What is Digital Banking? Meaning, Types, Products, And Services

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Does the thought of waiting in long queues at your local bank make you think twice about visiting? Could you be using this time to do something more productive instead? Or maybe watch the new Marvel movie that just hit theatres?

I have just two words for you. Digital banking.

What is digital banking?

Digital banking is an umbrella term covering all the banking-related and financial institutions related services online. These services are offered through the bank's website, a mobile application, or both. Through digital banking, you can access their banking features remotely from anywhere in the world. Not only that, digital banking also automates a lot of banking services like transferring money, opening a fixed deposit, ordering or blocking a debit card or credit card etc. through the app, making them far more efficient than their brick and mortar counterparts.


Digital bank's products and services

Digital banks offer most, if not all, the products and services a brick and mortar bank offers. These products and services include - 

       

1. Savings accounts

Digital banks let you open a savings account with them. You can access banking services through these accounts while using the account as a safe haven for your money. Banks offer interest on money stored in savings accounts, and as a result, they also help preserve your money’s purchasing power over time.    


2. Current accounts

Current accounts are primarily used by businesses as they usually need to make multiple transactions on a daily basis. Unlike savings accounts, these accounts aren't charged any fees after a certain number of transactions. However, banks do not pay any interest on money stored in these accounts.    


3. Cash withdrawals and deposits

Digital banking allows users to withdraw from or deposit cash to these accounts. The number of withdrawals is set as per the RBI guidelines.    


4. Fund transfers

Through digital banking, users can transfer money between bank accounts, e-commerce services, or other business transactions. There are three main ways to transfer funds online.    

Type of fund transfer

Immediate payment service (IMPS)

National electronic funds transfer (NEFT)

Real-time gross settlement

(RTGS)

Time period for settlement

Immediately

2 hours

Immediately

Minimum transfer limit

Rs. 1

Rs. 1

Rs. 2,00,000

Maximum transfer limit

Rs. 2,00,000

Decided by bank

N/ A

Service availability

24 x 7 

24 x 7 

Decided by bank

Transfer fee

Decided by bank

Decided by bank

Decided by bank

       

5. Bill payments

Digital banking services allow you to pay your utility bills through them. In well-designed mobile applications, these digital banks also offer reminders for when these bill payments are due, so you do not default on these payments.    


6. Bank statements 

Through digital banking, you can generate bank statements online through the bank's mobile application or website. These statements can be beneficial to users to reflect on how they have been spending their money.    

       

7. Loans

Certain banks are able to loan money to their users through digital means only. However, not all online banks are able to lend money to their users.    

This is by no means an exhaustive list of all the products and services offered by a digital bank.  Other specific services are also offered depending on the requirements and capabilities of digital banks.


Digital banking offered by traditional banks

Traditional brick and mortar banks has been around forever. These banks have a strong offline presence. However, they have begun to explore online banking by offering digital banking solutions through their website or mobile applications in recent years. Since traditional banks are directly regulated by the RBI and compulsorily must have a banking license, they are able to offer a wide range of services. This can be both a boon and a curse. While this means more banking options for their users, having too many niche products and services can make their mobile applications seem clunky and hard for users to navigate.


Digital banking offered by neobanks

Neobanks are banks that function entirely online. They have no physical locations and, as a result, end up saving a lot on maintenance costs. This allows them to reduce banking costs for their customers as well as offer better interest rates. The one downside to neobanks is that they are not directly regulated by the RBI and do not have a banking license. Due to this, they are not able to offer many financial services like giving loans to their customers or missing credit cards.


Types of digital banking services

Here’s a list of the most prominent types of digital banking services in India


1. Card payments

Card payments are the most widely used tool in the digital banking space. You can use a credit/ debit card to purchase goods and services online, pay utility bills, make business transactions, and so on. You can use these cards to withdraw cash from ATMs as well.     


2. United payment interfaces (UPIs)

UPIs are a system that allows you to link your bank account(s) to a mobile application. You do not need an IFSC code or bank details to use a UPI, as payments are made through a virtual payment address (VPA) instead. Payments made through this system are quick and hassle-free. Through UPI applications, you can send or request money, pay bills, scan and pay through QR codes, make peer to peer payments, and a lot more. UPIs are gaining popularity for being the most convenient cash-free payment method.    


3. Internet banking

Internet banking functions similarly to brick and mortar banks. The difference is that these services are all online. You can send or receive money through internet banking via NEFT, IMPS, or RTGS transfers. You can also avail of other services like checking your bank statement.    

       

4. Mobile banking

You can access digital banking services through your bank's mobile application on your smartphone. Mobile banking has become quite prominent in the last few years. One feature of mobile banking that has changed digital banking is the advent of mobile wallets.     

These are digital wallets that allow you to add funds to the wallet in order to pay for goods and services through them. Mobile wallets eliminate the need to enter your card details every time you need to send money to an online merchant.


Advantages of digital banking


1. Convenience

The fact of the matter is that digital banking is way more convenient for a majority of users. They can access these features remotely from anywhere in the world, whenever they want. They do not need to take time out of their schedules to drive down to a physical branch to deposit or withdraw money.    

2. Ease of signing up

 Digital banks are also a lot easier to sign up for. Users can create an account in these banks in just a few minutes by entering their details online.     

3. Higher interest rates/ lower fees

Since a lot of digital banks have no physical locations to maintain, they end up saving a lot of operational and maintenance costs. As a result, they may offer higher interest rates, lower fees, or both. Not all digital banks offer these features, however. They are usually seen in neobanks.    

4. Personalised features

Digital banks, especially neobanks, are able to offer more personalised features. These features may include bill payment reminders, saving money for a big purchase, personalised weekly budgets, and so on.    

5. Rewards

Digital banking solutions also offer rewards like cashbacks or coupons for E-commerce websites for transactions you make through them.    


Drawbacks of digital banking

       

1. Harder to use

For the older generations or people who aren't tech-savvy, it can be hard to understand and use digital banking. These people might be better suited to using more traditional avenues for their banking needs.    

2. Security issues

While most digital banks have stellar security protocols in place, individuals themselves are prone to hacking and data phishing. If your banking passwords are leaked, it could put your accounts and funds in jeopardy.    

3. Server maintenance 

While transactions that take place through digital banking are generally fast and efficient, you will not be able to use digital banking services in case of server maintenance.    

4. Customer service

Most digital banks ensure that they have great customer service. However, it may be difficult to reach out to a customer support representative in relatively rare instances. In such cases, users may find that they are dissatisfied with their service. While traditional banks may also have cases of underwhelming customer service, users can still go to the bank's physical location to raise an issue. This is not possible with digital banks that have no offline presence.    


Conclusion

Digital banking has exploded in popularity in the last few years. With the technological revolution of the 21st century, a large population of the underbanked have also been able to start online bank accounts remotely. This is a step towards a more inclusive banking culture.

The newer generation is accustomed to doing most things online. Banks have been a little late to catch up, but they are finally here. Digital banks and neobanks, in particular, are changing the landscape of the banking industry as it exists today.


Frequently asked questions

What is the meaning of digital banking?

Digital banking means using banking services online. Instead of visiting a bank in person and asking another person to process your service requests through a digital bank, this request is automated. All you have to do is sign in to your account and start banking.


What is an example of digital banking?

Fi neobank is a great example of what digital banking stands for. Though it is yet to get a banking licence, it is partnered with a licensed bank to conduct operations. It operates completely online, offers higher than average interest rates at 5.1%, allows users to personalise their banking experience with the help of their smart assistant, and offers rewards for using its services and saving money. 

Fi offers a zero balance savings account that takes just minutes to sign up for. Banking has never been this convenient.


How does a digital bank work?

A digital bank essentially offers most if not all of a regular bank's services. The only difference is these services are offered through websites, mobile applications, or other online routes.


What are the types of digital banking?

There are many different digital banking solutions around the world. Banks may also offer their own unique mobile banking solutions. That being said, the three most common types of digital banking are: 

       
  1. Debit/ Credit cards - Making online payments through debit/ credit cards are very common. These cards are very versatile, and users can use them to pay for almost everything.    
       
  1. Mobile banking - Mobile bank applications for most of the prominent banks in the country are available through the play store/ apple store. There are also mobile applications for neobanks that exist entirely online. These apps offer users most of the typical banking features like fund transfers, and internet banking. Mobile wallets, and so on.    
       
  1. United payment interfaces (UPIs) - UPIs have become a common way of transactions between consumers and merchants. They are very versatile in their use and are completely cash-free. You can pay directly to another UPI ID, through a scanned QR code, or by using a UPI account holder's email or mobile number.     


Is digital banking safe?

Digital banking is generally very safe. These banks have extensive security protocols in place to keep your money and personal information safe. To ensure added safety, users should opt for two-factor authentication to confirm payments as a rule of thumb. 


References 

https://www.forbes.com/advisor/banking/what-is-digital-banking/

https://www.veriff.com/blog/what-is-a-digital-bank

https://www.insiderintelligence.com/insights/digital-banking-trends/

https://tavaga.com/blog/digital-banking-meaning-benifits-products-types-disadvantages-future/

https://sdk.finance/what-is-digital-banking/

https://www.bankbazaar.com/ifsc/difference-neft-rtgs-imps.html

https://www.bankbazaar.com/ifsc/digital-payment.html

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