Advantages & Disadvantages Of Digital Banking

Digital banking has revolutionised the way we manage our finances, offering unparalleled convenience and efficiency. The seamless access to accounts, ease of transacting, and cost-effective nature of online banking make it an attractive choice for many consumers.  However, digital banking is not without its drawbacks.

Concerns loom over the vulnerability to cyber threats, such as technical issues and online fraud, which can compromise sensitive financial information. In this article, we will explore the digital banking advantages and disadvantages in detail and how users can maximise benefits while minimising risks.

Advantages of Digital Banking

Digital banking has indeed transformed the way we conduct our banking activities. Let's explore several advantages of digital banking:

1. Ease of Transacting

Customers' convenience is one of the biggest advantages of digital banking. Customers of all demographics found common ground in the idea of "anytime, anywhere" accessibility. 

Visiting a physical bank is no longer necessary because of this convenience. Consumers can use laptops or smartphones to access their bank accounts at home, work, or on the go. Digital channels can be used for money transfers, bill payments, account balance checks, and even loan and credit card requests.

2. Enhanced Security

When it comes to banking, digital banking is more secure than traditional banking. Multiple-factor authentication is among many online banking platforms' most common security features.

Users can set up passwords, PINs, and biometric identification to prevent illegal access to the account. Most digital banking services now provide real-time alerts to inform consumers about suspicious conduct on their accounts.

Must Read: Why Online Digital Accounts Are Gaining Popularity

3. Go Cash Free

The Covid-19 pandemic and demonetisation encouraged the transition to cashless transactions. This shift aligns with the Government of India's objectives of minimising the risks associated with excessive use of fiat currency, improving digital financial literacy, and transforming India into a cashless economy. India's developing digital society is significantly supported by digital banking.

Due to the widespread use of UPI, mobile wallets, and digital banking, consumers can now make sales and purchases online while saving a huge amount of money.

4. Less Expensive

Digital banking is less expensive than traditional banking because many operations are automated. Since they have fewer overhead expenses, most banks have less expensive fees and charges for transactions on digital platforms than in physical branches.

This makes it easier to save money on bank fees, ATM fees, and transaction fees. Furthermore, many online banks provide no-fee checking accounts and overdraft protection at no cost or lower rates.

5. 24*7*365 Days Banking

Unlike traditional banks that only operate a few days a week for a fixed number of hours each day, digital banking allows customers to bank anytime they want. The emergence of digital banking services eliminates the lack of free time to visit a bank.

6. Efficient Financial Management

Various resources and software are available through digital banking to facilitate efficient financial management. Consumers can monitor their expenditures and savings using financial calculators, budgeting tools, and other services.

Additionally, it is possible to set financial goals, enhance how liquid money is managed, and make wise financial decisions.

Disadvantages of Digital Banking

Overdependence on technology also subjects it to certain demerits compared to traditional branch banking. Let us take an in-depth look at some of the key disadvantages of e-banking and how they can impact customers:

1. Technical Issues

Digital banking exclusively relies on stable internet connectivity and the functioning of devices, applications and remote servers, which are prone to technical failures. Network outages, app errors or server downtimes can freeze transactions and block access to funds during emergencies.

Troubleshooting such technical glitches takes time and could mean compromised security during this period. The lack of offline backups or alternatives further exacerbates problems.

Also Read: Advantages & Disadvantages Digital Savings Account

2. Lack of Personal Relationships

Banking virtually removes the personal bond developed over time between customers and branch staff. Complex finances requiring detailed advice and frequent queries are better addressed face-to-face as digital modes fail to replicate human empathy, attention to individual needs and personalised service. Having in-person banking relationships can also assist you in creating a business account that is customised to meet your needs.

3. Internet Fraud

Internet fraud is one of the major drawbacks of Internet banking. Digital banking widens opportunities for scammers due to the exchange of sensitive data on public networks without physical verification. Information stolen online through malware, phishing emails or sim-jacking is irreversibly misused to syphon money.

Even educated people fall prey due to the evolving modus operandi of net fraud. Banking sites and apps themselves may also have unpatched vulnerabilities hacked by expert criminals abroad beyond the reach of local laws. 

4. Limited Services

There are many services available via digital banking, but some still need business owners to visit banks in person to "wet sign" documents. This includes credit and loan applications, large cash withdrawals, and large deposits.

However, you might be able to electronically sign for things in the future as online banking technology advances.

Conclusion

Digital banking far outweighs its traditional counterpart due to the massive benefits of ease of transaction, enhanced security, and less expensive and efficient financial management. However, users must employ prudent cyber security and have alternatives ready to escape technical issues to reap their full potential securely.

Banks, too, need to enhance their digital infrastructure and continuously educate customers to address individual needs. 

Frequently asked questions

1. What is digital banking?

Moving all financial services and transactions online is known as digital banking. Digital banking offers various services, including account setup, money transfers, and withdrawals. You may open bank branches for less money or no money with a digital savings account with Kotak 811. The majority of tasks are automated in digital banking.

2. What is the difference between digital banking and online banking?

Any financial transaction, including technology, is referred to as "digital banking" as a more general phrase. Therefore, one could argue that while digital banking is much more than just online banking, online banking is a type of it.

3. Is digital bank safe?

Financial institutions make significant investments in the safety of their online banking platforms and websites, regularly monitoring them for possible indicators of fraud, identity theft, and cybercrime. This guarantees that you are safe from fraud and other online dangers.

4. What is the best digital bank?

Our pick is Kotak 811 Digital Savings Account. You can open your digital bank account with zero balance and use your Aadhaar and PAN to open a digital savings account from your phone.

5. What is the negative side of digital banking?

If you bank online, you'll likely have fewer opportunities to build interpersonal relationships and less access to in-person support.

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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.