Nearly 80% of traditional financial institutions feel little or no threat from fintechs today, but 65% believe fintechs will be a “significant threat” by 2022, according to a new study by Harvard Business Review.

The survey of 300 executives from traditional FIs also found that 20% said their organizations don’t compete with fintechs “at all” today, but 59% said fintechs have captured less than 10% of their market share.

Michael Miebach, Chief Product Officer for Mastercard, which sponsored the study, said traditional FIs have successfully relied on their competitive advantages, such as brand recognition, customer trust and experience with the regulatory environment. But these firms are also held back by institutional inertia, lack of an entrepreneurial mindset, and a lack of internal skills and knowledge about certain concepts, like artificial intelligence and blockchain, he added.

He told Bank Innovation that everyone, from the youngest fintechs to the most established FIs, acknowledges that customers will increasingly expect digital-first banking solutions. This, he said, is largely thanks to user-friendly experiences they’re having on online shopping platforms and streaming platforms.

Miebach said: “Consumers are asking their banks, and our banks are asking us, ‘Why is banking any different?’ and ‘Shouldn’t we expect digital-first, all across the board?’”

Open banking regulations like PSD2 are only now kicking in, he said, but banking executives are recognizing the extent of the changes likely to come over the next two to five years. Only 13% of survey respondents said open banking isn’t likely to have an impact on their organizations by 2022.

“I think it’s hitting people that this is really going to trigger a whole new set of business models that will be available to the end consumer,” Miebach said, “be it better experiences, be it data-driven, or be it better personalization through the data that will become available to fintechs as banks will have to open up customer data.”

He said the old-guard firms of the industry are already open to the idea of partnering with third parties, but to solve specific pain points more than to hand over opportunity. He said more banks, at least those that are able to make the investment, are creating teams to launch digital-only spinoffs.

“The benefit that you have as a bank, clearly, is that you can put behind it your trust, your brand and all of that, and that’s fantastic. But the real crux of it comes when you try to scale what you’ve just built in a couple of months,” Miebach said.

He said a path to scale is critical for fintechs, which, while more agile and technologically skilled, still often rely on banks and other established players to reach a wider pool of customers. And that’s not the only challenge fintechs will have in the open banking era.

Miebach said one thing often overlooked when it comes to open banking is that nothing keeps a traditional bank from asking its customers for consent to access all the other banking data that they have. “Anybody can compete with anybody in this world,” Miebach said. “What open banking does, by definition, is it breaks the traditional relationship between a bank and its customer. So, that one-to-one relationship, where ‘this is my customer and this is my bank,’ isn’t going to be the reality any longer; anybody can come in. And if you see the opportunities, then that’s a path for growth.”

He said other traditional FIs will go on the defensive instead and try to maintain their one-to-one relationships with customers by revamping their technology through partnerships with fintechs to just provide a better customer experience.

Norm DeLuca, Managing Director of Digital Banking at Bottomline Technologies, a fintech provider, told Bank Innovation that banks are looking to deliver an integrated experience to customers without compromising on ownership of the relationship. He said opportunities abound for traditional banks to play the role of “orchestrator of the ecosystem” in the open banking era, but they won’t be able to hide behind the old barriers.

“Banks need to lean into that role, including providing access to other sources of services without sacrificing their role as the main intermediary,” he said.

He said data analytics and technologies like AI and machine learnings are having an especially powerful impact that will only grow dramatically, as it all goes back to extending and deepening relationships.

“At some point in the near future, these capabilities will be the whole basis on which banks compete and differentiate themselves,” he said.

It’s worth noting that 53% of survey respondents cited a lack of internal skills related to technologies like AI and blockchain as one of the biggest challenges facing traditional FIs in competition with fintechs.

See the full study here.