Traditional vs Digital Banks: Competition or Collaboration?
By Ademusoyo. on The Capital
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The world runs on time and money. Since the beginning, money has been used between business-to-business and business-to-consumer without real focus on peer-to-peer money transfers; that is, until 2009 when Venmo stepped onto the tech scene reevaluating how we as well as traditional banks think of banking.
The Competition
Prior to Venmo, if you were out with friends for dinner, you would have to go to the ATM to split the bill. Now, Venmo makes it easy to split payments pulling money directly from your bank account into the hands of someone you know. This created some tension amongst big banks, which led them to adopt and integrate Zelle, a digital payments network to further level the playing field. Zelle has the backing of about 30 banks while providing a secure and trusted experience for its users. Additionally, you can get your money instantly for free. This has helped banks steadily become a more efficient and convenient choice for peer-to-peer lending.
Non-bank Fintechs are creating products to entice customers to sign up such as prepaid debit cards, partnerships to offer rewards, and a simple to use UI. This has resulted in us as consumers not only to reshape our thinking when it comes to receiving or sending money but also how we view investing, wealth management, and saving money.
The Risks
While peer-to-peer payment services make things convenient and easy to transfer money between friends and family, there are plenty of risks associated with them. Peer-to-peer services aren’t met for buying and selling goods and services. They are designed to transfer money to people that you know. Whether advertised or non-advertised by your bank, you don’t have the same consumer protections that you would directly using your debit or credit card; meaning that you don’t have the right to your money back in the event that something goes wrong.
In order to avoid potential scams or risks, it’s recommended to use a Credit instead of a Debit Card when making transactions as well as an additional form of authentication. If you are buying goods on these platforms, purchase services from authorized vendors.
Final Thoughts
The connection between traditional vs non-traditional banking is going to cycle on into many different phases and will probably not end anytime soon. As of now, we see the collaboration between traditional banks and fin-tech companies to provide multiple goods and services. The company that is going to come out on top will be the company that:
- Focuses on it’s customers first
- Has APIs that allow customers to setup their own payment systems for their products.
- Insights and Analytics on consumer behavior
- Frictionless transfers of money
