Digital banking vs traditional banks

 

 

 

Digital banking is no longer a novelty as more and more customers discover the advantages of doing all their banking online. And both personal and business customers are seeing the benefits. Due to the technology evolving quickly, new features and services are being added all the time, enhancing what we can do with digital banking.  

Traditional banks are seeing that digital banks are a real threat and are responding by trying to offer similar online services. However, for the most part, these are based on an archaic banking model and simply can’t compete in terms of pricing, functionality or added value features. 

 

 

24/7 banking has arrived 

 

At a time when just about everyone has access to the Internet, even on the move, banking online is easier than ever. Now, you can access your account anytime, making money management effortless, which is especially handy if you’re running a business.  

The new breed of fintech companies have made it easier to connect and manage your financial life on more platforms, such as mobile devices and tailor-made apps, so you can connect with customers round the clock. These days, online banking isn’t simply about checking your balance and paying bills – you can do a whole lot more, such as receiving payments from customers.  And because of Open Banking, you can do it all in conjunction with your old traditional bank account. 

 

 

More convenient 

 

When was the last time you took a cheque from a customerProbably not too recently. Because more people are making payments online, there is less need to go to a physical bank to lodge cheques or cash.  

Even ATM usage is falling as contactless payments are being completed more than ever before. The Covid crisis has added to this as fewer people want to handle money due to the risk of infection. This is set to continue when the pandemic has passed.  

Best of all, many new online banking platforms interface seamlessly with other software packages, such as those that handle accounting, taxation and payroll. 

 

 

More choice 

 

Fintech companies, such as KoalaPays, provide customers with more choice than ever before. For example, we offer unique services targeting specific needs of our business customers, and adding more value than a generic traditional bank ever could.  

Our easy-to-use platform allows clients to hold and convert over 20 major currencies, which makes cross-border payments quick and secure. Furthermore, having a fully digital account, makes managing your cashflow and identifying how you can improve your revenue streams easier than ever. 

 

 

Fewer fees 

 

With no costs for maintaining physical branches, online banks are very cost-efficient, especially as many transactions carried out online don’t require third parties, as it is the case with traditional banks. Automation of many banking processes also means fewer staff are needed. All this adds up to considerable cost savings over the traditional banking model – savings that can be passed onto customers meaning fees are exceptionally low and, in some cases, only charged for premium services. 

 

 

Faster and more efficient 

 

Everything is faster and more efficient online and this applies equally when it comes to banking. Since a lot of processes are automated and stored in the Cloud, paper errors are significantly reduced. Even customer support is better. You can get answers to most of your questions by email, through an app or by using a chatbot. 

The traditional banking model has become outdated. Fintech companies have made digital banking faster, more convenient, cheaper and more useful for customers. New functionality makes it easier for clients and businesses to manage their finances in ways that were impossible before and provide new types of innovative services that meet the unique needs of their customers. 

What’s next for the payments industry?

 

 

2020 has been a tumultuous time for businesses in every sector, but one of the legacies of the Covid-19 crisis has been a huge reduction in cash transactions and a big upsurge of making use of alternative payment methods, such as the use of online payment platforms. This trend is set to continue as businesses and customers see the benefits of making payments online. But, what other developments can we expect to see in payments industry in 2021 and beyond? 

 

 

Artificial Intelligence comes of age 

 

The acronym on everyone’s lips at the moment is AI or Artificial Intelligence. The effect of AI is being felt across every industry sector, but in the world of online payments it has the potential to vastly improve payments ecosystems for banks, payment processors, businesses and their customers.  

The technology is already being rolled out in the form of chatbots, Smart assistants, such as Siri and Alexa, and new applications are in the pipeline. In terms of the payments industry, AI has the potential to greatly enhance the user experience (UX), reduce fraud, create new ways for businesses to interact with customers and personalise payment processes. Along the way, we can expect to see new, more efficient ways of carrying out transactions 

Beyond this, with digital payments set to reach record numbers in 2021, AI and Machine Learning will play a pivotal role in monitoring and analysing all these transactions, offering real insights for businesses in every sector. Which bring us on nicely to the next trend for the online payments industry – data. 

Monetising data 

 

Information has always been vital for companies in order to gain insights and make informed business decisions. Right now, there’s more data out there than ever before – far too much for humans to process. Which is where AI and ML come in. Artificial Technology has the power to collect, move, analyse and transform millions of pieces of data in seconds.  

Two important areas that will benefit are security and authorisation. AI can convert this data into solid advice on why transactions don’t go through and deliver technical tweaks that can eliminate obstacles in the authorisation process and lower costs. 

Look out for new tools coming from KoalaPays that can help you make better, more informed decisions when it comes to your business strategy.  

 

 

The power of the digital wallet 

 

The use of digital wallets (or e-wallets) and mobile payments is rising exponentially, overtaking traditional payment methods. Here, at KoalaPays we already offer these services to our customers, as this area is expected to become a major industry player in the coming years. 

This is because digital wallets have the ability to store additional information such as loyalty cards, or driving licence details, as well as offer increased transparency and security when it comes to monitoring transactions. Two-Factor Authentication (2FA) makes it almost impossible for cyber-criminals to access accounts. And because e-wallet can only be used at specific retailers, they’re not subject to interchange fees imposed by payment networks. 

For businesses, digital wallets are a valuable source of information that can be used to tailor and segment your marketing efforts for greater returns. 

 

 

Cracking security 

 

For all this to happen, consumers need to know that online payments are secure. After all, they are the ones who are driving changes in the sector.  

Online payments have already become one of the most secure ways to pay and accept payments. However, new technological developments such as advanced encryption, biometric authentication, e-wallets and AI/ML will provide solutions that give customers the peace of mind to buy with complete confidence. Once they have that, they’ll make purchase decisions more quickly and buy more often.  

Mobile payments 

 

Mobile payments are becoming big business, but we’re only at the start of the curve. Thanks to API and Open Banking, 2021 could be the year that mobile payments go mainstream. And talking of Open Banking, 2021 will also be the year that banks and the FinTechs create solid partnerships that see them combine their individual strengths to deliver better services than ever for customers and businesses alike.  

While cash and payment cards are here to stay for the foreseeable future, online payments are set to become one of the most common ways customers purchase goods and services. Digitisation and moving to an online payment service provider will be invaluable for businesses who want to win new customers and gain new tools for frictionless payments and better business processes. 

 

Understanding Open Banking and APIs

 

 

Open Banking has come about as a result of the EU PSD2 directive – a piece of legislation devised to standardise payments services across Europe, protect consumers and improve the speed and cost of cross-border payments in the EU. APIs (or Application Programming Interfaces) allow third party developers to build apps, websites and services around banks and financial institutions. These APIs are used as a secure method of communication between Trusted Third Parties (TPPs) and online banking systems.  

 

What exactly is an API? 

Typically, these APIs are developed by FinTechs in order to offer their own technology and services to traditional financial institutions, as well as to their own customers. In effect, the API gives these third parties access to account information, as well as balances and transactions, at the customer’s primary bank.  

 

While there are three types of APIs: Private APIs, Partner APIs, and Open APIs; it’s the Open APIs that are responsible for making data available to third parties. At their most basic, APIs allow different computer programs to talk to one another in a language they both understand. This is vital for banks, as it allows their older systems to integrate with newer ones developed by FinTechs, so they can offer more products, and ultimately, more value to their customers. 

 

In fact, APIs have been around a long time, but it’s only really since January 2018 when PSD2 came into effect that their usage has increased among the financial institutions, as they see the need to keep up with the services offered by FinTech. 

 

Benefits of APIs 

While banking institutions benefit from being able to offer more services to their customers, these APIs can mean big benefits for businesses too. This is because banks are able to offer access to third party services making it easier for businesses to carry out certain transactions, such as making and receiving cross-border payments. The benefits don’t stop there. Platforms such as KoalaPays are developing new tools that can help businesses in terms of reporting, cashflow, payroll management and other functions. 

 

While the move to Open Banking has been great for start-ups and FinTechs, it’s online businesses and their customers that are seeing the advantages. Typically, this has meant faster, more efficient and secure services, especially in terms of cross-border payments. SMEs are now able to accept payments from across the world quickly and efficiently, at less cost, so cashflow moves faster through the business. 

 

A good example of this would be a Payment Initiation Service Provider (PISP) connecting directly to a customer’s bank account to make a transaction. This means an online retailer can take a payment directly in real-time rather than authorising a credit card. 

 

The future for APIs and Open Banking 

 APIs are driving industry innovation, disruption and connectivity. Here, at KoalaPays, we’re using the technology to make it easier for customers to do business with our own clients’ ventures. But there’s much more to come. APIs will continue to evolve and incorporate additional features that will offer more functionality and usefulness for businesses in every sector. 

 

Even though PSD2 is a pan-European initiative, other developments are taking shape outside of Europe in places such as South America, the United States and Australia. These should lead to further co-operation between financial institutions in other regions of the world, affecting services like cross-border payments.  

 

APIs transfer information securely and conveniently and therefore enable financial institutions to connect with businesses and consumers instantly. This allows banks and financial service providers to boost the scope of products and services they can offer.  

 

When bank accounts were invented, they weren’t built for an online world. APIs are making that happen and, ultimately, will have a profound transformative effect on the future of banking. For businesses to reap the rewards, companies should look to payment solutions providers such as KoalaPays to understand the real business benefits these platforms can offer. 

 

 

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