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The 05 Biggest Differences Between Fintechs and Traditional Banks

Society and companies are part of a revolution of accelerated interconnectivity, promoted by technological advances and challenging the use of traditional learning. Current startups seek to conquer a market that was dominated by other players, an example of this is what happens with fintechs. Their objective is to conquer part of this market, challenging the traditional banks. 

Many people already use the services of these companies, but without essentially knowing what fintech means. Fintechs are companies that redesign financial services with processes entirely based on technology. With that, they managed to get the attention of the market, especially among the younger generation. 

Since fintech companies are generally smaller, nimbler and more tech-savvy than traditional banks, they have been able to break into new markets and offer previously unavailable services. In many ways, they have made things better for consumers. Financial services are cheaper and more accessible than ever before. But how do fintech companies differ from traditional banks? Here are the top 5 biggest differences between fintech and traditional banks.

Fintechs are cheaper

Fintechs are faster and cheaper than traditional banks. They use new technologies to make it easier for people to transfer money, pay bills, and do other financial tasks. Fintech includes everything from mobile apps to internet-based services like PayPal.

In 2015, the total value of all fintech investments in the United States was $14 billion. That’s a lot of money! But it’s still just a fraction of the $1 trillion that banks spend each year. That’s why most people are still stuck with traditional banks. They charge high fees and take too long to process transactions. Fintechs could change that by offering cheaper and faster services than traditional banks can offer. For example, customers can use fintech apps to send money quickly or set up automatic payments for utilities, rent, or other recurring payments. Fintech has the potential to make banking more accessible and more affordable for everyone.

Fintechs are easier to use

Fintechs have a more relaxed and friendly communication, whether on the company’s website, email, telephone or face-to-face service. 

Being friendly is putting yourself in the customer’s shoes and developing processes, products and ways of accessing these products adjusted to the individuals’ needs. 

One difference that stands out to the eyes is in the process of opening an account. To open an account with a Fintech company, the customer only needs a smartphone.

In traditional banks, to open an account, it is necessary to physically go into a branch with a lot of required documentation.

Banks have sought to invest in online services as well as in internet banking. Some even allow customers to open an account through the app. But they are still far from offering solutions to problems in a fully digital way.

Fintechs are more agile

Agility. This is one of the most cited words by traditional banking professionals when referring to Fintechs.

While Fintechs move like a sailboat, in a fluid and agile way, banks are like ocean liners: any slight change in direction demands a large operation, which involves several people, departments and rooted processes.

Fintechs invest in the technological base

Fintechs invest heavily in technology. So they can do more for less. 

By using technology to simplify internal processes, they reduce the need for space, as a 100% online operation requires a smaller physical structure. Human resources are also leaner, thanks to automation. 

By having smaller structures, financial startups are able to target specific problems more easily and solve them.

Fintechs are smart because they do more with less, they develop a credit solution that can be fully contracted over the internet, they design products that meet the customer’s needs and not just those of shareholders.

The importance of data and analytics

Today, one of the biggest challenges for the financial sector is dealing with the immense amount of operations that are carried out daily in the world.

Credit insurance companies, banks, investment funds and stock brokers are all big consumers of data.

The more financial operations, the greater the number of data generated by them. It is in this context that data science is revolutionizing corporate finance.

For example, data management and analysis provides an excellent opportunity to analyze the information an organization has at its disposal.

There are several possible uses for data science in the field of finance. Here’s a few of them:

●     Identify the most advantageous segment;

●     Validate ideas;

●     Design the main product;

●     Design a credit analysis model;

●     Detection of credit card frauds. 

It is powerful. Everywhere we look, data science is changing the way corporate finance is managed. Operating online, fintechs are able to capture large volumes of customer data. By analyzing this information through Big Data and Analytics systems, they create a very strong base of knowledge about consumers.

Fintechs vs Traditional Banks: Is it possible that they coexist? 

Although many banks really feel threatened by innovations promoted by fintechs, they have two alternatives: resist to changes or adapt to this new context. 

Therefore, there are numerous cases of financial institutions that have been allying with fintechs to offer a new product/service in the market.

Overview

– Banks: trust, credibility, security, solidity, bureaucracy, slow processes, high prices.

– Fintech startups: user experience (UX), simplicity, agility, mobile, transparency, low prices.

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