Banks vs. Fintechs: What’s the Difference?

Fintech companies and traditional banks serve many of the same financial needs, but they operate with fundamentally different models, priorities, and regulatory frameworks.

Like the name implies, fintech companies deliver financial services through technology and the cloud, rather than through traditional physical locations. As traditional banks offer more services digitally, many of the services may look similar, but while some of the services they provide may be similar, there are significant differences between banks and fintechs.

By understanding these differences, you can make more informed choices about which financial services provider best suits your needs.

In this article, we cover three main differences between banks and fintechs.

Banks operate under strict regulatory oversight, including mandatory FDIC insurance for deposits, capital reserve requirements, and regular exams. These regulations provide significant consumer protections, and when banks offer digital banking services, those services also operate under the same high standard of regulations.

Historically, fintechs have operated under lighter regulatory frameworks. Many fintechs partner with traditional banks to offer FDIC-insured accounts while maintaining their tech-forward interfaces.

If you open a deposit account directly with an FDIC-insured bank, your money is insured up to $250,000 per account category, by the FDIC, which is backed by the full faith and credit of the U.S. government. Whether you use a bank’s digital apps or in-person banking, if your money is deposited at an FDIC-insured bank, you benefit from deposit insurance coverage.

Banks must have a bank charter, or a legal document granted by the government that authorizes a financial institution to operate as a bank. The charter provides the legal framework and permission for the bank to conduct banking activities and to be covered by FDIC insurance.

However, a nonbank fintech does not have a bank charter and deposits are not insured by the FDIC. Some fintechs may deposit customers’ funds in a bank, which may qualify the customers for “pass-through” FDIC deposit insurance coverage.

However, the nonbank must take specific actions for the funds to be eligible for FDIC coverage.

Banks that run on legacy digital systems or operate with organizational complexity may face challenges in rapid innovation. However, they bring stability and established risk management practices.

Fintechs can typically iterate quickly, introduce new features rapidly, and experiment with business models. That agility allows them to address emerging needs and improve services continuously.

Technology-forward banks like Forbright Bank can offer the best of both worlds, with a purpose-built digital banking platform offering a convenient and improved experience, supported by the long-term sustainability and security of a traditional bank.

It’s not always necessary to choose between a bank and a fintech. Many consumers now use a hybrid approach, maintaining a traditional bank account while using specific fintech services for specific areas like investing, budgeting, or international payments.

The distinction between banks and fintechs continues to blur as banks invest heavily in digital transformation.

Many traditional banks are acquiring fintech companies or developing comparable digital capabilities. In fact, most traditional financial institutions embrace safe innovations by fintechs and integrate them into their own systems to enhance customer experience and service efficiency.

For example, if your bank offers a mobile banking app, it may include features that were developed by a fintech and licensed to your bank—such as real-time account management or mobile check deposits.
The most important factor is choosing financial services that align with your specific financial goals, insurance expectations, personal values, and service preferences.

Disclaimer: This article is for general information and education only. It should not be considered financial or tax advice.