Fintech vs Traditional Banks for New Businesses

Considering fintech over traditional banks for your business banking needs?

Do your research, ask questions, and exercise due diligence!

During my agency days as VP of Operations, I managed relationships with our business/commercial banks, so I was well-versed in the pros and cons of partnering with traditional banks both small and large.

For new businesses, opening an account with a traditional bank may require jumping through some hoops as traditional banks want to vet their business customers. Traditional banks may also have higher banking fees or greater requirements to waive monthly account fees.

With fintech companies, there's often less legwork and vetting to open an account and the reduced overhead (no branches/physical locations) helps to reduce some typical banking fees making them more enticing.

But fintech companies are not banks. They typically partner with traditional banks to provide traditional banking services (ex: deposit accounts) and may utilize other third-party entities to facilitate management and tracking of accounts and transactions.

Though the partner bank (the traditional bank) may be FDIC-insured, the fintech companies and third-party entities are usually not which can create potential risks.

That was a major red flag for me when I was evaluating fintech vs traditional banks for my business banking needs.

Was banking through a fintech company as "safe" as partnering directly with a traditional bank? What were the hidden risks? What happens to money in my business account if the fintech company abruptly shuts down? Without a local branch, what would I do if I ran into issues with online-only service and support?

I did extensive research into numerous fintech companies offering business banking services, read through reviews and comments, but my instincts were simply telling me that fintech wasn't the right choice (at least for me and my business), so I opted to partner with a traditional bank (while still exercising due diligence to find a banking partner that best aligned with my business and could scale accordingly with its needs).

Granted, traditional banks can also fail, especially smaller ones as we've seen over the past few years. But partnering directly with a traditional bank that is FDIC-insured may be the difference between becoming quickly whole after a bank failure versus being stuck in what may be seen as potential endless limbo.