Will Fintechs Overtake Banks? Five Lessons from Fintech-Bank Mergers
By Virginia Varela, Head of Banking Strategy at Upgrade
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Executive Summary
- Community banks’ strengths — their regulatory expertise, operational discipline, and deposit stability — are often underestimated by fintechs. But they provide the critical foundation for long-term resilience.
- Fintechs, meanwhile, excel at marketing, user experience, and growth tactics. When they obtain a charter, they gain the resiliency of the regulatory framework while retaining the organizational acumen that drove their growth.
- Post-charter, customer service and compliance, especially immediately in the short term, can become challenges.
Fintech acquisitions of community banks are a growing trend. The question many banking executives have about these fintech-bank combinations is: What will it mean competitively for the industry?
During the past five years, banking has seen four such acquisitions, the latest of which was SmartBiz’s acquisition of Centrust Bank earlier this year. Before that, Jiko acquired Mid-Central Savings Bank in 2020, LendingClub acquired Radius Bank in 2021, and SoFi acquired Golden Pacific Bank in 2022.
Having served as a federal banking regulator, a three-time community bank CEO/President, and now as a FinTech consultant, I’ve sat through more than 100 board meetings and regulatory examinations as an examiner, a regulator, a CEO, and a director. I’ve had the rare opportunity to witness many mergers of cultures and have seen the capabilities from all sides of the table — including leading a community bank through one of the most high-profile fintech acquisitions in recent years. As a bank CEO, my organization also entered a joint venture with a fintech company to develop an automated SBA lending program.
Here are five answers to that competitive question based on my experience with fintech-bank collaboration. Some elements you might expect, some you won’t, and some surprise both fintech and bankers alike.
Community Banking: The Hidden Value of Stability
You don’t need to be an insider to know how banking institutions are different from fintechs. One thrives on code and creating scale. The other is built on trust and relationships. When done right, the pairing is not just complementary — it’s transformative, offering a new horizon of possibilities in the financial landscape.
Based on personal experience, I can tell you: Fintechs are surprised by the quiet strength in community banking, and many initially underestimate that strength.
Having operated in a highly regulated environment for decades, community bankers are well-versed in compliance, risk mitigation, and regulatory nuances. I’ve seen seasoned tellers and loan officers — often overlooked because they don’t look like tech people from the coast — rattle off nuanced interpretations of regulation that left their fintech counterparts stunned.
It’s easy to assume that digital-first means smarter or more agile. But when it comes to navigating federal examinations or ensuring deposit stability, community banks run circles around most fintechs. Many fintech leaders are surprised by the depth of institutional knowledge community bankers possess — mainstreet bank employees are used to wearing five or six hats — and receive in depth annual training, follow detailed policies and procedures, keep up with regulatory expectations, and “live” through cycles of excruciatingly detailed federal and state examinations and audits.
What does this mean for deposit competition? There’s a certain “stickiness” to community bank deposits that many fintechs don’t anticipate. Some of it may be brand loyalty. Some of it may just be human inertia. But in times of stress or volatility, most community bank customers don’t bolt at the first sign of trouble — and that’s gold in today’s environment.
Unmatched Marketing and Digital Reach
Fintechs, on the other hand, excel at marketing. What I’ve seen from these firms is nothing short of brilliant. Whether it’s sponsoring sports events, leveraging influencers, or building referral incentives that go viral, fintechs know how to get enough households to become a household name.
They also understand the psychology of today’s consumers in a way traditional banks often don’t. Digital onboarding, frictionless experiences, and sleek design — it’s not just aesthetic, it’s strategic. And it works, especially with younger generations.
In the long run, the fintechs that successfully acquire and integrate banks — not just charter-wise but also in terms of culture — are poised to lead. But that success hinges on whether they can respect, integrate, and learn from the very institutions they’re absorbing.
If community institutions should worry about anything, it’s the fintech marketing game. Fintechs are gaining the regulated framework to establish the trust of Americans, but most community institutions are way behind in building marketing departments that contribute to growth.
Banking executives need to consider: If marketing is only a cost center, how are fintech scaling to a size sufficient to buy banks without using an in-market presence like a branch?
Cultural Integration: Ego, Empathy, and Egos Again
The collision of fintech and community banking cultures can be jarring.
I’ve heard FinTech execs enter the room with the assumption that traditional banks are outdated — even expendable. At the same time, community bankers sometimes view fintechs as arrogant and out of touch. That ego clash can derail progress if not handled carefully.
But the breakthrough moments are worth it. I’ve watched FinTech teams roll their eyes at legacy systems… until they sat down with community bank staff and realized the depth of customer nuance, the discipline of regulatory management, and the long-game mentality that community banking demands. These realizations are not just about understanding the other side’s work but about respecting it and learning from it. This mutual respect and learning are crucial for the success of any collaboration.
When a fintech scales up its compliance department by 30 to 40% post-acquisition, that’s not just a business decision; it’s a wake-up call.
Customer Service: The Underrated Differentiator
One of the most underappreciated strengths of community banks is their customer service. I know community bankers say that all the time, but it is true in my experience. In a local bank, if a customer calls five times, the staff doesn’t just log the complaints — they investigate, follow up, and often resolve the issue personally. This level of dedication and personal touch is a testament to the community bank’s commitment to its customers.
In contrast, many fintechs treat customer support as a cost center. But when a complaint escalates — say, to social media — the cost isn’t just reputational. Regulators take notice. And suddenly that “one squeaky wheel” becomes a reportable event.
I’ve seen complaints spike 400% in the months after an acquisition — often simply because the digital-first company didn’t grasp the importance of one-on-one engagement. A single returned phone call could have prevented an entire online storm.
Diversity: More in Common Than You Think
Both fintechs and community banks often pride themselves on modernity or tradition, respectively — but when it comes to diversity in leadership, they look surprisingly alike. This lack of diversity is a pressing issue that needs to be addressed, as the future of banking leaders must reflect the faces of those it serves.
The demographics of money are shifting rapidly. More women are leading organizations and particularly small businesses. And, more customers are women managing household and generational finances. I know this firsthand because I’ve experienced it. The future of banking — digital or otherwise — must reflect the faces of those it serves, not just those who lead it. Most community banks employ a majority of staff who are women, often quite diverse, and tend to be company loyal. The Board and executive teams are slower to reflect diversity in both sectors.
Language diversity is another blind spot. Institutions that invest in multilingual services now will be far better positioned in the decades ahead. America is changing, and our financial institutions must keep pace — not just in technology, but in humanity as well.
Will Fintech-Bank Mergers Have Competitive Impact?
When a Fintech acquires a community bank, it’s easy to view the deal as a one-way street — tech absorbing tradition. However, the real power lies in integration. And this is why the incumbent industry should try to learn from fintech now, even if they never merge with a fintech: Fintechs and banks are better together if they can integrate.
Fintechs bring scale, speed, and savvy. Community banks bring discipline, trust, and deep-rooted relationships. When each side drops its ego and listens, something remarkable happens: Customers get better service, regulators get better compliance, and the institution itself becomes more resilient.
I’ve seen and helped it happen. I know community institutions can develop fintech-bank strength, without a change in ownership. For readers of a publication like The Financial Brand, that means marketing must be elevated to a growth contributor. Otherwise, the charters now owned by fintechs will continue to press their native advantages after buying a charter’s advantages.
And I believe the future of finance lies not in choosing one model over the other but in building bridges between them — with humility, clarity, and respect.
