SAN FRANCISCO – In innovating banking, it is not the American financial institutions doing the creative work.

At least that’s what fintech startups believe.

“Financial institutions tend to solve their problems and force it on customers,” said Shawn Budde, co-founder and chief risk officer at short-term loan provider ZestCash, during a panel at last week’s Bank Innovation 2012. “Frankly, almost all innovation is coming outside of the banks. Banks aren’t doing the innovating for the most part.”

Budde pointed out that even the development of credit cards came from outside traditional banks decades ago.

One reason why American banks aren’t at the forefront of fintech innovations is because existing and developing regulations handcuff their ability to be original, said Noah Breslow, chief operating officer of On Deck Capital, a technology platform that provides small businesses loans. Plus, the U.S. banking system is fragmented with regulations compared to other regions of the world, which “makes innovation more challenging here,” said Breslow. Compounding the issue is that most banks outside the Top 20 buy their technology from vendors, which removes their ability to be agile, he added.

“You will see a lot of innovation outside of banks,” Breslow said.