The fintech industry is disrupting the traditional banking system by using innovative technology to provide more responsive customer service and meet customer expectations. Mobility, accessibility, and convenience have given the fintech industry an edge over legacy banking, resulting in its increasing popularity.
Fintech companies combine service specialization and technological capabilities to help companies streamline their complex financial processes. Fintechs also act as third-party providers within non-financial organizations to help them improve their customers’ experience.
Customers no longer need to go to a bank to make financial transactions. Instead, customers are able to complete all their banking and financial transactions from anywhere if they have a smartphone, computer, or tablet. Because of the increasing technological options, fintech companies are leading the way in redefining the financial ecosystem and how it operates by introducing innovative financial services such as payment technologies, investment tools, lending and etc.
What is the Difference between Fintech Companies and Traditional Banks?
Fintech companies and traditional banks offer customers various financial services, but the differences between them can be found in their respective business models.
The fintech industry is relatively new, and consequently, fintech institutions often do not have a traditional bank’s experience, reputation, and customer loyalty. Yet, fintech companies can benefit from the established procedures and regulations of conventional banking. As such, fintech companies are in the perfect position to combine traditional banking foundations with technological innovations that may redefine the banking industry.
Traditional banks’ older lineage is comprised of a considerable history of operational workflows and regulations. This gives them an advantage over fintech companies, as their knowledge of historical processes allows them to better implement vetted technologies. Traditional banks also have a better understanding of long-term customer behaviour and retention. In spite of all these, they are not agile enough when it comes to adapting to revolutionary technological changes.
Another difference between fintech companies and traditional banks is the regulatory requirements. Governments and financial regulatory institutions continue to create laws and regulations to adapt to evolutionary changes in the financial ecosystem. Meanwhile, traditional banks already have long-standing security measures and are highly regulated by central banks and governments.
How is Fintech Disrupting Traditional Banking?
Fintech companies and traditional banks are using new technologies to redefine banking in a digital world. They focus on seamless delivery, speed, personalization, and customer service. Fintech companies also focus on streamlining complex financial processes, thus making themselves more accessible to customers.
Customers love the speed, convenience, and multiple-channel interactions that fintech companies offer. New technologies and marketing tools enable fintech companies to enhance their services and make them more appealing to customers.
In addition, fintech companies can reach people who may not have a bank account or access to traditional banking services. Most millennials prefer to do their banking digitally and have mobile wallets from non-banking financial institutions. Millennials also use peer-to-peer lending in large numbers, which has increased the popularity of the fintech industry.
Can Fintech Replace Traditional Banking?
The fintech industry and traditional banking have their strengths and weaknesses. Fintech poses a threat to traditional banking because of its lean organizational structure, its use of the latest financial technology systems, and its ability to customize its products and services to the needs of its customers. Yet, there is still a need for banking institutions.
Banks have deep industry expertise and knowledge that new fintech companies do not have. Banks are also the only licensed institutions to provide fintechs with obligatory services such as safeguarding accounts. It makes sense then that fintech companies have expressed an interest in collaborating with traditional banking institutions. On the other hand, traditional banks can also learn from fintech companies, specifically on how to attract new customers and offer more customized products and services.
The fintech industry is one of the fastest-growing sectors in the economy, thanks in part to non-financial sector business leaders who use embedded financial services to improve their bottom line and customer retention.
Reconciliation Through Challenger Banks
Banks are also evolving with the digital transformation happening in the banking sector. Traditional banks make new collaborations and develop new applications to keep up with the fintech revolution. But, specifically, challenger banks are disrupting legacy banking methods. Instead of feeling threatened by the fintech industry, challenger banks are improving their use of digital security, digital payments, and other digital banking services. Future growth for both fintech institutions and challenger banks will rely on how the two can successfully collaborate and share their expertise.
Fintech has innovative technology and artificial intelligence, while banks have huge deposits and a robust regulatory environment. By combining these characteristics , fintech companies and challenger banks can continue to grow together in the financial industry.
How Can EMBank Help?
European Merchant Bank (EMBank) is a fintech-friendly challenger bank that can help fintech institutions expand their services in this expanding market. EMBank also advises fintech institutions on leveraging embedded finance technology to provide customer-centric financial solutions.
Established in Lithuania and licensed by the European Central Bank, EMBank provides a Banking as a Service offering, combined with Safeguarding Account, Business Account, and Accumulative Account types as well as payment options through SEPA, Swift, and Target2.
Please keep in mind that the above information has been prepared or assembled by the EMBank and is intended for informational purposes only. Some of the information may be dated and may not reflect the most current legal developments.
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