What Is Virtual Banking?

Virtual banking, also known as cyberbanking, e-banking, home banking or online banking, includes provision of, and access to, various banking activities conducted virtually (from the road, external businesses or homes) rather than at a physical bank. Virtual banking allows customers to secure loans, pay utility bills, make deposits and check their accounts from remote locations.

Users access virtual banking services from computers.


According to D. K. Murthy and K. R. Venugopal in the book “Indian Financial System,” the concept of virtual banking initiated with the installation of the first ATMs in the 1970s. That move revolutionized the banking sector, spilling over to provide additional computerized banking services--including phone banking, intranet and Internet banking, smart cards and EFT point of sale systems.

Types of Virtual Banking

According to Robert E. Grosse in the book “The Future of Global Financial Service,” there are two basic models of virtual banking systems. The first is the electronic replacement of existing bank services by the Internet or telephone; the second involves offering new services that were previously not offered in virtual form. Some types of virtual banks have no physical infrastructure at all and exist only over cyberspace.


Virtual banking offers a multitude of informational, administrative, transactional and portal services, including financial educational information, interest rate quotes, current bank news, account information, corporate services, online brokerage and insurance services, links to local businesses, links to community information and search functions.


Virtual banking systems have numerous advantages over traditional brick-and-mortar banks. Customers have access to instantaneous service provision and lower transaction and account maintenance costs without having to physically visit a bank. Virtual banks are safe and install high-end firewall and data encryption software that ensure the integrity of customer data. Users are assigned individual PINs (personal identification numbers) that allow them to access their online accounts. Most online banks log off customers automatically after a few minutes of inactivity.


Virtual banking systems have some disadvantages for both the banks and customers. Initial setup costs for starting a virtual banking system can be high. New users may initially find banking sites difficult to navigate and use. Most virtual banking systems cannot be accessed without the Internet, and users may be required to invest in high-speed broadband for quicker, reliable access. Technological hitches can cause virtual banks to go down--an inconvenience.

While virtual banks give customers numerous advantages in terms of bill payments and account information, at the end of the day, customers still need to visit ATMs to withdraw cash.