How Banks Can Stay Ahead of Fintech Disruption Through Smarter, Faster Innovation

Over the past decade, the fintech industry has grown from the domain of scrappy upstarts to a serious contender with traditional banks. As of 2023, KPMG estimated that  global investment in fintech reached over $200 billion, a sharp contrast to where the industry stood just ten years earlier. Yet, despite the fast growth, traditional banks still hold most of the market in terms of assets and customer base. The challenge at this point is maintaining that position.

Fintech companies are not just moving fast; they are redefining what financial services should look and feel like. Mobile-first interfaces, zero-fee transactions, instant credit decisions, and personalized financial advice have reset customer expectations. As Hamza Qamar, Sr. Director of Product, Innovation, and Design at mobileLIVE said in an interview, “banks that want to compete cannot simply tweak old systems. They need a shift in mindset and execution, especially in building and launching new products. The pressure on banks to innovate has never been higher.”

So, how do these banks catch up to fintech? And more importantly, how do they stay ahead?

The Illusion of Progress

According to SaaScada’s research, 69 percent of UK bank innovation leaders say pressure to innovate has grown significantly in the past year. But nine in ten admit they are being held back. The gap between vision and delivery is not shrinking. It is widening. That gap is where disruption lives.

Many banks have made visible investments in innovation labs, digital-only subsidiaries, and fintech partnerships. But these efforts often mask deeper problems. The same report shows that while some institutions can roll out new products in weeks, one in ten still takes more than six months to do so. A third can make small changes like adjusting base rates in days. For the rest, even minor updates take months.

To remain competitive, says Qamar, banks must treat speed as a core capability, not just in service delivery, but in ideation, design, testing, and scaling of new products.

According to McKinsey, digital-native fintech firms are capturing 10 to 20 percent of revenue in key banking areas such as payments, lending, and wealth management. Traditional banks, constrained by legacy infrastructure and compliance overhead, often take years to build what fintech startups launch in months.

Why Fintechs Win at Product Speed

Fintech companies typically operate on agile development models. They build minimum viable products (MVPs), test them quickly in the market, gather feedback, iterate fast, and then scale. Most use cloud infrastructure, which allows them to launch and scale without major capital investment. They often bypass traditional compliance bottlenecks by embedding regulation into the design phase, not as an afterthought.

For example, a company like Chime can roll out a new feature in as little as four to six weeks. By comparison, many large banks take more than a year. That delay isn’t just a technical issue; it’s often cultural. Banks are built for precision and risk management, not for experimentation.

The underlying cause lies in legacy core banking platforms that were never built for speed or flexibility. 62 percent of innovation leaders say their existing core systems are choking their ability to deliver.

And according to Qamar, “when you add to that reality a risk-averse culture and a fragmented testing environment, the result is predictable— slow progress, stalled ideas and frustrated teams.”

“That needs to change,” he added.

Rethinking the Innovation Playbook

To match fintech speed while maintaining trust, banks need a dual-track approach to product innovation. This means protecting the core business while creating a parallel track for testing and launching new ideas.

That approach involves several key shifts:

1. Build Modular Architecture

Legacy core systems are often rigid and monolithic. Every update or integration becomes a major project. To break that cycle, banks need to adopt modular or “composable” architecture. This allows them to plug in new services, vendors, and tools without overhauling the entire system.

Banks like Goldman Sachs have already moved in this direction. Through its Marcus platform, Goldman built a cloud-native infrastructure that allows for faster iteration and easier partner integrations.

2. Embrace Cross-Functional Teams

In many banks, product, compliance, engineering, and marketing teams operate in silos. By contrast, fintech startups typically organize around squads that bring together all the necessary roles to ship features end-to-end.

Innovation cannot thrive in a siloed structure. Product, engineering, compliance, and customer experience teams need to work together in integrated pods. This cross-functional setup mirrors how fintech teams operate, accelerating feedback loops and shortening decision timelines.

When those silos are removed, teams can make faster decisions, validate assumptions early, and pivot quickly when needed. Some traditional banks are adopting this model through dedicated “innovation hubs” or digital labs. Others embed agile pods directly within product teams to reduce friction.

3. Leverage Low-Code and No-Code Tools

One reason fintechs move fast is their use of low-code or no-code platforms. These tools allow teams to build prototypes and even production-ready applications without deep engineering work. This reduces time-to-market and frees up developers to focus on more complex problems.

According to a Gartner report, the market for low-code development platforms is expected to grow by more than 20 percent annually through 2026. Banks that tap into this trend can gain a real edge.

4. Make Data Work Harder

Fintechs use data not just to monitor performance, but to drive product decisions. They A/B test features, personalize user journeys, and adjust pricing dynamically. Banks, by contrast, often struggle with fragmented data systems and regulatory constraints.

The answer isn’t gathering more data, it’s smarter data use. By building a unified customer data platform, banks can enable real-time personalization, identify unmet needs, and make faster decisions on what to build next.

5. Partner Strategically

Innovation doesn’t have to happen entirely in-house. Some of the most successful banks are those that partner smartly. Whether through venture arms, accelerators, or co-development initiatives, banks can access fintech talent and technology without reinventing the wheel.

For instance, BBVA has invested heavily in open banking partnerships. Through its Open Platform, the bank provides APIs that allow developers to embed banking services into their own apps. This not only accelerates innovation but also creates new revenue streams.

Avoiding the Innovation Theatre Trap

Launching an innovation lab or sponsoring a hackathon is not the same as building products customers actually want. Too often, banks fall into the trap of what some call “innovation theatre” activities that look good on paper but don’t move the needle.

Real innovation requires outcomes. How many products made it to market? How many were adopted? What was the impact on revenue or retention?

If those questions can’t be answered, it’s time to rethink the strategy.

The good news is that banks don’t need to become fintechs. But they do need to learn from them. Speed, flexibility, and customer-centricity are no longer optional. They are the price of staying in the game.

This doesn’t mean compromising on compliance or security. It means embedding those priorities into the innovation process rather than treating them as barriers. With the right tools, teams, and mindset, banks can build faster, smarter, and more relevant products before the competition does it for them.