There has been a drastic shift in the operational framework of finance for the last one decade and the emerging phenomenon is the digital banks. In the United States, digital banks have emerged and changed the management of monetary affairs from the known models of enterprise.
Here in this blog let us understand the underlying of these digital financial entities and how they have transformed and their contribution they have given to the original economy. Check now!
The emergence of digital banking
The evolution of the digital financial institution started in the late 1990s when the internet banking started. Some of the services that were formerly only executed at banks were balance check, fund transfer and bill payments.
This shift paved way to coming up of more complex financial technologies in the future. Gradually, with increasing penetration of internet connection, and with the evolution of smart phones the idea of banking at any place at any time got initiated.
However, the emergence of new breed of online-only banks, also known as ‘neobanks’, can be considered another major step in this process. Fintech institutions provide convenient services to execute as they use mobile applications and integrated technologies for their services as compared to banks.
Today, digital banking is not just about convenience; it’s about being clever. Having features such as real time notification, spending analysis and financial advice, digital banks are offering enhanced ability to consumers to manage their money.
Attention is now being paid to increasing the level of protection against cyber threats and the active use of artificial intelligence in various aspects of the industry in order to provide even several times higher level of security and individual approach to each client.
The rise of neobanks
New generation banks, which have no physical offices and that rely mostly on the latest technologies, have disrupted the financial services industry in a big way. Most of them are pure online players, some of them provide a range of services that are still incomparable with their brick and mortar counterparts.
That is the reason of their success: the focus on customer needs that sometimes are ignored by a traditional bank. Since neobanks have no physical infrastructure in the form of branches, they save on many operational costs, making the products cheaper for the client, for example, free or very low fees for operations as well as higher interest rates.
Fintech innovations
Fintech has been a big boost to digital banks, a way through which solutions and improvements have been made in the price while fintech startups have come up with innovative solutions to some of the gaps that existed with conventional financial institutions, they are also avoiding complexity.
Such companies can team up with conventional banks to provide more refined, for example, P2P payments, robo advisors, and cryptocurrency trading services. For instance, PayPal and Square established a new model of payment processing services, which expanded the pace and way of consumers and business making transactions online.
Similarly, firms such as Robinhood have made investing easily accessible to the public through their charging of no commissions, and through easy to use applications. All these changes are moving the digital banking industry forward and giving consumer more options and freedom.
Peer-to-peer lending also belongs to fintech and such companies as SoFi, LendingClub offer personal loans at low rates and with minimal credit check. All these innovations are a way through which the financial market is made more efficient for both the consumer and business.
The impact on traditional banks
The emergence of digital banking has made executives in the financial sector to reconsider their models of operations. To be able to keep up with the growing competition, many have made large investments towards digitization strategies with an end vision to deliver online experiences that are similar with the online players.
Fintech companies are also observed in this way as the traditional banks collaborate with them to develop their technological strengths. Thus, through embracing of fintech solutions, these institutions can be in a position to provide better and customizable services.
For instance, the functions, such as mobile check deposit, instant transfer, and real time transaction notification has become available on the mobile application provided by the traditional banks.
Also, do not assume that some of the conventional banks are not planning to come up with their digital-only subsidiaries or neo-banks. These endeavors aim to retain existing customers and attract new ones by offering the best of both worlds: a blend of the security and solidity of a conventional bank as well as features and flexibility of a startup digital bank.
