With new technology appearing daily, people’s lifestyles and business practices are beginning to shift. As a result, the banking industry is only one of several that has been impacted. It has been keeping an eye out for developments that may alter customers’ perceptions of banks. Commercial bank online, mobile banking, chatbots, and 4G internet, to name a few examples, have revolutionized how banks and other financial organizations see their customers and their interactions with them. This demonstrates how Fintech is an ideal medium for introducing cutting-edge financial services that may improve customers’ daily lives. Customers should have trouble-free experiences making one-click money transfers, doing business transactions, and making purchases. The ability to accomplish things with the touch of a button has made life simpler for everyone.
Understanding What Are Fintechs
Many people now use their cell phones to send money, manage investments, and obtain loans to fulfill the goals of financial management. Regarding retail banking, education, and wealth management, fintech is all about the consumer and how they may benefit from using technology to improve their experience.
“Financial Technology” (FinTech) refers to the use of computer programs to streamline and enhance the distribution of monetary services. These programs control the administration of monetary goods, procedures, and activities.
Where do Banks come in?
Information about banking sector is important. Loans, deposits, and withdrawals are all traditional banking activities, but banks’ primary roles nowadays are risk management and customer service. Commercial banks, retail banks, investment banks, etc., are only a few of the vast varieties of banking institutions.
How Does FinTech Differ from Traditional Banking?
There are a few key distinctions when comparing traditional banks to those in the fintech environment.
1. Integration of Form and Operation
- Fintech
The financial technology industry is cutting-edge and focused on the consumer. It has the potential to simplify complex monetary procedures and makes managing investments easier. With this, consumers may easily and quickly have access to all financial services. Financial software development firms that provide ideal fintech solutions often use lean operating strategies to identify and address outdated system bottlenecks. In addition, fintech facilitates rebuilding old systems and the introduction of novel features into these systems.
More broadly, Fintech refers to an industry that uses innovations like big data, AI, and cloud computing to provide a superior service for its customers. Furthermore, these innovations emphasize customization, uniformity of delivery, precision, and swiftness. Because of its ability to simplify and expand access to previously inaccessible financial services, fintech is an ideal answer for the banking sector.
- Traditional banks
Traditional banks’ capacity to quickly adopt new technology is hindered by the regulatory framework and broader financial system they must operate within. As a result, banks cannot compete with fintech firms by quickly developing new goods and services to meet customers’ needs. We may explain this phenomenon by noting that banks place more emphasis on procedure than fintech.
2. Regulations
- Fintech
Financial technology firms are not under the jurisdiction of any one agency. That is a major driver of the emergence of new financial technology companies. Furthermore, fintech businesses can alter their operations as they see fit without stringent oversight. This makes it easy for new financial technology companies to meet the needs of their customers and move quickly in this competitive and uncertain market.
- Traditional banks
A central or national bank oversees the banking system worldwide. Regulators demand that conventional banks follow the rules and regulations set out by law to protect their customers’ funds. This implies that banking rules promote open communication between customers and banks.
3. Future Growth Prospects
- Fintech
The global fintech industry has been expanding fast since the pandemic, and digital transformation has been a major topic, ushering in novel ideas on a daily basis. Furthermore, this has led to remarkable expansion in the financial industry, a very sustainable expansion.
- Traditional banks
Traditional banks have kept the financial system afloat for decades. Now that fintech is making waves, they are adjusting to meet the needs of a new generation of customers. This also necessitates the presence of fintech technologies that allow customers to borrow money from a person or a group of individuals, such as mobile payments, digital security, and peer-to-peer lending.
4. Possible Dangers in the Financial Technology Industry
- Fintech
You’re probably aware that the adaptability of fintech regulations increases the industry’s exposure to risk. Traditional banks are still an option, but online banking has gained popularity due to its many advantages over its brick-and-mortar counterparts.
- Traditional banks
More stringent restrictions help reduce dangers associated with aging infrastructure. However, financial technology is crucial if the institution maintains its competitive edge, improves its service quality, and expands its customer base. Legacy systems may attract users to their applications by providing superior service.
Financial Technology vs. Traditional Banking
| Characteristics | Traditional Banks | Fintech |
| Function | Banks are places that are licensed to handle money and care about the safety of their customers. | Fintech companies improve and automate. the way financial services are delivered by putting customer needs first. |
| Regulation | The national or central bank of the country keeps an eye on them. | There are no rules about how fintech companies should work. |
| Growth | Banks can only reach a small part of the market. | Because of new trends and technologies, fintech companies can reach a bigger market. |
| Risk | Less risk is involved when there are strict rules. | The fact that it is flexible makes it riskier than Banks. |
Can Fintech Take the Place of Traditional Banks?
Many have prophecied the end of banks since the 2007 Financial Crisis and the rise of fintech. However, banks’ use of technology to generate income, control risk exposure, and cut expenditures has lowered the barrier to entry into the financial business and accelerated competitiveness to the point that Fintech banks make up half of the top 5 ranks among the top 10 financial institutions.
Big banks aren’t going out of business anytime soon, but they are collaborating with or purchasing Fintechs or incorporating technological innovations to increase their competitiveness in the market. Some financial institutions, like JPMorgan Chase & Co. and Citigroup Inc., have their digital platform. Banks are losing market share and income to fintech start-ups that provide similar financial solutions at lower prices, quicker, and with lesser fees than traditional banks.
As a result of two factors, first, the regulatory load of traditional banks vs. the looser constraints of the Fintech business, whose regulatory environment is increasing at a slower rate than the innovation in the field, smaller banks have a clear competitive edge over Fintechs. However, community banks may lack the capital to use technology to become experts in niche areas like small business loans. Finally, Fintech’s’ use of evolving technologies enables them to extend and expand distribution channels. In contrast, smaller banks may depend on a single distribution channel owing to technological risks in other media.
How Open Are Banks to Working with Fintech?
Meanwhile, banks are debating their market and technological goals, and Fintechs are continuing to shake things up. In response, several financial institutions are boosting expenditure on in-house technology like banking apps to provide a better service to their clientele. Some landlords work with fintech firms to help tenants build credit by submitting rent payments to credit agencies; examples include Goldman Sachs and Esusu Financial Inc. of New York. This collaboration will make rent reporting available to tenants in certain American residences owned by Goldman Sachs.
In conclusion, technology is here to stay, and successful businesses will adopt a subjective approach to integrating it into their operations and services to reap long-term benefits. Fintech firms serving the financial sector should also consider how they will grow and market themselves, how they will get consistent financing, and how they will interact with regulators.
Conclusion
Comparing fintech to conventional banking, we can say both have benefits. However, since the world is always changing and new technologies are being introduced, fintech has emerged as the most viable solution. It allows customers to access their accounts and make transactions from any location at any time.