Fintechs’ Payment Play: How Disruptors Are Winning Primary Banking Relationships

Successful fintech disruptors are not directly battling traditional banks for checking and savings accounts. Instead, they are strategically leveraging integrated payment experiences to capture primary banking relationships. By unifying debit cards, buy now pay later (BNPL) options, digital wallets, and P2P transfers onto single, seamless platforms, these innovators are creating a formidable backdoor to customer deposits.

Recent J.D. Power data highlights that this “deposit disruption” is already leading to measurable customer attrition for established financial institutions. Despite this, many banking executives continue to operate under critical misconceptions regarding who uses these products and why. Banks that fail to offer competitive, full-spectrum payment solutions risk accelerating customer losses. Only those that decisively integrate robust debit rewards, BNPL functionalities, and strategic payment features will effectively defend their deposit bases.

The New Battleground: Payments as Primary Relationships

Fintechs have pinpointed a crucial vulnerability in traditional banking: payments can be the gateway to primary deposit relationships. Sean Gelles, Vice President of Banking and Payments Intelligence at J.D. Power, explains, “What fintechs did is they realized that payments were a backdoor to the actual deposit relationship and they exploited that.” He emphasizes that the brand capable of controlling everyday spending and transactions poses a significant threat to incumbent institutions.

The severity of this threat is both measurable and intensifying. J.D. Power’s research on payments and churn reveals that fintechs are systematically eroding traditional banking customer bases. They achieve this by offering “full spectrum” financial apps that seamlessly integrate debit cards, buy now pay later, digital wallets, and P2P transfers—experiences that most banks have struggled to replicate.

This process is an “encroachment, not conversion.” Fintechs aren’t prompting consumers to close their existing bank accounts; rather, they are providing superior payment experiences that gradually shift primary financial activity away from traditional banks. By the time incumbent institutions detect the deposit drain, the damage to the customer relationship is often already done. The inherent slow pace of large banks in iterating new products, often treating payment innovations as mere digital add-ons, stands in stark contrast to fintechs’ rapid deployment capabilities. Gelles warns, “We’re going to see some tumultuous years ahead.”

Three Dangerous Myths Costing Banks Customers

Banking executives often harbor misconceptions that directly contribute to their competitive vulnerability. J.D. Power data conclusively refutes three widespread myths identified by Gelles:

Myth 1: BNPL Users Are Lower-End Consumers Banks Don’t Need

Many senior banking leaders incorrectly assume that buy now pay later is exclusively for financially stressed or younger demographics outside their core customer base. However, Gelles reports, “Buy now pay later consumers are increasingly looking like your average American, your average U.S. consumer.” This signals BNPL’s mainstream adoption. While younger consumers initially drove its growth, BNPL has transcended demographic boundaries. Users are making calculated decisions about payment methods, and banks that once dismissed this segment as unprofitable are now losing mainstream customers they considered secure.

Myth 2: BNPL Users Can’t Qualify for Credit Cards

This assumption, Gelles notes, is particularly surprising given the available data. “Most buy now pay later users already have credit cards,” he stresses. Consumers are opting for BNPL because they perceive it as a more competitive product for specific use cases, citing cost-effectiveness, predictability, transparency, and enhanced budgeting control. For the 50% of Americans who don’t pay off credit cards monthly, the known cost of a BNPL loan often makes it a more fiscally responsible choice compared to uncertain credit card interest. Gelles clarifies, “It’s not that these consumers are irresponsible… It’s actually that they’re being fiscally responsible. That’s why they want to use buy now pay later. That’s why they want to use debit cards.”

Myth 3: Debit Card Experiences Don’t Matter

Perhaps the most perilous misconception is the belief that debit cards are undifferentiated commodities. “When you look at the J.D. Power data, debit cards are the most frequently used payment method in the United States,” Gelles reveals, surpassing both cash and credit cards in usage frequency. Aggressive fintechs recognize this reality and are “weaponizing” debit cards by offering differentiated experiences. This includes rewards programs, robust budgeting tools, and integrated features like embedded BNPL. Platforms like Affirm and Klarna have designed debit cards with built-in installment capabilities, transforming them into strategic tools for capturing primary banking relationships. Gelles warns, “To ignore that debit card experience is perilous, because that’s how the challengers are getting in, that’s how they’re unseating the incumbents.”

The Incumbent Response Gap

Currently, only three of the top ten U.S. banks by deposits offer fixed installment purchase plans comparable to BNPL products, and not all of these are aggressively marketed. While most banks provide Zelle or similar P2P capabilities, they often treat them as mere features rather than strategic weapons, making them available in-app but rarely promoting them with significant marketing investment. Gelles observes, “It’s in the app, it’s there, and you’re one and done.” This passive approach highlights a fundamental misunderstanding of the competitive landscape. Fintechs view payment features as critical customer acquisition and retention tools, worthy of aggressive marketing, while many banks treat them as basic functionality. J.D. Power churn data clearly illustrates the consequences: banks that actively match and market fintech payment offerings successfully defend their deposit bases, whereas those that delay face measurably higher attrition rates. While some executives believe there’s still time to adapt, Gelles expresses surprise at the slow pace of incumbents, noting that the window for comfortable adaptation is rapidly closing as consumer behavior structurally shifts.

Defending the Turf: A Path Forward for Banks

Banks are not destined to surrender to disruption. Institutions successfully defending their positions share common traits:

• They recognize payments as strategic imperatives, not tactical add-ons.
• They invest in developing competitive, full-spectrum payment experiences.
• They market these capabilities with the same aggression as fintechs.

The technical requirements are clear: integrated debit rewards programs, embedded or partnered BNPL functionality, strategic promotion of P2P and account-to-account transfer capabilities, and unified app experiences that seamlessly combine these features. The cultural shifts required may be even more challenging, demanding that payment innovation be viewed as a survival imperative rather than a mere feature enhancement project.

Looking three to five years ahead, Gelles anticipates further disruption from AI-powered shopping agents. Platforms like PayPal and Samsung Wallet are integrating AI shopping assistants into their apps, a trend that is already generating significant consumer interest. This represents a secondary wave of disruption following the current payment revolution.

Source: thefinancialbrand.com