Banks vs Fintech Companies: The Race to Dominate Remittances

Joachim Adeponle

24 Apr 2024 • 6 min read

In the world of remittances, especially in the last decade, banks have been given a run for their money by vastly multiplying Fintech companies. This trend has transcended into the world of remittance creating a lull in the number of customers depending on banks for their remittance needs; causing some underground rift between these entities. In this article, we shall be checking out the race to dominate remittances between banks and fintech companies.

What Are Remittances?

International money transfers also known as remittances are usually sent by migrant workers to their relatives back home. These monetary inflows are essential for sustaining developing economies, boosting household income, and encouraging investment.

The Reason For The Antagony Between Banks And Fintech Companies

The development of Fintech businesses has brought about a dramatic shift in the financial services environment. Compared to traditional banks, these creative entrepreneurs use technology to provide financial services, including remittances, more quickly, more affordably, and more conveniently. The manner in which individuals transfer and receive money internationally has been greatly influenced by this interruption.

Because of these advancements, banks and Fintech firms are engaged in a strong battle to control the remittance business by offering the most effective and affordable options for international money transfers.

What Are The Roles Of Traditional Banks in Remittances?

For a considerable amount of time, traditional banks have dominated the market for remittances, or overseas money transfers.

Due to their established branch network, traditional banks have traditionally been the main provider of international money transfers. To send money overseas, customers can use the bank's currency exchange services, transfer money from their accounts, or make cash deposits. The cash can then be picked up in a branch by recipients, especially those without bank accounts.

Strengths Of The Traditional Banks In Remittance

The following are the strengths of the traditional banking systems in remittances:

Established Global Network: With its vast global branch network, banks provide a convenient and recognisable means of sending and receiving money. Cash pick-up is made simple for beneficiaries who might not have access to bank accounts thanks to this infrastructure.
Trusted Reputation and Brand Recognition: Over the years, banks have solidified their reputation for security and dependability. Users feel more confident because of this well-established brand familiarity, especially those who are not familiar with the more recent financial innovations.
Secure and Well-Regulated Infrastructure: Strict rules that are intended to safeguard consumer money and stop financial crime apply to banks. Users that are sending and receiving remittances should rest easy knowing that security is a top priority.

Weaknesses Of The Traditional Banks In Remittance

Banks, as strong and competent as they are, have their flaws in the remittance system, check them out below:

High Fees and Slow Processing Times: The exorbitant costs that traditional banks charge for remittance services are a common source of criticism. Furthermore, it may take several days for the cash to reach the beneficiary due to long processing procedures.
Lack of Transparency in Exchange Rates: banks are notorious for not always providing the best exchange rates when converting currencies, giving customers less value for their money. Transparency issues and unstated costs may mask the real cost of the move. They are also guilty of burying hidden charges in their transactions.
Inconvenient Procedures: Remittances through banks can be sent and received through laborious processes that frequently entail in-person branch visits and documentation completion. Users may find this time-consuming and inconvenient, particularly those with hectic schedules.

Banks are frequently blamed for exorbitant fees, protracted processing periods, and opaque exchange rates. These flaws provide Fintech businesses an opportunity to upend the remittance industry with their emphasis on efficiency, affordability, and speed.

What Are The Role Of Fintech Companies In Remittances?

Remittances are being revolutionised by fintech businesses thanks to their emphasis on affordability, speed, and convenience. Compared to traditional banks, they provide much quicker transfers and less rates by utilising technology. Users no longer need to visit banks because of simple-to-use smartphone applications and internet platforms that let them transfer and receive money with just a few clicks. Additionally, fintech places a high priority on exchange rate transparency, enabling consumers to make wise judgements. They also service specialised markets and the unbanked, bringing financial inclusion to people who were previously neglected by traditional banking institutions.

What Are The Strengths Of Fintech Companies In Remittances?

The following are the strengths that keep fintech companies relevant in the remittance sphere:

Speed and Cost Efficiency: Fintech, as opposed to traditional banks, offers much quicker transfer times and less rates by streamlining procedures using technology. This enables customers to transfer money to loved ones swiftly and inexpensively, making sure the money gets to them on time.
Convenience Reigns Supreme: Convenient bank visits are no longer necessary thanks to user-friendly smartphone apps and internet platforms that enable consumers to transfer and receive money with only a few clicks. Users are empowered to manage their funds anywhere, at any time, while on the road thanks to this flexibility.
Transparency Wins Trust: Fintech businesses, as opposed to conventional banks, frequently provide more exchange rate transparency. Because users can see precisely how much the receiver will get, confidence is built and decisions are made with knowledge.
Financial Inclusion for All: Fintech's scope goes beyond traditional marketplaces. They provide financial services to people who might not have access to standard banking systems, catering to specialised markets and the unbanked population. This encourages financial inclusion and gives those who were previously marginalised a sense of empowerment.

What Are The Weaknesses Of Fintech Companies In Remittances?:

However, Fintech companies also face some challenges and they include:

Building Brand Recognition: Fintech businesses are expanding quickly, yet they sometimes lack the well-established brand reputation of traditional banks. Some users might be reluctant to trust them with their money as a result of this.
Navigating Regulatory Hurdles: Since fintech is a relatively young business, national laws might range greatly from one another. It can be difficult for businesses trying to go worldwide to get over these regulatory obstacles.
Limited Service Scope: Fintech businesses tend to specialise on remittances, whereas traditional banks provide a wider variety of financial services. This could make them less appealing to consumers looking for a complete financial solution.

Fintech businesses are definitely upending the remittance industry in spite of these drawbacks. For many customers, their emphasis on price, quickness, and convenience makes sense. Fintech has the ability to completely change how individuals send and receive money globally as they develop and earn more credibility.

The Competitive Landscape: Banks Vs Fintechs

There is no denying the fact that the world of remittances is witnessing fierce competition between traditional banks and nimble Fintech companies. Both sectors play a crucial role, but their strengths and weaknesses create a dynamic landscape.

Fintech's Disruptive Force: Fintech companies are shaking things up with their tech-driven approach. They offer significantly faster transfer speeds and lower fees compared to banks. This pressure is forcing banks to innovate and become more competitive. Faced with the threat of losing customers, traditional banks are:

Lowering fees: In a bid to compete, banks are gradually reducing remittance fees, making their services more attractive.
Investing in technology: Banks are increasingly embracing technology to streamline processes and improve efficiency. This allows them to offer faster transfer times and potentially lower costs in the future.

The Need For A Collaboration Between Banks And Fintechs For Mutual Gain

While competition exists, there's also potential for collaboration between these two entities. If you cant beat them; join them in compromise. Here's how banks and Fintech companies can work together:

Complementary Services: Banks, with their established infrastructure, can partner with Fintech companies to offer integrated remittance services within their existing platforms. This expands the bank's reach and leverages Fintech's speed and convenience.
Risk Management Expertise: Fintech companies can benefit from banks' experience in managing financial risks and complying with regulations. Collaboration can create a more secure and trustworthy remittance ecosystem.

The Regulatory Maze: Regulations play a significant role for both sectors.

Impact on Fintech: Fintech companies might face stricter regulations as they grow, potentially impacting their agility and innovation. Balancing innovation with financial security remains a challenge for regulators.
Compliance Burden: Regulations can also create a burden for banks, requiring them to invest resources in compliance procedures. However, established regulations also provide a sense of security for users, which is a strength for banks.

What Is The Future of Remittances?

The competitive landscape between banks and Fintech companies is likely to continue evolving. As technology advances and regulations adapt, we can expect:

Further Innovation: Both sectors will continue to innovate, offering faster, cheaper, and more secure remittance solutions.
Increased Collaboration: Partnerships and collaborations between banks and Fintech companies are likely to become more common, offering users the best of both worlds.

Final Words

Now that we have checked out the race between banks and fintech companies to dominate remittances, we can ultimately say that the fight between banks and Fintech companies benefits the consumer. It drives innovation, reduces costs, and increases access to financial services, making remittances faster, cheaper, and more accessible for everyone.

But these two players could come together in compromise, using each other’s strengths to correct each other’s weaknesses and make sure everybody wins!

With that in mind, we here at SanaTransfer, as a fintech establishment are always on hand to ensure that no customer suffers any of these weaknesses, guaranteeing you fast, secure and easy remittances out of Canada to more than 70 countries world wide. Sign up today or log in on our web or mobile platforms on Android and Apple to enjoy the best of remittance services.