Let’s rip the Band-Aid off: Community banks and credit unions are losing. Badly.

Not because they’re bad at banking. They’re great at knowing your dog’s name and remembering how you like your coffee when you show up to refinance your house. But when it comes to innovation, speed, and digital chops? They’re getting trampled by de novo fintechs faster than a free iPhone giveaway at a TikTok influencer convention.

Here’s the ugly truth: while your local CU is still trying to figure out how to get e-signatures to work without crashing the entire core, a two-person fintech startup in a Brooklyn coworking space just launched an app with real-time account opening, AI-powered savings, and embedded crypto rewards. And they did it in six weeks.

In 2019 there were 5,303 FDIC insured banks in the United States.  Fast forward 5 years and at the end of 2024 there were 4,517.  That’s a net loss of mostly community banks of 786. 

Credit Unions fared slightly better (by only 2%).  In 2019 there were 5,236 federally insured credit unions in the United States.  By 2024 that number decreased to 4,572.  A loss of 664 credit unions over a 5 year period.  

Innovate or disappear.

Fintech isn’t the future. It’s the now. And “we're working on it” doesn't cut it when consumers expect PayPal speed, Robinhood UX, and Apple-level simplicity. You can’t slap a chatbot on your clunky online banking portal and call it digital transformation.

De novo fintechs, neobank rebels, BaaS-powered startups, and embedded finance ninjas are shipping features weekly, pivoting based on real-time customer feedback, and raising capital like it’s a contact sport. Meanwhile, some community banks are still approving wire transfers via fax machine. Fax. Machine.

“We have a great relationship with our members.”
Cool. So did Blockbuster (see my article: Don’t Be the Next Blockbuster: What Banks and Credit Unions Can Learn from Dead Brands.)

“Our regulators are stricter.”
True, but so are theirs, and they’re still finding ways to move fast without getting sued into oblivion.

“We don’t have the tech talent.”
Then partner up, acquire, or get swallowed whole. Playing the “we’re too small” card just confirms you're okay being a future acquisition target at pennies on the dollar.

Being a 120-year-old institution means exactly nothing to a Gen Z user who opens accounts based on which fintech gave her a 4% APY, a slick app, and free stock when she signed up. Loyalty isn't inherited anymore.  It’s earned digitally. Every. Single. Day.

If your board meetings still involve arguments about whether Venmo is “safe,” then I’ve got bad news: your board is the problem, and probably your exec team too.

• Kill the core excuse. If your core vendor is holding you hostage, fight back. Negotiate APIs, partner with middleware, or spin up a digital-only brand on a separate stack (I know a few community FIs who have done this successfully with great success).
  
• Fund R&D like you give a damn. Tech budgets shouldn’t be 1% of revenue. Be bold. Be reckless. (Okay, maybe not reckless, but at least brave.)
  
• Steal startup playbooks. MVPs. Agile. Beta launches. Growth loops. If you don’t understand these, your competition sure does.
  
• Stop hiring “banking experts” to lead innovation. Hire builders. Designers. Hackers. People who know what “product-market fit” actually means.
  
• Fire your digital complacency. Today.

Community banks and credit unions aren’t losing because they’re irrelevant.  They’re losing because they’re too damn slow.

And while they’re stuck in a “wait and see” loop, the fintech punks are already moving into their zip code, stealing their customers, building loyalty in code, and laughing all the way to their embedded wallet.

Adapt. 

Or enjoy the view from the rearview mirror.