Consumers’ use of digital banks, in 4 charts

Digital banks, or fintechs with banking services, have entered the market to offer consumers digital alternatives to traditional banks. But how inclined are consumers to use these alternatives, and are they attractive enough to get them to make the switch? 

Not yet, a new survey by PYMNTS found. While growing in popularity, especially among younger generations, digital banks still come secondary to brick-and-mortar institutions. Most people are still hesitant to use digital banks, but the interest is there. Six out of ten consumers say they would join a digital bank.

Nevertheless, digital-only banking is already quite common among Millennials, freelancers and small business owners. Plus, they seem to appeal to multiple income brackets, with both consumers earning more than $100,000 annually and consumers living paycheck-to-paycheck with difficulty paying bills showing notable interest.

The survey found that 9% of the sample respondents, or an estimated 22 million consumers nationwide, bank exclusively with digital banks. Millennials represent the bulk of these users (33%), followed by Gen Z (13%) and Gen X (11%).

Meanwhile, 21% of the respondents do not use digital banking/fintech services at all (including PayPal or Venmo).

What is keeping consumers from switching to digital banks? The answer to this question is complex – it has to do with friction, trust, and comfort. But consumer preferences are evolving in favor of digital interactions and sleek user experiences.

Here are the main takeaways, in four charts. 

1. Whilst being popular, digital banks are not primary options

• Two-thirds of consumers have used digital banking services in the past year, such as PayPal, Venmo, Chime and others, but mostly as auxiliary services.

• Excluding consumers who have used PayPal and Venmo, 25% of consumers have used a neobank, digital bank or fintech with bank-like services in the past 12 months. 

• However, only 10% of consumers have their primary accounts with a digital bank.

Share of consumers who have used a digital bank in the past year

2. Digital banks can be a good alternative, but most consumers don't plan on switching

• Nearly 40% of consumers said digital banks could be a solid alternative to traditional banks

• More than half are happy with their current setup and have no plans of switching

• A third of consumers are worried about reliability and trust issues when it comes to having their money and information at a digital bank

Share of consumers identifying with selected reasons for not switching to a digital bank

3. Consumers mainly want to use digital banks for easy money transfers and lower costs

• Better and easier transfers are the biggest motivator for using digital banks for 43% of consumers 

• Millennials are more inclined to use digital banks, as they provide earlier access to newer technologies and they perceive them to be more secure. But they're not the only ones. 

• Freelancers, small business owners and consumers that are living paycheck-to-paycheck with issues paying bills – all groups outside of the traditional bank customer – are more likely to go for a digital bank. 

4. PayPal is the most common fintech banking service provider, and Chime is the most used digital bank

• 50% of consumers used PayPal in the last year, making it the most used fintech service by far. Venmo is in second place with 24%. 

• PayPal is the most popular digital bank across generations, but especially for Gen X and Baby Boomers. Gen Z also shows an increased use of Venmo compared to older generations. 

• In the past year, 52% of Millennials used PayPal, 16% used Venmo and 7.5% used Chime; no other digital banks exceeded 5% usage.

• PayPal (48%) and Venmo (17%) are the most used digital banks by small business owners or self-employed individuals in the last year.