Financial wellbeing is emerging as an unexpected battleground as traditional banks fight to retain market share from agile, data-centric neobank rivals.
When Joanna Finlay joined Northern Rock on the day of the infamous 2007 bank run, she witnessed billions of pounds "leaking out the door within a few days." Today, as traditional banks watch customers migrate to digital-first challengers at unprecedented rates, some commentators argue they are facing an equally existential threat.
The battlefield has simply shifted from branch runs to digital defection. With neobanks projected to grow from $143 billion in 2024 to $3.4 trillion by 2032 and 52% of traditional banks now scrambling to enhance financial well-being initiatives, the question is stark: can incumbent institutions leverage customer wellness as a competitive weapon before neobanks perfect the formula?
The economics of customer defection
The mathematics of market erosion tell a sobering story. Traditional banks spend $150-350 to acquire each new customer through legacy infrastructure and conventional marketing. Neobanks do it for $5-15. With 76-89% of European banking customers now digitally active, and 14% citing "poor customer experience" as their primary reason for switching banks, the cost advantage becomes lethal.
The revenue drain is equally alarming. When customers defect to neobanks, traditional banks lose not just account holders but primary banking relationships. "Any chief executive knows that churn is really expensive," Finlay notes, pointing to costly switching bonuses banks offer to win back lost customers, as well as the lost revenue through cross-sale opportunities. "It costs so much more to acquire new customers than retain the ones you have, by investing in quality service. People are way less likely to ‘jump ship’ if they doubt if another bank would take care of them and their money as well as you do." The lifetime value calculation is also brutal: traditional banks carry ongoing costs of $300 annually per current account customer versus $40-50 for digital-only competitors.
The trust deficit that neo-banks exploit
Behind these numbers lies a crisis of confidence that financial well-being initiatives directly address. "People are more likely to ask the world on Facebook what to do about their finances than they are to ask their own bank, because they think that their bank is only interested in making profit out of them," Finlay explains. This trust vacuum has historical roots. "Back in the 80s, we had a parent-child relationship with our bank. You really trusted your bank manager to take care of you and your money. Well, that's been broken, firstly because you now suspect that what they were doing was lining their own pension and the bank's profits, and secondly, because that personal relationship of trust has been replaced with multi-channel services. Most of us value the convenience of that, but I wonder if we miss having a person we trust."
The 2007 crash spawned toxic borrowing patterns that traditional banks failed to address proactively. "That was the dawn of people borrowing for essentials as opposed to borrowing for larger purchases," Finlay recalls. Today, even after a clamp-down on Pay Day lending, in the UK, France and many other First World countries, household debt exceeds 100% of net disposable income and in the UK, 1 in 4 adults have even borrowed from friends and family to pay for essentials. "This discrepancy in financial wellbeing is vast, and erodes trust. Banks are seen to have dehumanised money management, replacing a trusted relationship with processes, as if people could be reduced to data in a spreadsheet," she says.
Neo-banks capitalised on this void by positioning themselves as customer advocates. With 78% of neobank users being millennials and Gen Z, and 62% aged 18-35, these digital challengers have captured the primary banking relationships that will define the next three decades. "If the neo-banks are excellent at supporting financial well-being and that's what customers say they want, how bold are you to not do that?" Finlay challenges traditional executives.
Prevention versus cure: the business case
Effective financial well-being isn't corporate social responsibility: it's risk mitigation with measurable ROI. "Banks are still quite reactive. Someone gets in difficulty, they throw support at it. It's so expensive to help someone once they've missed a payment or are in default. Prevention is cheaper than cure," Finlay argues. The DBX 2025 Report confirms this: banks that enhance financial well-being see reduced default costs, lower credit risk profiles, and crucially, decreased churn. When tech-forward financial health tools drive revenue while creating better-informed, lower-risk customers with greater brand loyalty, the strategic imperative becomes clear.
But implementation separates leaders from laggards. "Too many banks are calling it a budgeting tool if it simply tracks spending," Finlay notes. "A budget is the balance between your income and your expenditure. Tracking spending doesn't actually help someone understand whether it’s affordable, or supporting their long-term wellbeing goals." Effective solutions span income maximisation through benefits access, genuine budgeting guidance, and long-term planning support. Virgin Money, Lloyds and most recently Nationwide have introduced benefits calculators for customers. Scottish Widows uses AI to show customers their retirement appearance, making abstract futures tangible. "The intangibility problem has only got worse with the digitisation of finances, and it’s very hard for customers to take steps towards financial wellbeing if they can’t visualise it" Finlay observes.
Co-design: learning from neobank innovation
Monzo's gambling controls exemplify the customer-centric design that traditional banks must master to genuinely support financial wellbeing. While some banks have simply added spending controls in apps, Monzo partnered with gambling addiction charities to understand true customer needs. "What they found is actually, it's not turning the control on where the challenge is. It's choosing whether to turn it off," Finlay explains. Their solution includes a pre-set cooling-off period, a ‘note to self’ reminder, and a conversation with the customer support team if you’ve previously shared about a gambling addition. "You wouldn't come up with that kind of positive friction off the top of your head. Only if you understood the behaviours and psychology of someone with gambling addiction would you arrive at that solution."
This human-centred approach extends to data utilisation. Open finance promises to bridge the gap where "the customer is the only one who technically has all the information about their financial situation, but they do not understand it," while banks "have the capability to understand it, but they don't have access." Research shows that most customers expect banks to use data for protection, but concerns around data protection may be preventing banks from using data to protect customers at risk of poor financial wellbeing. The key is treating data as indicative rather than diagnostic, and seeking to tailor rather than accurately target support. Is there a risk that offers of help are seen as intrusive? "You could over-offer support till the cows come home and all it's going to do is make people aware that you care," Finlay suggests.
The window is closing
For traditional banks, the strategic window is narrowing. The neobanking market's 48.9% CAGR signals that customer expectations are being reset in real-time. "From a customer's perspective, they don't care about products and processes, they just want money to support their life, now and in the future, and they want their bank to make this tangible, practical and achievable," Finlay concludes. "We need to switch the conversation from wellbeing being a fluffy ‘nice to have’, to risk reduction for your business, customers and society. From a customer's perspective, it’s not an item on your innovation backlog - it's everything."
The transformation from transaction processor to financial wellness partner represents more than strategic evolution: it's the defining competitive test for traditional banking. With neobanks capturing primary relationships among the next generation at a fraction of the cost, incumbent institutions betting on financial well-being must move faster than their legacy systems typically allow. Partnering with fintechs and specialist organisations – as with the benefits calculators being introduced – is undoubtedly part of the solution. The question isn't whether to invest in customer financial health, but whether traditional banks can implement it authentically and swiftly enough to stem the tide of digital defection. In this battle, half-measures won't survive.