As per Statista's recent predictions, engagement with online banking is expected to follow an upward trajectory from 2021 to 2024. 2020 witnessed a staggering 805 million active online banking users globally, projected to crest at approximately 1 billion by 2024.
Reflecting on the monetary aspect, the digital banking market, valued at roughly $47.4 billion in 2021, is forecasted to skyrocket to a colossal $2.05 trillion by 2030.
A pioneer of this transformation, the banking and financial sectors began adopting digital strategies as far back as the 1990s. Traditional brick-and-mortar banks, recognizing the convenience and efficiency digital technology offered, swiftly transitioned to online platforms, a move that proved to be a resounding success and catalyzed other banks to follow suit.
However, while offering many advantages, online banking also has its share of drawbacks.
In this blog post, we will focus on questions such as: what exactly are the advantages and disadvantages that consumers experience in digital banking? And how has the advent of digital banking revolutionized the financial landscape? Join us as we delve into this fascinating topic!
What Are the Pros and Cons of Digital Banking?
Digital banking demonstrates the most significant transformations in the banking industry. Conventionally, many established banks and FIs were not proactive in embracing a comprehensive online banking product suite as the digital transformation took time and labor with risks of data loss.
Because of the recent technological advancements in the financial sector, many financial establishments are adopting digital banking. Here are some of the significant benefits and risks of embracing digital banking in today's world:
Pros of Digital Banking
- Adaptability
Digital-only financial institutions and banks are more highly adaptable than conventional banks. These digital banks are startups letting them become more agile than major banks with thousands of employees. Consequently, these banks can incorporate features long before conventional banks start.
- 24/7 access to banking services
This is the most significant benefit of digital banking. You can get round-the-clock access to your bank account with a digital bank. You will never need to wait for long working hours to deposit your funds and obtain an account statement, transfer funds, and modify your account details. The best part is that you can access your bank anytime and anywhere.
- Digital banking solutions for business
While signing up for digital banking, you may conveniently regulate all your finances online. It's the right strategy for people who work for longer times and have to travel long distances to deposit cash in a bank branch.
Recent research by Statista shows that 73% of UK inhabitants actively use online banking. Most polled people said they prefer to regulate their cash using their smartphones.
Therefore, using digital banking to handle your money means you don't have to wait in long queues. You can access your accounts anytime and anywhere.
- Seamless online experience
Bain and Company has conducted a survey showing that digital banking providers are better than brick-and-mortar banks in areas that highly matter to customers. It includes the simplicity, speed of transactions, and quality of banking experience.
Some Limitations of Digital Banking
- Internal restrictions
A cultural revolution is necessary for both the financial industry and staff if banking needs to be entirely digitized. But it's great to know that banks have a distinct way of departmentalization, which significantly affects the technology level.
A computerized financial system will help certain divisions, forcing some departments to make workforce reductions. Training for staff members might also be necessary.
- Issues related to security breaches and identity theft
Smartphone apps and online banking platforms must be secure as banks install novel safety measures. Nevertheless, not every system is entirely safe, and hijacked accounts may result in security breaches and identity theft because of stolen login credentials.
Even though you use a smartphone or digital banking with utmost confidence, be wary of using insecure networks. Moreover, you must not change passwords too frequently and protect your login credentials.
- Depositing cash could be a challenge
Checks are simple to deposit from your phone with online banks, but money can be a little more challenging.
For instance, you might need to locate an ATM that accepts deposits. Alternatively, you might have to deposit into a regular bank account and then into your online account. You might alternatively use cash to purchase and instantly deposit a money order through the mobile app of your online bank.
- Lack of human interaction
Apart from the convenience of digital banking, the lack of human interaction is the biggest con. Despite giving consumers fast, round-the-clock access to their accounts, digital banking sometimes lacks the private touch of in-person contact with bank employees.
Customers sometimes require assistance to receive the help or guidance they need. Customers who are older and may not feel comfortable utilizing computers or mobile devices will notice this disadvantage more.
Impact of Digital Banking on Financial Inclusion
Wondering how digital banking has transformed the financial landscape? The banking or financial industries are facing technological modifications by introducing novel financial products provided digitally from both banking and non-banking sectors.
McKinsey reported that digital finance is "financial services provided via mobile phones, cards, and internet." Moreover, digital financial inclusion is the utilization of financial services by excluded and underserved members of the population.
The full impact and future possibilities of digital financial services are advances that won't be known until they've been put into practice. According to Hanning, the director of the Association for Financial Inclusion, "The widespread use of online finance will have an important effect not only on the accessibility of financial services but also comprehensive economic expansion."
Furthermore, online banking can give 1.6 billion people in emerging markets the opportunity to utilize financial services based on their research on seven nations: Brazil, The People's Republic of China, Ethiopia, Mexico, Nigeria, India, and Pakistan.
The widespread adoption of digital finance can potentially boost developing nations' GDPs by 6%, or $3.7 trillion, by 2025—a growth comparable to Germany's economic growth.
The interaction between people and their funds and institutions has radically changed due to the advancement of technology in banking. It provides a variety of advantages, including ease, 24/7 possession of your money, automated payments, reduced expenses, excellent interest rates, and improved banking service.
It's nevertheless necessary to be mindful of its disadvantages, such as security risks, the potential for technological difficulties to lock you out of your account, and the propensity for spending the funds on items you hadn't planned for.
Most individuals will discover that the advantages exceed the disadvantages. However, remember to take the necessary precautions to protect your money to make the most of digital banking.
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