Fintechs vs Traditional Banks

Written by ITSector | May 13, 2024 11:00:00 AM

In recent years, we have witnessed the Digital Transformation of the financial sector worldwide due to the growth of fintechs. These companies aim to combine technology with finance to offer innovative services to their customers, and their rise has posed several challenges to traditional financial institutions.

According to a report by McKinsey, in July 2023, publicly traded fintechs represented a market valuation of 550 billion dollars, a twofold increase compared to 2019. These figures, besides reflecting the success of fintechs, also demonstrate a change in consumer preference and, consequently, in the entire financial world.

Although the growth rate of these companies slowed down in 2022, the same report indicates that the revenues of this sector are expected to grow almost three times more than those of the traditional banking sector by 2028. This rapid development is driven by the increasing digitalisation we are seeing, the rise of e-commerce and also by consumers' greater demand for more accessible and convenient solutions.

Whilst fintechs are gaining more and more ground in this market, traditional financial institutions are facing different challenges to keep up with this pace. Many banks still have old operating systems, which makes them less agile and less able to respond to customer demands. Even so, we can see that many banks are adapting their processes, especially after the pandemic, which has considerably accelerated digitalisation.

At this stage, the question is: will fintechs replace traditional banks? Although fintechs offer an optimised experience, with intuitive digital interfaces and simplified, personalised processes, traditional banks occupy a consolidated position in the market due to their size, solidity and complementary range of services. I therefore believe that one should not replace the other. On the contrary, they should work together to capitalise on their unique advantages. On the one hand, traditional banks benefit from the innovation and agility of fintechs. On the other side of the coin, there is an increase in confidence in financial technology companies, which take advantage of decades of customer loyalty, their corporate size and established network. But that's not all! 

Firstly, traditional banks usually receive larger deposits than fintechs, so through this collaboration, the institutions would be promoting integrated and optimised financial systems. On the other hand, and as a result of this collaboration, regulation would be carried out by the same government institutions, thus leading to an increase in trust in financial institutions. Finally, the modus operandi of the financial system would improve as a whole in the face of the cutting-edge technology that fintechs bring to the table.

We can, therefore, conclude that collaboration between fintechs and traditional financial institutions is the best strategy for the future of the financial sector since both have their advantages and challenges. In this way, they can learn and grow together to respond to the growing demands of customers who are constantly evolving.

 

News: Executive Digest