Banktech or fintech? Strategic choices for banks

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Pam Kaur is head of bank technology at BankTech Ventures.

Amid the 2025 banking landscape, banks are navigating intense debates around agentic AI banking, particularly concerning how generative AI solutions should be governed.

The rise of embedded finance has banks rethinking their competitive strategies as non-banking players like Amazon and Shopify increasingly offer financial services directly to consumers. Additionally, regulatory battles — especially around the OCC’s chartering of fintechs and the rollout of real-time payment infrastructure, such as the Federal Reserve’s FedNow service — are reshaping strategic priorities. 

Banks now face a pivotal decision: how to clearly separate strategic enablers from disruptive competitors. Understanding the nuanced differences between banktech and fintech and navigating their increasingly blurred lines is no longer optional, but imperative.

Banktech specifically enhances banks' abilities to serve customers and optimize operations through innovations like faster payments, AI-driven fraud detection, regulatory compliance tools, and improved loan underwriting. Fintech initially supported traditional financial institutions, but has evolved aggressively, often directly competing against banks through consumer-facing solutions such as neobanks (e.g., Chime, Current), challenger banks, and nonbank lending platforms like Affirm and Klarna.

Yet banking’s competitive landscape today defies neat categorizations. The rise of hybrid models — fintechs becoming regulated banks, banktech platforms enabling direct-to-consumer fintechs, and AI startups selling solutions to both fintechs and banks — blurs traditional distinctions. This dynamic underscores significant competitive tensions, with banktech inadvertently enabling fintechs to bypass traditional banks entirely or compete directly, creating ambiguous alliances and strategic risks for banks. Many fintech-bank partnerships today resemble fragile truces rather than genuine alliances, with fintechs often quietly preparing competitive moves that could catch banks off-guard. Banks must acknowledge that today's partner could rapidly transform into tomorrow's competitor.

"Think of fintechs and banktechs like a movie production," says Nathan Baumeister, CEO of ZSuite Tech. "In fintech, the fintech company is the lead actor, with banks often merely supporting off-stage. Banktech reverses this dynamic, with banks as stars supported by behind-the-scenes technology."

To compete effectively against Big Tech companies like Apple and Google, which leverage vast ecosystems, and against powerful AI-native entrants such as OpenAI and Anthropic entering financial services, banks — especially budget-conscious community institutions — must strategically embrace banktech as a critical ally.

However, this embrace carries inherent risks. Some banktech platforms inadvertently empower fintech disruptors or Big Tech companies, complicating banks' competitive landscape further. Embedded finance, initially welcomed by banks as an innovative partnership opportunity, is increasingly functioning as a Trojan horse. Platforms like Amazon and Shopify leverage embedded finance not merely to enhance their ecosystems but to take direct control of customer relationships, effectively marginalizing traditional banks to back-end providers. Rather than solely enhancing operations, certain banktech partnerships may unintentionally strengthen competitors, requiring banks to be vigilant and strategic in their choices.

Embedding banktech internally and externally

Successful banktech integration requires banks to partner strategically and invest internally, attracting tech-savvy talent eager to drive genuine innovation. Today's top technologists demand not only attractive compensation but meaningful opportunities to influence digital transformation and tackle complex, impactful challenges.

"Fintechs win on speed and immediate transactional conversions," says Georgina Merhom, Founder and CEO of SOLO. "Banks, however, possess deeper advantages — lower capital costs, established risk management, and lasting customer relationships. By leveraging banktech strategically, banks can transcend short-term transactional thinking and engage proactively, turning customer insights into profitable relationships."

Navigating banktech adoption strategically

Banks looking to partner with banktechs need to think critically and strategically before making a decision. Key considerations include:

  • Evaluating core systems: Regularly assess your core banking provider’s capability to support your bank’s evolving digital strategy, including AI integrations and real-time payments.

  • Auditing tech stacks: Understand and optimize existing technologies to prevent tech debt and guide effective investment.

  • Identifying high-impact use cases: Implement AI-powered automation to improve efficiency without massive system disruption.

  • Prioritizing integration: Seamless integration ensures that new technology enhances rather than complicates bank operations.

Establishing robust banktech partnerships

Once a decision is made, both parties need to see each other as true partners. A few points to consider:

  • Set clear expectations: Define whether partnerships are short-term projects or long-term strategic collaborations.

  • Look beyond checkbox compliance: Vet partners thoroughly on AML/BSA adherence, compliance readiness, and regulatory adaptability.

  • Conduct rigorous due diligence: When engaging with startups, particularly early-stage firms, assessing their financial backing, investor credibility, and long-term sustainability is crucial.

As banking innovation continues at breakneck speed, clearly distinguishing strategic banktech enablers from competitive fintech disruptors and effectively navigating their increasingly overlapping roles remains essential to bank success. With tech-savvy leadership and a proactive strategy, banks can unlock the transformative potential of banktech to thrive in today’s complex financial ecosystem.