Payset prespective
April 25, 2024

Digital Only Banks

Learn about the benefits and features of digital-only banks and discover the inner workings of these innovative financial institutions below in our comprehensive article.

Key Takeaways:

  • Digital-only banks offer unprecedented ease-of-use, providing 24/7 access to banking services from anywhere, vastly enhancing convenience, speed, and user experience.

  • By operating with lower overhead, digital banks offer competitive rates and reduced fees alongside robust security measures to protect customers’ data.

  • Digital-only banks are expanding access to financial services, driving competition, and innovation within the broader financial sector.


​​Digital-only banks, also known as online banks or internet-only banks, operate entirely online, foregoing traditional physical branches. As everyday life increasingly shifts to digital platforms, banking has followed suit, transforming the financial landscape and altering how consumers interact with their financial institutions. 

These banks cater to a growing consumer demand for efficient and accessible financial services, a shift driven by rapid technological advancements. As a result, digital-only banks offer a streamlined and user-friendly banking experience that prioritises convenience and speed, appealing to those who value quick and easy access to their financial services. This evolution in banking has not only reshaped consumer expectations but also compelled traditional banks to innovate and adapt to these new digital norms.

How Digital-Only Banks Operate

Digital-only banks are built on a foundation of cutting-edge technology that uses cloud computing to provide platforms that are scalable and reliable. Their infrastructure is designed for around-the-clock availability, with robust cybersecurity in place to protect transactions and personal data.

Opening an account with a digital-only bank is straightforward and quick, done via a mobile app or through the bank’s website. The process incorporates digital identity verification, increasingly leaning on biometrics or electronic IDs. This allows customers to sign up and start banking almost immediately.

Interactions between customers and the bank’s digital platform are the basis of digital-only banks’ operations. The banks often use artificial intelligence (AI) and machine learning to power smart customer service options like chatbots and automated systems, providing easy-access support. Customer issues can be addressed promptly, eliminating the need to visit a branch in person.

As for banking products, digital-only banks offer a range similar to traditional ones. This means standard offerings like checking and savings accounts, as well as personal loans, mortgages, and investment options. Many also provide financial management tools aimed at helping customers budget, save, and manage their money effectively—all from their mobile devices.

Advantages of Digital-Only Banks

Digital-only banks offer a number of advantages over the traditional model. The primary benefit is their unprecedented accessibility and convenience. Customers can access banking services 24/7 from any location with internet connectivity, eliminating the need for visits to a branch. From routine transactions to urgent financial inquiries, everything is manageable with a smartphone or computer.

Another key advantage is the cost savings associated with digital-only banks. Without the expenses tied to maintaining physical branches, like real estate, utilities, and a large customer service staff, online banks can operate with considerably lower overhead. This allows them to offer reduced fees and higher interest rates on deposits compared to their traditional counterparts. Customers may also benefit from extra incentives such as free account services, lower loan rates, and better returns on savings.

Digital-only banks also focus heavily on security, employing state-of-the-art technology to protect customer data and transactions. These enhanced features often include biometric authentication methods, such as fingerprint and facial recognition, which provide a higher level of security than traditional methods.

Digital-only banks are continuously innovating, with new automated tools that help with financial management, budgeting, and investing. In whole, they offer a suite of services that are cutting-edge and user-friendly, tailored to meet the needs of a diverse clientele.

Regulatory Environment for Digital-Only Banks

Digital-only banks, like all financial institutions, have to follow strict licensing requirements and regulations to operate legally. They’re required to obtain the necessary banking licences from local regulatory bodies. This involves rigorous scrutiny of their financial practices, security measures, and operational frameworks. Compliance with standard regulations such as Anti-Money Laundering (AML) and Know Your Customer (KYC) is vital.

As digital banks expand globally, they face the challenge of adapting to different international regulatory frameworks. Each country has its own set of financial statutes, and digital banks must follow these closely to operate across different jurisdictions. To manage this, digital banks often make use of sophisticated regulatory technology (RegTech) solutions that help automate compliance processes and ensure they meet the specific legal requirements of each region. This adaptability is key to their ability to offer seamless services on a global scale.

Challenges Faced by Digital-Only Banks

One of the primary hurdles for digital-only banks is overcoming the lack of physical presence and building customer trust. Without traditional brick-and-mortar branches, these banks must emphasise customer service and transparent communication. To compensate for the lack of person-to-person interaction, they often focus on digital marketing strategies and customer engagement tools to reassure customers of their reliability and establish a strong brand reputation.

Another substantial challenge revolves around security in a fully digital environment. Digital banks must ensure that their systems are impervious to cyber threats, which are becoming more sophisticated. This involves continuous investment in the latest cybersecurity technologies and protocols to safeguard customer data and prevent fraud. Regular security audits and updates are crucial to maintaining the integrity of their platforms.

Ensuring the reliability of their services and managing technical issues are constant concerns for digital banks. System downtimes or glitches can quickly erode customer trust. As such, digital-only banks invest in robust IT infrastructure and hire dedicated teams to monitor and manage system performance around the clock. This includes implementing fail-safes and redundancy plans to ensure that services remain uninterrupted, even during high demand or potential cyber-attacks.

The Future of Banking with Digital-Only Banks

The future of banking is likely to be ever more digital, with online banks having grown significantly in influence within the financial sector. As technology advances, these banks are expected to expand their customer base globally, coming out with more new ways to streamline operations and enhance user experiences. 

This expansion is not just limited to tech-savvy consumers. It also extends to previously underserved markets, which is a substantial shift in traditional banking dynamics. Digital banks play a crucial role in financial inclusion, reaching populations without access to traditional banking services. By offering low-cost, accessible banking options, they help democratise financial services, allowing more people to participate in the economy. 

The presence of digital-only banks also intensifies market competition, pushing traditional banks to continuously improve their services. This competitive environment benefits consumers with better products and services and fosters a more resilient and dynamic financial ecosystem.

The Evolution of Digital-Only Banks

The evolution of digital-only banks is deeply intertwined with technological advancements in communication. The rise of the internet and mobile technology in the late 20th and early 21st centuries set the foundation for digital banking. Innovations like online payment systems, encryption technology, and mobile applications have allowed banks to operate entirely online, eliminating the need for physical branches.

Compared to traditional banking models, digital-only banks represent a paradigm shift. Traditional banks have historically relied on extensive branch networks to deliver services, requiring significant physical infrastructure and personnel. In contrast, digital-only banks leverage technology to deliver banking services straight to consumers’ devices. This translates to lower operational costs and the ability to offer competitive rates and fees. It’s a shift that reflects a distinct change in consumer behaviour, where convenience and speed has taken precedence over face-to-face interaction. It also highlights the rapid adaptation of the financial services industry to technological change.

Consumer Perspective on Digital-Only Banks

From the consumer perspective, digital-only banks offer a compelling mix of convenience and efficiency that has overall led to high levels of customer satisfaction. The ability to manage finances through an app or website at any time and from anywhere is a major advantage. Positive experiences often include seamless account management, instant transaction capabilities, and innovative features that traditional banks may not offer, such as real-time spending analytics and personalised financial advice.

Still, trust and safety concerns remain a barrier to the universal adoption of digital-only banking. Some express apprehension about the security of their financial data, driven by the impersonal nature of digital-only interactions and high-profile cyber security breaches. To mitigate these concerns, it’s essential that digital banks prioritise cutting-edge security and that they effectively communicate these protections to their customers, aiming to establish and maintain the trust necessary for long-term relationships.


Digital-only banks have undeniably transformed the banking landscape, setting new standards in efficiency and customer convenience. By eliminating physical branches and harnessing new technology, these banks have revolutionised how financial services are accessed and delivered, making banking as instantaneous and easy as checking a phone. As they continue to grow, these banks not only challenge traditional banking models but also drive significant advancements in financial technology, enhancing the way we manage money.

As the sector evolves, however, maintaining a balance between innovation and security remains paramount. Digital banks must constantly fortify their cybersecurity systems to protect against ever-evolving threats, ensuring that customer trust is never compromised.

In this era of digital banking, the fusion of relentless innovation with robust security protocols is crucial for sustaining growth and retaining customer confidence, ensuring that the banking sector remains adaptable and secure.

Payset: Your Payments Alternative

Payset is not a digital bank but rather an EMI (Electronic Money Institution). The differences are largely regulatory (different laws and regulations apply to an EMI than to a bank). Additionally, an EMI is a solution for sending and receiving payments in multiple currencies around the globe but cannot issue credit or loans. 

Ready to revolutionise the way you handle your finances? Discover the future of international paments with Payset, a leader in cross-border payment services. 

Visit Payset today and see how simple, secure, and satisfying multi-currency payments can be when it’s all at your fingertips in a single online dashboard. 

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Frequently asked questions

What is a multi-currency account/virtual IBAN?

A Payset multi-currency account allows you to receive money in 34 different currencies and send money in up to 38 currencies, all within the same account.

You can deposit and withdraw funds, convert currencies at competitive exchange rates, and hold your chosen currencies to capitalize on market movements.

A Payset multi-currency account allows startups and business owners to receive payments from clients virtually anywhere in the world and pay suppliers, staff, and contractors quickly and affordably in their chosen currency.

  • Funds can be deposited and withdrawn from the account for a small fee.
  • Account holders can send and receive money with other Payset users for free.
  • Depending on your region, you can use various payment networks from your Payset account, including SWIFT, SEPA, ACH, Fedwire, Faster Payments, BACS, and CHAPS. 
  • Once you register an account, you will be provided with a Virtual IBAN (International Bank Account Number), which makes all of these transfers easy.
  • We provide you with local payments and collections. For example, transactions in USD, EUR, CAD, and GBP are processed through the local payment networks, which is far cheaper and takes minutes as opposed to days

Are there limits on the amount of money I can send and receive?

No, there are no transaction limits on Payset multi-currency accounts.

However, higher-volume transactions may require additional anti-fraud verification. If you plan to make a large transaction, contact us in advance to avoid verification delays.

How is Payset regulated?

Payset is regulated as an authorized Electronic Money Institution by the UK Financial Conduct Authority. Our activities are also regulated by the Payment Services Regulation 2017 and the Electronic Money Regulation 2011 (SI 2011/99).

How do I send money from my account?

Once you have opened your verified IBAN account and added money to a balance, transferring funds is simple.

Simply log in into your account and add a beneficiary, then simply “make a transfer” in your preferred currency to that beneficiary.

Information contained in this publication is provided for general education and information purposes only and should not be construed as legal, tax, investment or other professional advice or recommendation, or an offer of, or solicitation for, any transactions or any other actions (or refraining therefrom); This material has been prepared without taking into account any particular recipient’s financial objectives or situation. We make no warranty, guarantee or representation, whether express or implied, as to the completeness or accuracy of the information contained herein or fitness thereof for a particular purpose; Use of images and symbols is made for illustrative purposes only and does not constitute a recommendation or advice to take or refraining from any action; Use of brand logos does not necessarily imply a contractual relationship between us and the entities owning the logos, nor does it represent an endorsement of any such entity by Pay Set Limited, or vice versa; Market information is made available to you only as a service, and we do not endorse or approve it; Any reference to past performance, predicted returns, or likelihood performance scenarios may not reflect actual future performance and certainly do not guarantee future outcomes.

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