• Mark Andreev, COO at payment provider Exactly.com


• 24.10.2025 04:15 pm
#DigitalFinance #FintechTrends #FinancialInnovation

The lines between fintech and legacy banking are blurring fast. As consumer expectations grow and e-commerce merchants demand more from their payment partners, the tug-of-war between digital-first financial services and established banking institutions intensifies.

As the battle unfolds, it’s becoming clear that banks can no longer rely solely on their legacy and reputation, just as fintech companies can't lean exclusively on the advantages of speed and innovation.

Qualities such as agility, breadth of services and trustworthiness have now become baseline market expectations rather than differentiators. The question, therefore, is what comes next? And, perhaps most importantly of all, where does that leave the end user?

The inflection point

When it comes to consumer banking, it’s clear users have already voted with their wallets: neobanks such as Monzo and Starling have expanded their market share from 16% in 2018 to 50% in 2024, largely due to their digital-first approach, innovative features, and ease of use.

Banks have begun to respond to the fintech threat: Barclays’ Accelerator Programme proudly describes itself as “fintech-focused and overflowing with opportunities”. At the same time, Barclays Bank Pay offers a secure and simple payment method allowing customers to pay for online purchases directly from their bank accounts without using card details.

Payment solution providers, meanwhile, continue to focus heavily on technology: the e-commerce fintech sector is awash with buzzwords and phrases such as “Grow your revenue”, “Stay protected from fraud”, and “Enjoy easy customisation”. For banks, we see the same messages repeated ad nauseam: “Unlock your revenue” and “Grow your business and thrive”, along with continued talk of paperless processing and improving the economy.

Are we seeing market saturation at work? In the midst of a troubled economic outlook, one source reports that fintech investment is at an all-time low. One thing is certain: despite the growth of fintech payment providers, many e-commerce business segments are still underserved, and a concentration on technology, agility and consumer behaviour hasn’t left much time for real human support—a criticism usually levelled at legacy banks.

Adaptation and Agility

Fintech’s greatest asset remains speed. When consumer habits shift—say, from credit cards to mobile wallets—fintechs can integrate Apple Pay or Google Pay in weeks, not years. In the UK, nearly 42% of adults now use mobile wallets monthly, along with a massive 78% of those aged up to 24—figures that have doubled over the last five years and are testament to the appetite for digital-first experiences.

To compete, leading banks have launched embedded finance partnerships, Open Banking API sandboxes and venture capital divisions that co-invest in emerging technologies.

This hybrid approach can potentially deliver both security and faster time to market, provided of course, that the legacy technical debt is kept in check. A recently released whitepaper by RS2 revealed that banks spend 70% of their IT budgets maintaining legacy systems, often employing “patch-up” fixes to keep up with the rapid digital payment revolution.

Cumbersome legacy infrastructure also has a direct impact not just on development speeds, but on real-world money transfer speeds too. B2B payments can take up to three business days to clear via Bankers' Automated Clearing Services (BACS), and sometimes aren’t processed outside of standard business hours, leading to further unnecessary delays. In contrast, fintechs typically leverage more modern infrastructure and alternative payment rails, using technologies like Open Banking to enable real-time payments.

Building and Maintaining Trust

Although trust is one area where legacy banks have until recently maintained the upper hand, the fintech sector has caught up. The need to constantly prove they can safeguard data, maintain uptime and comply with evolving regulations has seen fintechs turn this into an advantage by openly publishing audits and building regulatory toolkits and responsible-lending guidelines into their policies.

The rise of Open Banking is also accelerating this trend. By granting third-party providers secure access to account data, regulators have forced every player—bank or start-up—to abide by shared rules. As of early 2024, the UK’s Open Banking ecosystem boasted over 7 million active users, a figure that’s set to double by 2026, contributing to the UK Government’s plans for a Smart Data Economy.

Serving the Underserved: SMEs and Micro-enterprises

A critical battleground is the long-neglected SME (small-to-medium enterprise) segment. Although many fintech providers offer bespoke payment integrations, countless smaller businesses and micro-enterprises struggle to access payment solutions that fit their budgets and technical capabilities.

In this segment, banks could potentially gain ground—especially in the offline world—by offering bundled POS terminals backed by tailored fees and fast remittance. Of course, fintechs increasingly have this area of the market covered as well, while also offering complete plug-and-play e-commerce tools that can undercut banks not just on cost and time-to-market, but also with flexibility and features.

Still, it’s important to mention that many payment providers in this segment haven’t fully cracked the code to onboarding, education and long-term support for small merchants—especially those planning to scale into new markets. That means not just focusing on APIs, features and competitive fees, but also on knowledge-sharing—helping entrepreneurs understand cash flow, risk mitigation and cross-border strategies.

The Rise of Closed-Loop Ecosystems

One of fintech's greatest innovations is the closed-loop ecosystem—both for consumer banking and e-commerce. Platforms like Revolut merge payments, deposits, lending, micro-investing and analytics into a single dashboard. Meanwhile, services like Shopify Payments provide a complete e-commerce solution for small businesses—from storefronts to payment acceptance.

By reducing intermediaries, merchants enjoy faster settlements, clearer reporting and the freedom to reinvest saved fees. Consumers in turn experience a unified journey—shopping, paying and budgeting without ever leaving one interface.

Even one of the last bastions of dominance for high-street banks—business current accounts—is also under threat from fintech providers keen to close the loop and offer complete payment solutions via a single platform. For businesses, especially those in e-commerce, keeping day-to-day financial operations under one provider simplifies reconciliation, enhances cash flow visibility, and improves operational efficiency. As trust in leading fintech brands grows, the transition to these kinds of services is surely inevitable.

Banks have begun to attempt to mirror this approach, assembling digital marketplaces and value-added services—though, again, we see their legacy systems and reliance on third-party payment rails putting them at a disadvantage.

Overall, as the world becomes increasingly connected and digital, the question for both payment providers and banks becomes: which parts of the payment stack can we own—or build partnerships around—to become indispensable?

Convergence over Conflict

The future of both banking and fintech surely focuses on collaboration—and perhaps eventually convergence. Banks bring compliance expertise, deposit liquidity and branch networks; fintechs contribute developer ecosystems, UX expertise, rapid prototyping and scaling. Together, they can offer embedded finance inside software platforms, “banking-as-a-service” bundles for non-financial brands, and hyper-personalised experiences.

Meanwhile, in the e-commerce space, payment providers have found their stride by forging API integrations with banking partners, licensing Open Banking data and developing innovative in-house payment solutions. These hybrid models demonstrate that the future of digital finance isn’t fintech versus banks—it’s fintech and banks, co-innovating to meet merchants and consumers where they are.