by Dana George | Updated July 17, 2021 - First published on Dec. 26, 2020
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Where you bank should fit your life and goals. It begins with knowing what each type of bank can offer.
Just as the internet changed the face of technology, digital-only banks are changing the way we approach our personal finances. We'll look at what a digital-only bank is, hear from an expert in the business, and cover some of the ways a digital-only bank can save you money.
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As the name implies, a digital-only bank conducts business solely through a digital device like a computer, smartphone, or tablet. While some banks were "born" digital-only, others are offshoots of traditional brick-and-mortar banks. For example, Chase was the parent company of digital-only Finn Bank. HSBC owns First Direct, and Wells Fargo owns Greenhouse digital-only bank. Citizens Bank owns digital-only Citizens Access.
We asked Beth Johnson, Chief Experience Officer at Citizens Financial Group, for insight into why digital-only banks are expected to grow over the next few years.
Johnson explains, "The coronavirus pandemic has led to an acceleration in mobile and online banking adoption by consumers. Many consumers began interacting with their financial institutions in new ways by increasing their use of online and mobile banking during the pandemic, and we see that this new interaction model is likely to stick as we look into the future.
Citizens Financial Group recently released its Banking Experience Survey, which found that 50% of consumers and 76% of businesses said the COVID-19 pandemic "changed the way they interact with their financial institution." Further, 66% of those consumers and 73% of the businesses expected the changes to be permanent.
According to Johnson, it's not an either-or situation. To be successful, banks need to provide customers with end-to-end digitization, while also offering a way for customers to engage with a human advisor when desired.
While Citizens Access and others make it easy to reach a bank representative, not all digital-only banks do the same. If that's important to you, make it a point to learn how accessible bank employees are before you open an account with that institution.
There are at least three ways a digital-only bank can save you money.
A digital-only bank has lower overhead than a brick-and-mortar institution does. That makes it possible to save money by paying less in fees -- or, in the case of Citizens Access and others, no fees. A digital-only bank has no office full of support staff, no tellers, and no coffee station in the lobby. In short, it runs a lean operation. Ideally, as you shop for a digital-only bank, you'll make it a point to compare its banking fees to those of your current financial institution. Avoiding fees means more money to build an emergency fund, pay off debt, or invest in your future.
Low overhead can also lead to impressive interest rates. According to the FDIC, the average interest rate paid on a savings account as of this writing is 0.05%. Citizens Access is currently yielding 0.50%, 10 times more.
Time is the ultimate currency. The more time you save, the more time you have to earn money or accomplish the things you want -- from wherever you want. According to Johnson, a digital-only bank offers flexibility that isn't specific to geography. In as few as five minutes, a customer can open and fund a Citizens Access account from anywhere. Compare that to the time you would spend driving to a bank and waiting for someone to help you open an account.
There is no doubt: Digital-only banks offer some benefits that brick-and-mortar banks do not. That's particularly true if you're someone who does not want the hassle of going into a local bank branch whenever you need a service. If you're a bank customer who feels better knowing you can walk in and sit down with a bank officer, or feels more comfortable banking the way you always have, that's okay by Johnson.
"We don't see the future of banking as 'digital or brick-and-mortar,'" Johnson says. "We view the bank of the future as one that combines the best of digital banking with the best of in-person banking to seamlessly meet customers in their channel of choice. While consumers and businesses alike largely agree that technology is poised to reshape the way they bank, it is not expected -- or even desired -- to outright replace the need for human expertise in client/bank relationships."
That kind of hybrid approach makes sense. Citizens research revealed that 69% of consumers prefer banking online. At the same time, however, around 65% still prefer human expertise when they get financial advice.
Whether you're in the camp that prefers digital banking or not, it's nice to know that you have options -- and you'll still have options, even as digital banking becomes more common.
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