FinTech challengers and challenger banks are called such because it encompasses what they represent: a challenge to the offerings of the traditional banking sector, particularly smaller and regional lenders and credit unions (CUs).
Over the past decade, these firms have rattled the traditional lending establishment and leveled up the competitive field, setting off an innovation arms race for smaller banks.
But fast-forward to 2025, and another force is accelerating the exertion of competitive pressure: stablecoin platforms. Once a niche experiment among crypto-native companies, these blockchain payment token systems are now migrating into mainstream enterprise operations.
The threat they represent is a foundational one: deposit flight.
The problem for banks is compounded by a new shift in federal policy. The Office of the Comptroller of the Currency (OCC), long seen as cautious toward digital assets, has recently given the green light to crypto and banking crossovers. On Wednesday (Sept. 10), Comptroller of the Currency Jonathan Gould said that the crypto-related activities that many banks want to participate in are legally permissible and that these activities should not be stigmatized.
This change in regulatory posture is reshaping the competitive landscape, opening the door for companies built on blockchain rails to operate with many of the privileges of regulated banks. For small institutions that once relied on regulatory protection to slow FinTech encroachment, the walls could now be closing in.
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Despite the headwinds, community lenders aren’t standing still. Also on Wednesday, St. Cloud Financial Credit Union (SCFCU), a Minnesota-based financial institution with over $400 million in assets, announced plans to launch its own stablecoin. And for community and regional banks, the fight ahead may not just be about technology but about relevance.
See also: OCC Says Banks Can Hold Crypto, but Should They?
Why Deposit Flights Could Be the Next Banking Disruption
The rise of FinTech was once the central narrative of banking disruption, driving legacy institutions to rethink everything from digital onboarding to mobile deposit capture.
But despite the headlines, FinTechs never fundamentally threatened the deposit base of the banking system. Users might funnel some paychecks into a challenger bank for spending convenience, but their main accounts, mortgage payments and savings largely remained with incumbents. The FinTech challenge was real, but manageable.
Stablecoins change that equation. By design, they mimic the function of deposits, holding value in tokenized form and moving seamlessly across blockchain networks. In the crypto-native era, stablecoins served primarily as trading chips for digital asset investors. But as corporations, FinTech platforms and payment networks integrate stablecoins into their systems, they are increasingly positioned as substitutes for traditional bank deposits.
PYMNTS covered earlier this summer how industry groups such as the American Bankers Association, the Bank Policy Institute and the Consumer Bankers Association are warning that the stablecoin legislation, the U.S. GENIUS Act, contains language that will allow some cryptocurrency exchanges to indirectly pay interest to stablecoin holders. Banks are concerned this would lead to an unequal playing field and trigger a wave of deposit outflows if customers decide they want to earn yield by holding stablecoins at crypto exchanges rather than keeping fiat currency at banks.
Community banks and credit unions have typically competed on intimacy, local knowledge and personal service. In the age of digital wallets and blockchain payments, those advantages are harder to translate into customer loyalty. If deposits can migrate to frictionless, programmable tokens that live outside the traditional banking system, the value proposition of a local branch network begins to erode.
Read more: Stablecoins Face Liquidity Shakeout That Could Upend Payment Strategies
What Comes Next Across the Broader Strategic Landscape
The stablecoin phenomenon highlights the layered nature of banking disruption. The first wave, FinTech challengers, was about user experience and product innovation. The second wave, stablecoins, is about infrastructure and liquidity. In both cases, regulation plays the role of arbiter, either slowing or accelerating competitive dynamics.
The pattern resembles other industries disrupted by technology. Streaming did not just change how people rented movies; it redefined distribution and upended the economics of Hollywood. Ride-hailing was not just a better taxi app; it reshaped labor models and urban transportation patterns. Similarly, stablecoins are not just another payment method. They represent a re-architecting of the value transfer layer that underpins the banking system.
The trajectory of stablecoins will depend on a complex interplay of adoption, regulation and technology. If businesses find that blockchain-based tokens deliver cost savings and efficiency, adoption could spread rapidly. If regulators continue to legitimize crypto-banking hybrids, more institutions will feel compelled to follow. If consumers come to view stablecoins as a seamless way to transact, their mainstreaming will accelerate.
The innovation arms race of the past decade was about features and functionality. The one now unfolding is about foundations. In that contest, the winners will not be defined by who offers free ATM withdrawals or colorful debit cards, but by who controls where the deposits flow and how money is moved.
Yet questions about fraud, operational resilience and cybersecurity still hover. Unlike with traditional banks, where fraud protections and restitution mechanisms are well established, the recourse in blockchain environments is often murky. A single breach that drains reserves or manipulates transactions could trigger cascading distrust, especially if consumer protections remain ambiguous.
