If customers apply for a loan, it is obvious that most of them will have to suffer the paper overload while applying for a home loan, Small Business funding, car loan, or even a simple credit card. Providing multiple paper documents and waiting for loan approval from the bank is a time-consuming process. On the other end, Fintech companies offer complete paperless application, simple e-KYC option, and instantaneous approvals.
While banks and Fintech companies, both are trying hard to improve the customer experience even on the base of SME Business loan. There are some differences between loans offered by banks and Fintech companies that you should know –
- FinTech mainly focuses on digital technology as mobile functionality, agility, cloud computing, big data, personalization, convenience, accessibility, and conceptuality. They accelerate a change in customer preference around smartphones, mobiles platforms, and social media. On the other hand, traditional banks have a very rigid structure which focuses more security, significant capitalization and customer indifference. Most of them are regulated institutions which continue to follow old and lengthy loan application and approval process.
- The core premise of FinTech firms has been ‘user experience’. While banks are only focused on consolidated interaction with the customers. Fintech have their focus on innovations that proclaim faster transactions, immediate consultation, 24×7 permanent access, optimal customer care and remote account opening that provides convenience to its customers.
- FinTech companies are more customer-oriented. They have lean operating models that are free of legacy system issues and have better regulatory arbitrage. Whereas traditional banks are generally process-oriented. The legacy systems and regulatory framework carried by traditional banks restrict their ability to roll out new products & services which can address the customer issues and quickly leverage new technologies.
- With fewer barriers to change – FinTechs have flatter organizational structures that encourage innovation and flexibility to transform or revamp as per the needs of its customers. On the other hand, banks disengaged workforce and legacy infrastructure showcase an asymmetric risk profile for innovation.
- FinTech companies rely heavily on technologies like artificial intelligence, automation and machine learning for the faster rate of functioning. While the systems in traditional banks are still grappling with their legacy infrastructure.
- Fintech companies were born and developed during the era of digitization whereas certain traditional banks are still primitive. By incorporating new technologies, Fintech companies ensure that the quality of service is up to the mark with no room for mistakes and it provides quick service on shorter notice as compared to traditional banks.
- Legacy banks majorly focus on the management of risk whereas FinTech firms focus on managing the overarching customer experience. So far, Fintech has been able to retain customers.
While banks are more traditional and process oriented, Fintech companies are innovative and customer-oriented.
Banks offer loan against collateral whereas Fintech companies do not demand any collateral to sanction the loan amount.
Certain banks charge higher interest rates and the loan tenure is much longer making the repayment structure tougher. This becomes a financial liability for a longer duration. Fintech companies charge reasonable interest rates on the loan amount with a minimum tenure of five years which makes the repayment even easier. It is a plus point as you can get rid of the financial liability faster and you can plan on achieving your future business goals.