Digital banking guide

Modern banking emerged around three hundred years ago – and until just the last ten years or so, banking has hardly changed. The past decade has seen bank branch closures the length and breadth of Britain, and a radical shift in the way we manage our money. We are at the start of a banking revolution, a revolution which shows no signs of abating, and a revolution that will change the way we bank forever – the digital banking revolution.

Just as the world has embraced other forms of technology to simplify life and minimise inconvenience, the banks have been changing too. There are cost advantages and efficiencies for banks by ‘going digital’, but the real driver of change has been us. Why would we queue in a bank when we can do everything from our own computers, tablets and smartphones?

Although millions of Brits have embraced digital banking, there remains a significant minority who are either technophobic, nervous about the security of digital banking, or just don’t want to change their banking habits. So, why should you switch to digital banking?

How does digital banking work?

Although digital banking marks a big change in the way we bank, it has not changed banking itself. We still need bank accounts – to pay in money, save and, unfortunately, pay out money. With digital banking, all or most of these tasks can be done online or via a mobile app – the key difference being that, unlike traditional in-branch or telephone banking, digital banking involves very little human interaction.

What are the advantages of digital banking?

The main advantage of digital banking is the ability to manage your account wherever and whenever you want – as long as you have an internet connection. Gone are the days when you needed to visit a branch (having checked that’s it’s not an early closing day) and wait in a lengthy queue to get simple banking tasks done. Some of these tasks were automated before the advent of digital banking via ATMs, but even then you needed to physically find an ATM.

Digital banking lets you complete all of these tasks with a click of a button and no human interaction:

• Checking account balances

• Arranging direct debits and standing orders

• Reporting a lost payment card

• Setting up and scheduling one-off payments to companies or people, or money transfers to another bank account

• Moving money from a current account into a savings account 

• Requesting an overdraft or overdraft extension

• Viewing statements

• Sending and receiving secure correspondence from your bank

All of this can be done 24/7, regardless of opening hours, bank holidays or even whether you are in the country.

Does digital banking have any disadvantages?

Digital banking is not perfect – but many of the criticisms levelled against it are equally, if not more, true of traditional banking.

For instance, there’s the apocryphal belief that digital banking has increased the prevalence of fraud. Online fraud is certainly on the rise – but it is far harder to hack a password than it is to fake a signature.

Most digital fraud isn’t actually banking fraud: it’s traditional fraud, or confidence trickery, which uses digital banking as the delivery mechanism for the criminal element. Digital banking hasn’t created more fraud; it’s just that we’re spending more of our time online, and fraud is following suit.

It’s true that digital banking has helped speed up banking, which leaves little time to stop payments once they have been authorised – unlike cheques which could take days to arrive and clear. In many cases this would be an advantage rather than disadvantage, though.

How secure is digital banking?

When used correctly, digital banking is very secure. All of your login details, personal data, and banking data is fully encrypted before it crosses the internet – meaning it’s almost impossible for a third party to intercept.

But digital banking is only really as secure as its users. If you use obvious passwords, write your passwords down, or don’t adequately protect the devices you use for digital banking, you will expose yourself to people with criminal intent – which is equally true if you write down your card’s PIN and leave it in your purse or wallet.

Even if they obtain your login details, there are barriers to prevent criminals from fraudulently using your account. Some banks will send an authentication code to your phone during the login process, which would stymie most criminals unless they’ve also obtained your phone. Most bank accounts now require payments to new recipients to be validated using a card reader, which generates a unique authentication code.

Nevertheless, there are plenty of digital banking horror stories out there – but almost always this is down to human error, rather than an intrinsic security flaw with digital banking.

At the less sophisticated end of the scale, you might receive an email claiming you are due a sizeable payment, but in order to receive it they need to pay an amount into a specified account. Some attacks are incredibly complex, though: would-be bank account thieves have created an entire industry dedicated to tricking people, using professional call centres to gain access to your computer, perhaps by posing as your broadband provider.

You can prevent yourself from falling victim to this sort of crime if you remember a few simple rules.

• Do not provide every digit of your PIN under any circumstance; your bank will only ever ask for a fragment of your PIN.

• Your bank will never call you and ask for your account details.

• Your bank will never ask you for a verification number from your card reader.

• If you are called by an individual who sounds genuine, perhaps claiming they have identified suspicious activity on your account, call them back on a number you have sourced independently. Do not the number they ask you to call.

• If someone claiming to represent your broadband supplier calls and asks for remote access to your computer, do not give it to them.

As a general rule, be suspicious of anyone calling you. Criminals do not care whose reputation they tarnish, or which heart strings they need to pull, to get your money. Banks, utility suppliers, charities, or even your loved ones – they’re all free game. No-one will ever be offended that you have chosen to be extra vigilant, to make sure the call/text/email is genuine.

How much does it cost to use digital banking?

Closing branches has saved UK banks a considerable amount of money, so digital banking is offered as a free service.

How to set up digital banking

If you’re keen to join the digital banking revolution, it’s fairly easy to get yourself set up: just call your bank or building society and ask them to send you a digital banking starter kit.

This will usually include:

• Your digital banking customer number (which is different to your bank account number)

• A unique password or PIN which you should memorise

• A card reader that works with your debit card. (Note: Some banks, not all)

• A special website link that you’ll need to visit to activate your digital banking

• Details of any applicable mobile banking apps for your smartphone and tablet

After visiting the special link and filling in a few more details, you will usually be asked to provide some memorable information for security purposes (your favourite teacher, your first pet), and perhaps a memorable word.

Don’t use a common password as criminals will be able to guess it very easily. If you want to create a very strong password or memorable word, use a string of words that are easy for you to remember, or a phrase from your favourite song – ideally with upper and lower case letters, numbers and special characters. (e.g. L1keabat0utofh3ll!).

Once you have completed your digital banking setup, you should be able to use your bank’s online banking website and mobile banking apps immediately. You can check your account balance, peruse any existing direct debits or standing orders, and arrange new payments. When setting up a new payee, your bank will probably require you to provide a second layer of authentication, either with a code sent to your phone or with the card reader. Once you have made your first payment to an individual or organisation, future payments can usually be executed with just a couple of clicks.