E-Banking to Eclipse Traditional Banking in the near future?

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There’s hardly an aspect of our lives that hasn’t become digitized, and banking is no different. You’re probably already well-versed in online banking, using your web browser or your bank’s own app to conduct your affairs. But recent years and the ceaseless progression of technology has given birth to a new breed of bank – the mobile bank.

Mobile banks have no physical branches, exist purely in the online sphere, and are rapidly growing in popularity. Many mobile banks already give customers the opportunity to open a savings account, and even apply for a loan. While many are attracted to their slick app and web design, how safe are these new methods of banking? And given their rapid growth, could they someday replace traditional methods entirely?

There are a lot of reasons why customers would opt for opening an account with a mobile bank, as opposed to a traditional bank with physical branches. For starters, the process of opening a mobile bank account is incredibly simple and fast. Typically all that’s required of the customer is to fill out a quick online form, and then provide proof of identity either via a scan of their photo ID or through a brief webcam interaction with a bank employee. After that, they’re sent a debit card and are free to start using their account as they please. Since there’s no need to provide proof of address with many mobile banks, they’ve become a popular financial choice for expats and digital nomads, who might be without a fixed address for some time.

While the idea of mobile-only banking might strike some as a very modern concept, the idea  had already been around for more than a decade. 2006 saw German bank, Fidor, toy with the idea of branching out into the mobile-only sphere. In 2009 they successfully launched a mobile-only system which was integrated with the customer’s Facebook account. Even the bank’s interest rate is driven by Facebook “likes”. The bank currently offers accounts to customers in Germany and Russia only, but has plans to expand their reach.

Another big player in the mobile-only stakes is German banking start-up, N26, formerly known as Number26. The Berlin-based company offers current accounts, saving accounts, and loans to customers – all serviced through their smartphone app. The bank is available across a number of EU countries, and in limited cases allows for the transfer of other currencies to recipients outside of SEPA. In 2017 they boasted a customer base of 500,000, which continues to grow steadily.

The time seems ripe for mobile-only banks to become the standard choice for personal finances, given that 21% of Americans visit their bank branches less than once a year. Online banking in the UK now accounts for over £1 billion a day, and that figure only continues to increase. That being said, mobile-only banks are still limited in what they can offer, and will have a number of obstacles to overcome before they can truly overtake traditional banking.

One major roadblock for mobile banking is international transfers. Banks like N26 don’t allow customers to receive transfers from outside of SEPA, leaving them with only the option to open a traditional account in an established bank, or to use an online service like TransferWise to receive payments from outside of Europe. Even in the case of TransferWise, certain restrictions apply and customers can’t receive transfers from a number of countries. Given the increasingly globalized scope of modern work, and the fact that more and more people are opting to work remotely for employers based abroad, traditional banking remains the more secure and convenient option for receiving payment. It seems ironic, and perhaps a little counterintuitive, that mobile banks which rose in popularity thanks to their use by remote workers and freelancers have so far failed to provide a solution to the issue of receiving international transfers. If mobile banks can’t address this issue with their core user base, it’s unlikely that they’ll be able to usurp traditional banks any time soon.

Another obstacle facing mobile banks is customer security. Though mobile banks work hard to protect customer data and funds, the general public remain wary of services that lack a human element. It might be some time before the public warms to the convenience of mobile banking, compared to the face-to-face familiarity of traditional banking. While many traditional banks are investing a lot of effort to improve their online capabilities, it’s uncertain whether or not physical branches and the personal service they provide will ever truly die out.

In the meantime, mobile banks have their place as a useful, though limited, alternative to traditional banking. Their approaches are certainly influencing many larger banks, even if their growth is not yet at the stage where traditional financial institutions should feel threatened. Further expansions over the next couple of years could really make or break mobile banking, and shape the way we handle our financial affairs for decades to come.

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