electronic banking term paper

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• Published: 18 June 2021

Financial technology and the future of banking

• Daniel Broby   ORCID: orcid.org/0000-0001-5482-0766 1  

Financial Innovation volume  7 , Article number:  47 ( 2021 ) Cite this article

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This paper presents an analytical framework that describes the business model of banks. It draws on the classical theory of banking and the literature on digital transformation. It provides an explanation for existing trends and, by extending the theory of the banking firm, it illustrates how financial intermediation will be impacted by innovative financial technology applications. It further reviews the options that established banks will have to consider in order to mitigate the threat to their profitability. Deposit taking and lending are considered in the context of the challenge made from shadow banking and the all-digital banks. The paper contributes to an understanding of the future of banking, providing a framework for scholarly empirical investigation. In the discussion, four possible strategies are proposed for market participants, (1) customer retention, (2) customer acquisition, (3) banking as a service and (4) social media payment platforms. It is concluded that, in an increasingly digital world, trust will remain at the core of banking. That said, liquidity transformation will still have an important role to play. The nature of banking and financial services, however, will change dramatically.

Introduction

The bank of the future will have several different manifestations. This paper extends theory to explain the impact of financial technology and the Internet on the nature of banking. It provides an analytical framework for academic investigation, highlighting the trends that are shaping scholarly research into these dynamics. To do this, it re-examines the nature of financial intermediation and transactions. It explains how digital banking will be structurally, as well as physically, different from the banks described in the literature to date. It does this by extending the contribution of Klein ( 1971 ), on the theory of the banking firm. It presents suggested strategies for incumbent, and challenger banks, and how banking as a service and social media payment will reshape the competitive landscape.

The banking industry has been evolving since Banca Monte dei Paschi di Siena opened its doors in 1472. Its leveraged business model has proved very scalable over time, but it is now facing new challenges. Firstly, its book to capital ratios, as documented by Berger et al ( 1995 ), have been consistently falling since 1840. This trend continues as competition has increased. In the past decade, the industry has experienced declines in profitability as measured by return on tangible equity. This is partly the result of falling leverage and fee income and partly due to the net interest margin (connected to traditional lending activity). These trends accelerated following the 2008 financial crisis. At the same time, technology has made banks more competitive. Advances in digital technology are changing the very nature of banking. Banks are now distributing services via mobile technology. A prolonged period of very low interest rates is also having an impact. To sustain their profitability, Brei et al. ( 2020 ) note that many banks have increased their emphasis on fee-generating services.

As Fama ( 1980 ) explains, a bank is an intermediary. The Internet is, however, changing the way financial service providers conduct their role. It is fundamentally changing the nature of the banking. This in turn is changing the nature of banking services, and the way those services are delivered. As a consequence, in order to compete in the changing digital landscape, banks have to adapt. The banks of the future, both incumbents and challengers, need to address liquidity transformation, data, trust, competition, and the digitalization of financial services. Against this backdrop, incumbent banks are focused on reinventing themselves. The challenger banks are, however, starting with a blank canvas. The research questions that these dynamics pose need to be investigated within the context of the theory of banking, hence the need to revise the existing analytical framework.

Banks perform payment and transfer functions for an economy. The Internet can now facilitate and even perform these functions. It is changing the way that transactions are recorded on ledgers and is facilitating both public and private digital currencies. In the past, banks operated in a world of information asymmetry between themselves and their borrowers (clients), but this is changing. This differential gave one bank an advantage over another due to its knowledge about its clients. The digital transformation that financial technology brings reduces this advantage, as this information can be digitally analyzed.

Even the nature of deposits is being transformed. Banks in the future will have to accept deposits and process transactions made in digital form, either Central Bank Digital Currencies (CBDC) or cryptocurrencies. This presents a number of issues: (1) it changes the way financial services will be delivered, (2) it requires a discussion on resilience, security and competition in payments, (3) it provides a building block for better cross border money transfers and (4) it raises the question of private and public issuance of money. Braggion et al ( 2018 ) consider whether these represent a threat to financial stability.

The academic study of banking began with Edgeworth ( 1888 ). He postulated that it is based on probability. In this respect, the nature of the business model depends on the probability that a bank will not be called upon to meet all its liabilities at the same time. This allows banks to lend more than they have in deposits. Because of the resultant mismatch between long term assets and short-term liabilities, a bank’s capital structure is very sensitive to liquidity trade-offs. This is explained by Diamond and Rajan ( 2000 ). They explain that this makes a bank a’relationship lender’. In effect, they suggest a bank is an intermediary that has borrowed from other investors.

Diamond and Rajan ( 2000 ) argue a lender can negotiate repayment obligations and that a bank benefits from its knowledge of the customer. As shall be shown, the new generation of digital challenger banks do not have the same tradeoffs or knowledge of the customer. They operate more like a broker providing a platform for banking services. This suggests that there will be more than one type of bank in the future and several different payment protocols. It also suggests that banks will have to data mine customer information to improve their understanding of a client’s financial needs.

The key focus of Diamond and Rajan ( 2000 ), however, was to position a traditional bank is an intermediary. Gurley and Shaw ( 1956 ) describe how the customer relationship means a bank can borrow funds by way of deposits (liabilities) and subsequently use them to lend or invest (assets). In facilitating this mediation, they provide a service whereby they store money and provide a mechanism to transmit money. With improvements in financial technology, however, money can be stored digitally, lenders and investors can source funds directly over the internet, and money transfer can be done digitally.

A review of financial technology and banking literature is provided by Thakor ( 2020 ). He highlights that financial service companies are now being provided by non-deposit taking contenders. This paper addresses one of the four research questions raised by his review, namely how theories of financial intermediation can be modified to accommodate banks, shadow banks, and non-intermediated solutions.

To be a bank, an entity must be authorized to accept retail deposits. A challenger bank is, therefore, still a bank in the traditional sense. It does not, however, have the costs of a branch network. A peer-to-peer lender, meanwhile, does not have a deposit base and therefore acts more like a broker. This leads to the issue that this paper addresses, namely how the banks of the future will conduct their intermediation.

In order to understand what the bank of the future will look like, it is necessary to understand the nature of the aforementioned intermediation, and the way it is changing. In this respect, there are two key types of intermediation. These are (1) quantitative asset transformation and, (2) brokerage. The latter is a common model adopted by challenger banks. Figure  1 depicts how these two types of financial intermediation match savers with borrowers. To avoid nuanced distinction between these two types of intermediation, it is common to classify banks by the services they perform. These can be grouped as either private, investment, or commercial banking. The service sub-groupings include payments, settlements, fund management, trading, treasury management, brokerage, and other agency services.

How banks act as intermediaries between lenders and borrowers. This function call also be conducted by intermediaries as brokers, for example by shadow banks. Disintermediation occurs over the internet where peer-to-peer lenders match savers to lenders

Financial technology has the ability to disintermediate the banking sector. The competitive pressures this results in will shape the banks of the future. The channels that will facilitate this are shown in Fig.  2 , namely the Internet and/or mobile devices. Challengers can participate in this by, (1) directly matching borrows with savers over the Internet and, (2) distributing white labels products. The later enables banking as a service and avoids the aforementioned liquidity mismatch.

The strategic options banks have to match lenders with borrowers. The traditional and challenger banks are in the same space, competing for business. The distributed banks use the traditional and challenger banks to white label banking services. These banks compete with payment platforms on social media. The Internet heralds an era of banking as a service

There are also physical changes that are being made in the delivery of services. Bricks and mortar branches are in decline. Mobile banking, or m-banking as Liu et al ( 2020 ) describe it, is an increasingly important distribution channel. Robotics are increasingly being used to automate customer interaction. As explained by Vishnu et al ( 2017 ), these improve efficiency and the quality of execution. They allow for increased oversight and can be built on legacy systems as well as from a blank canvas. Application programming interfaces (APIs) are bringing the same type of functionality to m-banking. They can be used to authorize third party use of banking data. How banks evolve over time is important because, according to the OECD, the activity in the financial sector represents between 20 and 30 percent of developed countries Gross Domestic Product.

In summary, financial technology has evolved to a level where online banks and banking as a service are challenging incumbents and the nature of banking mediation. Banking is rapidly transforming because of changes in such technology. At the same time, the solving of the double spending problem, whereby digital money can be cryptographically protected, has led to the possibility that paper money will become redundant at some point in the future. A theoretical framework is required to understand this evolving landscape. This is discussed next.

The theory of the banking firm: a revision

In financial theory, as eloquently explained by Fama ( 1980 ), banking provides an accounting system for transactions and a portfolio system for the storage of assets. That will not change for the banks of the future. Fama ( 1980 ) explains that their activities, in an unregulated state, fulfil the Modigliani–Miller ( 1959 ) theorem of the irrelevance of the financing decision. In practice, traditional banks compete for deposits through the interest rate they offer. This makes the transactional element dependent on the resulting debits and credits that they process, essentially making banks into bookkeeping entities fulfilling the intermediation function. Since this is done in response to competitive forces, the general equilibrium is a passive one. As such, the banking business model is vulnerable to disruption, particularly by innovation in financial technology.

A bank is an idiosyncratic corporate entity due to its ability to generate credit by leveraging its balance sheet. That balance sheet has assets on one side and liabilities on the other, like any corporate entity. The assets consist of cash, lending, financial and fixed assets. On the other side of the balance sheet are its liabilities, deposits, and debt. In this respect, a bank’s equity and its liabilities are its source of funds, and its assets are its use of funds. This is explained by Klein ( 1971 ), who notes that a bank’s equity W , borrowed funds and its deposits B is equal to its total funds F . This is the same for incumbents and challengers. This can be depicted algebraically if we let incumbents be represented by Φ and challengers represented by Γ:

Klein ( 1971 ) further explains that a bank’s equity is therefore made up of its share capital and unimpaired reserves. The latter are held by a bank to protect the bank’s deposit clients. This part is also mandated by regulation, so as to protect customers and indeed the entire banking system from systemic failure. These protective measures include other prudential requirements to hold cash reserves or other liquid assets. As shall be shown, banking services can be performed over the Internet without these protections. Banking as a service, as this phenomenon known, is expected to increase in the future. This will change the nature of the protection available to clients. It will change the way banks transform assets, explained next.

A bank’s deposits are said to be a function of the proportion of total funds obtained through the issuance of the ith deposit type and its total funds F , represented by α i . Where deposits, represented by Bs , are made in the form of Bs (i  =  1 *s n) , they generate a rate of interest. It follows that Si Bs  =  B . As such,

Therefor it can be said that,

The importance of Eq. 3 is that the balance sheet can be leveraged by the issuance of loans. It should be noted, however, that not all loans are returned to the bank in whole or part. Non-performing loans reduce the asset side of a bank’s balance sheet and act as a constraint on capital, and therefore new lending. Clearly, this is not the case with banking as a service. In that model, loans are brokered. That said, with the traditional model, an advantage of financial technology is that it facilitates the data mining of clients’ accounts. Lending can therefore be more targeted to borrowers that are more likely to repay, thereby reducing non-performing loans. Pari passu, the incumbent bank of the future will therefore have a higher risk-adjusted return on capital. In practice, however, banking as a service will bring greater competition from challengers and possible further erosion of margins. Alternatively, some banks will proactively engage in partnerships and acquisitions to maintain their customer base and address the competition.

A bank must have reserves to meet the demand of customers demanding their deposits back. The amount of these reserves is a key function of banking regulation. The Basel Committee on Banking Supervision mandates a requirement to hold various tiers of capital, so that banks have sufficient reserves to protect depositors. The Committee also imposes a framework for mitigating excessive liquidity risk and maturity transformation, through a set Liquidity Coverage Ratio and Net Stable Funding Ratio.

Recent revisions of theory, because of financial technology advances, have altered our understanding of banking intermediation. This will impact the competitive landscape and therefor shape the nature of the bank of the future. In this respect, the threat to incumbent banks comes from peer-to-peer Internet lending platforms. These perform the brokerage function of financial intermediation without the use of the aforementioned banking balance sheet. Unlike regulated deposit takers, such lending platforms do not create assets and do not perform risk and asset transformation. That said, they are reliant on investors who do not always behave in a counter cyclical way.

Financial technology in banking is not new. It has been used to facilitate electronic markets since the 1980’s. Thakor ( 2020 ) refers to three waves of application of financial innovation in banking. The advent of institutional futures markets and the changing nature of financial contracts fundamentally changed the role of banks. In response to this, academics extended the concept of a bank into an entity that either fulfills the aforementioned functions of a broker or a qualitative asset transformer. In this respect, they connect the providers and users of capital without changing the nature of the transformation of the various claims to that capital. This transformation can be in the form risk transfer or the application of leverage. The nature of trading of financial assets, however, is changing. Price discovery can now be done over the Internet and that is moving liquidity from central marketplaces (like the stock exchange) to decentralized ones.

Alongside these trends, in considering what the bank of the future will look like, it is necessary to understand the unregulated lending market that competes with traditional banks. In this part of the lending market, there has been a rise in shadow banks. The literature on these entities is covered by Adrian and Ashcraft ( 2016 ). Shadow banks have taken substantial market share from the traditional banks. They fulfil the brokerage function of banks, but regulators have only partial oversight of their risk transformation or leverage. The rise of shadow banks has been facilitated by financial technology and the originate to distribute model documented by Bord and Santos ( 2012 ). They use alternative trading systems that function as electronic communication networks. These facilitate dark pools of liquidity whereby buyers and sellers of bonds and securities trade off-exchange. Since the credit crisis of 2008, total broker dealer assets have diverged from banking assets. This illustrates the changed lending environment.

In the disintermediated market, banking as a service providers must rely on their equity and what access to funding they can attract from their online network. Without this they are unable to drive lending growth. To explain this, let I represent the online network. Extending Klein ( 1971 ), further let Ψ represent banking as a service and their total funds by F . This state is depicted as,

Theoretically, it can be shown that,

Shadow banks, and those disintermediators who bypass the banking system, have an advantage in a world where technology is ubiquitous. This becomes more apparent when costs are considered. Buchak et al. ( 2018 ) point out that shadow banks finance their originations almost entirely through securitization and what they term the originate to distribute business model. Diversifying risk in this way is good for individual banks, as banking risks can be transferred away from traditional banking balance sheets to institutional balance sheets. That said, the rise of securitization has introduced systemic risk into the banking sector.

Thus, we can see that the nature of banking capital is changing and at the same time technology is replacing labor. Let A denote the number of transactions per account at a period in time, and C denote the total cost per account per time period of providing the services of the payment mechanism. Klein ( 1971 ) points out that, if capital and labor are assumed to be part of the traditional banking model, it can be observed that,

It can therefore be observed that the total service charge per account at a period in time, represented by S, has a linear and proportional relationship to bank account activity. This is another variable that financial technology can impact. According to Klein ( 1971 ) this can be summed up in the following way,

where d is the basic bank decision variable, the service charge per transaction. Once again, in an automated and digital environment, financial technology greatly reduces d for the challenger banks. Swankie and Broby ( 2019 ) examine the impact of Artificial Intelligence on the evaluation of banking risk and conclude that it improves such variables.

Meanwhile, the traditional banking model can be expressed as a product of the number of accounts, M , and the average size of an account, N . This suggests a banks implicit yield is it rate of interest on deposits adjusted by its operating loss in each time period. This yield is generated by payment and loan services. Let R 1 depict this. These can be expressed as a fraction of total demand deposits. This is depicted by Klein ( 1971 ), if one assumes activity per account is constant, as,

As a result, whether a bank is structured with traditional labor overheads or built digitally, is extremely relevant to its profitability. The capital and labor of tradition banks, depicted as Φ i , is greater than online networks, depicted as I i . As such, the later have an advantage. This can be shown as,

What Klein (1972) failed to highlight is that the banking inherently involves leverage. Diamond and Dybving (1983) show that leverage makes bank susceptible to run on their liquidity. The literature divides these between adverse shock events, as explained by Bernanke et al ( 1996 ) or moral hazard events as explained by Demirgu¨¸c-Kunt and Detragiache ( 2002 ). This leverage builds on the balance sheet mismatch of short-term assets with long term liabilities. As such, capital and liquidity are intrinsically linked to viability and solvency.

The way capital and liquidity are managed is through credit and default management. This is done at a bank level and a supervisory level. The Basel Committee on Banking Supervision applies capital and leverage ratios, and central banks manage interest rates and other counter-cyclical measures. The various iterations of the prudential regulation of banks have moved the microeconomic theory of banking from the modeling of risk to the modeling of imperfect information. As mentioned, shadow and disintermediated services do not fall under this form or prudential regulation.

The relationship between leverage and insolvency risk crucially depends on the degree of banks total funds F and their liability structure L . In this respect, the liability structure of traditional banks is also greater than online networks which do not have the same level of available funds, depicted as,

Diamond and Dybvig ( 1983 ) observe that this liability structure is intimately tied to a traditional bank’s assets. In this respect, a bank’s ability to finance its lending at low cost and its ability to achieve repayment are key to its avoidance of insolvency. Online networks and/or brokers do not have to finance their lending, simply source it. Similarly, as brokers they do not face capital loss in the event of a default. This disintermediates the bank through the use of a peer-to-peer environment. These lenders and borrowers are introduced in digital way over the internet. Regulators have taken notice and the digital broker advantage might not last forever. As a result, the future may well see greater cooperation between these competing parties. This also because banks have valuable operational experience compared to new entrants.

It should also be observed that bank lending is either secured or unsecured. Interest on an unsecured loan is typically higher than the interest on a secured loan. In this respect, incumbent banks have an advantage as their closeness to the customer allows them to better understand the security of the assets. Berger et al ( 2005 ) further differentiate lending into transaction lending, relationship lending and credit scoring.

The evolution of the business model in a digital world

As has been demonstrated, the bank of the future in its various manifestations will be a consequence of the evolution of the current banking business model. There has been considerable scholarly investigation into the uniqueness of this business model, but less so on its changing nature. Song and Thakor ( 2010 ) are helpful in this respect and suggest that there are three aspects to this evolution, namely competition, complementary and co-evolution. Although liquidity transformation is evolving, it remains central to a bank’s role.

All the dynamics mentioned are relevant to the economy. There is considerable evidence, as outlined by Levine ( 2001 ), that market liberalization has a causal impact on economic growth. The impact of technology on productivity should prove positive and enhance the functioning of the domestic financial system. Indeed, market liberalization has already reshaped banking by increasing competition. New fee based ancillary financial services have become widespread, as has the proprietorial use of balance sheets. Risk has been securitized and even packaged into trade-able products.

Challenger banks are developing in a complementary way with the incumbents. The latter have an advantage over new entrants because they have information on their customers. The liquidity insurance model, proposed by Diamond and Dybvig ( 1983 ), explains how such banks have informational advantages over exchange markets. That said, financial technology changes these dynamics. It if facilitating the processing of financial data by third parties, explained in greater detail in the section on Open Banking.

At the same time, financial technology is facilitating banking as a service. This is where financial services are delivered by a broker over the Internet without resort to the balance sheet. This includes roboadvisory asset management, peer to peer lending, and crowd funding. Its growth will be facilitated by Open Banking as it becomes more geographically adopted. Figure  3 illustrates how these business models are disintermediating the traditional banking role and matching burrowers and savers.

The traditional view of banks ecosystem between savers and borrowers, atop the Internet which is matching savers and borrowers directly in a peer-to-peer way. The Klein ( 1971 ) theory of the banking firm does not incorporate the mirrored dynamics, and as such needs to be extended to reflect the digital innovation that impacts both borrowers and severs in a peer-to-peer environment

Meanwhile, the banking sector is co-evolving alongside a shadow banking phenomenon. Lenders and borrowers are interacting, but outside of the banking sector. This is a concern for central banks and banking regulators, as the lending is taking place in an unregulated environment. Shadow banking has grown because of financial technology, market liberalization and excess liquidity in the asset management ecosystem. Pozsar and Singh ( 2011 ) detail the non-bank/bank intersection of shadow banking. They point out that shadow banking results in reverse maturity transformation. Incumbent banks have blurred the distinction between their use of traditional (M2) liabilities and market-based shadow banking (non-M2) liabilities. This impacts the inter-generational transfers that enable a bank to achieve interest rate smoothing.

Securitization has transformed the risk in the banking sector, transferring it to asset management institutions. These include structured investment vehicles, securities lenders, asset backed commercial paper investors, credit focused hedge and money market funds. This in turn has led to greater systemic risk, the result of the nature of the non-traded liabilities of securitized pooling arrangements. This increased risk manifested itself in the 2008 credit crisis.

Commercial pressures are also shaping the banking industry. The drive for cost efficiency has made incumbent banks address their personally costs. Bank branches have been closed as technology has evolved. Branches make it easier to withdraw or transfer deposits and challenger banks are not as easily able to attract new deposits. The banking sector is therefore looking for new point of customer contact, such as supermarkets, post offices and social media platforms. These structural issues are occurring at the same time as the retail high street is also evolving. Banks have had an aggressive roll out of automated telling machines and a reduction in branches and headcount. Online digital transactions have now become the norm in most developed countries.

The financing of banks is also evolving. Traditional banks have tended to fund illiquid assets with short term and unstable liquid liabilities. This is one of the key contributors to the rise to the credit crisis of 2008. The provision of liquidity as a last resort is central to the asset transformation process. In this respect, the banking sector experienced a shock in 2008 in what is termed the credit crisis. The aforementioned liquidity mismatch resulted in the system not being able to absorb all the risks associated with subprime lending. Central banks had to resort to quantitative easing as a result of the failure of overnight funding mechanisms. The image of the entire banking sector was tarnished, and the banks of the future will have to address this.

The future must learn from the mistakes of the past. The structural weakness of the banking business model cannot be solved. That said, the latest Basel rules introduce further risk mitigation, improved leverage ratios and increased levels of capital reserve. Another lesson of the credit crisis was that there should be greater emphasis on risk culture, governance, and oversight. The independence and performance of the board, the experience and the skill set of senior management are now a greater focus of regulators. Internal controls and data analysis are increasingly more robust and efficient, with a greater focus on a banks stable funding ratio.

Meanwhile, the very nature of money is changing. A digital wallet for crypto-currencies fulfills much the same storage and transmission functions of a bank; and crypto-currencies are increasing being used for payment. Meanwhile, in Sweden, stores have the right to refuse cash and the majority of transactions are card based. This move to credit and debit cards, and the solving of the double spending problem, whereby digital money can be crypto-graphically protected, has led to the possibility that paper money could be replaced at some point in the future. Whether this might be by replacement by a CBDC, or decentralized digital offering, is of secondary importance to the requirement of banks to adapt. Whether accommodating crytpo-currencies or CBDC’s, Kou et al. ( 2021 ) recommend that banks keep focused on alternative payment and money transferring technologies.

Central banks also have to adapt. To limit disintermediation, they have to ensure that the economic design of their sponsored digital currencies focus on access for banks, interest payment relative to bank policy rate, banking holding limits and convertibility with bank deposits. All these developments have implications for banks, particularly in respect of funding, the secure storage of deposits and how digital currency interacts with traditional fiat money.

Open banking

Against the backdrop of all these trends and changes, a new dynamic is shaping the future of the banking sector. This is termed Open Banking, already briefly mentioned. This new way of handling banking data protocols introduces a secure way to give financial service companies consensual access to a bank’s customer financial information. Figure  4 illustrates how this works. Although a fairly simple concept, the implications are important for the banking industry. Essentially, a bank customer gives a regulated API permission to securely access his/her banking website. That is then used by a banking as a service entity to make direct payments and/or download financial data in order to provide a solution. It heralds an era of customer centric banking.

How Open Banking operates. The customer generates data by using his bank account. A third party provider is authorized to access that data through an API request. The bank confirms digitally that the customer has authorized the exchange of data and then fulfills the request

Open Banking was a response to the documented inertia around individual’s willingness to change bank accounts. Following the Retail Banking Review in the UK, this was addressed by lawmakers through the European Union’s Payment Services Directive II. The legislation was designed to make it easier to change banks by allowing customers to delegate authority to transfer their financial data to other parties. As a result of this, a whole host of data centric applications were conceived. Open banking adds further momentum to reshaping the future of banking.

Open Banking has a number of quite revolutionary implications. It was started so customers could change banks easily, but it resulted in some secondary considerations which are going to change the future of banking itself. It gives a clear view of bank financing. It allows aggregation of finances in one place. It also allows can give access to attractive offerings by allowing price comparisons. Open Banking API’s build a secure online financial marketplace based on data. They also allow access to a larger market in a faster way but the third-party providers for the new entrants. Open Banking allows developers to build single solutions on an API addressing very specific problems, like for example, a cash flow based credit rating.

Romānova et al. ( 2018 ) undertook a questionnaire on the Payment Services Directive II. The results suggest that Open Banking will promote competitiveness, innovation, and new product development. The initiative is associated with low costs and customer satisfaction, but that some concerns about security, privacy and risk are present. These can be mitigated, to some extent, by secure protocols and layered permission access.

Discussion: strategic options

Faced with these disruptive trends, there are four strategic options for market participants to con- sider. There are (1) a defensive customer retention strategy for incumbents, (2) an aggressive customer acquisition strategy for challenger banks (3) a banking as a service strategy for new entrants, and (4) a payments strategy for social media platforms.

Each of these strategies has to be conducted in a competitive marketplace for money demand by potential customers. Figure  5 illustrates where the first three strategies lie on the tradeoff between money demand and interest rates. The payment strategy can’t be modeled based on the supply of money. In the figure, the market settles at a rate L 2 . The incumbent banks have the capacity to meet the largest supply of these loans. The challenger banks have a constrained function but due to a lower cost base can gain excess rent through higher rates of interest. The peer-to-peer bank as a service brokers must settle for the market rate and a constrained supply offering.

The money demand M by lenders on the y axis. Interest rates on the y axis are labeled as r I and r II . The challenger banks are represented by the line labeled Γ. They have a price and technology advantage and so can lend at higher interest rates. The brokers are represented by the line labeled Ω. They are price takers, accepting the interest rate determined by the market. The same is true for the incumbents, represented by the line labeled Φ but they have a greater market share due to their customer relationships. Note that payments strategy for social media platforms is not shown on this figure as it is not affected by interest rates

Figure  5 illustrates that having a niche strategy is not counterproductive. Liu et al ( 2020 ) found that banks performing niche activities exhibit higher profitability and have lower risk. The syndication market now means that a bank making a loan does not have to be the entity that services it. This means banks in the future can better shape their risk profile and manage their lending books accordingly.

An interesting question for central banks is what the future Deposit Supply function will look like. If all three forms: open banking, traditional banking and challenger banks develop together, will the bank of the future have the same Deposit Supply function? The Klein ( 1971 ) general formulation assumes that deposits are increasing functions of implicit and explicit yields. As such, the very nature of central bank directed monetary policy may have to be revisited, as alluded to in the earlier discussion on digital money.

The client retention strategy (incumbents)

The competitive pressures suggest that incumbent banks need to focus on customer retention. Reichheld and Kenny ( 1990 ) found that the best way to do this was to focus on the retention of branch deposit customers. Obviously, another way is to provide a unique digital experience that matches the challengers.

Incumbent banks have a competitive advantage based on the information they have about their customers. Allen ( 1990 ) argues that where risk aversion is observable, information markets are viable. In other words, both bank and customer benefit from this. The strategic issue for them, therefore, becomes the retention of these customers when faced with greater competition.

Open Banking changes the dynamics of the banking information advantage. Borgogno and Colangelo ( 2020 ) suggest that the access to account (XS2A) rule that it introduced will increase competition and reduce information asymmetry. XS2A requires banks to grant access to bank account data to authorized third payment service providers.

The incumbent banks have a high-cost base and legacy IT systems. This makes it harder for them to migrate to a digital world. There are, however, also benefits from financial technology for the incumbents. These include reduced cost and greater efficiency. Financial technology can also now support platforms that allow incumbent banks to sell NPL’s. These platforms do not require the ownership of assets, they act as consolidators. The use of technology to monitor the transactions make the processing cost efficient. The unique selling point of such platforms is their centralized point of contact which results in a reduction in information asymmetry.

Incumbent banks must adapt a number of areas they got to adapt in terms of their liquidity transformation. They have to adapt the way they handle data. They must get customers to trust them in a digital world and the way that they trust them in a bricks and mortar world. It is no coincidence. When you go into a bank branch that is a great big solid building great big facade and so forth that is done deliberately so that you trust that bank with your deposit.

The risk of having rising non-performing loans needs to be managed, so customer retention should be selective. One of the puzzles in banking is why customers are regularly denied credit, rather than simply being charged a higher price for it. This credit rationing is often alleviated by collateral, but finance theory suggests value is based on the discounted sum of future cash flows. As such, it is conceivable that the bank of the future will use financial technology to provide innovative credit allocation solutions. That said, the dual risks of moral hazard and information asymmetries from the adoption of such solutions must be addressed.

Customer retention is especially important as bank competition is intensifying, as is the digitalization of financial services. Customer retention requires innovation, and that innovation has been moving at a very fast rate. Until now, banks have traditionally been hesitant about technology. More recently, mergers and acquisitions have increased quite substantially, initiated by a need to address actual or perceived weaknesses in financial technology.

The client acquisition strategy (challengers)

As intermediaries, the challenger banks are the same as incumbent banks, but designed from the outset to be digital. This gives them a cost and efficiency advantage. Anagnostopoulos ( 2018 ) suggests that the difference between challenger and traditional banks is that the former address its customers problems more directly. The challenge for such banks is customer acquisition.

Open Banking is a major advantage to challenger banks as it facilitates the changing of accounts. There is widespread dissatisfaction with many incumbent banks. Open Banking makes it easier to change accounts and also easier to get a transaction history on the client.

Customer acquisition can be improved by building trust in a brand. Historically, a bank was physically built in a very robust manner, hence the heavy architecture and grand banking halls. This was done deliberately to engender a sense of confidence in the deposit taking institution. Pure internet banks are not able to do this. As such, they must employ different strategies to convey stability. To do this, some communicate their sustainability credentials, whilst others use generational values-based advertising. Customer acquisition in a banking context is traditionally done by offering more attractive rates of interest. This is illustrated in Fig.  5 by the intersect of traditional banks with the market rate of interest, depicted where the line Γ crosses L 2 . As a result of the relationship with banking yield, teaser rates and introductory rates are common. A customer acquisition strategy has risks, as consumers with good credit can game different challenger banks by frequently changing accounts.

Most customer acquisition, however, is done based on superior service offering. The functionality of challenger banking accounts is often superior to incumbents, largely because the latter are built on legacy databases that have inter-operability issues. Having an open platform of services is a popular customer acquisition technique. The unrestricted provision of third-party products is viewed more favorably than a restricted range of products.

The banking as a service strategy (new entrants)

Banking from a customer’s perspective is the provision of a service. Customers don’t care about the maturity transformation of banking balance sheets. Banking as a service can be performed without recourse to these balance sheets. Banking products are brokered, mostly by new entrants, to individuals as services that can be subscribed to or paid on a fee basis.

There are a number banking as a service solutions including pre-paid and credit cards, lending and leasing. The banking as a service brokers are effectively those that are aggregating services from others using open banking to enable banking as a service.

The rise of banking as a service needs to be understood as these compete directly with traditional banks. As explained, some of these do this through peer-to-peer lending over the internet, others by matching borrows and sellers, conducting mediation as a loan broker. Such entities do not transform assets and do not have banking licenses. They do not have a branch network and often don not have access to deposits. This means that they have no insurance protection and can be subject to interest rate controls.

The new genre of financial technology, banking as a service provider, conduct financial services transformation without access to central bank liquidity. In a distributed digital asset world, the assets are stored on a distributed ledger rather than a traditional banking ledger. Financial technology has automated credit evaluation, savings, investments, insurance, trading, banking payments and risk management. These banking as a service offering are only as secure as the technology on which they are built.

The social media payment strategy (disintermediators and disruptors)

An intermediation bank is a conceptual idea, one created solely on a social networking site. Social media has developed a market for online goods and services. Williams ( 2018 ) estimates that there are 2.46 billion social media users. These all make and receive payments of some kind. They demand security and functionality. Importantly, they have often more clients than most banks. As such, a strategy to monetize the payments infrastructure makes sense.

All social media platforms are rich repositories of data. Such platforms are used to buy and sell things and that requires payments. Some platforms are considering evolving their own digital payment, cutting out the banks as middlemen. These include Facebook’s Diem (formerly Libra), a digital currency, and similar developments at some of the biggest technology companies. The risk with social media payment platform is that there is systemic counter-party protection. Regulators need to address this. One way to do this would be to extend payment service insurance to such platforms.

Social media as a platform moves the payment relationship from a transaction to a customer experience. The ability to use consumer desires in combination with financial data has the potential to deliver a number of new revenue opportunities. These will compete directly with the banks of the future. This will have implications for (1) the money supply, (2) the market share of traditional banks and, (3) the services that payment providers offer.

Further research

Several recommendations for research derive from both the impact of disintermediation and the four proposed strategies that will shape banking in the future. The recommendations and suggestions are based on the mentioned papers and the conclusions drawn from them.

As discussed, the nature of intermediation is changing, and this has implications for the pricing of risk. The role of interest rates in banking will have to be further reviewed. In a decentralized world based on crypto currencies the central banks do not have the same control over the money supply, This suggest the quantity theory of money and the liquidity preference theory need to be revisited. As explained, the Internet reduces much of the friction costs of intermediation. Researchers should ask how this will impact maturity transformation. It is also fair to ask whether at some point in the future there will just be one big bank. This question has already been addressed in the literature but the Internet facilities the possibility. Diamond ( 1984 ) and Ramakrishnan and Thakor ( 1984 ) suggested the answer was due to diversification and its impact on reducing monitoring costs.

Attention should be given by academics to the changing nature of banking risk. How should regulators, for example, address the moral hazard posed by challenger banks with weak balance sheets? What about deposit insurance? Should it be priced to include unregulated entities? Also, what criteria do borrowers use to choose non-banking intermediaries? The changing risk environment also poses two interesting practical questions. What will an online bank run look like, and how can it be averted? How can you establish trust in digital services?

There are also research questions related to the nature of competition. What, for example, will be the nature of cross border competition in a decentralized world? Is the credit rationing that generates competition a static or dynamic phenomena online? What is the value of combining consumer utility with banking services?

Financial intermediaries, like banks, thrive in a world of deficits and surpluses supported by information asymmetries and disconnectedness. The connectivity of the internet changes this dynamic. In this respect, the view of Schumpeter ( 1911 ) on the role of financial intermediaries needs revisiting. Lenders and borrows can be connected peer to peer via the internet.

All the dynamics mentioned change the nature of moral hazard. This needs further investigation. There has been much scholarly research on the intrinsic riskiness of the mismatch between banking assets and liabilities. This mismatch not only results in potential insolvency for a single bank but potentially for the whole system. There has, for example, been much debate on the whether a bank can be too big to fail. As a result of the riskiness of the banking model, the banks of the future will be just a liable to fail as the banks of the past.

This paper presented a revision of the theory of banking in a digital world. In this respect, it built on the work of Klein ( 1971 ). It provided an overview of the changing nature of banking intermediation, a result of the Internet and new digital business models. It presented the traditional academic view of banking and how it is evolving. It showed how this is adapted to explain digital driven disintermediation.

It was shown that the banking industry is facing several documented challenges. Risk is being taken of balance sheet, securitized, and brokered. Financial technology is digitalizing service delivery. At the same time, the very nature of intermediation is being changed due to digital currency. It is argued that the bank of the future not only has to face these competitive issues, but that technology will enhance the delivery of banking services and reduce the cost of their delivery.

The paper further presented the importance of the Open Banking revolution and how that facilitates banking as a service. Open Banking is increasing client churn and driving banking as a service. That in turn is changing the way products are delivered.

Four strategies were proposed to navigate the evolving competitive landscape. These are for incumbents to address customer retention; for challengers to peruse a low-cost digital experience; for niche players to provide banking as a service; and for social media platforms to develop payment platforms. In all these scenarios, the banks of the future will have to have digital strategies for both payments and service delivery.

It was shown that both incumbents and challengers are dependent on capital availability and borrowers credit concerns. Nothing has changed in that respect. The risks remain credit and default risk. What is clear, however, is the bank has become intrinsically linked with technology. The Internet is changing the nature of mediation. It is allowing peer to peer matching of borrowers and savers. It is facilitating new payment protocols and digital currencies. Banks need to evolve and adapt to accommodate these. Most of these questions are empirical in nature. The aim of this paper, however, was to demonstrate that an understanding of the banking model is a prerequisite to understanding how to address these and how to develop hypotheses connected with them.

In conclusion, financial technology is changing the future of banking and the way banks intermediate. It is facilitating digital money and the online transmission of financial assets. It is making banks more customer enteric and more competitive. Scholarly investigation into banking has to adapt. That said, whatever the future, trust will remain at the core of banking. Similarly, deposits and lending will continue to attract regulatory oversight.

Availability of data and materials

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Published: 9 May 2024 Contributors: Teaganne Finn, Amanda Downie

Digital transformation in banking is the act of integrating digital technologies and strategies to optimize operations and enhance personalized experiences. Across the financial services industry, this can only occur by breaking down data silos and reimagining the customer experience.

The world is rapidly changing to be more digitally focused, especially in the banking industry. Traditional banks are undergoing major digital transformations in order to meet the needs of new customers and existing customers seeking a more tailored and individualized banking experience through digital channels.

For this to happen, banks and financial institutions must take on a digital transformation strategy that puts customer experience first by analyzing, interacting, and understanding customer needs.

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Digital transformation isn’t new to the banking sector, but it has become more relevant as fintech and new operating models have gained in popularity. Traditional banks must keep up with the changing market and ever-evolving customer needs, such as the drive toward using mobile apps or websites to perform transactions. These types of technology are part of the omnichannel strategy banks are using to break down data silos and reimagine the customer journey.

With the more recent shift toward automation, banks and financial service providers need to modernize their banking strategies. The growing demand for Artificial Intelligence (AI) , Internet of Things (IoT), and blockchain are among the other technologies banks must consider when creating a digital transformation strategy.

Customers are seeking digital approaches to managing their accounts and seek personalized product experiences, transparency, and security, all in real-time. Key drivers of the digital transformation trend stem from the use of mobile devices and the increased need for customers to be connected always.  The only way to meet these customer needs is through a digital transformation journey. This journey takes customer data and uses it to analyze customer behavior so that more relevant products and services can be aligned to their needs.

Customer journey: Taking into account the more customer-centric approach and by using data and other new technologies to tailor banking services to the individual customer.

Modernized infrastructure: New technologies, such as automation and AI can streamline internal operations and ultimately boost efficiency and give these banks and financial service providers the competitive advantage.

Data analytics: By using advanced data analytics tools banks can have more informed and strategic decision-making. Breaking down these data silos provides more opportunity for better risk management and innovation.

Security measures: A part of digital banking transformation is adopting new and advanced cybersecurity measures that better protect sensitive customer data. Online banking and digital services bring about a new layer of security concerns and with advanced technology in place banks can bring in fraud detection measures and ensure that regulatory compliance is met.

Digitization: The digital era is upon us and it's on the financial sector to align with these other sectors taking the digital-forward approach. This is why key digital transformation initiatives are so important, such as partnering with fintech startups or open banking frameworks that aim to expand services for stakeholders.

For a successful digital transformation to take place banks must take advantage of the latest digital technology available. Below are the most common existing technologies within the banking and financial services sector.

Application programming interfaces (APIs): An API is a software interface that allows for two or more software applications to integrate data services and capabilities, instead of having to develop them from scratch. Which allows for better connectivity for businesses to their new customers and partners? Furthermore, they can create new products and services for their customers and improve overall operational efficiency.

Cloud computing: Cloud computing technology is the on-demand access of computing resources, which banks and financial service providers have come to use and accept. The cloud environment allows for better operations and a more flexible infrastructure that’s agile and scalable.

AI and machine learning (ML) : The AI and ML technologies are being used for several transformation efforts, including analyzing big data sets, automating certain processes and improving the user experience through personalized services. AI in particular is used in banking through online assistants and chatbots that can address basic customer issues. Separately, an advantage of using ML in banking is that it makes it easier to track changes in user behavior and detect fraudulent activity faster.

Internet of Things. (IoT): IoT refers to a network of physical devices, think wearable smartwatches or smart thermostats that are embedded with sensors and software that allows them to collect and share data. For banks this smart connectivity has allowed customers to make instant contactless payments and interact with their accounts in a mobile banking capacity. The IoT can also be thanked for bringing risk management and advancements in the authorization process unlike ever before.

Blockchain: The transparent and information-driven nature of blockchain makes it a popular technology for banks and financial service providers. It has resulted in more secure data transactions and an enhanced interface that meets and goes beyond customer expectations. Today customers trust blockchain solutions and find it to be a more transparent way of operating business models.

The changing market and push toward new technology make it imperative to evolve. While the digital transformation process can be intimidating, with the right resources and assistance, banks can see the tremendous benefits from the transformation journey.

As your bank or financial service provider begins the transformation process, here are some basic steps to follow:

Have goals in mind before setting out on a transformation journey. It’s important for the transformation team to lay out their business and technical objectives and understand what they want to gain from the transition.

Action item: Create a list of priority objectives to start and then tailor that list as the bank or financial institution leaders see fit.

Take stock of all the current systems and products that your bank is using. Once the list of all current systems has been made, evaluate them based on how each is working or not working toward your business goals. It’s important to be transparent about your bank’s process and be open to modifying it to fit the digital landscape.

Action item: Be clear about your processes. List out which processes are necessary for your transformation, while also considering constraints including cost and timeline.

To understand what your clients need next, take back a step and evaluate how you’re taking stock of current clients. Use data analysis to understand how you are segmenting and collecting data on clients. Use the data to understand which products are selling and which digital services are most popular to the clients.

Action item: Make a plan so that you are targeting consumers more likely to use digital services. Ensure that your data is working for your business needs. Marketing teams can have a much more targeted approach once these consumers are identified and understood.

Be realistic about your resources and what your organization can handle, in terms of both monetary and human resources. Define your target architecture and early proofs of value to measure achievements toward your business goals.

Action item: Write out your objectives; list out ways in which you can enable your institution to make incremental changes at first. Early wins, even small ones, help with transformation buy-in and momentum.

Once all transformation preparation has been made, present the business case for core systems transformation to key stakeholders. The business case must be delivered to the C-suite and Board of Directors, if relevant, for sign-off. Once you have sign-off, proceed with operationalizing the roadmap and strategy for a full transformation.

Action item: Prepare your presentation for key stakeholders. Be prepared to defend the transformation needs you have found and laid out.

Digitization in the banking system is complex and goes much further beyond just moving a traditional bank to an online banking system. The transformation process can bring about new opportunities for businesses of all sizes and bring forth banking solutions that provide greater customer satisfaction. Below are some of the greatest benefits from digital transformation in banking and financial services.

• More customer-focused investment banking: Digital transformation in investment banking is more customer-focused than ever before. Since digital transformation in investment banking has replaced investment banks with small investors, the focus is now on short-term goals and all on one-digital platform. Offerings and technological decisions are now based on customer profiles.
• Easier compliance: By making the switch to a modern financial management system, banks and financial service providers can stay compliant. There are automated processes that can help employees spend less time doing tasks like auditing reports and instead focus on the work that matters most. If a bank is on a cloud-based system, it provides timely updates and keeps up to date on regulations automatically.
• Access new clients: A digital-native environment makes attracting customers easier by being upfront about their services and what they can provide. By going digital, banks are making customer acquisition much easier with expanded services and 24/7 account access.
• Enhanced security: With the growth of digitization comes the challenge of data security and businesses securely managing customer data. Thankfully, there are sophisticated software development services available to protect your customers personal information and save their accounts from being hacked or scammed.
• More personalized banking: A digital transformation helps banks and financial institutions to hone in on exactly what a customer needs and wants. There is no longer the need to assume what a customer wants, with new technology, a bank can know exactly what it is the customer expects of them. Banking is no longer just a weekly practice, it’s a daily act that requires a fast and secure ecosystem that customers can trust.

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Covid-19 accelerated the digitalisation of payments

Key takeaways.

• The Covid-19 pandemic has boosted the use of digital and contactless payments.
• Cash in circulation reached a decade high due to a surge in demand for high-value banknotes, suggesting that cash was increasingly held as a store of value rather than for making payments.
• The pandemic has added to the motivations of central banks to develop central bank digital currencies (CBDCs).

Summary of latest developments 1

The Covid-19 pandemic accelerated the digitalisation of payments. The latest Red Book Statistics from the BIS Committee on Payments and Market Infrastructures (CPMI) show that consumers have shifted from physical cash to digital and contactless payment instruments at a rate unprecedented since the start of the Red Book Statistics. At the same time, and as in earlier stress episodes, the value of cash in circulation surged.

Non-cash payments

The pandemic 2 has made a marked impact on non-cash payments. 3 In particular, the total value of non-paper-based or digital credit transfers grew strongly in both advanced economies (AEs) and emerging market and developing economies (EMDEs). These payments include transfers initiated via online banking, a mobile banking app or an automated transfer. As a result, the growth in total credit transfer usage was so strong that the share of non-cash payments in total GDP sharply increased across the globe ( Graph 1 left-hand panel). This, together with a decline in the share of private consumption expenditure in GDP suggests a meaningful move away from cash payments.

In addition to the decline in cash payments, the growth in the number of card payments lost momentum or even declined in various jurisdictions ( Graph 1 centre panel). The shift away from cash and cards towards digital credit transfers is probably driven by a combination of ongoing trends and Covid-19-related developments. The latter include (i) the worldwide migration to working-from-home; (ii) temporary shutdowns of shops, hotels and restaurants; (iii) some merchants refusing cash payments; 4 (iv) the surge in e-commerce; 5 (v) the growth in digital person-to-person payments; 6 and (vi) the distribution of Covid-19 benefit payments by governments. 7

In all jurisdictions from which the CPMI collects contactless card data, the share of contactless payments in total card transactions increased in 2020 at its highest rate since 2015 ( Graph 1 right-hand panel). 8 This may be explained by public fears of contagion 9 and associated policy measures. For example, banks and card companies in many countries raised their value limits for contactless card payments in response to the pandemic. 10

In 2020, on average, AE residents made close to twice as many cashless payments as residents of EMDEs. Yet, both groups of countries are similar in that most of these payments were made using a debit or credit card ( Graph 1 centre panel). Also, as credit transfers are more often used for settling payments of higher value, all over the world, credit transfers accounted for the largest share of cashless payments in terms of value ( Graph 1 left-hand panel).

Click here for an interactive version of this graph

Cash withdrawals and cash holdings

The decline in cash usage during the Covid-19 pandemic is also reflected in the cash withdrawals data. Compared with 2019, both the number and value of cash withdrawals dropped in 2020 in most countries ( Graph 2 left-hand panel). Consumers made between 10 and 25 cash withdrawals on average in most CPMI jurisdictions in 2020. Generally, the total number of cash withdrawals declined by 23%, exceeding the 10% decline in value. This suggests that consumers took out cash less frequently, but when they did, they withdrew larger amounts (see also Graph 2 centre panel). The decline in the number of withdrawals might be due to fewer commuting and shopping trips 11 during the pandemic and a tendency to avoid the use of automated teller machines (ATMs) or to visit bank branches because of fear of being infected with the virus. 12 However, country differences in withdrawals are large, with five annual withdrawals in China and India and 50 in Saudi Arabia ( Graph 2 right-hand panel). In terms of value, cash withdrawals were the lowest in Sweden and the Netherlands (3% and 4% of GDP, respectively) and highest in China and Russia (39% and 26%, respectively).

The increase in the average withdrawal value globally is probably driven, in part, by the public's desire to hold cash for precautionary reasons, as the value of coins and banknotes in circulation outside banks surged in many jurisdictions in 2020. Even in jurisdictions where the value of cash in circulation had been declining prior to the pandemic, the outstanding cash value grew further or stabilised in 2020 ( Graph 3 left-hand panel). In particular, the demand for high-value denominations, which are typically held as a store of value, increased further, and more strongly than for other notes and coins ( Graph 3 centre and right-hand panel). Apparently, cash was increasingly held as a store of value rather than used for transactional purposes. This suggests that consumers accumulated cash as a precautionary measure, for example against potential disruptions to the availability of payment infrastructures or potential bank closures. Similar cash hoarding behaviour was observed during earlier crises or periods of uncertainty, such as the Y2K episode or the Great Financial Crisis. 13 Moreover, in some jurisdictions the surge in cash in circulation could be explained partly by the increase in aggregate disposable household income due to Covid-19-related income support measures and tax and loan repayment deferrals, and by falling interest rates, which further reduced the opportunity costs of holding cash in a physical form instead of in a bank account. 14

The role of cash post-pandemic

How long these changes in cash usage will persist after the pandemic is unclear. As a means of payment, cash lost ground to digital and contactless methods of payment in 2020, while the demand for cash as a store of value rose precipitously. An ECB survey of all euro area countries showed that 87% of the respondents who had made fewer payments in cash during the pandemic would continue to do so when the coronavirus crisis is over. 15 Whether the pandemic will have a similar prolonged effect on cash hoarding remains to be seen. Earlier research shows that the growth in cash holdings has slowed after a crisis or period of uncertainty had passed. 16

Although it changed the public's payment behaviour, the pandemic does not appear to have affected the public's perception of cash being a safe haven. Many central banks are exploring the potential of and need for a digital form of cash, a retail central bank digital currency (retail CBDC) that would provide consumers with the same protection as cash does today, while allowing them to make payments without carrying physical banknotes and coins. A 2020 BIS survey among more than 60 central banks (Boar and Wehrli (2021)) showed that the pandemic added to the motivations of central banks to develop retail CBDCs, especially with the aim of giving access to central bank money during times of emergency and of complementing cash and in-person payment methods when social distancing is required. Since then, retail CBDCs have been launched in the Bahamas, the Eastern Caribbean and Nigeria, and retail CBDC pilots are under way in 14 other jurisdictions. 17 Whether a retail CBDC, if issued, will change the use of cash in its physical form, either as a means of payment or as a store of value, will depend on central bank decisions as to the CBDC's design and the perceived value for households and businesses. These decisions and the degree and speed of adoption may differ among jurisdictions depending on their current payment infrastructures and instruments.

This commentary was written by Anneke Kosse and Robert Szemere. We are grateful to Ilaria Mattei and Ismail Mustafi for their excellent research assistance and we would like to thank Bilyana Bogdanova, Jenny Hancock, Stijn Claessens, Tara Rice and Takeshi Shirakami for their valuable comments.

Auer, R, G Cornelli and J Frost (2020a): " Covid-19, cash, and the future of payments ", BIS Bulletin , no 3, April.

--- (2021): " Rise of the central bank digital currencies: drivers, approaches and technologies ", updated data set, October.

Auer, R, J Frost, T Lammer, T Rice and A Wadsworth (2020b): "Inclusive payments for the post-pandemic world", SUERF Policy Note , no 193, September.

Akana, T (2021): "Changing US consumer payment habits during the COVID-19 crisis", Journal of Payments Strategy & Systems , vol 15, no 3, pp 234–43.

Alfonso, V, C Boar, J Frost, L Gambacorta and J Liu (2021): " E-commerce in the pandemic and beyond ", BIS Bulletin , no 36, 12 January.

Boar, C and A Wehrli (2021): " Ready, steady, go? – Results of the third BIS survey on central bank digital currency ", BIS Papers , no 114, January.

ECB (2020): " Study on the payment attitudes of consumers in the euro area (SPACE) ", December.

Chen, H, M Stratheam and M Voia (2021): "Consumer cash withdrawal behaviour: branch networks and online financial innovation", Bank of Canada, Staff Working Papers , no 28, June.

Guttmann, R, C Pavlik, B Ung and G Wang (2021): " Cash demand during Covid-19 ", RBA Bulletin , March.

IMF (2021): " Policy response to Covid-19 Policy Tracker ", last updated on 2 July.

Judson, R (2017): "The death of cash? Not so fast: demand for U.S. currency at home and abroad, 1990–2016", Conference Paper for International Cash Conference 2017 – War on Cash: Is there a Future for Cash?, April.

NFCW (2021): " Table: Contactless payment transaction limit increases around the world ", last updated on 27 August.

Rösl, G and F Seitz (2021): " Cash and crises: No surprises by the virus ", IMFS Working Paper Series , no150.

Visa (2021): " The Visa Back to business study 2021 Outlook ".

1     This commentary is based on the CPMI Red Book data published for 27 jurisdictions for the period 2012–20. Advanced economies (AEs) refer to Australia, Belgium, Canada, the euro area, France, Germany, Italy, Japan, the Netherlands, Spain, Sweden, Switzerland, the United Kingdom and the United States. Emerging market and developing countries (EMDEs) refer to Argentina, Brazil, China, Hong Kong SAR, India, Indonesia, Korea, Mexico, Russia, Saudi Arabia, Singapore, South Africa and Turkey. In the case of missing observations, data are estimated using the average growth rate of all other countries.

2    Covid-19 was first identified in December 2019 and declared a global pandemic by the World Health Organization (WHO) on 11 March 2020.

3    Non-cash payments refer to payments made using a payment instrument other than cash, such as payment cards, credit transfers, direct debits and cheques. With the exception of payments made using a cheque or paper-based credit transfer, all non-cash payments are digital payments.

4    See, for example, ECB (2020).

5    See Alfonso et al (2021).

6    For example, in the United States, person-to-person and mobile payments increased by 6% and 8%, respectively, during 2020 and the first months of 2021 (Akana (2021)).

7    IMF (2021).

8    Data on contactless card payments have been collected since 2012 but for most countries in the sample, data are available only from 2014.

9     According to ECB (2020), on average, 38% of respondents in the euro area avoided cash for fear of being infected with Covid-19 using banknotes and coins.

10    See NFCW (2021).

11    Chen et al (2021) demonstrate how some consumers try to minimise the time costs of withdrawing cash by making cash withdrawals opportunistically, eg on their commute to work.

12    See, for example, Auer et al (2020a) and (2020b).

13    See, for example, Judson (2017) and Rösl and Seitz (2021).

14    Guttmann et al (2021).

15    See ECB (2020). Similarly, a recent survey conducted by Visa showed that 65% of respondents planned to use contactless card payments as much or even more than before they were vaccinated, while 16% expected to revert to their previous payment habits (Visa (2021)).

16    See, for example, Judson (2017) and Rösl and Seitz (2021).

17    See Auer et al (2021).

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When you're dealing with your finances, unfamiliar words and acronyms can make complicated processes even more confusing. Here's a quick guide to help you navigate banking terms.

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4.60% SoFi members with Direct Deposit or $5,000 or more in Qualifying Deposits during the 30-Day Evaluation Period can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. Members without either Direct Deposit or Qualifying Deposits, during the 30-Day Evaluation Period will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.

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5.50% *Current promotional rate; annual percentage yield (variable) is 5.50% as of 4/2/24, plus a .50% boost available as a special offer with qualifying deposit. Terms apply; if the base APY increases or decreases, you’ll get the .75% boost on the updated rate. Cash Reserve is only available to clients of Betterment LLC, which is not a bank; cash transfers to program banks conducted through clients’ brokerage accounts at Betterment Securities.

Marcus by Goldman Sachs High-Yield CD

5.10% 5.10% APY (annual percentage yield) as of 04/29/2024

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5.05% 5.05% Annual Percentage Yield

Synchrony Bank CD

4.90% Annual Percentage Yields (APY) is subject to change at any time without notice. Offer applies to personal non-IRA accounts only. Fees may reduce earnings. For CD accounts, a penalty may be imposed for early withdrawals. After maturity, if your CD rolls over, you will earn the offered rate of interest in effect at that time. Visit synchronybank.com for current rates, terms and account requirements. Member FDIC.

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Discover® Cashback Debit

Chase Total Checking®

Deposits are FDIC Insured

Chime Checking Account

Discover® Money Market Account

Automated Clearing House, a system operated by the National Automated Clearing House Association that banks use to process electronic transfers such as direct deposits and tax refunds.

Annual percentage rate. The amount of interest you gain from keeping money in an account in a year, not including compounding interest.

Annual percentage yield. The amount of interest you gain from keeping money in an account in a year, including compounding interest.

A plastic card issued by a financial institution that gives you access to an ATM. It does not necessarily allow you to purchase items as a debit card would.

A fee that banks and interbank networks charge when you use an ATM outside your bank's network.

CASHIER'S CHECK

A check issued by a bank, usually for a fee, funded by the bank's money and signed by a cashier or teller. It may be requested by some sellers in place of a personal check to ensure the check won't bounce for lack of funds.

CERTIFICATE OF DEPOSIT

Commonly known as a CD, an account in which you deposit money for a specified length of time. The account typically pays higher interest rates than standard savings and checking accounts.

» MORE : NerdWallet's best CD rates

A way of organizing a sum of money into separate certificates of deposit of varying lengths so that they mature at different times. The method allows greater accessibility to your money than putting all of it in one certificate for a long period.

CHECKING ACCOUNT

An account at a financial institution into which you can deposit money and from which you can write checks for purchases. Most people use checking accounts to receive their wages and pay their bills.

CHEXSYSTEMS

An agency that banks use to see whether you have mishandled any accounts in the past. Banks and credit unions communicate with ChexSystems when you apply to open a new account with them.

COMPOUND INTEREST

Interest that applies to the original deposit as well as any newly earned interest. For example, if you put $100 in an account that earns compound interest at 5% a year, in the next year you will earn 5% on $105. Non-compounding interest would continue to earn 5% on $100.

CREDIT UNION

A financial institution similar to a bank that is not-for-profit and is owned by its members. Credit unions tend to have reduced fees, higher saving rates and lower loan rates than banks.

A plastic card issued by a financial institution that allows access to ATMs and can be used to pay for items at stores or online. Funds are drawn directly from your checking account.

DIRECT DEPOSIT

Money transferred directly from a payer's account to a recipient's account electronically rather than with a paper check. It is typically used for paychecks, Social Security checks, pensions or other recurring payments.

The interest paid on money in a savings account at a credit union.

DORMANT ACCOUNT

An account, usually checking, savings or money market, that has had no activity for a certain period of time, which varies from state to state. Accruing interest is not considered an activity.

EARLY CLOSURE FEE

A fee that financial institutions may charge customers for closing an account before a specified amount of time from when it was opened, usually several months.

The Federal Deposit Insurance Corporation . A government-run organization that insures customers' bank deposits up to $250,000 if the bank fails.

FOREIGN TRANSACTION FEE

An extra charge that you may incur when you use a debit, ATM or credit card in a foreign country.

INACTIVITY FEE

A fee your financial institution may charge you if you have not made any transactions in an account for a specified time.

INTEREST RATE

The rate the bank pays on the money in your accounts.

JOINT ACCOUNT

A bank account that has two owners who can access and view transactions. The accounts are commonly used by couples, parents and their teenage children, and adults assisting aging parents.

» MORE : How to write a check

LINKED ACCOUNT

A checking or savings account that's connected to another account, usually with the same owner, to facilitate transfers between the two.

MOBILE BANKING

The process of accessing or using banking products and services through a mobile device. It's usually accessed through an app your financial institution provides.

MOBILE DEPOSIT

A way to deposit checks into your bank account using your mobile device. It typically requires you to take a picture of the check and send that picture to your bank through an app.

MOBILE WALLET

A program that allows you to hold common financial items such as credit cards, debit cards or store loyalty cards in digital form on a mobile device. They are usually collected under one app.

MONEY MARKET ACCOUNT

An account similar to a savings account that typically pays higher interest rates and a higher minimum balance requirement. Some also may have limited check-writing and debit card capabilities.

MONEY ORDER

A prepaid, secure way to send money to others, issued by a bank or post office. It is a physical slip of paper and must be signed by both the sender and receiver for it to be valid.

The National Credit Union Administration. A government organization that regulates and supervises credit unions, and insures up to $250,000 worth of deposits.

Non-sufficient funds fee. A fee your bank or credit union charges when you don't have enough funds in your account to cover the amount of a check. An NSF fee means the bank rejected the check or card payment.

ONLINE BANK

A bank that is operated entirely online. Most offer higher interest rates or lower fees because they don't have to maintain branches.

OVERDRAFT FEE

A fee incurred when your checking account doesn't have enough funds to cover a payment that is requested. The financial institution will pay what your account lacks, after which your account may have a negative balance.

» MORE : Overdraft fees: What banks charge

OVERDRAFT LINE OF CREDIT

Money you borrow from your bank or credit union if you go over the amount available in your account. You will have to pay interest on the overdraft.

OVERDRAFT PROTECTION

A service offered by financial institutions that allows you to pay for an item even though you don’t have the total funds available in your account. This means your card will not be denied, but the service usually comes with a hefty fee.

PEER-TO-PEER (P2P) AND PERSON-TO-PERSON PAYMENTS

A way to send money from your checking account or credit card to another person's account through the internet. Many P2P platforms are used on mobile devices, including platforms such as Venmo, PayPal and Snapcash.

PREPAID DEBIT CARD

An alternative plastic banking card that must be loaded with money before it can be used. Only the amount put on the card may be spent. Once loaded, the card can be used like a regular debit card.

RELATIONSHIP INTEREST RATE

A higher amount of interest you can get on your checking, savings or certificate accounts, if you hold other accounts at the same financial institution. Availability depends on the financial institution.

RETURNED ITEM FEE

A bounced-check fee, charged to the person trying to deposit the check. It can be charged if there are insufficient funds in the check writer's account or the account is closed.

ROUTING NUMBER

A nine-digit number that identifies your financial institution. Larger banks may have multiple routing numbers that are based on the geographic location where the account was opened.

SAFE DEPOSIT BOX

A secured container in a vault at a bank or credit union that only its owner(s) can access. It comes with a yearly fee and can be used to store valuable items such as jewelry, keepsakes or important documents.

SAVINGS ACCOUNT

An account that usually pays interest at a financial institution that holds money you want to keep for long-term goals or emergencies.

» MORE : NerdWallet's best savings accounts

SAVINGS AND LOAN ASSOCIATION

A financial institution that accepts deposits in exchange for a share of ownership, and primarily lends money for mortgages. Deposits are insured by the FDIC for up to $250,000.

SHARE CERTIFICATE

The equivalent of a certificate of deposit for credit unions. An account in which deposits are left for a designated period of time to collect interest. Interest rates for share certificates are often higher than rates for savings and checking accounts offered at the same financial institution.

SHARE DRAFT ACCOUNT

The equivalent of a checking account for credit unions. It functions the same way as a checking account but indicates that you are a partial owner of the credit union.

STOP PAYMENT

A request you can make to your financial institution to deny a check or payment that has not cleared.

TIME ACCOUNTS

Another name for a certificate of deposit. An account that holds your money for a specified amount of time and typically offers higher interest rates than a regular savings or checking account.

WIRE TRANSFER

A quick way to send money electronically to another person, domestically or internationally, through a bank or another provider.

WITHDRAWAL LIMIT FEE

A federal limit on how many times you can transfer and withdraw money from your savings or money market account, which is six times per month. Going above the cap usually results in a charge from your financial institution.

On a similar note...

Find a better savings account

See NerdWallet's picks for the best high-yield online savings accounts.

What are paper bank statement fees?

• Cost of paper statements

Avoiding paper statement fees

Benefits of electronic statements, paper bank statement fees: what you need to know.

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• Many banks charge you a few dollars per month for mailing paper bank statements to your home.
• You can avoid paper statement fees by opting for paperless statements online.
• If you don't like banking online, paper statements could be worth the cost.

A bank statement is a document that shows your account activity. One statement shows the activity over a "statement period," which is typically one month.

Banks are required to provide bank statements to customers for checking and savings accounts for any period in which an electronic funds transfer was made. So if you swiped your debit card, made an ATM withdrawal, or paid a bill from your account, you should receive a statement.

For many years, banks would print and mail monthly bank statements to every customer.

In an effort to reduce costs and paper waste, many financial institutions have stopped sending paper statements in favor of electronic statements — or else charging customers a small fee if they still want to receive a physical copy each month.

How much are paper statement fees?

Paper statement fees range from $0 to $5 at most financial institutions, though some will waive the fee if a customer meets certain qualifications.

Here are the paper statement fees at banks with the most branches around the U.S., as well as online banks:

*At these banks, the paper statement fee may vary depending on which checking account you open.

Depending on the bank, you may automatically be enrolled in e-statements but not paper statements or vice-versa.

Speak with a customer service representative or check your online account settings to make sure you aren't paying for paper statements if you don't want to receive them.

With e-statements, otherwise known as paperless statements, you see your transaction history on the bank's website or mobile app. There should be a menu option specifically for statements where you can sort by month.

Most banks charge a few dollars per month for paper statements, so opting for paperless statements eliminates this fee.

It's also better for the environment to receive your monthly statement electronically because the bank won't have to print and mail the paper to your home.

Some banks may also offer benefits when you opt for paperless statements. For example, a bank may waive your monthly maintenance fee or offer a cash sign-up bonus.

Paper statement fee FAQs

It depends on the bank. Some will waive the fee for customers who meet certain qualifications, such as age or minimum balance requirements, but it's not common.

E-statements are better for the environment, more cost-effective for financial institutions, and can offer better protection against identity theft .

Use unique passwords for all of your accounts, enable two-factor authentication where available, and avoid downloading your e-statements on a public computer.

If you'd rather receive paper statements, ask your bank if there's a way to reduce your banking fee for paper statements. Alternatively, consider printing your e-statements and keeping a file of them at home.

Banks may charge anywhere from $0 to $5 for paper bank statements.

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No minimum deposit to get started and get your money up to two business days sooner with early direct deposit. 1

Account subject to approval

Chase Secure Banking SM A simple checking account with no overdraft fees 2

$4.95 or $0 Monthly Service Fee 3

You can avoid the fee with qualifying electronic deposits totaling $250 or more per statement period. 4

How to avoid the fee

Read Additional Banking Services and Fees (PDF) for more information.

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Manage your money, deposit checks and pay bills or people from virtually anywhere, all with the Chase Mobile ® app . 5

Secure Banking customers told us they save an average of more than $40 a month on fees after opening their account. 6

• Check mark icon No overdraft fees, 2 spend only what you have
• Check mark icon No fees on money orders or cashier’s checks
• Check mark icon No fees when you cash checks, send money using Zelle ® 7 or use a Chase ATM 8
• Check mark icon No fees to pay bills with Chase Online SM Bill Pay 9

Designed for your peace of mind

Get reimbursed for unauthorized debit card transactions when reported promptly with Zero Liability Protection . 10

Get that "just paid" feeling up to two business days sooner with early direct deposit. 1

Start building your credit health and enjoy identity theft protection at no cost to you with Chase Credit Journey ® .

Manage your spending with Budget 11 and get daily spending insights with Snapshot in the Chase Mobile ® app.

Check your balance, pay bills, deposit checks with Chase Online SM and the Chase Mobile ® app . Plus, set up alerts to monitor your balance, deposits and more. 12

Lock and unlock your debit card if you misplace it.

Get started with Chase Secure Banking SM

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Already a Chase Secure Banking customer? Make the most of your account. Learn how

Certified low-cost account

Chase Secure Banking has been certified by Bank On for meeting the National Account Standards as a low-cost, low-fee account since 2019.

Chase Secure Banking SM

No overdraft fees — you spend only what you have.

Chase Total Checking ®

An easy-to-use account that covers all the essentials.

Monthly Service Fee 3

$4.95 or $0 Avoid fee opens overlay

$12 or $0 Avoid fee Opens overlay

Early direct deposit - with direct deposit, get your money up to two business days early 1

— Not Available

Help staying within your account balance

Paper checks

Overdraft services

Spend only the money you have available, without worrying about overdraft fees. 2

No fees for money orders and cashier’s checks

Bank on your terms — online, on the go with the mobile app, or in person at more than 4,700 branches and 15,000 ATMs

Chase Secure Banking SM Other miscellaneous fees apply. See account details .

Chase Total Checking ® Other miscellaneous fees apply. See the Clear & Simple Product Guide (PDF) for more information.

1 For Chase Secure Checking SM only: Early direct deposit is a service that comes with your Chase Secure Checking account in which we credit your eligible direct deposit transaction up to two business days early. You must set up direct deposit to your account. The timing of when these transactions will be credited is based on when the payer submits the information to us. This means when these transactions are credited could vary and you may not receive your funds early. Eligible transactions are certain ACH credit transactions such as payroll, government benefits or similar transactions.

2 We will decline or return transactions when you do not have enough money in your account to cover the charge. However, you could still end up with a negative balance if, for example, a transaction is approved for one amount, but then the actual charge is more than what you have in your account (like when you add a tip at a restaurant after the transaction for the meal was already approved). Even if you have a negative balance, we will not charge you an overdraft fee.

3 New and converted accounts will not be charged a Monthly Service Fee for at least the first two statement periods. After that the Monthly Service Fee will apply unless you meet one of the ways to avoid the Monthly Service Fee each statement period (if applicable).

IMPORTANT INFORMATION 4 Service Fee: Chase Secure Checking has no Monthly Service Fee when you have electronic deposits made into this account totaling $250 or more, such as payments from payroll providers or government benefit providers, by using (i) the ACH network, (ii) the Real Time Payment or FedNow SM network, or (iii) third party services that facilitate payments to your debit card using the Visa ® or Mastercard ® network. Otherwise a $4.95 Monthly Service Fee will apply. New and converted accounts will not be charged a Monthly Service Fee for at least the first two statement periods. After that, the Monthly Service Fee will apply unless you meet one of the ways to avoid the Monthly Service Fee each statement period (if applicable).

Product terms subject to change. For more information, please see a banker or visit chase.com/checking .

5 Chase Mobile ® app is available for select mobile devices. Message and data rates may apply.

6 Savings represents the average monthly reported savings on fees for money orders, check cashing, US remittances, and bill paying services by 1018 Chase Secure Banking customers who responded to a Chase survey fielded in October 2023. Your savings may vary.

7 Enrollment in Zelle ® with a U.S. checking or savings account is required to use the service. Chase customers must use an eligible Chase consumer or business checking account, which may have its own account fees. Consult your account agreement. To send money to or receive money from a small business, both parties must be enrolled with Zelle ® directly through their financial institution's online or mobile app experience. Funds are typically made available in minutes when the recipient's email address or U.S. mobile number is already enrolled with Zelle ® (go to enroll.zellepay.com to view participating banks). Select transactions could take up to 3 business days. Enroll on the Chase Mobile ® app or Chase Online SM . Limitations may apply. Message and data rates may apply.

Only send money to people and businesses you trust. Neither Chase nor Zelle ® offers a protection program for any authorized payments made with Zelle ® , or provide coverage for non-received, damaged, or not-as-described goods and services you purchase using Zelle ® , so you might not be able to get your money back once you send it.

Zelle and the Zelle related marks are wholly owned by Early Warning Services, LLC and are used herein under license.

8 You may be charged fees for using non-Chase ATMs by both Chase and the ATM owner/network (Surcharge Fees). See the Deposit Account Agreement for details.

9 Chase Online Bill Pay: Must enroll in Chase Online SM Banking and activate Online Bill Pay. Certain restrictions and limitations may apply.

10 Special Provisions for Card Transactions (Zero Liability Protection): Chase will reimburse unauthorized debit card transactions when reported promptly. Certain limitations apply. See Deposit Account Agreement for details.

11 Budget is meant to help you track and manage your spending, and is based on posted transactions within your Chase accounts. You will need at least one Chase checking account and one Chase credit card (some partner debit and credit cards may not be available) to take advantage of this tool. It may not include all your financial activity, such as other sources of income or external transactions. The numbers we provide are updated throughout the day, but are subject to adjustment and correction; consider your full financial picture when making decisions.

12 Account Alerts: There's no charge from Chase, but message and data rates may apply. Delivery of alerts may be delayed for various reasons, including service outages affecting your phone, wireless or internet provider; technology failures; and system capacity limitations. Any time you review your balance, keep in mind it may not reflect all transactions including recent debit card transactions.

The Contactless Symbol and Contactless Indicator are trademarks owned by and used with the permission of EMVCo, LLC.

Qualifying Transactions

Qualifying transactions include debit card purchases, online bill payments, Chase QuickDeposit SM , Zelle ® , or ACH credits.

Get $100 for new Chase checking customers

Open a new Chase Secure Banking SM account online. It’s a simple $4.95 Monthly Service Fee. 1

Complete 10 Qualifying transactions Same overlay link to Qualifying Transactions section within 60 days of coupon enrollment. 2

Other miscellaneous fees apply. See account details .

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IMPORTANT INFORMATION

1 There is a $4.95 Monthly Service Fee. Other miscellaneous fees apply. See chase.com/disclosures for more information.

Bonus/Account Information: Offer not available to existing Chase checking customers, or those whose accounts have been closed within 90 days or closed with a negative balance within the last 3 years. You can receive only one new checking account opening related bonus every two years from the last coupon enrollment date and only one bonus per account. Coupon is good for one-time use. To receive the bonus: 1) Open a new Chase Secure Banking SM account, which is subject to approval; AND 2) Complete at least 10 qualifying transactions within 60 days of coupon enrollment. After you have completed all the above requirements and the 10 qualifying transactions have posted to your account, we'll deposit the bonus into your new account within 15 days. To receive this bonus, the enrolled account must not be closed or restricted at the time of payout. Qualifying transactions include debit card purchases, online bill payments, Chase QuickDeposit SM , Zelle ® , or ACH credits. Eligibility may be limited based on account ownership. Bonus is considered interest and will be reported on IRS Form 1099-INT (or Form 1042-S, if applicable).

2 Account Closing: If the checking account is closed by the customer or Chase within six months after coupon enrollment, we will deduct the bonus amount at closing.

Chase Online Bill Pay: Must enroll in Chase Online SM Banking and activate Online Bill Pay. Certain restrictions and limitations may apply.

Chase Mobile ® app is available for select mobile devices. Enroll in Chase Online SM or on the Chase Mobile ® app. Deposits made through the Chase Mobile ® app are subject to deposit limits and funds are typically available by next business day. Deposit limits may change at any time. Other restrictions apply. See chase.com/QuickDeposit or the Chase Mobile ® app for eligible mobile devices, limitations, terms, conditions and details. Enrollment in Zelle ® is required. Both parties need a U.S. bank account; only one needs an eligible Chase account. Funds are typically made available in minutes when the recipient’s email address or U.S. mobile number is already enrolled with Zelle ® (go to https://register.zellepay.com to view participating banks). Select transactions could take up to 3 business days. Enroll on the Chase Mobile ® app or Chase Online. Limitations may apply. Message and data rates may apply.

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Chase Total Checking ®

Monthly service fee 1.

$12 OR $0 with one of the following each monthly statement period:

Electronic deposits made into this account totaling $500 or more, such as payments from payroll providers or government benefit providers, by using (i) the ACH network, (ii) the Real Time Payment or FedNow SM network, or (iii) third party services that facilitate payments to your debit card using the Visa ® or Mastercard ® network

a balance at the beginning of each day of $1,500 or more in this account

an average beginning day balance of $5,000 or more in any combination of this account and linked qualifying Chase checking, savings and other balances.

Other fees apply. See the Clear & Simple Product Guide (PDF) for more information. Account subject to approval.

1 New and converted accounts will not be charged a Monthly Service Fee for at least the first two statement periods. After that the Monthly Service Fee will apply unless you meet one of the ways to avoid the Monthly Service Fee each statement period (if applicable).

$4.95 OR $0 when you have the following during each monthly statement period:

Electronic deposits made into this account totaling $250 or more, such as payments from payroll providers or government benefit providers, by using (i) the ACH network, (ii) the Real Time Payment or FedNow SM network, or (iii) third party services that facilitate payments to your debit card using the Visa ® or Mastercard ® network.

Other fees apply. See Additional Banking Services and Fees (PDF) for more information. Account subject to approval.

IMPORTANT INFORMATION 1 Service Fee: Chase Secure Checking has no Monthly Service Fee when you have electronic deposits made into this account totaling $250 or more, such as payments from payroll providers or government benefit providers, by using (i) the ACH network, (ii) the Real Time Payment or FedNow SM network, or (iii) third party services that facilitate payments to your debit card using the Visa ® or Mastercard ® network. Otherwise a $4.95 Monthly Service Fee will apply. New and converted accounts will not be charged a Monthly Service Fee for at least the first two statement periods. After that, the Monthly Service Fee will apply unless you meet one of the ways to avoid the Monthly Service Fee each statement period (if applicable).

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