With time moving forward, a lot of traditional solutions are getting alternatives that are overtaking the traditional ways. Traditional banks have been an exceedingly stable solution for individuals and businesses to handle financial needs for years now. They have been incredibly effective at meeting the needs of businesses and individuals.
Regardless, this traditional banking has yet to meet the growing needs of these individuals and businesses in recent years.
Banks have drawbacks, so alternative options try to address those weaknesses.
Understandably, change can be scary, but sometimes it’s worth exploring different alternative options from the norm.
Why Are People Leaving Traditional Banking?
In recent years, there has been an increase in the number of drawbacks traditional banks have been running into.
As this continues to rise, a lot of these customers have been turning towards alternative solutions. So the question is, why do people leave or change bank?
On the other hand, people also use traditional banking to make a profit. To learn how people make money using banks, make sure to check out this article on how YOU can profit from them.
The Weaknesses of Traditional Banks
- What the Banks Do with Your Money
Traditional banks do many things. However, their primary role is to take funds, which you deposit, pool the money together from others who also deposit, and lend them to those who need funds. Banks are essentially middlemen between lenders and borrowers.
The bank uses your money to make money, but it will always be available for you when you need it. The only downside with this is that even though the bank is making money, your money just sits there securely. You cannot invest the money, and it does not grow over time like an investing account does.
- Bank Fees
Many traditional banks charge fees that are not immediately obvious unless you actively review your statements.
Traditional banks can also be very costly with their fees. The costs include monthly fees, wire transfer fees, and international transfer fees. These fees can accumulate by the end of the day. Additionally, ATM fees are very high.
Furthermore, there is a monthly fee for an interest checking out, which someone can avoid. In order to avoid these monthly fees, you would need to meet the minimum balance, which has increased over the years.
Interest accounts have become problematic due to their high fees and low returns, causing people to question their value.
There are various fees associated with wire and international transfers. The fees that traditional banks include are foreign exchange fees, corresponding bank handling fees, and service fees. The fees result in a wide cost range, which can add up.
- Risk And Security
The leading risk in traditional banking in recent years is cybercrimes. Cyber attacks can harm banks by exposing client information, leading to reputation damage. This makes data security important.
When customers report breaches, they have to go through a long process to recover and change everything. This can frustrate customers and make them lose trust in the bank.
On top of all these breaches, something that has become more and more common is scams. Last year, Australians lost a record of $3.1 billion to scams. If the scam is successful, banks may not be able to locate the customer’s money. As a result, the customer loses their hard-earned money.
Banks are under pressure to stop scams, but scammers are getting better at tricking people without getting caught.
Another risk worth mentioning is the possibility of a bank collapsing. The collapse of a bank may be less likely.
While the task at hand remains a challenge, it is essential to note that it is not impossible. Even in recent years, giants such as Silicon Valley Bank have had massive collapses. In 2008, the Australian government introduced the Financial Claims Scheme. This scheme means there is always going to be a government guarantee on bank deposits.
Regardless, there are limits to this guarantee. The government will only guarantee up to $250,000. This means if you have more than that in your savings account, you might reconsider where you want to keep it. Also, if you have multiple accounts with banks owned by the same bank, the guarantee won’t apply to you again.
The Best Alternatives to Traditional Banking
Because of the mentioned challenges, individuals and small businesses seek affordable, convenient, and customised solutions to fulfil their requirements.
1. Credit Unions
Credit unions is one of those alternative to traditional banks. A credit union is a non-profit bank owned by individuals. They pool their money to provide financial services at fair interest rates.
In order to form a Credit Union, you need a community based on location or profession. To join one, you need to live or work in the area it serves.
These unions usually offer lower fees and much more robust customer service than traditional banks do. However, the one downside is that credit unions have fewer branches and ATMs available and fewer services provided.
If you’re a small business owner or individual who lives or works in a particular area and you’re looking for lower fees and interest rates on loans and accounts, credit unions might be a good option for you. They offer a more personalised banking experience that caters to your specific needs.
2. Online Banks
Since 1994, Online banks have become a fundamental part of our society and economy.
Certain online banks operate independently, while others function as a digital division of traditional banks. However, there are instances where well-established banks have moved online to operate online exclusively.
Online banks provide the same services as regular banks, but they are only accessible through the Internet. You will most likely never find a physical branch or ATM.
Online banks have lower costs and can offer reasonable interest rates on deposited money because they operate online. On top of this, they also offer monthly fee waivers.
Technology’s advancement will be crucial for the future of commercial banking. Online banks usually try to utilise the latest technology, which allows them to provide developed banking services. Traditional banking is not as proactive in using new technology to stay competitive.
Online banks are an ideal alternative for those who have busy schedules or prefer banking without the physical aspect. It’s also a time-efficient solution for individuals or small businesses who need more resources for in-person banking. If you do enjoy the physical aspect of banking, then online banking is probably not the option for you.
3. Neobanks
Similar to Online banks, Neobanks is an alternative that also operates exclusively online.
Neobanks are different from traditional online banks in that they provide fewer services than traditional banks. Some neobanks do not offer credit cards or offer loans.
Since neobanks don’t have physical branches, they have a different overhead cost than traditional banks. As a result, neobanks are able to offer lower fees and more competitive interest rates. Several neobanks also provide currency exchange and facilitate international payments.
To open an account with a neobank, you will have to do so through their website or their mobile application.
Having a neobank as an alternative offers a lot of benefits. The convenience of them since their services are available 24/7 through mobile apps. Neobanks give ease of access to the customer that traditional banks have limitations on.
Also, it is easy to set up an account, with everything being digital and your account ready within days. The banking experience is more innovative with advanced features since everything you do is through the mobile app.
I suggest neobank as an excellent option instead of regular banks if you like using a fully digital platform.
Neobanks are a great option for you to have secure multi-currency accounts. They also offer reasonable rates for exchanging money and making international transactions.
Can Crypto Be an Alternative?
Its increasing popularity has led to questioning the financial control that crypto provides over traditional methods.
So can it? The answer is it most definitely can.
Fintech and crypto companies are revolutionising the way they conduct financial transactions. This new approach has the potential to replace the traditional financial system. They are happening as the crypto economy continues to evolve. This alternative approach is worth considering.
Because traditional banks offer near-zero interest rates, crypto provides a compelling alternative.
So Should I change bank or not?
Ask yourself, should I change bank or try an alternative? After listing different alternatives to banks, you now know more about other options available. I am not suggesting that you leave your bank immediately.
I am simply providing the knowledge of reasons as to what individuals and small businesses are doing. So, if you want to change your bank or choose an alternative, it’s entirely up to you.
Figuring out the pros and cons of each alternative is essential to determine what best suits you. Look into all the available alternatives, and you might find something that might be the perfect fit for you and your financial needs.