Why Are Banks Launching Separate Online Banks?
There is a growing trend of serious brick and mortar banks starting to launch online banking brands that are separate and distinct from their main brands. In fact, many online-only banks are actually divisions of brick and mortar banks. Sometimes you can tell this by their names, and other times it’s not so obvious. This is true of SFGI Direct which is owned by Summit Community Bank based in West Virginia, Bank5 Connect which is owned by BankFive based in Massachusetts, and IncredibleBank which is owned by River Valley Bank based in Wisconsin – along with many other community and regional banks that have launched their own online banking brands.
The decision that many banks make to create a separate online-only bank is normally intentional. They often don’t want to risk their traditional, established brands and so they create new brands.
Two Reasons Why Banks are Launching Separate Online Banks
Testing Things Out
A separate online-only brand allows banks to test things out. They can try out new services, products, and features before they roll them out to their brick and mortar customers. This poses less risk to their core brand and allows for innovation.
Digital customers will also often give banks feedback more quickly than brick and mortar customers, this lets banks iterate their products and offerings with speed that is hard to match at physical locations.
Another big advantage is that the digital bank gives banks a place to fail faster. This sounds bad, but it’s great for developing innovative products that are a little bit riskier for the bank. If a new product rollout is a complete flop on the digital platform then the bank has protected a big chunk of its business by only offering it online and if it’s a major success, then the bank can roll it out in its core business offerings.
Online-only banks have a far lower overhead than their brick and mortar counterparts. Therefore, they can offer much higher rates of interest on savings, money market, and CD accounts compared to their physical locations.
Traditionally, banks have been reluctant to create more competition for themselves by launching online banks, but the market is changing, and many are facing the reality that launching an online-only option is important to staying competitive. When banks launch online banking services, they also can help meet the goals of the overall company by attracting more deposits.
Banks must have money on deposit in order to stay in business. Additionally, it’s often easier for banks to develop new online infrastructure from scratch rather than attempting to layer it on their existing platforms. Online-only banks allow them to do that.
Should You Consider an Online-only Bank?
If you are looking to save more money or bank with lower fees, then online-only banks can be a great way to go. Although most of the online-only banks don’t have a full range of banking services – like loans and mortgages – they make up for it with no fee, interest-bearing checking, savings accounts, and highly competitive CD rates. Some of the perks most online-only banks have that make them stand out from traditional bank include:
- Free ATM access. The best online banks not only have an extensive network of ATMs but will also often reimburse for using out-of-network ATMs.
- Security. Most online only banks have top of the line security features including front-facing security features like text alerts.
- Convenience. The internet is always open, so online banking hours can be whatever you want them to be.
- Much better interest rates. It’s not unusual for the best online banks to have interest rates of 40 to 100 times what a brick and mortar bank can offer. Your money will grow a lot faster with the higher interest rates.
With so many banks launching online banking services it pays to shop around. The only geographical limitation is usually the country you live in. Other than that, you can join any bank you are qualified for. Many of these banks offer low starting required deposits of between $1 and $100 and payout competitive interest rates. Look around for the online-only bank that best suits your needs and that will give you the best deal on your deposits. Many people are finding that it’s worth it.