Sarah Biller is co-founder of Fintech Sandbox, a Boston-based nonprofit providing entrepreneurs access to high quality datasets.

Subscribe to the FR

The Federal Reserve Bank of Kansas City reports that there are now approximately 4,000 commercial banks nationwide — a steep decline from the 14,000 operating in the 1980s.

Their research further notes the assets of the five largest commercial banks in the U.S. represent almost half of total banking assets and greater than three times growth from 1990 when these institutions held 15% of total banking assets.

Why is this the case? The often-made arguments for such significant contractions are valid for an asynchronous banking world: Analysts will frequently say banking consolidation, especially for banks serving Main Street businesses, has resulted from changing demographics, competitive pressures and advances in financial technologies.

In an operating environment where the physical and digital worlds are blurring, however, the explanation for the reduction in the number of banks deserves closer examination. Relying on changing demographics, in my estimation, raises more questions than answers for an industry that has gone through a decade or more of digital transformation. By contrast, the number of small businesses has grown considerably over the same period, even as the number of banks has contracted.

There were 15 million small businesses in 1980 versus 33.2 million small businesses in 2024, according to U.S. Chamber of Commerce estimates. According to the Small Business Administration, these businesses employ 62 million Americans, or 46% of the private sector employment today. This growth in small businesses comes as little surprise to those of us who have built a fintech company before.

Victor Hwang, CEO of the small business advocacy company Right to Start reminds us that we are born to be starters, makers, doers and dreamers. "Each of us has a fundamental right to start our own thing, realize an idea, create something of value, forge a unique path, be master of our future," he notes. We all have a fundamental right to banking services that enable us to build our companies — and that presents a tremendous opportunity for bank tech innovators.

Competitive pressures also portend an opportunity rather than a crisis.One might argue that although our banking industry is historically resistant to disruptive technologies, connectivity and the rapid adoption of online and mobile tools are now driving huge changes across the sector. In other words, the moat created by thousands of years of banking face to face has been replaced by a digital environment that facilitates transactions, lending and deposits.

To underscore this observation, Hyde Park Capital reports that global demand for core banking software is growing at nearly 18 percent CAGR and is projected to exceed $63 billion over the next decade. A significant portion of this investment in technology appears to be directed toward AI-enabled capabilities that deliver real-time customer insights and personalization.

This is good news for community banks seeking to leverage technologies that restore their customers’ sense of community and belonging, whether those customers enter a Main Street bank branch or one in the meta world. The wise words of former Federal Reserve banker Esther George further underscore the need for action. “As relationship lenders, payment providers, and deposit safekeepers, community banks are integral parts of the thousands of cities, towns, and neighborhoods they serve,” she said.

Does this reopen the door for community bankers best positioned to serve the small business market to expand the definition of community into the immersive world of Web3? Fintech innovators are already bringing the digital revolution to Main Street Banks. We will demonstrate a select few of these capabilities from around the globe at Fintech Sandbox’s 11th Annual Demo Day on Monday, April 28.

For example, startups like U.K.-based Serene are augmenting frontline servicing capabilities with emerging technologies while amplifying the personal relationships that community banks have historically had with their clients. Serene will share how they empower institutions to draw compliant intelligent insights gleaned from transactions and open banking data and anticipate and react to their client’s needs.

Other startups like Sandbox Wealth are capturing evolving customer preferences from their real-time, 24/7 online activity and combining digital capabilities with new datasets to improve business owners’ enterprise-grade reporting and liquidity tools, simplifying their access to capital. By developing an integrated front end with legacy back-end processes to provide an omnichannel experience, fintech enables community banks to lend to small businesses where they are and compete from a place of efficiency rather than be beaten by economies of scale.

We’ll also hear from the team at Calculum, which will demo its science-driven, AI-powered supply chain analytics platform designed to unlock working capital and generate additional free cash flow. The firm’s proprietary approach to analyzing, predicting and optimizing payment terms with millions of suppliers around the globe comes at a crucial time, as businesses of all sizes assess the impact of tariffs while opening the door to bank credit.

Enjoying your read? Sign up here

We’re excited to take a deeper dive into Serene, Sandbox Wealth, Calculum and other startups driving a resurgence across the legacy banking, insurance, and wealth management sectors at our upcoming Fintech Sandbox Demo Day. More details and registration can be found at www.fintechsandbox.org.

Our next article will explore the future of banking in light of these dynamics and the remarkable innovation on the horizon.