For years, consumers have tolerated the technological lag in traditional bank services. But with the rise of FinTech, they find themselves struggling to keep up and offer customers the innovation they crave. Many people have even come to wonder what the difference is and whether, in any case, the two should join forces to develop the financial services consumers are looking for. Jason Simon, an expert in FinTech and eCommerce, explains how they differ from traditional banks.
According to data, from 2018 to 2021, the number of FinTech almost tripled. In 2018, $254 billion was invested globally in approximately 18,000 FinTech startups through venture capital funds. First, it’s important to know what’s what. The FinTech sector combines financial services and technology to help people and businesses manage payments and financing. There is no doubt that its rise has come to change the way this sector is managed. The word FinTech is a combination of “finance” and “technology.” Also called technofinance or the techno-financial sector, the term describes innovative technology that strives to automate and improve the implementation and distribution of financial products and services.
Simon explains, “FinTech technology helps business owners, companies and consumers easily manage their finances and business processes digitally. It can typically be accessed through a computer or other devices, such as a smartphone or tablet.” The industry began its development in the late 1990s when eCommerce and Internet companies emerged. In the 21st century, this technology was integrated into the backend systems of financial institutions to digitize banking. Since then, FinTech has shifted its focus to consumer-oriented services. It is now used in various sectors, including retail banking, investment management, fundraising and non-profit organizations, education, and financial services for individuals. Cryptocurrencies such as bitcoin are also part of the FinTech development.
On the other hand, a traditional bank is a financial institution that is licensed to receive deposits and grant loans to individuals and businesses. Some banks also offer other financial services such as wealth management, safe deposit boxes, and currency exchange.
There are three types of banks: corporate banks, retail banks, and investment banks. In most countries, they are regulated by a central bank or the national government. According to Simon, during the first months of COVID-19, the use of mobile banking increased by 20-50%, and this trend is expected to continue after the pandemic. After conducting several studies, it has been learned that consumers demand more flexible processes when it comes to digital banking. 71% prefer multichannel interactions and 25% want a 100% digital experience with their bank, with remote human assistance available when needed.
“To meet customer demand in terms of speed, efficiency, and user experience, financial providers must integrate technology into their services,” Simon says. “This will enable them to deliver the agile experience that consumers expect. If retail giants like Amazon allow customers to complete a purchase in seconds, opening a new bank account shouldn’t require a face-to-face meeting.”
FinTech services bridge the gap between what traditional banks offer and what the modern consumer expects. This sector is experiencing massive growth. In fact, according to The Business Research Company, the global FinTech market was valued at about $127.66 billion in 2018 and is expected to grow to $309.98 billion with annual growth of nearly 25% between now and 2022. Both FinTechs and traditional banking aim to provide comprehensive financial services to consumers. That’s really the only similarity. FinTech companies are considered the biggest competitors to banks. The financial system that banks rely on today is made up of some very traditional and outdated practices and procedures. It often lacks speed and agility. As consumer demands increase in this regard, they are looking for financial solutions that better meet their needs.
When it comes to innovation and advancement, traditional banks are lagging behind and FinTech companies are stepping up to the plate. They may control a small part of the global banking system for now, but consumers are increasingly choosing to use them as a substitute for banks. According to Statista, between 2015 and 2019, consumer adoption of FinTech companies and products grew rapidly around the world. By 2019, 75% of consumers globally started using some form of money transfer and/or payment service.