Digital Banks vs Traditional Banks In 2023 [Which Is Better? 2023's Choice]
The banking industry is going through a major transformation. Traditional banks have been in the game for decades, but digital banks are quickly gaining traction and changing the way we interact with our money.
So who reigns supreme? Digital or traditional banks? it's impossible to give a definitive answer since it depends on your individual needs and preferences, as well as what services you're looking for in your bank.
But one thing is certain: both digital and traditional banks offer their own unique advantages that can make them better suited for different types of customers.
In this article, we'll take an in-depth look at the differences between these two banking models so you can decide which one best suits your financial needs.
We'll compare features like fees and interest rates, convenience factors such as online accessibility and customer service availability, security measures such as encryption technology and fraud protection policies, plus more — all to help you determine which type of bank will serve you best.
Therefore, keep reading our Digital Banks vs Traditional Banks guide to find out who has the upper hand.
Introduction: Digital Banks vs Traditional Banks
The advent of digital technologies is driving the banking sector to a revolutionary transition, introducing an array of new financial institutions. For many years, traditional banking has reigned supreme.
However, digital banks have recently emerged as a growing trend starting to make waves in the financial world. In recent times, these modernized alternatives are being embraced by more and more people looking for an alternative to what once was their only option—traditional banking services.
In the midst of COVID-19, digital banking has experienced a surge in popularity. As people abide by social distancing regulations and remain at home as much as possible, physical bank visitations are becoming far less frequent - thanks to online banking solutions that make financial transactions easier than ever before.
But the question arises: which type of bank is better? Whether it is the ever-reliable and long-standing traditional bank or the innovative, secure, and convenient digital bank?
In today's discussion, we will be comparing both types of banking services: Digital Banks vs Traditional Banks, and determining which one is better.
Before delving into the core details of these two banking services, it is essential to comprehend what a digital and a traditional bank truly constitute.
Traditional banking is a key component of our financial systems and has been one of the main vehicles for creating capital. Banks usually rely on customers depositing funds which they then lend to other customers. This could take various forms, including mortgages or loans, which can be individually tailored to meet customer needs.
Traditional banks are considered to be the gold standard when it comes to banking. They offer services such as checking accounts, loans, and credit cards that have been available for years. They also have a physical presence in most areas so that customers can get face-to-face assistance with their financial needs.
They also provide access to ATMs, which enable customers to withdraw money from their accounts anytime or at night. They usually also provide personalized customer service and financial advice, which can be a great help if you are trying to make financial decisions.
Digital banking is transforming the way financial services are delivered and consumed. Unlike traditional banks, digital banks are entirely digital and do not have any physical presence.
With the move to online banking, customers can access services on their desktops, tablet, or mobile devices through the internet. This shift from the traditional banking system offers faster processes and greater control over personal finances. Moreover, it offers greater convenience for activity tracking, transfers, and payments.
Additionally, digital banks provide APIs to enable cross-institutional service composition, allowing customers to obtain custom banking solutions.
The gradual transition towards digitization of banking services highlights an evolution in the financial industry, providing users with a wide array of products and services to give them greater control with robust security standards.
Digital Banks vs Traditional Banks: The Best Banking Option
Now that we have a better understanding of digital and traditional banks' basics, let us delve deeper into these distinctions by comparing them across various parameters.
Here are the primary criteria for knowing the difference between digital banks and traditional banks:
Big data generally refers to the large volumes of data gathered from various sources, such as customers' finances and preferences. Since we can't manually process this mass data, it needs to be processed by complex algorithms.
With their advanced analytics capabilities and access to various data sources, Digital Banks can offer better services and personalize the customer experience. On the other hand, traditional banks are limited to the data stored in their databases and can't access external sources of big data.
Traditional banks provide basic banking services such as savings accounts, credit cards, mortgages, loans, etc. Digital banks, on the other hand, can provide a wider range of services due to their access to big data. These include more complex products such as investments and insurance policies and fintech apps for budgeting, stock trading, and more.
Digital Banks leverage the latest technological advancements to offer faster, more efficient services. They rely on artificial intelligence (AI) to streamline processes and blockchain technology for secure transactions.
Traditional banks are slowly adapting to new technologies but are still limited in their offerings due to legacy systems and a lack of resources.
Digital banks supply customers with 24/7 customer service via online chat or email, while traditional banks typically limit their client assistance to branch hours or specific times when individuals can call in.
Yet, the distinct advantage of a traditional bank lies in its personal touch; there is always someone available for you to speak with if ever an issue arises. As such, you can be sure that your queries will be addressed promptly and efficiently whenever necessary.
Cryptocurrencies such as Bitcoin and Ethereum are becoming increasingly popular. This is a decentralized currency that is not backed by governments or banks. Despite its risks, digital banks can offer more options for customers who want to invest in cryptocurrency.
Digital banks are more likely to provide cryptocurrency services, such as trading and storage, due to their modern technology. While some traditional banks have started offering cryptocurrency services, they are typically limited in scope and not widely available.
Cloud Computing is the on-demand access to a shared pool of computing resources. Customers can access services and applications from any device that can use the internet.
Digital banks are more likely to offer cloud-based services, while traditional banks are slower to adopt this technology due to their bulky legacy systems.
The presence of a physical location is an essential factor for customers who prefer to conduct their banking activities in person. Traditional banks usually require customers to visit a physical branch to withdraw or deposit cash.
Neobanks or digital banks, on the other hand, are completely digital and do not have any physical locations. So, customers can access their accounts through web or mobile apps.
Account Opening Process:
Gone were the times when customers had to wait for days or weeks to get their bank accounts opened. Digital banks have made account opening a quick and easy process that can be done online in minutes.
All you need is a device with an internet connection, identity verification documents, and bank account details. On the other hand, traditional banks require you to visit a branch for an account opening process that can take several days.
Traditional banks boast vast ATM networks, allowing customers to access their money easily. Conversely, digital banking services may have limited or no ATM presence—some Neobanks even charge withdrawal fees. If you prefer cash transactions, traditional banking is the superior choice.
Fees And Interest Rates:
For customers searching to make the most of their investments, digital banks are often the optimal choice. These institutions tend to provide higher interest rates on savings accounts than traditional banking companies, which usually have reduced returns due to high operational costs and strict regulations.
Digital banks charge less or no fees, making them more attractive to customers who want to maximize their returns with minimal costs.
The Covid-19 pandemic has posed a clear challenge to traditional banking services as their physical locations had to close. Digital banks, however, offer much more convenience since customers can access and manage their accounts remotely with smartphones or other devices.
In addition, they do not need to visit a branch in order to get credit cards - the whole process is done online! In contrast to traditional banking services, people still visit branches for most activities, which makes it inconvenient and time-consuming.
Safety and Security:
While traditional banks offer some level of protection, digital banking offers heightened security with advanced encryption technology and fraud prevention services. However, as the methods for theft are ever-evolving, both physical and virtual banks must remain ahead of the curve to protect their customers' funds.
Physical locations may be more vulnerable to thefts such as robbery due to their presence in tangible form; however, ensuring safety online or off-vigilance is key!
Who Can Benefit From Digital Banking?
The digital-only banks are only winning in popularity and come with numerous advantages for customers in the U.S. and worldwide.
They are an excellent choice for those who prefer to conduct their banking activities online and for customers who require a quick account opening process or higher returns on savings. Following are some customer types who can benefit most from digital banking:
- Young Professionals - For young professionals looking to start their financial journey, digital banks are a perfect choice. From the beginning itself, customers are exposed to the most advanced ways of banking.
- Frequent Travellers - Digital banks’ online services make them the ideal choice for frequent travelers who often find themselves away from home and unable to access a traditional bank. Mostly, they have a busy lifestyle and need to make quick decisions on the go.
- Low-Income Individuals - Digital banks provide low-income individuals with an easy and convenient way to manage their finances without having to pay expensive fees or wait in long queues. They can access their accounts anytime, anywhere, and make transactions in a matter of minutes.
- Savings-Conscious - For those who are looking to make the most of their savings, digital banks offer higher interest rates and fewer fees than traditional brick-and-mortar banks.
- Tech-Savvy Individuals - Digital banks are ideal for tech-savvy individuals who prefer online transactions and mobile banking. Such people can find their comfort level with digital banking services.
Who Is Best Suited for Traditional Banking?
Brick-and-mortar banks are still the preferred choice for some customers. Especially those who value tangible presence and traditional ways of banking. Following are some customer types who may benefit from traditional banking:
- Senior Citizens - Senior citizens tend to be more comfortable with physical branches and familiar with brick-and-mortar services.
- People Who Prefer in-Person Transactions - Some may prefer to go to the branch for transactions requiring additional steps like loan processing.
- People Who Prefer Hands-on Support - Some customers require extra help or guidance with their banking activities and need someone to talk to face-to-face, which is not available through digital banking services.
- People Who Deal With Large Amounts of Cash- Traditional banks generally have higher limits for transactions and deposits, making them the preferred choice for customers who need to accommodate larger amounts of money.
Which Is The Superior Choice: Digital Banks vs Traditional Banks
Are you wondering which type of bank is better for your needs - a traditional one or an online-only institution? In truth, there is no one-size-fits-all answer.
Weighing the pros and cons of each, it all comes down to your preferences concerning convenience, security measures, price points, and offerings. Ultimately though, you should base the final decision on what best fits your financial needs.
With our predictions, it is likely that digital banking will become the standard form of banking in 2023 and onwards. As technology progresses over time and customer needs change, traditional banks may be unable to keep up with customers’ demands for convenience, cost-effectiveness, and more.
In response, traditional banking institutions are also beginning to incorporate digital technology for the benefit of their customers.
Their mobile apps and online platforms offer both conveniences as well as vital security measures that have come to be expected from traditional banks.
Customers can rest assured knowing they get double the advantage with these new digital advancements – a much-needed combination in today’s world!
It's a matter of personal choice when determining between Digital Banks vs Traditional Banks, yet safety should remain paramount in your decision-making.
Prior to opening an account at any bank - whether it be standard or online-based - take time to review its security measures and investigate the institution in general. If these steps are taken, you can rest assured that your funds will remain safe and secure.
Top Digital Banks:
Following are some of the top digital banks offering innovative financial services. Each one offers something unique to its users:
Wise Bank is a London-based financial technology company that has been shaking up the banking industry since 2011. With over 15 million customers, this radically transparent and fair for all bank is making waves in the industry.
With its commitment to providing a better banking experience through low fees, sophisticated technologies, and unbeatable customer service, Wise Bank has made itself a leader in the world of digital banking.
Their mission to provide a more equitable banking experience that offers fairer fees honors their commitment to fairness for everyone.
Whether you’re looking to maximize your savings or whether you’re after simple credit services, Wise Bank has you covered. Wise Bank provides users with unparalleled protection and advantages. Here are some of the features Wise Bank offers:
- FCA Regulated: Wise Bank provides users with the highest protection standards as a fully authorized and regulated financial services company.
- Two-Factor Authentication: To protect your privacy and security, Wise Bank offers state-of-the-art Two Factor Authentication technology to ensure that only you have control over your account.
- No Hidden Fees: This feature makes it cost-effective for users to manage their finances through Wise Bank.
- Safeguarded by Leading Banks: Wise Bank has a dedicated anti-fraud team to protect your money from potential risks. Furthermore, all transactions are safeguarded by leading banks – adding another layer of extra security for users.
It is no surprise why Wise Bank is the go-to provider of choice regarding reliable banking services!
The London-based financial technology company, Revolut, is another leader in digital banking. Founded in 2015, Revolut has grown exponentially in terms of customers, services offered, and financial products.
Dubbed one of Europe's fastest-growing companies, this digital bank lives up to its reputation with its unique set of features:
- Peer-to-peer Payments: Easily make payments using your Revolut account. You can swiftly accept money from friends and family or pay for goods and services.
- Currency Exchange: With its built-in currency exchange feature, you can instantly send and receive different currencies with just a few clicks.
- End-to-end Security: Revolut provides users with end-to-end security – protecting your data and personal information from potential risks.
- APY: Get up to 2.5% APY on your savings with Revolut. This makes it easy to grow your wealth and manage your finances.
So-Fi is an American personal finance company based in San Francisco, California. Since its inception in 2011, So-Fi has made a name for itself as one of the leading online banking options.
Whether you're looking for an affordable student loan, a personal loan to cover day-to-day expenses, a credit card to build your credit score, or a home loan for bigger investments, So-Fi has you covered.
With its competitive rates and customer service, So-Fi is perfect for those starting in finance. It also offers stockbroking and wealth management services for experienced investors - so there's something for everyone! Who knew achieving financial freedom could be this easy?
- APY: Get up to 3.75% Annual Percentage Yield on your savings with So-Fi – one of the best rates in the industry.
- 24/7 Account Monitoring: Keep track of your finances with So-Fi's 24/7 account monitoring. Instant notifications will always keep you one step ahead.
- No Foreign Transaction Fees: So-Fi makes global payments easy with zero foreign transaction fees. Wherever you are in the world, So-Fi is now your bank.
- All-in-one App: So-Fi offers all its services through a single app, making money management even easier.
Ally is an American bank holding company based in Detroit, Michigan. Ally is dedicated to providing its customers with exceptional banking services and products at competitive rates. It was founded in 1919 and has become one of the largest digital banks in the US.
Ally offers various services, including Car Finance, Online Banking, Mortgage Loans, Stockbroking, and Electronic Funds Transfers.
Here are just some of the reasons why Ally is an invaluable resource:
- No Overdraft Fees: Ally’s online banking system does not charge overdraft fees. This helps keep customers' accounts in good standing and allows them to save money on managing their finances.
- High APY: The average annual percentage yield (APY) for deposit accounts at Ally is up to 5% higher than the national average. This makes it easy for customers to grow their savings.
- No Minimum Deposit To Open Account: You can now enjoy the benefits of online banking without depositing a sizeable initial sum. Moreover, there is no monthly maintenance fee associated with an Ally account.
- Mobile Banking: You can access your accounts and make transactions on the move with Ally mobile app, which is available for iOS and Android.
- Available Round the Clock: Unlike traditional banks, Ally's customer service is available 24/7 via email, phone, and chat. This ensures that customers can always get the help they need when they need it.
Axos Bank is an American online-only bank founded in 2000. Headquartered in San Diego, California, Axos is a premier financial institution that prioritizes convenience and customer satisfaction.
It prides itself on providing its customers with cutting-edge banking services, competitive rates, and a wide range of account options.
From checking accounts to savings accounts and business banking to mortgages, Axos has something for everyone.
Here are some of the features that make Axos Bank stand out:
- High Yield Savings Accounts: With Axos Bank's High Yield Savings accounts, you can get up to 1.25% APY on your deposits. This makes it easy to take advantage of today's low-interest rates and grow your savings.
- Axos Mobile App: With Axos Bank's Mobile App, you can stay on top of your finances anywhere. Now you can view accounts, monitor transactions and transfer funds on the go.
- 24/7 Service: Axos Bank is dedicated to giving its customers paramount support when they need it. With 24/7 customer service, you can always rely on a financial representative - online or over the phone - for any questions.
- Ensure your safety with Axos: Keep your data secure and protected against malicious cyber threats. With the help of experienced security professionals, you can trust that Axos will bring peace of mind to any business or individual.
Chime is a mobile-first digital bank that was launched in 2012. Chime's mission is to help customers make better financial decisions and improve their financial health.
It has become one of the fastest-growing online banks thanks to its innovative banking approach and commitment to customer service. Here are some of the top features Chime offers:
- Fee Free: Chime has no monthly maintenance fees or hidden charges. Moreover, it has no overdraft fees, and customers can access their money fee-free with Chime.
- Early Payday: Chime members can get paid up to two days early with direct deposits. This allows them to access their funds quickly when they need it most.
- High-Yield Savings Account: With Chime's Savings Account, customers can earn up to a 2.00% APY on their deposits. This makes it easy for customers to grow their savings with no extra effort.
- Build Credit: Chime makes it easy for customers to build credit scores. They can do this with their Chime Credit Builder Visa Debit Card linked to Experian Boost.
- Security and Privacy: Your funds are FDIC-insured, and Chime ensures your data is safe with its state-of-the-art security protocols and encryption.
Varo is a modern digital bank that was founded in 2015. With Varo, customers can take control of their finances and better manage their money.
With different types of accounts, low fees, and competitive rates, Varo is an excellent option for those looking for an alternative to traditional banking. Here are some of the features that make it stand out:
- Low Fees: Varo does not charge any overdraft or monthly maintenance fees. This makes it easy to keep more money in your pocket while still having access to all the great banking services.
- No Credit Check: With Varo, customers don't have to worry about their credit score. Varo will never run a credit check, and no minimums are required to open an account.
- Rewards And Cashbacks: Get up to 6% cashback for using Varo Card and get your money directly deposited into your account.
- High Yield Savings Account: Varo's High Yield Savings accounts offer up to 5% APY on deposits so that you can grow your savings with minimal effort.
Top Traditional Banks:
Here are some of the best traditional banks that offer great customer service, security, and convenience:
Bank Of America:
Bank Of America is the second largest bank in market capitalization based in Charlotte, North Carolina.
As part of the Big Four banking institutions, Bank Of America is a leader in the industry. With its commitment to community involvement, unparalleled customer service, and reliable innovative solutions to complex banking issues, Bank Of America stands above the rest.
Its services are reliable and accessible for individuals and businesses alike, making it an ideal choice for those seeking quality financial services.
JPMorgan Chase Bank:
JPMorgan Chase Bank is an American multinational financial services company headquartered in New York City and incorporated in Delaware. Established in 1799, it is the largest bank in the US and the world's largest bank by capitalization as of 2023.
Its diverse offerings include retail banking, corporate banking, investments, mortgage lending, insurance, private wealth management, and asset management solutions. JPMorgan Chase Bank caters to consumers and businesses with innovative technology solutions that help address their financial needs.
U.S. Bank is a financial services provider headquartered in Minneapolis, Minnesota, with a mission to provide its customers with an array of quality products and services.
From individual banking to business loans to government payments, U.S. Bank offers it all and strives to be an industry leader in customer service, security, fraud monitoring, and modern technology solutions.
With helpful banking experts available to assist you throughout your journey and extra security measures in place for peace of mind, U.S. Bank has earned its reputation as being one of the most reliable banking institutions around and is working hard each day to exceed expectations and set new standards in the fast-paced world of finance.
Citi Bank has firmly established itself as one of the USA's oldest, most reliable institutions. Founded in 1812, the organization is now a primary US banking subsidiary of global financial services conglomerate Citigroup and offers an expansive selection of products and services to over twenty million customers in eighteen countries through its more than 600 branches.
Citi Bank takes great pride in providing its customers with reliable, comprehensive offerings backed by an incredibly knowledgeable and attentive customer service staff who always assist clients when needed. All told, Citi Bank provides individuals with quality financial services that always exceed expectations!
Established in 1869, Goldman Sachs is an American multinational investment bank that operates globally; it makes a resounding name for itself as the second-largest bank by revenue in America.
Over the past 150 years, Goldman Sachs has continuously created and successfully implemented solutions that enrich its clients' experiences while maintaining its immaculate quality standards. Discernibly, Goldman Sachs has shone as a beacon of experience and refinement within the business sector and continues to do so today.
Over 165 years old, Wells Fargo is an established name in the world of global finance. Headquartered in Manhattan, the American multinational financial services company has managerial offices throughout the United States and several international locations, touching 35 countries in total across the globe.
Its far-reaching influence within the global economy is evident through its impressive customer base - serving over 70 million customers worldwide. Flexible, accessible, and customer-focused, Wells Fargo is ready to tackle any financial service you need with integrity and expertise.
PNC Bank, an American bank holding company based in Pittsburgh, Pennsylvania, prides itself on providing top-notch customer experiences for corporate and retail clients. It is widely recognized as one of the largest banks in the US by the number of branches, deposits, and ATMs.
PNC Bank stands out from other large banks with its reliable and trusted banking solutions suitable for individual customers and businesses. With a commitment to excellence and customer satisfaction, PNC Bank has become a leader in the banking industry.
FAQs: Digital Banks vs Traditional Banks
Is Digital Banking Better Than Traditional Banking?
Digital banks typically offer better rates and lower fees than traditional banks. Additionally, digital banking is often more convenient with apps and online access to accounts, as well as 24/7 customer support.
Why Traditional Banks Are Better?
Banking at traditional institutions provides a more personal experience, with many physical locations available for in-person banking services and support.
Traditional banks also have more experience and history, making them a trusted option for many people.
What Is The Future Of Traditional Banks?
Traditional banks are continuing to evolve and offer more digital services in order to better compete with online-only banks. This allows them to remain competitive while still providing a range of banking options for their customers.
Additionally, traditional banks are beginning to implement new technologies such as blockchain, artificial intelligence, and machine learning to stay ahead of the curve.
What Are Two Disadvantages Of Traditional Banks?
Two main disadvantages of traditional banks are higher fees and lower interest rates than digital banking options.
Additionally, traditional banks do not always provide the most up-to-date or comprehensive online banking services compared to digital Banks.
Are Traditional Banks More Secure Than Internet Banks?
Both types of banks may be using similar security measures and encryption, as they both are subject to the same federal regulations. However, some people may feel more comfortable with the additional layer of security offered by traditional banks that physical locations provide.
What Are The Most Important Features You Want To Consider When Shopping For a Bank?
When shopping for a bank, some important features to consider include fees and interest rates, customer service, security measures, and overall convenience.
It's important to look at the range of services offered by each bank in order to find one that best meets your needs.
Let us wrap up this post with the ultimate answer to the question, "Which is better – Digital Banks vs Traditional Banks?” We hope now you can decide better. All you have to do is look at the features of each bank to see which one best suits your needs. With digital banks, you get innovative features and low fees. With traditional banks, you get a familiar interface and more in-person service.
With the right research, due diligence, and understanding of your own needs, you can make the best decision for yourself. Good luck, and have safe banking!
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