Will Digital Banks Become the Future of Banking?
Digital-only banks have already taken the banking world by storm and aim to become the future of banking. The digital-only banking model offers a number of advantages to customers and banks alike, making it an attractive choice for both.
They provide customers with convenience, a wide range of features, cost savings, and security. With these benefits, it’s no wonder that digital-only banks are becoming increasingly popular.
In this blog post, we’ll explore why digital-only banks are the future of banking and why they are becoming the go-to choice for customers.
What are digital banks?
Just what a digital-only bank is is different depending on who you ask. In an article for Forbes, E. Napoletano and Daphne Foreman recognize a digital bank as a combination of online and mobile banking. Online banking allows access to your bank accounts through your bank’s website or digital portal. This portal is where you can pay bills, apply for new cards, and open or close accounts. You can handle almost all of your banking needs without leaving your home.
Mobile banking means downloading an app to access those banking features. Often the app has the same login and password as your online banking portal, but the mobile app is designed to be used on a smartphone. Mobile banking tends to help customers complete the most common tasks like depositing checks, transferring money to different accounts, or locking an account remotely if they lose their bank cards. Most mobile banking apps send notifications, news, or alerts such as suspicious activity to users as well.
Some digital banks such as Wise or Revolut specialize in money transfers and currency conversions that are cheaper than traditional banks. This is a major improvement that streamlined operations affords.
Digital-only banks rarely have physical branches and forgo the more complicated lending services that require a large team of employees. They are often called neobanks, challenger banks, online, virtual, or mobile banks.
Digital transformation in the banking industry
There is no doubt that digital competitors have disrupted the finance industry. What was once just a few major players in mobile banking has now spread globally. There are dozens of digital banking apps, and all major banks have some form of online banking. Not to mention online stock investing mobile apps like Robinhood, an all-digital stock brokerage account, that has out-competed its competition with its easy-to-use interface and “no fees ever” model.
Of course, the banking industry has undoubtedly had to become more accessible, inclusive and have a clearer message to engage its customers. However, some of the larger banking systems view their solely digital counterparts as a good marketing strategy for a high-yield bank account. Anyone with some amount of considerable monetary assets would look to traditional brick-and-mortar banking to help optimize those assets. Also, traditional banks can offer services that digital banks can not — retirement plans, mortgages, and investment options.
Are digital banks on the rise?
Mobile banking might be here to stay. Peter Polini, banking and capital markets consulting leader at PwC says that “Mobile banking has already overtaken all other banking channels in popularity, as roughly one in four bank customers now say mobile apps are their top choice for conducting banking activities.” In 2022 alone, four digital banks raised more than $1 billion to launch their lending services to a global market. Additionally, the FDIC reported that 34% of Americans used mobile banking as their primary way to access their accounts in 2019. Which is a clear sign that mobile banking is on the rise.
Digital banks — the future of banking?
Some form of digital banking is here to stay with many consumers preferring digital banks over traditional ones. Even though digital banks don’t offer the most financial services, they do offer many other services. For one, digital banks are very easy and convenient to use. Access through desktop and mobile apps allows you to check on your accounts or even pay your bills regardless of the hour.
Ease of use
Banking apps through digital banks are easy to use because they allow users to control their finances from one centralized location. They allow users to easily transfer money, pay bills, check account balances, and more, all from their phones. These apps also provide users with real-time updates on their accounts and transactions, which helps them stay on top of their finances.
Additionally, banking apps are often designed with intuitive user interfaces that make it easier for even novice users to quickly learn how to use the app. All of these features make banking apps a convenient and user-friendly way to manage finances.
Of course, there are a few drawbacks when it comes to digital banking, however. Access to accounts relies on having access to your phone. If you were ever to lose or break your phone, there are no physical locations you could use while securing a phone replacement. Loss of an internet connection or power would also render banking apps useless.
Although developers do a really good job creating easy-to-use apps, elderly or non-technical users may fall behind a learning curve.
For anyone considering mobile banking, be sure to inquire about FDIC or NCUA insurance if you’re in the U.S., or another form of deposit insurance elsewhere. There are banking apps that don’t offer insurance on your assets.
Digital-only banks provide a number of features that make them an attractive option for the modern consumer. They offer features such as no monthly fees, competitive interest rates on deposits and the ability to manage your finances through an app.
This makes it easier to stay on top of your finances and can save you money in the long run. Digital-only banks offer more flexible access to your money, allowing you to make and receive payments quickly and securely. This makes it easier to send money to family and friends and to pay bills on time. Finally, digital-only banks are often more secure than traditional banks, as they provide additional layers of security and encryption to protect your data and funds.
Security and crisis readiness
Digital-only banks are more secure than traditional banks because they are not subject to the same physical security risks. Digital-only banks don’t have physical locations, meaning that data is not stored on-site and is not vulnerable to theft.
Moreover, digital-only banks use advanced security measures such as encryption, two-factor authentication, and biometric recognition to protect customer data, making them more secure than traditional banks. With digital-only banks, customers can rest assured that their data and money is safe and secure. AI-powered fraud detection is another key benefit of digital-only banking security.
As for crisis readiness, many industries had to react quickly when global lockdowns started to shutter physical businesses and force people to work from home. In order to stay afloat, it was crucial to go all in on rapid digitalization.
Digital banks had already started to disrupt the banking industry, but the number of users still wasn’t satisfactory. When the pandemic hit, many people were either not allowed to leave their homes as much or simply didn’t want to. No one wanted to be standing in line at the bank, surrounded by people, even if social distancing measures were followed. It was much easier to open a digital bank account online and bank as usual.
Competitive interest rates
Another benefit of having a mobile bank account is the higher interest rates on deposits they offer. Until recently, most traditional banks were offering a savings account rate of less than 1%. Currently, the average in the U.S. is 0.24%. Of course, inflation and higher interest rates from central banks have encouraged brick-and-mortar banks to increase their interest as well, however meager.
Mobile banks in November of 2022 are offering savings rates approaching 4%. Lots of factors go into why traditional banks can’t match these rates, but ultimately it boils down to operating costs. With more physical locations, expenses for the property, building repairs, employees, and so many other factors make it impossible for brick-and-mortar stores to shell out savings accounts with attractive interest rates on savings accounts.
At the forefront of innovation, the digital banking software is revolutionizing the way banks are able to provide their customers with personalized, cutting-edge financial solutions. This means that banks can now offer their clients interactive tools, educational resources, and valuable investment options — all from within the comfort of their own mobile app.
Among the many benefits digital banks offer, automated customer support is one potential benefit. As chatbots and AI-powered customer care improve, this will cut the cost of operations while solving some of the most common customer service issues. Banking has, of course, been automating some of its services since the ATM and web-based banking, but mobile banking promises to further automate key services. Opening accounts, resolving customer problems, and detecting fraud are some of the many features modern banking has begun to offer.
Digital banking is quickly becoming the future of banking. In an age where technology is advancing at a rapid pace, digital banking is becoming increasingly popular. Digital banking provides a wide range of advantages compared to traditional banking, such as convenience, cost savings, and improved security.
With digital banking, customers can easily access their accounts from anywhere, making banking easier and faster. Digital banking offers customers a more secure experience with better fraud protection. Customers can also take advantage of the cost savings associated with digital banking, such as the ability to make payments without incurring fees.
Finally, as digital banking progresses, the ease of use, competitive interest and security will continue to attract new users, leading to greater market adoption. The future of banking is digital.