For years, banks have looked to
However, in many others, it has led to significant setbacks — jeopardizing regulatory compliance, eroding profitability and ultimately leaving banks more vulnerable than before. From a banking innovation insider's view, I believe fewer than 25 banks in the country are
So, what's the alternative? Should banks sit back and wait for the latest product rollout from the big core providers? What true innovation has come from these legacy vendors? If banks only buy from the same providers as everyone else, are they just ensuring they stay a decade behind? At some point, simply following the pack becomes a losing strategy for meeting client technology demands, simplifying processes and maximizing a bank's impact on the communities and industries it serves.
Consider the fact that today, three-person startups launched just six months ago are generating $30 million in revenue by leveraging AI. What happens when this revolution reaches banking? If financial institutions don't take ownership of their innovation strategy, they risk being left behind entirely.
I say this as someone who has lived on both sides of the equation. I spent much of my career in fintech, building solutions designed to help small businesses. The speed, creativity and problem-solving that fintechs bring to the table are invaluable. But there was always a ceiling — an inability to scale within the constraints of a startup environment. What fintechs lack is what banks have in abundance: a strong foundation, an established customer base and the trust that comes from compliance with decades of regulatory oversight.
This presents an opportunity to rethink how a bank can execute like a fintech — not by outsourcing innovation, but by embedding it within the institution itself. That means adopting a mindset of rapid iteration, leveraging technology internally and focusing on delivering exceptional user experiences. It also means finding ways to test new ideas efficiently without draining resources or exposing the institution to undue risk.
In fintech, "fail fast" is a common mantra. In banking, failure isn't just costly — it's often not an option at all. Regulatory risk, compliance hurdles, vendor dependencies and the complexity of integrating new pieces into core systems makes true experimentation difficult. By the time a bank launches a new product, it has often spent so much time and money that failure becomes unacceptable. That's a major problem because it discourages the kind of iterative learning that fuels true innovation.
The OCC's approval of SmartBiz buying a bank opens the door to other fintech M&A deals for accessing bank charters, which can help a fintech stay in business.
Instead of completely reinventing how banks operate, we need to rethink how they test and scale new ideas. Rather than investing millions into a new product only to find out later that customers don't want it, banks should adopt a mindset of "low-risk, high-learning" pilots — small, controlled tests that allow them to gather meaningful insights before making a significant commitment.
Artificial intelligence also presents a unique opportunity for banks to accelerate innovation while managing risk. With AI-driven analytics, banks can better predict customer behavior, personalize offerings and streamline operations, all without the heavy lift of traditional product development cycles. More importantly, AI can help banks test and refine ideas faster. By leveraging AI-powered simulations, digital sandboxes and predictive modeling, banks can analyze potential outcomes before bringing a product to market, reducing uncertainty and improving decision-making.
For example, AI can enhance deposit growth strategies by identifying untapped customer segments and optimizing pricing models in real-time. Instead of launching an entirely new product and waiting months to see if it gains traction, AI can help banks simulate different scenarios, allowing them to refine their approach before making significant investments. This kind of strategic innovation — fast, data-driven and iterative — is how banks can compete.
Banks need to stop looking at BaaS and fintech as an outsourcing arm and start developing their own innovation capabilities. The right approach isn't to copy fintechs but to execute like them — leveraging AI, streamlining internal processes, and making it easier to test and iterate without exposing the entire institution to undue risk.
The future of banking won't be determined by which fintechs banks partner with. It will be defined by which banks take control of their own innovation and execute effectively.
For too long, banks have outsourced innovation, placing their future in the hands of outside vendors. That's no longer a viable strategy. Innovation isn't just about launching new products — it's about building an infrastructure that allows a bank to move faster, adapt quicker and make smarter decisions.
