Key insights: Institutions are faced with deciding whether to build, partner, or buy digital asset capabilities.
What's at stake: This decision is heavily dependent on an institution's size, which can dictate its spending capability, in-house talent pool, and risk appetite.
Forward look: Because the build strategy currently appears exclusive to the nation's largest lenders, the remainder of the banking sector will likely structurally struggle to do a proprietary tech race.
Should banks build out digital asset capabilities from scratch, or should they buy and partner with the fintechs that got there first? Major institutions are steadily launching on-chain based products and services, but these institutions are only a small part of the entire financial ecosystem in the United States. A large majority of the financial institutions in the U.S. are small to mid sized banks, all of which must now choose how to navigate this evolving landscape.
These institutions are faced with deciding whether to build, partner, or buy digital asset capabilities to engage with this ecosystem, if at all. Yet, this decision is heavily dependent on an institution's size, which can dictate its spending capability, in-house talent pool, and risk appetite.
This creates a market divide as digital asset charters increase and blockchain-based products accelerate. This shift poses fragmentation concerns in the payments market across networks and channels, potentially cutting off consumers and businesses in regions reliant on smaller lenders. To prevent this regional isolation, the industry is splitting into two distinct strategic paths: while larger national banks will continue to integrate vertically to establish market leadership, smaller community financial institutions may increasingly rely on fintech partnerships and larger bank-backed consortiums to compete. Ultimately, as the digital asset ecosystem expands, a bank's willingness to collaborate will determine whether it thrives in this developing financial ecosystem or is outpaced.
The unique landscape of U.S. banking
The makeup of the U.S. financial system is unique in its sheer scale, which is a noteworthy driver of its current state. The United States has more than 11,000 financial institutions, with many distinct to a specific region. While other countries rely on a handful of massive, nationwide institutions, the U.S. economy relies on thousands of specialized community and regional banks and credit unions.
In fact, the U.S.
The banking divide
Smaller institutions (regional banks, community banks, and credit unions) face more barriers to entry when it comes to adoption or integration of on-chain technology, namely through talent, prohibitive costs, risk appetite, and lacking customer demand. Blockchain architecture, smart contract development, and decentralized ledger management require specialized engineering skills. However, how these technologies are best integrated into existing legacy systems or payment schemas can be a big undertaking for any financial institution.
Recent data from an American Banker survey underscores some of this potential hesitancy, even from national banks. A little less than half (48%) of national banks agree that they have the necessary talent in house to effectively implement on-chain technology, while 30% of mid-sized/regional banks somewhat agree. This confidence drops with respondents from community banks, with 17% agreeing to having the necessary in house talent, and credit unions 9% (however, credit union sample size was small, so this percentage is not indicative of a correlation). Regardless, we can see the decrease in confidence of in house talent as bank size decreases.
National banks can afford to treat blockchain as an R&D expense. Backed by multi-billion-dollar annual technology budgets, these tier-one institutions can comfortably absorb the high capital costs required to build secure, audited, and compliant proprietary tokenization platforms.
For smaller institutions, dedicating limited capital to an uncertain tech stack is a financial risk, especially when many core clients are not actively demanding it. This asset disparity shows up clearly in competitive confidence. When asked if survey respondents thought their organization is equipped to compete with fintechs already in the on-chain space, only 15% of midsized/regional banks, 6% of community banks, and 9% of credit unions somewhat agreed. In fact, we see that 55% of community banks either somewhat or strongly disagree that their organization is equipped to compete with fintechs already in the on-chain space. Overall, 60% of industry respondents view established fintechs as a significant competitive threat, while only 33% of total respondents believe their organization is currently equipped to compete with them.
Regulatory asymmetry and alternative rails
Large banks can implement entire teams of legal and compliance officers dedicated solely to navigating complex digital asset frameworks. Smaller banks operate under much tighter margins with lean compliance teams already tasked to address traditional banking regulations.
While broader federal oversight has shifted, notably under recent federal supervision and regulatory leadership aiming for clearer compliance pathways, navigating public or private blockchains remains confusing for small institutions. Consequently, many smaller banks choose to focus their limited resources on safer, government-backed instant payment rails, such as the Federal Reserve's FedNow service or the Clearing House's RTP (Real-Time Payments) network, viewing stablecoins as an unnecessary compliance risk. Not only that, but part of the design for FedNow was to ensure it was accessible to all financial institutions in the U.S., regardless of scale or size. As such, these more traditional rails can be easier for smaller institutions to opt into.
The case for partnering: A viable path forward
Because the build strategy currently appears exclusive to the nation's largest lenders, the remainder of the banking sector will likely structurally struggle to do a proprietary tech race. For regional banks, community banks, and credit unions, the path forward may rely on outsourcing through strategic partnerships, white-label integrations, and vendor acquisitions. Fintechs have spent years developing native on-chain infrastructure and content, and many of the large crypto-native institutions have developed safer and sounder practices. For a bank to replicate that from scratch right now could be both expensive, and a race that is not worth it for a smaller bank's resources.
The partnering approach is being used by both national banks and smaller institutions. For example, the open-source payment ecosystem
Conclusion
As tokenized deposits and digital assets transition from experimental pilots to core banking expectations, smaller financial institutions and credit unions may benefit from initially partnering with established fintechs, at least at first. The ultimate goal for these community institutions is integration: offering on-chain products in a seamless way, ensuring local customers reap the benefits of programmable money without ever needing to understand the technology running beneath the surface. For the vast majority of the American banking sector, the decision to shift to on-chain finance will likely mean partnering or buying the technology, rather than building it.
