Customer Segmentation: Who Buys Core Banking Software
Deep dive into the four primary customer segments for core banking platforms, their pain points, budget profiles, and buying behaviors.
Understanding Your Target Customers
The biggest mistake in fintech? Building for "banks" instead of building for a specific type of bank.
Not all banks are created equal. The European core banking market comprises four distinct customer segments, each with fundamentally different needs, pain points, budget profiles, and buying behaviors. Understanding these segments is the difference between product-market fit and expensive pivots.
We segment customers along three dimensions: Size (assets under management, customer count), Maturity (startup vs. established), and Specialization (universal vs. niche focus). This creates four primary segments—and your choice of which to target first will define your entire go-to-market strategy.
We segment customers along three dimensions: Size (assets under management, customer count), Maturity (startup vs. established), and Specialization (universal vs. niche focus). This creates four primary segments with distinct characteristics.
Segment 1: Neobanks & Challenger Banks
| Attribute | Details |
|---|---|
| Estimated Count (Europe) | 77+ neobanks, growing rapidly |
| Key Players | Revolut, N26, Monzo, Starling Bank, Bunq |
| Characteristics | Digital-first, VC-backed, fast-growing, tech-savvy |
| Primary Pain Points | Speed to market, cost efficiency, scalability |
| Budget Range | €30K-€100K/year for core banking |
| Decision Makers | CTO, CPO, CEO |
| Deployment Preference | Cloud-native SaaS, API-first |
What Neobanks Want
- Speed: Launch new products in weeks, not months
- Scalability: Handle growth from 10K to 10M customers without re-architecting
- Cost Efficiency: Minimize infrastructure spend to extend runway
- Modern APIs: Easy integration with their mobile apps and partner services
Neobanks often have technical founders who evaluate platforms themselves. Lead with developer experience, API documentation quality, and time-to-first-transaction metrics. They'll dismiss platforms that feel "enterprise-y" or require extensive professional services.
Segment 2: SME & Consumer Lenders
| Attribute | Details |
|---|---|
| Estimated Count (Europe) | 2,000+ specialized lending institutions |
| Key Players | Regional lenders, consumer finance companies, auto lenders, BNPL providers |
| Characteristics | High-growth, underserved by incumbents, seeking differentiation |
| Primary Pain Points | Flexibility, AI-powered credit decisioning, compliance automation |
| Budget Range | €50K-€150K/year for core banking |
| Decision Makers | CTO, CFO, Chief Risk Officer |
What Lenders Want
- Advanced Credit Decisioning: AI/ML models that improve approval rates while reducing defaults
- Loan Lifecycle Management: Origination through servicing and collections in one platform
- Compliance Automation: Consumer Credit Directive (CCD) compliance built-in
- Product Flexibility: Ability to create custom loan products without code changes
This segment is significantly underserved. Most core banking platforms focus on deposit accounts and payments—lending-first platforms that excel at loan origination, credit decisioning, and collections workflows can capture significant market share.
Segment 3: Regional & Traditional Banks
| Attribute | Details |
|---|---|
| Estimated Count (EU) | 3,812 credit institutions (ECB December 2024) |
| Key Characteristics | Legacy systems (often 20+ years), risk-averse, regulatory focus |
| Primary Pain Points | Modernization without disruption, compliance automation, cost reduction |
| Budget Range | €100K-€500K/year for core banking |
| Decision Makers | CIO, Board-level technology committee |
| Deployment Preference | Hybrid (cloud + on-premise), progressive modernization |
What Traditional Banks Want
- Risk Mitigation: Proven track record, reference customers, professional services support
- Progressive Modernization: Ability to migrate gradually, not "big bang" replacement
- Regulatory Compliance: Pre-built support for Basel III, BRRD, and local regulations
- Integration: Connectors to existing systems during transition period
Traditional banks are risk-averse by nature. They want to see that tier-1 banks have already adopted your platform. This creates a chicken-and-egg problem for new entrants—which is why starting with neobanks and working upmarket is often the winning strategy.
Segment 4: Payment Service Providers (PSPs)
| Attribute | Details |
|---|---|
| Estimated Count (Europe) | 500+ licensed PSPs |
| Key Characteristics | High-volume, PSD2-regulated, real-time processing focus |
| Primary Pain Points | Scalability (millions of TPS), real-time processing, compliance |
| Budget Range | €50K-€200K/year for core banking |
| Decision Makers | CTO, Head of Payments |
What PSPs Want
- Extreme Scalability: Handle peak loads during events like Black Friday
- SEPA Instant: Full compliance with EU instant payments mandate
- ISO 20022: Support for the new messaging standard
- High Availability: 99.99%+ uptime is non-negotiable for payment processing
The Strategic Sweet Spot
For a new market entrant, the optimal target combines segments that offer:
- Accessible Decision-Making: Shorter sales cycles, CTO-driven decisions
- Reasonable Budgets: Enough to sustain your business, not so large they demand enterprise features
- Reference Value: Customers whose success creates credibility for moving upmarket
- Growth Potential: Customers who will scale with you and increase contract value over time
The combined segment of 77+ neobanks + 2,000+ SME lenders + growth-focused regional banks represents the largest underserved opportunity in European core banking. These institutions need enterprise-grade capabilities at mid-market prices with fast deployment—a gap that established players don't effectively fill.
Four distinct segments exist. Neobanks, SME lenders, regional banks, and PSPs have fundamentally different needs, budgets, and buying behaviors—one-size-fits-all positioning won't work.
Start with neobanks and lenders. These segments offer faster sales cycles, technical decision-makers, and create reference customers for moving upmarket to traditional banks.
SME lenders are underserved. Most core banking platforms focus on deposits and payments—lending-first platforms can capture significant market share in this 2,000+ institution segment.