Financial technology has made everything about money easier, with services available at our fingertips. But the convenience of digitization has not yet reached traditional banks. But we all know how traditional banks are overcoming technological obstacles and entering the competitive financial tech space. This article will shed light on the number of ways through which traditional banks can stay ahead of their digital counterparts in banking. 

The ultimate pair of finance and technology

Let’s get you familiar with fintech or financial technology first. Fintech services popped up along with the dotcom bubble in the ’90s. This technological acceleration was introduced in the backend of banking systems to make complex banking processes easier. With the dynamic entry of smartphones and the Fourth Industrial Revolution, the modern consumer market was introduced to the unlimited speed and ease of convenience of shopping from the comfort of their homes and making money transfers through UPI apps and APIs (Application Programming Interfaces). 

Fintech startups have occupied a unique space in the marketplace by offering convenient and streamlined services to modern consumers. Fintech startups that are granted access to Big Data offer solutions for financial services like payment services. Some startups also focus on helping you with crypto investments and consultations. 

Consumers can probably expect to see an abundance of companies with shiny, headline-worthy services, including blockchain, cryptocurrency, artificial intelligence, and peer-to-peer transactions, due to the need for contactless payment and the development of the crypto sector.

The main objective of these fintech companies, and their drive towards innovation, is leveraging their technology to meet the financial needs of their growing customer base and deliver unique experiences. 

Fintech services are built so that a customer’s entire journey is optimized. There is always a shorter turnaround time between two processes, so it can be made more relevant for the customer. 

The anatomy of traditional banks

Traditional banks are the institutions that handle all financial matters, and they are licensed to get deposits from people and offer loans to businesses and individuals. There are two categories of banks within this, the first being national banks and the second being corporate banks. National banks are usually owned and operated by the government, and it is an apex body that operates, control, and runs a country’s monetary structure and banking requirements. Whereas either government or the private sector can own corporate banks. These institutions accept deposits, grants, and loans or make profit-based investments. 

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Both banks and fintech services offer the usual banking and financial services, but what makes them different are their business models. While traditional banks require your physical presence to open accounts or get a loan, we see fintech companies that accomplish the job virtually, applying modern AI technology through convenient applications or an API Platform. 

Now you might be wondering, if fintech companies produce a suitable environment for consumers, why would anyone incline to use traditional banking services? Though fintech is ever-growing rural areas often lack the infrastructure and technological access. The target audience for fintech apps is often city dwellers adept at digitalized banking procedures. 

Yet still, we find that many traditional banks have also leveled up their financial game by implementing the following innovations in their slew of services-

  • Internet of Things: ATMs can detect how many customers are in line through sensors and initiate contactless transactions, such as Paypal’s Paydiant and Capital One.
  • Virtual Trading: Virtual stock trading is a prime attraction for still-emerging financial technologies.
  • Smart contracts: These contracts can be automatically executed when you meet certain conditions. This can improve security, increase efficiency and lower the cost of the transactions, which is pretty much what you see in the KYC Banking processes.
  • Voice-enabled payments: Modern voice recognition software helps people check balances, transfer money, and make purchases by speaking. This is very useful for people who are visually impaired.

Why are fintech services more appealing than banks?

This statement is true for certain demographics and is based on the services required by the users. We’ll outline the reasons for you to understand the different ways. Fintech services can help you over traditional banking systems. 

Remember that, Fintech startups are broadly focused on unbundling banks, offering a single type of product/service, and concentrating on executing it extremely well.

Some of the use advantages provided by fintech services over traditional banking systems are: 

Cutting Edge Tech

The fintech market globally is consistent in its growth due to its upper hand in technology. Traditional Banks usually rely on sources containing client data that are sometimes decades old. That means that their financial system can be aged and limited in integrating with other platforms or using them for other financial processes. Fintech uses technologies like cloud computing to access information and services faster. And they also use machine learning, artificial intelligence, and big data to analyze and minimize errors and increase accuracy in processes. 

Targeted Consumer Services 

Most traditional banks have to cater to a wide audience. They offer a plethora of financial services to have a satisfied customer base. But you can see many fintech startups that ditch this age-old approach and aim at hitting specific consumer and business targets. Even though the fintech company can target a narrow audience, their ROI is expected to be much higher than traditional banks. 

Fintech doesn’t stick to physical locations.

Traditional banks continue to stick to physical locations and services to serve their customer base despite numerous technological advancements. This isn’t the case with fintech. Due to the ease and availability of the technology, Fintech services provide better scope for market penetration. The target audience can be a wider circle without the barrier of localized physical locations. 

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Flexible collaterals

Banks usually rely on strict collateral requirements when you are applying for a loan. But fintech solutions can make it easier for customers to obtain funding and financial services as they have lesser requirements and smaller collaterals. 

Streamlined structure 

Fintech is structured to cater to the customer’s needs in a personalized and unique way. They also focus on seamless delivery along with speed and accessibility. The new technologies they leverage make it possible to cater to younger generations effectively. Unlike traditional banking systems that require physical buildings and many employees, Fintech offers services and products that cost less since they can operate efficiently with very little physical space and a smaller employee base. 


Convenience, Inclusion, and sustainability are key factors that act as a reason to choose Fintechs over traditional banks. Though the traditional banking system would not perish, it must adapt to the changing digital environment. This means traditional banks must include digital security, mobile payment options, and peer-to-peer lending for customers to borrow from one or more individuals. 

Risk factor 

Since the Fintech regulations are flexible based on the government/regulatory bodies issuing them, it is often considered riskier than traditional banking systems. Since regulations vary with sector and country laws, compliance with these regulations is slightly difficult. Traditional banks, in comparison, are less risky. But the innovative, personalized, cheaper, and faster customer services draw the audience to fintechs. 

How can traditional banks compete with fintech?

Traditional banks can compete with fintech by incorporating digital banking services into their system. Many banks have collaborated with fintech service providers, creating trust between the consumers and the providers of financial services. This is because strict regulations of traditional banks lower the risks associated with technology. Thus, if traditional banks want to stay in the field, offer a better service to their consumers, and have a larger customer base, using financial technology is very important. 

In comparison to fintech companies, traditional banks have immense monetary reserves. And if they both join hands, they can create a better financial system using advanced technology that fintech brings to banks.

For example, some banks are already negotiating to acquire fintech startups to maintain their competitive edge. Companies like Citibank and Goldman Sachs (which used fintech to launch an online bank called Marcus in 2016) have already developed accelerator programs to fuel fintech evolution and integrate these technologies into the financial structure.

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Apart from this, let’s draw light on the up-and-coming Neobanks. Neobanks are institutions that offer financial services on an entirely digital platform. They do not have a physical branch. They can operate around the clock and use personalized services through AI-powered technology. But Neobanks don’t have banking licenses, and some require collaboration with physical banks to operate under regulations. Many traditional banks partner with neobanks to provide services similar to fintech startups. Neobanks is a gateway for traditional banks to take up digitization. The neobanking initiatives help banks provide fintech-level services and while maintaining their loyal local customer base. 

Ending Note

The pandemic has forced many people to do business remotely, and security concerns with digital banking have raised complaints about the fintech ecosystem.

This shows that people still need banks to survive to remedy the financial constraints due to new technological advancements popping up now and then. Banks bring stability for customers, trust, and data, but fintechs bring agility and innovation, which are essential for growth. This is why both are needed in the financial sector, and both are here to stay in the long term.


Accubits Technologies is a full-service software provider offering product development and digital transformation services to Governments, Tech startups, Fortune 1000 companies, and Businesses.