Banks vs fintechs: a market analysis and recommendations

In 2024, global revenues for fintech companies jumped by 21%. This growth was three times faster than the financial sector as a whole. For traditional banks, 2025 looks like a final call to transform before they are pushed to the sidelines by their more agile competitors. This analysis explores the shifting landscape from the perspective of these established banks and outlines the strategies they must consider to survive and compete.

The most important takeaways

• A widening profitability gap: Fintechs are becoming profitable businesses, mostly at the expense of banks, who are slowly losing their grip on key parts of the market. The growth of established institutions depends dangerously on net interest income (NII), which is under more and more pressure.
• A double blow: Banks are struggling with both worsening customer experience and falling profits. This points to a deeper issue: an uneven fight between an old business model and a modern, low-cost platform model.
• AI agents are coming: This is not just another tool. It’s a technological shift that will change customer relationships and the way banks operate. The key to using it isn’t the technology itself, but having a modern and unified data setup, an area where banks are far behind.
• Simplification as a strategy: The main thing holding back innovation in banks is the complexity of their products, processes, and internal structures. The only way for them to become more agile is to consolidate and build simpler, more horizontal platforms.
• The end of product-based banking: The future belongs to open ecosystems, like embedded finance, and services that earn fees. This requires a fundamental change in how banks are organised, moving from separate, vertical departments to a horizontal model.

The state of the financial market in 2025

A moment of great change for global finance

We are currently seeing two major trends come together. The first is the maturing of the initial wave of fintech companies. The second is the arrival of AI built around agents. These two forces have the power to completely change how financial companies make money and interact with customers.

Traditional banks, often called incumbents, are facing a serious challenge. The key question is no longer if they should transform, but if they can do it fast enough. Institutions that fail to keep up risk being marginalised, becoming little more than service providers in an ecosystem designed and controlled by others.

A growing gap in business models between fintechs and banks

The data for 2025 clearly shows a big difference in growth and profitability. The entire financial services sector grew by 6% in 2024. In the same period, global fintech revenues shot up by 21%, a big increase from their 13% growth the year before.

What’s more, 69% of publicly listed fintechs were profitable in 2024. This is a significant jump from less than 50% the previous year. Their average EBITDA margins, a key measure of profit, rose from 12% to 16%.

Meanwhile, traditional banks are losing control of the most valuable parts of the market to fintechs, digital challengers, and private credit funds. A huge 85% of bank growth comes from net interest income (NII), while their ability to earn money from other fees is steadily declining. Forecasts from Deloitte for 2025 suggest this pressure will continue, with NII expected to fall further. This makes finding new fee-based income a top priority.

Key areas of competition between fintechs and banks

How fintechs are using the weaknesses of banks

The success of fintechs isn’t random. It is focused on five key areas where strong, scalable leaders have emerged. These are digital wallets, payment processing for merchants, new-generation challenger banking, cryptocurrency trading, and “buy now, pay later” (BNPL) services.

Fewer than 100 of the biggest companies in this space now generate about 60% of the industry’s total revenue, which shows the market is maturing. Their approach is simple: fintechs target segments of the market that traditional banks have either neglected or ignored completely. This has created a new class of specialised and agile players.

The main challenges for banks

In 2025, banks face a major problem that analysts at Forrester call the “double whammy”. This is the combination of a decline in customer experience and worsening profitability. Slowly introduced digital self-service tools, often powered by generative AI, fail to create the positive emotional connections that build customer loyalty.

The situation is made worse by internal problems, like outdated technology and company culture. Even though tech spending is rising by 9% a year, many banks are stuck in a “negative loop” of small, isolated projects. These projects often just automate old processes instead of modernising the bank’s core systems. As a result, operating costs at banks can be up to ten times higher than at their digital rivals, according to BCG.

This “double whammy” is a symptom of a fundamental difference in economic models. The pressure on profits comes from falling interest income, while the poor customer experience is a result of trying to cut costs to protect margins. That’s why it’s not enough for banks to simply copy fintech features. They need to completely rebuild their business models around fee-based income and platform services.

The four pillars of a future strategy for banks

Pillar 1: Radical digitisation and strategic simplification

This is the absolute foundation for any successful change. Analysts at IDC point out that modernising a bank’s core digital systems is the only way to overcome the limitations that prevent personalised, real-time services. A key part of this is moving to the cloud, which McKinsey estimates could add an extra $60-80 billion in EBITDA profit for Fortune 500 banks.

But technology alone is not enough. Complexity is the enemy of speed. In its “Tech in Banking 2025” report, Boston Consulting Group provides a powerful framework for strategic simplification, which includes four key actions:

• Rethink the product portfolio: Banks must get rid of undifferentiated and unprofitable products to reduce operational complexity and focus resources where they matter most.
• Adopt a platform approach: Instead of building separate processes for each product, banks need to create common, horizontal platforms for shared tasks like customer onboarding. One European bank that did this managed to cut costs by 50-80%.
• Streamline internal processes: Banks must remove unnecessary steps and checkpoints in customer journeys that only add time and cost without improving quality.
• Simplify the organisation: The workforce balance needs to change. Banks should aim for at least 75% of their staff to be “doers” (engineers, developers) rather than “orchestrators” (project managers). It is the “doers” who create real value in a digital world.

Pillar 2: Using AI to truly focus on the customer

Banks must look beyond using artificial intelligence simply as a cost-cutting tool and place it at the heart of what they offer customers. In its “Technology Vision 2025” report, Accenture calls this trend the “Declaration of Autonomy,” where AI shifts from being an assistant to an autonomous agent that proactively manages a customer’s finances. In practice, this means creating hyper-personalised experiences.

Forrester predicts that by 2025, AI-powered bots will soon be offering personalised financial advice. Looking further ahead, Gartner forecasts that by 2028, a quarter of all customer service interactions will be started by “machine customers” – smart devices acting on behalf of people.

The biggest barrier here is not the availability of AI models, but the “AI readiness gap.” This is the gulf between a bank’s existing outdated data infrastructure and the clean, real-time foundation needed for autonomous systems to work. Building digital trust with customers is essential to making this leap.

Pillar 3: Focused and profitable business models

To get ahead in this new landscape, banks must make tough choices. They need to focus on fewer areas where they can actually win, instead of trying to compete on all fronts. This means a relentless drive for productivity and an aggressive search for new sources of income.

In its “2025 banking industry outlook,” Deloitte clearly states that with pressure on net interest income, the main goal is to increase income from fees and commissions. Specific strategies include introducing new pricing models, like bundling services, increasing transaction volumes, and offering new, paid value-added services.

In its “Global Banking Annual Review,” McKinsey adds specific tactics to this, like building world-class systems for generating leads in wealth management and deepening relationships in corporate banking to cross-sell fee-generating services. It’s about strategically shifting the revenue mix towards a model based on fees and light capital—the very model that is the strength of fintechs today.

Pillar 4: Strategic engagement with the ecosystem

The future of finance is open and connected. This means a deliberate move from being a closed institution to an open platform. As McKinsey puts it, banks must become a “network of platforms” that connect customers to a wider ecosystem of services, such as housing, transport, or health.

Embedded finance (also known as Banking as a Service, or BaaS) will play a key role here and is expected to grow in 2025. This requires banks to use open APIs to embed their products and services into their partners’ platforms—right where customers need them most. According to a report from IDC, success in this area depends on the ability to manage data flows and build new partnerships.

An even bigger shift is appearing on the horizon: the move to an “on-chain” financial infrastructure. BCG identifies the tokenisation of assets as a potential turning point that could move a large part of economic activity onto the blockchain. Deloitte predicts that by 2030, one in four large international money transfers could be settled on tokenised platforms, potentially saving companies over $50 billion. The main barrier to seizing these opportunities is not technology, but the siloed internal structure of banks, which makes it impossible to deliver an integrated, horizontal offering.

Summary and conclusions for the future

Can traditional banks effectively compete with fintechs in 2025? The answer is yes, but only under certain conditions. Competition is possible, but it requires a full commitment to transformation. Traditional strengths like trust, a large customer base, and regulatory knowledge are still valuable, but they are no longer enough.

These are “sleeping” advantages that can only be fully activated on a modern, agile, and simplified technological foundation. The institutions that come out on top will be those that approach their transformation in a bold and holistic way.

This blog post was created by our team of experts specialising in AI Governance, Web Development, Mobile Development, Technical Consultancy, and Digital Product Design. Our goal is to provide educational value and insights without marketing intent.