Fintech vs Traditional Banks:
Cooperation or Competition?
What is Fintech?
Fintech is the term that refers to “Finance” and “Technology”. Where financial ease is created combining modern technology and modern financial services, which help people to avail of financial services with ease using modern technology. Right after this revolution in financial services, we observe an increase in using technology for financial services more than the
banking system because of its ease and mobility.
Moreover, because of the intense and mandatory use of the internet, regulatory bodies can easily track these transactions to regulate these bodies, which make sure a smooth usage of Fintech.
Why need Fintech?
Banks are considered to be the sole medium for money transfer and other transactional activities for centuries as a financial institution. With the increase in the use of technology and the advancement of almost every traditional procedure. We see plenty of room for innovation and advancement in our financial system or to be precise banks.
Moreover, tragedy happens because the world financial system has seen plenty of crises because of regulatory issues with the banking system. With a lack of regulation and innovation, the need for more advanced substitutes other than banks became a necessity. This is where the
need for Fintech arrives. A combo of modern technology integrated with financial services to help people easily do their transactions and avail other financial services. But here this question arrives:
How long will Fintech sustain?
Fintech is considered as the future of banking and financial institutions. Since the beginning fintech has seen intense private investment and more platforms coming in. as of 2019 the top 48 fintech giants worth around $187 billion. With more companies coming into the business the competition in the fintech industry is growing tense day by day. With the intense competition, we
will experience more innovation and advancement in the future. As of now, we can say that fintech has a very bright and glowing future ahead.
Fintech Vs Traditional banks:
Fintech is considered as the biggest competitor of traditional banks. The financial system we use today consists of some very old and traditional procedures and practices, which is not only time consuming but slaggy. As the world is getting faster and faster people to need a financial system which can meet their needs.
Because of the sustained position of banks in the market they lack the innovation and advancement they should have done before. But the world moves with its pace. People need a substitute to fulfil their needs. This is where fintech companies take this advantage and manage to be that substitute.
Even today, fintech has a very small share in the world banking system. But the growth rate is exponential. With a growth rate of around 24.8%, this industry is expected to worth $309.98 billion by 2022.
To make this debate easier for you to distribute it into several points. Following is the distribution:
● Way of doing business
● Regulations
● Growth
● Risk
Way of doing Business:
Fintech and traditional banks both work as a financial institution. But both have differences in doing their business.
● Fintech:
Fintech works virtually; you don’t need to be physically present to make any transaction or avail any particular financial service. You can register yourself using either a mobile app or by using their website.
● Traditional Banks:
Traditional banks have their places where you need to visit to open an account or to apply for any other financial service. It is mandatory to be physically there so that they can verify your identity through biometric verification and facial recognition.
Regulations:
Every financial institution is regulated by a government body or any international watchdog. To
make it safe for general people to use them.
● Fintech:
Fintech doesn’t have any particular regulatory body yet. This is the reason why so many companies jumped into the business. Without regulation, fintech can make custom changes to its principles and do whatever they want. The reason being some critics consider a risky industry yet fast. But in some countries, the financial conduct authorities regulate and obligate fintech business. Moreover, some companies voluntarily get under international watchdogs to make their customers feel safe from scams.
● Traditional Banks:
Traditional banks are regulated by central or national banks of their country of origin. Central banks and other financial regulators of the country regulate banks to fulfill legal obligations to safeguard the money of its people.
Growth:
Growth is a very important factor when comparing two industries. Both fintech and traditional banks have their growth paths depending on their fundamental factors.
● Fintech:
Fintech has intense growth potential, with an annual growth rate of around 24.8%. Fintech is among the leading growth industries in the world. Moreover, with tough competition in the industry companies in fintech is innovating rapidly than any other industry in the world.
● Traditional Banks:
Traditional banks have their sustained market share in their respective countries. With the introduction of fintech, traditional banks are also adapting fintech features like mobile payments, digital security, P2P lending, and crowdfunding.
● Fintech:
Fintech is riskier than traditional banks. Because fintech doesn’t have any specified regulator yet. This industry is very riskier. But still, people use it because of its swift execution and ease.
● Traditional Banks:
Traditional banks are the least riskier financial institutions. And their rate of return is considered as risk-free or least riskier. Because of their huge acquisition of physical assets banks are considered less risky.
Corporation or Competition between Fintech and Traditional banks:
Fintech and Banks both work as financial intermediaries. Banks have been doing their business for centuries and they need some drastic changes to meet the requirements of modern-day advancements.
On the other hand, fintech provides the best technological features of almost the same facilities banks offer. So what relation do they have as of today or shortly? Are they the competitors or two sister industries cooperating?
Most of the analysts consider them as sister industries, which should cooperate to make a better impact. Some basic consideration includes:
● Banks have huge deposits when compared to fintech, with their cooperation and use of fintech features they can form a better financial system.
● Banks are regulated by government institutes, if fintech companies cooperate with banks they will also be regulated under those agencies.
● Fintech has a huge attraction based on its advanced features when banks cooperate with them the overall financial system will upgrade.
Today banks are adopting fintech features to increase their features to meet technological demands.
If you have further questions about Fintech solutions or need help developing a platform or integration, you can contact our experts to find out how we can help your business succeed.
