The financial market is changing, and with it, the ways in which we manage our money. Alternative banking is an increasingly popular option for those who are looking to break away from traditional financial institutions. Particularly attractively for many people, alternative banking offers a chance to take financial control while still enjoying the convenience of banking services.
Whether you are well-versed in the world of finance or just starting out, alternative banking provides a range of benefits over traditional banks and credit unions.
Below, then, we have put together a guide to the essentials of alternative banking, versus banking services of a longer-established and more “traditional” nature.
What Is Alternative Banking?
Alternative banking is an umbrella term for financial services that exist outside the traditional banks and credit unions. This includes online banking, peer-to-peer lending platforms, mobile payment services, cryptocurrency exchanges, and more.
These innovative digital solutions offer a range of features such as global payments, higher interest rates on savings accounts, lower transaction fees, and even social networks for investors.
Some of the main types of alternative bank accounts, contemporary tech solutions, and untraditional ways of banking that you may already be familiar with include:
Cryptocurrency is a form of digital currency that is not tied to any country or government. This type of currency can be sent quickly and securely between users, and is often used for international payments. It has seen a huge rise in popularity in recent years, and this is a trend that shows no sign of going away.
Online banking is a form of banking that allows customers to access their accounts via the Internet and manage their finances without having to visit a physical branch. This offers greater convenience, allowing you to check balances online, transfer money, and pay bills using a computer or mobile device. Unlike many of the other tools and forms of alternative banking we are outlining in this article, online banking is now a standard aspect of daily banking life for many individuals.
- Peer-to-Peer Lending Platforms
Peer-to-peer lending platforms allow individuals to borrow money from each other rather than from a financial institution. This opens up access to loans for people who may not be able to get them from traditional banks, and it can be a great investment opportunity, too.
Mobile payment services such as Apple Pay, Google Pay, and Venmo allow users to make payments directly from their smartphones. This offers a convenient way to pay for goods and services without the need for cash or cards and, like online banking, is a central part of life for many people today.
Advantages of Alternative Banking
Alternative banking has several advantages over traditional banks and credit unions, including:
Many traditional bank accounts come packed with hidden fees, but alternative banking services often have much lower fees. Indeed, many of them don’t have fees attached to them at all, thereby offering a much more cost-effective option for those who are looking to save money.
Savings accounts with traditional banks often offer very low interest rates, but alternative banking services often offer much higher returns, which could make it easier for you to grow your savings.
Alternative banking services are frequently much more flexible than traditional banks, with services such as peer-to-peer lending being available on a 24/7 basis, and no minimum balance requirements being imposed. This could make it easier for you to manage your finances on your own terms, without being tied down by rigid bank rules and regulations.
As a digital service, alternative banking services often offer higher levels of security than traditional banks and credit unions, with multiple layers of encryption and fraud protection. This means you can be sure your money is safe when you are using alternative banking services.
Are There Any Downsides?
As with any change in technology, there are some potential downsides to alternative banking services, and it is important to be aware of these before you commit to any new service.
One potential downside is the lack of customer support with some alternative banking services, as they may not offer the same level of customer service as a traditional bank or credit union. This means you may need to be more proactive when it comes to resolving any issues yourself.
Alternative banking services are often not subject to the same regulations as traditional banks and credit unions, which can mean there is less legal protection for users. This means it is important to do your research and make sure you are using a reputable service before committing to it – alternative banking services can be riskier than traditional banks, so you should make sure you know what you’re getting into.
The situation of insufficient or poorly targeted regulation for alternative banking services is gradually changing; the European Union (EU)’s Markets in Crypto Assets (MiCA) regulation, for example, is set to take effect in 2024. For now, though, there remains plenty of reason to be cautious about alternative banking services and technologies in many parts of the world.
Final Thoughts
Alternative banking can offer a number of advantages over traditional banks and credit unions, including lower fees, higher interest rates, and greater convenience.
However, it is important to be aware of the potential drawbacks, such as the lack of customer support and regulations, before you commit to any new service.
Ultimately, alternative banking can offer a more cost-effective way to manage your finances – but it is important to do your research and be aware of any risks.
