As technology develops, every human need can be fulfilled digitally, and banking activity is among them. Thanks to the establishment of fintech banking companies, we can now transfer money, go shopping, or pay bills with our smartphones without going to the bank. This phenomenon has opened up opportunities to establish a bank that does not require a physical building for every banking activity and can be done everywhere.
As a result, the establishment of the digital bank rose to the surface and started to take over the existence of conventional banks. Moreover, the idea of an open banking system comes to the table with the advanced development of financial technology. However, many questions arise about the definition of digital banks and their role in establishing open banking by startup. Here we will give you full detail about what is a digital bank.
What Is A Digital Bank?
A Digital bank is a bank that provides and carries out its primary banking activities digitally without a physical office other than the head office or a limited physical office. The rise of digital banks was influenced by the needs of consumers who want flexibility and fast access to banking services that we can access anytime and anywhere.
In Indonesia, the rapid development of digital banks was seen in 2017 when Bank Indonesia released data regarding cumulative transactions through digital banks reaching 17.1 thousand billion Rupiahs. In 2022, the cumulative transaction will be predicted to reach 48.6 thousand billion Rupiahs.
How Is It Different from Conventional Banks?
The main difference between conventional and digital banks lies in their physical offices, flexibility, and interest rates. While traditional banks provide several main and branch offices in one area, it is rare to see digital banks have more than one physical office other than their main office.
On the other hand, digital banks provide flexibility as you can access all banking services only by your smartphone or computer. You can open an account and report issues regarding money transferring or blocking your account. Meanwhile, conventional banks may still need your presence. Digital banks also offer you a relatively lower interest rate than traditional banks.
Open Banking and Fintech Enhances Digital Banking Capabilities
The concept of open banking has been hailed as the future of the financial industry. Open banking connects several sectors as they can share information regarding customers through application programming interfaces (APIs). As a result, they are legally allowed to track customer behavior, making it easy for digital banks to create future programs that will fulfill the customer's needs.
It is predicted that the global open banking value will be at its peak of $43.15 billion by 2026, growing by 4.4% from 2018 to only $7.29 billion. Open banking will benefit all related parties, which are the government, banks, and fintech banking companies.
Fintech banking companies will gain accessibility to customers' information from the banks, giving them a leap in providing new financial services. On the other hand, banks gain new functions as a service and a platform at one time by providing a customer-centric approach to clients' needs, while the government will ensure that the country's economy is growing.
Benefits of Open Banking for Digital Bank
There are several benefits that digital banks will gain with the open banking system. The main advantage is that banks can implement recurring payments, meaning customers can pay their monthly bills instantly through the bank application of fintech banking companies.
Open banking will also allow e-commerce companies to confirm the transaction and track the customer's information directly from the digital bank, making it easier to determine the customer's needs and problems. Finally, as the customer's data will be shared through several financial companies, the customer will put more trust and loyalty into the digital bank services.
The rise of the digital bank shows that the world now faces more advanced technology development in any sector, including the financial industry. The open banking system that connects several parties, such as banks, financial banking companies, and customers themselves, will bring a new era of banking services that are easy, flexible, and comfortable.