In the financial industry, true innovation rarely originates from the largest institutions. Instead, it's often the smaller, more agile firms that challenge the status quo and push the industry forward, writing the future of financial innovation as they do so.
Indeed, while large banks and asset managers focus on preserving their dominant positions, smaller players are driven by necessity: the need to improve, become more efficient, and stand out. The alternative, after all, is potentially disappearing.
This isn’t just a philosophical observation, though. As we’ll see together, it’s a pattern supported by data and market history.
Large financial institutions are structurally risk-averse: they operate under tight regulatory scrutiny, carry complex internal systems, and serve millions of customers whose trust depends on stability, not experimentation.
In this context, innovation is often viewed as a threat to existing systems; something that disrupts rather than strengthens.
According to a Capgemini World Report Series 2023, over 70% of banks surveyed stated they struggle to transform digitally due to legacy systems.
In other words, despite having more capital and personnel, their scale becomes a barrier to change rather than an asset.
When innovation becomes impossible to ignore, large institutions tend to buy it. A clear example is JPMorgan Chase & Co acquiring the robo-advisor firm Nutmeg in 2021, or Visa’s repeated investments and acquisitions in the payments space, including its attempted $5.3 billion purchase of Plaid, which was blocked by regulators.
Rather than build disruptive technologies, incumbents wait until a startup proves its worth, and then absorb it.
Smaller companies, on the other hand, don’t have the luxury of complacency. Without an established client base or legacy infrastructure to protect, they are more flexible and motivated to create new solutions.
This pressure to survive fosters a culture of experimentation and speed, leading the way to the future of financial innovation.
In the payments sector, companies like Stripe, Adyen, and Square have revolutionised digital payments and merchant services, while traditional banks continued to offer outdated or fragmented solutions.
Stripe, for example, is now valued at over $50 billion and processes hundreds of billions in transactions annually, something few would have imagined from a startup launched just over a decade ago.
Indeed, in the crypto and decentralised finance (DeFi) world, thousands of new platforms and protocols have emerged from small teams challenging the very foundations of traditional finance.
Meanwhile, innovations like blockchain-based lending, the tokenisation of assets, and real-time settlements didn’t come from banks, either. They came from coders, developers, and entrepreneurs building from the ground up.
What we need to keep in mind, however, is that innovation means change, and change disrupts power structures.
That’s why large institutions often resist it until they have no choice. But for the industry as a whole, this friction can be healthy, as it creates space for the small to rise, test bold ideas, and reshape finance for the better.
As we've seen in payments, lending, wealth management, and even insurance, the future of finance will not be dictated solely by the giants. Instead, it will be co-authored and, in certain instances, led by those small firms brave enough to do things differently.