As fintechs push for speed and innovation, banks struggle with legacy processes and compliance demands, risking a growing divide in partnership viability.
In a conversation that ranged from boardrooms to code repos, a credit risk expert at a leading US bank offered a frank diagnosis of why financial innovation so often stalls inside incumbent institutions.
Banks talk a good game about transformation, the expert said, but “too often, they kill it in committee.”
While fintechs iterate at the speed of code, incumbents funnel ideas through sequential legal reviews, risk assessments and board approvals until the runway runs out.
The tempo mismatch is structural, not accidental. Fintech founders optimise for agility and growth, unencumbered by legacy processes.
Banks, by design, navigate a labyrinth of compliance, legal, IT, vendor management and executive sign-off.
Onboarding a fintech partner, the expert noted, can stretch from twelve to eighteen months - “a lifetime for an early-stage firm burning cash,” according to the expert.
Even late-stage deals, they added, can unravel at the eleventh hour when risk or compliance raises new objections.
Inside many institutions, fragmentation compounds the drag.
“Compliance doesn’t always talk to legal, and vendor management is brought in too late,” the expert said.
The result is redundancy, delay and rising opportunity cost at precisely the moment when market forces demand speed. Consumers now expect frictionless, digital-first experiences - the kind that can be activated in seconds, not quarters.
The warning was direct: without fixing the operating model, incumbents risk drifting into irrelevance, not for lack of tools, but for lack of decisiveness.
There are signs of adaptation. The emergence of digital-first challengers - with streamlined onboarding, rapid credit decisions and embedded financial tools - has forced legacy players to respond.
Some banks have set up internal venture and build studios, taken minority stakes in fintechs or moved to acquire platforms outright to bring expertise and intellectual property in-house.
Trade finance has been an early beneficiary of this shift, with purchases aimed at reducing fraud and illuminating data flows in a historically paper-heavy corner of banking.
Crucially, the expert argued, the relationship between banks and fintechs is not a zero-sum contest. It is a mutual dependency.
Startups bring specialism and speed that are hard to cultivate at scale; banks bring balance sheets, licences and access to capital markets that startups cannot replicate overnight. When partnerships work, they produce a blend of innovation and stability that neither side can deliver alone.
The macro backdrop, however, is unsettled. In downturns or periods of uncertainty, innovation teams are often first in line for cuts. That reflex, the expert suggested, risks backfiring.
