What is digital banking? our guide to the future of financial services

Digital banking is the natural development of financial services and banking in a digital world. As more services adopt digital infrastructure for the majority of their operations, customers begin to expect digital services from new products. Food delivery companies benefited hugely from simplistic interfaces and well-connected delivery services, fitness subscription apps eliminated the admin of joining gyms, and being able to sift through endless music libraries has changed the way we listen to music.Banking is no different. Digital infrastructure revealed that banking could adapt to the needs of small business owners, families, individuals, investors, and others who wanted more from their banks. Because of this, expectations changed. In this post on what is digital banking, we’ll go through the whole concept: what it is, how it began, what are its benefits, and what you get when banking with Qonto. 

It’s easiest to understand digital banking by contrasting it with the requirements of traditional banks. In traditional banking, customers have to go through red tape (bureaucracy) to establish and maintain their banking account: 

Digital banking removes the need for all of this. Instead of forms and branch visits, customers use their smartphones and other devices to handle everything. Establishing your identity to open an account can be done via video call and requires only a passport, 24/7 customer services is available on chat features, and the vast majority of services are provided within the apps. 

A digital bank is a licensed bank that offers online services to its customers once only available from traditional banks. Not to be confused with neobanks, digital banks can also operate with a physical branch should customers need to visit. Neobanks on the other hand have no physical branches and operate entirely with online services. 

These three terms often get thrown around seemingly interchangeably when referring to digital banking services. They do however have important distinctions between them. Using them correctly will help to clarify digital banking further. 

Mobile banking refers to the act of making payments from your mobile phone or device. What kind of activity depends on the financial service provider being used. It may be the ability to move money between different accounts, paying client invoices, or receiving information about potentially fraudulent activity on your account. Customer service chat features and ATM finders also fall under the mobile banking umbrella. 

Referring specifically to banking services possible via the internet, online banking includes services provided on both computer and mobile devices. So while mobile banking is done on apps, users may visit websites which don’t have an app and still conduct transactions to purchase products or services. This is online banking, rather than mobile banking.

Digital banking simply encompasses both of the above terms. Anything that can be done via mobile or computer, online or offline, falls under the term digital banking. This is why ATMs and card payments were considered the beginning of digital banking: they utilise digital technology, not just internet technology.Online banking + mobile banking = digital banking 

Digital banking provides huge benefits for both customers and banking service providers. The pandemic forced a total overhaul of financial options for customers and business owners, many of which were revealed to be mutually beneficial for buyer and seller. 

Customers enjoy convenience, versatility, and safety with digital banking. Some of the major benefits include: 

Banks are not forced to provide customers digital services at the cost of their own businesses. The benefits go both ways. For instance, via digital infrastructures banks can benefit from:

Are you looking for a business account that adapts to your needs? Qonto offers you the all-inclusive package.

Just like the different kinds of banking you can do with digital services, there are different types of digital banks. Distinguishing between each means knowing what to expect when choosing the right bank for you or your business. 

As mentioned, neobanks differ from digital banks because they only offer their services as an online bank. They have no physical branches which customers can visit. They may have offices, but these are for daily business operations. Neobanks are also licensed by the government to run as banks, as opposed to financial service providers backed by larger banks. 

‘Challenger bank’ is a term used to refer to banks that challenge traditional financial and banking models. The term originated in the UK and was used in opposition to ‘Highstreet banks’ like HSBC, Barclays, Lloyds Banking Group, and NatWest, aka The Big Four. Opposing challenger banks seek to solve problems presented by traditional banks. Faster response time, less paperwork, and better customer service are just a few of the aspects of challenger banks that earned them the moniker. 

Nonbank banks provide financial services but they aren’t licenced as banks under the legal requirements of the government in that region. Usually the case is that they do not offer both lending and depositing services. Nonbanks may offer credit cards but they cannot include deposits as part of that offer. In Germany, the organisation responsible for handing out banking licences is the Bundesanstalt für Finanzdienstleistungsaufsicht or BaFin. The European Central Bank (ECB) is then responsible for approving crediting and lending services, thus legitimising a nonbank as a bank. Once a nonbank meets the requirements to function as a bank, they must submit their request in writing to these authorities. 

Digital banks are the future of banking in the same way that digital technology is the future of technology. It is the way in which customers are preferring to navigate financial waters and how businesses are preferring to chart their paths to success. The rise in digital banking adoption demonstrates that financial institutions are ripe for change and digital banking is the way to provide those changes. Hopefully this post on what is digital banking has shed some light on the ways in which banking has changed, and will continue to change in the future.