Is It Too Late for Banks to Fend Off the Fintech Threat? Almost, But Not Quite
By Jason Hardgrave, CEO of DR Bank
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As I look at the landscape for banking in 2026, I see regulatory changes reshuffling the competitive deck, coupled with new technologies, new fintechs and the unknown impacts of AI. For me, it conjures up images of dinosaurs at the end of an era, looking up at the sky clouded by an asteroid, wondering what will happen next while an inevitable end is in sight.
The dinosaurs couldn’t change their situation; banks absolutely can. It’s not too late, but the situation is urgent.
For all the talk to date of community and regional banks getting disrupted by newcomers, the impact of the fintech era on these banks has looked more like slow erosion. Community banking net income and interest margins are as high as they’ve been since 2018.
Reality check: But banks need to face up to the fact that they’re already getting eaten away at the edges. Trillions of dollars of deposits have already moved toward higher interest products, and bankers list deposit competition as the biggest existential risk facing the industry. Each new fintech launch sees them drifting further into traditional banking territory: mortgages, HELOCs, business banking, credit cards. It’s more than just what they’re offering, but how they’re building a business. They started with one underserved need and built a brand around solving it well. Customer-centricity is not just a mantra. It is the core of their product design.
Key insight: Fintechs have opened up a weakness for banks, because they’ve attacked real customer needs and demands that banks were largely ignoring. This lack of customer-centricity has cost banks. Banks have offered zero-interest checking accounts since time began and have held on to this despite there being no technical or legal reason not to pay interest. Fintechs were more than happy to meet this need and now they’re gaining customers at a significant clip. With credit, banks chased affluent and mass-affluent customers and left hundreds of millions of people in America with mediocre credit products, or unable to attain credit in the first place. Fintechs found traction precisely in this gap. They mastered this customer experience, deepening their understanding of this audience, and then systematically adding more and more services until they looked less like a single solution and more like a swiss-army knife of financial services.
These are “customer-centric” choices that banks choose not to make every single day. Fintechs have built strong brands by meeting every one of these pain points. They have raised the bar, industry-wide. Customer-centricity has been a starting point, rather than bolted on later. Banks have defaulted to the opposite: fixed service hours, long processing and hold times for deposits, and non-interest bearing products.
The End of the World as We Know It
The actual asteroid moment for banking wasn’t fintech itself, but the rush of fintechs applying for bank charters and buying banks. The OCC has received almost as many de novo charter applications in the last 18 months as it did in the prior 14 years.
Bank analysts have put banks and fintechs in different buckets, with one or two charter-holding fintechs like SoFi sitting in between, but still not viewed entirely as a competitor. This separation has let banks avoid real reckoning. A tech-forward bank with a charter has been waved off as an edge-case rather than a peer. But when we start to see a considerable volume of fintechs holding charters simultaneously, they can’t be treated as un-benchmarkable outliers.
Key insight: We are seeing a decade of innovation in fintech transition into an industry redefining shift. As fintechs show up with a different mix of growth prospects and efficiency ratios than banks have traditionally been graded on, it will force a redefinition of what a well-run bank is.
It’s no longer sustainable for banks to ignore the need to modernize. Fintechs have been more customer focused, and now a bank charter gives them super powers. The death by a thousand cuts they thought they could wait out, looks more like a knock out punch when these fintechs have charters in large numbers.
There’s no “one size fits all” solution, but banks need to take inspiration from the origins of their now rival fintechs.
Look At Where You Can Immediately Raise the Bar
In this new era, customer-centricity is not negotiable, and banks should examine every avenue for improvement.
Regional and community banks can’t compete on UX with your average fintech. But they shouldn’t cede the floor by not trying to build something that the customer wants. Improving here could be something as simple as finding a way to extend your customer service hours, at a time when fintechs offer always on customer service. Bankers-hours, arbitrarily closing at 4pm, is out of step with a banking environment when people expect the availability of their digital tools to be nearly constant.
Adding expanded, and competitive, interest-bearing products is a lever within any bank’s reach. When SoFi Money added interest bearing accounts to meet customer demand, the response was clear. If your customers want it, and you’re not offering it, they’ll find a place to get it. For fear of protecting themselves having their margins eroded, banks are risking having their customer base eroded.
The bigger message to take on board now though, is that standing pat is not a strategy. Competition is only going to accelerate from here, and all banks are going to feel it, from regional and community banks through to Chase and Bank of America. Just offering the products you’ve always offered is not an answer.
Double Down on Your Strengths
The one thing a major fintech can’t do with a banking charter, is match the same human-to-human relationship a community or regional bank might have with their customers. In a sense, banks are more inherently customer-centric because they’re physically a part of their customer’s world. Relationship banking is a strength that they can draw upon. A community bank is part of the fabric of their customers’ towns. Their customers know the branch staff. They’re able to make underwriting decisions in part with judgment and local knowledge rather than relying purely on algorithms. Branches still matter, because relationships still matter.
However, banks need to be more technology forward than just relying on this element of their business. But are there ways to extend this with better investments in personalization? Relationship banking can serve as a bedrock for data-driven offers and tailored pricing. Local knowledge combined with smarter targeting could be a true value proposition.
A Smarter Approach to Innovation and Technology Investments
A bank’s customers live in 2026. Their bar for how they want to be served by technology is high, and they’re not going to give banks a break just because it’s hard for them.
Banks have leaned on legacy technology as a crutch to get out of modernizing for too long. They have avenues to improve. There’s financial technology, which is consumer facing and competes with the bank itself. But then there’s been a transformation in bank technology, B2B infrastructure plays that can help a bank compete. These can be used to remake every piece of the bank experience. There are new tech providers that can serve as its core banking system, or sit alongside it. There is a whole digital banking and customer-experience layer, a wealth of embedded banking and banking-as-a-service tools, tools that remake account-opening workflows, and tools that let a bank meet BSA/AML and fraud obligations without building in-house. Banks don’t need to build this, they can buy many of the tools they need.
Key insight: Strategic technology investments need to go hand-in-hand with a more iterative and agile approach to innovation and product development.
AI is the perfect example. Banks are taking a slow and explorative approach to working with new generative AI tools, using it for surface level things when they should be looking at how to build it deeper into their workflows. Banks need to be better at working new innovation into smaller pilots and taking more of a fintech mindset.
Bottom line: It’s not going to be an easy transition. The meteor has hit, and has already started to take banks with it. This will inevitably lead to another wave of significant consolidation. Banks can evolve, they just need to square up to the fact that the context they’re competing against has shifted dramatically. They have to run faster than ever to still be standing when the dust settles.
