Traditional banking vs. digital banking
Digital banking is having the same impact on the financial industry that streaming services had on the video rental industry. More and more people are enjoying the time-saving benefits and conveniences of digital banking, but others still prefer brick-and-mortar banks. Can both be right? Let's compare the two options and see if we have a champion—or will it be a draw?
What is digital banking?
If someone tells you digital banking is the future, the correct response is—yeah, it was the future 10 years ago. Digital banking is a thing of the present, although some people might still be unsure how it works. Truth is, it's a catch-all term that also includes things like online banking and mobile banking.
The new kids on the block, digital banks, have already shot past most traditional banks, offering services like no minimum balances, monthly fees, or overdraft fees, but cheaper.
Digital banking also includes contactless debit and credit cards, and they can save customers money with incentives if they shop with certain brands. They're typically more in tune with what the modern customer wants, such as a small advance needed right away that they'll pay back later.
As one facet of digital banking, online banking refers to accessing your bank's services and products using a computer. You can check your balance, pay bills, transfer money, and even apply for a debit or credit card.
Brick-and-mortar banks adopted online banking years ago, but some have been slow to fully integrate it into their existing networks.
As another facet of digital banking, mobile banking refers to using your bank's app on your phone or tablet to do most or all of your financial tasks. Depending on your bank, you may be able to do everything you can with online banking from the convenience of your mobile device. You can send and receive money fast with Zelle®¹ at Varo and access payments to your account up to two days before traditional banks². These features are great for every customer, but they're especially good for businesses that need an efficient flow of money.
Talking of businesses, many of us today earn income via multiple revenue streams and rarely have to go into an office. Mobile banking makes checking up on the comings and goings of our finances easier than ever before. Users can also get alerts on their apps, such as possible fraud detection or a notification that their balance is low.
Neobanks and fintechs
When familiarizing yourself with the world of digital banking, you might come across two relatively new banking terms—neobanks and fintechs. A neobank is a bank that operates entirely online, doesn't have brick-and-mortar branches, and is generally just that little bit more nimble than its older cousins. Neobanks are sometimes called "challenger banks" because they're challenging traditional banking methods and replacing them with 21st-century substitutes.
Fintech merges the words "financial" and "technology". It's a catch-all name for the software, apps and algorithms that carry and drive financial transactions between banks, businesses and individuals. It's kind of like what roads are to cars, rails are to trains, and canals are to boats.
Both neobanks and fintechs generally need partner banks, as they use those banks’ charters for FDIC insurance protection. Unlike other neobanks and fintechs, Varo has its own bank charter, and deposits are FDIC-insured to up to $250,000 per depositor, per insured bank, for each account ownership category in the unlikely event of a bank failure. You can rest assured knowing your money is safe at Varo.
What is traditional banking?
What is a traditional bank? It's what your grandparents called "the bank”—a building that manages to look imposing, attractive, and rich, all at the same time. They've occupied prominent places on streets nationwide since before Jesse James thought you could make withdrawals without making a deposit first.
Traditional banks typically offer a full suite of products and services, many of which you may not have heard of and may never need. Over the years, they've gradually added to their portfolios until it's become difficult for them to move all their pieces in tandem. It's slowed them down at a time when we all want an instant service (a gap in the market neobanks are satisfying).
Traditional banks often charge higher fees than newer competitors, and they may require customers to visit a physical branch to access some services. They also need to sell as many products to you as possible, because their running costs are higher than a neobank's. The result? Much of what you pay them is to finance their business model, not the services you get.
Who uses a traditional bank?
Some customers feel more comfortable with what they're used to, particularly if they're uncomfortable with computers and mobile apps. Businesses that mostly deal in physical cash transactions need to deposit their earnings in a brick-and-mortar bank because online banking focuses on virtual transactions. Finally, some people just like a face they can talk to, and they're willing to give up time and money for that service.
That being said, the customer service you get in a physical bank isn't for everyone. Speaking to someone face-to-face is ideal, but impractical because we live in a 24-hour world, and banks usually only operate 9-to-5. More customers are switching to online banking because they want access 24/7 and may need to contact their bank outside of standard banking hours by phone and email.
The big reveal
So, digital banking or traditional banking? (Drum roll, please...)
It's got to be digital banking. It's designed with the customer in mind, providing quick, easy access to all the features that you want out of a bank.
Varo is today's bank—ready when you want it in your pocket, bag or desk, 24 hours a day. It's got 100% of what you need from digital banking. Open a Varo Bank account today.
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