Ahead of the first Forbes Next Gen Banking & Fintech Summit, taking place in Cyprus on 13 October, keynote speaker Professor Costas Markides challenges the idea that fintech companies will replace traditional banks. He argues that the bigger long-term threat comes from technology giants such as Apple, Amazon and Google.
Markides is Professor of Strategy and Entrepreneurship at London Business School, where he holds the Robert P. Bauman Chair of Strategic Leadership. The author of 10 books and a contributor to leading academic and management journals, he discusses the forces reshaping banking, the role of artificial intelligence and what these changes mean for Cyprus.
Fintech companies have made payments, money transfers and investing faster, easier and more accessible, he says. However, attracting customers to an app is not the same as becoming their primary bank. Many consumers continue to use fintech services while maintaining a traditional bank for their wider financial needs.
Technology giants pose a different challenge. By becoming the platforms through which people make financial decisions, they could take control of the customer relationship. Banks would then risk becoming the infrastructure behind the scenes, providing capital and managing risk without maintaining the same direct contact with customers.
Rather than seeing fintech firms replace banks, Markides expects a hybrid future based on both competition and cooperation. Some fintech companies may grow into major financial providers, but he believes the more common outcome will be fintechs supplying innovation and specialist services, while banks provide scale, trust and financial strength.
Artificial intelligence, he argues, could bring an even deeper transformation, allowing banks to anticipate customers’ needs and guide their financial decisions rather than simply reduce costs. But investing in technology alone will not be enough: banks must also rethink how they operate and how they serve customers.
He also sees opportunities in the proposed digital euro, while warning that banks will need to offer more than basic payment services if they want to remain central to customers’ financial lives.
For Cyprus, his message is clear. Becoming a financial and technology hub requires more than ambition. The country needs skilled people, high regulatory standards and a long-term strategy focused on areas where it can compete. Its advantage, he argues, lies not in size but in specialisation, speed and trust.
As the keynote speaker at the first Forbes Next Gen Banking & Fintech Summit, which will take place in Cyprus on 13 October, what is the key message you want banking and fintech leaders to take away from your address at a time when the financial industry is undergoing such rapid technological change?
My main point will be that fintech innovations have changed banking profoundly, but fintech companies have not yet displaced traditional banks — and they are unlikely to do so in the future.
Traditional banks historically sell “a bundle” of interlinked services to the same customer — things like a current account, savings and deposits, payments, credit cards, loans, mortgages, financial advice, wealth management and so on. What fintech companies have done very well over the last 20 years is to “unbundle” individual services — that is, take them out of the bank’s package — and offer them much better, faster, cheaper or more conveniently on their own. They have found success unbundling services such as everyday payments, foreign exchange, travel money, buy-now-pay-later and do-it-yourself investing. In the process, they have managed to attract millions of customers, primarily young ones.
However, while these young customers are happy to have an account with a fintech provider, they still retain a traditional bank as their primary financial service provider. Moving forward, the big challenge for fintech companies is: “Will they succeed in growing to become not just a useful second account for young people, but also the primary financial home for customers?” This is the battle that will play out over the next 20 years.
My prediction is for a hybrid outcome:
A small number of well-funded fintechs — such as Revolut or Monzo — may develop into genuine primary banks.
Most will remain specialist providers, be acquired, partner with banks, or fail to gain the deposits, scale, trust and capital needed for resilient full-service banking.
Established banks retain important advantages that would allow them to prevent fintech companies from winning this battle: balance sheets, deposits, risk management, regulation, customer trust and the capacity to absorb losses.
For a fintech to succeed in becoming a full-fledged bank, technology alone is insufficient; success depends on a scalable business model, multiple routes to growth and enough capital to survive the long path to becoming a primary bank.
I finish my speech by making the provocative prediction that, much more than fintech companies, it is the Big Tech companies that will pose the greater long-term danger for banks. Companies such as Apple, Amazon and Google do not aspire to become banks themselves, but through their services they are beginning to own the customer interface and the moments when people make financial decisions. As a result, banks risk being reduced to regulated, balance-sheet infrastructure behind the scenes.
The Summit will focus on the future of banking and fintech. From your perspective, what is the most fundamental transformation taking place in financial services today, and are traditional banks moving fast enough to respond?
Lots of things are happening and it’s hard to single out just one of them. But if you force me to pick one, I’d say that the most fundamental transformation is that financial services are moving from being a bundled product sold by a bank to an unbundled collection of services being provided by multiple suppliers. In the process, the bank is in danger of losing the relationship with the customer.
Traditionally, the bank owned the relationship because it owned the account: your salary came in, your bills went out, and all the other services — payments, lending, savings, investments — were built around that core relationship. Today, that relationship is being broken apart. Fintech firms have taken individual moments — paying, sending money abroad, investing, borrowing — and made them simpler, faster and more intuitive. Customers may no longer “go to a bank” to borrow, pay, save or insure. They may access credit at the online checkout, make payments through a messaging app, receive insurance when booking travel, or invest automatically through a platform they already use. The financial service becomes almost invisible; what matters is the convenience and context of the overall customer journey. At the same time, Big Tech firms are trying to own the interface through which customers make financial decisions.
For banks, this shifts competition away from products alone and towards customer experience, data, trusted partnerships and the ability to integrate their capabilities into wider digital ecosystems. If they fail to do so, the danger is that banks become just the regulated infrastructure quietly sitting in the background, carrying the capital, risk and compliance burden without owning the customer relationship.
Are banks moving fast enough? Some are. The best banks, like KBC in Belgium and DBS in Singapore, have adopted digital onboarding, real-time payments, data analytics, AI-enabled services and partnerships with fintechs. But too many still treat digital transformation as a technology project rather than a redefinition of the customer relationship.
Banks retain formidable advantages: trust, deposits, balance sheets, regulatory capabilities and experience in managing risk. But these advantages will not protect them if they surrender the customer interface by default. Their challenge is increasingly clear: either become an excellent, profitable infrastructure partner — or build a distinctly better customer experience that makes the bank indispensable in people’s financial lives. The worst outcome is to lose the relationship while retaining all the cost and risk.
Artificial intelligence is rapidly becoming central to banking, from customer service and risk assessment to fraud detection and personalised financial products. Do you see AI primarily as a tool for improving existing banking models, or as a force that could fundamentally redefine the industry?
AI begins as an efficiency tool, but it has the potential to become a business-model transformation. The banks that win will be those that use it not simply to reduce costs, but to create a genuinely better, more trusted and more proactive financial relationship with their customers.
In the short term, AI will mainly improve existing banking models. It can make customer service faster, fraud detection more accurate, credit decisions more informed and operations far more efficient. Those are important gains — but they do not, by themselves, change what a bank is.
In the long term, AI has the potential to become a financial agent for the customer. Imagine an AI agent that continuously understands your income, spending, risks and goals; anticipates a cash-flow problem; compares products across providers; negotiates or switches your mortgage; and recommends actions before you ask. At that point, the centre of gravity shifts from selling banking products to helping customers make better financial decisions. More progressive banks are already doing this. For example, he points to KBC’s AI assistant called “Kate”. It is proactively helping customers not only with financial decisions but with a myriad of other problems.
That could fundamentally redefine the industry. Banks may no longer compete principally through branches, products or even apps, but through the quality of their data, their AI capabilities, the trust customers place in their recommendations, and their ability to act responsibly on a customer’s behalf.
Consumer expectations are also changing rapidly, with customers demanding faster, simpler and increasingly personalised financial services. How much of the disruption in banking is being driven by technology, and how much by changing consumer behaviour?
Both forces are influencing disruption in the industry, and it is hard to isolate the effect of each. It is fair to say that the two forces reinforce each other. Technology lowers the cost of delivering a better experience; consumer expectations raise the penalty for firms that do not provide one.
The challenge for banks is not simply to install new technology. It is to redesign the customer journey around the new standard of simplicity, speed, relevance and trust.
Digital payment methods and instant money transfers are growing rapidly, while the European Union is moving forward with plans for a digital euro. How do you expect these developments to reshape the way consumers interact with money and financial institutions? What opportunities and challenges could the digital euro create for traditional banks and fintech companies?
Consumers increasingly expect money to move as easily as a message — immediately, cheaply, across borders and embedded in whatever service they are using. The digital euro could reinforce that shift by creating a widely accepted form of public money for the digital age — alongside, not instead of, cash and private payment methods.
For consumers, the potential benefits are straightforward: a European-wide payment option, instant use, resilience — including an offline capability — and possibly greater choice and privacy than some existing digital-payment arrangements.
For banks, the digital euro is both an opportunity and a warning. It could give them a common European payments infrastructure on which to build better wallets, merchant services and innovative financial products. But basic payment services are becoming more commoditised. If banks merely distribute the digital euro while technology firms own the customer interface, banks risk losing a valuable source of data, engagement and fee income.
Fintechs may benefit from a more open, standardised payments environment and lower barriers to serving customers across Europe. But they, too, will have to differentiate themselves through the experience and services built around the payment — not the payment rail itself.
Fintech companies were once widely portrayed as disruptors that could challenge or even replace traditional banks. Today, we increasingly see partnerships between the two. Do you believe collaboration between banks and fintechs will ultimately become more important than competition?
This is the topic of my keynote speech! Fintechs have been very good at designing better solutions for certain banking services: faster onboarding, simpler payments, easier investing and more intuitive interfaces. Banks, on the other hand, bring a different set of assets: trusted brands, large customer bases, deposits, balance sheets, regulatory capabilities and deep expertise in managing risk.
That combination is powerful. A fintech may invent the better idea, but a bank may be better placed to scale it safely and profitably. This is why so many fintech innovations — mobile payments, digital onboarding, robo-advice and API banking — have become mainstream through a mixture of copying, partnering and acquisition.
To succeed, banks must not use partnerships simply to bolt fashionable technology onto an unchanged model. They need to learn from fintechs how to improve the customer experience, increase speed and simplify their own organisations. Equally, fintechs must recognise that becoming a full primary bank requires capital, trust, deposits, risk management and resilience — not just a good app.
So I expect a hybrid industry. A small number of fintechs will become major, independent primary financial providers. But the more common outcome will be a division of labour: fintechs supplying innovation and specialised capabilities; banks supplying scale, trust and financial muscle.
Much of your research has focused on how established companies respond to disruptive innovation. You have argued that incumbents often need one strategy to defend their core business and another to pursue disruptive opportunities. How should this thinking be applied to banks facing fintech competitors, digital-native companies and AI-driven business models today?
The key lesson that we have learned about disruption is that disruption is both a threat and an opportunity. This implies that incumbents need a strategy to defend and attack disruption at the same time.
Sometimes, a company can defend and attack with one strategy — note how Walmart responded to Amazon. Other times, it is better to have two strategies: a strategy of defence that focuses on the core business, and a strategy of attack that a separate unit might adopt.
Notice, for example, how Nestlé developed Nespresso as a separate unit and how AutoTrader also grew its digital business as a separate unit. Whether a company can defend and attack simultaneously with one strategy or two depends on the specific circumstances it is facing.
This is why we now see some banks trying to respond to digital disruption through separate units — such as Santander’s Openbank and Standard Chartered’s Mox Bank — while other banks try to do it through their existing business model.
There is no generic answer that applies to all companies, but in general, the more disruptive the change, the greater the need for incumbents to develop it in a separate unit. It is for this reason that I suspect banks that want to use AI to reinvent their business model will probably have to do so through a separate unit.
You have also written extensively about continuous disruption and the need for organisations to remain adaptable. What distinguishes companies that successfully transform themselves from those that invest heavily in digital transformation but ultimately fail to change the way they operate?
I wrote about this challenge in my book Organising for the New Normal. Successful transformation requires many things — such as the right attitude towards disruption, a positive sense of urgency, a strategy that everybody has bought into, and an organisational environment that supports the behaviours needed for transformation.
In addition, when it comes to digital transformation, it is important to avoid simply investing in data and technologies without changing the underlying organisation. Instead, you should aim to do certain other things before investing in technology.
For example:
Start with a clear strategic question: what will customers value in the future, and how might our current business model become less relevant? Technology then becomes a means to pursue that answer, not the strategy itself.
Once you focus the organisation on this strategic question, create space for experimentation. Allow your people to test new propositions early, learn quickly and accept that many experiments will fail. The objective is not to predict the future perfectly; it is to build the ability to respond when the future arrives.
In doing this, leadership matters enormously. Senior executives must make it safe to challenge the existing formula — even when that formula has made the company successful. They must reward learning, collaboration and constructive dissent, rather than only efficiency and short-term delivery.
Finally, successful transformation requires the adoption of new behaviours. For example, decisions move closer to customers; data is used in everyday work; teams collaborate across functions; and people develop the confidence to adapt rather than wait for instructions.
For these behaviours to emerge, it is not enough to ask for them — you need to create an organisational environment where they are supported and become the norm.
In short, the winners are not the companies with the most technology. They are the companies that become most capable of repeatedly questioning, renewing and, when necessary, replacing their own winning formula.
As a Cypriot who has spent much of your academic career internationally, how do you assess Cyprus’s potential to develop into a regional financial and technology hub? What does the country need to get right in terms of talent, regulation, innovation and strategy to compete internationally?
Cyprus can compete internationally, but not through scale. It must compete through focus, speed, trust and the ability to connect regions that larger centres do not serve as naturally.
Ambition is not enough. The first thing we should try to build is talent. The country needs to attract international technologists, entrepreneurs and specialist financial talent, while also strengthening its universities, technical education and links between academia and industry.
The aim should be not simply to import talent, but to create an environment in which Cypriots and international professionals want to build long-term careers and companies.
We should also try to strengthen our regulations. A financial and technology hub cannot be built on light-touch regulation or reputation alone. It needs high standards in anti-money-laundering, governance, cybersecurity and consumer protection.
But it also needs regulators who understand innovation, engage constructively with new business models and provide clarity quickly.
More importantly, we should use a focus strategy. We cannot win at everything, nor do we have the resources to invest in everything. Rather than trying to be excellent at every aspect of technology, we should build real strengths in a few areas — for example, payments, wealth and asset-management technology, maritime finance, compliance, cybersecurity or AI applications in financial services.
Finally, we need a shared national strategy. Government, regulators, universities, banks, investors and entrepreneurs must align around a small number of priorities and pursue them consistently for a decade or more.
Too many countries announce themselves as “innovation hubs”; very few build the institutions, capabilities and trust that make the claim credible.
