It wasn’t that long ago that the only option if you wanted to manage the money in your credit union or bank account, you had to visit a branch in person. We didn’t yet have the technology to view account balances from our homes, and with limited bank hours, it could be challenging to get the information and assistance we needed. That’s all changed with digital banking.
At Leaders Credit Union, we provide our members with the digital tools and information they need to manage their money from home, work, or while traveling. Since some people may not be fully comfortable with the idea of online banking, we’ve put together this list of the most important digital banking advantages and disadvantages to help you decide whether digital banking is right for you.
What is Digital Banking?
Digital banking is an umbrella term that refers to two different types of banking that both use technology to give account holders access to their money without visiting a credit union or bank branch:
- Online banking refers to the ability to visit your financial institution’s website using your computer. You can log into your account, transfer funds, make payments, and more. You can also view your account statements and report issues with your ATM or credit card.
- Mobile banking refers to the use of mobile applications created by financial institutions to manage your finances. Mobile apps include many of the same features that online banking offers, but may offer additional options such as mobile check deposits and peer-to-peer transactions.
Another way to think of it is that digital banking is banking that’s done using an electronic device, which could be a desktop computer, a laptop, a tablet, or a mobile phone.
Why Do People Need Digital Banking?
When we think about why people might need digital banking, we don’t need to look far to understand its popularity. It may be useful to consider what traditional banking looks like to get the answer.
With traditional banking, people needed to visit a credit union or bank branch to access their money. They would get monthly bank statements in the mail. Since most financial institutions had limited hours, it could be difficult for people who worked during bank hours to find the time to get to their bank and deposit or withdraw money or check their balances.
The invention of Automated Teller Machines (ATMs) helped to make people’s money more accessible. People could use ATMs to deposit checks and cash, withdraw money, and check their account balances. However, there were some places where ATMs weren’t widely available and for some Americans, it could be difficult to find an in-network ATM that wouldn’t charge them an extra fee to access their money.
The very first financial institution to offer digital banking was the Stanford Federal Credit Union, which introduced digital services back in 1994. As of 2022, 78% of Americans prefer to do their banking digitally, a figure that illustrates the wide popularity of digital banking.
Today, people can do just about everything they need to do either online or using a mobile app. Some of the most common functions of digital banking include the following:
- Check account balances
- View account statements
- Transfer money between accounts
- Pay bills
- Apply for loans and credit cards
- Deposit checks
- Make peer to peer transactions
- Report missing/stolen credit and debit cards
Almost everything that you can do at a traditional credit union or bank location, you can now do online. The only exception is withdrawing cash. Some mobile apps do offer contactless ATM transactions to guard against card skimmers, which criminals use to steal peoples’ PINs and create duplicate cards.
9 Advantages and Disadvantages of Digital Banking
Digital banking has some significant advantages, but there are also a few potential risks to consider. Here are nine advantages and disadvantages of digital banking to consider.
Advantages of Digital Banking
#1: Access to Money and Account Information
The first and most obvious advantage of digital banking is that it expands access to your accounts. You can log in to your account at any time instead of waiting until your local branch opens or driving to find an ATM.
Mobile banking, in particular, means you can access your money from anywhere in the world, so even if you’re traveling, you can view your bank account, pay bills, and more.
#2: Equity
In some communities, credit unions and banks don’t have many branches or ATMs to give people the opportunity to manage their finances. With digital banking, people can access and use their money even if they live in an area where there’s no branch nearby.
Equity is important with any service, and considering how important it is to have access to our money, we’re happy that digital banking removes barriers and makes it easy for everyone to view their accounts and conduct most banking transactions from home.
#3: Paperless Banking
Most people agree that we use too much paper, and it's better for the planet if we can find ways to use less and conserve our resources. Digital banking does that by making paper statements obsolete.
With online or mobile banking, people can view their account statements at any time. They can get images of canceled checks, pay bills, and do everything they need to do with their money without financial institutions needing to print anything.
#4: 24/7 Customer Assistance
When account holders needed assistance in the past, they needed to wait until their bank was open to get in-person or phone support. That’s not the case anymore.
Most financial institutions have support options that enable account holders to get help via their website or banking app. Some options to look for include live chat, email support, and self-help options such as FAQs, blog posts, calculators, and guides.
#5: Speedy Transactions
One of the biggest advantages of digital banking is how quickly you can send and receive money. While there may still be waiting periods to access funds, it is easy to transfer money between accounts, remote check deposit, or schedule bill payments.
You can easily view pending transactions, which can help you keep track of your balances. You can also provide proof of payment instantaneously if needed.
Disadvantages of Digital Banking
#1: Security
For many people who are wary of digital banking, security is their first concern and the biggest potential disadvantage of accessing their money using a computer or mobile device. Safety should be a priority and it’s important to ensure that your financial institution has put protections in place.
Some of the specific security risks that can be an issue with digital banking include phishing, hacking, viruses and trojan horses, and identity theft. It’s always a good idea to ask which security measures are in place before signing up for digital banking.
#2: Downtime
While digital banking allows access to accounts and money 24 hours a day, there is a risk of a Wi-Fi failure or system crash that could make it impossible to log in and view your account.
The risk of downtime is relatively small, since a well-designed banking website or mobile app will be designed to minimize downtime.
#3: Learning Curve
For some people, there’s a significant obstacle to digital banking. If you’re someone who has never tried it and doesn’t use many mobile apps, it can take some time to learn how to use digital features.
The good news is that most financial institutions have tutorials and other resources to help users learn how to use their website or app features. Here again, the design of the app can play a role. Developers should focus on the user experience, prioritizing simplicity and accessibility before releasing an app to the public.
#4: Overspending
The inverse of what we said above about the speed and ease of digital banking transactions is that, for some people, convenience has the potential to lead to overspending.
If you use digital banking, it’s important to be mindful of how easy it is to send money. You can use your financial institution’s website and mobile app to track your spending and make sure you don’t go overboard.
Quick Tips to Stay Safe with Digital Banking
If you’re worried about security with digital banking, here are a few quick tips to help you maximize your safety and protect your money:
- Choose a strong password. Your password should include a combination of uppercase and lowercase letters, numbers, and special characters. Don’t use any words that are easy to guess.
- Use multi-factor authentication. Most credit unions and banks use MFA, which requires either a fingerprint, FaceID, or the entry of a texted code to access your account, making it difficult for an unauthorized person to take your money.
- Don’t use public networks. If you’re out and want to check your account, do it using mobile data or a secure network. With a public network, any other user may be able to see your account or steal your password.
- Lock your phone. When you’re not using your phone, make sure to lock it so that nobody else can use it to access your account.
- Sign up for alerts and push notifications. Opting in to receive alerts and notifications from your financial institution will keep you updated on account activity and allow you to identify any unauthorized transactions quickly.
- Be wary of embedded links. Remember, no financial institution will send you a link asking you to confirm your account ID or password. If you’re unsure whether a link is safe, don’t click it. Instead, navigate to the website or mobile app and check your account from there.
- Take advantage of card controls. Turn your debit or credit card off or on through your mobile app.
These common sense measures will keep you and your money safe.
Get Robust Digital Financial Tools with Leaders Credit Union
When used properly, digital banking tools can help you access and manage your money at any time of the day. The nine advantages and disadvantages of digital banking that we’ve listed here can help you decide whether digital banking is right for you.
Are you ready to take advantage of online banking? You can sign up with ease with the help of our online banking quick start kit. Our step-by-step guide walks you through the sign-up process so you can start managing your money anytime, anywhere.
