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Banks that embrace innovation are likely to emerge as winners in the digital revolution that’s taking place in the financial services sector, says Moody’s Investors Service in a new report.

The New York City-based credit rating agency sees “the bank of the future” thriving through catering to rapidly evolving customer expectations by harnessing technology, leveraging digital distribution channels, and applying these tools to multiple businesses and product segments.

“Customers will gravitate to providers that best meet their demands for convenience, personalization and affordability, with privacy and data security a growing competitive differentiator,” Moody’s says in a news release

In this environment, Moody’s expects competition to ramp up among banks, big tech companies, and small fintechs. “Agile incumbent banks, that consistently assert digital leadership, will thrive and prosper, while laggard banks that lack the vision or resources to develop competitive digital strategies will be disrupted,” it says.

Aging financial platforms have created opportunities for upstarts to capture a portion of banks’ profits by offering more customer-focused, responsive and efficient channels, Moody’s adds.

So far, regulatory requirements have helped protect incumbents, Moody’s notes, but it sees regulators becoming increasingly open to fintech innovation. “Regulatory sandboxes and open banking initiatives indicate a shift in authorities’ willingness to encourage innovation and competition,” says Megan Fox, assistant vice president and analyst at Moody’s, in a statement.

“In the face of these threats, successful incumbent banks will be those that, either on their own or in collaboration with others, pursue aggressive digital transformation to become more efficient and responsive to evolving customer demands,” says Fadi Abdel Massih, analyst with Moody’s, in a statement.

“Disintermediation of the customer relationship would be a threat to this business model if it ends up reducing banks’ pricing power by transforming them into providers of a ‘back-office’ balance sheet for customer-facing apps/businesses,” Massih adds.