Just a couple of decades ago, credit cards and ATMs seemed to be a breakthrough in the financial industry. And now with our ever-growing expectations from tech in finance, we're hardly amazed by mobile banking and crypto exchange payments.
The simplification of financial management, the rise of its accessibility and the shift away from outdated procedures completely shook the industry. In 2021, there was a notable rise in the number of fintech startups worldwide. And today, the experts define the future of fintech as evolving and highly beneficial for us.
Fintech has completely turned the table, making traditional banks leave their conservatism behind. Auditing firm Deloitte asserts that banks should be prepared for the inevitable transition to new technologies and modernized products. And since the future is digital, they must determine not “whether” but “when” to start adopting digital assets for their advantage.
This article will examine the difference between fintech and banks, how they can work together and why they should cooperate. Discover the answer to the disturbing question of “Can fintech replace traditional banking once and for all?”. Also, get to know Inoxoft, an international development company that can provide custom fintech software development for your business.
What is the Difference Between Fintech and Traditional Banks?
Before going any further into the battle of bank vs fintech, we should look at their similarities. Apart from being related to finances, they offer:
- savings accounts
- payment processes
Neither traditional banks, nor fintech firms aren’t entirely safe from fraudulence or regulations compliances. Still, they have the same aim – to ensure the safety of their clients’ data.
The major difference between fintech and banks is that the latter mainly focuses on managing risks, while the other one puts key effort into managing the client experience. So, discussing banking vs fintech, we’ll quickly notice their wholly different views on the processes and procedures.
Let’s dig a little deeper into the distinctions between the business models of banks and fintech.
The traditional banking sector has developed a network of brick-and-mortar branches that require F2F interactions and identity verifications. Outdated legacy systems restrict banks from fast digitalization, and might fail to meet the needs of their clients.
In their turn, fintech companies highly prioritize client experience, implementing accessibility, personalization, and functionality. They enable round-the-clock online financial services that people can independently avail via their devices.
Also, fintech isn’t tamed by rigid legacy infrastructure. With the help of big data, cloud computing, AI and ML, it provides new solutions for the financial industry, like crowdfunding, personal finance apps, or P2P insurance platforms.
In fintech vs bank discussions, the regulatory landscape is another major point that differentiates them.
Traditional banks have strict regulatory standards they must comply with, including legal obligations, requirements, restrictions and guidelines. Such procedures help protect clients’ data and investments and guarantee transparency between financial institutions and their clients. And even though compliance might be expensive, they are needed for keeping the system under control.
The absence of a single regulator makes fintech agile and flexible for changes and adaptations. Fintech companies don’t have to follow rigorous guidelines, so it’s easier for them to integrate new services and solutions. Still, they are subject to such regulatory requirements as Know your customer (KYC), Anti-money laundering (AML), AMLD, eIDAS, and other regulations to avert financial crimes.
A decent credit record is one of the main conditions for banks’ credit application approval. Traditional banks aim at consumers with proven track records and robust credit ratings. They prefer reliable clients who can deal with debt or other financial situations and see proof of that. Also, banks have years of experience, which is typically associated with more credibility and trust.
When deciding over traditional bank vs fintech, younger audiences will most likely choose the latter. Being more tech-savvy than others, they are used to customized, mobile and digitized services. And fintechs’ customer-oriented approach actually meets their demands. Fintech firms provide credit cards for people with a poor financial history or credit ratings and think of how to improve their scores.
How Fintech and Traditional Banks Are Working Together?
Instead of provoking a battle of fintech vs traditional banks, let’s look at them from a different perspective. What if they aren’t rivals after all? Combining flexible solutions with decades of experience could result in enhanced financial services. Fintech and banking can cooperate to reap mutual benefits and work for the common goal – provide society with favorable solutions.
By collaborating with an established player in the industry, fintech companies can:
- obtain knowledge about financial regulations banking licenses that might be too cumbersome or costly for them to get
- offer their white label services to more influential banking institutions
Similarly, banks can use cooperation with the fintech firms as a way to ensure competitive advantages. Since fintech has experience developing digital solutions to improve services, its investment gives banks exclusive rights to use created applications, software and licenses. Plus, banks can control the development process and service strategies of fintech firms, protecting their core businesses.
Such alliances allow both parties to decrease capital expenses for business activities and extend their customer base. For instance, British banking services company HSBC partnered with Tradeshift – a fintech company specializing in supply chain payments. This way, HSBC’s clients can access Tradeshift’s platform to manage their transactions, which results in a win-win situation.
Can Fintech Replace Traditional Banking?
The fintech market is rapidly growing, reaching $131.95 billion in 2022 that is expected to grow to $324 billion by 2026. Fintech seems unstoppable: along with the innovations in the banking sector, it brings new solutions and opportunities of high accessibility and cost-effectiveness. And as the practices of 2008 and 2020 show, financial technologies can quickly respond to challenges in critical situations.
For traditional banks, those crises highlighted the importance of digital transformation. Their business models, established in the pre-internet age, aren’t used for the rapidly developing digital society. Banks also have fierce competition that changes the patterns of consumers’ habits and expectations of financial services. So whatever a conventional bank perceives as a risk, fintech regards it as an opportunity to upgrade or create.
No matter how progressive fintech is, it can’t fully replace establishments that have existed for centuries. And being much longer in the game, traditional banks have a well-proven reputation, permanent regulatory framework, and valuable expertise in the service industry. Fintech companies may look or even act like banks, and still, they aren’t set up like them.
The news is that intense fintech vs banking rivalry might end. Banks and fintech are confidently shifting from a competitive ecosystem to much more of a collaboration of the ecosystem, where they can bring together the best of both potentials.
Consider Inoxoft Your Trusted Partner
Inoxoft is an outsourcing software development company that helps clients resolve their challenges, digitize banking services and leverage trading success. We pay particular attention to projects’ multiprocessing, simultaneous data analysis, and counting operations. We also offer modules of cash flow forecasting, advanced dashboards, customer behavior analytics, and market data.
If you want to create advanced solutions for your bank, check out our banking software development services. With profound industry expertise, our developers will help you implement your ideas and choose the best decisions for your business. Inoxoft delivers feature-rich solutions for banks that include voice payment technology, robo-advisors, expense forecasting, loyalty program integration, the usage of biometric data, live chatting, etc.
Being a custom trading software development company, Inoxoft offers profitable trading system development and design. Our certified engineers will help you implement strategy amendments, provide expertise in implementation strategies and algorithms, enhance the current trading system and automate data collecting, transferring, and other processes. We follow the latest trends to make sure your business will grow and evolve.
Trading Automatization Platform
Our client – a group of stock traders — wanted to develop an application that could automate the tedious task of manually optimizing data using algorithms. Inoxoft delivered a software web application that automatically creates sheets with optimized exchange rate information and enlists all generated orders for beneficial purchases, according to a defined financial strategy.
Don’t forget to contact us to begin our partnership on improving your business.
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Frequently Asked Questions
What are the main differences between fintech and traditional banks?
Despite having their similarities, fintech and banking have much more distinctions:
- Approaches: The traditional banking sector is more process-oriented, whereas fintech companies highly prioritize the convenience of client experience.
- Regulations: Traditional banks have strict regulatory standards they must comply with, while fintech companies don't have to follow rigorous guidelines.
- Customers: Traditional banks aim at consumers with proven track records and robust credit ratings, when fintech firms provide credit cards for people with a poor financial history or credit ratings and think of how to improve their scores.
Will fintech replace traditional banks?
No matter how progressive fintech is, it can't fully replace establishments that have existed for centuries. And being much longer in the game, traditional banks have a well-proven reputation, permanent regulatory framework and valuable expertise in the service industry. Fintech companies may look or even act like banks, and still, they aren't set up like them.
How can fintech and banks partner together?
Banks can use fintech for developing personalized solutions for their clients. With a personalized banking experience, clients can fulfill their aim in a faster and safer way. And banks, meeting customers' needs, will keep the existing clients and attract new ones.