Fintechs vs. Traditional Banks: Which is Right for Your Business?

What is a fintech?

A fintech is a financial institution that uses software, mobile apps and digital platforms to provide banking services. The word “fintech” blends “financial” and “technology.”

Some fintechs, such as banking apps, partner with established financial institutions to hold customer funds. Others operate entirely online, with no bricks-and-mortar locations. Either way, not all fintechs hold a banking license, which affects how your deposits are protected.

What are the benefits of fintechs for business owners?

Digital banks, or fintechs, are popular with small business owners for a variety of reasons:

• Account setup: Creating a new account is typically fully digital and can be done in minutes.
• Monthly fees: Service fees are low or in some cases non-existent, and there are usually no minimum balance requirements.
• Technology-first: Built around technology, digital banks tend to have clean, mobile-first interfaces that make banking easy to manage from anywhere.

For early-stage businesses that want to get up and running quickly, that simplicity and convenience can be a real draw. In short, accounts are easy to open and often cost nothing to maintain.

What should you check before choosing a fintech for your business?

Digital banks vary widely in what they offer, so there are a few things you may want to confirm upfront:

• Eligibility: Some digital banks open business accounts only for incorporated businesses, which can exclude sole proprietors, partnerships, trusts and not-for-profits. Availability can also vary by province.
• Cash deposits: Many fintechs operate entirely online, so check how deposits would work if your business takes cash.
• Services as you grow: Some providers cover chequing and payments only, while others add lending, payroll and foreign exchange. Compare what’s available today against what you expect to need over the next few years.
• Support: Some providers offer chat and email, while others add phone support during set hours.
• Deposit protection: Coverage depends on how and where your funds are held. Ask whether your money is held at a CDIC member institution, and in whose name.

Pros and cons of digital-first banking

At a glance, here’s how the trade-offs of a fintech account stack up:

What are the benefits of traditional banking for business owners?

A traditional bank offers more than a business bank account. It brings together the experience, services, support and financing that a business relies on as it grows – along with the digital tools to manage it all. Here’s a closer look at the benefits for your business:

Digital convenience and human support

Running a business requires a mix of solutions, convenient access and support from a real person. Traditional banks like RBC offer flexibility for business owners to bank digitally and access to human support through:

• Online banking options: RBC offers businesses the option of a mobile app and online banking for business, as well as RBC Edge.
• In-person and over-the-phone service: One of the benefits of a traditional bank is the ability to visit a physical branch or call a live advisor. If there’s an issue, such as an unauthorized transaction, payroll issue or failed wire transfer, a banking professional can walk you through the steps to address it.

Credit and lending options as your business grows

Growth opportunities often present themselves before businesses have the cash to act on them.

For example, a large order means paying for materials, labour and shipping well before the invoice is paid. Similarly, hiring, new equipment and a second location all tend to require money up front. A full-service bank offers a range of options to help cover this timing gap:

• Everyday credit: Business credit cards and an operating line of credit for the inevitable lags between paying suppliers and getting paid.
• Financing for bigger moves: Term loans, equipment financing and commercial mortgages as the business takes on larger commitments.
• Advice alongside the lending: An advisor who understands why a business that’s profitable on paper can still be short of cash in a given month.

Financial advice that supports long-term success

A traditional bank gives you access to advisors who can help you make decisions as your business grows. That can include:

• Industry-specific support: As you grow, you’ll want access to sector support from advisors who specialize in certain industries and have deep knowledge and relationships.
• Connections beyond banking: As your business grows, your bank can introduce you to specialists and partners – from payroll and accounting providers to trade and foreign exchange support.
• Guidance through changing economic conditions: Real-world input on managing cash flow, financing and risk as markets and interest rates shift.
• Relationship-based advice: Advisors get to know the details of your business – your goals, challenges and long-term vision – so the guidance you get is proactive and personalized.

Decades of experience

There’s peace of mind in choosing a financial institution backed by a proven track record. Here’s how traditional banks foster trust:

• Economic resilience: Traditional banks have capital reserves to weather economic stressors, such as inflation or a volatile market. RBC has served Canadian businesses for over 150 years, through multiple economic cycles.
• Regulatory oversight: Traditional banks are members of the Canada Deposit Insurance Corporation (CDIC), which protects customers by insuring eligible deposits up to $100,000 per account.
• Consumer protection: Traditional banks and credit unions are governed by the Bank Act, which guarantees customer rights and provides a comprehensive process for handling any complaints.

Complete financial ecosystem that grows with your business

As your business grows, your banking needs rarely stay simple. A traditional bank can meet those needs in one place, so you’re not piecing together services from different providers or starting a new relationship every time something changes. With RBC, you can:

• Get support around key milestones, from hiring and expansion to managing cash flow and succession planning.
• Add specialized services as new needs arise, such as international banking, trade and foreign exchange
• Simplify day-to-day operations with integrated tools like merchant services, payroll processing and other payment solutions
• Access financing options such as business loans and lines of credit when you need them

Small business banking needs: Fintech vs traditional banks

Here’s how a typical fintech and a full-service bank like RBC compare across the services a growing business tends to need:

What to consider when opening a small business bank account

Here are some additional points to consider when looking for the best business bank account for your small business:

Look for a low-fee business bank account

A common assumption is that traditional banks cost more than fintechs. That isn’t necessarily the case. RBC offers a range of business accounts to match how you operate, including the Digital Choice Business Account Package – a low-fee, digital-first option for businesses that bank mostly online. And remember, fees on a business bank account are generally deductible as a business expense, which means the real cost of your banking is lower than the monthly fee suggests.

Explore the full range of business accounts or use the Business Account Fee Estimator to see which business account might be best for your needs.

Enhanced credit and lending solutions

Access to credit can make a real difference during periods of growth or economic change. Consider if there’s a range of lending solutions, including business loans and lines of credit to help fund operations, working capital loans, commercial mortgages, and equipment financing.

There are cash flow tools available like Business Cash Flow Calculator and RBC PayEdge to manage payments. Products like small business credit cards can also ease cash flow, provide interest-free grace periods and easy expense tracking.

Added benefits for business clients

Explore whether a financial institution offers additional benefits that will help grow your business. For example, an RBC business account also gives you access to partners such as:

• Payroll and HR services through ADP
• Accounting software through Xero
• Payment processing and POS systems through Moneris
• Hiring through Indeed and Magnet

Factor in what switching business banks later would involve

Switching is always an option, but it’s worth knowing what’s involved – especially if the move comes while you’re growing or when you need financing.

A new lender doesn’t have visibility into how your business has performed, so building that picture takes time and more paperwork – and applications may take longer without an existing relationship. Payroll, pre-authorized debits, supplier payment details and beyond banking partners all need to be reestablished too. Starting with a bank that can support the business you’re planning to build saves extra work down the road.

Whether you choose digital over traditional banking or a hybrid approach, establishing a primary banking relationship with a full-service bank helps position you to access future credit products. Plus, you can tap into expert business advice for starting a business and growing your business to the next level.

Frequently asked questions (FAQs) about digital vs traditional banking