Will FinTech Take Over Banks?
A comparative analysis of fintech and traditional banks
Introduction
In recent years, we’ve witnessed a seismic shift in the financial sector, largely due to the emergence of FinTech, or Financial Technology. This disruptive force has transformed how we handle money, challenging traditional banking methods with innovative solutions tailored to modern needs. As FinTech reshapes the financial landscape, it’s crucial to explore how it’s doing so, why this is happening, and what certain stakeholders (like banks) stand to gain and lose from FinTech. A while ago, I wrote an article on cryptocurrency and blockchain, so I’ll avoid going in-depth on those topics and rehashing them.
Overview of FinTech
Fintech can be considered as the combination of two words — “financial” and “technology”. Fintech includes all companies that use the advancement of technology for the provision of financial services. These services are on a spectrum, starting with a simplified payment system and ending with investment platforms that provide a lot of convenience, accessibility, and efficiency for consumers and businesses. Unlike legacy systems that traditional banks are heavily weighed down and tied up in, FinTech companies can easily adapt as market trends and customer preferences evolve, keeping them on their feet and in business.
Overview of Banks
Brick-and-mortar banks at the heart of the financial system have traditionally been performing a wide range of functions ranging from savings, check accounts, loans, and mortgages to investment options. These institutions, despite their strong provenance and trust, often fail in the area of innovation, because of their large size, the constraints they have due the the regulations they have to follow, and their legacy infrastructure. There are a lot of FinTechs with brilliant ideas that overcome digitization challenges which traditional banks are still dealing with.
Service Offerings Comparison
One of the major points of difference between FinTech companies and traditional banks lies in their services, methods, and mechanisms. The FinTech business offers excellent digital services, going through smart applications and online platforms to navigate the process of doing banking and financial services right to the consumers. This new digital approach is tailored for Internet users who have technologized their lives, so much so that they see convenience and effectiveness as buyers’ priorities. On the other side, the old-style banks still prefer the local branches but have strengthened their internet presence to keep up with the changes in customer preferences.
For example, in terms of specific services, FinTech companies may often tend to involve themselves in niche areas such as peer-to-peer lending, robo-advisory platforms, or mobile payments. Therefore, FinTech startups are enabled by this branch of business to produce solutions that cater to particular market requirements. Unlike traditional banks, which offer a fuller range of services in one place as essential bank tools to customers, digital banking provides the financial tool which is the bank itself. On the other hand, the wide range of services may fail to be all-covering and to provide personalized care.
Regulation and Security
As FinTech tends to disrupt the financial market, the regulators find it a problematic situation if the innovation of FinTech companies complies with the existing laws and regulations. The speed at which technology is changing is many times faster than the regulations that attempt to regulate these technological changes, therefore there is continuous communication and only adaptations that are necessary. Moreover, FinTech services having their digital nature bring with them cybersecurity threats & data breaches, and hence to protect sensitive customer information, the right security measures need to be taken.
Future Outlook
Moving forward, the future of FinTech will thoroughly depend on how it continues to associate with conventional banking institutions. Fintech start-ups have been doing great in their tasks, but banks still possess some other elements, which include brand recognition, client loyalty, and compliance regulations. For this reason, traditional finance will likely survive, but only the most adaptable financial companies will remain competitive by combining the fast and creative features of FinTech with the stability and credibility of traditional banking.
Disclaimer: The information offered by us may not be suitable for all investors. If you have any doubts as to the merits of an investment, you should seek advice from an independent financial advisor.
