Digital banking. Although the term might be used in many different ways online and elsewhere, the term essentially, combines online or accessing the internet to conduct banking needs with mobile banking services, or the ability to conduct financial transactions on a mobile device (smartphone, tablet, etc.) all under one umbrella.
Digital banking has been in use for several decades. Rollout of digital banking services began for consumers when credit cards were available to consumers to make purchases of goods and services.
Today, using a credit card seems mundane, a regular occurrence, but in the urban areas in the 1950s, it was quite an achievement.
There needed to be a coordinated effort among an ever-expanding number and types of electronic communications devices taking place amongst and between participating merchants, credit card issuers — as well as the financial institutions of both for these groups — for the first credit card transactions to take place.
Keep in mind, for the first time, money was not exchanged at the point of sale. There existed only an electronic promise to pay.
Moving forward toward today, take those first few credit card issuers, typically large national banks, then add most — if not all — financial institutions around the globe. Then, add to that the large number of merchants accepting credit cards. Finally, establish networks of communications able to process and record financial transactions in a real-time manner and the infrastructure for the digital banking evolution begin to take shape.
Just imagine back in 1950, a consumer vacationing in Rome using their credit card to make a purchase. Within 24 hours, if not more immediately, the charge appears on the consumer’s list of financial transactions. This was amazing stuff back in the 1950s. However, the 1950s consumer in Rome would have to wait until the 1980s or more likely later to see that same transaction in real-time on a discreet online or mobile banking tool.
With the ability to make purchases by credit card, came the need for consumers to be able to track and account for their spending, ideally in real time. Real time meaning at the same time the purchase occurs as consumers wanted to know their balances and be able to view transactions hitting their account ledgers as they happened.
The birth of online banking and mobile banking grew out of the need for consumers to be able to see, review and possibly reject transactions posted to their accounts.
Of course, the adoption of mobile devices and laptops aided with the development of these associated “connected” tools. From being able to view transactions using online and mobile banking, these tools further evolved to allow consumers to make transfers from and between their accounts at a single financial institution as well as to and from people and businesses with accounts at other financial institutions.
Digital banking has further expanded to the development of debit cards — cards that provide a service similar to a handwritten check — direct deposit of payroll, check deposits, bill payments, creation of electronic signatures and many more services.
Sometimes, it is hard to keep up with the available technology. One thing is for certain, the need to visit or perform transactions within a brick-and-mortar financial institution are becoming fewer with time.
With the advent of the pandemic, according to a McKinsey study, Americans have adopted digital banking services approximately five years ahead of schedule out of necessity as person-to-person transactions faced some degree of health risks. As the COVID-19 pandemic becomes an endemic — a regular part of our daily lives — consumers might expect increased use of digital banking services and the types and numbers of these services to increase.
When I was a younger banker, relationships with your personal banker at a local financial institution was the heart of the banking industry. This might hold true in the future, but the relationship could well be with your favorite online chat assistant or online banker than the person who might be seated opposite you within the confines of brick-and-mortar a few blocks down the road. The future is now.