Why FinTechs Are Crushing Traditional Banks in Customer Experience

In the first half of 2025, digital payments accounted for 99.8% of transaction volume in India, according to the Reserve Bank of India. At the same time, global fintech markets are projected to reach over $420 billion by 2029. The message is clear: digital-first finance is no longer an alternative; it is becoming the default.

FinTechs vs Traditional Banks in 2025–26

The financial world is transforming faster than ever. FinTech companies are agile, digital-native, and customer-centric, and have turned industry assumptions upside down. By contrast, traditional banks are still wrestling with slow systems, outdated infrastructure, and rigid legacy models.

What FinTechs Do Differently

• Delivery, onboarding, transactions, and services are completed within minutes on a mobile-first basis.
• Fintech’s AI & automation, along with real-time personalized service and decisioning, continuously engage customers.
• Services are at low cost, have a high level of transparency, and are frequently free or frictionless, with much lower fees than traditional service providers.
• Ecosystem-related experiences include budgeting, savings, investment, insurance, and rewards in one location.

Where Traditional Banks Still Hold Strength

• Regulatory trust & safety, banks are deeply regulated and trusted for secure savings and credit.
• Breadth of offerings, full-service finance, mortgages, wealth products, and capital markets.
• Customer loyalty among older demographics, many still stick with traditional banks for perceived security and long-held relationships.

Why Customer Experience Is Central to This Shift

Customer experience isn’t a buzzword; it’s the defining battlefield where FinTechs are outpacing traditional banks:

Speed & Convenience

FinTech apps offer intuitive interfaces, easy onboarding, instant transfers, and 24/7 access. Traditional systems, by contrast, often involve complex KYC, branch visits, and backend delays, a holdover from legacy infrastructure.

Personalization

FinTech platforms use big data and AI to tailor offers, insights, and advice. Traditional banks are investing in AI, but many still struggle to move beyond pilot modes to full, customer-facing implementation.

Real-Time Reliability

Real-time payments, instant settlements, and seamless interfaces are now expected. FinTechs have built this as standard. Banks are catching up, but legacy systems remain a drag on velocity.

Support & Human Touch

Here’s a surprising insight: FinTechs score higher on ease and speed, yet traditional banks still edge fintechs in customer support quality, thanks to established service channels and human assistance.

The Technology Gap — Blockchain, AI, APIs, and Real-Time Finance

Now, let’s talk about some crucial technology gaps. 

Blockchain & Distributed Ledgers

Blockchain isn’t just crypto; it’s reshaping identity verification, transaction security, and settlement processes that traditional banks historically handled more slowly via SWIFT and batch systems. FinTechs leveraging blockchain have dramatically reduced friction, especially in cross-border transfers and real-time payments.

Artificial Intelligence At Work

FinTechs use AI for customer service, risk modeling, fraud detection, and product recommendations. Most traditional banks are experimenting, but many banks remain in “pilot” stages, unable to scale AI fully across customer channels.

APIs & Seamless Integration

FinTechs thrive on API-first architecture: microservices, open banking, and modular tech stacks that integrate with third-party services, payment gateways, loyalty engines, and more. Banks are adopting APIs, but legacy core systems make these transitions slower.

A Close Look at India: Fintech Disruption

India’s fintech ecosystem is expected to be worth over $111 billion in 2025 and more than $420 billion by 2029. Increased digital usage, alternative lending choices, embedded finance, and mobile-first financial service offerings in both urban and rural locations are driving the fintech industry’s explosive growth.

An intriguing viewpoint on disruptive technology in the FinTech industry can be found in the Indian banking system:

Mass Adoption

Mobile wallets, UPI, P2P payments, and alternative lending platforms drove 481 million finance app downloads in 2023, showing massive digital adoption.

Credit Access & Inclusion

In India, FinTech NBFCs have issued approximately eleven crore personal credit facilities in FY 2024-25. FinTech continues to play an important part in increasing credit availability to segments of the population that have been underserved or underbanked.

Risks Still Present

Fast growth also brings challenges: cybersecurity threats, fraud mitigation, and customer support gaps are prevalent across fintech apps, although advances in real-time AI monitoring are strengthening defenses.

Loyalty, Rewards, and Real Customer Stickiness

While FinTechs excel in UX, loyalty can’t be built by UX alone. It’s built by value, trust, and ongoing utility.

FinTech Loyalty Models

• Points for referrals and usage.
• Cash-back tied to spending categories.
• Gamified rewards for engagement.

Bank Loyalty Programs

Banks offer product bundles, high-tier rewards, credit miles, and deep financial planning tools — often powerful, but hampered by poor personalization and digital conversion.

This is where loyalty tech like Novus Loyalty shines — helping both fintechs and traditional banks design smarter, data-driven reward systems that keep users engaged beyond initial adoption.

Fintechs vs Traditional Banks

Features/Criteria	Fintechs	Traditional Banks
Transparent Pricing	✅ Clear, upfront fees	⚠️Often complex fee structures
Digital Onboarding Speed	✅ Account in minutes	❌ May require branch visit / longer KYC
Mobile-First Experience	✅ Core foundation	⚠️Improving but legacy dependent
AI-Driven Personalization	✅ Real-time insights & offers	⚠️Limited / pilot-stage adoption
Blockchain Adoption	✅ Active use in payments & settlements	⚠️Experimental/selective
Real-Time Transactions	✅ Standard feature	⚠️Depends on infrastructure
Gamified Loyalty & Rewards	✅ Usage-based, cashback, referrals	⚠️Mostly card-based, less dynamic
Cost Efficiency	✅ Lower operational costs	❌ Higher branch & legacy costs
Customer Support Strength	⚠️Digital-first support	✅ Strong human support channels
Trust & Regulatory Depth	⚠️Growing trust	✅ Established trust ecosystem
Customer Satisfaction	92%	76%
Speed of Transactions	97%	85%
Best For	Gig workers, digital natives, SMEs	Large deposits, complex lending

Note: As stated in the J.D. Power 2025 U.S. Retail Banking Satisfaction Report, there has been a positive increase in consumers’ perceived level of comfort when dealing with their primary banking institution from a score of 655 to 1,000. But when looking strictly at digital banking from an all-digital standpoint, traditional retail banks rank lower in all categories regarding consumers’ level of satisfaction, specifically among young consumers who are focused on ease of use and speed through the mobile app/ web channel.

Prediction: What Happens in 2026 and Beyond?

According to McKinsey’s recent digital banking analysis, many traditional banks still offer less than half of the digital capabilities customers expect, while digitally advanced institutions deliver up to 85% of expected capabilities.

Meanwhile, Deloitte’s Digital Banking Maturity Index shows India’s banking sector improving from 43% to 59% in digital maturity between 2022 and 2025 — yet still evolving toward full digital transformation.

Some predictions are; 

FinTech continues to lead innovation: FinTech will continue to be the industry that outpaces all other types of banking in terms of adoption of digital banking, personalization, and real-time banking services

Hybrid banks win: Banks will continue to find ways to partner with FinTech or add FinTech features to their offerings to remain relevant in today’s world.

AI and Blockchain will separate the winners from the losers: AI and blockchain will be the most successful tools that separate those who have been able to effectively implement those technologies into their offerings from those who have not been able to successfully implement those technologies into their offerings.

Customer expectations continue to change: By 2026, the marketplace will have matured to where customers will expect speed, personalization, trust, and value-added features as minimum “table stakes.”

The Reserve Bank of India has stated that the adoption of generative AI in banking will result in an improvement to operational efficiency of almost 46%. Although fintech companies are using an AI-native approach, many traditional banks are still transitioning from pilot programs to scalable implementation of their own AI applications.

Final Thought

FinTech isn’t replacing banks; it’s rewriting the script for what customers expect from financial services. The winners in 2026 won’t be those who cling to old models; they’ll be the ones who embrace innovation while building deep, trust-based relationships with customers, supported by experiences, rewards, and loyalty strategies that people love to use.

And whether it’s a neobank app, a UPI-driven wallet in India, or a global digital bank, one thing is clear:

Customer experience isn’t nice-to-have; it’s the foundation of financial loyalty in the 21st century.