The banking industry has rapidly evolved in the past few decades. Banks have become global institutions, operating in multiple countries around the world—and, perhaps more importantly, online.
Modern customers have begun to place more importance on the online banking capabilities of their financial institutions, forcing European banks to launch new products and adjust their digital strategies to keep up. Fewer customers are visiting local branches; in fact, there have been many reports claiming that online banking is the chief cause of the disappearance of local bank branches across Europe. Belgium, for example, has seen an average 3.5% reduction in the number of branches each year since 2010, according to some reports.
The allure of online banking lies in its convenience, but traditional banking does have its advantages. Salvatore Orlando, Head of Expatriates at BNP Paribas Fortis, explains the difference between traditional banking and online banking, and examines where the industry is headed in the future.
BNP Paribas Fortis
BNP Paribas Fortis offers a comprehensive network of specialised branches for expats, with extended opening hours. Their specialist multilingual advisers are happy to answer all your questions whenever it suits you best.
Online banking vs. traditional banking
Banks have been around for centuries, though its use was generally reserved for only the wealthiest citizens. These days, having a bank account is considered a basic requirement — and a right — in order to fully participate in society, according to the European Commission.
What is traditional banking?
The biggest difference between traditional banking and online banking is a physical presence: a traditional bank has a headquarters, as well as regional HQs, with branches located across the countries in which it operates. Many traditional banks operate their own branded ATMs, but smaller traditional banks may join together to operate a large number to share costs. Traditional banks, with their local branches, were initially chosen for their convenience — i.e. which bank had a branch closest to home — as well as their face-to-face customer service.
According to a 2016 Global Consumer Banking Survey, which surveyed 55,000 consumers in 32 countries, 60% said they would want to visit a physical branch or speak with a real person in order to purchase a new financial product or ask for advice. Traditional banks, with their focus on in-person customer service, may prove more trustworthy than banks that lack brick-and-mortar operations, especially when the consumer is in the beginning stages of opening an account.
However, accessibility may be lacking with banks that do not have online banking capabilities. Customers have reduced access to their own banking information outside of business hours; when travelling, they may not be able to find a branch or ATM without high fees.
What is online banking?
Digital banking is of utmost importance to modern consumers. In the same survey, 66% of consumers said a “great digital presence” was an important characteristic of their chosen bank —and a majority of Europeans are proving it, with Eurostat data showing that 59% of European internet users have utilised internet banking.
To stay competitive and ensure their customers are satisfied, most traditional banks have incorporated internet banking in their services. Online portals allow customers to view their balances, transfer money, open new accounts and even apply for a mortgage to buy a home or invest — all of which is available 24 hours a day, seven days a week unlike physical branches. Online customer service, including email and chat and video call, have begun to overtake phone calls and visits to the bank’s local branch. Such services allow customers
Mobile banking — in which customers use their phones, tablets or other mobile devices to access their bank accounts — has risen as well, with one report showing that 47% of global consumers did so in 2016. Dedicated banking apps are skyrocketing in usage as well, allowing consumers to make fast, digital payments at physical stores, events and online.
Of course, all this convenience sometimes comes at a price. The surge of digital banking has also created a surge in cybercrimes, as online banking opens up a new avenue for criminals: if a customer accesses his or her banking information over an unsecured network, anyone could “listen in” and access the log-in credentials or other information. Email phishing attempts may convince the less digitally savvy to click links that appear to originate from the bank itself. Banks offering online banking products can secure their own sites and apps, but they must also inform their customers how to use them safely.
Another category of banks has emerged: banks that operate only online, also called direct banks or branchless banks. Direct banks offer all the functionality of a bank, but without any local branches. They often offer more attractive rates, but fewer financial products — as well as the face-to-face customer service that global consumers still covet.
Alternative financial services providers have established strongholds on the market, such as PayPal and Google Wallet, which have made consumers less dependent on their banks.
The future of online banking
The financial services industry is still growing, with more non-bank players entering the market. As a result, banks have begun to rethink their strategies to ensure they stay relevant to modern consumers. Traditional banks, with their personal care, remain important to consumers — but with the increasing offering of online banking services, it’s prudent for banks to focus not just on keeping up digitally – by not only developing its internal digital servics but partnering or acquiring fintech – but maintaining the personal service that traditional banks have historically offered.