Word “bank” usually associates with a huge institution with numerous branches, operating globally or in selected markets with bricks and mortar customer service offices that operate from 9 to 5. However, this definition will soon have to be revised as a new breed of banks is taking over the world. Those are called virtual or online banks.
Virtual bank is very similar to traditional bank in a sense that it offers its clients financial services. Usually virtual bank clients can deposit or withdraw money into their online accounts, order and use various payment cards, invest in ETF’s or other financial instruments and order other financial services.
Virtual banks differ from each other as they usually do not offer full scale services as traditional banks, but specialize in narrower fields of financial services. For example, MisterTango, which is a virtual bank, operating in the EU, offers its clients payment accounts with IBAN number and SEPA transfers, free MasterCard payment cards and payment services for online stores.
Another example of a virtual bank is PayPal, a company, founded by Peter Thiel, Elon Musk and some other guys, who are famously called PayPal mafia. It was one of the earliest examples of a virtual bank. It was also very specialized as its key feature was managing online payments all over the world much cheaper and easier than traditional banks offered at that time.
Trend of virtual banks and overall growth of whole fintech sector is sweeping the world as a hurricane. For example, Asia’s financial capital Hong Kong has received 29 applications for virtual bank license during the past month as its Monetary Authority announced that it will start issuing them.
Virtual banks usually are branchless, meaning that they operate online only. Of course, they usually have their offices, but those are for employees only, not for clients. Virtual bank customers do all their banking online, not in physical branches.
This usually results in lower service rates, offered by virtual banks, compared to traditional banks. As virtual banks to not have to let premises for their bricks and mortar branches, hire numerous employees for face-to-face customer services, they can significantly reduce their service costs. Therefore, virtual bank customers can enjoy way better rates than in traditional banks. Another advantage of virtual banks is that they operate 24/7.
Of course there are some risks, associated with virtual banks as there were some examples of scammers taking advantage of this relatively new sector. Therefore, before opening an account, customers have to check if virtual bank operates under a license issued by central bank and if it is supervised by any official financial institution, which regulates banking sector. If these requirements are met, then it means that it’s the same as a regular bank, only without branches and is safe to conduct business with.