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Happy Friday, Fintech Takers!

I trust you’ve had a productive week and you have fun plans for the weekend. 

June — perhaps my favorite month of the year — will be gone before we know it, so be sure to enjoy it!

- Alex

P.S. — If you're operating at scale, stablecoin card infrastructure might significantly benefit your business. But where? And what does it take to get there without the false starts most teams experience?

On June 30th, we're getting into all of it. Straight from the operators who've navigated it.

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On the Frontier

I spent most of this week at the Fintech Frontier Summit, hosted by my friends at EJF Ventures at a ranch in Northwestern Montana.

The event was intentionally small, and highly curated. Only about 25-30 people, with a variety of backgrounds spanning banking and fintech. The focus of the event was on figuring out how U.S. community banks can navigate this trend:

Our thesis was that learning from, competing against, and partnering with fintech companies is one of the most important ways that community banks can buck this trend and remain a thriving part of the U.S. financial services ecosystem.

To explore this thesis, we spent most of our time at the event split up into breakout groups, focused on developing strategic recommendations for a fictional (though highly realistic) community bank. The resulting recommendations were legitimately great; specific, bold, and grounded in a very deep understanding of the market.

(Editor’s Note — I’m not sure how many decades of BaaS and bank-fintech partnership experience we had in the room, but it was quite a few.)

To help tee up these breakout sessions, my friend Jason Henrichs and I were asked to present in the morning on both days. We laid out the competitive and structural challenges facing community banks and why the traditional impulses that guide banks’ decision making need to change if they are going to successfully overcome those challenges.

In today’s newsletter, I thought I’d share the key ideas from Jason and I’s presentations.

Four Big Challenges

It’s easy to list out all of the different technological, regulatory, and competitive reasons why community banks are screwed, but it’s not very helpful if you’re actually trying to figure out a viable path forward.

Instead, I wanted to synthesize all of those changes into a set of four strategic challenges, which, while daunting, are certainly solvable.

#1: The Interface Layer is Shifting … Again 

Community banks spent the last 20 years catching up to the rest of the market in online and mobile banking capabilities ... and now the consumer finance interface layer is shifting again.

ChatGPT has more than 900 million weekly active users. It processes 2.5 billion prompts per day, and now accounts for about 17% of all global digital queries. Not coincidentally, Google's share of information discovery dropped from 89% to 58% between December 2022 and December 2025.

Google’s response to this threat has been aggressive: It added AI answers into its search experience and ushered us into the zero click age. Today, when AI Mode is active in Google Search, more than 90% of searches result in zero clicks to any external website. As Carlos Caro and I discussed on the Fintech Takes podcast, this decision by Google to pre-emptively disrupt itself has been, well, extraordinarily disruptive, and it presages an even more chaotic future.

What happens to banks and fintech companies when consumers’ instinct is to turn to AI, first, for every question or desired action, including the financial services ones? What happens when AI has access to consumers’ financial data, as OpenAI now does thanks to its integration with Plaid?

The concern, obviously, is disintermediation. ChatGPT, Claude, and Gemini become the interface layer and banks and fintech companies become simply the regulated backend, the “dumb pipes” if you will.

Large fintech companies like Block are trying to get ahead of this challenge by embedding AI assistants within their apps, and I expect that big banks will do the same.

The concern for community banks is that they lack the resources and technical expertise to follow that playbook, to say nothing of the constraints imposed on them by their core providers, which limit the ability of even the most forward-looking community banks to respond quickly to this threat.

(Editor’s Note — There was A LOT of complaining about the core banking providers at the Summit. So much so that, “kill the cores!” became a bit of a slogan. Community banks are deeply worried that inflexible core systems will prevent them from catching the AI wave, and recent announcements from FIS and Fiserv on AI haven’t changed their minds.)

#2: Banking is Getting Faster 

Banks of all sizes have relied on inertia to protect themselves. Customers (mostly) stayed where they were because moving was too difficult.

However, faster payments are starting to gain traction in the U.S. 

Community banks have not been enthusiastic about adopting faster payments. They have mostly stayed away from RTP and, to the extent that they have integrated FedNow, it has predominantly been in receive-only mode.

However, this reluctance has not stopped progress towards faster payments in the U.S. It has merely pushed the pressure for better payments infrastructure into other areas, including, most notably, stablecoins.

Global stablecoin adjusted transaction volumes grew 91% in 2025 to $10.9 trillion. Institutional interest in stablecoins is surging and community banks are beginning to treat them with the requisite amount of urgency, if not strategic clarity. 

It’s the same story with open banking. While big banks have been trying to kill open banking regulation (with mixed success), community banks have mostly just tried to opt out of it, pushing for longer compliance deadlines or descoping themselves entirely.

But these efforts haven’t stopped market-driven open banking from making banks’ data accessible to their competitors (with their customers’ permission). Cash flow underwriting is probably the use case with the most traction, but others are coming. And community banks are now, arguably, further behind.

Data and money are both moving faster than ever before, which significantly increases the precarity of community banks’ position in the market.

#3: Banks are Losing their Specialness

Community banks have also been protected by their status as chartered and regulated financial institutions. This status affords them the opportunity to compete in banking directly or to rent their charter to others.

However, since the beginning of last year, the charter window is wide open.

In 2025, 14 companies applied for bank charters, which nearly equaled the total number of applications received in the previous four years combined.

This is a challenge for community banks that were accustomed to their charter providing them with leverage, especially in areas like BaaS and embedded finance.

And, of course, it’s not just the availability of state and national bank charters that has changed. Policymakers are also in the process of creating entirely new ways for novel entities to directly touch regulated financial services infrastructure.  

The OCC is allowing crypto companies to repurpose national trust bank charters for modern, payment-oriented purposes. The GENIUS Act has defined an entirely new category of "permitted payment stablecoin issuers,” which do not need to be banks. The Clarity Act is poised to create meaningful legal protections for DeFi and the use of self-hosted wallets. The Fed is working (chaotically) to create a “skinny” master account to provide access to payments infrastructure for novel chartered entities. And the PACE Act is trying to allow non-banks to access Fed payments infrastructure directly.

#4: The Cost of Entry is Collapsing  

Building a neobank used to be hard and expensive. Then, with the advent of modern BaaS, it became easier, but still expensive. And that expense has shaped neobank founders’ and investors’ incentives. Put simply, if you raised Chime-scale capital, you had to aim at Chase-scale targets.

That’s not the era we live in anymore.

48,000+ solo startups were launched in 2025, up 140% from 2024. AI-augmented solo founders generate 3x more revenue and are 2x more likely to reach profitability than solo founders without AI. Dario Amodei has predicted that the first one-person billion-dollar company will arrive this year.

If it’s now cheap to build a company, the ability to raise capital is no longer a competitive differentiator. Knowing what to build and who to build it for have become the most important competitive differentiators. Hyper-focus and hyper-specialization win.

This has historically been the competitive differentiation strategy that community banks and credit unions have pursued. Now anyone with Claude Code can too.

So, those are the four key challenges facing community banks that I outlined in my presentation at the Summit — a new interface layer, faster payments and data, more competition from “banks,” and a lowered barrier to entry that incentivizes hyper-focus and hyper-specialization.

Now the question is: What should community banks do in response to these challenges?

Well, before we can figure out how community banks should act differently, in response to these challenges, we first need to figure out how they should think differently. 

And that brings us to Jason’s presentation, which was based on a wonderful framework developed by Samer Saab at Alloy Labs that I was legitimately jealous of — the Debt Brain vs. the Equity Brain.

Debt Brain vs. Equity Brain

The basic idea is that banking has the most asymmetric risk profile of any industry. As a bank, your upside is capped — 15-17% ROE in a great year. Your downside is the whole thing. Total loss of capital.

Community bankers’ Debt Brain asks exactly one question about everything: what can go wrong? It’s trained to find risk, paid to avoid loss, and regulated to preserve capital. This produces predictable behavior: it sees the downside before the upside, it defaults to ‘no’ when things are uncertain, and it wants proof before it'll pilot anything. 

This leads to a systematic bias toward inaction and a reluctance to commit, long-term, to innovation. As Jason memorably said in his presentation, the Debt Brain is usually right about loans, but wrong about strategy.

For strategy, you need the Equity Brain. 

The Equity Brain asks the opposite question: what does this look like if it works? It's trained to find upside, paid on outcomes, and rewarded for asymmetric bets. It sees the scale before the friction, it defaults to ship it, and it has a great tolerance for uncertainty. 

However, as Jason reminded us, the Equity Brain also has blind spots. It underestimates how much institutional drag is real, it reads any hesitation as obstruction, and it frequently downplays the severity of both known and unknown risks.

The solution, therefore, is not to prioritize the use of one brain over another, but rather to learn how to use both of them to varying degrees, depending on the situation. 

In scenarios where the overriding goal is to reduce risk and preserve capital, community banks should lean on the Debt Brain. However, in situations where taking measured risks is the only way to win — situations where first-mover advantages are real, new customer segments are up for grabs, or tech-driven network effects can be created — community banks should lean more (though not entirely!) on the Equity Brain.

There is No Middle

The reason we spent so much time during the Summit talking about these ideas is because we are in a moment where strategic clarity is of absolute, paramount importance for community banks.

The chart I shared at the beginning of this essay — showing the consolidation of the U.S. banking market — is, directionally, where we are headed. That trend isn’t going to magically reverse itself. It is a structural change to the way that financial services providers compete with each other. The middle of the banking market — the community banks that are surviving due to high rates or lingering geographic advantages — will continue to be hollowed out.

The winners will be those that move toward either being commoditized balance-sheet providers (BaaS, embedded finance, correspondent banking, etc.) or highly-differentiated customer-facing brands that operate with discipline and build on top of modern capabilities.

The feeling among the participants at the Fintech Frontier Summit was that Door B (differentiated, customer-facing brands) was the better (though much more challenging) option, and that is what we spent our time fleshing out in the breakout groups for the remainder of the event.

But that is, as they say, a story for another day! 

MORE QUESTIONS TO PONDER TOGETHER

Big news for the endlessly curious (yes, you): I’m collecting your fintech questions on a rolling basis. 

What’s keeping you up at night? What great mysteries in financial services beg to be unraveled? Think of it this way, if a stranger is a friend you just haven't met yet, your question is a Fintech Takes conversation waiting to happen. 

One that could headline a Friday newsletter or be answered in an upcoming Fintech Office Hours event.

Drop your question here, whenever inspiration strikes!

Thanks for the read! Let me know what you thought by replying back to this email.

— Alex