The banking industry has evolved massively in the last decade. In the past, people have tolerated the lack of technology at traditional banks. However, today with the rise of the fintech industry, the traditional banking system has been challenged. People are getting innovations that they want.
In the last few years, the number of fintech companies worldwide has increased, and so has the investment. So, the question is, who will win, fintech or traditional banks? Or should they find common ground or work together?
In this article, we will compare fintech and traditional banks and learn how they differ from each other and the potential for their growth.
Fintech is a merger of two words, “financial” and “technology”, meaning a term describing a new technology that can automate, improve and deliver a financial service or product. Business owners, companies, and consumers can easily handle their finances and business processes with the help of fintech. The technology is easy to use, and you just need a computer or device such as a smartphone.
In the beginning, the focus of fintech was to digitize the banking system, but today it has shifted to consumer-oriented services. Today, fintech is used in retail banking, investment management, fundraising, and individual financial services. Moreover, cryptocurrencies such as Bitcoin, Doge coin, etc. are also fintech developments.
A study from McKinsey stated that during the pandemic, the use of mobile or net banking increased by a whopping 20-50%. Moreover, it remained the same even after the pandemic. Another study from Mckinsey reveals consumers of digital banking demand more flexibility from these applications. Thus, stating that fintech has affected the financial sector.
To meet these demands of the customers, many financial service providers are integrating technology into their services. It will help them in fulfilling the needs of their customers. Furthermore, big giants like Amazon and PayTM let their users complete a transaction in mere seconds. The fintech industry will experience massive growth in the future.
Fintech products such as mobile applications, software, and other technologies help automate and improve old financial services for customers and businesses. Fintech is currently used as an online payment gateway as it helps organizations to accept transactions through online mode. Moreover, it is also used as a platform to exchange cryptocurrencies.
Understanding Traditional Banks:
Traditional banks are financial entities that are licensed to receive deposits and are allowed to provide loans and other services to individuals and businesses. Other financial services may include wealth management, currency exchange, safe deposit boxes, insurance, and fixed deposit plans.
Traditional banks are divided into different categories according to their services. These different bank types are corporate banks, retail banks, and investment banks. Furthermore, banks are regulated by a central bank or the national government of a country.
Traditional banks still work with their good-old days’ practices and procedures, as a result, they are unable to match up with the fintech industry. These practices and procedures are time-consuming, and not many customers are fans of them. As we previously discussed, fintech is growing at a significant rate, meaning they are meeting the customer’s expectations. With the advancement of fintech, banks are falling behind.
Currently, traditional banks are used for relationship loans, core deposit funding, lending money, and processing transactions. Moreover, customers can visit the bank and get face-to-face interaction with a person.
Fintech is the winner. With fintech, customers get easy access to their finance and can do financial transactions at any time. This makes fintech a convenient option. However, your physical presence is needed at a bank, and it is not open 24×7.
In our opinion, banks should work in collaboration with fintech. This will give an advantage to both. Tell us your opinion in the comments and let us know what you think. Check out the latest articles as well.