Why micro banking is rising in the US market

Michelle Beyo is the CEO and founder of Finavator, an award-winning payments and future of finance consultancy. Michelle brings 20+ years of expertise from across multiple industries including payments, loyalty, telco, digital identity and open data.

In recent years, the landscape of financial services in the United States has undergone a significant transformation. A key driver of this change is the emergence of "micro banking," a term that encapsulates a growing trend where consumers maintain their core banking relationships with traditional banks while simultaneously engaging with various fintech platforms for niche services. This shift reflects the increasing demand for personalized and flexible financial solutions, driven by the evolving needs and preferences of modern consumers.

Defining micro banking

Micro banking refers to the use of multiple, specialized financial services offered by various fintech companies, in addition to maintaining an account with a primary, traditional bank. Unlike traditional banking, where a single institution typically provides a broad range of services — from checking and savings accounts to loans and investment products — micro banking allows consumers to pick and choose specific services from different providers that best meet unique needs. These offerings  are often more tailored, innovative, and user-friendly, and capitalize  on the agility and technology-driven focus of fintech companies.

Source: PK Social Media Marketing Banking, LinkedIn, Accessed Feb 9 2025, https://www.linkedin.com/posts/pkriaris_socialmedia-marketing-banking-activity-7236598835626602497-q_An/?utm_source=share&utm_medium=member_io

Bank types in today's bank ecosystem

1. Traditional Banks (Core Financial Services) 
These banks are still widely used for checking accounts, savings, and credit cards but are often supplemented by fintechs for specialized services.

• JPMorgan Chase: Largest U.S. bank by assets; popular for full-service banking.

• Bank of America: Known for its robust mobile app and diverse financial products.

• Wells Fargo: Offers nationwide banking and mortgage services.

• Citibank: Focuses on high-value credit cards and international banking.

• US Bank: Known for personal loans and small business products.

• Capital One: Popular for its credit cards and high-yield savings accounts.

• PNC Bank: Offers tools like “Virtual Wallet” for budgeting and saving.

2. Neobanks and challenger banks (fintech-based banking)

These digital-first providers focus on low fees, accessibility, and user-friendly apps.

• Chime: A leading neobank offering fee-free checking, savings, and credit-building accounts.

• Varo Bank: Fully chartered digital bank with high-yield savings and no-fee accounts.

• Current: Targets younger users with fast payments and savings tools.

• SoFi: Originally a student loan refinancing platform, now offers banking, investing, and credit.

• Aspiration: Eco-friendly banking with sustainable finance options.

3. Payment platforms and digital Wallets

These are widely used for peer-to-peer transfers, mobile payments, and even investing.

• Venmo (PayPal): Popular for P2P payments with social sharing features.

• Cash App (Block): Allows payments, banking services, and investing in stocks/crypto.

• PayPal: A global leader in online payments, often used for e-commerce and personal transfers.

• Zelle: A direct transfer service integrated into many traditional banks’ apps.

• Apple Pay / Google Pay: Mobile wallets for seamless contactless payments.

4. Microbanks and alternative

The drivers behind micro banking

Several factors contribute to the rise of micro banking in the U.S. market:

1. Customization and flexibility: Modern consumers expect financial services that cater specifically to their individual needs. Micro banks offer highly specialized products that allow users to optimize various aspects of their financial lives. For example, a customer might use a traditional bank for a mortgage and savings account but turn to a fintech app for budgeting tools, another for peer-to-peer payments, and yet another for investment opportunities in cryptocurrencies. Consumers are increasingly turning to micro banks and fintech platforms for specific, tailored solutions like budgeting, savings tools, investment apps, and small loans. Unlike traditional banks, which attempt to serve all financial needs, micro banks and fintechs focus on niche areas (e.g., high-yield savings, buy-now-pay-later loans, or peer-to-peer lending). Unlike traditional banks, which attempt to serve all financial needs, micro banks and fintechs focus on niche areas (e.g., high-yield savings, buy-now-pay-later loans, or peer-to-peer lending).

2. Technological advancements: Fintech companies are at the forefront of leveraging technology to offer innovative solutions. These platforms often provide a superior user experience through mobile-first designs, real-time analytics, AI-driven insights, and seamless integrations with other financial tools. This technological edge enables micro banks to deliver services that traditional banks may struggle to match in terms of speed, efficiency, and personalization.

3. Cost efficiency: Many fintech platforms operate with lower overhead costs than traditional banks, enabling them to offer services at reduced fees or even for free. For consumers, this cost efficiency can be a compelling reason to diversify their banking activities across multiple platforms, especially for services like international money transfers, lending, and wealth management.

4. Trust and security: While trust in traditional banks remains high, especially for storing and safeguarding assets, fintech companies have increasingly built robust security frameworks. Many consumers now feel confident using these platforms for specific needs, particularly when backed by regulatory compliance and innovative security measures such as biometric authentication and blockchain technology.

5. Millennial and Gen Z preferences: Younger generations, who are digital natives, have shown a strong preference for tech-driven solutions that offer convenience and transparency. They are less likely to be tied to a single financial institution and more willing to experiment with new services that align with their lifestyle, such as micro-investing apps or payment platforms that integrate with social media.

6. Growing consumer desire for financial flexibility: Many U.S. consumers use multiple financial providers to create a personalized “mosaic” of services. For example: a traditional bank for a checking account, a fintech like Cash App or Venmo for peer-to-peer payments, a microbank or alternative lender for small business financing. This diversity helps people manage their financial lives more flexibly, addressing needs like affordability, accessibility, and convenience.

7. Increasing financial fragmentation: Consumers no longer see the need to stick to a single financial institution. Instead, they: leverage fintech apps like Chime, Robinhood, or Wealthfront for financial management, and use credit-building services (e.g., Self or Credit Karma) to improve their financial health. This trend is further fueled by dissatisfaction with traditional banking fees, complexity, or lack of inclusivity.

8. Tech-driven financial inclusion: Microbanks and fintechs are using innovative technology to serve underserved groups (e.g., low-income communities, gig workers, and entrepreneurs). Tools like AI-powered credit assessments or open APIs make it easier to provide services to people who were previously excluded due to traditional methods of credit assessment, which holistically assessed eligibility. 

The impact on traditional banks

The rise of micro banking does not necessarily signal the decline of traditional banks, but rather, a shift in their role within the financial ecosystem. Traditional banks still play a crucial role in providing essential services, such as holding deposits, offering loans, and ensuring financial stability. However, they are increasingly being challenged to adapt to a more dynamic market where consumers demand greater choice and flexibility.

In response, many traditional banks are adopting a more collaborative approach, partnering with fintech companies to offer integrated services. This strategy allows banks to retain their core customer base while also catering to the demand for specialized, tech-driven solutions. For instance, some banks are integrating fintech platforms directly into their mobile banking apps, offering customers a one-stop-shop experience that includes both traditional and innovative services.

Micro banking is growing in the U.S. due to a variety of factors that address both financial inclusion and changing consumer needs. Here are five key reasons for its rise:

Financial inclusion: Micro banking provides access to financial services for individuals who may not meet the requirements of traditional banks, especially low-income individuals, immigrants, and those in underserved areas. This helps bring them into the formal economy, enabling them to save, borrow, and invest.

Technological advancements: With the rise of mobile banking, fintech platforms, and digital wallets, micro banking has become more accessible. People can now access micro-loans, savings, and other services via smartphones, which are especially useful for underserved populations that don’t have easy access to physical branches.

Alternative lending models: Micro loans are gaining popularity as an alternative to traditional bank loans. These small loans typically have lower interest rates and more flexible terms, which makes them attractive to those who are unable to secure credit from traditional banks. Peer-to-peer lending platforms and community-driven lending circles also play a part in this rise.

Changing consumer behavior: Younger generations, particularly Millennials and Gen Z, are more inclined to use non-traditional financial services, especially those that offer more convenience and lower fees. Many are also more open to community-based financial products, like credit unions or micro-lenders, which may offer a more personalized approach.

Support for small businesses and entrepreneurs: Many small businesses and entrepreneurs, particularly in underserved communities, struggle to access traditional financing options due to limited credit histories or lack of collateral. Micro banking offers tailored financial products that help these businesses get off the ground, manage cash flow, and expand. This kind of support is especially important in fostering local economies and reducing economic inequality.

These factors combined create a fertile ground for micro banking to continue growing and evolving in the U.S.

The future of micro banking

As micro banking continues to grow, it is likely to become a standard practice in the U.S. financial services market. The trend points toward an increasingly fragmented yet interconnected ecosystem, where consumers can seamlessly navigate between different service providers based on their specific needs at any given time.

For fintech companies, this presents an opportunity to carve out niche markets and innovate continually. For traditional banks, the challenge lies in evolving with the trend—adapting their business models, embracing technology, and possibly even reshaping their identities to remain relevant in a micro banking world.

Ultimately, micro banking represents a democratization of financial services, empowering consumers with greater choice, control, and customization in managing their financial lives. As the market continues to evolve, both fintech companies and traditional banks will need to stay agile and responsive to the changing demands of their customers, ensuring that they can offer the best of both worlds in this new era of financial services.