Virtual bank
Encyclopedia
A direct bank is a bank
without any branch network
. It offers its financial services by:
By eliminating the costs associated with bank branches, direct banks may offer higher interest rate
s and lower service charges on their products than their traditional competitors.
in the early 1990s. As the Internet became more generally accessible, traditional banks began to realize its potential to deliver services to their customers while reducing long-term operational costs. Upon realizing this, traditional banks began to offer limited services online.
The initial success of internet banking services provided by traditional banks led to the development of internet-only banks or "virtual banks". These banks were designed without a traditional banking infrastructure, a cost-saving feature that allowed many of them to offer savings account
s with higher interest rates and loan
s with lower interest rates than most traditional banks.
The world's first fully functional direct bank was the Security First Network Bank
(SFNB) which began operations on October 18, 1995 . Based at Atlanta, Georgia, USA, it was the first direct bank to be insured by the Federal Deposit Insurance Corporation
(FDIC). After three years of operation, it was acquired by the Royal Bank of Canada
(RBC). Though SFNB did not make much profit in the initial years, it demonstrated that the concept of direct banking could work.
Europe
's first full-service direct bank was "First-e" launched by Enba , a Dublin-based company under the banking license of Banque d'Escompte, France
. First launched in the UK
in late September 1999, it garnered appreciable attention, resulting in more such ventures all over Europe. After about two years of operations, it shut down its operations during the dot-com bubble
bust. Though Egg Bank
, launched earlier in October 1998 by Prudential plc
, was touted to be a direct bank, it was not a full-service direct bank initially.
Asia
's first direct bank was finatiQ – a division of the Bank of Singapore . It opened on April 3, 2000 (though the public launch was on April 18, 2000), heralding the arrival of virtual banking in Asia.
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
without any branch network
Branch (banking)
A branch, banking center or financial center is a retail location where a bank, credit union, or other financial institution offers a wide array of face-to-face and automated services to its customers....
. It offers its financial services by:
- Telephone bankingTelephone bankingTelephone banking is a service provided by a financial institution, which allows its customers to perform transactions over the telephone.Most telephone banking services use an automated phone answering system with phone keypad response or voice recognition capability...
- Online bankingOnline bankingOnline banking allows customers to conduct financial transactions on a secure website operated by their retail or virtual bank, credit union or building society.-Features:...
- Automated teller machines (often through interbank networkInterbank networkAn interbank network, also known as an ATM consortium or ATM network, is a computer network that connects the ATMs of different banks and permits these ATMs to interact with the ATM cards of non-native banks....
alliances) - Mail bankingMail bankingMail banking is a service provided by a financial institution which allows its customers to deposit cheques into their account by mail. It is primarily used by virtual banks and by customers who live too far from a branch...
- Mobile bankingMobile BankingMobile banking is a term used for performing balance checks, account transactions, payments, credit applications and other banking transactions through a mobile device such as a mobile phone or Personal Digital Assistant . The earliest mobile banking services were offered over SMS...
By eliminating the costs associated with bank branches, direct banks may offer higher interest rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
s and lower service charges on their products than their traditional competitors.
History
Traditional banking was impacted greatly by the commercialization of the InternetInternet
The Internet is a global system of interconnected computer networks that use the standard Internet protocol suite to serve billions of users worldwide...
in the early 1990s. As the Internet became more generally accessible, traditional banks began to realize its potential to deliver services to their customers while reducing long-term operational costs. Upon realizing this, traditional banks began to offer limited services online.
The initial success of internet banking services provided by traditional banks led to the development of internet-only banks or "virtual banks". These banks were designed without a traditional banking infrastructure, a cost-saving feature that allowed many of them to offer savings account
Savings account
Savings accounts are accounts maintained by retail financial institutions that pay interest but cannot be used directly as money . These accounts let customers set aside a portion of their liquid assets while earning a monetary return...
s with higher interest rates and loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
s with lower interest rates than most traditional banks.
The world's first fully functional direct bank was the Security First Network Bank
Security First Network Bank
Security First Network Bank was the first pure Internet bank in the United States. It was founded in Pineville, Kentucky in October 1995. Several months later, the bank relocated to Atlanta, Georgia....
(SFNB) which began operations on October 18, 1995 . Based at Atlanta, Georgia, USA, it was the first direct bank to be insured by the Federal Deposit Insurance Corporation
Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...
(FDIC). After three years of operation, it was acquired by the Royal Bank of Canada
Royal Bank of Canada
The Royal Bank of Canada or RBC Financial Group is the largest financial institution in Canada, as measured by deposits, revenues, and market capitalization. The bank serves seventeen million clients and has 80,100 employees worldwide. The company corporate headquarters are located in Toronto,...
(RBC). Though SFNB did not make much profit in the initial years, it demonstrated that the concept of direct banking could work.
Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
's first full-service direct bank was "First-e" launched by Enba , a Dublin-based company under the banking license of Banque d'Escompte, France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
. First launched in the UK
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
in late September 1999, it garnered appreciable attention, resulting in more such ventures all over Europe. After about two years of operations, it shut down its operations during the dot-com bubble
Dot-com bubble
The dot-com bubble was a speculative bubble covering roughly 1995–2000 during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the more...
bust. Though Egg Bank
Egg Banking plc
Egg Banking plc is a British internet bank owned by Citigroup, with headquarters in Derby and London, England. Egg was born out of Prudential's initial banking arm , that had been established in 1996...
, launched earlier in October 1998 by Prudential plc
Prudential plc
Prudential plc is a multinational financial services company headquartered in London, United Kingdom.Prudential's largest division is Prudential Corporation Asia, which has over 15 million customers across 13 Asian markets and is a top-three provider of life insurance in mainland China, Hong...
, was touted to be a direct bank, it was not a full-service direct bank initially.
Asia
Asia
Asia is the world's largest and most populous continent, located primarily in the eastern and northern hemispheres. It covers 8.7% of the Earth's total surface area and with approximately 3.879 billion people, it hosts 60% of the world's current human population...
's first direct bank was finatiQ – a division of the Bank of Singapore . It opened on April 3, 2000 (though the public launch was on April 18, 2000), heralding the arrival of virtual banking in Asia.
Noteworthy direct banks around the world
- ING Direct, part of ING GroupING GroupThe ING Group is a global financial institution offering retail banking, direct banking, commercial banking, investment banking, asset management, and insurance services. ING is the Dutch member of the Inter-Alpha Group of Banks, a cooperative consortium of 11 prominent European banks...
- Discover Bank, part of Discover FinancialDiscover FinancialDiscover Financial Services is an American financial services company, which issues the Discover Card and operates the Discover and Pulse networks...
- UBank, part of National Australia BankNational Australia BankNational Australia Bank is one of the four largest financial institutions in Australia in terms of market capitalisation and customers. NAB is ranked 17th largest bank in the world measured by market capitalisation...
- RAKBANKdirect, Part of RAKBANKRAKBANKRAKBANK, also known as the National Bank of Ras Al-Khaimah PSC, is a retail bank in the United Arab Emirates with assets of Dh. 22.6 billion as at 31 June 2011. It was named the second most profitable bank among GCC top 50 Banks in 2009 according to Gulf Business magazine...
- RaboDirect, part of RabobankRabobankRabobank is a financial services provider with offices worldwide. Their main location is in the Netherlands. They are a global leader in Food and Agri financing and in sustainability-oriented banking...
- HSBC Direct, part of HSBCHSBCHSBC Holdings plc is a global banking and financial services company headquartered in Canary Wharf, London, United Kingdom. it is the world's second-largest banking and financial services group and second-largest public company according to a composite measure by Forbes magazine...
- First DirectFirst DirectFirst Direct is a telephone and internet-based retail bank in the United Kingdom, a division of HSBC Bank plc. First Direct has headquarters in Leeds, West Yorkshire, England, and has 1.16 million customers....
, part of HSBCHSBCHSBC Holdings plc is a global banking and financial services company headquartered in Canary Wharf, London, United Kingdom. it is the world's second-largest banking and financial services group and second-largest public company according to a composite measure by Forbes magazine... - Banco BestBanco BestBanco Best is a financial institution created in 2001, operating in the areas of Banking, Asset Management and Trading. The shareholder structure of Banco Best S.A...
, part of Banco Espirito SantoBanco Espírito SantoBanco Espírito Santo is a private Portuguese bank, based in Lisbon.The Banco Espírito Santo’s origins began with the lottery, currency exchange and securities business carried out by José Maria do Espírito Santo e Silva between 1869 and 1884... - ZUNO BANK AGZUNO Bank AGZUNO BANK AG is a new direct bank launched in 2010. It targets those people who conduct their banking activities mainly over the Internet and rarely visit bank branches. Slovakia is ZUNO's first market in the CEE region with the Czech Republic and other CEE countries to follow.-Overview:ZUNO's...
, part of Raiffeisen Zentralbank or Raiffeisen International Bank