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What Is Digital Banking: Everything You Need to Know

Digital banking is revolutionizing the way we manage our money while offering convenience, control, and a world of financial freedom – all at your fingertips. To deliver this seamless digital experience financial institutions partner with banking software development companies to create secure and user-friendly platforms.

Well-known digital banks like Revolut Fidor, Simple, N26, and Monzo allow customers to quickly open an account on their phone anytime, anywhere. But digital banking extends beyond just online banks. Throughout the past ten years banks that have created internal digital bank offshoots have maximized profits and slashed operational expenses by up to 70%. But before we delve deeper, let’s establish the fundamentals.

What is a Digital Bank?

A digital bank is a bank that conducts business online and provides its customers with the services that were previously only available in person at a bank branch.

What Does Online Banking Entail?

Digital banking refers to the conversion of all conventional banking products processes, and activities to serve customers via online channels.

What Exactly Are Digital Banking Services?

Most commonly, they include the following actions and activities (all the traditional banking services that can be accessed 24/7 on mobile devices computers, and compatible smart devices without requiring a customer’s visit to a bank branch): 

  • Acquiring bank statements 
  • Cash withdrawals 
  • Transferring money 
  • Checking/savings account management 
  • Opening a digital bank account 
  • Loan management 
  • Bill payments 
  • Check management 
  • Monitoring transaction history 

Clearly, digital banking software makes all traditional services more obtainable comprehensible and manageable.

This approach allows us to experiment with digital banking risk concepts before integrating parts of the old traditional business into the new system. Well-known examples include Goldman Sachs’ Marcus, RBS’ Bó, and State Bank of India’s YONO which acquired more than 26 million customers and achieved profitability within 18 months.

Digital Banking: Benefits for Users

As competition in the banking sector grows digital banks offer several key benefits:

Cost savings

Digital banking software streamlines back-office processes, reducing operating costs for banks. This translates to potentially lower fees for consumers compared to traditional banks.

Improved usability

Digital banking simplifies account opening and access for customers. KYC and AML protocols allow for quick online account creation, while 24/7 availability provides anytime, anywhere banking convenience.

Greater personalization

AI and machine learning power personalized experiences within digital banking apps. Customers receive relevant financial options, tools, and educational resources based on their needs.

Unique features

Digital banks often offer features not found in traditional banking, such as cryptocurrency and stock market investments directly within their apps. Additionally, mobile and online banking allows for self-service management of security settings, transaction limits, and payment methods.

Online banking vs. Digital banking: are they identical?

While the two terms might sound like synonyms, there are actually key distinctions between digital and online banking.

Online banking includes only some transactional features of the underlying core banking system. Online banking is typically accessed through the web and provides basic banking functions such as account management and statement access. The abilities of an online banking system are restricted and cannot be quickly expanded to provide extra banking services to consumers.

Digital banking systems are much more adaptable and allow banks to add and expand features much faster than conventional systems. Digital banking relies on high-level process automation, web-based services and APIs to provide banks and their customers with high levels of cost efficiency, security and flexibility. Modern banking solutions enable a fully digital customer experience, generating real-time data streams and accelerating key analytics.

There’s one more term frequently confused with online and digital banking – mobile banking. It can be defined as a service provided by an existing bank to its customers enabling them to perform transactions via their mobile devices, without the need to visit a bank branch.

So, out of the three concepts, digital banking is a much broader one. It is safe to say that it’s made up of a combination of online and mobile banking.

Digital Banking Statistics

Statista predicts steady growth in the digital banking industry over the next five years. This trend signifies the continuing development and expansion of digital banking services for the foreseeable future.

The rise of digital banking is mainly fueled by the growing use of digital technologies and evolving customer preferences. Customers are increasingly gravitating towards digital channels to manage their finances. Modern digital banks are capitalizing on this trend by offering quick and user-friendly mobile and online banking services tailored to consumer needs.

The types of digital banks

While most people recognize the terms “neobank” and “challenger bank,” differentiating between them can be confusing. Let’s unpack this and delve into the key types of digital banks.

Neobank

A neobank is a fully online digital bank with no physical branches. It offers customers remote access to its features through a mobile app. Many neobanks lack a banking license and collaborate with established banks for licensed operations (meaning their customers might need an account with the partner bank). Neobanks frequently provide a limited selection of services compared to licensed banks.

Challenger bank

Coined in the UK, this term refers to a recently established bank that disrupts traditional institutions. With a focus on user-friendliness and affordability, challenger banks target customer groups neglected by major financial players.

New bank

These are fully licensed banks offering all the usual banking services. Their only distinction from traditional banks is their entirely online operation.

Nonbank

As the term suggests, these are institutions outside the traditional banking sector. They provide specific financial services, like simplified loans or mortgages, but don’t accept deposits or offer checking and savings accounts at the same time. Some nonbanks, like Monese, function with EMI (Electronic Money Institution) licenses.

Conclusion

Digital banking provides a user-friendly and secure method to manage your finances on the go. With an array of digital banks available you can select one that aligns with your requirements and interests. Whether you seek a well-established bank with a digital interface or a challenger bank offering groundbreaking features, digital banking can equip you to steer your financial well-being.

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