The process of internet banking has been available to customers since 1995. Many traditionally banks have moved little in regards to financial technology progress on their online platforms. Local and regional banks have platforms and online services that have not advanced much since the inception of online banking. In stark contrast, the rise of internet banks has provided for customers in recent years a method of banking completely without a local branch. Online banks compare well to the traditional banks, with many attractive features. Discover more about the pros and cons of these two different banks and after reading this consider an online banks’ review.
Savings abound as brick and mortar banks are forced to remain competitive by reducing their rates. These cyber banks are far more technologically savvy from inception and their ability to continually place research and development solely on the online platform. The best online banking systems look to be the future, though they are not without disadvantages. They will face several challenges in the future as well. Talking heads call for the end of physical banking locations, though we are not there yet. Throughout the competition and innovation the two different bank’s greatest beneficiary will be the customer.
What are online banks? In the strictest sense an online bank is a bank that lacks a physical location by which customers can access their funds or work with a representative. These internet banks focus on providing mostly basic services for underbanked segments of the population; people who would otherwise not able to afford a traditional bank account or may not have access to one. This includes twenty-somethings, minorities, and people who are turned off or intimidated by traditional banking policy. The online banks costs remain relatively fixed on the data, hosting, and security of their computer systems so as to allow customers seamless access to their accounts on computers, tablets, and smartphones. Research and development focuses on innovating the fintech and bridging the gap between the two different banking models.
The glaring difference between internet banks and online banking through traditional banks is undoubtedly fees. Customers - mostly twenty-somethings and recent graduates - are flocking to online only banks for the lack of fees associated with opening and maintaining an account. Bank5 Connect is just one example of one of the best online banks for savings. Without brick and mortar institutions, large sums of employees to pay, and endless banking machines to maintain, Bank5 Connect and others are able to pass on the savings to their customers. The new normal for them is fee-free banking with little to no opening deposit. Young customers especially appreciate these online only institutions as a result of the ease with which to open an account.
Today traditional banks are struggling to stay relevant to online banks, not only with their cyber offerings, but their entire business model. In order to compete several large traditional banks have even rewritten their costs and fees to fall more in line with the online banks. Most of the major banks - aside from local only branches – have online banking options that are largely in line with the internet banks. It has taken a considerable amount of time for traditional banks to meet the technological offerings of best online banks. The mantra eventually became: sink or swim. Local banks who have failed to remain in line with the innovations in online banking are losing customers fast and likely only cater to an aging population. Those businesses will not transition to the already apparent mobile society we live in and the inevitable cashless society developing each day.
Specifically looking at the online offerings of both banks illustrates that they match up on most equally. Security is largely a nonissue comparing the online only bank and the traditional bank’s online offerings. Both are subject to the same strict laws of their host country and the corresponding protection of insured deposits. Accounts on both sides are always subject to hacking, malicious software, and identity theft. In each case, both types of banks attempt to stay ahead of the curve in cyber bank fraud. Still, there is a perception that internet banks are less safe, especially online banks for business. It will take time for cyber banks to gain these clients’ trust.
The online bank user is able to login to their account, pay bills, transfer funds, and send and receive messages regarding their current financial state. The goal is for this to be possible anytime and anywhere. The same can be said for most traditional bank customers. Add to that an account with an online bank with the highest interest rate like blank and you are all set. Though the traditional bank customer has a distinct advantage that the online bank customer does not.
At the heart of the issue with the online banking system is the missing social element. Traditional banks know that one of the mainstays of their business model is their ability to create trust as a genuine local person-to-person bank. Customers largely value the ability to walk into a branch and discuss a problem they have or inquire about a particular product or service that they might need. Typically, this is more accurate with the aging population. It is yet to be seen whether Generation X or Millennials will continue this trend, though there are a number of banking services that still require a physical branch or interaction with the customer face-to-face.
Building relationships locally is tough to do with an online bank. Nevertheless fintechs have a drive for combining the power of social with the future of banking. Though the history of fintech and social as a cohesive element has been largely unsuccessful, millions are being spent on research and product testing by Facebook, PayPal, and Apple amongst others to do just that. Many of these companies have even gotten their feet wet in this project. WhatsApp’s new end-to-end encryption is a sure sign that these companies take their users personal information seriously, even though it is how the social giants profit. It is up to these companies, who are most popular amongst twenty-somethings to get this right. It is only a matter of time before they partner with online banks for business.
Users have already trusted these companies with so much of their personal data and habits. The transition to moving their finances in that direction has been slow, but it is emerging. Deregulation and anonymizing of banking data to be used for the benefit of the customer is next. Expect the online banks to be working harder towards this research, but don’t be surprised if the traditional banks have the funding to buy up the fintechs responsible for this ground-breaking change.
Along with the social element there is the issue of complicated account problems that inevitably arise with every bank customer. These can be any number of problems such as overdrafts, fraudulent account transactions, unknown fees, etc. Sometimes even technical issues can lock someone out of their online only bank account, making it difficult to log back in and prove their identity. Most users would rather talk to a real person, in person to get account issues resolved immediately. The alternative is waiting on the phone or online to get passed from customer service representative to supervisors, and then back again. Having a person-to-person conversation with a customer service representative, guiding a customer through a complicated process such as investments, insurance, or loans is a powerful advantage. Traditional banks relish this advantage.
There is also the issue with simply making deposits. Not every inquiry or banking transaction need be complicated. Personal checks can now be deposited by scanning or taking a photo with your smart phone or tablet. This is available at most banks on both sides of the argument. The same cannot be said for depositing a stack of cash. Users still appreciate the opportunity to take a bundle of paper money and deposit it in their local bank account immediately. Such accounts can also be incredibly easy for withdrawals. Generally customers of traditional banks have the ability for any number of withdrawals from their accounts at any given time, including international funds.
Internet banks have significant problems with deposits of cash and withdrawals of cash. Users generally have to pay highs fees when they wish to withdraw funds from an automatic banking machine since these machines are owned by the traditional physical banks. Third party machines are loaded with exorbitant fees. Our society is moving towards a cashless one, but we are hardly there yet.
These two internet banks could offer the best rates for a new account holder: AllyBank and Bank of Internet USA. These are some of the best online banking systems that offer such features typical physical banks provide like financial forecasting and even investment analysis tools. Their interest rates have them appearing in the best online banks review sites year-after-year. Their customer service online and on the phone exceeds most traditional banks.
Simple Bank made a powerful impact soon after its founding by offering a powerful “safe to spend” mechanism over the typical account balance. Letting users know what they should and should not spend is a powerful innovation that other banks have paid attention to. Online bank start-ups are thinking in terms of helping in ways traditional banks due in their personal care service.
Most people pay their bills online and two of the best online banking systems, PayMyBills and PayTrust are hardly typical banks. Their services take control of all physical billing for their customers, opening the invoices and notifying users of due dates and scheduled payments. Users have a plethora of options and feedback on how to proceed in the most financially savvy way. In case it was not obvious, the future is in banking not just being a bank.
What hurts online banks today could be their advantage in the future. As they utilize the latest in financial technology and partner up with social media giants they will be primed to make the first steps in alt. financial services for their clients. Today and in the future the winner of the fight between traditional banks and online banks is the customer. Traditional banks will continue to maintain leverage in those complicated processes such as personal problems and cash withdrawals. Internet banks will continue to make their offerings ever more convenient for an increasingly digital society. Both will continue to invest heavily on research and development that makes each process more streamlined for their customer. This has the dual effect of bringing down fees for customers and providing them exactly what they need to be financially satisfied.