Why Do Banks Still Charge Fees When Fintechs Offer Free Transfers?

This article is based on publicly available industry information, customer experiences, and observations of how Nigerian banks and fintech platforms handle transfer fees, SMS alerts, and digital banking services. 

For many Nigerians, sending money has become something they do almost every day. Whether it is paying a supplier, sending money to family, settling a bill, or moving funds between personal accounts, digital transfers have become part of everyday life.

Yet a question continues to frustrate many customers: if fintech companies such as Opay can offer free transfers and free in-app notifications, why do traditional banks still charge fees for certain transactions and services?

The question often becomes even more difficult to understand when customers compare their experiences directly. A customer may transfer ₦3,000 using a fintech app and see no visible charge. The same customer might use a traditional bank and notice transfer-related charges, SMS alert fees, or other deductions. In some cases, customers moving money between their own accounts within the same bank may not pay a transfer fee but may still receive multiple SMS notifications that attract charges.

This difference has fuelled a growing debate about whether traditional banks are charging customers fairly in the digital age or whether fintech companies have simply found better ways to deliver financial services.

The answer is more complex than many people realise.

Quick Answer: Why Do Banks Charge Fees While Fintechs Offer Free Transfers?

Banks and fintech companies operate under different business models. Traditional banks often have larger operating costs, branch networks, regulatory obligations, and legacy technology systems.

Fintech companies, on the other hand, frequently subsidise transfers and earn revenue from alternative services such as merchant payments, loans, and partnerships. However, many customers argue that some bank charges, particularly SMS alert fees and certain administrative costs, feel outdated in an era of digital banking.

The Rise of Fintechs in Nigeria

Over the past decade, Nigeria’s financial technology sector has transformed the way people manage money.

Companies such as Opay, PalmPay, Moniepoint, Kuda, FairMoney, and others have attracted millions of users by focusing on convenience, speed, and low-cost services.

For many customers, the appeal is obvious. Opening an account is usually quick. Transfers are often free or heavily subsidised. Notifications arrive instantly through the app. The platforms are designed primarily for smartphones, making them easy to use.

These features have helped fintech companies build strong customer loyalty, especially among younger users and small business owners.

At the same time, traditional banks have faced increasing competition. Customers now compare every fee, every transaction, and every process against what fintech companies offer.

This has raised an important question: if fintech companies can operate with lower charges, why can’t banks?

Are Fintech Transfers Really Free?

One common misunderstanding is that free transfers mean there is no cost involved. In reality, every financial transaction has a cost somewhere in the system.

Payment networks, settlement systems, fraud prevention tools, cybersecurity infrastructure, compliance requirements, and customer support operations all cost money.

When a fintech advertises free transfers, it does not necessarily mean the transfer itself costs nothing to process.

Instead, it often means the company has decided not to pass the cost directly to the customer.

The company may absorb the cost internally and recover revenue through other services.

For example, fintech firms may earn income from merchant payments, POS transactions, lending products, investment services, partnerships, premium features, and other financial products.

In simple terms, the customer may not see the charge because the company has chosen to make money elsewhere.

This strategy is often used to attract new customers and increase market share.

Why Traditional Banks Charge Fees

Banks operate under a different business model. Most traditional banks have extensive branch networks, large workforces, legacy technology systems, regulatory obligations, and complex operational structures. Running these systems requires significant investment.

Banks also maintain physical infrastructure across multiple locations, unlike many fintech companies that operate primarily through digital channels.

As a result, banks have historically generated revenue from various service charges alongside interest income and other business activities.

From the banking industry’s perspective, transaction fees help cover operational costs and maintain services.

However, many customers argue that this explanation is becoming less convincing as technology improves and digital banking becomes more efficient.

The debate becomes particularly heated when customers compare what they experience in traditional banking versus fintech platforms.

The SMS Alert Controversy

One issue that regularly frustrates bank customers is SMS alert charges. Consider a situation where a customer moves money between their own savings and current accounts within the same bank. The bank may not charge a transfer fee.

However, the customer receives an SMS debit notification from the account sending the money and an SMS credit notification from the account receiving the money. Each SMS may attract a charge.

From the customer’s perspective, this can feel unreasonable. After all, they already know they initiated the transaction. They moved the money themselves. Why should they pay for multiple notifications regarding their own action?

Many fintech users point out that their apps provide instant push notifications at no extra cost.

For example, many users of Opay, PalmPay, Kuda, and Moniepoint receive instant in-app notifications without separate SMS charges. By contrast, some traditional bank customers may still incur SMS alert fees whenever money enters or leaves an account, even when transferring funds between accounts they personally own. 

This comparison has led some customers to question whether SMS charges remain necessary in today’s digital environment.

Banks typically respond by explaining that SMS alerts involve costs paid to telecommunications providers. Every SMS message sent carries an expense, which may be passed on to customers.

For customers looking to minimise fees while keeping their existing accounts, our guide on 10 Ways to Reduce Bank Charges in Nigeria Without Changing Your Bank explains practical steps that can help lower everyday banking costs without the need to switch financial institutions.

Technically, this explanation is valid. However, customer frustration often stems from a different question.

The issue is not whether SMS messages cost money to send. The issue is whether banks should continue charging customers separately for them when alternative technologies exist.

As smartphone adoption increases, many customers believe app notifications should replace chargeable SMS alerts in most situations.

When Customer Experience Becomes the Real Issue

Interestingly, the debate is not always about the money itself. Sometimes it is about the experience.

Imagine a customer who decides they no longer want certain SMS alerts. Instead of a simple digital option, they are required to complete forms, visit a branch, or follow lengthy procedures. Even if the financial cost involved is relatively small, the inconvenience can create frustration.

Many fintech companies have built their reputations on eliminating these types of obstacles. Customers can update settings directly within an app, often within seconds.

Traditional banks, on the other hand, sometimes continue to rely on older procedures that were developed long before modern mobile banking became widespread.

This difference in customer experience often shapes public perception more than the fees themselves.

When customers compare a simple fintech process with a complicated banking process, the fintech solution naturally appears more attractive.

Could Banks Offer Free Transfers If They Wanted To?

This question is at the heart of many customer complaints. The short answer is yes.

Banks could choose to eliminate or reduce certain charges if they believed doing so would benefit their business.

There is no law requiring banks to charge customers for every transfer or notification.

Pricing decisions are ultimately business decisions. However, eliminating fees would mean recovering revenue elsewhere.

Banks would need to determine whether attracting more customers and improving customer satisfaction would outweigh the lost income. 

Some banks have already begun moving in this direction.  Competition from fintech companies has forced many traditional financial institutions to improve their mobile apps, simplify services, and reduce some charges.

The pressure is unlikely to disappear. As customers become more informed, they increasingly expect banking services to match the convenience offered by fintech platforms.

How Nigerian Banks Have Responded to Fintech Competition

Competition from fintech companies has already pushed many traditional banks to improve their digital offerings. In recent years, several Nigerian banks have upgraded their mobile banking applications, introduced faster transfer services, improved online account opening processes, and expanded digital customer support.

While customers may still criticise certain charges and procedures, the banking industry has gradually become more customer-focused as fintech competition increases. Many analysts believe this trend will continue as banks seek to retain customers who now have more choices than ever before.

Why Fintechs Have Changed Customer Expectations

Before fintechs became popular, many banking processes were simply accepted as normal.

Customers expected delays, they expected paperwork, as well as fees.

Today, expectations are very different, people expect transfers to happen instantly.

They expect mobile apps to work smoothly, notifications to arrive immediately, and expect transparency regarding charges.

Fintech companies have raised the standard across the entire financial sector.

As a result, customers now evaluate banks against fintech experiences rather than against banking practices from ten years ago.

This shift explains why discussions about fees have become more intense.

What once seemed normal now feels outdated to many consumers.

The Profitability Argument

Another common customer argument focuses on bank profits. Every year, major banks report significant earnings.

When customers see large profit figures, they often ask why fees remain necessary.

The reasoning seems straightforward. If banks are making billions of naira in profits, why continue charging customers for services such as SMS alerts?

Supporters of this view argue that some charges feel less like cost recovery and more like legacy revenue streams that continue because customers have historically accepted them.

Banks, however, would argue that profitability does not eliminate operating expenses.

Profitable companies still face infrastructure costs, technology investments, regulatory obligations, cybersecurity risks, staff salaries, and shareholder expectations.

Both perspectives contain elements of truth. A profitable organisation can still incur substantial costs. The debate over banking fees is not unique to Nigeria. Similar concerns exist in many countries where consumers question transaction fees, maintenance charges, and notification costs. Our article The Hidden Cost of Bank Charges Worldwide and How to Reduce Them explores how these charges affect customers globally and the strategies people use to reduce them. 

At the same time, customers are increasingly justified in questioning whether every historical charge remains appropriate in a modern digital environment.

Are Banks Really Less Efficient Than Fintechs?

This question deserves careful consideration.

Fintech companies often appear more efficient because they are built using modern technology from the start.

Many traditional banks operate systems that have evolved over decades.

Replacing these systems is neither simple nor inexpensive.

A fintech company launching today can design its entire platform around current technology. While a bank may need to integrate modern solutions with older infrastructure that still supports millions of customer accounts.

This does not excuse poor customer experiences. However, it helps explain why banks sometimes move more slowly than fintech companies.

The challenge for banks is balancing stability and innovation.

Customers want the reliability and security associated with established banks while also demanding the speed and convenience offered by fintechs.

Meeting both expectations can be difficult.

What the Future May Look Like

The competition between banks and fintech companies is likely to benefit customers.

As fintech firms continue gaining market share, traditional banks will face increasing pressure to modernise services, simplify processes, and review charges that customers consider unfair.

At the same time, fintech companies may eventually need to adjust their pricing models as they mature and focus more heavily on long-term profitability.

This means the distinction between banks and fintechs may become less dramatic over time.

Banks are becoming more digital, while fintechs are becoming more like full-service financial institutions.

The winner will probably be the organisation that provides the best combination of convenience, transparency, affordability, and trust.

Consumers who understand how banking fees work are often better positioned to avoid unnecessary charges and make informed decisions about whether traditional banks or fintech platforms offer the best value for their needs. 

The question of why banks still charge fees while fintechs offer free transfers does not have a simple answer. 

Fintech companies can often provide free services because they use different business models, lower-cost operations, and alternative revenue streams. Traditional banks, meanwhile, operate within larger and more complex structures that generate substantial operational expenses.

However, the debate is no longer just about costs. It is about customer expectations.

Many customers are willing to accept reasonable charges when they understand the value being provided. What they increasingly reject are fees and processes that seem outdated in an era where technology can deliver faster, simpler, and more transparent solutions.

Whether it is transfer fees, SMS alert charges, or cumbersome administrative procedures, customers are asking a straightforward question:

If better alternatives already exist, why should old practices continue?

As competition between banks and fintech companies continues to grow, customers are likely to benefit from better services, greater transparency, and more competitive pricing. The institutions that adapt fastest to changing customer expectations may ultimately define the future of banking in Nigeria. 

A Note on Bank Charges

Bank charges, transfer fees, and SMS notification costs vary between financial institutions and may change over time. Customers should always check the latest fee schedules from their banks and fintech providers before making financial decisions. This article discusses common practices and customer experiences but should not be considered financial advice.

Frequently Asked Questions

Why do fintech companies offer free transfers?

Fintech companies often absorb transaction costs and generate revenue from other services such as merchant payments, loans, investments, partnerships, and premium features. Free transfers can also help attract and retain customers.

Do banks make money from SMS alert charges?

Banks generally state that SMS alert charges help recover costs paid to telecommunications providers for delivering text messages. However, customers continue to debate whether these charges remain necessary given modern notification technologies.

Are transfers really free on fintech apps?

The customer may not pay directly, but processing costs still exist within the financial system. Fintech companies often absorb those costs as part of their business strategy.

Why do banks still charge some fees when fintechs do not?

Banks typically have larger operational structures, regulatory obligations, branch networks, and legacy technology systems. These factors can contribute to higher operating costs.

Can banks eliminate transfer fees if they want to?

Yes. Banks can choose to reduce or eliminate certain charges. The decision depends on their business strategy and how they plan to recover revenue from other sources.

Why do customers complain about SMS charges for internal transfers?

Many customers feel that moving money between their own accounts should not result in multiple chargeable notifications, especially when fintech apps often provide free in-app alerts.

Are traditional banks losing customers to fintech companies?

Fintech companies have attracted millions of users by offering convenience, speed, and low-cost services. While traditional banks remain dominant, increased competition is encouraging them to improve digital services and customer experiences.

Which is cheaper: a traditional bank or a fintech app?

The answer depends on the type of transactions performed. Fintech apps often provide lower-cost transfers and fewer visible charges, while traditional banks may offer broader financial services and access to physical branches.

Why do banks charge for SMS alerts?

Banks typically pay telecommunications providers for SMS delivery. Some institutions pass these costs to customers, while others encourage the use of mobile app notifications instead.

Are fintech companies regulated in Nigeria?

Yes. Fintech companies operating financial services in Nigeria are generally regulated by the Central Bank of Nigeria (CBN) and other relevant authorities, depending on the services they provide.

Will banks and fintechs become more similar in the future?

Industry trends suggest that banks are becoming more digital, while fintechs are expanding into broader financial services. Over time, the gap between the two may narrow significantly.