A digital bank is a financial institution that offers banking services through the internet and mobile applications, without any physical branches. Customers can manage accounts, make payments, and obtain loans online.
A digital bank can operate independently with its own license or provide services based on an existing traditional bank.
Digital banks are often called neobanks, internet banks, and virtual banks.
Many financial analysts believe that the innovative business model of digital banking better aligns with modern trends and customer requirements than traditional banks. Investment dynamics in this industry are positive, with new neobanks being established worldwide each year.
According to Spherical Insights, the global digital banking market was valued at $51.42 billion in 2022. By 2023, it had grown to an estimated $98.40 billion (data from Fortune Business Insight). Forecasts predict that by 2024, this figure could reach $143.29 billion, and by 2032, $3,406.47 billion.
The Asia-Pacific region is expected to experience the fastest growth during the forecast period (Spherical Insights).
Digital banks began to emerge in the 1990s with the advent of the Internet and mobile technologies. The first online banks offered basic online services, such as checking accounts and transferring funds. In the 2000s, the development of smartphones and mobile applications accelerated the growth of digital banking. An additional impetus came with the coronavirus pandemic, declared worldwide in March 2020.
Modern neobanks now offer a full range of banking services without the need to visit physical branches.
Advantages and disadvantages of digital banks
The advantages of digital banks over traditional ones include:
- All operations are performed online, eliminating the need to visit branches.
- No costs for maintaining physical infrastructure, reducing overall expenses and, consequently, lower operating costs.
- Biometrics, blockchain, and artificial intelligence provide high security and an improved customer experience.
- Convenient user interface and ease of use.
- Big data analysis allows services to be tailored to the individual client’s needs.
A short list of disadvantages of digital banks includes:
- Lack of physical branches – for some clients, the absence of personal communication with bank employees, and the inability to resolve complex issues face to face is a drawback.
- Complete dependence on technology, which can cause inconvenience due to failures or connection problems.
- Data security and privacy – the risks of cyber-attacks and data breaches remain despite the implementation of advanced security technologies.
Regulatory aspects
Digital banks operate under strict regulatory controls to ensure customer protection and the stability of the financial system. Regulations may vary by country and region but generally include capital, reserve, and data security requirements.
