Whether we like it or not, our world is becoming increasingly digitized. The extent to which the Internet will change our lives is not yet clear. Just a decade ago, we performed many tasks in person that have now become digitized. As we become accustomed to performing most of our day-to-day responsibilities online, a question arises; should we be able to do everything through the Internet?
Some industries say yes. One of those industries is banking. Digital banking is the process of bringing almost all bank functions online. This includes depositing checks, paying bills, and applying for and receiving a loan. As the popularity of mobile apps increases, banks are moving a growing number of their activities online. A new type of bank is also emerging; the private digital bank.
A Brief History of Banking
Usage of money as a medium of value is a practice that is thousands of years old. The first type of exchange we used was bartering. The first record of bartering is approximately 11,000 years ago. People would exchange one good for another. There were several benefits to bartering; people could specialize in one area of expertise. Previously everyone had to do everything relating to their households; growing crops, raising livestock, weaving fabric, etc. When the barter system emerged, individuals could specialize in one area and master a skill, such as weaving cloth. The barter system was accompanied by one specific difficulty though; items put up for barter are not always of equal value. One person might need a cow, while another needs a bushel of grain, but they are not of equal value for exchange. This presented problems for those involved in the barter.
Around 3000 years ago, coins came into circulation. These coins were made of bronze, gold, or other precious metals. Each denomination of coins had a value. Now an individual had the opportunity to exchange his cow for coins, for example, then use a portion of these coins to buy grain. Carrying a pocketful of coins is much easier than walking a cow back and forth to the market or to every prospective buyer.
Coins caused their own problems too. Although coinage is more compact than goods, it is only a light burden to carry in small amounts. It’s not a viable option for people to drive a wagon full of coins every time they want to make a large purchase.
In the seventh century, paper money was already being used in China, but Europe only began the practice in the mid-17th century. In the 19th century, the gold standard was created. Each banknote thenforth was a promissory note, meaning that it represented a certain amount of gold being held in a vault somewhere. The notes were exchangeable for this gold if the owner chose to do such.
The Gold Standard was left behind during the Great Depression in the United States. The amount of gold in government reserves is finite. It is controlled by the amount of gold that is bought and sold, as well as the amount that is mined each year. In order to stimulate the economy through printing more currency, the gold standard was abolished in the US. Within a decade, the majority of developed countries followed with the annulment of the gold standard in their respective countries.
After World War II, the first bank card was issued. Bank cards were precursors to credit cards. Bank cards created a system that sent a bill straight to the bank. The bank would charge the bill directly and it would subsequently be paid out of a person’s account. This system was convenient because it meant that it was possible to pay in certain establishments without carrying cash.
Bank of America created the first credit card. This card is now called Visa. Credit cards allowed for the charging of bills directly to an account, but also allowed the credit card holder to charge a bill to credit if they didn’t have the money at that moment. This credit line is normally set on each card; any limit from $1000 to $10,000 is considered normal.
Within a decade, several other companies had established their own credit cards. Credit cards would pave the way for digital banking.
With the invention of smartphones came another invention; mobile banking. Within 5 years of the launch of mass production, the majority of the Western population owned a smartphone. These phones promoted the creation of mobile apps, such as mobile banking apps. Mobile banking allows you to make a transaction through your phone. Since mobile banking is done through computer programs, the application works all day, every day.
Mobile banking also provides other advantages. Regular bills, like utilities, can be paid automatically. Transfers can be automatic. Several smartphones also offer the option of working like a credit card, with services like ApplePay. Not only can you leave your cash at home, but you can leave your credit card too.
The question is being raised; is the banking industry just another sphere that technology will kill? Tour agencies are almost a thing of the past, thanks to online booking sites. Almost no one gets their news in print anymore. Bookstores are closing all over the world. Maybe banks will be the next victims of technological advancements? Or on the contrary, will the banking industry be transformed by the technological possibilities currently available? Perhaps in a couple of decades, bank branches will be a thing of the past but our banks will provide more features than ever?
With digital banking has come another novelty; digital banks. Some new banks exist almost entirely on the internet. Certain digital banks, like Crypterium, even help you maintain both fiat and cryptocurrency in your accounts. Digital banks provide a multitude of features.
«Rounding-up» is something digital banks sometimes do if the customer opts into it. Here’s an example. You spent $27.85 on groceries. $28 will be taken out of your account and $00.15 is automatically transferred into a savings account. These little bits from each transaction can add up to a hefty savings by the end of the month. You can opt to invest these savings or take them out every month.
Digital bank accounts can be set up online and are often cheaper than traditional bank accounts, due to the fact that there are lower costs associated with running digital banks.
Digital banks also have some of the most up-to-date security measures, which traditional banks are only in the process of implementing.
Even within digital banking, there’s a special niche for the wealthy; private digital banking.
For those who have the financial means, banks often provide wealth management. This is a service that entails investment and controlling a client’s financial portfolio. Private banking provides similar services; an employee of the bank provides personal financial service and management.
In the digital age, both private banking and wealth management have become increasingly digitized. Now there are digital private banks that provide personalized services to their clients.
These private digital banks take care of the investments and savings of their clients. The price of these services is steep though; the minimum amount in your account normally has to be over $100,000.
The principle of these private digital banks is the same as regular banks; provide personalized service to the clients from anywhere in the world. Clients of private digital banks can communicate with their advisor virtually.
Private digital banks don’t have a large following to date; this might be due to the hesitation of people to say goodbye to the bricks and mortar banks of their past. Psychologically, it is comforting when you can visit an actual building and see your money in large and small bills. This lack of trust might disappear with the new generations. Many of us live most of our lives online, including work, education, and leisure. We order airline tickets online, look at houses online, and perhaps even go to therapy online. Why shouldn’t we do all of our banking online?
Although online banking is fairly commonplace, digital banks are not yet widespread. With the advent of fully digital banks, private digital banks are beginning to carve out a niche for themselves. These banks are still fighting against the lack of trust in that which we can’t touch, but once confidence levels rise, they will undoubtedly be frontrunners of the industry.
Private digital banks also have a much lower entrance fee than traditional banks. While a new private digital bank has an initial minimum investment of $100,000, Goldman Sachs has a minimum cash requirement of $10 million. This gives those who are well-off, but not necessarily part of the 1% a chance to make use of the personalized financial services that private banks offer.