Nowadays, many people and companies are familiar with the traditional bank; however, in recent years, Fintechs have gained ground in their field, creating a more competitive environment and allowing better financial products and services. This article will teach us more about traditional banks and Fintechs besides analyzing their main differences.
Fintech
Fintechs are an emerging group of companies that use technology to offer solutions and financial services at different levels in the market. Fintechs can provide services directly to financial system users (whether people or companies) and deliver technological solutions to other traditional banking entities. The word Fintech comes from the term “Financial Technology,” and its main strength lies in its online platforms.
Traditional banking
Traditional banking refers to the conventional financial system that has existed for several decades, based on physical or face-to-face institutions, such as banks, cooperatives, branches, and savings banks. Usually, these institutions offer various financial services to individuals, companies, and organizations, whether loans, saving accounts, checking accounts, credit cards, time deposits, investments, insurance, etc.
Main differences between Fintechs and traditional banks
Below, we mention the main differences between conventional banks and Fintechs:
Highlights
Traditional banks stand out for their physical branches and face-to-face service, while Fintechs stand out for their technological platforms and online attention.
User experience
In traditional banking, they emphasize the user experience at the face-to-face level (through its physical offices and its face-to-face staff); however, the user experience at the online level is usually neglected since many of its online platforms are not very intuitive or updated; With Fintechs, they emphasize the user experience at the online or digital level, trying to incorporate a “technological layer,” which allows its online platform to be more intuitive, modern, and effective for its users.
Although traditional banking has had to “evolve” by adopting new technologies, this change is because of the arrival and competence of Fintechs, which have achieved a significant market share in the sector, which has caused many people to abandon their traditional banks to use more modern services offered by a Fintech. It is essential to highlight that this is one reason why traditional banks have been gradually adopting some technological solutions offered by Fintechs to provide better customer service and be more competitive.
Fees and commissions
With Fintechs, because of their technological platform’s efficiency and competitiveness level, they have lower fees and commissions than traditional banks, besides having fewer hidden charges or costs. Conversely, traditional banking has higher fees and commissions for some services because of its bureaucracy, operating expenses, and inherited systems.
Opening hours and customer service
Regarding traditional banking, its opening hours are the same as those of a face-to-face location (office hours). Although conventional banking has specific online channels, these tend to be ineffective because of their underdeveloped platforms. It is essential to highlight that traditional banking interactions are primarily face-to-face and telephone-based.
Although most Fintechs do not offer face-to-face customer service, they offer 24/7 online customer service. This online capacity and effectiveness are due to the different technological platforms that Fintechs have, which allow managing their communications more efficiently and effectively. It is essential to highlight that Fintechs’ interactions are mainly virtual.
Bureaucracy
Traditional banking transactions, operations, and processes of conventional banking need more documentation, paperwork, and requirements, which increase bureaucracy, making specific procedures tedious and inflexible, thus causing some people or companies cannot access particular financial products or services.
On the other side, Fintechs are more flexible and efficient in this aspect, which decreases bureaucracy, causing their procedures to be more agile and flexible, allowing more people and companies to access specific financial products or services. It is important to note that the corresponding local authorities duly regulate both traditional banking and Fintechs
Custody of assets
Getting custody service for physical assets or Fiat money is possible with traditional banking, as these institutions have boxes/vaults and security protocols that safeguard these assets. Fintechs focus on digital assets, giving their clients access to technological tools that allow the custody of various digital assets such as cryptocurrencies, smart contracts, non-fungible tokens (NFT), etc.
Trends
As we saw in our previous article, due to the rise of social platforms, commerce, and the financial ecosystem, many companies and businesses constantly evaluate and test new financial products and services (even if they receive them in their traditional bank).
This trend originates from many factors, one of which is how social networks and applications have influenced people, allowing their users’ experience to improve, which makes the company or business want to have the “same experience” in their financial product or service, because of this, nowadays, many companies and businesses look to Fintechs to access modern and efficient financial solutions (instead of resorting to traditional banks).
Do Fintechs and traditional Banks have to compete?
Competition in the financial sector is positive, giving users better financial products and services. Although there are many competitors in the industry, not all traditional banks must compete against Fintechs since both can often work together.
A clear example of this is when a bank “leverages” the technological platform of a Fintech, using this ecosystem to provide a better service to users. As we saw in our previous article, there are many “future” environments where Fintechs and traditional banking can work together and develop different “hybrid” products that can improve (considerably) the quality of life of their users.
What do you think of this topic? Would you like to know more about Fintechs?
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