Revolut, Fidor, Simple, N26, and Monzo are just some of the well-known digital banks that allow customers to open an account on their phone in minutes, whenever and wherever they want. But digital banking is not limited only to online banks. Over the past decade, banks that have created internal digital bank spin-offs optimized revenues and reduced operating costs by up to 70%.
What is a digital bank?
In layman’s terms, a digital bank is a bank that operates online and provides its customers the services that were previously available only at a bank branch.
What is meant by online banking?
Digital banking involves the digitization of all traditional banking products, processes, and activities to serve customers through online channels.
What are digital banking services exactly?
Most frequently, they include the following operations and activities (all the traditional banking services that are available 24/7 on mobile phones, computers, and compatible smart devices, without the need for a customer’s presence in the bank branch):
- Obtaining bank statements
- Cash withdrawals
- Transfer money
- Checking/savings account management
- Opening a digital bank account
- Loan management
- Bill payments
- Cheques management
- Transaction records monitoring
Obviously, digital banking software makes all traditional services easier to access, understand and manage.
This approach allows us to test digital banking risk concepts before moving parts of the old legacy business to the new system. Notable examples include Goldman Sachs’ Marcus, RBS’ Bó, and State Bank of India’s YONO, which gained more than 26 million customers and reached profitability within 18 months.
Digital banking vs. online banking: are they the same?
Although the two terms may seem interchangeable, there are actually fundamental differences between digital and online banking.
Online banking includes only some transactional functions of the underlying core banking system. Online banking is typically accessed via the Internet and provides basic banking functions such as account management and statement access. The capabilities of an online banking system are limited and cannot be quickly expanded to provide additional banking services to consumers.
Digital banking systems are much more flexible and allow banks to add and expand features much faster than traditional 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 journey, 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.
The benefits of digital banking for consumers
As more and more digital banks enter the market, it is important to understand how modern digital banking solutions enable them to offer better and cheaper services than traditional competitors. Here we highlight the most essential advantages of digital banking:
Cost savings
Traditional banks invest a lot of time and resources in checking and accounting. By eliminating redundant back-office processes, digital banking software significantly reduces operating costs. Digital banking systems remove a lot of work from banks by automating the processes associated with daily financial transactions. Digitization reduces the number of steps and people involved in transactions, reducing the risk of costly financial errors.
Improved usability
Integrated KYC and AML protocols enable digital banks and customers to open accounts within minutes from any internet-enabled device. ID Verification systems and risk assessments enable banks to serve customers quickly and easily, allowing people who are not bank customers to access financial services. A major advantage of personal banking is that it is available 24/7. This means that customers can carry out any transaction from anywhere and access a wide range of services.
Greater personalization
Digital banking software enables sophisticated personalization strategies powered by artificial intelligence (AI) and machine learning (ML). Banks can offer customers relevant financial options, interactive tools, and educational resources at the right time. Automated budgeting, spending analytics, savings reminders, and many other tools help inform and engage customers.
Wow-features
Digital banks already have many features that established banks simply cannot offer, such as buying cryptocurrencies and gold or investing in stock markets directly in the banking app. Mobile and online banking customers can instantly change their security settings, and transaction limits, and even specify whether or not they want to enable NFC or magnetic stripe payments.
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