PalmPay reached 30 million users in Nigeria without a single branch. That is not a fintech success story — it is an institutional failure story. The common explanation is that neobanks are “tech-first” or “customer-obsessed” in ways that traditional banks are not. After eight years managing digital infrastructure at a scheduled bank in Bangladesh, I think the explanation is both more specific and more damning: traditional banks were architected for institutions, then retrofitted for individuals. Neobanks started with the individual. That inversion changes everything from onboarding flow to notification design to error message language.
The compliance argument is where incumbents have the most untapped leverage — and consistently squander it. A regulated bank operating under Bangladesh Bank guidelines has something a neobank cannot easily replicate: a decade of demonstrated regulatory compliance, a relationship with the central bank, and accountability structures that are visible to sophisticated depositors. Institutional trust is a real asset. But most traditional banks treat compliance as a cost centre and a source of friction rather than a differentiator. The right reframe is: we are the safest place for your money, and we can prove it in a way that no two-year-old app can. That story is almost never told well.
The product velocity gap is real and structural. A neobank can ship a feature in a week because their core is an API, not a monolithic CBS. A traditional bank ships a feature in six months because changing a field in the core banking system requires regression testing across every module that touches that field, which is usually most of them. I have lived this. The answer is not to rewrite the core — that is a decade-long bet most banks cannot afford — but to build an orchestration layer above it: APIs that expose core functionality to front-end products without requiring CBS changes for every product iteration. Bangladesh Bank’s API banking guidelines are a step in this direction. The institutions that implement them seriously, rather than minimally, will compound that advantage.
In Bangladesh, coexistence is the more likely short-term outcome than disruption. bKash is not replacing Islami Bank. But the segmentation is shifting: neobanks and MFS providers are absorbing the transaction layer while traditional banks hold the credit and deposit anchor. The risk for incumbents is not collapse — it is irrelevance at the customer relationship level. If a customer does all their daily transactions through bKash and only uses their bank account as a settlement destination, the bank has become a commodity pipe. Recovering that relationship requires building products that create daily utility, not just monthly salary credits. That is the actual competitive challenge, and most traditional banks have not yet named it clearly enough to solve it.