Digital vs Physical Banking

Banking simply is all about putting money into an institution and getting cash when you need it. It is supposed to be built around you and your finances, regardless if you use digital online banking or go physically to your local bank branch. Based on worldwide data, 82% of consumers claim to have used online banking at least once in the last 30 days, compared to 68% who responded that they visited a physical branch in that same time. Both online banks and traditional physical bank branches have their advantages – they’re convenient in their own way, provide unique services and offer interest rates as competitive as possible. Digital banking is already in the rise nowadays. There is always that debate whether digital banking is better than traditional physical banking. Is it time to switch?

Digital Banking

Digital banking all started with the idea of offering bank services at reduced operating costs, without the infrastructure and overhead costs of a physical branch office. It offers consumers the capacity for a more organized financial life. It became easier for consumers to check their accounts, pay their bills and move money from one account to the other. Online banking has plenty of perks. These include:

• Customer convenience is the number one advantage of online digital banking. Customers can do their banking from the comforts of their own homes. Digital banking is available 24 hours a day, 365 days a year, provided there is an internet connection. Real-time account balances and information are available at the touch of a few buttons. This makes banking faster, easier, more efficient and even more effective because consumers are able to always stay on top of their account balances. Updating and maintaining an online digital account is also easier. It takes only minutes to change your mailing address, order additional checks and check for current interest rates. Accounts can be automatically funded from a traditional bank account via electronic transfer.

• Better Rates and Services. The lack of significant infrastructure and overhead costs allow direct banks to pay higher interest rates on savings and charge lower mortgage and loan rates. Some offer high-yield checking accounts, high-yield certificate of deposits and no-penalty certificate of deposits for early withdrawal. Some accounts can be opened with no minimum deposits and carry no minimum balance or service fees. The websites of digital banks have additional services, including functional budgeting and forecasting tools, financial planning capabilities, investment analysis tools, loan calculators and equity trading platforms.

• Ease of Use. Online accounts are easy to set up and require no more information than a traditional bank account. Many offer the option of inputting your data online or downloading the forms and mailing them in. If you run into a problem, you have the option of calling or emailing the bank directly. Online banking is also environmentally friendly. Electronic transmissions require no paper, reduce vehicle traffic and are virtually pollution-free. They also eliminate the need for buildings and office equipment.

Online digital banking also has its share of drawbacks and inconveniences. These include:

• Bank Relationship. A traditional bank provides the opportunity to develop a personal relationship with that bank. Getting to know the people at your local branch can be an advantage when you need a loan or a special service that is not normally offered to the public. A bank manager usually has some discretion in changing the terms of your account if your personal circumstances change. They can help you solve problems such as reversing an undeserved fee or service charge. Your banker will also get to know you and your unique needs. If you have a business account, this personal relationship may help if you need capital to expand. It’s easier to get the bank’s support if there is someone who understands your business and can vouch for your operating plan.

• Transaction and Service Issues. A lack of physical bank branch presence also has its own problems. You cannot withdraw or deposit money at a branch. Sometimes a face-to-face meeting is required to complete complex transactions and address complicated problems. A traditional physical bank can host meetings and call in experts to solve a specific issue. In addition, international transactions are impossible with digital banks. Routine services such as notarization and bank signature guarantee are not available online. These services are required for many financial and legal transactions.

• Online digital banks are also subject to the same laws and regulations as traditional physical banks. Digital banks use sophisticated encryption software meant to protect your account information. However, these accounts may be subject to phishing, hacker attacks, malware and other unauthorized activity. Identity theft is also a significant concern. Online digital banks build their security reputation from the ground up as opposed to the years of experience and stability that the brand of traditional physical bank offers.

Physical Banking

The presence of a physical bank branch stands for the symbol of service, brand, and trust. People like the idea of a physical bank touch point as a reassurance. In some countries, there is more to the banking experience than just money. In India for instance, a visit to a bank branch is a social occasion for the family. In Spain, customers expect a bank branch on every corner and local, personal service.  In Iceland, the idea of visiting a bank branch is about as likely as an elephant walking into your living room. The fact that you can actually go to a branch to see the money is still an important psychological factor for many, which is why the physical bank gains the symbol of trust.

The human psychological connection between you and the bank and its representatives is the number one advantage of physical banking. What you see is what you get. In a traditional physical bank, you physically present your check for deposit, get cash handed back to you, place items into or take them out of bank safety deposit boxes. You have the security of knowing your deposit is safe in the bank, since you obtain a hard copy receipt from the teller or the ATM. You can interact with a bank manager, teller or special accounts representative. The physical bank has walk-up depositories, through ATM access, located outside the bank for easy deposits and withdrawals any time of day or night (as long as they’re not being serviced, or out of service), 365 days a year.

However, physical banking also has its set of problems: They tend to offer poor customer service and frequent fees for virtually every non-traditional transaction they can imagine. Finally, most large financial institutions won’t offer interest-bearing accounts if you’re simply signing up for personal checking and don’t intend to store big amounts of money. Interest rates tend to be lower with physical banks as well, even if you do deposit large amounts of money.

The Bottom Line

The type of banking you prefer is really just personal preference. Some people just want to continue to interact with the tellers they know at their neighborhood bank. Or, they like the security of actually seeing where their checks are deposited or the feeling of cash in their hands. If time is a precious commodity, you’re a multi-tasker or you just like the convenience and control of doing your banking over the Internet, then online banking is right for you.