Digital Banks vs Traditional Banks: What are the differences between them? How to choose the best bank for your profile?
What is a Digital Bank?
First, let’s understand to know exactly what Digital Banks are.
Well, a Digital Bank can be understood as a financial business model that uses technology to offer innovative financial products and services. Digital banking companies, generally FinTechs, have transformed the traditional banking system.
Digital Banks meant that traditional banks had (and still have) to reinvent some processes to serve a new generation of users who prefer more agile and instantaneous services. Thus, the Digital Bank is a novelty that is currently a reality all over the world! In addition, they are competitors of Traditional Banks.
A Digital Bank can be understood as a financial business model that uses technology to offer innovative financial products and services. Digital banking companies, in general, FinTechs, have transformed the traditional banking system.
Digital Banks meant that traditional banks had (and still have) to reinvent some processes to serve a new generation of users who prefer more agile and instantaneous services. Thus, the Digital Bank is a novelty that is currently a reality all over the world! In addition, they are competitors of Traditional Banks.
Digital banks are defined as financial institutions that have a license to operate as a bank and do not have offices or physical infrastructure for their operations. Likewise, they work within the Open Banking scheme, a process whereby the bank shares its customers’ data with third-party financial service providers that the customer chooses, giving them the possibility of accessing different options to invest their money and obtain more profitability.
What are the main differences between Digital Banks vs Traditional Banks?
In order to understand the main differences between digital banks and traditional banks, it is simpler to understand the characteristics and how each type of bank works, okay?
Digital Banks: How They Work
In a traditional bank, you have to go to the bank branch, under certain hours, to receive attention, carry out procedures or operations. Although you can do it remotely through online banking or the telephone center, most operations are in person.
On the other hand, digital banks operate 100% online and with minimal interaction with people. Your services, operations and even clarifications are carried out through an app or website, without having to go to the bank or make a call to the Call Center.
Main characteristics of Digital Banks:
- No branches or hours: Digital banks do not have branches or hours because, when using the internet, you can access their platforms 24 hours a day, 7 days a week. This removes the barrier of having a physical branch.
- They operate in Apps and web pages: another characteristic of digital banks is that they operate 100% online, they do this through mobile applications and web pages. To do this, they use digital payment methods such as credit and debit cards, as well as transfer systems.
- Automation: Many of the processes of digital banks are automated through the use of robots, data processing software and scheduled payment schemes. This makes the efficiency of processes and services much faster. There are even banks that use Chatbots for customer service.
- Speed: finally, you should know that digital banks are characterized by being much faster, more efficient and less bureaucratic. While, in a traditional bank, to change your phone you must sign 20 sheets, here you just have to enter your profile in the app and that’s it.
Traditional banks: How They Work
A traditional bank is a financial institution licensed to receive deposits and grant loans to individuals and companies. Some banks also offer other financial services such as wealth management, safe deposit boxes and currency exchange.
There are three types of banks: corporate banks, retail banks and investment banks. In most countries they are regulated by a central bank or the national government.
Main characteristics of traditional banks:
- Physical branches: Traditional banks have ATMs and staff who can help you with your banking needs.
- It takes time to open an account: but, compared to digital banks, the bureaucracy makes the process of opening a simple account more complicated. In some cases, the bank may even refuse to offer the service.
- Online services: with the growth of digital banks, many traditional banks now offer online services. Many have apps for account management and service channels.
- Fees: traditional banks usually charge more fees and more money for services and financial transactions performed. Digital banks charge much lower amounts and some do not even charge fees.
- More personalized and direct customer service: perhaps one of the most appreciated characteristics of traditional banks, even if digital banks have particular facilities. A lot of people value and make a point of face-to-face service. And traditional banks always maintain this type of service for their customers. A service that is not offered by digital banks.
Digital Banks vs Traditional Banks: How to choose the best bank for your profile?
As explained throughout this material, digital banks versus traditional banks have different characteristics and some similar characteristics. In addition, to find out which bank is best for your profile, just read and evaluate this explanatory material again.
Also, there is a common situation: currently, most people have a profile for the two types of services that meet their needs and lifestyles (in addition to the facilities offered by the two types of banks).
Therefore, choosing between a digital bank versus a traditional bank or deciding which bank is best for your profile is perhaps an unanswered question.
The best bank is the one that brings benefits and makes your life easier, in addition to other advantages.
So consider being a customer of both a traditional bank and a digital bank. Thus, your financial life will certainly become more practical!
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