A virtual bank is a bank that offers banking services through electronic channels. All services of virtual banks can be performed online and there are no bricks-and-mortar branches. Clients can open an account, make deposits, taking out loans and perform other banking transactions via a mobile app or through the website of the virtual bank, thus saving time due without having the need to visit a bank.
How Does a Virtual Bank Work?
Virtual bank operates by allowing customers to conduct several business activities online as a service. Their overall approach would remain tied to a physical location, like a branch office. Virtual banks operate electronically. Virtual banks operate through 3 simple ways:
- Creating an account,
- Transferring money in, and
- then transferring money out.
A virtual bank works when a customer, first of all, opens an account with the virtual bank. This means the individual would have to fill out an online application and make a deposit. The customer can submit the form online or simply print it and mail it.
- Paying Funds In :One way a virtual bank allows you to deposit money into a virtual account is by having your employer deposit your pay check directly into the account. Also, it is possible for you to transfer funds from another bank or a PayPal account into your virtual account. It also works by allowing customers to snail-mail deposits to the virtual bank.
- Paying Funds Out Just as with a traditional bank, virtual banks also issue debit cards, and a customer is also allowed to order checks. With these provisions, you can buy products as you would normally do. Additionally, virtual banks provide the option of paying bills online.
Importance of Virtual Banking
- Guaranteed Security
- No Hidden Charges
- A Bank in Your Home
- Manage Your Accounts Up Close
The financial benefits of virtual banking services are manifold.
- Lower cost of handling a transaction and of operating branch network along with reduced staff costs via the virtual resource compared to the cost of handling the transaction via the branch.
- The increased speed of response to customer requirements; enhance customer satisfaction and, ceteris paribus, can lead to higher profits via handling a larger number of customer accounts.
- It also implies the possibility of access to a greater number of potential customers
- Manipulation of books by unscrupulous staff, frauds relating to local clearing operations will be prevented if computerization in banks takes place.
Forms of Virtual Banking
- Centralized fund management schemes
- The electronic clearing service scheme
- Use of magnetic ink character recognition code (MICR)
- An electronic fund transfer scheme
- Computerized settlement of clearing transactions.