Due to the various technological limitations of traditional banking, many companies are seeking modern and efficient financial solutions, especially to access certain technological features and tools that traditional banks cannot offer. Some fintech companies have taken advantage of this gap, creating various innovative financial services. As a result, many are wondering whether fintech companies and traditional banks should compete with each other or collaborate. Below, we’ll learn more about the relationship between fintech companies and traditional banks.
Traditional banking
When we talk about traditional banking, we are referring to financial institutions that have been offering financial products and services to individuals and businesses for several decades. Typically, these types of financial institutions are authorized to provide their services within a certain region.
The following stand out: loans or credits, savings accounts, current accounts, credit cards, safekeeping of physical assets in safe deposit boxes, among others.
Fintech
When we talk about Fintech, we are referring to a group of companies that use technology to offer financial tools and services that provide solutions at different levels/sectors of the market and the financial system. Fintech provides services directly to users of the financial system and, in turn, offers financial solutions to other entities and traditional banking.
Collaboration between Fintech and traditional banking
In its quest to offer advanced and efficient solutions to meet the changing needs of its customers, traditional banking has been forced to evolve by adopting technology, largely offered by Fintech companies through their innovative tools.
This is because, at present, the needs of clients and users of the financial and commercial system require digitalized processes or online transactions, so they increasingly depend on the use of applications and technological tools to operate in an increasingly fast-paced and interconnected world.
Partnership across the trade finance ecosystem
Due to the rapid evolution and growth of commerce and the financial ecosystem, most companies need to evaluate and test new financial products and services, even if they are comfortable or satisfied with the current service received from traditional banks.
Thus, companies tend to satisfy this need with the services offered by Fintech companies, which offer a wide variety of online platforms and tools tailored to their needs and expectations.
Digitization and automation of financial operations
Fintech, through its various financial solutions, enables the automation and digitalization of all financial processes and operations of a company or organization, thereby minimizing manual work as well as any errors or failures that may arise.
Among the most notable technologies and tools (provided by Fintech companies and adopted by traditional banks) are blockchain technology, cloud computing, distributed ledger technology, and artificial intelligence, which enable more efficient and secure financial transactions.
It’s worth noting that with the continued expansion of Open Banking and Open Finance, fintech and traditional banking will need to work together and collaborate more, creating different solutions that adapt to the sector’s new needs.
Should Fintech and traditional banking compete?
As we saw in our previous article, traditional banking doesn’t necessarily have to compete with fintech companies, as in many cases, the collaboration between these two systems creates a synergy that delivers positive results for end users.
For example, a traditional bank can hire a fintech company to leverage its technology platform and provide better service to its users. Instead of updating or developing a new (its own) technology platform, the traditional bank leverages a pre-existing modern platform (developed by a fintech company).
On the other hand, fintechs sometimes rely on existing financial infrastructure, such as payment networks, banking agreements, permits, and regulations. Collaborating with traditional banks can facilitate fintech´s access to this financial infrastructure and expand their reach and influence.
Another point is the regulatory issue. For example, traditional banks have a long history of risk management and regulatory compliance, a product of several decades of experience. In this case, fintech companies can partner with traditional banks to leverage this experience and address the sector’s regulatory challenges.
What do you think about this topic? Do you think fintech companies and traditional banks should collaborate or compete?
If you have any questions or queries, you can write them below (comments section).
