If you’re armed with the correct information, choosing a bank can be as simple as considering your needs and deciding which is best for you. As the traditional choice, there’s really only ever been one option. Nowadays, fintech is making a splash and offering a substitute service line, however, so you may want to consider how you leverage each in your business payment solutions and accounts payable.
But this is easier said than done, even with clear-cut differences between traditional banks and fintechs. Traditional banks are better for those with access to local branches and customer service since most offer more personal interaction than fintechs. Fintechs, on the other hand, can be a good fit for those not in places where traditional banks exist. They also might have lower fees attached to accounts or loans. It’s also important to note that fintechs are usually more of a step up from traditional banks in terms of business payment solutions.
1. Focus
Most traditional banks operate as for-profit businesses. They’re in the business of making money just like any other company, the reason being that a bank’s shareholders would like to grow the value of their investment.
This means that traditional banks have to ensure that they’re turning a profit, which is why people generally believe that their interest rates are higher than those at another bank or credit union. On the other hand, fintechs are emergent, meaning they’re driven by something different than large-scale public trading. They’re out to prove their viability in their first few years, meaning they might not gouge on fees or interest for services rendered. They might not turn a profit right away; if anything, they might sustain losses over several years before turning profitable.
2. Technology
One of the differences between traditional banks and fintechs is the use of technology. Traditional banks still rely on outdated software, making their operations less efficient than those at fintechs. Fintechs, on the other hand, have access to modern technology and can easily change systems without waiting for a new software upgrade from their vendors or developers.
Traditional banks are also failing in keeping up with their customers’ digital needs; they require a lot of manual labour that eats away at employees’ time and reduces their ability to focus on customers’ needs. This is why customers are moving towards fintechs, who seem to have the necessary digital capabilities to satisfy their needs.
3. Customer service
Though this one might not seem like a big deal, and neither does it seem to be a significant factor in most people’s choice of bank or credit union, this is precisely what it is. Traditional banks and credit unions have a huge customer base that they try to serve and satisfy – but they can’t do that if they’re not as accessible as possible.
And when it comes to customer communication, traditional banks are lacking since they don’t have the technology to respond quickly or efficiently to help customers. The exception to this rule is online banks and credit unions since they can easily communicate with their customers via email or their website’s chat feature.
4. Technology-driven business
One of the other reasons traditional banks are more expensive than fintechs is because they have to pay their vendors and developers much higher salaries to ensure that they can continue to provide their services in the future.
This is because they’re banking on the fact that they’ll still be in business in 5-10 years. Fintechs don’t have to worry about this since they’re run by technology, which means that their services will continue to be accessible in the future since there will always be software systems to power them. This enables fintechs to focus more on customers’ needs and ensure they can grow their businesses while charging a lower interest rate than traditional banks.
5. Cost
This one is pretty obvious; fintechs are more affordable than traditional banks. Traditional banks charge a fee for their services, and because of that, it’s hard to save money with them. On the other hand, fintechs don’t charge any fees. Since they’re non-profit businesses, they have to make money to offer a decent interest rate while charging customers fewer costs than traditional banks. Fintechs might even provide free products and services to attract new customers.
6. Ease of use for beginners
Traditional banks might be great for those who have banked with them for years, but what about those who haven’t? Traditional banks have a lot of hurdles that they make their customers go through before they finally provide them assistance. If you’re starting out, fintechs are a much better option. They offer easier onboarding and can provide services more conveniently.
7. Security
One of the reasons why fintechs are becoming more popular is because they’ve developed advanced security systems to protect customers’ funds and personal information; now, traditional banks don’t have this kind of security since they’re still using tried and tested technology and software, as well as traditional identity verification methods.
There are a lot of differences between traditional banks and fintechs; knowing what those are is the key to making an intelligent decision. Traditional banks, which are still using outdated technology, might seem more expensive and less convenient than fintechs, but they charge their customers too much. They might be great for those who are already banked with them or have access to the branch, but for those who don’t have them as a source of lending and investments, fintechs might be a better option.