Virtual Banking refers to the act of accessing banking institutions and their functions online without having to make a physical appearance at the banking hall. It entails making various banking services available via extensive use of IT without the need for the physical walk-in.
Therefore, it is any financial institution that provides traditional banking services online. This means a customer can make account inquiries, get loans, pay bills online, and even withdraw and deposit money whenever the customer pleases. It is sometimes also referred to as remote banking, Internet banking, online banking, and phone banking.
How Does a Virtual Bank Work?
Basically, a virtual bank operates by allowing customers to conduct several business activities online as a service. Their overall approach would remain tied to a physical location, like a branch office. Virtual banks operate electronically.
Virtual banks operate through 3 simple ways: creating an account, transferring money in, and then transferring money out. Here is how they work?
Creating an Account
A virtual bank works when a customer, first of all, opens an account with the virtual bank. This means the individual would have to fill out an online application and make a deposit. The customer can submit the form online or simply print it and mail it.
To make the deposit, the customer would have to transfer money to the bank electronically or send a check via mail. Before concluding this stage, the bank may also request that the customer fax it a copy of their identification.
Paying Funds In
One way a virtual bank allows you to deposit money into a virtual account is by having your employer deposit your paycheck directly into the account.
Also, it is possible for you to transfer funds from another bank or a PayPal account into your virtual account. It also works by allowing customers to snail-mail deposits to the virtual bank.
Conclusively, some virtual banks may operate by allowing you to take a smartphone picture of the deposit to carry out a transaction. Even if your virtual bank does not provide this feature, PayPal does. Thus, you can transfer money from your PayPal account.
Paying Funds Out
Just as with a traditional bank, virtual banks also issue debit cards, and a customer is also allowed to order checks. With these provisions, you can buy products as you would normally do. Additionally, virtual banks provide the option of paying bills online.
Although virtual banks do not have their own ATMs, they enable the operation of cash withdrawal by allowing you to use an ATM machine that is owned by another bank. However, the bank in charge of the ATM will most likely charge you for ATM withdrawal fees, although virtual banks won’t. It is however possible that your virtual bank may reimburse these charges.
Importance of Virtual Banking
One of its importance today is that security is assured. This is large as a result of the fact that banks all around the world have begun to offer online banking as one of their major services.
Virtual banks utilize a highly secure platform that enables the encryption of devices to guarantee that all customer data is secured. With the absence of and protection from the security breach, you are ultimately shielded from online scams and account hacking.
It can always be relied upon even if you are minutes away from the deadline to pay your bill and avoiding being levied a penalty. From the comfort of your home, you can make online transactions anytime and with ease. What’s more, is that you do not have to go through the hassles of being physically present for a huge amount of transactions. It enables the safe transfer of funds without disappointments.
No Hidden Charges
It is quite normal to assume that with the convenience that it offers, there would be some hidden charges associated with carrying out online transactions.
However, there are zero hidden charges! When you make an online transaction, you are only charged a nominal transaction convenience and the rest is handled by your bank.
A Bank in Your Home
Indeed one of the importance is the fact that convenience is guaranteed. They bring the banking hall right to the middle of your home. This means you no longer have to wait in long queues at the bank. Whether you are stuck in a traffic jam or you are in the middle of some urgent work, you can always finalize transactions on the go.
Consequently, it makes it easier for you to confirm your balance before making cashless purchases so as to avoid embarrassment if your account does not have sufficient funds to purchase everything on your shopping list.
Manage Your Accounts Up Close
Finally, another essential feature is the ability to budget and monitor your account via access to mobile banking and an efficient budgeting application. It becomes simpler to monitor real-time expenses while making purchases or calculating your savings and expenses for the month.
That is, after making transactions, you do not have to wait for the day of the month to end before you check your transaction logs.
Forms of Virtual Banking
Below are different forms:
- Centralized fund management schemes(1)
- The electronic clearing service scheme
- Use of magnetic ink character recognition code (MICR)
- An electronic fund transfer scheme
- Computerized settlement of clearing transactions.
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Advantages of a Virtual Banking
24/7 Access to your account and bank information
As long as you are connected to the internet, online banks are accessible all day long. In fact, some advanced virtual banks raise the competition bar by providing you with 24/7 access to a real-life customer service agent.
This becomes very beneficial in case you do not have access to the internet, or if you feel more comfortable interacting with a human, instead of a programmed computer algorithm.
Faster Speed and Efficiency
Recall that with the traditional brick-and-mortar banking institutions, you have to go through the time-consuming stress of waiting in line to perform almost every banking transaction such as applying for a loan or transferring funds. However, this is not the case.
Here, speed and efficiency is an advantage on your side as you do not have to wait. All you have to do is log in and access your online account, and you can perform almost every banking transaction (request a new credit card, lodge a complaint, etc.) without having to walk down to a bank and wait in line.
Online Payment of Bill
The ability to pay bills online is one of the awesome advantages of online banking. In traditional banking, you have to write checks or fill out forms to pay bills. However, with virtual banking, all it takes is a simple click after you set up your accounts on your online bank.
In fact, you can even automate the payments of your bills with a set time duration. With this feature of online bill payment, it is easy to monitor your accounts from one central source and to oversee the payments into and out of your account.
Cost of Operation Is Cost-effective
Traditional banks have to pay for expenses that include rent, electricity, landscaping, janitorial services, etc. However, virtual banks do not have to pay for these things and that means they can pass these savings along to their customers.
Because they have a relatively reduced cost of operation, virtual banks tend to charge lower fees than traditional banks. This is why there are a lot of virtual banks that provide free online checking account with zero deposit, along with other no-fee bank accounts, like IRAs. Some virtual banks enable free checking and zero minimum balance.
This is particularly useful if you are concerned that your application for an account may be refused because of bad credit. You may be allowed to create a bank account online free of charge. There is no need for a credit check, but there might however be ongoing fees.
As a result of low overhead, virtual banks usually offer the best interest rates, regardless of if you want a certificate of deposit, a high girl checking account, or deposit accounts with high interest, like a money market account.
Other advantages include:
- The flexibility of its system
- They are sensitive to the environment
- Easy occupation and user-friendliness
- Digital signs for security
- The ability to check data about transactions at current and retrospective ways
Disadvantages of Virtual Banking
As expected, every innovation that is based on IT faces the issue of security. This is why some customers are still skeptical about it. If someone gains illegal access to your account by hacking or hijacking your password or log-in details, your account (and of course, money) is at the risk of theft.
Also, the fact that virtual banks do not have a physical presence makes it difficult for people to trust them. If the website crashes or your digital identity is stolen, what happens to your money?
Inefficiency Execution of Complex Transactions
Virtual banks are good for carrying out simple banking operations like transferring funds between accounts and paying bills online. However, if your virtual bank does not have a global outlook, it may not be able to efficiently execute global transaction functions like sending payments to numerous currencies of different countries all over the world.
In fact, it is impossible for virtual banks without a physical presence to carry out the services of notary public since it requires a physical visit, and it is vital for essential financial activities like purchasing a home.
Inability to Create Relations with The Bank
An edge that traditional brick-and-mortar banks have over virtual banks is the fact that a customer can easily create familiarity and relations with a banker. However, this becomes nearly impossible.
This is because virtual banks typically hand you off to an anonymous customer service agent who will most likely be unable to differentiate you from the next customer.
Other disadvantages are:
- The mobility of banking websites
- Cost of access
- The difficulty that may be attached to learning the online processes
- Skepticism about the validity and effectiveness of the operations
What Is the Difference Between Online and Virtual Banking
|Online banking||Virtual banking|
|Online banking is an internet-based banking method that is used by regular banks.||In virtual banking, every single transaction is carried out online. This means that there is absolutely no involvement at all with any regular brick-and-mortar store, unlike online banking.|
Why Virtual Banks Are the Future?
The age of digital transformation is upon all of humanity. Indeed, the modern developments in internet technology, the prevalence of smart devices, and the variations in customer behavior have led to a skyrocketing increase in the establishment of virtual banks.
Consequently, the majority of customers are significantly accepting virtual banking. In addition, organizations like Japan Net Bank and Manulife Bank have laid down an example of longevity and proven business models for other new virtual banks to incorporate.
Therefore, the future of financial dominance is forecasted to be occupied by companies like the New Virtual Banks in Mainland China and Hong Kong, and other innovative virtual banks that have the potential to become very successful and eventually becoming the major players in the world of Banking and Finance.
In conclusion, the age of IT and digital transformation has evolved greatly, and a lot of businesses are extremely leveraging on it. As you have seen, the pros of virtual banking supersede the cons.
What then are you waiting for? Get on the train and start leveraging on the abundant benefits and opportunities that are inherent.