Are Digital Banks the Future of the Banking Industry?

Shalom Solomon

Have you ever needed to withdraw or deposit cash in a bank but then, the thought of standing on long snakelike queues tire you out?
Well, banks have noticed this discomfort too. And in a bid to serve customers better, they began to offer services using Automated Teller Machines (ATM) for withdrawal, then moved on to mobile banking through apps and now USSD codes. 
This integration of banking activities with tech led to the creation of a relatively new trend in the fintech industry, Digital Banks. 
Digital banks tag themselves the bank of the free, basically offering freedom to their customers.

So what are Digital Banks?

Digital banks are known by quite a few other names such as, online banks, neobanks, direct banks or Internet only banks. They are exactly what their names imply, simply banks without a physical base of operations or location. So, basically they offer similar services as the traditional brick and mortar banks such as GT Bank or UBA.

Are digital banks the same as Mobile/online banking?

There is often a bit of confusion one the issue of digital banks and mobile/online banking. Are they the same thing? Well, No.
Digital banks are first of all not linked at all to a traditional brick and mortar bank. And they can only be accessed via the Internet hence the name Internet-only bank.
Mobile or online banking on the other hand is an extension of a brick and mortar bank's services. So, your First Bank or Zenith Bank mobile app is not a digital bank.
So, having established the difference between digital banks and mobile/online banking, what are the benefits and shortfalls of digital banks? Let's call them Pros and Cons of Digital banks.

Pros of Digital banks

Digital banks hold freedom of transaction as their highest advantage, but specifically, the benefits of using digital banks are:
Less Fees
Since they do not have physical locations, maintenance costs would be relatively low for digital banks. Consequently, they charge less or in some cases nothing for transactions and operations compared to brick and mortar banks.

Higher Interest Rates

Digital banks have higher interest rates compared to the traditional banks. Some have an interest rate of up to 15%. The traditional brick and mortar bank with the highest interest rate in Nigeria is Stannic IBTC with it's Maximum Yeild Savings Account introduced in 2019. They offer an interest rate of 6.2% with terms and conditions. Basically lower than the average interest rate of digital banks.

Convenience

One of the benefits digital banks offer their customers. You can carry out transactions from anywhere so long as you have access to the internet. You bank at your convenience.
Ease of Access
Using a digital bank, you can carry out transactions at any time of the day. That means they are fully operative at all hours of everyday, 24/7. There is no need to go physically to a branch or office to open an account, withdraw or transfer money.

The Cons

No Face to Face Services
Although digital banks offer quite a number of benefits over traditional banks, the imporatance of personal relationship cannot be overlooked. The nature of some complaints at times also require face to face interaction. Customers would not be able to develop or connect with the staff of a digital bank on a personal level. 

Deposits

There is the issue of deposits. Basically, the easiest way to deposit money in a digital bank is by making transfers from a physical bank. Since there is no physical base of operations or branch, making deposits to a digital bank account can be a bit difficult without transfers. Especially in Nigeria where we have few ATMs that accept cash deposits.

Services

Digital banks do not offer all the services a traditional bank offers. A majority do not offer loans, budgeting or bonus packages for long term customers. Basically the major advantage they have over physical banks is low fees and high interest rates.

Conclusion

Digital banks are hopefully the future of banking. Here is to a future where we would not need to stand in long queues at the bank anymore.
Thanks for reading :)

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