Mobile Banking vs. Traditional Banking

Banking has changed with the times, and now there are a variety of options available. Here's your guide to mobile banking versus traditional banking.
27 Dec 2019

Banking has been around for centuries and has become such an ingrained part of our lives that we don’t often think about how often we use banking services. Things like paying bills, receiving salaries, and applying for credit cards have become a natural part of modern society in most countries.

While banking has its roots in ancient Mesopotamia, it has developed to match the current technologies we use. Mobile banking has seen a massive increase over the past few years and is now starting to compete against traditional banking. In this article, we outline the pros and cons of each type of banking.

What is mobile banking?

Mobile banking is often confused with online banking, but the two are fundamentally different. It is important to note that mobile banks are also referred to as online banks, as they do not have a brick and mortar location and operate solely over the internet. 

Unlike a traditional bank, a mobile bank does everything online. It is usually necessary to have a phone, tablet, or computer that can access the internet in order to use mobile banking services. You can do everything from opening a bank account, withdrawing cash, transferring funds, and more with mobile banking. 

To open an account, you will normally need to confirm your identity, which you would also need to do at a traditional bank. This is called Know Your Customer (KYC) and is an important part of preventing illegal banking activity. To confirm your identity remotely, you typically will do so over a video call or by taking a dated selfie along with a piece of government-issued identification.

What is traditional banking?

Traditional banking is probably what you are most familiar with. The bank has a physical location that you visit in order to open an account. Some traditional banks will allow you to open accounts online, but you still may need to visit the bank to confirm your identity or submit documents.

While traditional banking has evolved so that you can do most of your regular banking online or on a mobile app, you will probably have to visit your local branch at some point. While some people prefer being able to talk to a real person when they need it, for others it can be a nuisance.

Traditional banking also involves using ATMs to deposit and withdraw cash. Using an ATM that doesn’t belong to your bank usually incurs extra fees. If you live or work near an ATM then it’s not that big of a deal, but it can be an inconvenience if you don’t.

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The pros of mobile banking

The biggest argument for mobile banking is convenience. Look at N26 as an example, which has become very popular in Germany. N26 gives its users most of the benefits of a normal bank, without the hassle of going to an actual bank. There are no monthly fees, cash can be withdrawn easily from a variety of ATMs with no additional fees, and currency conversions are very simple.

Revolut is another popular online bank. They offer the ability to exchange currencies in their app at market rates, withdraw cash from an ATM anywhere in the world, and even exchange cryptocurrency on their app. For people who travel a lot and want to be able to do all of their banking activities on their phone, mobile banking is a great solution.

Opening an account through an online bank is also far faster than traditional banks. While some banks may take a few days or even weeks to set up everything for you, mobile banks can typically open an account in one day. Additionally, it is rare that a minimum deposit amount is needed for online banks.

Mobile banking also offers users a lot more control. You can receive notifications for every single action that takes place on your card, and even lock or cancel  your debit and/or credit cards through the app. You can see what is happening in your bank accounts in real time, and generally opening a sub-account can be done in minutes.

Additionally, mobile banking is not limited to a set of opening hours in which business is done. Transactions are often instant and there is no waiting around for a transfer to arrive because the bank isn’t open yet.

Lastly, fees are far lower when it comes to mobile banking. For example, Revolut offers free cash withdrawals up to 200€, and after that it is only a two percent fee. Switching your funds from one currency to another is instant and free. Compare that to traditional banks, where international transfers are often extremely costly with a poor exchange rate, and the benefits are immediately obvious. Because mobile banks aren’t required to have multiple locations, they can offer their users substantially reduced fees.

It is a common myth that mobile banking is not as safe as traditional banking, however, this is not true. There is no added risk for choosing to use an online bank.

The pros of traditional banking

If personal service is of importance to you, then you will probably appreciate traditional banking more. Sometimes we want advice about what to do with our accounts or how to maximize our savings, and having a face to face conversation about it builds a lot more trust. Traditional banks allow you to build relationships with their employees. If trust and service are what matters, then you can’t beat traditional banking.

Depositing money is often far easier with traditional banking as well. Knowing that you can always go to an ATM to deposit cash is a benefit many of us don’t consider. For example, with N26 you can only deposit funds at the cash register of a partnered store. Revolut doesn’t allow cash deposits, so you can only top up your card through a transfer or with a credit card. Depositing cheques is also far easier through traditional banking.

Traditional banking may also offer different services you can’t get with mobile banking. Things like mortgages, loans, different types of insurance, and investment services are currently only available through traditional banks. If you want a one stop shop, then going with a traditional bank may be your best option.

The cons of mobile banking

A big problem with mobile banking are the possible technological issues. If an app or website crashes, there’s nothing you can do. While you could certainly reach out to customer service (we’ll talk more about that later), they probably won’t be able to help you. In cases like this, being able to go to a physical bank location is a big advantage.

Customer service is not only faceless when it comes to mobile banking, but can also involve long wait times and agents who aren’t actually able to help you with your problem. Some problems are also easier to solve in-person instead of emailing back and forth. While some customer service agents at online banks are great, others or not. It can be very hit or miss. 

Mobile banking also offers a far more limited number of services. You might be able to have a chequing account, a credit card, and maybe even a savings account, but that’s about it. You will have to look elsewhere for things like loans, mortgages, insurance, et cetera.

Lastly, if you don’t have a smartphone, you can’t do mobile banking. While more and more people own smartphones, just under half of the world population owns one, which means they can’t use mobile banking.

The cons of traditional banking

If saving time and money are what you are after, then traditional banking might not be the best option for you. Things generally take longer at a normal bank and their fee structure is higher than mobile banking. Additionally, interest rates on savings and investment accounts are lower at traditional banks than they are at online banks.

For avid travellers, traditional banking will be far more expensive than mobile banking. Being able to transfer currency across borders and withdraw foreign currency can add up really quickly if you are using a traditional bank. 

Conclusion - What is your priority?

Whether you choose to go with a traditional bank or a mobile bank depends on what you value most when it comes to banking. Each type of bank has its own unique value to add; it just depends on what you are looking for. If you want one place where you can do all of your banking then a traditional bank is probably a better option. If you travel a lot or need to send money abroad often, then an online bank is far more convenient. 

The nice thing about mobile banking is that it is often free to open an account, so you can always try one and make an informed decision for yourself. It may be worth your while to make use of both traditional and mobile banks, depending on your needs. Traditional banks are getting better at offering more and more services to their customers online, so it could be interesting to see how things develop.

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