What’s the difference between a bank and a fintech?

Fintech company SoFi just announced it has applied for a banking license with the OCC. What’s the difference between a bank and a fintech? The boundaries are blurring...

Culture: Fintechs are much younger, nimbler and more disruptive. SoFi is merely 9 years old, Citigroup is over 200. Innovation underpins fintech, whereas banks often struggle under cumbersome processes. 

Technology: Not as much of a differentiator any more in the US, although the difference persists more in Europe. Fintechs are built directly on Technology to drive simple, cost efficient processes whereas banks started off being built around people and real estate. However in recent years traditional banks have drastically reduced their footprint and now boast user friendly mobile and online banking platforms. US Banks have huge IT spend, JPMs the most at about 11bn, and about half of this is on innovation. Goldman Sachs launched this year it’s digital consumer banking in partnership with Apple. European banks, on the other hand, have lagged due to lower IT spending overall and even less of that directed to new technological innovation. 

Banking Licences and Capital: This is a key differentiator in the US, though not so much in Europe. Most fintechs in the US don’t have banking licenses, meaning they can’t directly provide certain services and they are not subject to banking regulations in the same way as a bank. This also means they don’t have access to the cheap capital funding banks have in the form of customer deposits. Instead, fintechs are funded by private and corporate venture capital which is much more expensive. In Europe, many fintechs do have banking licenses, such as Revolut, Monzo, N26.