Over the last five years, fintech companies have disrupted a handful of industries. This has been a massive blow to traditional banks. With the ability to open and use a bank account in minutes, digital banks were fully prepared for the pandemic.
Despite the closures of physical branches, many people still wanted to bank online because they could do banking while watching TV. Many established banks and startups agree that digital banking is the future of banking.
What Is a Digital Bank?
Digital banks are also referred to as online, challenger, virtual, neobanks and mobile banks. These companies are financial technology firms that do not have a banking license and are required to use a partner bank to provide various banking services.
Although digital banks can offer various financial services, they usually do not provide loans or mortgages. They also have to differentiate themselves from traditional banks’ mobile apps and online accounts.
Inherently, digital banks have no physical branch locations or thousands of employees. Instead, through providers like SoFi, digital banking is the clear choice in banking. According to the experts at SoFi Invest, their mobile banking app offers “no overdraft fees, no minimum balance fees and no monthly fees.”
Reasons Mobile Banking is the Future
- The Pandemic
When the pandemic hit, it was important that businesses quickly adapt to the changes brought about by the outbreak and lockdowns. Since people didn’t want to be surrounded by others, it was easier to bank using digital platforms instead. Unfortunately, many of the apps available from traditional banks are not geared toward the younger generations. Some of them are very clunky and lack the mobile banks’ features.
- Easy to Use
One of the main reasons people choose to open a digital bank account is the ease of using it. It’s so simple to sign up and start using it that people rarely have to wait for approval times. Aside from being easier to use, digital banks also allow people to send money to their friends and family using their phone numbers or email address.
One of the most valuable features that digital banks offer is the ability to monitor and manage your money. It helps keep track of your spending habits and activities to prevent over-spending. Having a complete picture of your financial activities can help you make better financial decisions.
The fees charged by traditional banks are typically higher than those charged by digital banks. However, digital banks usually don’t have fees for most activities. The easiest way to avoid getting charged by the big banks is to open a digital banking account. In addition, numerous digital banks cater to different regions such as the US, UK, Australia and Asia.
Most digital banks make money from the fees they collect from merchants when they accept credit and debit cards. These fees are typically a small percentage of the transaction’s total value. Both online-only and established banks can make money from the fees they collect from merchants. However, traditional banks still make money from overdraft fees and credit card charges.
- Low Overhead
Instead of going to a website or calling a bank, you can do most of your banking activities through a mobile app or a desktop browser. Unlike traditional banks, digital banks do not have physical branches. Instead, they rely on technology to provide their customers with various financial services. The bad news about digital banks is that they don’t have as many staff members and branches as traditional banks. However, this allows them to save money and transfer the savings to their customers.
Mobile banking offers a lot of benefits to most users. Compared to traditional banks, digital banking has more promise for the future.