Challenger banks have been gaining popularity for a while now. However, the COVID-19 pandemic with its lockdowns made this popularity skyrocket. The entire fintech industry has experienced an unprecedented boost during these trying times. The use of various fintech apps increased by over 70% in a blink and it keeps going up. For all that online banking was steadily becoming the norm, now it seems to have taken the leading position for good.
How much did the COVID-19 pandemic affect the rise of online banking?
The coronavirus pandemic had a devastating impact on the world as a whole. In fact, this impact cannot be fully calculated still as the pandemic is far from over. There is a risk of the second wave in many places. And even the countries that are “in the clear” already, will continue to suffer from the economic ramifications of it.
The global economy is going through a recession compared to the Great Depression, according to the IMF. The world will take years to recover from this crisis and some aspects of life are changed forever.
The prevalence of online banking might be one of those changes that won’t revert once lockdowns and social distancing rules are rescinded.
Online banking is just too convenient, so there can be no doubt that its popularity will keep growing still. However, it’s not only online banking services that have attracted the spotlight now. It’s challenger banks that are experiencing a boost in customers. This increased interest provides these institutions with funds and motivation to improve further. The advantages they offer compared to traditional banks are already significant. If they continue improving, the competition from these alternative sources will become a serious issue for brick-and-mortar banks.
Best online banks and their benefits
The number of online banks, also called challenger banks, is growing fast. But the advantages they offer are rather similar.
The most important benefit of online banking, in general, is convenience. Managing your account from anywhere and at any time is something that the busy people of today appreciate. And this feature has become a legitimate lifesaver in the pandemic.
Fully electronic transactions are much faster than many traditional banking procedures. For example, whereas a regular bank wire transfer might take up to five days, a digital transfer can be completed in minutes.
Digital encryption services today are extremely sophisticated. And human involvement is minimal with online banks. Therefore, in some ways, this type of service is safer than regular banking.
- Cheaper services.
Most importantly, challenger banks have fewer operational costs. Therefore, they are able to offer much more affordable services. For customers who want to get maximum value for money, these alternative banks seem like the best possible option.
It’s the latter advantage that truly makes online banks differ from online banking services offered by traditional banks. After all, every bank worth anything today offers the convenience of online services. However, it’s only challenger banks that offer a true difference in banking costs.
There are also multiple other benefits that help you save more money using these alternative financial institutions. You can do this quite literally with the help of EQ Bank saving accounts that have an impressive 2% interest rate, compared to hardly above 1% of traditional banks. Children can start their savings early with Alliant’s Kid Savings account with 0.75% APY. The list can go on as every online bank tries to offer some advantage geared specifically at saving money. Therefore, consumers have many options to find something that suits their personal situations best.
Online Banking Risks: What You Need to Be Aware Of
While there is no denying the benefits of online banks, there are also some cons to using these particular services.
- Depositing cash can be a challenge.
Cash is still very much the most popular “financial medium” used by the majority of people. While online banks have ways to deposit cash into your digital accounts, those are usually limited.
- Fewer ATMs.
Challenger banks usually have few ATMs of their own, if any. However, this particular issue is largely resolved today. These banks have agreements with traditional banks that enable their customers to use various ATMs. But this usually costs a hefty extra fee.
- Limited services.
While online banks are versatile, their services are still limited in some ways. Loyalty services, in particular, are rather rare for these institutions. Customers who want to make use of a full range of banking services sometimes need to create accounts in several online banks.
- No personal connections.
You aren’t likely to have a trusted family banker by using online services. In fact, you will interact with bots more often than humans in general. This can be daunting and it definitely makes resolving some issues harder. However, improved customer support services is one of the priorities for fintech apps of today.
- Security risks.
Encryptions and other digital security solutions are improving by leaps and bounds. But it’s the same for hackers. Digital banks are vulnerable to cyberattacks, but so are any banks today. The truly important difference is that traditional banks are usually backed up by specialized funds or the government. Therefore, even if they are attacked, customers have a chance at some insurance. But with a digital bank, your money might be completely lost.
In Conclusion: Will Online Banking Stay Popular After the COVID-19 Pandemic?
Online banks are becoming more popular than ever, especially with the COVID-19 pandemic limiting consumer mobility. However, there is no denying the fact that traditional brick-and-mortar banks still attract customers. Their unique advantages cannot be completely outweighed by digital services at the moment.
But this situation might change quite soon. The unprecedented increase in interest also caused a boost in the development of digital banking technology. As these services improve, more and more people will keep choosing them over traditional service. Therefore, soon brick-and-mortar businesses might become completely obsolete.
Already traditional banks are forced to digitalize more and more to stay competitive. With the changes brought on by the pandemic, going more digital might be their only way of survival.
One thing is for sure, the online banking industry will not go back to how it was before the COVID-19. It will continue growing at a much faster rate.