully or partially to neobanking platforms. By targeting these users with tailored digital offerings and improved services, banks may reduce attrition and better align with modern customer expectations.

Neobanks, which began their ascent with the founding of Simple in 2009, have since proliferated. By 2024, more than 330 neobanks were operating globally, offering niche services for specific demographics, including youth, LGBTQ+ customers, and small business owners. These institutions boast lower overhead costs due to the absence of physical branches and typically operate with leaner regulatory burdens.

The report underscores the systemic advantages of neobanks, including contributions to financial inclusion, environmental sustainability through digital operations, and enhanced user experience. However, it also cautions that challenges such as cybersecurity, trust deficits, and regulatory inconsistencies remain barriers to broader adoption.

Regulatory frameworks are in flux. The European Commission’s 2018 FinTech Action Plan and subsequent initiatives such as the EU Digital Finance Platform aim to foster innovation while managing emerging risks. The European Central Bank has acknowledged the competitive pressure fintech exerts on traditional banks and the need to balance growth with financial stability and consumer protection.

The study’s authors stress that for traditional banks to remain competitive, modernization is not optional. Integrating digital speed and affordability while preserving their strengths in stability and customer interaction may help legacy institutions fend off digital challengers. Meanwhile, neobanks must address public concerns around AI, data privacy, and impersonality to sustain momentum and trust.

Lastly, the study authors call for future research into how macroeconomic conditions and regulatory developments will impact future neobank adoption. They propose that deeper segmentation, based on contextual, psychological, and regional variables, could sharpen competitive strategies for both digital and traditional banks. The researchers also advocate for banks to focus on user satisfaction, particularly in speed, accessibility, and trust.