What are Digital Only Banks?
Before further exploring Digital Only banks, one must understand the very concept behind these organisations. They are otherwise known as internet-only banks which operate solely on the web and do not have any physical branches. With nearly everything transitioning online in this fast-paced technological age, banking is no except. Such banks focus on providing a simple and convenient banking experience in response to the rapid technological innovations that push the demand of users. The appearance of these organisations reshapes the very nature of banking and the way customers interact with their institutions.
The goal of the essay is to discuss what Digital Only banks are, how they operate, and highlight some of the main benefits that they offer.
Understanding How Digital Only Banks Work
During the past decade, Digital Only banks have significantly altered consumer expectations and, as a result, push traditional financial institutions to adjust to new technological standards. Internet-only banks operate with a fully digital infrastructure that relies on the technology and universal accessibility of cloud computing. The platform is carefully designed to guarantee 24/7 availability and enable constant functionality. Given that the main medium of such platforms is a web application, Digital Only banks concentrate on ensuring the maximum possible safety against any type of the transactional and personal security attacks.
The sign-up of a user account with a Digital Only bank, which can be employed either through their website or application, is a simple and quick process. The procedure also includes a digital form of identity verification and increasingly relies on user’s biometrics or electronic ID. Through these milestones, users can register and start banking in a short time period. The main operations rely on the interactions between the user account and the digital platform of a bank. For these, institutions often rely on AI and machine-learning tools that drive “intelligent customer service systems powered by chatbots and automated service systems”. In these forms of service, any concerns of the customer can be addressed directly without the need for them to travel to the physical branch. On top of this, it provides a comparable host of products with traditional banking.
The Advantages of Using Digital Only Banks
Digital Only banks demonstrate a number of advantages over the traditional method of operation. First and foremost, it is the unprecedented level of accessibility and convenience. With a smartphone or a computer, customers can access all of the services humanity ever had in the past, and directly respond to most urgent service questions, from wherever they have an internet connection.
Menial tasks that a user from the 1950s would have to perform in the physical branch, such as balancing a cheque book, are now obsolete. At the same time, Digital Only banks benefit from a significantly lower financial burden and, as a result, users of such platforms can also observe a decreased level of cost for transactions.
The significant difference between an online bank and a regular one, in terms of operation, lies heavily in the absence of physical branches on which the former does not have to spend any expenses.
Thanks to this feature, they are able to offer lower fees and better interest rates on clients’ deposits than traditional banks. They also offer other benefits, such as complimentary account services, lower rates on loans, and better returns on customers’ savings. At the same time, as these online banks are more focused on security, they also use more advanced technologies designed to ensure security of their customers’ data and products.
Often, these technologies include state-of-the-art biometric security options, such as fingerprint and face recognition which guarantee safety of the clients’ money and accounts better than the conventional methods. Moreover, they usually promote the latest cutting edge automatic tools designed to help people to manage their finances and budget, as well as invest their money properly. Such banks usually offer a variety of innovative and easy to use products catered to the needs of a wide range of people.
As for the regulatory environment of such banks, often it is regulated by the strict licensing and regulatory requirements these online banks have to operate under. This includes a requirement of getting a banking licence from the local government regulator. In order to obtain it, a full audit has to be taken of their financial operations, security systems, and operational framework. In addition, these banks have to conform to many standard and well-established regulations, such as the Anti-Money Laundering and Know Your Customer regulations.
However, not only the traditional regulations are applicable and often vary nation to nation, as digital banks have to adjust to the different legal frameworks in place. This issue is solved by automatic compliance processes known as RegTech solutions, that help to deal with the different legal requirements these banks are subjected to. Moreover, their flexibility perfectly suits their world-wide services, as these online banks can bring simple and quick services all over the globe.
Embracing The Digital Revolution In the Banking Industry
It is anticipated that the future will further belong to the digital with the entrance of online banks in the banking and financial services sector. In a continuously growing digital era, it will be more effective and widely available on a global scale with these banks that will bring their innovative services and products. These innovative services will not be only limited to the tech-savvy individuals, but they will also target markets that have been previously underbanked.
This important trend will mark a fundamental departure from the traditional banking system. The goal of the digital banks will thus be to target the nonbanked section of the population. Indeed, this goal is driven to increase the financial inclusion of the population to access banking services. The innovative banking options offered by these online banks will ensure that more people can access and benefit from their services, which are cheaper and easily accessible, thus enabling more people to partake in the economy.
The arrival of Digital Only banks will also enhance the competition within the market. Traditional banks will be forced to consistently improve their services to be able to compete. This important trend will not only have an impact on customers, as they receive enhanced service and products, but it will also ensure more stable financial facilities.
The Changing Landscape of Digital Only Banks
Communication technology’s advancement has been a key factor in the rise of Digital Only banks. The late 20th and 21st centuries were marked by internet and mobile technology while digital banking has become an intrinsic part of the current era. Specifically, online payment systems, encryption technology, and mobile applications have disrupted the entire banking sector. Consequently, Digital Only banks could operate because of such filling that released the necessity to open and support physical branches.
Several notable facts can be observed while analysing the role of Digital Only banks in the industry. First, the current model of delivering services enabled banks to reduce operational expenses and provide their clients with advantageous rates and fees. Second, the current institutions can be considered game changers in the industry compared to the prior model that heavily relied on branch networks.
The increased networking also required a significant amount of physical infrastructure and supplementary services, not to mention staff. Meanwhile, the new model employs cutting-edge technology to provide customers with extraordinary services skipping all the aforementioned elements.
Therefore, the new model of Digital Only bank services proves the extended reliance on technologies and the fast adaptation of the industry to the introduced capacities.
Digital Only Banks Are the Norm of the Future
The rise of Digital Only banks is closely tied to the rapid development of communication technologies. Currently, completely virtual banks have set high standards for the entire sector focusing on higher operating performance and ultimate user convenience.
The employment of cutting-edge technologies and the incapacity to open brick-and-mortar branches have overturned the traditional perception of financial service operation and use. Consequently, the services are being digitised to an extent where banking is as easy and convenient as a smartphone.
As a result, customers adhere to these new institutions that not only change but prompt other significant changes in the financial technology sector, thus, entirely altering the financial routine. The combination of the latest and the most novel solutions with the strongest security measures fostered by the growth of constantly changing threats defines the longevity of the industry in the light of the current inconceivably fast speed of digitalisation.
