Exploring The Pros And Cons Of Digital Only Banks

Digital only banks are gaining popularity in the UK with choices such as Monzo and Starling. And they vary quite a lot from traditional bricks and mortar banks that most of us probably have. I’ve currently got both traditional and digital only bank accounts open. But figuring out what works best for you is important.

As the internet started evolving in the 1990s, traditional brick and mortar banks started looking for ways to deliver online services to their customers. Web logins and eventually apps started quite basic, but developed through time. And now you can open accounts, deposit cheques, process loan applications and download forms online.

Once you could do all of this, digital only banks started to appear. They are institutions that offer online banking and other financial services without a network of branches.

I do have a Monese account, Monzo is the only digital bank I really use so a lot of this information will come from my knowledge of them.

Pros of digital only banks

While digital only banks offer a lot of the same things as traditional banks, there are some pros for us the end users.

Better online experiences

Let’s start with a bit of an obvious one. Traditional banks have invested heavily in improving their online experience. But for digital only banks online is the only way so 100% of their time, effort and budget goes into this. Digital only banks don’t have to balance the in-person experience like traditional banks do.

A survey conducted by Bain and Company revealed that digital banking providers were far better than traditional banks in areas that “mattered most to customers” including, the quality of banking experience and the speed and simplicity of transactions.

Digital only banks have better tools

They tend to have better tools such as showing your budgets and spending habits. You can receive push notifications on your spending and other habits. And generally online banks execute and process transactions quicker. I know with my Monzo money comes out of my account as soon as I spend, and there’s no annoying pending period like with a lot of traditional banks. This is massively helpful as I have an accurate picture of my money.

Better rates, lower fees

You may still need to shop around, but generally as there are much less infrastructure and overhead costs with digital only banks, they can pay higher interest rates and APR. You may find when looking for the best ISA’s or loan applications that digital banks come up trumps.

You’re also likely to get lower fees when it comes to things like going overdrawn etc.

Digital only banks are always open

The inflexibility of branch times or phone line opening times can get annoying with traditional banks. But digital only banks are always open for you to manage your account or reach out via live chat or other methods. You don’t have to worry about travelling to a branch or standing in long queues. As long as you have an internet connection or mobile data you’re good.

Research conducted by Statista, in 2019 found that 73% of the UK population actively used online banking. Most people surveyed preferred to manage their money using their smartphone which makes digital only banks perfect for them.

Cons of digital only banks

Backing online still has some inconveniences or drawbacks.

No specific ATM’s

If you go to the specific banks ATM’s you usually have a few other things you can do like deposit cheques or changing your pin number which you won’t be able to do there with a digital only bank.

A potential limitation on services

I think this is starting to change. But with traditional banks you’d usually be able to pay a monthly fee for things like insurance and different rates. To begin with digital banks didn’t offer this. But I know with the Monzo Premium you can pay for phone and travel insurance and get better interest rates on pots etc.

Traditional banks sometimes offer special things for regular or loyal customers which you don’t tend to get with digital only banks.

No personal relationships

If you’re someone who used to go into your bank branch quite regularly to deposit cash or anything else you may miss the relationship aspect. With traditional banks you may get to know staff in your local branch, but you don’t get that with digital banking.

If you need to speak to someone about changes to your terms it can sometimes be easier to do this face-to-face. Especially as the bank manager usually has some discretion if your personal circumstances change.

Potential difficulty paying in cheques

A lot of traditional online banks will allow you to deposit cheques through your mobile banking by taking photos of the front and back. We have a HSBC joint account and pay in cheques this way, but it isn’t always this easy with digital only banks.

With Monzo for example you have to write your account details on the back of a cheque and post it to Monzo. And this process takes 1-2 weeks if you pay for postage, of 3-4 weeks if you choose freepost. This is compared to HSBC who deposit my cheque within a day.

Digital only banks may prove trickier to pay in cash

If you have a traditional bank account and want to pay cash in you can just take it to the bank. But with digital only banks you usually need to go to a PayPoint location in a shop, or sometimes a post office. For some people this may be more convenient than a bank branch, but for others not so much.

A lot of digital banks will also charge a fee for depositing cash into your account. For example Monzo charge £1 for deposits. So you may find having a traditional bank works out better if you pay in cash a lot.

Do you choose a digital only bank or traditional?

Both types of banks have their advantages, and it really is dependant on what you want your account for on a day-to-day basis. Personally I think it’s beneficial to have an account with both types of banks so you can utilise the pro’s for both and get the best of both worlds.

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