Banks planning technology improvements should heed a warning about fintech vendors: Their industry is in a state of churn.

There were 70 mergers and acquisitions among fintechs in the U.S., Canada and South America in the first quarter, and those deals were worth a combined $3.4 billion, according to a fintech investment report issued by KPMG on Tuesday.

The number of deals fell to 60 in the second quarter, but the total value rose to $5.8 billion. M&A activity in this field is expected to remain “very healthy [in] 2018 on the whole,” the report said.

The investment flow is also breeding new companies looking for bank clients. American fintechs, the report noted, attracted $14.2 billion in overall funding in the first half of 2018.

What that means for all banks is when it comes to tech, there's plenty to ponder: more options for their front- and back-office operations; more retail and commercial service improvements to consider; more new vendors that will be seeking their business; and more fintech investment opportunities to pursue.

The market has "gotten more complicated, and we are being called into more deals because of that,” said Michael Carter, executive vice president at Strategic Resource Management, which helps banks negotiate vendor contracts.

Quarterly fintech investment according to KPMG

Increasingly, smaller banks are able to access tech that traditionally was available only to larger institutions. With increased access, there is increased ambition, too.

“For each acquisition an [incumbent] company makes, there's another two or three value propositions that pop up,” said Mark Ranta, head of digital banking solutions at the payments vendor ACI Worldwide. “It could be augmented reality, virtual reality; it could be" a need for "analytics-driven tools or an internet of things. The breadth of what banks are looking at has opened up pretty wide compared to where the traditional lines were.”

Small banks have tried to get smarter about how they choose vendors and products too. This includes tactics like hiring consultants to negotiate contracts, planning for what to do if their vendor is sold, reviewing contracts more carefully and watching for post-M&A price increases.

While conversations around digital strategy are being held with core providers, core conversions are no longer seen as the only answer to tech upgrades, Carter said.

“There was a [chief technology officer] that said the decisions they are making about digital now are what the decisions they made about core used to be,” he said. “They are seeing the digital part of the bank as almost the new core, because the transactions and interactions with the customers and members are going to go through that channel.”

Smaller banks would still prefer a vendor relationship that lasts longer than three years, said Tim Daley, director at Cornerstone Advisors. But the influx of options has loosened some constraints on deals.

“Historically my clients are looking at a vendor and saying, ‘You have fewer than 10 clients, you likely are not going to be in the same ownership structure over the course of the contract period, which makes the risk too high for me to accept,’ ” Daley said. “That's not necessarily the case anymore; they are placing bets on vendors right now.”

Banks are also actively shuffling their tech, too, feeding competition.

In the past three years, around half of all U.S. banks have switched digital banking vendors, according to research by the app developer Malauzai Software (which was acquired by the U.K. fintech giant Finastra in June).

“Mobile is an indication of digital,” said Robb Gaynor, North America head of digital at Malauzai, which is based in Austin, Tex. “We no longer sell mobile stand-alone. If they changed their mobile, they have changed their digital provider as well."

Legacy digital banking platform providers say they are unfazed by the proliferation of new competitors.

“When we were smaller, there was some concern about new entrants into the marketplace,” said Adam Blue, chief technology officer at the digital banking platform Q2. “Certainly we don't ignore anyone that enters the marketplace, and when there are new entrants it means that the market is healthy, and there's interesting problems to solve and business to be done.”

Q2 launched in 2004 when the toughest problem banks were facing was multifactor user authentication. Now, the functionality of mobile and digital applications has increased, there are more devices that applications have to appear on, and users expect each experience to match the experience they get from tech giants like Netflix or Amazon.

“It's a tough time to start as an independent, digital channel kind of business with a set of compliance and regulatory requirements," Blue said. There's an "extraordinary technology burden that you need to overcome to get an application launched."

One way in which Jack Henry & Associates said it keeps its mobile offerings competitive in a growing market is by thinking about how its applications' functionality can work with community and regional banks to compete with the larger institutions.

“This is one of the things that I think is going to separate what community banks do with digital from what the biggest banks are limited to do in digital,” said Lee Wetherington, director of strategic insight at Jack Henry.

“We see evolving now, digital offerings that allow for instant, real-time, live local connection to real people at the limits of self-service inside the digital channel," he said. "That's not something that most of the big banks can scale at their size.”