Wajiha Danish | June 27 2023
As the world becomes more digitized and technology advances at an unprecedented rate, the financial industry is pressured to keep up. Traditional banks, long known for their brick-and-mortar approach, face fierce competition from fintech companies disrupting the industry with innovative solutions.
With consumers increasingly demanding convenience and speed in their financial services, traditional banks need help to meet their expectations. The question on everyone’s mind is whether fintech and traditional banks can find common ground and work together to provide the best possible services for modern consumers. Or will they remain at odds in a battle for dominance over the future of finance?
According to Statista, the market’s largest segment will be Digital Investment, with a total transaction value of US$51.04bn in 2023.
It is also predicted that the average transaction value per user in the Digital Investment segment will amount to US$916.70 in 2023.
In recent years, the term “fintech” has gained a lot of buzz, but what does it mean? Fintech refers to the merging of financial services and technology. It’s a modern approach to managing finances and business processes, making them more efficient, accessible, and convenient for businesses, individuals, and even non-profits.
Fintech was once solely focused on digitizing banking systems. It has evolved to offer user-friendly financial services accessible via computers or mobile devices. This shift has made it easier for individuals to manage their finances. Fintech has now spread to numerous industries, such as retail banking, investment management, fundraising, and education. Cryptocurrencies, like Bitcoin, also fall under fintech and aim to revolutionize traditional financial systems.
Banks are financial institutions that are authorized to accept deposits from and lend money to individuals and companies. In addition, some banks provide additional financial services such as currency exchange, safe deposit boxes, and wealth management. Corporate banks, retail banks, and investment banks are examples of different kinds of banks
The term fintech encompasses a wide range of services, from peer-to-peer payment platforms to portfolio management systems.
Some of the advantages of fintech companies over traditional banks are:
– First and foremost, neo-banks offer a user-friendly and comfortable experience. Designed for different income groups, they provide affordable services and subscriptions with a minimalist, easy-to-use interface that appeals to customers.
– Secondly, they are time-efficient, with a seamless and fully remote account opening process that can be completed from a mobile phone or laptop.
– Finally, they offer higher affordability due to the absence of physical branches, resulting in lower fees.
Financial technology, or fintech, has revolutionized how traditional banks operate, and modern consumers manage their finances. Fintech companies offer services that bridge the gap between what traditional banks offer and what consumers expect in the digital age. Neo-banks target a younger audience, with 63% of people surveyed between the ages of 15 and 24 using mobile banking as their primary banking method.
The global fintech market has experienced massive growth and is currently valued at about $165.17 billion (about $510 per person in the US) in 2023, with an expected annual growth rate of 25.18%. The market is projected to surpass $400 billion (about $1,200 per person in the US) by 2027.
Many traditional banks have begun integrating new technologies such as machine learning, artificial intelligence (AI), and analytics to keep up with digital transformation. Additionally, some banks are investing in fintech startups or creating fintech startup accelerator programs to add value to their services and stay relevant.
The competition between fintech companies and traditional banks is intense, but it presents an opportunity for both sides to quickly collaborate and adapt to the digital world.
Europe’s top 50 fintech companies have raised over $16.8B (€14.3B) in venture capital funding and are collectively valued at over $92B (€78B).
Fintech (financial technology) companies typically differ from traditional banks in several ways:
Fintech companies use technology to create innovative financial products and services. They are often agile and able to quickly adapt to changing market needs.
Fintech companies prioritize customer experience and aim to provide personalized services to their clients. They may use data analytics and AI to understand customer behavior better and tailor their offerings accordingly.
Fintech companies may have lower operating costs than traditional banks due to their digital infrastructure and streamlined processes. This can lead to lower fees and better pricing for customers.
Fintech companies can often offer services to people who are excluded from traditional banking services. They may offer alternative credit scoring models, peer-to-peer lending, and other innovative solutions.
Financial technology (fintech) has revolutionized the banking industry with its advanced features and customer-centric approach. But does this mean traditional banks are becoming obsolete?
Banks have been in business for centuries and still play a significant role in the financial world. However, they need to embrace fintech to meet the demands of modern-day customers.
So, will fintech companies and traditional banks work together? The answer is yes!
Both parties stand to benefit immensely from collaborating. Banks have a vast network, decades of customer loyalty, and an established reputation. Meanwhile, fintech offers innovation, agility, and advanced technology. Together, they can create a financial ecosystem that meets customers’ needs in the digital age.
Collaboration between fintech and traditional banks has several advantages. Banks have access to huge deposits, making it easier to build better financial systems. Fintech companies, on the other hand, can benefit from being regulated under the same government institutes as banks, which can help build trust. Additionally, fintech can bring advanced technology to the banking sector, improving the financial system.
Banks are aware of the importance of digital agility and are embracing fintech features to enhance user experience. Long-term partnerships that combine innovation, support, and trust will be crucial to building the financial sector for the digital future. By working together, fintech and traditional banks can make a bigger impact and deliver better financial services to customers.
The fintech market is anticipated to maintain its fast-paced expansion due to technological advancements, shifting consumer preferences, and regulatory backing. Mobile payment solutions are expected to continue dominating the market, owing to their ease and speed of use. Online investment platforms are also projected to gain more traction as more people opt for digital financial management. Furthermore, digital assets and neo-banking will likely persist as influential trends to reshape the financial sector. In general, both traditional banking and fintech have unique strengths, and by collaborating, they can create a financial ecosystem that benefits everyone. The key is to embrace the changes brought by fintech and work towards building a sustainable financial future.
Wajiha is a Brampton-based CPA, CGA, and Controller with 17+ years of experience in the financial services industry. She holds a Bachelor of Science Degree in Applied Accounting from Oxford Brookes University and is a Chartered Certified Accountant. Wajiha spearheads Monily as its Director and is a leader who excels in helping teams achieve excellence. She talks about business financial health, innovative accounting, and all things finances.