The first online banking solution appeared in 1997 and by 2010 the majority of banks had implemented it. However, bank customers were slow to embrace the innovation and often preferred visiting bank offices rather than dealing with digital solutions. The beginning of 2020 has flipped things around and with the pandemic outbreak many bank customers started quickly switching to online banking, discovering its capacity.
In this article, we’ll look into what online banking is, what benefits it brings to banks and their clients, and why online banking is a must-have feature for any finance-related application.
The Concept of Electronic Banking
The basic concept of electronic banking aka online banking is to make banking operations convenient and simple, excluding the necessity of paperwork, visiting brick-and-mortar facilities, or using automatic teller machines (ATMs). Online banking allows users to make money transactions, pay the bills, open new accounts, and do other finance-related activities in the comfort of their homes or on the go.
There are various services that e-banking can provide to their customers. These services are divided into two main types – retail electronic banking and wholesale electronic banking.
Retail electronic banking is personal banking. It provides financial services to individuals and can include such services as ATM, credit and debit card management, point of sale, check transactions, retail automated clearinghouse, and others.
Wholesale electronic banking services are provided for large clients like banks, corporations, financial institutions, and others. With wholesale banking, these organizations can manage their cash, perform wire transfers, fulfill corporate automated clearinghouses, and others.
The Rise of Online Banking
Banks have long represented traditional institutions heavily regulated by legislation. For these reasons, the implementation of new technologies and their digitization were progressing slowly. Nevertheless, some banking institutions realized the importance of enhancing their customer experience and the necessity to provide faster and more convenient operations. Therefore, they started introducing e-banking services to their clients.
With the appearance of e-banking, banks were encouraging their consumers to interact with them using digital channels. However, customers still preferred visiting bank branches for the operations they could easily perform online like opening new accounts, resolving issues, and receiving consultations. This situation lasted until the pandemic outbreak happened in 2019 when many bank branches had to close due to global lockdowns. Many more banks had to invest in the development of their digital solutions to ensure that their customers could still access their services online.
With all those pandemic consequences in mind, McKinsey&Company has found out that 15-20% of bank customers in Italy, Spain, and the US are expecting to use even more digital channels to interact with their banks after the crisis, and in other parts of the world this number is forecasted to increase to 5-13%. Moreover, from 60 to 85% of Western European bank clients are ready to handle their daily transactions digitally, even the customers aged 65 and older.
Many banks are already providing a wide range of their services online and in the near future, we’ll see an even deeper collaboration of banking and IT industries in the customer service sphere. In the same article, McKinsey&Company predicts that this may result in the reduction of banking branches to 25%, transformation or removal of call centers to 30%, while the provision of remote advising even on complex needs will rise up to 35%.
Benefits of Online Banking
Online banking allows its users to utilize almost every banking service available in brick-and-mortar facilities. Therefore, banks and users gain a variety of benefits when switching to this type of banking. Let’s have a closer look at them.
- Availability – e-banking users can access its services any time throughout the year and, often, from any part of the world once they have a stable internet connection. This way, bank clients don’t need to spend time traveling to their bank to solve their banking issues or wait till one of the branches opens.
- User-friendly – when building their digital solutions, banks try to make them simple and easy to use. They usually include various visual clues and FAQs on how to use their apps. App users can take their time and study the app at their own pace, though banks also add a customer service feature to the app in case there is something unclear.
- Convenience – now bank clients can handle their financial operations using just one device. They don’t need to spend hours in a queue to pay their utility bills or check their account balance. All they need is to subscribe to the service and have internet access.
- Time efficiency – digital systems help banks to smoothly organize their workflows and interaction with their customers and other institutions. Therefore, bank clients can perform any banking operations like funds transferring or opening a deposit account within several minutes on net banking.
- History of transactions – banking apps keep records of every fulfilled transaction, making it easier for the users to keep track of their operations. Now, bank clients don’t have to worry about where they put their acknowledgment receipts as the app will keep them all in one place.
SCAND Experience in Online Banking Solutions Development
SCAND company has broad experience in banking software solutions development. Our software development experts empower desktop, mobile, and web applications with banking and finance management features, helping them to reach their financial goals.
SCAND Case: Building an Online Bank as a Service Platform
One of the latest solutions the SCAND team has developed is an online digital banking (BaaS) platform. Our customer wanted to build a financial platform that would run both on iOS and Android devices and could:
- handle KYC (Know Your Customer) verification when onboarding customers;
- perform AML (Anti Money Laundering) checks;
- create and manage transactions;
- simply integrate with a set of finance/regulation providers by providing external API;
- provide high level of security;
- handle high peak loads;
- support cryptocurrency transactions (BTC/ETH).
To create a robust easy-scalable application the SCAND development team has chosen the following technology stack:
- Java, Node.js, Python – for backend architecture;
- React – for building front-end layer;
- Redis, MySQL – for data storage;
- ELK Stack (Elasticsearch, Logstash, and Kibana) – for monitoring server and app performance;
- Kubernetes – for automatic horizontal app scaling to effectively respond to peak loads;
- Pub/Sub as MQ broker – to control the interactions between publishers and subscribers.
The SCAND team paid particular attention to the security of the requested app. They implemented diverse tools and principles to ensure the high IT security standards of their project. For this, they:
- based their project on zero-trust principal when only the whitelisted customers have the access to the system;
- utilized all the necessary security frameworks such as OWASP and others to ensure that the app meets international security standards;
- secured communication between server and clients with TLS 1.2 and HTTPS v2 protocols;
- encrypted all the data, including files, disks, and databases with AES128/256 (Advanced Encryption Standard);
- secured service entities with certified could WAP and anti-DDoS protection;
- implemented multi-factor authentication;
- added an additional level of security DMZ to protect internal company’s networks;
- implemented key management service for secure communication with remote devices;
- embedded a Fraud detection tools with the help of Deep Neural Network (DNN);
- implemented ISMS online system to ensure that the app is well-secured and meets the international ISO 27001 IT security standards;
- used CI/CD delivery pipeline with security-related unit and integration tests to ensure stable and secure software delivery;
- performed recurrent penetration tests which included black-box and gray-box sessions.
As a result, our customer received a powerful, stable even at high peaks, open to integration, and well-protected banking platform. The solution provides all the necessary features for effective finance management and can be accessed by iOS and Android mobile users.
Conclusion on Online Banking
When the Covid-19 pandemic hit, banks and financial institutions had to quickly search for new ways to reach their customers. In times of social distancing and lockdowns, one of the viable steps was to develop their own digital solutions with online banking.
Online banking is a convenient technology that works for both – banks and their customers. While banks can keep their customer flow at the level of pre-pandemic times, bank clients get convenient access to all the banking services without the need to visit brick-and-mortar facilities.
Now, having their own business app with online banking functionality is already a must for banks and financial institutions. And we expect that its popularity will only grow in the future.