Are banks facing a generational shift?
Fintech startups have sparked innovation, but banks have remained pivotal in embedded finance with their compliance expertise. Their users want both.
🙌🏻 Coexistence
Fintechs have reshaped how we interact with money, introducing features like digital wallets, peer-to-peer payments, and earned wage access. Take Uber as an example: drivers now manage earnings, track expenses, and even get cashback on gas — all in one place. These innovations have filled gaps left by traditional banks, offering transparency, control, and expanded access to underserved demographics.
But none of these offerings would exist without banks. Sponsor banks, which can accept FDIC-insured deposits, provide the regulatory and operational backbone for fintechs — and even power their own digital banking brands.
👩🏼🤝👨🏽 Consumerization
Consumers, as well as businesses, want speed, personalization, and convenience. And they’re not shy about seeking it elsewhere. 46% of Gen Z are already using third-party money management apps in addition to their core bank (Tink/Visa), and 57% want better financial visibility from their primary bank. A staggering 75% of consumers are ready to switch banks for quicker processing, lower fees, and personalized tools (up from 52% 3 years ago, according to PYMNTS).
To stay relevant, banks need to adapt. They must embrace modular, API-driven systems that can enable instant payments (57% of US banks are integrating FedNow), embed financial services directly into non-financial platforms, and seamlessly integrate fraud protection and compliance with core systems.
✅ Compliance
Banks, with their compliance expertise, are becoming indispensable partners in scaling fintech innovations. Their robust risk management infrastructure allows fintechs to operate securely within regulations. This isn’t just for the big players: community and regional banks are increasingly embracing this approach to generate new revenues (fee income) and diversify their customer base.
Why? Embedded finance partnerships drive, on average, 51% of sponsor banks’ revenue and deposits (according to Alloy). But to scale compliantly, banks are taking control back. They are moving away from third-party "black box" middleware and opting to bring key transactional and compliance capabilities in-house. This approach ensures they scale responsibly while maintaining trust with regulators and Fintech partners.
In short: banks are forced to evolve with their next generation of customers. These demand contextual, tech-driven access to financial services. Banks’ compliance expertise remains unmatched, but the next challenge lies in leveraging technology to meet modern expectations.