Fintech vs. Banks: Exploring the Key Differences - Eurotechconseil (2024)

Fintech vs. Banks: Exploring the Key Differences - Eurotechconseil (1)

Consumption habits have evolved since the introduction of new technologies which have affected all sectors, and the banking sector is no exception. Nevertheless,traditional banks struggle to join the circle of technological innovations in order to satisfy a new demand in this area. And the advent of fintechs, boosted by the development of these technologies, has made the task even harder for traditional banks. We then wonder about the cohabitation of these two structures in the same sector : Do fintech companies stand out as a real alternative to traditional banks or will they take the position of competitor ?

What are fintechs?

Definition :

Fintech is an association between two terms in English: Financial and Technology which reflects new technologies whose purpose is to automate and improve the usage of financialproductsand services. A fintech is therefore a company that implements an innovative digital technological solution which allows the optimization of a financial service.

The primary mission of the fintechs is to provide services relating to the banking and financial sectors which want to be more efficient and effective and moreover which cost less than those offered by traditional commercial banks.In general, these are start-ups which are part of a perspective of anticipating high growth and establish their activity in an innovation process. Also, Fintechs have introduced new payment methods, and as part of this process, Paypal has already joined this sector when he proposes to graft his bank account to a third-party web service. The goal is to bring simplification and security to the various commercial transactions that take place online. Regarding France, it declines in the domain of fintechs, quite a dynamic position.

As such, France Fintech, a professional association, was able to identify in France, no less than 350 Fintech companies of which 234 declare that they carry out an activity that the Banque de France regulates. It is worth pointing out that according to a study by the consulting firm Exton Consulting, 19% of French fintechs are alternative financing companies and are therefore the most numerous.

What are traditional banks?

Definition :

Traditional banks are institutions that operate in the financial sector and which are authorized by a high-level authority to make deposit receipts and loan agreements to both individuals and businesses. Among traditional commercial banks, there are those who offer services such as wealth management, currency exchange or even safes.

Traditional banks are available in various forms such as personal, merchant and in particular investment banks. Most often, banks are governed by the authority of a central bank or in certain cases are submitted to the authority of a national government.

Bank and fintech : what relationship?

A traditional bank’s activity and that of a fintech both belong to the same register namely: providing financial services to consumers. In other words, the fintech companies are considered frontline competitors of traditional banks. The difference between the two is that a fintech bank uses new technologies while traditional banks still resort to archaic and time-consuming procedures and means. With regard to innovation and technological advances, traditional banks lag behind as fintechs pursue their momentum in terms of innovation. That is why, consumers around the world are increasingly opting for fintechs. The conclusion that is therefore drawn is that fintechs are encroaching upon the areas of responsibility of traditional banks, and this for many financial services such as payments, or credits. Here traditional banks and fintechs are real competitors.

From another perspective, the two protagonists of the banking and financial sector have another type of relation, that of complimentarity. Indeed fintech companies want to be complementary to certain activities exercised by traditional banks. These are essentially regtechs (Regulatory Technologies) whose purpose is simplifying the monitoring of regulatory constraints and which are imposed on financial operators. This is also the case for paytechs which, within the framework of a collaborative relationship with the banks, are intended as complementary services allowing better adaptation to customer needs.

Fintech trends for 2022

For the year 2022, there are according to experts five main fintech trends which will become development vectors:

  • Integrated Finance Trend: : Experts believe that it reflects a new stage in the fintech and consists of the combination of a financial service and a non-financial one. The development of this trend will be due to the fact that more non-financial brands are contemplating the idea of the integration of payments, insurance products or credits.
  • BuyNowPayLater Trend : This trend was already listed in 2021 and consists of solutions based on the principle of Buy Now and Pay Later. BNPL is among the areas of digital payment and lending solutions whose growth rate follows an increasing curve. These solutions have been integrated into e-commerce sites and of which the best known in France are Younited and Klarna.
  • Artificial Intelligence Trend :Experts believe with conviction that AI will play a leading role in the fight against fraud in the financial sector. AI solutions represent a solid and crucial tool to prevent crime and financial cybercrime. They can also be used for analyzing a large amount of transaction data to allow the discovery of trends in the field of fraud.
  • Cryptocurrency and Blockchain Trend : Although this trend is quickly confirmed, it does not however integrate everyday life. Nevertheless, this configuration may experience a development during the year 2022 which will be accelerated to lead to a component of a larger ecosystem.
  • Vertical Banking Trend : This consists of a banking product development process which makes it posssible to meet specific needs relating to specific customer segments. It differs from a traditional bank which offers a very wide range of products and which is aimed at all customers without segmentation. Vertical banking has the particularity of concentrating its activity on niches.

#Artificial intelligence | #Bank | #Blockchain | #Digital | #Fintech | #Paytechs | #Regtechs | #Traditional Banks

Fintech vs. Banks: Exploring the Key Differences - Eurotechconseil (2024)


Fintech vs. Banks: Exploring the Key Differences - Eurotechconseil? ›

The difference between the two is that a fintech bank uses new technologies while traditional banks still resort to archaic and time-consuming procedures and means. With regard to innovation and technological advances, traditional banks lag behind as fintechs pursue their momentum in terms of innovation.

What is the difference between FinTech and banks? ›

The primary distinction in comparing FinTech vs Banks lies in their approach to financial services. FinTech companies offer convenient and user-friendly solutions aimed at modernizing banking experiences. On the other hand, traditional banks prioritize stability and trust in their service delivery.

Why are FinTech better than banks? ›

Overall, fintech and traditional banking offer different advantages and disadvantages. Fintech companies are often more innovative, faster, and cost-effective, while traditional banks are more established and provide a wider range of financial services.

What is the difference between e banking and FinTech? ›

In conclusion, digital banking and FinTech represent two distinct, yet interconnected, facets of the financial industry. Digital banking focuses on providing traditional banking services through digital channels, while FinTech encompasses a broader spectrum of financial technology innovation.

What distinguishes the FinTech services described in this case from traditional banks explain your answer? ›

FinTechs make complex financial processes more accessible to people, particularly millennials and younger generations, by streamlining them. FinTech companies can also offer products and services that are up to ten times less expensive than traditional banks due to a more optimized corporate structure.

How do FinTechs compete with banks? ›

Reduced profit margins: Fintech companies often have leaner structures leading to lower operating costs and competitive rates and fees. If traditional banks cannot streamline operations to offer the same, they may face pressure on their profit margins.

Why is fintech a threat to banks? ›

In parallel, the threats posed by FinTechs have the ability to disrupt four categories of incumbents' business – market share, margins, information security/privacy and customer churn – at higher rates when compared to other financial sectors.

What are the pros and cons of fintech? ›

Fintech's advantages include easy access, transaction efficiency, and lower costs. Nevertheless, fintech also has disadvantages, such as data security issues, technological dependence, and a lack of consistent regulation.

How has fintech changed banking? ›

Fintech solutions have revolutionized the banking sector, providing banks with increased efficiency, cost reduction, improved security, enhanced customer experience, increased transparency, accessibility, faster payments, and more.

How is fintech disrupting banking? ›

Disruption of Traditional Banking Models: One of the main ways in which Fintech is disrupting traditional banking models is through digital payments. Fintech companies have made it possible for customers to make payments seamlessly, securely, and at a lower cost than traditional banks.

Does fintech substitute for banks? ›

Substitution between FinTech and banks is economically small, implying that FinTech mostly expands, rather than redistributes, the supply of financial services.

What is fintech and what is not? ›

Financial technology, or fintech, is a term for using technology to revolutionize how the world uses money in the digital age. Fintech enhances and automates the delivery and use of financial services, making them more accessible, efficient and secure for businesses and consumers.

Are banks using fintech? ›

Fintech in Banking

The fintech industry is equipping banking institutions with tools that make them more efficient than ever before, like chatbots to enhance customer experience, mobile apps to give customers real-time views into their bank accounts and machine learning to secure against fraud.

How fintech is changing the future of traditional banking? ›

The fintech revolution has democratized finance by making financial services more accessible and convenient for consumers and businesses. Mobile banking apps, peer-to-peer lending platforms, and digital wallets have simplified financial transactions, reducing the need for customers to visit physical bank branches.

What are the advantages of fintech services over traditional banking and financial products? ›

With sufficient funding, the client, after that, is allowed to transfer money to another user. Such transfer by FinTech companies is less costly, faster, and more convenient compared to traditional providers. It is cheaper in the sense that it only incurs lower operating costs and charges lower fees.

What is the major advantage fintech bank startups have over legacy banks? ›

Outdated legacy systems restrict banks from fast digitalization, and might fail to meet the needs of their clients. In their turn, fintech companies highly prioritize client experience, implementing accessibility, personalization, and functionality.

Is banking considered FinTech? ›

From 2018 or so to 2022, there was a shift to consumer-oriented services. Fintech now includes different sectors and industries such as education, retail banking, fundraising and nonprofit, and investment management, to name a few. Fintech also includes the development and use of cryptocurrencies, such as Bitcoin.

Is FinTech related to banking? ›

The word “fintech” is simply a combination of the words “financial” and “technology”. It describes the use of technology to deliver financial services and products to consumers. This could be in the areas of banking, insurance, investing – anything that relates to finance.

Is FinTech a bank? ›

Traditional banks are institutions usually comprised of both brick-and-mortar locations and digital entities, and they are licensed to collect deposits and use them to fund loans for customers. FinTech, on the other hand, broadly refers to any technology aimed at facilitating and streamlining digital transactions.

Are banks using FinTech? ›

Fintech in Banking

The fintech industry is equipping banking institutions with tools that make them more efficient than ever before, like chatbots to enhance customer experience, mobile apps to give customers real-time views into their bank accounts and machine learning to secure against fraud.

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