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A Deep Dive: Fintech vs. Banks

10 minutes

New technologies have always had an impact on the financial services industry, and in recent years the conversation has centered around the comparative advantages of fintech vs. banks.

Fintech represents a range of emerging technologies that utilize artificial intelligence and other innovations in their financial processes. This article looks at what you need to know about the fintech industry and how it's changing the way business professionals look at finance.

What is fintech?

Fintech, a combination of the words "financial" and "technology," is not that new. Fintech began in the late 1990s when the world of eCommerce was in its relative infancy. Since then, fintech has adapted to consumer-focused financial services, such as:

  • Retail banking
  • Investments management
  • Fundraising and non-profit endeavors
  • Flexible payment options
  • Education
  • Cryptocurrency
  • Peer-to-peer money transfer

Additionally, the innovative ideas behind fintech have led to new developments in banking for consumers as well as business owners. Fintech companies are better equipped to offer a high degree of personalization and analytics that cater to the needs of customers and B2B applications.

Key sectors within fintech companies

While the term fintech may be applied to a broad range of digital financial systems, there are four specific categories of fintech worth highlighting:

Digital lending

Digital lending refers to the use of technology to receive loans outside of a traditional bank. According to the Global News Wire, the global digital lending market is expected to grow from $10.7 billion in 2021 to $20.5 billion by 2026. It's likely that fintech firms will be the future for business loans and related financial services.


The legacy payments industry relies on a complex network of traditional banks, retailers, and financial technology firms. But fintech startups are shaking things up, enabling users to make person-to-person payments, mobile payments, and credit and debit card transactions.

These services mean that fintech companies are beginning to eclipse traditional financial institutions, providing an online version of checking accounts, credit cards, and debit cards.

Wealth management

Investment professionals are rapidly being replaced by fintech businesses known as "robo-advisors." Anyone with a smartphone can download an app and receive professional investment guidance with minimal human input and remarkably low fees.

These robo-advisers rely on machine learning and other advanced analytical processes to deliver customized, reliable investment advice.


Many fintech companies focus on blockchain technologies. Blockchain relies on a decentralized network of users with a shared ledger of transactions. As cryptocurrency becomes more mainstream, fintech firms may be able to provide the infrastructure to meet these rising technological demands.

How is fintech different from traditional banks?

Understandably, traditional banks have been impacted by the rise of fintech startups and other digital financial platforms. But what are the key differences between fintech and traditional banks?

Though fintech occupies a relatively small share of the world banking system, the success of fintech lies in the following key benefits:

Fintech relies on the latest technology

The global fintech market has consistently thrived due to its superior technological prowess. Traditional banks rely on legacy infrastructure, which usually means that their overall financial system may be decades old and limited in their ability to integrate with other financial platforms or perform complex financial processes.

Fintech, by contrast, doesn't have to worry about these legacy systems. Instead, fintech leverages the latest technology, such as:

  • Cloud computing
  • Machine learning
  • Artificial intelligence
  • Big data

This reliance on technology has allowed fintech firms to deliver superior customer experience compared to the tools offered by traditional banking institutions.

Fintech offers personalized customer experience

Granted, not all banks are created equal. There are corporate banks, investment banks, and retail banks, all of which accent different aspects of their financial products and services.

But at the end of the day, most banks and other legacy financial institutions have to cater to a wide audience, offering a range of financial services to satisfy their customer base. Additionally, traditional banks are often focused on security and managing financial risk.

Many fintech startups are ditching this broad-based approach and are aiming at specific consumer and business needs. In other words, fintech companies tend to be more specialized, and each fintech company may be devoted to a single purpose.

Fintech has fewer regulations

Traditional banks rely on a regulatory framework governed by the national government or central bank in their country of origin. This framework provides users with a greater level of transparency between financial institutions and their customers.

The fintech ecosystem isn't governed by those regulations, which admittedly has been something of a double-edged sword. On the one hand, this lack of regulation has allowed fintech providers to rapidly innovate and adapt to financial trends. But on the other hand, some consider fintech to be a risky industry.

Fintech has greater potential for growth

Fintech companies have an edge over traditional banking and financial institutions. After all, the 2020 pandemic revealed the necessity of digital financial services that cater to consumer needs.

The fintech sector will likely continue to evolve and grow in the near future, with more businesses and individuals relying on this financial technology to handle their business and personal finance.

What that means for the banking industry as a whole is not entirely clear, but it's likely that traditional banks will rise to the challenges posed by fintech disruption by offering greater levels of personalization, better mobile banking features, and enhanced digital security.

Fintech offers greater market penetration

Despite advances in new technologies, many traditional banks continue to rely on physical, brick-and-mortar locations to serve their customer base.

Meanwhile, the fintech features offered by leading companies can be found right in your pocket. Fintech offers greater mobile penetration because its technologies are distributed across wide networks rather than localized at a traditional, physical location.

Fintech serves a wide range of customers

Traditional banks are focused on managing risk, which is why these banking institutions favor those with strong credit ratings and a proven track record of financial success.

Those with lower credit ratings or a poor financial history are finding fintech solutions that they can't find at a traditional financial institution. Customers who have been denied a bank account by traditional institutions can gain access to investment advice and other financial services through a fintech platform.

Fintech has flexible collateral requirements

Traditional banks usually have strict collateral requirements for customers applying for a loan. But fintech doesn't typically have such strict requirements, which can make it easier for customers to obtain funding and financial services through these smaller, web-based platforms.

What's driving the adoption of fintech?

According to the Business Research Company, the global fintech market is expected to grow to $309.98 billion at an annual growth rate of 25% through the end of 2022.

This rapid economic growth is based on three critical factors, all of which have accelerated the adoption of fintech platforms:

Technological advancement

It's no secret that the banking sector has undergone a digital transformation in recent years. But many banks still struggle with legacy system issues that slow performance and prevent them from quickly adapting to new technologies and evolving customer needs.

Fintech startups have historically had a competitive advantage in this department, as their business models have focused on harnessing advanced technology and data science from the ground up.

In other words, fintech allows companies to create entire financial institutions without ever having a physical location and involving a minimum of human input. You can only imagine how this allows fintech companies to proliferate since they face fewer barriers to launching and maintaining their institutions.

Customer expectations

The financial crisis of 2008 has had a lasting effect on customer expectations. Banking customers are looking for increased transparency and security from their banking platform.

Traditional banks are adapting to these needs, but fintech startups are offering customers the resources to scrutinize their companies and evaluate their services prior to making a commitment.

Regulation of the banking industry

Finally, the banking industry is subject to increased regulation from national and central banks, and that regulation costs money. According to the Wall Street Journal, banking regulations are expected to cost the six largest U.S. institutions more than $70 billion each year.

Fintech companies aren't subject to these same regulations, which means that fintech providers are able to focus their budget on other areas, including new technology and customer support.

Their lean operating model also provides greater flexibility, ensuring that fintech firms are able to adjust to rapid changes in the financial industry.

How fintech and traditional banks are working together

These trends don't mean that incumbent banks are on their way to extinction. On the contrary, there are many reasons why banking customers may prefer having access to traditional, brick-and-mortar banks.

Banking centers offer advantages that can't be found through mobile technology, such as:

  • Safe deposit boxes
  • Currency exchange
  • Security for huge deposits
  • Wealth management advice

Fintech and traditional banks represent important financial intermediaries. In the future, banks will likely seek to adapt their practices to meet the challenges posed by competing fintech startups.

For example, some banks are looking to acquire fintech startups in order to maintain a competitive edge. Companies like Citibank and Goldman Sachs have developed accelerator programs to fuel fintech and integrate these technologies into their broader financial infrastructure.

Of course, the union of fintech with traditional banking platforms is not universally welcomed. Some fear that fintech would be subject to the same regulations that the government institutes for all financial institutions, which would diminish the utility of this new technology.

Still, traditional banks and fintech are both here to stay, and we can expect these services to be more collaborative than competitive in the years to come.

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Frequently asked questions

The world of fintech is changing every day. Here are some answers to some of the most common questions about this new technology:

How is fintech different from the mobile banking tools offered by most banks?

It's true that most banks already offer some form of mobile banking platform. These digital tools are helpful but pale in comparison to some of the specialized tools offered by smaller, web-based fintech firms.

The lean operating models that define fintech startups allow them to deliver personalized financial services that fit your needs and lifestyle. Other fintech platforms offer additional resources that benefit freelancers and business owners. So while most banks offer some type of fintech component, they lack the level of specialization offered by many fintech providers.

Will fintech replace traditional financial institutions?

Traditional banks enjoy sustained market share thanks to their resilient business model that focuses on a broad array of financial services. Plus, many business owners may prefer having access to local, brick-and-mortar banks when making regular deposits from their store or restaurant.

Instead, it's likely that banks will adapt to these competitive challenges by improving their customer experience and offering services like remote account opening, digital advisors for wealth management divisions, and adaptive technologies and artificial intelligence that works alongside legacy infrastructure.

How does machine learning impact the banking process?

Machine learning refers to the use of algorithms to analyze large batches of data. The fintech industry uses machine learning in multiple ways, including:

- Preventing cyberattacks
- Analyzing stock/investment data
- Providing customer service through chatbots
- Preventing financial fraud

This technology has the capacity to save banks and fintech providers time and money, as well as prevent fraud and cyberattacks. Plus, using artificial intelligence to automate customer service reduces the need for personnel while still providing answers to customers looking for personalized help.


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