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Digital banks explained

Looking for a bank account that operates completely online in multiple currencies? Digital banks are on their way.

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As technology evolves and the demand for banking services that meet the needs of expats, freelancers and online businesses that deal in foreign currencies grows, digital banks are rising in popularity around the world.

Operating completely online, digital banks make sending, receiving and managing foreign currency easier than traditional banks and often come with lower fees to boot.

While there are none based in New Zealand at the moment, Kiwis are able to join one of the larger international digital banks with another opening its doors in the near future.

So what is a digital bank?

Like the name suggests, a digital bank operates digitally, usually from an app, rather than from a physical branch or office. A digital bank is a fairly loose term; the correct industry name for these banks is a neobank.

A neobank is a completely digital bank that doesn’t use any existing legacy systems to operate. This means the bank doesn’t use any physical infrastructure or digital operating systems that are already being used by existing financial institutions.

The technology used by these neobanks is developed from scratch. It’s a bank that operates via an app on your phone.

Digital banks are growing in popularity with freelancers, travellers and expats who are earning in different currencies from clients in different countries or who are not in the same place long enough to open a bank account.

They allow you to hold multiple currencies at the same time and access your funds from anywhere in the world.

How are digital banks different from normal banks?

Some banks may appear to be digital banks since they few or no branches and are focussed on developing top quality mobile banking apps for their customers.

However, just because a bank doesn’t have branches and offers a range of digital products and platforms doesn’t mean it’s a digital bank or a neobank.

Pros and cons

Pros

  • Impressive apps packed full of features
  • Detailed insights into your spending and saving habits
  • Low or no fees
  • Bank account numbers for different countries to get paid like a local
  • Card to use at ATMs around the world
  • Hold multiple currencies in one account

Cons

  • Some only offer one product, so you can’t do all your banking with a digital bank just yet
  • No branches for people who like to visit a branch

Are there any digital banks in New Zealand?

There are currently no New Zealand-based digital banks, and the reason for this may be that the market is too small.

However, Kiwis can sign up for a TransferWise foreign currency account. This borderless account can be opened in seconds and comes with bank details for New Zealand, Australia, UK, EU and the US so you can be paid like a local. You can hold multiple currencies and convert them and send money with no fees at the real exchange rate.

It comes with a free Platinum Mastercard that you can use for free cash withdrawals of up to $350 and an easy-to-use app to manage your account. Independent research has shown that TransferWise is up to 6x cheaper than mainstream New Zealand banks.

Revolut is another digital bank that acts similar to TransferWise, but it’s not available in New Zealand just yet. You can send and request money in seconds, set up recurring payments, spend in over 150 currencies and withdraw money from ATMs.

The Revolut app comes with a built-in budgeting tool and you can set up recurring payments.

If you’re interested in signing up for Revolut, you can join the waiting list to be notified when it launched here.

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