Lately, everything digital is expanding; the same goes for the banking sector. Whether or not you’re planning to open a digital bank account, you might want to know the differences between traditional banks and their online counterpart.
The digital banks: an introduction.
First, it’s good to know that digital banks have more ways to name them: challenger, mobile, online– or neobanks are all different names attributed to these online money storage institutions. This article overviews the main differences between mobile and traditional banks in customer service, branches, fees, ATMs, utility, investing, and more. Whether you’re reading this article out of pure curiosity or choosing where to open your next bank account, let’s have a closer look at the main differences between these two banking methods.
There are a lot of financial features that ordinary banks offer, such as:
- Loans of all kinds
- Certificates of Deposit
- Credit cards
- Savings account
These are but a few services offered by traditional banks. But what matters is that, unfortunately, digital banks don’t provide all these services. It must be mentioned that some online banks offer some of these features, but the possibilities of finding a bank that provides all of them are pretty low. But let’s look at the challenger banks’ primary services.
Usually, the basis of opening an account in an online bank comes with a simple checking account. It may come with an interest rate if you want to open a savings account. But this is not always the case since it depends on the institution.
Usually, mobile banks also offer foreign exchange and money transfer services. Talking of digital banks’ pros, some even provide multi-currency accounts.
Usually, digital banks do not insist on giving their clients credit cards. But some of them still do that. Still, some mobile banks adopt this old technique of distributing credit cards to their clients, thus, earning more as an institution.
You can quickly get a loan or a mortgage from a traditional bank. Of course, you have to have the proper requisites, but the established initiations at least offer this service. At the same time, very few digital banks can give their clients the possibility of even asking for a loan or a mortgage. In fact, since the service range of most online banks is quite limited, they often do not offer this service.
It is not an easy path for a bank to be able to offer a financial service, especially the most highly sophisticated ones. Therefore, most of them lack the abovementioned facilities or just offer them in a limited quantity. But, it must be mentioned that millennials and Gen Z make up most of the clients of neobanks. So, their clients usually do not require highly sophisticated financial services and are OK with easy money transfers or a spending account.
Traditional banks ask money for almost everything, while online banks have zero or no fees. Traditional banks may load costs for operations such as:
- Monthly checking service fee
- Transfer from savings
- Monthly savings maintenance fee
And this is not even the complete list of fees. A significant part of the income in traditional financial institutions usually comes from overdraft fees.
On the other hand, mobile banks usually do not require a monthly maintenance fee or minimum deposits. They also have free peer-to-peer money transfers, and ATM withdrawals are generally free.
However, they do make money from sources called interchange fees. Those fees are usually small amounts of money that the mobile banks earn every time, whether an online or in-store transaction is made. These amounts may be tiny, but they still make up a significant number.
And besides, the digital banks do not have offices to pay or to buy. The same goes for supplies of all kinds and, of course, the personnel. That is how they keep their fees so low.
The negative side
But this represents the only negative side of their system: the client service. Of course, in a traditional bank, you can either call or go there in person, but when it comes to a bigger problem, which is difficult to solve via phone or email, it may come in handy to have an office to go to. And, of course, in this case, traditional banks have the best.
This article was written by ACS – ASOMI College of Sciences. If you’re interested in banking or financial education, check our courses out by clicking here.