We all know that fintechs have become permanent and powerful players in the financial services industry. For example, European Revolut and South American Nubank reached 45 and 127 million customers respectively. To compare: Traditional banks like Lloyds Bank and Bank of America show 21 and 59 million digital users respectively. But of course, their total assets still significantly exceed those of the fintechs.
Some Boston Consulting Group data paints a similar picture. Fintechs have recorded revenue compound annual growth rates (CAGR) of 85–100% over the past five years. Traditional banks are growing revenue only at a 10% to 15% CAGR , but still hold the largest share of balance-sheet assets.
Are we living in a brave new world of financial services todays? Will fintechs and digitally savvy leading banks and insurers continue to thrive?
At best, this is correct for digitally leading financial services (FSIs) institutions that have already achieved a considerable degree of digital transformation (including of the back-end and back office). The others still have to walk that walk.
For all of them, AI is fundamentally changing the equation. Even before low code we had basic software development at the workplace; and low code/no code and citizen developers increased the speed. AI has changed who can build software. This is already dramatically reducing software development cost and increasing speed.
This starts to change the shape of industries:
But the impact of AI-powered software development won’t stop here. Its impact will go beyond fintechs and create a structural shift in the banking and insurance industries: It will affect entire ecosystems in banking and insurance.
Historically, smaller and mid-tier FSIs considered designing, integrating and running an application landscape with a best-in-class approach to be expensive and risky. They typically relied on banking and insurance platform providers such as Guidewire, Fiserv, Temenos, and regional captive revenue providers – and others. However, the result was vendor dependence regarding the speed of tech driven innovation, challenges regarding differentiation, and to some extent delayed digital transformation.
Now, small teams in FSIs can build features that once required large engineering organizations. That means that fintechs can specialize deeply with onboarding optimization, compliance automation. customer service, fraud signals, and pricing logic, for example. Or they can they can offer complete insurance and banking products.
Factors like increased expertise, maturing technology, evolving AI-capabilities and particularly vertically specialized AI agents will accelerate innovation cycles for incumbent banks and insurance firms as well as fintechs. The result will be a barely manageable and impossible-to predict-environment: a world flooded with innovation, the world of innovation glut.
Many FSIs are completely unprepared to cope with innovation glut. Elements of their application landscape (such as systems of record like core banking and core insurance) will remain stable – likely in a multi-core environment. However, everything else will be subject to continuous change.
FSIs aren’t choosing between platforms anymore. They’re choosing between dozens of narrow capabilities, each solving a specific problem better than a bundled solution ever could. Many of these fintechs will be disrupted, acquired, or fail outright. FSIs have to assume higher vendor churn, shorter solution lifespans, and less stability.
The FSIs that struggle will be the ones trying to manage that complexity manually. The ones that succeed will be the ones that design for flexibility, continuous change, and resilience for change from the start. This means FSIs won’t be able to focus on long-term applicatio