Neobanking and household financial behavior: Insights from savings and borrowings

Abstract

A growing body of literature shows that financial technology and Neobanks are transforming traditional financial intermediation by reducing information asymmetries and transaction costs. Building on the theory of financial intermediation, theory of financial inclusion, and credit constraint theory, this study examines whether Neobanking displaces household savings and borrowings from traditional banks, and whether such displacement varies across levels of digitalization and economic development. Using panel data from 72 countries spanning 2017 to 2022, we accomplish the study objective by employing fixed effect panel regression, Pooled OLS, heterogeneity analyses, mechanism testing, and finally endogeneity treatment. We find robust evidence that greater Neobanking penetration is associated with a significant decline in savings held with traditional banks. Although Neobanking has no significant impact on traditional bank borrowings in the full sample, it reduces borrowings from traditional banks in highly digitalised frontrunner economies but not in early-stage or non-high-income economies, where digital markets remain less competitive. From a policy perspective, the results highlight the need for regulators to reassess competition, consumer protection, and financial stability frameworks as digital banks increasingly influence the allocation of savings and credit within the financial system.