Jamie Dimon, JPMorgan Chase chairman and CEO, listed fintech as one of the "enormous competitive threats" to banks in his annual shareholder letter released Wednesday.
"Banks ... are facing extensive competition from Silicon Valley, both in the form of fintechs and Big Tech companies," like Amazon, Apple, Facebook, Google and Walmart, Dimon wrote, and "that is here to stay."
Fintech companies, in particular, "are making great strides in building both digital and physical banking products and services," Dimon said. "From loans to payment systems to investing, they have done a great job in developing easy-to-use, intuitive, fast and smart products."
This, in part, is why "banks are playing an increasingly smaller role in the financial system," he said.
Fintechs, like Stripe, Robinhood and PayPal, have seen a lot of growth and success in recent years, which may present challenges to traditional banks.
While traditional banks have "significant strengths," like "brand, economies of scale, profitability and deep roots with their customers," Dimon also acknowledged their weaknesses. Things like "inflexible 'legacy systems'" along with "extensive regulations," can hinder innovation within banks, though they can arguably also make banks a "safer" option for consumers, too.
Still, without such obstacles, fintech companies have been able to thrive, according to Dimon.
"Fintech's ability to merge social media, use data smartly and integrate with other platforms rapidly (often without the disadvantages of being an actual bank) will help these companies win significant market share," he wrote.
"[M]any banking products, such as payments and certain forms of deposits among others, are moving out of the banking system. In addition, lending in many forms is moving out of the banking system," Dimon wrote.
Amid the Covid-19 pandemic, especially, Americans have become more willing to use fintechs, according to a 2020 McKinsey & Company survey. The consulting company found that fintechs are "catching up with traditional banks in terms of customer trust."
Young people in particular are serving as a driving force in their adoption: "Gen Z and Millennials had the most fintech accounts overall," the report said.
Yet "a substantial number of Baby Boomers rely on some sort of fintech account, contradicting the general perception that digital tools are exclusively for younger people," according to the report.
Fintech's growth has also been boosted by a surge in interest in cryptocurrency and blockchain technology.
For example, as Ethereum has become more mainstream, DeFi, or decentralized finance, has been introduced to the market.
Decentralized finance, or DeFi, is an emerging segment of the fintech universe that refers to a system of applications aiming to recreate traditional financial instruments with cryptocurrency.
Through DeFi lending, for instance, users can loan or borrow cryptocurrency, as you could with fiat currency at a bank, and earn interest as a lender.
There are, of course, many risks associated with DeFi, including its lack of regulation and protections.
The same is true for the rest of fintech.
"There are serious emerging issues that need to be dealt with – and rather quickly," Dimon wrote. Among those are "the growth of shadow banking [and] the legal and regulatory status of cryptocurrencies."
With that in mind, Dimon called for government regulations aimed at creating a "level playing field" for banks, fintechs and nonbanks (financial institutions without a banking license) alike.
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