FinTech Providers vs. Traditional Banks

Opening a corporate bank account in Hong Kong has become more challenging. As a result, more and more FinTech (i.e., Financial Technology) providers have popped up offering alternatives to traditional banking solutions. How do FinTech providers compare to traditional banks? Are they a feasible option? Read on to find out.

FinTech vs. FinTech

Before exploring the differences, it is important to understand that not all FinTech providers are the same. They usually specialize in a specific niche such as trade finance, forex (i.e., foreign exchange), online payments with a reputable marketplace, and/or offering card with specific features facilitating accounting. Although there are FinTech providers that offer a more diverse, complete range of services with one limit, namely, they do not offer loans in the traditional sense, but some do offer financing options such as purchase order and invoice financing.

It’s All In The Tech

Now let’s delve into the differences between FinTech providers and traditional banks. Generally, it tends to be easier and faster to open an account with a FinTech provider than with a traditional bank. This is partially because banks are more exposed as they deal with much larger volumes of transactions and amounts of money. Accordingly, they usually have stricter KYC measures, leading to more requirements, longer processing times, and in turn higher administrative fees. That said, new tech is what really makes the difference. FinTech providers are “smarter” and “faster” because they use new technologies to handle due diligence requirements, whereas faster processing usually means cheaper service. FinTech providers tend to be less expensive than traditional banks especially within the different niches they target (e.g., FinTech providers specializing in forex often have better exchange rates and lower processing fees (if any)).

Differences In Licensing

The most vital distinction is in licensing. FinTech providers do not hold a bank license, but they do have the licenses required for the various types of services they provide. They are not very regulated, but some countries, including Hong Kong, are starting to introduce regulation and specific licenses for this sector of businesses. So, in terms of safety, no one can really say as FinTech is a new industry which has yet to be tried and tested. On the other hand, however, while banks have been around for a long time, they have faced their fair share of issues along the way, so one could also challenge the safety and question the guaranties offered by traditional banks.

The Winner: FinTech Providers Or Traditional Banks?

One thing is clear, with the introduction of FinTech providers, the disruption of banking in the traditional sense is on its way. The FinTech industry will, for sure face both success and failure, but this is inevitable, so the risk of using a FinTech provider is probably equal to that of using a conventional bank. Considering that, FinTech providers are definitely an option to consider. Particularly if, there is a high risk that the application to open a conventional bank account will not be successful; operations may be delayed from not having an account; an account is required quickly to receive payment; or a company simply wants the opportunity to benefit from better fees (in the case of forex or online payments),  a company can consider opening an account with FinTech provider.

There is no clear-cut reason to opt for a traditional bank over a FinTech provider and vice versa; a company could even consider applying for both simultaneously.  Besides, it usually costs nothing to apply for a FinTech account on top of applying for a standard bank account, and by opting for both a company has more opportunity to open an account quickly, and can benefit from low cost solutions of FinTech accounts (e.g., free card with detailed report, better exchange rate, trade finance rate, etc.). Overall it is never a bad thing to have your eggs in different baskets, a company should just be sure to weigh up the different options available to select the right partner or partners for their specific needs.