A Structural Shake-Up in the Global Financial System

Over the past decade, a deep structural transformation has been underway in the global banking system—one that is redefining banking models, customer relationships, and market structure. Digital banks, emerging from the broader fintech wave, are challenging traditional financial institutions by offering innovative, flexible, and technology-driven services. This shift is driven by wide-reaching regulatory, technological, and social changes that are redefining access to financial services and altering the expectations of modern consumers.

Data: Rapid Penetration of Fintech and Digital Players into the Banking Sector

As of 2025, according to McKinsey, more than 28% of consumers in developed economies use banking services provided by non-traditional entities. In countries like the UK, Germany, and the Netherlands, this figure exceeds 35%. In the United States, the number of users of digital banking applications grew by 280% between 2019 and 2024. In Israel, the Bank of Israel reported a 47% increase in active accounts held with fully digital banks such as Pepper and banki.

In capital markets, venture capital investment in fintech surpassed $150 billion in 2021 and has since stabilized at annual levels of $90–100 billion—positioning fintech as a core component of the global digital economy.

Analysis: Structural Advantages Disrupting Traditional Banking Dominance

Digital banks like Revolut, Monzo, N26, and Chime operate with business models that differ fundamentally from traditional banks. These entities are technology-based, without physical branches, and rely on mobile-first applications, AI-driven interfaces, and automated services. A key advantage lies in their cost structure: while traditional banks carry heavy fixed costs (real estate, workforce, legacy systems), digital banks operate with high operational efficiency, allowing them to offer low- or no-fee services.

Moreover, digital banking platforms provide an advanced user experience: opening an account in minutes, smart budget management tools, instant savings features, personalized expense tracking, and even cryptocurrency trading—all within a unified interface. This raises consumer expectations and pressures legacy institutions to invest in innovation and service quality.

Contrasts Between Traditional Policies and Emerging Models

The divergence between fintech entities and digital banks versus classical banking institutions is reflected not only in pricing and interface, but also in business philosophy. While traditional banks emphasize risk management and stability, fintech firms adopt a flexible, data-driven approach built around “Open Banking” principles. This promotes transparency and grants consumers greater control over their data and access to external services—developments that have only recently gained regulatory support.

However, the new model is not without its challenges. The absence of branches and personal interaction, dependence on technology platforms, and reliance on cloud infrastructure introduce new operational risks. Furthermore, regulatory questions remain unresolved. Traditional banks may be slower and more expensive, but they benefit from long-standing public trust, financial stability, and stringent regulatory oversight.

Regulatory Adaptation: Balancing Innovation and Stability

In most countries, regulators now face the dual challenge of safeguarding financial stability while encouraging innovation and competition. In Israel, the Bank of Israel published a new regulatory framework in 2024 for licensing digital banks and fintech companies, setting capital adequacy, risk management, and data privacy requirements. Concurrently, the Open Banking framework, implemented in recent years, allows third-party access to banking data with consumer consent—fostering competition while elevating regulatory scrutiny.

In Europe, fintech is regulated under the PSD2 directive. In the U.S., regulatory responsibility is divided among multiple agencies, which sometimes delays policy implementation. In East Asia—particularly Singapore and Hong Kong—regulators pursue proactive approaches using “sandbox” models that encourage experimentation under controlled conditions.

Forward Outlook: Sector Convergence, Structural Transition, and an Evolving Future

Given the increasing adoption of digital services, the banking sector is in the midst of a long-term structural transition. On the one hand, fintech firms are expected to continue expanding, especially among younger, tech-savvy demographics and previously underbanked populations. On the other hand, legacy banks are unlikely to disappear—they are more likely to adapt by investing in technology, acquiring fintech startups, or establishing independent digital divisions.

According to PwC projections, by 2030, approximately 40% of personal banking services will be provided by non-bank or tech-based platforms. Meanwhile, hybrid banking models—combining digital interfaces with human service for complex needs—are likely to rise.