Digital Banking vs. Online Banking vs. Neobanks — What’s the Difference?
Written by
Elizabeth Constantineau, AI Editor
Edited by
Elizabeth Constantineau
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The world of financial management has evolved significantly. You might have come across terms like digital banking, online banking and neobanks. But how do they differ from each other? While these terms might seem overwhelming, understanding their differences can help you decide where to keep your funds. Keep reading to learn the difference between digital banking vs. online banking vs. neobanks.
Online Banking
Online banking, at its core, refers to banking activities that can be conducted over the internet. These services are typically provided by traditional banks and credit unions. Online banking platforms allow users to do the following:
- View account balances
- Transfer funds
- Pay bills
Users can do all of these tasks without setting foot in a physical branch.
The rise of online banking has been a direct result of technological advancements. Yet, it’s worth noting that online banking is just a feature provided by many traditional banks. This enhances their offerings without entirely replacing brick-and-mortar operations.
Digital Banking
Digital banking expands on the concept of online banking, covering all digital platforms and services provided by a bank. It isn’t just limited to internet platforms but also includes:
- Mobile banking
- Chatbots for customer service
- Digital payment solutions
In essence, when comparing digital banking to online banking, the former encompasses a wider range of technological tools for financial management.
Digital banks often operate exclusively online, with no physical branches. The low overhead costs, similar to online banks, allow them to offer competitive rates and innovative solutions to customers. Their streamlined, cohesive strategy is tailored for the tech-oriented individual seeking all-inclusive digital answers for their banking requirements.
Neobanks
Neobanks are the new kids on the financial block. Unlike traditional banks that have ventured into the online realm, neobanks are entirely digital entities from their inception. They do not operate any physical branches, nor are they directly tied to legacy banking systems.
When evaluating the differences of a neobank vs. digital bank, remember that while all neobanks are digital banks, not all digital banks are neobanks. Neobanks often differentiate themselves by doing the following:
- Targeting specific user groups
- Offering niche services
- Presenting unique user experiences that leverage cutting-edge tech and design
Digital Banking vs. Online Banking vs. Neobanks: Pros and Cons
Here’s a quick comparison to help you understand the differences between digital banking vs. online banking vs. neobanks.
| Type of Banking | Pros | Cons |
|---|---|---|
| Online Banking | – Access to brick-and-mortar services – Established brand trustworthiness – Can be FDIC insured |
– Limited to internet platforms – Can be less innovative |
| Digital Banking | – Comprehensive digital solutions – Competitive rates due to lower overheads – Can be FDIC insured |
– May lack face-to-face customer service options – Can be overwhelming for non-tech users |
| Neobanks | – Highly innovative – Niche offerings – Advanced tech integrations |
– Newer, so less established trustworthiness – Lack of physical locations can be off-putting for some |
Final Take
Just as it’s wise to consider both savings accounts and CDs for diverse financial goals, it’s important to evaluate online banking, digital banking and neobanks based on your individual needs. Each has its advantages and may cater to different aspects of your financial life. Whether you’re prioritizing convenience, innovation or trust, there’s a banking solution out there tailored for you. In the ever-evolving world of finance, staying informed and adaptable is the key to ensuring your money works best for you.
FAQ
Here are the answers to some of the most frequently asked questions regarding types of banking.- Is online banking and digital banking the same?
- Online banking and digital banking are not exactly the same. Online banking refers to banking activities conducted over the internet, such as checking account balances or transferring funds. Digital banking, on the other hand, is a broader term that encompasses all digital channels and services offered by a bank. These could include online banking, mobile banking, chatbots and other digital financial solutions.
- What is meant by digital banking?
- Digital banking is the use of digital channels, technology and platforms to offer and manage banking and financial services. This includes not just online banking via the web, but also the following:
- Mobile banking apps
- Digital payment solutions
- Chatbots for customer service
- Essentially, digital banking aims to offer a complete and unified digital platform for all of a customer's banking requirements, often eliminating the need for in-person branch visits.
- Digital banking is the use of digital channels, technology and platforms to offer and manage banking and financial services. This includes not just online banking via the web, but also the following:
- What are the cons of digital banking?
- While digital banking offers a range of conveniences, it also has some drawbacks:
- Lack of personal touch: Digital banks often operate without physical branches, which means customers might miss out on face-to-face interactions and personalized services.
- Learning curve: For those less accustomed to technology, navigating digital platforms can be challenging.
- Security concerns: Though digital banks have security measures, there are always concerns about data breaches and online fraud.
- Technical glitches: Being reliant on technology means that any system outages or app issues can prevent customers from accessing their accounts or completing transactions.
- Less established trust: As many digital banks are relatively new in the financial market, they might not have the same level of established trustworthiness as traditional banks.
- While digital banking offers a range of conveniences, it also has some drawbacks:
Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.
