How are fintechs gaining market share from traditional banks?
In recent years, digital banks have reported faster revenue growth than many traditional banks in certain markets. This reflects structural changes in parts of the banking sector. Fintech firms have grown and are reshaping aspects of financial services by attracting customers and introducing new distribution models. This article examines factors behind that trend and how traditional banks are responding. This article is for informational purposes only and does not constitute financial or investment advice.
Traditional banks are facing competitive pressure as fintechs expand their market presence through digital technology. Fintech revenues have increased in some regions, particularly where regulators have introduced measures to support innovation. For example, consumers historically relied on local banks for currency conversions, but new providers have promoted more competitive exchange rates for certain transactions (currency conversion example). Industry reports have also highlighted growing use of instant payment systems in e-commerce, and estimates for the size of national digital economies vary by source. In several areas — including deposit growth, user acquisition, and revenue — fintechs have shown faster growth in some markets, according to industry data.
Fintechs targeting banks’ traditional revenue streams
Fintechs are entering services that have historically generated significant fee income for banks, such as payments, lending, and wealth management. Digital wallets have gained market share in cashless transactions in various markets, which can affect fee income for card networks and banks. Embedded finance is projected to grow substantially in coming years, and industry forecasts indicate this model enables companies to integrate financial services into non-financial platforms, potentially reducing the role of traditional banks in some use cases (industry overview).
In lending, peer-to-peer and marketplace platforms now facilitate sizable loan volumes in some regions, particularly to small and medium-sized enterprises that banks may underserve. Some fintechs apply AI and machine-learning techniques to underwriting and report performance improvements; results vary by firm, dataset, and market conditions. Banks are also adopting similar technologies, which will shape future competition in lending.
In wealth management, robo-advisors and other digital platforms have increased access to investment services and are contributing to growth in the wealthtech segment, according to industry observers.
Mobile-first strategies
Many fintech startups prioritize mobile apps, reflecting the widespread use of smartphones as primary access points for financial services. Mobile-first distribution can support rapid user acquisition and feature rollout. Some firms report cost savings and improved engagement through personalization and automation, though claimed percentages vary across providers. Traditional banks have also introduced mobile-first features and digital assistants — for example, Bank of America’s Erica chatbot — to improve customer experience and operational efficiency.
In emerging markets, some fintechs use alternative data sources (for example, e-commerce history) to extend services to underbanked populations and to assess credit where traditional credit histories are limited.
Lower operating costs and different margin dynamics
Fintech firms often operate with smaller teams focused on engineering and product development, which can reduce fixed costs and enable different margin profiles compared with large banks. This organizational model can allow faster product iteration; for example, some fintech lenders advertise loan disbursal times measured in hours, whereas loan processes at many incumbent banks can take multiple days, depending on the product and jurisdiction.
A hybrid future
Traditional banks are adapting by embedding fintech APIs, partnering with or investing in fintech firms, and adopting new technologies such as AI and distributed ledgers. Some banks have made direct investments in fintech companies, and others run developer programs and hackathons to engage talent and startups. As a result, a hybrid market structure is emerging in which banks and fintech firms increasingly coexist and collaborate in different areas of financial services.
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