What Is Virtual Banking?

Virtual banking, also called direct banking, is done online at a bank that has no branches. A virtual bank can provide many of the same products and services, such as checking accounts, savings accounts, certificates of deposit and loans that you find at a traditional brick-and-mortar bank. However, access is available only through an internet connection, either on a computer or a mobile device. While virtual banking was once a novel idea, today you might be hard-pressed to tell whether a bank is virtual or traditional simply by viewing its website or mobile app. Many traditional banks now offer a full range of online products and services that match those offered by virtual banks.

What Is Virtual Banking?
Image Credit: trumzz/iStock/GettyImages

Virtual Bank Advantages

Since the online offerings of virtual and traditional banks are not all that different, the sole advantage offered by virtual banks is cost savings. A virtual bank doesn't have to pay for physical branches nor the employees to staff those branches. This is a tremendous cost savings, and the savings are usually passed along to customers in the form of higher interest rates on savings, lower interest rates on loans and lower banking fees. In other respects, virtual banks and traditional banks with an online interface offer many of the same features, including FDIC insurance, account management, electronic transfers and payments, and even remote check deposit capabilities. In some cases, virtual banks offer additional online tools for financial planning, budgeting, investment analysis and even tax preparation. But there is no reason a traditional bank can't offer those services online, and some do.

Virtual Bank Disadvantages

A virtual bank disadvantage for many consumers is the lack of face time with a banker. You can have a personal relationship with a traditional bank, going to your local branch when you need answers to a complex problem or when you have a complicated request. To be sure, virtual banks can have outstanding customer support over the phone or via an online chat, but you might prefer talking face-to-face with a banker who is familiar with your personal circumstances and understands your unique needs. A traditional bank often has services and staff available to help you with specialized needs, like drawing up trusts, arranging international letters of credit, exchanging currencies, obtaining a safe deposit box and other services that virtual banks typically do not offer. Finally, virtual banks won't interest those consumers who don't like or don't trust online banking or who are reassured by the presence of a physical bank when depositing savings.