Snippet: Banking is increasingly moving away from brick-and-mortar branches and into the digital domain. Some banks have opted out of having physical branches at all and operate as so-called digital-only banks. Who are these banks, and how are they faring compared to traditional financial institutions? Let’s take a closer look.

Banking is increasingly moving away from brick-and-mortar branches and into the digital domain. Some banks have opted out of having physical branches at all and operate as so-called digital-only banks. Who are these banks, and how are they faring compared to traditional financial institutions? Let’s take a closer look.

The cool kids

Fidor Bank, a digital-only bank in Germany, has been around since 2009 and is by now offering a wide variety of services to both individuals and businesses. Fidor recently launched an API-driven open banking platform collaboration with a community of third-party developers. This platform allows seamless integration with a variety of solutions in areas such as financial exchange trading, global money transfer, and virtual currency innovations.

Fidor moved into the United Kingdom in September last year, for now offering just a current account and savings bonds there, but the move seems to have sparked a trend. In April, the UK saw the launch of its first digital-only bank, Atom Bank, with savings accounts immediately on offer and current accounts in the pipeline for later this year. Unlike with Fidor, which also has a portal for online banking, all banking with Atom is done on their mobile app for iPhone, iPad, and Android (Windows is also in progress).

Hoping to get their banking licenses and launch in the UK by the end of this year are Tandem (credit cards, savings accounts, and loans), Mondo (current accounts, prepaid MasterCard), and Starling(current accounts). Another current account provider, U, launched its Banking-as-a-Service (BaaS) platform on 24 October, hoping to attract “underserved, overcharged” consumers with its money management tools, advance direct-debit notifications, and personal approach. Alex Letts, CEO at U, told Finextra that the rise of BaaS should not be seen as an attack on banks but rather as “a restructuring of the [banking] model to the benefit of all parties”.

Back in Germany, one of the nine new companies that Berlin-based FinLeap built in the last 20 months is solarisBank, which holds a full banking license. It also offers banking-as-a-platform (BaaP) so that other startups can use it to jump on the fintech bandwagon. Venture capital firm Life.SREDA describes solarisBank’s origins as follows:

“Born out of the frustration experienced by FinLeap’s own startups when faced with the need to piggybank an existing banking license and technology in order to be able to offer various financial services, solarisBank has developed what is described as a modular-based banking toolkit, including, and crucially, various modern banking APIs. These include account and transaction services, compliance and trust solutions, working capital financing, and online loans.”

According to American Banker magazine, some banks worry that “too much collaboration with fintech would erode their relationships with people and that they would become relegated to the plumbing of the system”. Others, like The Bancorp and WebBank have found a niche in essentially renting their charter to companies and being a conduit for them to transact. solarisBank’s plan is to build on that concept – rather than just providing financing or processing, it aims to offer advice, facilitate collaboration with other companies, and provide various solutions.

US users also have access to BankMobile (which offers free cheque and savings accounts), Simple(offering savings accounts of which the funds are kept by their partner, Bancorp Bank), and GoBank(an affiliate of Green Dot Bank, which offers the benefit of no overdraft or penalty fees, and free cash deposits at all Walmart registers).

Hello bank! was created by Europe’s BNP Paribas Group in 2013 at a reported cost of €80 million and is now live in France, Italy, Belgium, and Germany, offering fee-free current and savings accounts. Soon, the mobile-only affiliate of France’s AXA Bank, has been around since 2013. In Germany and Austria, NUMBER26 (N26) offers a bank account and a MasterCard that are provided and managed by Wirecard Bank. CaixaBank in Spain launched imaginBank in January of this year to provide banking services exclusively through mobile apps and social networks. And in April, DBS (the Development Bank of Singapore) launched Digibank in India – the country’s first mobile-only bank, offering an e-wallet with the option to upgrade to a savings account.

And their approach to authentication? 

Digital-only banks are getting the thumbs up for convenience and user-friendliness from consumers world-wide, but how are they doing in terms of security? Most of the banks referred to above offer the usual password protection, encryption, security certificates, and firewall. An exception, however, is Digibank, which “has an embedded soft token for security, which means you avoid the hassle of SMS with an OTP to arrive, remembering it and retyping the password. So it provides stronger security for transaction authorization and is safer” Another exception is N26, which shares this refreshingly enlightened statement on their website:

“You should avoid using the ‘mobile TAN’ (‘mTAN’) procedure for your mobile banking. The ‘mTAN’ system (sometimes also known as ‘SMS-TAN’ in Germany) refers to the sending, by your bank, of a transaction code that you then use to approve a particular transaction. This procedure is not secure as the text messages are sent to the same device that’s being used for the banking transaction itself.”

We firmly agree, as we’ve said herehere, and here. It seems that some digital-only banks are grasping the important balance between security and ease of use that they, and all banks who have a digital presence, need to maintain. Perhaps traditional financial institutions can take a leaf out of their book?

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Jolette Roodt


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Entersekt is an innovator of customer-centric fintech solutions. Financial services providers and other enterprises rely on our patented mobile identity system to provide both security and the best in convenient new digital experiences to their customers, irrespective of the service channel. With us, they can concentrate on their innovation roadmap, while delivering intuitive, low-friction digital experiences to their customers.