36% of Gen Z Prefer FinTechs Over Banks for Online Payments

As digital adoption grows, traditional banks are increasingly facing competition from agile FinTechs, as stated in PYMNTS. Many younger consumers are opting for personalized services offered by FinTechs instead of the one-size-fits-all approach of established financial institutions (FIs). To stay competitive, banks must rethink their offerings.

A report by PYMNTS Intelligence, titled “Modular Design: Can Composable Banking Find Favor With FIs?,” highlights composable banking as a possible solution, enabling banks to mix and match services to provide a more customer-centric experience.

The competition for consumer loyalty is shifting rapidly, especially among younger demographics. According to the report, 36% of individuals aged 18 to 24 prefer FinTech services over traditional banks for online payments. Moreover, over 75% of consumers are now willing to switch financial institutions for better services, up significantly from 52% three years ago. This trend is evident not only among Millennials but also among 67% of baby boomers.

The migration to FinTechs is largely driven by their lower fees and better financial conditions. Consumers who hold their primary accounts with digital-only banks are also more likely to use these banks for credit services. For traditional banks, this trend indicates an urgent need for innovation to retain customers or risk losing them to more adaptable alternatives.

Many traditional banks are hampered by outdated systems, with 53% of bank executives citing «technology debt» as a barrier to modernization. This inhibits their ability to innovate and affects customer satisfaction—nearly 40% of customers are frustrated with slow payment processing. Maintaining these legacy systems could cost banks $57 billion in losses by 2028. Despite understanding the need for digital transformation, fewer than a third of banks are investing in new digital ecosystems.

Composable banking is emerging as a solution to help traditional banks keep up with FinTechs. Through an API-driven approach, it allows banks to integrate new services seamlessly while maintaining their current systems. This flexibility lets banks offer personalized, competitive features such as instant payments and robust fraud protection.

Almost 60% of banks plan to integrate services like Zelle, and 57% are adopting the FedNow instant payment service. API banking forms the backbone of these efforts, facilitating real-time capabilities without significant disruptions. This modular approach positions traditional banks to better meet changing consumer expectations, offering personalized experiences to compete with FinTechs.