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Does a ‘digital bank’ even exist yet?

The rise of innovative technologies in finance naturally sparked an interest in digital banking. No wonder it has become a catch-all thing - while the competition in disruption is quite intense, many traditional banking institutions are currently attaching themselves to the idea of a digital bank in order to look more modern. Many new electronic money licence holders are going after potential customers who prefer the quick and convenient approach through digital applications also referring to their services as digital banks. But are they really digital banks? 

The term digital bank is commonly used to describe many new payment apps or banking extensions. The definition is often used very broadly to describe the technological innovations within the banking sector or any banking solution that has a digital asset such as a mobile banking app. Andrej Zujev, the founder of banking software provider Forbis Group, claims that many currently available digital services should not be categorised this way. “Digital banking is not just about modern solution implementation,” Zujev argues. “The term should be ascribed to new technology built to fully digitise banking services, in other words making banking services as automated as possible. I would even say that none of the digital payment solutions that call themselves a digital bank are not really digital banks.”

As stated by Zujev, the appropriate framework of digital banking has to rely on automated systems to a large extent: “The need for human resources should be very limited. Nearly everything can and should be done automatically.”

On the other hand, Zujev agrees that some vital functions should be overseen by people. “For example, people should check on all issues related to escalated legal concerns, advanced anti-money laundering or geographically specific regulatory concerns. This provides better quality assurance and security of large assets. Marketing and communications can be considered as well, but the rest should be automated.”

According to Zujev, who has worked on digital financial solutions for nearly 30 years, even modern banking solutions, while steadily becoming rivals for traditional players, should not be seen as fully digital banking companies. “Even big market players like Revolut or N26 employ thousands of employees, raking up expenses that wouldn’t be necessary for a completely digital bank. Real digital banking should be investing more in technology rather than physical assets,” argues Zujev.

Zujev holds that modern technologies are still underused in the fintech sector. “Currently, the most technologically advanced frameworks are not being used to their full potential in digital banking.”

One of the potential reasons for that is the still-ongoing use of more common IT solutions which are less developed than disruptive technologies. “Developers are using traditional algorithms instead of applying AI [artificial intelligence] or Big Data. These components are the future of automation and should be involved as much as possible.”

However, the expert agrees that the full digitalization of banking may take a while. “We are taking our first steps and many initiatives have large potential”, claims Zujev. “It is very difficult to predict how digital banks will look like in five or 10 years from now.”

Do you agree with this definition of a digital bank? What is your definition? Let us know in the comment box below!


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