The first thing that you need to understand is that a fintech platform can definitely change your life. There are many companies that position themselves as fintech, and the topic of competition between fintech and banking is constantly popping up in the media. It’s not surprising at all that fintech platform development services like Aleph1 are in demand today. To see clearly, we are going to offer you a definition of Fintech and an overview of this new sector.
Fintech is a company that develops innovative digital technologies to optimize financial services. These companies strive to offer more effective financial services at a lower price. The term “fintech” dates back to the 1980s and is the result of the abbreviation of the words “finance” and “technology”.
Fintechs are usually startups, that is, young companies that count on strong growth and base their activities on innovation. However, large groups that have a long period of work in the field of financial services innovation sometimes position themselves as fintech. Young fintech companies were also very successful and quickly surpassed the scale of the startup.
What are the main differences between Fintech and banking?
In this part of the article, we are going to overview the differences between these two competitors.
On the one hand, some fintech invades sectors reserved for retail banks such as:
- payments (pay techs);
- daily banking services (neobanks);
- credit (crowdfunding and crowd landing).
Many fintech is not banks, but allow the user to bypass banks for certain operations. In addition, comparators increase competition between banking institutions, as the consumer now has access to all offers on the market. Information asymmetry has been eliminated.
On the other hand, some fintech complement the traditional activities of the bank. This is a case of regtechs that simplify the monitoring of regulatory restrictions applied to financial players; but also payment technologies that, in cooperation with banks, can complement their offer to better adapt it to the needs of their customers.
Shocked by the digital revolution, banks are forced to adapt their model. However, banks seem to be choosing to cooperate with fintech companies to react better. Banks cannot ignore the digital revolution and must integrate Fintech innovations to cope with it.
In fact, retail banking is more threatened by GAFA (Google Apple Facebook Amazon). On the one hand, these giants disrupt the financial behavior of users. On the other hand, endowed with enormous resources, they develop their own means of payment and services that compete with the bank, perfectly adapted to the digital revolution. Then many fintech present partners for banks so that they can resist this increased competition.
Banks and neobanks: the best enemies?
Among the various fintech companies, neobanks are perhaps the most directly competing with retail banks. Neobanks encroach on their preferred sector, everyday banking services for individuals or businesses.
Who are neobanks? Companies are often independent of large banking groups, which rethink the approach to banking services and offer them at a lower cost. As a rule, neobanks do not yet offer all the bank’s services. However, their growth is amazing! The power of neobanks: an offer adapted to new digital behavior and ultra-competitive prices.
Can neobanks replace conventional banks soon?
On the one hand, the commercial success of neobanks and the development of the range of their services indicates that competition will increase. On the other hand, users who apply to neobanks do not leave their bank; rather, neobanks serve as an addition. In addition, complementarity is possible between these players and traditional banks!
What about risks?
Since most companies are start-ups, their economic model is not entirely stable and one might wonder about their sustainability. Thus, we can legitimately ask ourselves what will happen to our investments, for example, if financial platforms are closed.
The opportunity for banks (and the financial industry in general) lies in the use of your personal data (“important data”). Its mission is to make a massive personalized offer to its customers thanks to technology. So in fintech, you have to be able to separate those that bring you real added value and those that are just commercial platforms ready to pester you with ads.
What you should know about the regulation of Fintech platforms
The benefits offered by new players are numerous, but like any economic entity, they have to make money at some point. As such, we are increasingly seeing players who started out with free offers gradually looking to monetize their relationship with customers by encouraging them to sign up for “premium” packages.
With regard to stock market investments, some players show very attractive prices at first glance. However, when we know that they are paid by the switch according to the mechanism called “Order Flow Payment”, we can only invite the end client to compare the stock market price for a given security and make his/her calculation to find out which platform finally offers him/her.
Like banks, Fintech players must have a permit or license to be able to offer services that are broadly subject to banking regulation. Thus, fintechs, depending on their specific activity, are very often forced to officially identify their future client and for this reason are obliged to take him through the so-called “Know your client” process, during which the future client will have to enter his contact details, address and upload a copy of your ID.
Crypto and Defi
Cryptocurrencies are attracting both new fintech players and customers from all over. They live in hope of seeing the value of their shares multiply. The promise to democratize and make it easier to access and use cryptocurrencies is a challenge that many fintechs aim to deliver to their users.
That is why today so much attention is paid to the development of fine platforms and services such as Aleph1 are ready for you to get the best developers. There is no doubt that innovation is the future and people are increasingly moving away from the old ideas about business and banks. Today, more than ever, it is important to keep up with the times in order to be successful in business.