Page 36 - Banking Finance June 2025

ARTICLE

The Rise of Digital

banks and their

impact on

traditional Banking

Krushna Chandra Mangaraj
Faculty
Union Bank of India
ZLC, Hyderabad

The banking industry has undergone a dramatic transformation in recent years, driven by the rise
of digital banks. These innovative institutions offer a full range of financial services through online
and mobile platforms, eliminating the need for physical branches.

T he banking industry has undergone a dramatic fer services such as savings and checking accounts, loans,
money transfers, and credit cards. Some neobanks also pro-
transformation in recent years, driven by the rise
of digital banks. These innovative institutions offer
a full range of financial services through online and mobile vide additional services like budgeting tools, investment
options, and cryptocurrency trading.
platforms, eliminating the need for physical branches. Once
a distant concept in the realm of financial technology The Factors Driving the Rise of Digital
(FinTech), digital-only banks-often referred to as "neobanks"-
have quickly gained momentum, reshaping the landscape Banks
of the financial services sector. These digital banks operate Several key factors have contributed to the rapid rise of
entirely online, with no physical branches, and are redefin- digital banks. These include advancements in technology,
ing how people manage their finances.This shift has had a changing consumer expectations, regulatory developments,
profound impact on traditional banks, forcing them to adapt and the increasing popularity of mobile banking.
and innovate to remain competitive. Technological Advancements: The evolution of tech-

nology, particularly in the realms of cloud computing,
What are Digital Banks? artificial intelligence (AI), machine learning (ML), and
Digital banks, also known as neobanks or challenger banks, big data, has played a crucial role in the rise of digital
are financial institutions that operate exclusively online. banks. The ability to securely store and process large
They leverage technology to provide customers with a seam- amounts of data, coupled with innovations like biomet-
less and convenient banking experience. Unlike traditional rics for security and machine learning algorithms for
banks, digital banks do not have physical branches, which fraud detection, has allowed digital banks to offer more
significantly reduces their operating costs. This allows them personalized services with higher efficiency. Digital
to offer lower fees, higher interest rates, and more com- banks use technology to create personalized financial
petitive products and services. Digital banks generally of- experiences. By analyzing spending patterns and finan-

32 | 2025 | JUNE | BANKING FINANCE