How Banks and FinTechs Are Partnering to Thrive in 2025

​According to NimbleAppGenie, the global FinTech market continues to expand at an impressive pace, with consumer demand for digital solutions reshaping the financial landscape. Meanwhile, a Visa & This Week in Fintech report (November 2023) shows 5.3 billion internet users worldwide—over 66% of the population—fueling the shift to online banking and digital-first financial products.

Against this backdrop, traditional banks face pressing questions: How can they keep up with tech-savvy competitors and satisfy user expectations of instant, user-friendly service? Far from obsolete, many banks bring deep capital reserves, regulatory expertise, and established brand trust. 

By partnering with FinTech innovators—whether via acquisitions, joint products, or specialized vendors—banks can modernize their offerings to thrive in 2025 and beyond.

1. Why Traditional Banks Still Matter

Despite the success of digital-only upstarts, traditional banks hold competitive edges:

1. Regulatory & Compliance Mastery: Banks manage complex frameworks such as Basel III, Dodd-Frank, and local mandates (e.g. SAMA guidelines in Saudi Arabia). This deep compliance background instills confidence in customers, especially for large transactions.

2. Established Brand Trust: An FDIC survey notes that consumers often rely on known institutions for financial stability. Banks leverage decades of reputation to cross-sell new digital products with credibility.

3. Lower-Cost Capital: Deposits are typically the cheapest source of funding, enabling banks to invest in or acquire promising FinTech ventures at scale.

2. Top Challenges Facing Banks in the FinTech Era

A. Digital Competition & Deposit Flight

• Unbundled Services: FinTechs “cherry-pick” profitable niches (payments, consumer lending, wealth) and undercut fees.
• Flighty Deposits: With real-time transfers, depositors switch accounts swiftly for better APYs—highlighted by run-on deposits at certain regional banks in early 2023.
• Branch Reductions: The FDIC reports a steady decline in the number of U.S. bank branches from ~100,000 to ~80,000 yearly since 2009, reflecting the pivot to digital banking channels.

B. Legacy Systems & Rising User Expectations

• Rigid Cores: Many banks rely on on-premise tech, limiting third-party integrations and slow feature rollouts.
• Mobile Banking Demand: DataProt indicates over 87% of U.S. adults used mobile banking in 2020, expecting fast, intuitive apps—an area where FinTechs excel.

C. Compliance Overheads

• Costly Regulations: An Accenture study shows compliance can consume 5% of a retail bank’s revenues.
• Cyber & Data Protection: Rapid digitization expands vulnerability, prompting stricter government oversight and heavier fines.

3. Why Fintech Partnerships Also Benefit Startups

FinTechs face hurdles that banks can help solve:

1. Regulatory Complexity: Fragmented rules push FinTechs to partner with licensed banks to offer deposit accounts, credit, or cross-border payments.
2. Trust & Scale: Winning “top of wallet” from entrenched banks requires major marketing spend.
3. Higher Capital Costs: Without cheap deposit funding, FinTechs rely on venture capital or expensive debt facilities, limiting profitability.

By working with a reputable bank, FinTechs gain instant regulatory coverage, brand legitimacy, and distribution—boosting user acquisition while reducing compliance strain.

4. Three Principal Paths to Bank–FinTech Collaboration

Drawing on the Visa & TWIF (2023) analysis, plus real-world case studies:

A. Mergers & Acquisitions

• Acqui-Hires & Tech Acquisitions: JPMorgan has acquired 30+ FinTechs since 2021, including British wealth platform Nutmeg and Greek digital wallet Viva Wallet.
• Minority Investments: Banks might take equity stakes, supporting FinTech with compliance expertise and marketing resources.
• FinTech Buying a Bank: LendingClub famously acquired Radius Bank to access cheaper deposit funding and expand its lending capacity.

B. Joint Offerings & White-Label Services

• Co-Branded Products: HSBC teamed with Tradeshift for a supply-chain finance solution; Citi partnered with Intrafi for deposit sweeps—demonstrating shared product success.
• White-Label & Sponsorship: FinTechs leverage a bank’s regulatory license to offer consumer-facing accounts or credit cards.
• FinTech Vendors: Some banks integrate specialized solutions (e.g., Thought Machine, nCino) to modernize core banking and deliver frictionless UX or advanced compliance modules (e.g., KYC/AML).

C. Procurement of Specialized Tools

• Cloud-Based Cores & APIs: Finastra research shows 75% of banks plan new FinTech procurements, especially in open APIs and cloud to facilitate real-time data insights.
• Risk & Compliance: Third-party AI tools can automate watchlist screenings, fraud detection, and produce real-time risk reports, slashing overheads.
• Customer Experience Innovations: Chatbots, personalization modules, or advanced analytics bolster user retention and cross-selling—mirroring FinTech’s hallmark UX.

5. AI and Data Insights: The Next Frontier

Per the Visa & TWIF (2023) PDF, artificial intelligence can revolutionize:

1. Compliance: Automate manual tasks like transaction monitoring, saving billions.
2. Credit Underwriting: ML-based scoring expands lending to “thin-file” customers responsibly.
3. Customer Support: Bank of America’s Erica (a virtual assistant) surpassed 1B user interactions, enhancing 24/7 service.
4. Investment & Robo-Advisors: Real-time analytics enable dynamic portfolio management.
5. Fraud & Risk: Deep learning flags anomalies faster, though “black-box” AI can raise regulatory concerns about transparency.

6. Tackling Deposit Flight & Maintaining Liquidity

One highlight from the Visa & This Week in Fintech insights is the growing fragility of deposits:

• Real-Time Transfers: Tech-savvy users can move funds instantly for higher yields, leaving banks susceptible to outflows.
• Partnership Strategies
  • Expanded Channels: By embedding bank accounts into FinTech products (like BNPL or digital wallets), banks tap new customer bases.
  • Liquidity Tools: Modern core systems offer real-time stress tests and deposit sweep marketplaces, letting banks adapt to shifting interest rates.

7. Practical Steps for Banks to Evolve by 2025

1. Perform a Core Tech Audit

   • Identify legacy blockers. Transition to cloud-based or modular cores for agile integrations.
   • Partner with FinTechs that offer robust API frameworks.
      

2. Invest in Strategic FinTech Alliances

   • Consider M&A for advanced capabilities (e.g., AI, mobile UX).
   • Join or create accelerator programs to co-develop new solutions in-house.
      

3. Leverage AI for Compliance & CX

   • Deploy ML to reduce error-prone manual processes.
   • Evaluate user feedback loops for improved personalization and satisfaction.
      

4. Optimize Deposits & Capital

   • Introduce specialized accounts to retain customers amid high-rate competition.
   • Use deposit sweep networks (e.g., Intrafi) to manage liquidity in real-time.
      

5. Refine Omnichannel Experiences

   • Provide seamless mobile and desktop experiences, interactive dashboards, and real-time alerts.
   • Offer advanced budgeting or analytics tools for personalization—mirroring top FinTech user journeys.

8. Future Outlook: Rebundling of Financial Services

Though early FinTechs unbundled bank services, a Fintech Nexus report shows many are “rebundling” to deliver multiple solutions under one digital brand. This shift benefits incumbents:

• Banks as the Backbone: FinTechs rely on banks’ regulatory coverage, deposit funding, and brand credibility.
• Holistic Financial “Supermarkets”: Consumers enjoy convenient “all-in-one” experiences, strengthening loyalty.
• Deeper Collaboration: Co-branded products or integrated dashboards unify data for real-time insights, fueling continuous user engagement.

Conclusion: Thriving Through Bank–FinTech Synergy

As digital disruption accelerates—driven by user demand, AI breakthroughs, and shifting regulations—banks and FinTechs can find mutual success through:

1. Acquisitions & Minority Investments: Tapping innovative teams and solutions.
2. Joint Offerings & White-Label Partnerships: Leveraging each other’s strengths, from compliance to nimble tech.
3. Procurement of Specialized Tools: Modernizing core banking, risk, compliance, and user experience.

By collaborating instead of competing, incumbent banks future-proof themselves against digital disruption while FinTechs scale faster, bridging any regulatory or funding gaps. It’s a win–win that sets the stage for secure, user-centric financial services in 2025 and beyond.

Ready to Modernize Your Banking Experience?

Contact iSpectra for expert guidance on digital transformation, FinTech partnerships, and state-of-the-art solutions to position your financial institution for success.

Author bio: Firas Ghunaim is the Marketing Manager at iSpectra, overseeing digital transformation initiatives and strategic partnerships across the BFSI, government, and nonprofit sectors. Drawing on years of hands-on experience in international markets, he specializes in blending technical innovation with user-centric design. Firas’s mission is to empower organizations to thrive in a fast-evolving digital landscape through agile product development, FinTech collaborations, and data-driven marketing insights.