August 5

Traditional banking and FinTech: What Is the difference between the two?

Consumption habits have changed well since the introduction of new technologies, which have affected all sectors. And the banking sector is not left behind. However, traditional banks are struggling to join the circle of technological innovations to meet new demands in this area. And the emergence of fintechs, boosted by the development of these technologies, has made the task for traditional banks even harder. We then wonder about the cohabitation of these two structures in the same sector: do fintech companies impose themselves as a real alternative to traditional banks, or will they take the position of a competitor?

What are fintechs?

Fintech is an association between two terms in English: financial and technology that translates new technologies whose purpose is to automate and improve the use of financial products and services. A fintech is therefore a company that implements an innovative digital technology solution that allows the optimization of financial services. The primary mission of fintechs is to offer services in the banking and financial sector that want to be more efficient and efficient and moreover that are cheaper than those offered by conventional commercial banks.

In general, they are start-ups that are part of aim of anticipating high growth and setting their business in an innovative approach. Also, fintech development is introducing new payment methods, moreover, Paypal has already integrated this sector when it offers to graft its 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.

What are traditional banks?

Traditional banks are institutions that operate in the financial sector and are authorized by a high authority to make receipts of deposits and loan agreements to both individuals and companies. Among the traditional commercial banks, there are some that offer services such as wealth management, currency exchange, or safes. Conventional banks are available in different types such as private banking, investment banking, and investment banking. Most often banks are governed by the authority of a central bank or in some cases are subject to the authority of a national government.

Traditional banking and fintech: what relationship?

The activity of traditional banking and fintech both fall within the same register, namely: offering financial services to consumers. In other words, fintech companies are considered front-line competitors of traditional banks. The difference between the two is that fintech uses new technologies while conventional banks still use archaic and time-consuming procedures and means. When it comes to innovation and technological advances, traditional banks are lagging behind as fintechs continue to launch into innovation. This is why consumers around the world are increasingly choosing to turn to fintechs. The observation that is therefore made is that fintechs work on the platforms of conventional banks for several financial services such as payments, or loans. Here traditional banks and fintech are real competitors.

From another perspective, the two protagonists of the banking and financial field have another type of relationship, that of complementarity. Indeed, fintech companies want to complement certain activities carried out by traditional banks. These are essentially regtechs whose purpose is to simplify the monitoring of regulatory constraints and which are imposed on financial operators.


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