By: Bill Tan
With the recent development in Fintech, an uprising area – Digital banking – is attracting more interests from the general public due to a millennial shift towards online banking. Digital banking is a sector within Fintech. Often, the term “digital banking” is misunderstood with online banking or mobile banking. Online banking usually is an additional feature where bank account holders view their balances and transaction history.
Digital Banking is a broader field that utilizes the online/virtual form as its base line of financial transactions. There are many benefits of digital banking comparing to traditional retail banks. Digital banks have a minimal number of physical branches. Instead, they use 24/7 online banking service and automated kiosks. Moving most of the transactions online allows the banks to save 20%-40% operating cost. With a decreasing operating cost, there is an increase in the operating income. While digital banks benefit financially from the reducing administrative expense, customers also benefit from a reducing, or even zero, transaction fees and 24/7 concentrated customer services. Some of the additional benefits include fewer (ideally zero) transaction and administrative mistakes, and smoother and convenient banking experience.
Although there are many anticipations of digital banking, there are many challenges to new digital banks. An established digital bank requires a large active user base allowing the bank to generate enough cash flow to break-even. The initial stage of a new digital bank struggles to break even, thus, requiring confident investors to back the bank up until it reaches profitability. The misunderstanding of “digital banking” and the requirements of basic knowledge in mobile applications also limit a portion of the targeted audiences. However, with the growing usage of mobile devices and marketing, these struggles gradually become less problematic.
Nonetheless, digital banking is a growing Fintech field and requires a little more adaptation time. Banks such as N26 and Revolut are experiencing global expansion and approaching the break-even point. Soon, there will be more accessible digital banks available to choose from.