Pub. 13 2022 Issue 1


Five Ways Banks Can Compete with Fintech Startups

Readers of West Virginia Banker magazine likely are familiar with the term “fintech,” but for the uninitiated, “fintech” is the combination of the words “financial” and “technology.” It generally refers to a piece of technology that automates or improves the delivery of financial products by traditional financial institutions or their use by customers. An example of this is the implementation of digital lending into a bank’s services. The term also is used to refer to a specific type of entity that integrates technology as a core feature of its delivery of financial products. Examples of this are PayPal, Stripe, and Robinhood.

Investments in fintech have been on the rise in recent years. In 2018, $128 billion was invested globally into fintech, which is predicted to be $310 billion in 2022. In addition to investments, customers are not shy about using a fintech company for their banking services. One recent study reported that 30% of respondents had used a digital-only bank in the past or expected to use one in the future. Further, 9% said that they planned to open a bank account with a fintech company in the near future.

In addition, the COVID-19 pandemic increased consumers’ desire to conduct their daily lives without the necessity of physical contact. This preference forced small businesses to adopt digital payment options. VISA’s 2022 Back to Business Survey reports that 41% of consumers already operate without cash or will make that change within the next two years.

Similar things are being said about the change fintech is bringing to traditional banking. Consumers value the convenience of being able to conduct banking 24/7 and to open an account remotely. They argue that fintechs offer less expensive services and more user-friendly experiences.

Does this mean fintechs will replace banks? No. Banks have many benefits over fintechs. Although fintechs are seen as more nimble, they also are considered riskier than banks. Furthermore, fintechs sometimes lack the long-term relationship banks already enjoy with their customers. Those relationships can reduce the likelihood that a customer will leave for a fintech and also give the bank a trove of information to help customize their user experiences.

Below are five ways banks can compete with fintechs.

  1. Modernize and digitize core products and functions. A bank can work to modernize and digitize its core products and functions in many ways, such as focusing on its mobile app. Most banks have some internet presence, but that presence needs to be optimized for mobile devices. Customers want the ability to access a bank’s different products and services with one all-encompassing mobile app.

    If it has not already, a bank needs to consider distributed ledger applications and how they might be implemented to speed up processes and lower transaction costs. Several projects are underway in the U.S. and abroad to develop and implement these applications for the financial industry.

    Banks also should investigate how they can implement automation into some functions, including adopting artificial intelligence. This approach can save time and money onboarding new customers, mortgage lending, and loan processing. These technologies can also reduce compliance costs in areas like anti-money laundering compliance. In fact, an entire industry (called Regtech) has sprouted to offer these types of services to banks and others.

  2. Incentivize a change in culture. Critics say banks are the oldest of the old school businesses. Legacy operating systems sometimes silo different departments and contain many levels of hierarchy. Fintechs claim they can offer faster services for often less cost because of their flat organizational structure.

    Banks should consider where the adoption of cross-functional teams can speed up the delivery of products while reducing costs. They also need to prepare to adopt the post-COVID-pandemic new normal of a remote and decentralized workforce.

  3. Focus on the customer experience. Banks should capitalize on their existing customer relationships, which can be done in a number of ways. Increased transparency in the lending process, where potential borrowers are given visual representations of what is needed to obtain a better rate, would give customers more of a sense of being in control of the lending process. Gamification of the user experience, especially in savings and checking accounts, would appeal to younger customers. PNC Bank’s “Punch the Pig” is a popular example. In it, a virtual piggy bank appears on the app screen and allows users to transfer funds from a spending account to a savings account simply by “punching” it.

    In addition to those options, banks have an opportunity that fintechs currently lack. With customer relationships spanning years or decades, banks hold a trove of personal information about their customers that could be used to develop a more personalized set of products and services.

  4. Focus on underserved communities, Millennials, and Gen Z. People who traditional banks have underserved are more likely to gravitate to fintechs. One rallying cry of cryptocurrencies is the ability to bring financial inclusion to the unbanked and underbanked. Banks should consider how they can bring traditionally underserved communities under the tent with online banking and easier ways to use savings accounts.

    The population segments most likely to use a digital-only bank or fintech are Millennials and Gen Z. These groups have grown up in a digital-first world, and to capture their business, banks will need to have a robust digital experience.

  5. Collaborate with fintechs. Another way banks can compete with fintechs is to collaborate with them. This can take many forms, with varying degrees of investment and integration costs. An inexpensive option is to purchase loans originated by fintechs or enter into agreements to refer customers. Outsourcing some functions to a fintech is another option (bearing in mind the bank’s obligation to supervise compliance of vendors). More expensive options include acquiring an ongoing and profitable fintech and making equity investments in fintechs.


Fintechs are not likely to disappear from the financial services landscape. However, the belief that these “disruptors” will put banks out of business is misplaced. Banks have many tools available to them to compete with these companies. The previous are five avenues banks should consider and discuss internally as they plot their course to coexist with fintechs.

Nicholas P. Mooney II is a Member attorney in Spilman Thomas & Battle’s Charleston, West Virginia office. His primary area of practice is consumer financial services litigation in federal and state courts. He has devoted all of his time for more than 20 years to that practice area. He can be reached at 304.340.3860 or