TRANSFORMATION OF THE EUROPEAN BANKING SECTOR: THE ROLE OF NEOBANKS IN THE CONTEXT OF DIGITAL DICHOTOMY

This study investigates the evolving competition between traditional banks and neobanks in the European Union from 2020 to 2025, a period marked by rapid digital transformation and regulatory shifts in the banking sector. It explores the instruments driving this rivalry, highlighting how neobanks leverage technological flexibility and customer-centric approaches to capture market share, while traditional banks rely on their established scale and trust to maintain dominance. The analysis underscores the dual role of regulatory frameworks, which foster innovation through open data access but impose compliance burdens that challenge scalability. The research evaluates the effectiveness of competitive strategies in shaping consumer preferences and financial stability. Neobanks excel in delivering seamless digital experiences, attracting tech-savvy users, whereas traditional banks face constraints from legacy infrastructure, limiting their agility. Key challenges include regulatory complexity, cybersecurity risks, and the financial sustainability of innovation-driven models. Regional disparities further complicate the landscape: rapid digital adoption in Eastern Europe contrasts with slower progress in Western markets, reflecting structural and cultural barriers. A comparative perspective with Ukraine enriches the analysis, revealing how swift digitalization enables traditional banks to counter neobank advantages, offering a potential model for other markets. This contrast highlights the uneven pace of transformation across Europe. The study proposes that sustainable banking requires a balanced approach, integrating the agility of neobanks with the reliability of traditional institutions. It advocates for hybrid models that combine digital efficiency with robust service portfolios and calls for harmonized regulations to support innovation without compromising stability. By examining cases like Revolut and ING, the research contributes to understanding the dynamics of modern banking. It emphasizes Ukraine’s unique experience as a benchmark for rapid adaptation, suggesting that strategic alignment of technology and regulation is critical for fostering financial inclusion and resilience in the global banking ecosystem.