One of the biggest shake-ups of the financial industry in the last ten years has been the growth of digital banking from challenger banks in a sector widely dubbed “FinTech”. The move away from traditional banks has seen US digital bank Chime and the UK’s Monzo make huge strides into the banking market.
But was it the widescale acceptance of eWallets like PayPal that paved the way for this new era of banking?
Speedier transactions make eWallets and digital banks a preferred choice
With the explosion of smartphones came online payment apps, which were able to seamlessly integrate with bank accounts in transferring and paying for purchases online. The widescale adoption of eWallets, principally in the form of PayPal for new retail purposes like eBay and Amazon meant that it was the payment form of choice for an entirely new generation of online shoppers.
PayPal went from strength to strength partnering with millions of shops and stores to provide easier, fluid and wholly trackable customer payments. It followed in gaming too as casinos that accept PayPal made it easier for players to deposit and transfer online payments. The payment system made it so players can make and recieve payments safely and securely when they play online casino at Betfair, for example. The benefits of using PayPal in retail situations, is that it only takes a few clicks and money can be deposited from and back into it. This speedy transaction service compares more favourably than waiting up to five days for credit cards to process payments which means, in this instance, games deposits process and activate almost instantly.
It is one of the main reasons why digital bank Monese has partnered with PayPal in an attempt to broaden its customer base outside of the UK. The eWallet functionality will help its customers manage their money from within PayPal.
A decade that has shifted toward 100 percent digital banking
Companies like Monese
represent the shift towards challenger banks that has been taking place
since TSB, Virgin Money and Metro Bank entered the market at the beginning of
the decade. Since then there has been a steady shift towards 100 percent
digital banks like Revolut, Monzo and Triodos. They work entirely online, which
is much the same as most people use their banks now anyway.
Some of the benefits of this digital challenger bank model include being able to transfer and spend money around the world essentially fee free, other than the what the exchange rate happens to be. Many of these banks tend to keep their attention solely on online products, and having no bricks and mortar branches means every transaction is completed through its app contributing to lower running costs that can mean better rates for savers and customers.
What is obviously a bonus for these banks is that most have entered the market after the financial crisis caused by some of the bigger, more established ones and they haven’t been involved in the PPI refund saga either. It was a good time to enter the market at when distrust of traditional banking was at an all time high and coinciding with the changing habits of Generation Y and Millennials, both of which are entirely comfortable with banking online and via their smartphones.
What next for digital payments?
Contactless payments have increased in number and eWallets like PayPal, Apple and Google Pay have allowed payments to be stored and managed on smartphones. As the use of contactless payments increases year on year, digital payment methods, pioneered by the eWallet model of PayPal, will only get bigger to fill the void left by traditional cash payments. And nowhere is this seen more than in online retail.