Each year we get to see all sorts of different advances and innovations being made across every kind of industry. Especially an industry as hot as FinTech, where even the traditional banks are trying to stay ahead of the curve of their competitors with modern digital applications and platforms.
As time advances, the convenience and digital security of banks become increasingly important for its users, as being able to manage your finances from anywhere in the world at a moments notice is now something that a lot of people have to come to expect and rely on.
With this in mind, you may have come to hear about digital-only banks and their rather recent trend and uprising.
What are they exactly?
Digital Banks are exactly as their name suggests, they are banks that exist entirely online with no physical branches for you go to. Other names for digital-only banks include; direct banks or sometimes a branchless bank. So, you’re probably thinking, well what is the difference between these digital-only banks and traditional banks that already have a large online presence with mobile apps and digital platforms? Here’s an excerpt from an article about digital only banks :
Digital-only banks are technology-first and mobile-first, so their R&D mentality and rate of churning out new features and functionality for their customers are innately different. Updates don’t have to be developed for and rolled out across legions of legacy infrastructure, so they can be more continuous, frequent, seamless and innovative.
With that being said, digital-only banks are essentially the same as banks. They offer most of the same standard services that a traditional bank would offer, although their focus is more oriented towards customer service and the technology behind their business and their user experience.
In fact, direct banks aren’t as new as most people would think, with some of the first online-only banks appearing in the early to mid-90s during the uprising of the internet. First Direct is just one of the several digital-only banks that first appeared in the 90s.
I think it’s also worth saying that digital-only banks go through the same hurdles as traditional banks when it comes to the legal requirements, certifications and the like. I mention this because a lack of trust and security is a common concern amongst the public who prefer sticking to traditional banks.
I think many believe that these online-only banks perceive them to be “not real banks” and that they must not be as secure or as reliable as other more traditional banks with physical branches.
Why the recent trend and uprising?
Since digital-only banks have been around since the mid-90s, why is it only in the past few years that a trend has emerged? I believe this is due mainly to the ever-increasing importance of technology. In this modern day; the convenience of everyday things in our life is so vital that every minute wasted counts. And I believe we’re at a point where most people have come to expect a certain level of functionality from their banks, such as at the very least having a mobile app where they can manage their finances every day.
If you were to google; “digital-only banks” at the time of this article being posted, the first top 5 search results are all articles about:
“The rise of digital banks”
“Why digital-only banks pose a real competitive threat”
“25 digital-only banks to watch”
In fact, I only saw 1 article in the first 2 pages of google search results that talked about how these direct online banks are losing their appeal.
If you skim read some of these articles, you’ll notice that most of them will mention the usage increase of FinTech related mobile apps and software over the past decade, especially amongst younger adults. And really, I believe that is the number 1 reason regarding the recent trends as tradition banks have only just recently really began to focus and pour resources into their mobile apps and user experience departments.
And all of this is healthy! I believe that the digital-only banks are creating a sense of urgency regarding online capabilities and functionality of digital banking, thus indirectly causing everyone in the industry to up their online game.
Now, there are actually quite a number of direct banks out there, so let’s make things a tiny bit easier for you and end this short article with The Financial Brand’s list of the top 25 direct banks. Their list is well constructed, consisting of digital-only banks that are more than just a mobile app for a traditional bank, and can help you figure out which direct bank is the bank for you.
Cover illustration artist Sportin-Life, DeviantArt