Competition is increasing among fintech companies and they’re eating into the market share of banks, according to a new report from the Information Technology and Innovation Foundation. Last year, there were more than 4,000 active fintech companies operating in the U.S.—some worth more than $1 billion. McKinsey estimates that legacy banks and financial institutions with that same inventory could see profits decline 20% to 60% by 2025, according to the ITIF paper. Naturally, banks are trying to catch up. In 2015, 73% of banks had adopted some form of innovation strategy, up from 37% in 2009, ITIF reports.
The fintech companies of most concern to consumer banks are those offering mortgages, lending, retail payments, and wealth management tools. Luckily for these legacy institutions, most of the country’s financial laws are tailored to them, causing plenty of concern among innovative fintech startups and their investors. To bring fintech companies into the regulatory framework, the ITIF recommends that policymakers create national laws aimed at fostering fintech companies that take into account international finance laws. Already the Consumer Financial Bureau of Protection is becoming more inclusive of fintech companies in its rulings. For instance, the bureau recently wrapped mobile wallets like Google Wallet and PayPal into a decision related to prepaid debit cards.