Digital Banking

What is digital banking?

Digital banking refers to using digital technology to perform banking-related tasks. Many banks offer these services through their website, a mobile app, or both. People turn to digital banking to access their accounts and complete banking from anywhere. Some activities include transferring money, depositing, and applying for a new credit card.

Digital banking platforms facilitate customer interactions and allow banks to offer digital financial products to a wider range of clients. Banks rely on digital banking platforms to offer digital banking services across multiple channels while providing excellent customer service. 

Types of digital banking services

The only two things a customer needs are an internet connection and a device to access these services. Below are some common examples of digital banking services customers use.

• Access and review bank statements. With digital banking, customers can quickly access their past bank statements and review transactions posted on upcoming statements. Not only can customers see the most recent ones, but they can typically find historical records quickly as well.

• Make online bill payments. Digital platforms make it easy for individuals and businesses to pay utility bills like electricity, gas, water, and rent. These applications also send reminders to customers to ensure they know the due dates. 

• Open a new savings account. Thanks to digital banking, it’s easy and fast to open a new savings account. Individuals can browse and find a suitable interest rate, apply to open an account, and access the account via a mobile app or desktop once approved. 

• Transfer funds. The digital landscape opened up new transfer methods to anyone worldwide without sending or issuing a paper check. The seamless transfer of funds makes it easy to make purchases without being physically present. 

Types of digital banking payments

Digital banking has various methods and technologies to facilitate transactions. Some of the typical types of digital banking payments include the following:

• Mobile wallets. Apple Pay, Google Pay, and Samsung Pay are examples of mobile wallets that let device owners store their debit card, credit card, and loyalty card information securely on their smartphones. They can use this information to make contactless payments at tap-to-pay registers and other scanners by tapping their phones or using biometric authentication (e.g., fingerprint or facial recognition). 

• Mobile payment apps. Venmo, PayPal, and Zelle make it easy for users to send money to friends, family, or service providers instantly using the mobile app. Users simply link their checking account or debit card information to their mobile payment app to quickly make payments and pull funds directly from their accounts or cards. 

• Digital payment plans. “Buy now, pay later” (BNPL) is a type of digital payment plan that has gained popularity. These programs provide customers with flexible and convenient options for purchasing without paying the total purchase amount upfront. Consumers get immediate access to the product and pay in installments, generally with no or low interest. The consumer’s payment information is securely stored by the BNPL provider, such as Affirm or Afterpay, and payments are deducted automatically using the desired payment method.

• QR code payments. Some merchants and service providers use QR code payments to offer a quick and easy contactless payment option. The QR code includes the provider’s payment account details. The customer scans the QR code with their smartphone, reviews the payment details, and authorizes the transaction via a mobile wallet or mobile payment app.

Benefits of digital banking

Digital banking offers numerous benefits to individuals, businesses, and financial institutions, making it a great option compared to traditional brick-and-mortar banking. The undeniable benefits include:

• Ability to access accounts 24/7. Digital banking and mobile banking apps provide customers with round-the-clock access. Customers can manage their finances anytime from anywhere without visiting a physical bank location. 

• Real-time monitoring capabilities and financial planning features. Digital banking lets customers view their account balances and transactions in real time. Customers have better control over their finances and constant insights into where their money is and where it’s going. Additionally, many digital banking platforms provide the functionality to give insights into spending patterns and financial goal tracking for a more comprehensive financial management experience overall. 

• Robust security precautions. Digital banking platforms offer enhanced security measures to protect customer data and accounts. Multi-factor authentication, biometrics, encryption, and rapid fraud detection notifications make up some of the most popular digital banking security features. 

Drawbacks of digital banking

While digital banking offers many benefits and features that customers can’t take advantage of at physical bank locations, it’s not a perfect solution for everyone. Disadvantages of digital banking include:

• Technology-related service disruptions. Digital banking relies on technology access and internet connectivity. Network issues, app glitches and updates, and blocked access to a bank’s servers can momentarily prevent customers from being able to use their accounts. While some technology-related disruptions may be planned, there’s always a risk of unpredictable disruptions that cause extended and unforeseen delays. 

• Potential for hidden charges. Some financial institutions may tack on hidden fees to monthly bank statements. Unexpected and unexplained costs may frustrate customers and lead to distrust. 

• Security risks still exist. Despite enhanced security measures on digital banking platforms and apps, customers risk unauthorized or fraudulent transactions. Online data can be vulnerable to phishing, identity theft, cyberattacks, and other cybercrimes that compromise sensitive financial information. 

Learn more about digital transformation in banking and the shift from traditional to online banks.