Digital banking, online banking, and mobile banking are all terms that are usually used interchangeably. And, although it is often justified to use them so as they are similar, some differences might warrant us to use them only in particular situations.
So, to clear the air and find an answer to the question if digital banking is the same as online banking, let us look at each term separately and in greater detail. But first, here’s the short answer:
Digital banking is a much broader term than online banking because it offers more features and benefits than online banking, which is just an extension of services that are offered in physical branches.
What is online banking?
Online banking is an extension of existing branch-based services like deposits, bill payments, transfers, etc. Every bank these days offers its customers online banking, through a desktop computer, via a mobile app, or both.
You might think that online banking is a fairly new concept, after all, the internet hasn’t been around for that long. Yet, the early version of online banking began exactly 40 years ago, in 1981 in New York.
That was the year that four of New York City’s banks – Chase Manhattan, Citibank, Manufacturers Hanover, and Chemical Bank – started offering home-banking to their customers.
You see, online banking allows users to handle financial transactions directly via the internet. On the other side of the pond, the Bank of Scotland started the first UK internet banking service in 1983, enabling its customers to connect to the internet with their TVs and telephones to pay bills and transfer money.
Fast forward to 1999 when Bank of Internet USA was founded. It offered many benefits over traditional banks, such as better convenience, higher interest rates, online banking transfers, and much more. People certainly recognized the advantages as the bank acquired 3 million customers by 2001. The bank is now called Axos Bank and is one of the leaders in the space.
Already in 2006, 80% of US banks offered online banking to their customers. Yet digital banking still wasn’t offered to customers. It would take good five to ten years more for digital banking to start cropping up.
What is digital banking?
Digital banking is a broader term than online banking because it has more moving pieces. Online banking is digital banking but digital banking is so much more and is not just banking but on the internet. It’s more than an internet extension of functionalities that banking branches offer.
An online bank simply replaces some core banking functions but you still have to visit a branch to deal with more complex issues or products.
Digital banks don’t have any physical branches and all their services, no matter how complex, are available on an app or desktop. You can apply, edit, or discontinue a financial product such as additional accounts, savings accounts, investments, cards, etc.
Digital banks are at the forefront of innovation and are often thinking outside of the box to deliver exciting features, benefits, or services.
A digital bank is often not a bank at all, but a financial technology (fintech) company that has partnered with a traditional bank to be able to bring banking services.
Some of the most popular digital banks in the US aren’t banks at all and are not allowed to call themselves banks. This includes Chime, MoneyLion, and SoFi – all fintech companies that have partnered with banks with a national banking license.
MoneyLion, for instance, is marketed as an all-in-one mobile banking experience. It offers a checking account (for $1/m), an advance with no interest, a fully managed investment account, cashback rewards, no hidden fees, and a credit builder program ($19,99/m).
Other digital banks offer a comparable service with more or fewer features and lower or no fees at all.
What is mobile banking?
Mobile banking is a broad term that encapsulates every aspect of banking and financial services that take place on a mobile device such as a phone or tablet. It doesn’t matter how complex or simple the financial transactions are as long as they’re taking place on a mobile device, i.e. on a mobile app.
Mobile banking includes paying for a coffee via Apple Pay, mobile payment and digital wallet service, making a money transfer abroad via Wise’s mobile app or browser, or investing in crypto with Cash App or Revolut.
Mobile banking is certainly the most convenient way of banking and it can be an extension of traditional banks’ services (online banking) or a full-blown digital banking app with all the bells and whistles.
Is digital banking the future of banking?
Digital banking is 100% the future of banking. Traditional banks are either going to adapt and transform their existing online banking platforms and apps into digital banking powerhouses or they are going to go the way of the dinosaurs.
As there are fewer baby boomers in the world and more millennials and gen Z – the ones that are used to the digital world and don’t know anything else, real digital banks are going to see their customer numbers rising rapidly.
The pandemic has already accelerated this upward trend so there’s no stopping it now. Legacy banks are in a real pickle, trying to adapt their clunky systems and even launching their own digital offspring.
There’s an excellent example coming out of Ireland where four of the biggest traditional banks, KBC, AIB, Bank of Ireland, and Permanent TSB, are launching a joint venture with a clear goal to “deliver a multi-banking payment app that will enable Irish users to send and make payments in real-time”.
They are doing this just to compete with Revolut, a breakthrough financial super app from the UK that already acquired more than 15 million customers globally.
It’s obvious that fintech startups and legacy banks alike agree that digital banking is the future of banking. Fintech companies worldwide that are venturing into the digital banking space are having no problems finding investors or venture capital firms that are more than willing to invest hundreds of millions of dollars in them.
Traditional banks, on the other hand, are scrambling to either launch digital offspring of their own or to transform their existing platforms. Neither way is easy for them and they’ll have to invest many billions of dollars to make it work.
Read more in our article: 6 Reasons Why Digital Banks Are The Future Of Banking
How to find a good digital bank?
Finding a solid digital bank is easier than you might think. We list the best digital banks and their reviews on our website, but in a nutshell, a good digital bank has to offer:
- Easy application process
- Fast approval
- Low to no fees
- Higher interest rates
- Free ATM withdrawals
- Budgeting and analytics
- An easy-to-use mobile app
How to open a digital banking account?
Once you find a digital bank that looks appealing and worth signing up to, go to its website, or even better, download their mobile app from one of the app stores that are compatible with your phone.
Simply enter personal information that’s required and verify your identity and email address, and phone number, and you’re ready to fund your initial deposit or receive a payment. You can either use the built-in virtual card or order a debit card if it isn’t coming to your address by default.
The bottom line
Now that we know the difference between the usually interchanging terms like digital, online, and mobile banking, it’s easy to see the distinction. Still, you’ll find that it isn’t a big fail even if you continue using the terms interchangeably.
Adrian Volenik is a fintech enthusiast who loves testing and reviewing digital banking apps and financial products in general. How many digital banking accounts can one man have? Not enough, if you ask Adrian. As his wallet will soon explode if he doesn’t cut back on the number of cards.