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Fintech Banks vs Traditional Banks


The word ‘fintech’ became part of the vernacular sometime around 2005. Splicing the words ‘financial’ and ‘technology’, the term describes the technology used to improve and automate financial services. It’s also widely associated with start-ups on a mission to shake up the traditional banking system.

Fintech companies have been busy disrupting almost every aspect of old-school money management, making financial services better, faster and more accessible to business owners, companies and individuals.

Trips to the bank have become a thing of the past. Today, people across the globe can invest, borrow, save and transfer money through online and mobile phone services.

What is a traditional bank?

A traditional bank is one with physical branches that offers a multitude of financial services under one roof: from personal savings and business accounts to wealth management and investment products. Historically, the function of banks was to provide credit and loans. Even as digital options become more popular, they exist to serve this primary function.

In an attempt to keep up to speed with their online counterparts, the majority of traditional banks do offer online banking. Their bricks-and-mortar locations allow for cash deposits, access to ATMs, and flexibility when it comes to banking online or in person.

The locations, however, come at a cost that is often passed onto the customer. The success of this model now really depends on the type of interaction and experience customers are seeking.

How is fintech powering digital banking?

Believe it or not, internet-only banking dates back to 1995. Though it was much more clunky and restrictive than the models we have access to today, the first digital banks revealed it was possible to manage money in a more cost-effective and efficient way. Customers who ventured online were rewarded with high interest rates on deposit accounts and reduced services fees, due to the lack of overheads.

As technology improved, so has the digital banking service offering and choice for consumers. Today, according to a report by Ernst & Young, 96% of consumers are aware of a fintech transfer or service payment and 75% have used one.

A characteristic of fintechs is that rather than attempting to replicate a traditional bank’s entire product, they focus on one or two products or services and do them exceptionally well. Saldo Finance, for example, is a leading provider of automated credit solutions for consumers and small and medium-sized companies. The company has developed its own advanced loan system that ensures responsible lending and supports business growth internationally.

How is fintech changing the way we look at banking?

Fintech is empowering consumers to bank in a different way, unbundling the traditional offering and unlocking services that might have been previously unavailable to them, while keeping fees to a minimum. It’s an even greater threat to traditional banks, as it’s tapping into client sectors previously neglected by large financial institutions.

In addition to the convenience of the consumer being able to do almost any kind of banking from wherever they might be - stuck in traffic, at work, at the gym - there’s another feel-good aspect to fintech. The sector is championing financial inclusivity by breaking down the barriers for people who were previously unable to open a bank account, or access digital payments.

Growth potential of fintech banking?

Now that the lid is off fintech banking, there’s no putting it back on. The sector has been embraced by the internet generation, and will continue to grow as consumer trust in the technology increases.

Research by Ernst & Young indicates that there is significant room for growth within particular segments. For example, adoption of savings and investment services is at 27% among women compared to 50% among men.

Additionally, 60% of consumers have indicated they would prefer all their financial services to be through a single platform. Fintechs are known for unbundling traditional banking products, however as the market and cooperation between fintechs and traditional banks improves, this may well be on the horizon.

Will traditional banks have to adapt to new demands from their clients?

Traditional banks risk being left in the dust if they don’t keep up to speed with consumer preferences. The attempt to stay relevant has revolved mainly around offering online banking and dedicated apps, and traditional banks do continue to benefit from offering consumers human interaction and a strong regulatory track record.

For traditional banks to survive, however, they will need to lean into fintech solutions. Experts agree that if banks and fintechs cooperate and present a united product to consumers, everyone will benefit.

Readiness of the Baltic and Nordic countries for fintech banking

The Baltic states have implemented favourable regulatory frameworks for fintech institutions and are seen as the drivers of the fintech industry. In fact, the top ten fintech deals in the Baltics in the first three quarters of 2021 raised US$109.5 million, making up more than 90% of investment in the region during the same period.

The Nordic countries have some of the highest new technology adoption and mobile banking usage in the world. According to Deloitte, fintechs are the fastest growing branch of start-ups in the Nordics, accounting for more than 11% of total capital invested. Further growth is expected, supported by government-led initiatives aimed at strengthening the sector, and the availability of funding and other key resources.

What does the future of banking look like?

The fintech revolution is in full swing and showing no signs of slowing: the future of banking is definitely digital.

Cooperation between tech companies and establishments, such as the partnership between Apple and Goldman Sachs to launch the Apple Card, are becoming more commonplace. Such alliances mean fintechs can focus on what they do best and continue to innovate while relying on an existing banking infrastructure and avoiding regulatory requirements.

If traditional banking learns anything from fintech, it must be that the customer is the central focus of every strategy. Providing in-person interactions won’t be enough to retain the existing customer base if they’re tempted by higher interest rates and lower fees offered by digital banks.


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