Digital banks are the future, learn about the online banking solutions

Friday, April 17, 2020

Millions of people are already using them. People from all over the world are making the most of their services. Yet despite the level of product they offer, digital banks are not yet mainstream, although they are close.

Like so many other parts of our lives, the internet has revolutionised the banking sector. But money and banking institutions are some of, if not the most, embedded cornerstones of our society. As such, the digital bank still has a long way to go before it is the new norm. But everything is pointing in that direction.


But just what are digital banks and what services can they provide? This article will go into more detail and talk about some of the products and providers on offer.

What are digital banks?

Digital banking is the migration of banking services to digital ecosystems. It allows for a higher level of service for customers, who are able to access their banks more frequently and conveniently. There are other benefits to digital banking, including cost-efficiency and security as well.

There are a number of fintech startups that have become real challengers to the banking institutions in recent years. For traditional banks to keep and not lose ground to these new entrants they will have to go through a two step process. First is the digitisation of their physical system. Once a bank is completely digitised, they can begin the second step of digitalisation, which allows for the technological advances of recent years to aid in the company’s processes and provide new areas for growth and improvement.

Why are digital bank services the future?

As mentioned, moving a bank to a digital format has multiple benefits around security, costs, and customer service. To make the most of the emerging technologies that will continue to develop our society, a bank must be plugged into the digital ecosystem that can facilitate these emerging technologies.

Aided by advanced data and analytics, artificial intelligence, and APIs, financial services will incorporate themselves more seamlessly into everyday lives. Mobile and online banking will continue to become more popular as people’s lives become even more dependent on the internet.

In many ways, these new fintech institutions have a head start on the older physical banks. They don’t have to digitise their systems, instead they can be built bespoke around the latest technology and not around archaic systems. While traditional banks have the strengths of financial weight and a loyal, trusting customer base, the weight of their organisations means they might struggle to adapt quick enough to capitalise on new market demands.

Neobanks

A neobank is a bank that is completely and totally digital. No physical branches are used for customers to interact with their provider, instead apps and online platforms are used to provide customer support.

Many of the fintech startups of recent years have been Neobanks. Most began life with an e-Money license which is authorised by the FCA in the UK. However, their continued success has meant they are developing beyond this fence and are either applying or have applied for full banking licenses.

Some of the most prominent Neobanks in recent years have been:

  • Chime
  • N26
  • Revolut
  • Monzo
  • Crypterium
  • Nubank
  • MoneyLion
  • Ualá
  • Starling Bank
  • Tandem

2019 was a big year for challenger banks, with the highest amount of fundraising ever in this sector. In 2019 alone, more than $100 million was raised for twelve banks. This means that these institutions were given enough funding to try to expand their services wider and take on more of the global market.

There are a few reasons these new banks are doing so well. Most revolve around improved customer service, user-friendly interfaces, transparent fees, priced competitively, and spending data that is available for analysis - amongst others.

It seems that the financial crisis of 2008 paved the way for the emergence of new banking institutions. Many people in populations around the world lost trust and faith in the banking sector to act responsibly and look after the best interests of themselves and society. This created a space for new entrants to the market, when the technology was ready. This combination created a strong foundation for neobanks to stake their claim to the digital banking realm. While the old institutions are still very much part of the equation, if they are unable to adapt as quickly as the new fintech organisations, they may well become a part of the past, not the future.