Payset prespective
August 16, 2023

Fintech Vs. Banks

How do the new financial technology companies differ from traditional banks? Discover the future of financial services and learn how banks and fintech firms are both similar and quite different.

What Is Fintech?

“Fintech” refers to a wide range of digital and online platforms that provide financial services. The term is short for “financial technology.”

Fintech services are often accessed through consumer devices such as smartphones, mobile devices, and personal computers with web browsers. Some fintech services also make use of older tools like payment cards and point-of-sale terminals.

Behind the scenes, fintech relies on technologies such as financial networks, cloud computing, “big data” services, APIs, AI, blockchain, and various other systems.

Fintech can include many types of services including payments, digital banking, personal finance and wealth management, lending, insurance, fundraising, and stock and crypto trading. However, the term can be applied to any digital service that involves finances.

What Is a Traditional Bank?

Traditional banks are establishments that are authorised to provide financial services, especially commonplace services such as deposits, withdrawals, and lending.

Of course, banks are not limited to those services. They may also offer insurance, investments, credit and debit cards, wire transfers, and other services. Banks can serve various clients including consumers, financial institutions, and corporate users.

Consumers often access their bank account in person via a bank branch. However, because banks may also provide online banking services, debit payments, and other remote services, the distinction between fintech and traditional banks is not always clear.

In other words, digital banking services and online banking can be considered a form of fintech in their own right — but this is ultimately just one form of fintech.

Difference Between Fintech and Banks

Accessibility: Fintech services often provide specific services in a streamlined way that is highly convenient for general users. By contrast, banks often provide a wider selection of financial services, some of which consumers may not ever see or know about.

Audience: Banks serve a very broad group of clients, as they often work with financial institutions as well as consumers and businesses. Some fintech services, however, may be aimed solely at consumers or business clients, depending on the specifics of the service. 

Regulation: While fintech companies and banks are both regulated, a country or jurisdiction may impose different regulations on each type of service since the services are often different and the scale is often much larger for a bank. For instance, an EMI like Payset (a form of fintech firm) is regulated by the FCA in the UK, whereas banks in the UK are also subject to regulation by the Prudential Regulation Authority (PRA). With Payset, client funds are safeguarded but not FSCS protected.

Technology: Fintech companies often support a broader variety of technologies than banks do, especially when it comes to new and cutting-edge technologies.

However, this is not always the case. As online banking becomes increasingly important, it may become more integrated with cutting-edge fintech services and platforms, often using technologies and services created by fintech firms.

Client requirements: Fintech companies often do not offer lending or credit-related services and, therefore, don’t require their customers to meet credit rating or collateral requirements to gain access to the service. One of the chief reasons banks typically impose stricter rules on customers is that they offer loans or credit.

Why Fintech Is Upsetting Traditional Banking

Fintech poses a challenge to traditional banking because it provides several features that strongly appeal to users. This can include features such as:

  • Lower fees: Fintech services may offer low fees, waived charges for on-platform transactions, and promotions or referral bonuses
  • Faster transactions: Fintech services that choose to provide specific financial services often are capable of providing faster transactions than banks; by contrast, banks may rely on established and outmoded traditional financial networks.
  • Peer transaction focus: Unlike most banks, fintech services often put an emphasis on peer-to-peer (P2P) transactions, “friends and family” transactions, or cross-border remittances
  • Greater convenience: Users may find fintech services more convenient due to a more streamlined interface, an improved customer experience, a wider variety of supported secondary services, and longer hours of customer support 
  • Niche services: Fintech companies may be able to offer specialised services in an effective way, whereas banks may need to serve a wide variety of clients 
  • Brand recognition: Some early fintech companies, such as PayPal, have become major brand names and are more recognizable to customers than many banks, whereas next-generation firms like Payset or Wise are quickly capturing attention

Will Fintech Replace Traditional Banking?

Though fintech poses a challenge to banks, it is very unlikely that it will replace the traditional banking sector in its entirety. 

First, the traditional banking industry is much larger than the fintech industry. In 2023, Statista estimated the fintech sector’s global revenue at $169 billion, while IBISWorld separately placed the global revenue of commercial banks at $2.8 trillion

Secondly, fintech services often rely on users who store funds with traditional banks. Even if fintech services gain further traction, fintech users may draw funds from their main bank accounts and only store a portion of those funds with any given fintech service. 

Finally, traditional banks do not seem to view fintech as a threat, but as a separate set of services. Many traditional banks invest in, acquire, or partner with fintech firms in order to provide a greater variety of services to their customers. Notable partnerships of this type include Amazon and JP Morgan on credit cards and Deutsche Bank and Traxpay on supply chain financing. This level of cooperation could help every variety of financial service grow.

Ultimately, fintech will probably not replace traditional banking entirely. Instead, it will likely compel traditional banks to offer features that compete with the best fintech services.

Why Fintech Is Better Than a Bank

Fintech services can be more attractive than banks because they are tailored to meet the unique needs of specific users — especially online consumers and business clients. For instance, Payset offers cheaper, faster, more frictionless cross-border payments than a traditional bank could. When it comes to making international payments or currency exchanges, the costs and delays tend to be much less. 

For a small business owner, choosing the right fintech service can mean getting (and paying for) only the services you need. Plus, you don’t need to choose one or the other. You can always store your funds with a traditional bank and hold a portion of your funds with a fintech service as needed. 

That way, you’ll be able to use whichever service is most convenient at any given time. For instance, loans can be procured through a bank and payments and exchanges made through the payment provider.

How Can Payset Help?

At Payset, we offer multiple fintech services including virtual IBAN accounts and foreign currency exchange. We offer competitive fees and support for more than 38 currencies and 180 countries.

To find out more, contact us below.

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Frequently asked questions

What is a multi-currency account/virtual IBAN?

A Payset multi-currency account allows you to receive money in 34 different currencies and send money in up to 38 currencies, all within the same account.

You can deposit and withdraw funds, convert currencies at competitive exchange rates, and hold your chosen currencies to capitalize on market movements.

A Payset multi-currency account allows startups and business owners to receive payments from clients virtually anywhere in the world and pay suppliers, staff, and contractors quickly and affordably in their chosen currency.

  • Funds can be deposited and withdrawn from the account for a small fee.
  • Account holders can send and receive money with other Payset users for free.
  • Depending on your region, you can use various payment networks from your Payset account, including SWIFT, SEPA, ACH, Fedwire, Faster Payments, BACS, and CHAPS. 
  • Once you register an account, you will be provided with a Virtual IBAN (International Bank Account Number), which makes all of these transfers easy.
  • We provide you with local payments and collections. For example, transactions in USD, EUR, CAD, and GBP are processed through the local payment networks, which is far cheaper and takes minutes as opposed to days

Are there limits on the amount of money I can send and receive?

No, there are no transaction limits on Payset multi-currency accounts.

However, higher-volume transactions may require additional anti-fraud verification. If you plan to make a large transaction, contact us in advance to avoid verification delays.

How is Payset regulated?

Payset is regulated as an authorized Electronic Money Institution by the UK Financial Conduct Authority. Our activities are also regulated by the Payment Services Regulation 2017 and the Electronic Money Regulation 2011 (SI 2011/99).

How do I send money from my account?

Once you have opened your verified IBAN account and added money to a balance, transferring funds is simple.

Simply log in into your account and add a beneficiary, then simply “make a transfer” in your preferred currency to that beneficiary.

Information contained in this publication is provided for general education and information purposes only and should not be construed as legal, tax, investment or other professional advice or recommendation, or an offer of, or solicitation for, any transactions or any other actions (or refraining therefrom); This material has been prepared without taking into account any particular recipient’s financial objectives or situation. We make no warranty, guarantee or representation, whether express or implied, as to the completeness or accuracy of the information contained herein or fitness thereof for a particular purpose; Use of images and symbols is made for illustrative purposes only and does not constitute a recommendation or advice to take or refraining from any action; Use of brand logos does not necessarily imply a contractual relationship between us and the entities owning the logos, nor does it represent an endorsement of any such entity by Pay Set Limited, or vice versa; Market information is made available to you only as a service, and we do not endorse or approve it; Any reference to past performance, predicted returns, or likelihood performance scenarios may not reflect actual future performance and certainly do not guarantee future outcomes.

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