Digital Transformation in the Financial Industry

Digital transformation processes have significantly impacted the banking industry over the last two decades, posing several challenges to incumbent banks’ operational processes and decision-making capabilities. This chapter theoretically examines the implications of these innovation processes for traditional banks, focusing on the competitive pressures exerted by FinTech firms, non-bank financial institutions (NBFI), and digital challenger banks. Firstly, the chapter outlines the driving factors behind the growth and proliferation of FinTech startups, emphasizing their response to evolving market demands and customer expectations for more accessible, efficient, and technology-driven financial services. Secondly, the chapter offers a comprehensive overview of the dimensions of this phenomenon, identifying the leading operators that characterize the European market. Their technological assets are also assessed, identifying opportunities and threats for traditional banks. Finally, the chapter provides an overview of the regulatory and supervisory banking authorities’ approaches to this phenomenon, discussing the challenges posed by new entrants in the evolving financial environment.