In recent past, I shared a post on payments bank with the readers of this blog. I shared 7 Benefits of Payments Bank that you should know. I concluded that payments bank is best suited for monthly online payment. At the macro level, payments bank are also positioning as a digital bank. From last 3 months, I am using one of the payments bank accounts but I came across multiple operational limitations that I will share later in the post.
After extensive usage, my personal conclusion is that payments bank account is a mini digital bank with certain limitations. On the contrary, my personal requirement is seamless bank on mobile. My definition of a digital bank is that does not require any human interaction :).
While doing a casual research on digital banks on internet I came across an article published in Forbes on the digital bank. They explained how DBS Bank became the best digital bank in the world by becoming invisible. To be very honest with the readers, my own definition of the digital bank was very vague before I read this post. You can read Forbes article by clicking here.
After reading the post, I decided to switch from an existing mini digital bank to full-fledged Digital Bank offering services and benefits at par with any other normal bank. Now you must be wondering that I should have downloaded the mobile app of my existing bank account. I agree but as I keep highlighting on my blog that I am a value-seeking investor/customer.
I prefer to keep a chunk of my savings in a bank account and 4% interest rate is too low for me. Initially, some of the banks offered a higher interest rate on a savings account. I opened an account with one such bank offering highest interest rates on a savings account. The initial air fizz out and a lot of conditions are imposed for the higher interest rate.
This is the key reason I shifted to payments bank account that offered interest rate equivalent to fixed deposit rate. Though initially, I was okay with max balance limit of 1 Lakh I found that it does not meet my requirement. I was still shuffling between multiple bank accounts depending on my requirement. According to experts, payments bank are not a replacement for the established traditional banks.
In my post, how many Savings Account do I need? I mentioned that we should not hold more than 2 accounts. One of the key reasons for this suggestion was Average Quarterly Balance (AQB) requirement and also the bank charges. Off late, almost all the banks increased their service charges to promote digital money.
On the contrary, payments bank also charge for the withdrawal of money from the payments bank account and fund transfer. The full-fledged banks also charge for branch transactions and ATM withdrawal beyond the free limit. One of the leading banks doesn’t allow any type of transaction at non-home branches of the same bank. In my opinion, to increase the adoption of digital money, all the digital transactions should be free and that too without any limitation.
Thus, AQB and host of bank charges ruled out mobile apps of traditional bank accounts from my list.
Truly “Digital Bank Account”
With all the confusion, dilemma and uncertainty in my mind, I was searching more about digital bank on the internet. I came across two digital accounts in the true sense. First one was digibank by DBS and Kotak 811 by Kotak Mahindra Bank. After a lot of research, I decided in favor of digibank by DBS. I downloaded their app from Android Play Store. You can also download by clicking here.
In the next section, I will highlight my expectation from the digital bank account based on which I finalized digibank by DBS.
5 Key Features a Digital Bank Account Should Have
- Higher Interest Rates:My expectation is limited only to fixed deposit rates. There was widespread anticipation that when one of the mobile wallets will launch payments bank it will offer double-digit interest rate. Practically, it is not possible. It all proved to be a gossip and Chinese whispers. The interest rate offered is equivalent to the savings account interest rates. Among payments bank, Airtel payments bank is offering highest interest rate. Whereas among digital banks, digibank is offering 7% interest rate compared to 6% offered by Kotak 811 and only 4% by Paytm.
- NO Minimum or Maximum Balance limit:The minimum balance limit is imposed by traditional banks. On the other hand payments bank impose maximum balance limit. The digital bank provides best of both the worlds. There is NO min or max balance limit.
- ATM Withdrawals:As I mentioned that you cannot be 100% digital. Therefore definitely need ATM withdrawal facility along with the debit card. Like other people, I prefer frequent low-value withdrawals as I don’t want to carry too much cash. With the digibank account, I am offered a free debit card with unlimited ATM Withdrawals in India.
- Online KYC:It means eKYC with Aadhaar and biometric. I experienced it multiple times without any hassle in the last couple of months. I applied for a new mobile connection and the SIM was active within 10 mins. I also completed eKYC with Aadhaar for a mobile wallet. I always wished that I should be able to open a full-fledged bank account without visiting the bank branch. It is now very much possible with a digital bank account.
- Cost Conscious Customer:I am willing to pay the bank charges provided I am using the bank’s physical infrastructure. Moreover, I don’t want to remember so many rules and regulations related to bank charges linked to banking transactions. It is complicated and confuses me. For example, fund transfer charges are different for different modes of fund transfer. Either we should have a single charge for fund transfer irrespective of mode of transfer or it should be FREE.
If I pay bank charges then I am directly or indirectly cross-subsidizing the other customers of the bank who are using the physical infrastructure of the bank. In the case of a digital bank, I expect that bank will pass the benefit of cost savings to me and will not levy any bank charges being a 99% digital customer :). I will explain later why I mentioned 99%. .
Traditional banks allow unlimited free withdrawals only to premium customers. The digital bank is offering this facility to all the customers.
Words of Wisdom:
Each type of bank account has its own advantages and disadvantages. The growing focus on the cashless economy with make traditional banking obsolete. Recently, Govt made all cash transactions above Rs 2 Lakh illegal. There is a provision of the penalty of an amount equivalent to cash transaction if it exceeds 2 Lakh.
Every decade or so, the banking system undergo major transition and we are gradually shifting to digital banking. You never know that currency notes will be thing of past in next 5 years. By the ways, one of the economic advisers already hinted the same. I am glad that I have already taken the first step in that direction by opening an account in the digital bank :).
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