Advantages and disadvantages of 100% digital banks

Posted December 14, 2018 at 3:02 pm

Online banks are attractive. Motivated by financial reasons, nearly 5 in 10 French people (47%) are ready to switch to an online, branch-free bank, according to a study published by Deloitte in early September. Of course, in some areas, agency remains unavoidable. Thus 43% of those interviewed meet their consultant to carry out complex operations.

But the digital channel has entered the customs. About 70% of savers (whether traditional or online banking customers) carry out their account transactions on the Internet and 29% on a mobile application, while only 12% now travel online. Customers therefore continue to emancipate themselves from their bank. On the contrary, satisfaction rates with dematerialized banks are growing. But is this all-digital model suitable for all profiles? What are the main pros and cons?

Behind the terms online banks or neobanks, several generations of players

BENEFITS

The price

In terms of prices, online banks remain, on the whole, unbeatable.

Thus, a “standard” customer (or “classic profile”) must pay just over 23 euros in annual fees at Boursorama, Fortuneo and BforBank, according to the Banking Trophies 2019, a study carried out by the Meilleurbanque.com comparator. By way of comparison, the cheapest national institutions are Crédit Coopératif and La Banque Postale, with annual fees of… €140.42 and €161.59 for a classic profile.

Take the example of account maintenance fees, which traditional institutions charge a high price. In the span of five years, they have almost tripled, settling this year at an average of 18.50 euros per year, according to the analysis of the Panorabanques comparator. Alongside this inflation, online banks have almost all aligned themselves with free.

Furthermore, new customers of digital banks are well received with, very often, a welcome bonus of €80.

A complete offer (savings books, life insurance, credit)

Long considered complementary (rather than “mainstream”) institutions, online banks are increasingly seen as banks in their own right.

It must be said that their offer is growing. In addition to everyday banking services and “classic” savings products (“super savings accounts”, A-book, PEL, etc.), they now – for the most part – offer more sophisticated investments and mortgages, “one of the main drivers of banking mobility”, detects ACPR in one study.

From Fortuneo, for example, it is possible to obtain a rate of 1.59% (excluding insurance and administrative costs) for a home loan of 200,000 euros over fifteen years, which is within the market average.

Note, however, that their catalog remains, by and large, “less consistent” compared to that of traditional establishments, “and some specific needs are not covered (tax exemption, bridging loan, etc.”), continues the ACPR.

Ability to place stock orders

Also, for placing orders on the exchange, online banks do much better than traditional banks in terms of pricing. While there are stark disparities from one institution to another, online brokers are on average three times cheaper than network banks.

In fact, savings specialists don’t charge any custody fees, unlike some banks. These additional costs, which should remunerate the custody of the securities, are moreover difficult to justify today.

Transacting over the internet is less expensive than over the phone, with placing an order at a branch being the most expensive.

Flexibility of use

Based on new technologies through First on the Internet, then via smartphones and tablets, digital banks have revolutionized the relationship between credit institutions and their customers.

The role of online banks in the race for innovation deserves to be highlighted. More agile than the “old banks”, they have embarked on a race for technological innovation to develop applications whose ergonomics and functionality are constantly improving. In the field of mobile or innovative use of data for marketing purposes, these new players are particularly active. They were among the first to offer personal finance management solutions to better manage your budget, for example.

These establishments strive to make the customer independent and to limit human intervention as much as possible. The entire relationship is dematerialized through Internet or by telephone, without a physical agency.

With the development of artificial intelligence, many are betting on the technology of chatbots – software programmed to simulate a conversation with Internet users – or that of email support the telephone consultant, or even replace him in some cases.

In October, D-Rating, an agency specializing in analyzing the digital performance of companies, unveiled its ranking of French banks, all types of establishments combined. Appreciated for its mobile application and its presence on social networks, the German N26 is first, far ahead of Fortuneo and Agricultural credit. Traditional banks are therefore not entirely outdone, their online banking branch often plays the role of a laboratory.

THE DRAWBACKS

Restrictive entry conditions

If online banks, with their low fees, seem accessible to everyone, in reality this is not necessarily the case… Just take a look at our table on page 26 to see that most of these institutions require a certain level of income and/or savings to agree to provide a bank card free of charge.

At Hello Bank, for example, you must have at least €1,000 a month or transfer/subscribe the equivalent of €5,000 in savings in the bank to be able to open a current account there for free. “In September 2017, Boursorama launched the Welcome offer, which allows you to benefit from a free bank card without income conditions, for example for students”, underlines Aurore Gaspar, deputy general manager of the bank. This formula is in addition to the other cards offered by Boursorama subject to income and/or arrears.

Indeed, it is especially the newest players (C-zam account, Nickel account, N26, Orange Bank and Revolut) who are the most accessible since they do not require any conditions to issue a bank card. A historic online player has also recently joined them: the bank-insurer Axa Banque.

Current operations (checks, cash withdrawals, etc.) more difficult

In Hello Bank, a branch of BNP Paribas created late, in 2013, and at Monabanq (Crédit Mutuel-CIC), it is possible to deposit checks or cash in the branches and at the ATMs of the parent company. For other establishments, you will need to mail checks. Recently, some banks, such as BforBank or Hello Bank, have offered to scan the check, photograph it with a mobile phone or fill out a digital coupon online in their customer area. But, in a second step, you will always need to mail the check.

Operational risks

Most online banking specialists benefit from their integration into large banking groups, which guarantees them financial solidity and allows them to benefit from trusted capital. However, digital banks remain subject to certain operational risks, such as external fraud (document fraud or means of payment fraud), underlines the ACPR. To the extent that the relationship is established at a distance, they must also demonstrate increased vigilance in the fight against money laundering and terrorist financing.

Banks not suitable for all profiles

To make up for the lack of physical connections and branches, online banks have developed channels (telephone, e-mail, instant messaging, etc.) that allow for quick answers and advice to individuals. However, these remain less “personalized” than a traditional bank since – even if the practice tends to get lost in the circuit of the traditional bank – it is often not possible to make use of a consultant in charge. This is the case for all the online banks we studied, according to data collected by the UFC-Que Choisir consumer association.

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