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What is a Digital Bank?

Tamires Criscio
Tamires Criscio
  | Edited by Tom Church
Updated 6th October 2021

Are you curious to know what a digital bank is and what the most popular digital banks in the UK are? Latest Deals is here to help you learn more about digital banks and tell you more about Monzo and Starling Bank.

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A Digital Bank is an organisation that offers banking activities but only digitally without a physical bank branch. 

Their customer service is usually offered online (24 hours a day, 7 days a week), and in some cases, they also provide a phone line. 

With a digital bank, you can do money deposits, withdrawals and transfers, pay for bills and invoices, apply for different types of financial products, including loans, and manage your account.

It's important not to confuse digital banks with online banking. 

A digital bank is a bank that only acts digitally. 

Online banking is the online service created by traditional banks to provide online access and solutions to their customers. 

What are the different types of Digital Banks?

There are many different types of digital banks. The most relevant one is the challenger banks:

Challenger Banks

Challenger Banks are tech companies that have banking licenses. The most famous examples in the UK are Monzo and Starling Bank. 

They are direct competitors of traditional banks. There are more than 100 challenger banks active across the world at the moment. 

Do you want to learn more about Monzo? Make sure you read our complete guide about Monzo here. 

Do you want to learn more about Starling Bank? Make sure you read our complete guide about Starling Bank here. 

7 advantages of using a Digital Bank 

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  1. It's easier to open an account with a Digital Bank. 

To open an account with a digital bank, you need only a couple of minutes, and you can do it from the comfort of your home. 

You still need to provide some documents, such as proof of ID and address, but the whole process is paperless. 

  1. You have constant access to your account with a Digital Bank. 

With a digital bank, you can access your account 24 hours a day, 7 days a week, via an application on your smartphone. 

  1. You have fewer costs with a Digital Bank. 

It's much cheaper to keep an account with a digital bank than with a traditional one, and in some cases, it's free. 

  1. You have more security with a Digital Bank. 

Digital banks are 100% focused on providing cyber security, and they value it on top of everything.

  1. You can count on more accuracy with a Digital Bank. 

Usually, traditional banks have more processes to deal with, and they combine online activities with offline ones, which might take more time to be finalised.

Digital banks only count online activities, so you can rely on more accuracy. 

You also receive real-time notifications with them, which sometimes take longer with a traditional bank. 

IMPORTANT NOTE: One classic example is pending transactions, which often happens when you use a traditional bank but doesn't happen when you use a digital bank. 

  1. You can count on more agility with a Digital Bank. 

A Digital Bank will offer new services and solutions with more agility than a traditional bank because they are "tech" companies before banks.  

  1. You have access to different services with a Digital Bank that a traditional bank still doesn't offer 

The most important advantage of a digital bank is access to different services, including better rates on foreign exchanges, free international currency withdrawals (with limits), and easier international transitions, making travelling abroad with a digital bank account card much better than with a traditional bank one. 

Other services include:

  • Real-time spending notifications.
  • Spending limits for certain purchases (including gambling websites).
  • Bill splitting.
  • Saving pots/jars (usually with better interest rates).
  • Monthly spending reports.
  • Future spending projections
  •  Partnerships with other financial apps and services. 

What are the disadvantages of a Digital Bank?

Digital banks also have some disadvantages, but they are much less when compared to the advantages. Check them below: 

You will have some limitations on deposits with a Digital Bank. 

This will change from digital bank to digital bank and depend on the type of account you hold with them, but usually, you will have some limitations on deposits. 

IMPORTANT NOTE: This is not a problem if you use the account for personal transactions, but it can affect you if you use it for business purposes. 

In this case, you might need to upgrade your account and start paying a monthly fee to use it. 

You can experience some service interruptions with a Digital Bank. 

If your traditional bank online banking has any service interruptions, you can pop in at the nearest physical branch to resolve the problem, but with a digital bank, you can't do that, so you will need to wait until the service is restored. 

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Many digital banks are currently active in the UK, but some of them have become more popular. Here you can find more information about two of the most popular digital banks in the UK: 

Monzo

Monzo has a good reputation in the UK and millions of users. You can open more than one type of bank account with them, depending on your needs. 

Monzo develops better solutions for their customers every year. Some of these solutions include higher interest rates on savings pots and 24 hours early payments.

Most importantly, Monzo is regulated and authorised by the FCA and the FSCS. Learn more about Monzo here. 

Starling Bank

Starling Bank also has a good reputation in the UK and millions of users, but less than Monzo. 

While Monzo is largely used by the millennial generation, Staling Bank started appealing more to the freelancer community. 

You can also access Staling Bank via desktop, while most digital banks only give you full access via an application. 

Starling Bank is also regulated and authorised by the FCA and the FSCS. Learn more about Starling Bank here. 

IMPORTANT NOTE: We also have a complete guide comparing Monzo and Starling Bank. You can read this here. 

How to keep your digital bank account safe and secure

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Even though digital banks are very safe and secure, it's essential to have "good behaviour" when dealing with them. The more vigilant you are, the better. 

Some tips and pieces of advice are: 

  • Avoid using public Wi-fi when you are baking on your phone. It's always better to use your 3G or 4G when out and about. 
  • Make sure your phone doesn't have any viruses by keeping it updated. 
  • Always have code protection to access your phone (most digital bank apps will require this to function anyway).
  • Don't use your date of birth for passwords. 
  • Never respond to emails or messages that you don't recognise or ask for personal information, including your passwords.

FAQ 

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