Digital banks are a result of the increased movement from traditional banking methods to online banking that has occurred over the previous two decades. More and more commonly every day, banking services are provided over the internet. Digital banks take this trend to the logical conclusion, by operating entirely digitally. While for many people, the shift to online banking remains ongoing, digital banks are an attempt to get ahead of the curve and do business exclusively via the internet.
The beginning of the transition from traditional banking to online banking took place in the nineteen sixties, with the advent of ATMs and credit cards. As the internet became more and more widespread, online banking services became more and more popular as well, and today they are the norm. More than half of all customers in the United States today use their smart phones in order to do their online banking, and that number gets higher every day. Because of this, it seems logical to many people to stop using traditional banks such as Wells Fargo or Chase entirely, and use banks that only exist on the internet. The first of these digital banks is called Simple, and was started ten years ago in 2009 as a result of its founders’ frustration with the flaws of online banking systems. They offer free accounts and do not bill their customers with a number of charges for the services rendered. Today there are dozens of digital banks just like Simple, that exist solely on the internet.
However, most people today still use traditional banks like Bank of America rather than digital banks like Ally or Chime. Combined, there are only approximately seven million deposit accounts at digital banks being used currently. Millennials are the demographic most likely to make use of a digital bank, and only three or four percent of them have an account with a digital bank. The percentage of Generation X and Baby Boomers who use digital banks is even smaller than that, making the total percentage of Americans who use a digital bank less than one percent. The reasons for this vary depending on who you ask. The first and most important of these reasons is that digital banks have nothing to offer consumers that traditional brick and mortar banks do not offer as well. Online banking services for traditional banks are just as convenient as those offered by digital banks, and as a result their popularity has declined very little. The second reason is that banks that have actual branches where customers can go give their customers a security blanket of sorts. If there is some kind of issue or fraud that takes place, customers can go talk to an employee in person in order to resolve the issue. While eventually, it is likely that all banking will take place entirely digitally, that will not happen for at least another decade.