Direct bank

A direct bank is a special kind of bank that does not have physical buildings called branches where you can walk in. Instead, it offers all its services through the Internet, mobile app, email, and sometimes by phone or online chat. You can even deposit checks using your phone! Because direct banks do not need to pay for buildings and tellers, they can sometimes offer lower fees or better interest rates.

Direct banks are different from regular banks that have branches. While regular banks may offer online banking as one option, direct banks work only online. They may still let you use ATMs through partnerships with other banks, and some might have banking agents who can help you in person at certain locations. However, everything from opening an account to checking your balance is done through digital tools.

In the United States, direct banks are special because they have federal banking charters and are regulated by groups like the Federal Reserve Board, the Office of the Comptroller of the Currency, or the Federal Deposit Insurance Corporation. This means your money is usually protected just like at a traditional bank. As of 2022, about 27% of bank customers in the U.S. used a direct bank for their banking needs. These banks are different from neobanks, which also operate online but do not have federal banking charters and work with partner banks to hold customer funds.

History

One of the world's first direct banks was First Direct, which started telephone banking in the United Kingdom on 1 October 1989. It was part of Midland Bank and introduced the idea of having no physical branches and offering service around the clock through a call center. The growth of the Internet in the early 1990s helped create fully direct banking models.

In the 1990s, internet-only banks, also called "virtual banks," began to appear. These banks did not have traditional buildings or places where people could visit, which helped them save money. This allowed them to offer better savings accounts and loans than most traditional banks. However, some people were unsure about doing banking online, especially without meeting anyone in person.

One of the first direct banks in the United States was the Security First Network Bank (SFNB), started in October 1995. It was the first direct bank to be insured by the Federal Deposit Insurance Corporation. Even though SFNB did not earn much money at first, it showed that direct banking could work.

Some direct banks only offered online savings accounts, giving higher interest rates to customers who were okay with only using the internet for their banking. ING Direct was one of the first and most successful, launching Tangerine Bank in Canada in 1997 and later expanding to the United Kingdom, Australia, and the United States. The owner sold these banks around 2010.

Asia's first direct bank was finatiQ, part of the Oversea-Chinese Banking Corporation (OCBC) in Singapore, launched in April 2000. It closed in 2011, and its services were combined into OCBC’s regular banking offerings, as internet banking became a normal part of their services along with branches, ATMs, and mobile banking.

The direct bank model was also used by many challenger banks created in the UK between 2015 and 2018.