For decades, experts have predicted a seismic disruption in the financial services industry. At the start of the Fintech revolution, the consensus was clear: Fintechs would render traditional banks and financial institutions obsolete.
Nearly 20 years later, most incumbent players are not only still standing - many are stronger than ever. Instead of displacing the old guard, most Fintechs have repositioned themselves as strategic partners to traditional institutions.
This is not to say Fintechs have not had a significant impact. On the contrary, their emergence pushed incumbents to accelerate digital transformation, particularly in mobile and online banking. But this progress came at a cost. Most banks were unable to fully modernize their legacy infrastructure and instead layered new systems on top. The result? A complex, costly, and fragile web of technology.
Beyond Fintech, several major external shocks have also shaped the financial services landscape:
The Financial Crisis led to forced M&As, regulatory overhauls, massive fines, and widespread loss of trust.
The COVID-19 pandemic accelerated the shift to digital payments and introduced the New Way of Working (NWOW).
Prolonged low interest rates compressed margins and prompted product innovation, fuelling the rise of investing platforms like Robinhood and BNPL providers like Klarna.
Blockchain and crypto promised to disrupt traditional finance through decentralized alternatives - from cryptocurrencies and blockchain-based settlement to DeFi. While their influence is undeniable, these technologies have shifted to a complementary role, forming partnerships rather than replacing incumbents.
Despite these transformations, we have yet to see true disruption of traditional institutions or the core mechanics of financial services.
Looking ahead, expecting the collapse of incumbents would be unwise. While they face major challenges - outdated IT systems, innovation bottlenecks, rising competition, and high cost-to-income ratios — they remain resilient and will continue to adapt in a digital and globalized world.
Still, a new wave of potentially even greater threats is emerging:
Geopolitical Tensions
The growing influence of China and the broader BRICS alliance, coupled with sanctions against Russia, is challenging the US dollar’s dominance and fuelling interest in alternative payment networks (e.g., BRICS Pay, CIPS, SPFS).
Meanwhile, US trade wars and diminished global trust in US leadership are prompting institutions to reduce dependency on US tech vendors. Expect stronger pushes for multi-cloud strategies and a pivot toward European tech sovereignty.
In response, the EU is likely to accelerate its (financial) unification. Recent global developments (e.g. trade tensions and the war in Ukraine) have highlighted the need for greater European cooperation. Individual countries like Germany, France, Poland, or Spain are increasingly too small to influence global decisions alone. A stronger, united European voice - including defence and financial collaboration - is emerging.
The Draghi report (The Future of European Competitiveness, Sept 2024) outlines key steps toward this vision: completing the Capital Markets Union (enabling cross-border flows), reforming prudential regulation (in support of risky but needed investments), unlocking private funding through securitization, harmonizing EU-wide regulation, and fostering M&A through coordinated industrial policy. These changes could significantly reshape the EU financial landscape in the years ahead.
Artificial Intelligence
AI agents are redefining how we engage with financial services - from making autonomous financial decisions to becoming the primary interface with financial institutions.
This shift marks a new chapter in embedded finance, moving further away from direct interaction between the customer and his/her financial institution.
Cfr. my blog "The AI Agent Economy: Redesigning Financial Interactions" (https://bankloch.blogspot.com/2025/07/the-ai-agent-economy-redesigning.html) for more in depth information.
Rising Inflation & Interest Rates
With increased government spending and tariffs, inflation could spike. Interest rates surpassing 5% may destabilize business models like BNPL, while benefiting others like prepaid wallets or traditional lending.
Operational Fragility
Although post-crisis reforms brought greater stability, the collapses of Credit Suisse, SVB, and First Republic underscore ongoing fragility. In today’s hyper-connected environment, even minor rumours can spiral into major crises.
As detailed in my blog "In the Blink of an Eye: How the Digital Age Intensifies the Risk of Bank Runs" (https://bankloch.blogspot.com/2023/06/in-blink-of-eye-how-digital-age.html), the new landscape amplifies the risks of digital-era bank runs. Every institution must be aware and prepared - through robust operational resilience, clear crisis communication, and strategic partnerships that prioritize system stability over opportunism.
Fintechs Becoming the New Incumbents
Neobanks like Monzo, Revolut, Nubank, and Chime are now significant international players. They have achieved scale in geography, volume, and service offerings - but at the expense of the agility and simplicity that once defined them. These players, too, are beginning to accumulate legacy challenges.
Their youthful customer bases may be more willing to migrate to new, AI-native entrants - potentially triggering a new wave of disruption.
See my blog "From Startups to Banking Giants: Are Neobanks the New Incumbents?" (https://bankloch.blogspot.com/2025/03/from-startups-to-banking-giants-are.html) for a deeper dive.
Relentless Regulation
Despite calls for deregulation, the regulatory wave continues. New and upcoming frameworks - including DORA, the AI Act, AMLR/AMLD6, PSD3/PSR, FiDA, MiCA, and the Instant Payments Regulation (IPR) - will maintain pressure on compliance budgets and operations across the industry.
The Rise of CBDCs and Stablecoins
Central banks, crypto firms (e.g., Circle or Tether), traditional banks (e.g., JPMorgan or Citigroup), and Fintechs (e.g., PayPal or Stripe) are all rapidly rolling out digital currencies. While they currently represent a small share of global transactions, their exponential growth points to a significant transformation within the next five years.
A New Wave of M&A
Growing competition, soaring investment needs (for digital transformation), regulatory complexity, and globalization will likely spark a new consolidation wave. Successfully navigating this M&A environment will be key to long-term survival.
Read more in my blog "Is a new bank consolidation wave inevitable?" (https://bankloch.blogspot.com/2021/03/is-new-bank-consolidation-wave.html).
While the Fintech revolution may not have disrupted financial services as predicted, the industry is anything but static. A more complex and volatile era is emerging - shaped by geopolitics, AI, systemic risks, and evolving regulations. Incumbents still dominate, but the stakes are higher. Success will belong to those who adapt - not just to technology, but to the broader, shifting global landscape.
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