Difference Between Fintech and Banks

One of the fintech markets with the fastest global growth rates is India. The market size of India’s FinTech industry is projected to reach ~$150 billion by 2025, up from $50 billion in 2021. 

Since the advent of new technology, consumption patterns have changed, impacting every industry, including the banking industry.

However, conventional banks find it difficult to keep up with technological advancements to meet the growing demand in this field.

Furthermore, the emergence of fintechs, enabled by the advancement of these technologies, has further complicated the situation for conventional banks.

The coexistence of these two structures in the same industry then begs the question of whether fintech businesses will emerge as competitors or as a true alternative to conventional banks.

Fintechs: what are they?

Since 2017, when the global fintech industry generated around $90.5 billion in revenue, the sector has seen its earnings more than double.

Fintech, a combination of the English terms “financial” and “technology,” refers to emerging technologies that aim to enhance and automate the use of financial services and products. Consequently, a fintech is a business that uses cutting-edge digital technology to optimize financial services through implementation.

Fintechs’ main goal is to offer banking and financial services that are more affordable than those provided by traditional commercial banks while also being more effective and efficient.

These are typically start-ups that plan for rapid expansion and initiate their operations through an innovative process. Additionally, fintechs have brought in new payment methods, and PayPal has already entered this market by proposing to connect its bank account to an outside website service. Simplifying and enhancing the security of the numerous Internet business transactions is the aim. 

Overview of Fintech:

• PERSONAL FINANCE Tools to manage bills and track personal and/or credit accounts
• PAYMENTS & BILLING Payments processing, card development & subscription billing software tools
• LENDING Marketplace lending, microlending & alternative underwriting platforms
• INSURTECH Companies selling insurance digitally provide data analytics and software for (re)insurers
• MONEY TRANSFER AND REMITTANCES International money transfer and tracking software
• BLOCKCHAIN Companies leveraging blockchain technologies for financial services, crypto-exchanges, and cryptocurrencies
• CAPITAL MARKETS Sales & trading, analysis, and infrastructure tools for financial institutions
• WEALTH MANAGEMENT Investment and wealth management platforms and analytics tools
• MORTGAGE AND REAL ESTATE Mortgage lending, digitization, and financing platforms
• REGTECH Audit, risk, and regulatory compliance software

Top 10 FinTech Companies in the World 

Banks: what are they?

Banks are financial entities that are allowed by a higher authority to provide loan agreements and deposit receipts to both individuals and businesses. There are conventional commercial banks that provide services like safes, currency exchange, and wealth management.

There are several types of traditional banks, including personal, merchant, and investment banks. The authority of a central bank or, in certain situations, the national government oversees banks most of the time. 

Relationship between banks and fintech

The activities of a fintech and a traditional bank fall under the same umbrella: offering financial services to customers. Put differently, traditional banks are seen as having direct competition from fintech startups. A fintech bank uses innovative technologies, whilst traditional banks continue to use antiquated and laborious methods and procedures. This is how the two banks vary from one another. Traditional banks fall behind fintechs in terms of innovation and technological advancements while maintaining their current pace of innovation. Fintechs are becoming more and more popular among customers because of this. 

The two main players in the banking and financial industries also have a different kind of relationship, one based on complementarity. Fintech companies do aim to supplement certain traditional bank activities. In essence, these are regtechs, or regulatory technologies, whose goal is to make it easier for financial operators to monitor regulatory restrictions. This also applies to paytechs, which are meant to be complementary services that enable better client adaptation within the context of a cooperative partnership with the banks.

Key Distinctions Between Banks and FinTech

Navigating the array of financial services requires an understanding of the differences between banks and fintech. The following highlights the key distinctions between banks and fintech, as well as the unique methods and techniques each industry uses to cater to the demands of both enterprises and consumers:

Speed and Agility: Traditional banks, with their larger size and more established infrastructure, may find it difficult to adjust to the rapidly changing demands of the market. This highlights the ongoing competition between fintech and banks. FinTech companies, on the other hand, excel in speed and agility, leveraging innovative technology to provide quick and efficient financial services. 

Cost-effectiveness: FinTech companies have lower overhead than traditional banks because they use digital platforms to deliver services, which could lead to lower fees and expenses for customers. On the other hand, banks might have higher operating costs because of the upkeep of physical branches and legacy systems, which could result in higher fees for customers.

Regulatory Compliance: While traditional banks typically have established compliance procedures to manage regulatory requirements effectively, they may find it difficult to adapt to evolving regulatory frameworks. FinTech companies, on the other hand, navigate complex regulatory landscapes to ensure compliance with financial regulations, which can be difficult for newer entrants at times.

Top 10 Best Fintech Courses, Programs, and Certificates Online

Summary

By giving consumers and businesses a wide choice of options for their financial requirements, the growing competition between FinTech and banks is changing the financial environment. FinTech provides clients with cutting-edge solutions that are customized to their modern lifestyles, while traditional banks offer stability and confidence based on years of industry experience.

FinTech is leading the financial industry’s transformation towards a more technologically advanced and customer-centric future as it continues to push boundaries and challenge old banking standards.

Understanding the core differences between banks and fintech sheds light on how the financial industry is changing and how this is influencing the options that businesses and individuals have. Understanding the fundamental distinctions between banks and FinTech enables people and companies to make well-informed decisions that suit their unique financial objectives and preferences.

₹8,375 Crore in UPI Transactions: A New Era for India’s Digital Economy