A guide to digital banking

Modern banking emerged around 300 years ago – and until just the last 20 years or so, banking had hardly changed. 

But in the last few years traditional banking has embraced the use of the internet and created a more instinctive and easier way of managing our finances.

Access to the internet means we can open a bank account, transfer funds, set up direct debits, make remote payments, send remittances and do other bank operations without going to a branch.

But digital banking has come at a price. Many high street banks have pared down their branch operations. Between 2015 and 2019 an average of 55 bank branches around the UK have closed each month, according to the consumer group Which?

The good news about digital banking

Digital banking means transactions can be carried out immediately and we can access our money from pretty much anywhere using a device with internet access, such as a smartphone, a tablet, or a computer.

There are cost advantages and efficiencies for banks from going digital, but the real driver of change has been us, the customer: 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 are many of us who are nervous about the security of digital banking, or prefer being able to go into a branch to do their banking.

Find out how to get the best current account

How does digital banking work?

Digital banking changes the way we bank but not banking itself. 

So, we still need bank accounts to pay in money, save and, of course to pay out money.

The difference is most of these tasks can be done online or via a mobile app.

Unlike traditional in-branch or telephone banking, digital banking involves very little human interaction.

What are the advantages of digital banking?

Digital banking allows you to manage your account wherever and whenever you want – as long as you have an internet connection. 

You don’t need to visit a branch; gone are the days when you have to wait in a lengthy queue to get simple banking tasks done.

You can also do your banking on a bank holiday, within reason.

Some of these tasks were automated before digital banking. For example you could use an ATM to pay in a cheque. But it still involved having to physically get out and find a cash machine.

Digital banking lets you complete many banking tasks with a click of a button and no need for human interaction, including:

  • 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 and online fraud is certainly on the rise. 

But the good news is that it’s 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. 

So 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 because all of your login details, personal data, and banking data is fully encrypted before it crosses the internet so it is almost impossible for a third party to intercept.

But digital banking is only really as secure as its users. 

Be password savvy

Don’t use obvious passwords or write your passwords down. If you 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.

Remember banks do have safeguards

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.

Beware of scams

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.

Protect yourself from online banking fraud

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

Protect your PIN

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

Never give all your account details out 

Your bank will never call you and ask for your account details and they will never ask you for a verification number from your card reader

Be suspicious of all calls 

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.

Remember 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 digital banking cost?

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

How can I 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 – not all banks offer this

  • 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 link and filling in some details, you will usually be asked to provide memorable information for security purposes e.g. your favourite teacher or 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!.

Getting ready to use digital banking

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.

Is digital banking the same as open banking?

Open banking is a new form of technology that allows consumers to share their account information with other services safely and securely.

It is not the same as digital banking but it aims to make it easy to manage your money and to switch providers and save money. It can help the financially vulnerable and is secure and easy to use.

Open banking was pushed through by the UK’s Competition and Markets Authority (CMA) and until open banking was introduced in 2018 banks were able to sit on some of the most valuable data in the world: where and how we spend our money.

Banks know how much we spend on what and when but until open banking it was not easy to share that data with other people or companies.

Open banking now means you can share that information by choosing what information the apps and websites you use can access and for how long they can access it. 

For example, if you want to give a mobile money managing app all of your high street banking data, the bank must comply.


16 December 2020