For the past dozen years or so, the future of finance has seemingly belonged to financial technology companies. As they went on about disrupting the financial services space with a digital-first, personalized delivery approach that traditional banks couldn’t match, most have foreseen traditional banks as no longer having a place in a ‘digit-all’ economy.
Also known as neobanks – a term coined for banks that are strictly digital and have no physical branches – digital banks have had the advantage of being able to run at a lower cost and offer more customer-friendly services, and therefore garnering more market share.
The legacy IT infrastructure of many traditional banks has also limited their capacity to keep up with their neobank competitors, although it is not for the lack of trying. Traditional banks have been updating and expanding IT capacities, but their holding on to decades-old IT stacks have made it difficult to compete with new entrants in terms of personalisation, customer experience, and innovation.
A slight turn in the tides
As of late, however, fortune has begun favoring traditional banks once again. Some banks’ have gotten into the digitalization/digitization game, be it with tedious overhauls and updates of their systems, or opting to buy or invest in neobanks to get a share of the digital banking market.
The rapid rise of neobanks has also put them under the microscope, and now they and regulating bodies face the difficult task of ensuring what they do continues to be for the benefit and safety of the finances of the customers.
As one of the oldest industries in the world, traditional banking faces less challenges, as much of its regulations are already in place, with the periodical nip and tuck to keep with the times being most what is needed.
Digital still holds key advantages
Indeed, despite the work they need to do to keep up with the times, traditional banks have retained a strong reputation for customer service and stability and continue to play an important role in the financial industry. However, as digital continues to push forward, it remains to be seen how the traditional banking industry is somewhat stuck in some of its ways, giving fintechs certain advantages.
This is particularly evident in convenience. For instance, neobanks/fintechs’ account creation is completely digital, and can be done from almost anywhere. Digital banks, for their part, have begun offering digital services to their customers but, unfortunately, many still ask customers to visit their branches for opening an account.
Additionally, in terms of international banking. When making international transactions, banks still tend to charge a couple of fees. According to Forbes, foreign transaction fees of 3% may comprise a 2% foreign transaction fee and a 1% currency conversion fee. This typically applies whether the transaction is debit, credit, or a simple money transfer.
Indeed, sending money by traditional means is often expensive. According to the World Bank, customers pay an average of US$12.50 in costs whenever they send $200 to a low- or middle-income country, or what amounts to as much as 6.3% of the transaction.
With a much lower overhead thanks largely to not having to maintain physical branches and compensate staff that would work in it, combined with the almost-instantaneous nature of online transactions, digital banks charge significantly lower fees.
In some instances, like when transferring within the same digital bank system, the transaction and currency exchange is absolutely free. This is particularly evident in companies such as Black Banx, a Toronto-based neobank that serves over 28 million customers across 180 countries.
Empowering account holders to transact across 28 FIAT currencies and 2 crypto currencies, Black Banx has redefined borderless banking by making international transactions as easy as local transactions. Black Banx customers can make payments in whichever currency their finances are in, and receiving customers can receive it in the currency they use.
When the transactions are between Black Banx accounts, the exchange is absolutely free sans fees. A definitive game changer, particularly for international travelers, remote workers, and global businesses, Black Banx empowers customers to participate in the worldwide economy, and ensure their financial flexibility by not having their money tied to a local traditional bank.