The fintech revolution has brought seismic changes to the banking landscape, leaving some traditional institutions scrambling to adapt. From mobile apps to blockchain, new technologies have altered how consumers bank. Meanwhile, fintech upstarts are capturing market share in areas from payments to lending. While this disruption creates challenges, analysts say banks willing to embrace change can thrive in the new era.

Fintech firms made rapid inroads during the pandemic as digital banking needs soared. In 2020, 57% of Americans used fintech for money transfers or loans versus just 33% in 2019 per McKinsey. Payments leaders PayPal and Square have exploded in scale, while crypto and budgeting apps like Coinbase and Mint have achieved mainstream adoption.

On lending, Affirm and Upstart have leveraged artificial intelligence to disrupt unsecured consumer credit. In mortgages, lenders like Better and LoanDepot have chipped away share with speedy online services. Even in traditionally conservative wealth management, digitally-savvy robo-advisors like Betterment and Wealthfront have upended the landscape.

While benefiting consumers, this poses an existential threat for slow moving banks. Accenture estimates fintechs could capture over $1 trillion in annual US banking revenues by 2025, mostly from retail services and payments. With innovation lagging, many incumbents face declining customers and shrinking profit margins.

“Fintech is rapidly eating traditional banks’ lunch across key business lines,” warns Mike Mayo, banking analyst at Wells Fargo Securities. “They need to radically adapt to survive and thrive.”

Indeed, legacy IT systems have stymied innovation at many large banks. Their core deposit and lending platforms rely on dated, patchwork infrastructure with limited digital integration. Branch networks also impose high costs compared to lean fintech operations.

However, incumbent advantages like regulatory expertise, vast customer bases, and institutional trust still leave room for banks to compete. Adopting cloud data management, AI risk analytics, digital self-service, and open API architectures can help banks regain their footing.

JPMorgan Chase typifies this forward-looking mindset. While already digitally savvy, JPMorgan continues aggressively investing in technology to foster innovation, earmarking over $12 billion for this annually. Efforts span launching its own commercial blockchain network, building an AI-driven trading platform, and acquiring a robo-advisor to integrate into its wealth offerings.

Regional lenders are also making important strides. For example, Alabama-based BBVA USA relies on AI-enabled natural language processing to interpret customer needs. Spanish bank BBVA acquired BBVA USA in 2019, bringing its digital expertise stateside.

Silicon Valley Bank has partnered with tech companies since 1983, gaining key insights into innovation. They recently acquired data analytics firm The SharesPost to strengthen tech investment offerings. “By specializing, we’ve built the skills needed to thrive amidst disruption,” said CEO Greg Becker.

However, technology alone is not a panacea. Banks must focus on customer experience to gain stickiness and trust. “People won’t use tools, no matter how innovative, if they create more hassle than value,” said Daylight CEO Phoebe Hugh. Her firm helps banks engage users through personalized insights.

Collaboration is also key. Banks should see fintechs as partners rather than pure competitors. “It’s a false choice between building or buying technology,” said Wells Fargo CIO Alyssa Montgomery. “We need to smartly blend internal innovation with external capabilities.” Wells Fargo has accordingly funded various fintech accelerators to nurture ideas.

Ultimately, banks embracing change and digitization have routes to succeed despite the fintech challenge. JPMorgan and BBVA USA have enjoyed industry-leading returns on equity north of 15% by revamping strategically. However, sluggish banks could still face extinction if they fail to adapt technologically and culturally. In this fast evolving landscape, traditional institutions unwilling to transform risk being left behind.

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