The Pace of Change in Banking Has Never Been Faster
Banks launched more than 4,500 new digital products and features in 2024, according to Finastra’s Global Banking Innovation Report. That is triple the number from 2019. The acceleration is driven by a combination of competitive pressure from neobanks, falling technology costs, regulatory modernisation, and customer demand for digital-first services. Banks that were once reluctant to change are now racing to modernise because the cost of inaction — measured in lost customers and shrinking market share — has become too high to ignore.
McKinsey’s 2025 Global Banking Annual Review found that banks investing more than 10% of revenue in technology are growing revenue twice as fast as peers spending less than 5%. The gap is widening because technology investment compounds — each new capability enables additional products and efficiency gains. Digital banking customers are expected to exceed 3.6 billion by 2028, and serving them profitably requires modern technology that legacy systems cannot provide.
Competitive Pressure Is the Primary Driver
Neobanks have demonstrated that banking can be delivered at dramatically lower cost with better customer experience. Nubank’s cost-to-serve per customer is one-fifth that of Brazil’s largest traditional banks. Monzo and Starling in the UK operate at cost-to-income ratios below 50%, compared to the 60-65% typical of British high street banks. These numbers force traditional banks to innovate or accept permanent competitive disadvantage.
Big tech companies are also entering financial services. Apple launched a savings account with Goldman Sachs that attracted $10 billion in deposits within four months. Google distributes financial products through Google Pay. Amazon offers lending to its marketplace sellers. These companies bring massive customer bases and sophisticated technology capabilities that traditional banks have not faced before.
Falling Technology Costs Enable Faster Innovation
The cost of building and deploying banking technology has dropped sharply. Cloud computing prices have fallen 70% over the past decade, according to Gartner. Open-source software provides free building blocks for common banking functions. APIs from fintech providers offer pre-built modules for identity verification, payments, lending, and compliance. A bank can now assemble a functional technology stack from existing components in months rather than building everything from scratch over years.
This cost reduction has a multiplier effect. When building a new product costs $500,000 instead of $5 million, banks can afford to experiment. They can launch products to test market demand, iterate based on customer feedback, and shut down failures without catastrophic losses. Fintech revenue growing at 23% annually reflects the banking industry’s willingness to pay for these lower-cost, faster-deployment technology solutions.
Regulators Are Supporting Innovation
Financial regulators in more than 50 countries have established innovation offices, regulatory sandboxes, or fintech licensing frameworks, according to the World Bank. The UK’s Financial Conduct Authority has been operating its regulatory sandbox since 2016, allowing more than 700 firms to test new financial products under supervised conditions. Singapore, Hong Kong, Australia, and Brazil have implemented similar programmes.
Open banking regulations are another form of regulatory support for innovation. By requiring banks to share customer data through APIs — with customer consent — regulators have created a competitive environment where new entrants can build products on top of existing banking infrastructure. The EU’s PSD2, the UK’s Open Banking framework, and Brazil’s Open Finance regulations have all accelerated innovation by reducing the barriers that previously protected incumbent banks from competition.
The Innovation Pipeline
Several technology trends are set to accelerate banking innovation further. Generative AI is being deployed for customer service, document processing, and code generation — JPMorgan Chase has developed LLM Suite, an AI tool used by 200,000 employees. Central bank digital currencies are in development or pilot stages in more than 130 countries, according to the Atlantic Council CBDC Tracker. Tokenised deposits and programmable money are being tested by major banks including Citi, HSBC, and Deutsche Bank.
Fintech venture funding has grown more than 10x in the past decade, providing the capital that fuels this innovation pipeline. The banks innovating fastest today are building the competitive advantages that will define market leadership for the next decade. Those moving slowly face the prospect of becoming utility providers — processing transactions for more innovative competitors rather than serving customers directly.
