The Investment Opportunity Behind Digital Banking

The traditional financial system was anchored around banks and their physical presence in local branches. This was where people and companies would go to open accounts, make deposits, withdraw and transfer money, apply for loans, open brokerage accounts, etc.

As time passed, the importance of these branches declined, as more and more financial activities were digitized, and access to them shifted online.

But the more radical shift happened with the emergence of fintech (financial technology) companies, which leveraged the Internet to create radically better customer experiences when dealing with money: cheaper or no fees, quicker, entirely online, simpler or no paperwork requirements, etc.

How this impacts the activity of traditional banking is not always clear. On one hand, it is expected to reduce the usefulness of the traditional bank branches model. On the other hand, an actual human presence in a physical building can still be valuable in many ways.

Two researchers from University College London (UK) and Qatar Foundation have investigated the effects of fintech entry in a market on bank branches, accounts, and ATMs. Their instrumented estimates associate fintech entry with reductions in ATMs and branches, although the magnitude and direction of the broader effects vary by region, Internet penetration, and bank capitalization.

They published their findings in International Review of Economics & Finance¹, under the title “Fintech and the future of banking: Competition, complementarity, and regional dynamics.”

From Traditional Banking To Fintechs

Historically, banking is a very capital-intensive activity that required a strong local footprint to work, with each bank having to build and manage local branches. This created costs, but also a strong competitive advantage, limiting the possibility for newcomers with fewer resources to enter the market.

“Branches anchor local relationships and cross-selling, ATMs convert deposits into liquidity, and account ownership measures effective inclusion. Each of these pillars carries fixed costs that scale with population and physical footprint. ”

As digital technology progressed, however, a large physical network was no longer the only viable way to distribute financial services. From the early days of the creation of companies like PayPal to make online payments possible, fintech firms have grown from a small set of payment startups in the mid-2000s to a globally distributed sector that raised over $400B of investor capital between 2005 and 2021.

The arrival of fintech in the market can have two possible effects:

• Be complementary, with banks adopting fintech tools through partnerships, equity stakes, and acquisitions to retain customers and lower onboarding costs.
• Be a direct substitute that compresses bank margins and accelerates the closure of physical channels.

So this is not a clear-cut case of fintech always directly competing with banks. For example, fintech was shown to enhance the reach of rural banks in China and also prove to have a positive role in financial access across Africa.

The reaction of banks to fintech is assessed in this study through three main metrics: branches per 100,000 adults, accounts per 1000 adults, and ATMs per 100,000 adults.

Banks’ Reactions To Fintech

Banks are able to quickly change some of their physical infrastructure, and less quickly for other parts. For example, ATMs are easier to remove or shift to outsourced networks. Meanwhile, branches are slow to rationalize because of lease, labor, and reputational costs.

Secondly, banks themselves are investing in internal fintech, including mobile applications, electronic know-your-customer, and instant transfers.

These internal investments complicate the relationship between external fintech entry and physical infrastructure. A bank’s own digital channels can lower the value of branches and ATMs, but they can also help the bank compete with external fintech firms. The study did not directly measure banks’ internal fintech investment, so this remains part of the authors’ interpretation rather than an independently tested mechanism.

The reactions of banks will also be different in each country, as the supporting infrastructure for digital intermediation, particularly internet penetration, regulation, and existing banking depth, differs in a measurable way.

For this reason, the study included data from 103 countries covering the period from 2005 to 2021, using data from the World Bank Financial Development Indicators. Fintech activity was derived from Crunchbase, even if this might under-represent informal fintech activity and activity in countries that are not English-speaking.

FinTech Vs Banking

A Regional Story

Maybe the most important finding of this study is that the impact of fintech on banks is highly variable depending on the region.

Europe shows the clearest substitution effect, with both strong effects on branches and ATM networks. Part of this effect is also linked to internal fintech development, as the banks in the region are operating hybrid models that maintain selective physical points alongside digital channels.

In Asia and the Gulf Cooperation Council, the direct effects were comparatively muted. One possible explanation is that established banks absorb fintech functions through partnerships and internal development rather than surrendering market share. However, the researchers did not measure partnership activity directly. The results could also reflect lower fintech penetration relative to an already dense banking network.

In Africa, the pattern is funded fintechs operating through agent banking and partnerships that co-develop physical touchpoints rather than displace them. The authors of the study describe it as “financial deepening as a precursor to outreach”.

“In Africa, financing fintechs co-occur with branch expansion, consistent with inclusion-driven credit platforms relying on bank infrastructure for last-mile delivery. ”

Other Correlations

The authors also investigated the effect of fintech on different banking & financial activities.

Insurance tends to correlate directly with bank branches, a result consistent with embedded distribution through bancassurance arrangements.

Matching the results in Africa and Europe, it appears that the number of fintech companies is initially positively tied to the number of ATMs when Internet penetration is low (“financial deepening”) before being negatively correlated at higher levels of Internet penetration, as the substitution effect takes over, with digital payment replacing cash.

In Africa, the substitution of ATM by fintech operates through mobile money rails, while in Europe, it would operate through contactless payments and electronic wallets that compress per capita ATM use.

Account growth was associated with fintech entry in both Africa and Europe, although the European estimate came from a relatively small sample. The authors interpret this as being consistent with digital onboarding offsetting the loss of physical branches. Asia and the GCC produced a different result, with the instrumented estimate associating fintech entry with fewer accounts.

The effect of fintech can also be modulated by the conditions of banks. The data show that capitalized banks expand branch density alongside fintech entry, consistent with hybrid models.

Investors Takeaways

Fintech does not fully replace bank branches & ATMs, but definitely has a major impact on them, whether internally developed or external fintechs.

The result is that digital payments, electronic onboarding, mobile money, and embedded financial services are turning branches into selective relationship centres rather than routine transaction points.

This means that traditional financial institutions might still be able to derive an advantage from their legacy branch network, as it helps them operate across digital, physical, and merchant channels.

This also means that it is the best-capitalized banks that benefit the most from fintech, through the development of a hybrid model that either replicates fintech internally (Europe case) or co-opts and integrates external fintech (Asia/GCC case).

In countries in development (Africa case), fintechs are actually helping banks grow their market and reach a larger segment of the population, expanding the financial service markets for all actors. In that specific context, fintech expansion in a country should likely be seen as bullish for banking stocks.

Still, investors should be cautious not to overinterpret the results of this study. Notably, the metric to assess fintech deployment (Crunchbase data) might not tell the full story. In addition, the study data sources stop at 2021, while the 2021-2026 time period has seen important development in fintech, notably blockchain technology going “mainstream”.

Investing In Financial Infrastructure

Fiserv, Inc.

Fiserv is one of the original “fintech” companies before the word even existed. It provides payment processing, digital banking, account processing, merchant acquiring, and related infrastructure.

By providing financial technology to the established financial sector, Fiserv is a key provider of the hybrid model and direct integration of fintech & bank prevalent in Europe, Asia, and the GCC. It also makes it an important part of the global financial infrastructure, which gives the company a solid economic moat against newer fintech companies.

The company is the #1 in annual global merchant gross payment volume, processing 35% of US gross payment volume, with millions of small and medium companies in its ecosystem and thousands of financial institutions globally.

Source: Fiserv

The early mover profile of Fiserv helps it be present in more markets than all its competitors operating in a narrower product range. Fiserv is active in stablecoin, cash management, point-of-sale payment, issuer processing, etc.

Source: Fiserv

Fiserv is also quickly deploying AI in its preexisting tech stack, which boosts its operational efficiency, service quality, and reduces fraud risks.

Thanks to its range of products and partnerships, Fiserv is a good option to get exposure to the type of fintech deployment discussed in this study: where traditional banks progressively adapt by reducing redundant infrastructure (some branches, ATMs, etc.) and integrate fintech into their day-to-day operations, instead of being directly threatened by the rise of new financial technologies.

Fiserv also helps the modernization of the financial sector in other ways. Far from a “legacy” fintech, it also serves leading fintech companies to launch quickly and scale up, like with crypto solutions Bakkts or MoonPay, mobile banking Goalsetter, and student debt solution Candidly.

Investors should nevertheless analyse the company’s stock price’s recent move, as it fell sharply from its all-time highs of early 2025 due to an unexpected drop in growth. So any investment in the company will need to assess whether the 2026 lower price reflects a bargain or a company in need of rebuilding its growth engine.

Latest Fiserv, Inc. (FI) Stock News and Developments

Study Referenced

^{1. Hassnian Ali and Ahmet Faruk Aysan. Fintech and the future of banking: Competition, complementarity, and regional dynamics. International Review of Economics & Finance. December 2026. Article: 105829. Volume 112. 10.1016/j.iref.2026.105829}