When talking about the exposure of the banking sector to a crisis of confidence, or that a bank faces the risk of bankruptcy, or that depositors in a bank withdraw their deposits as a result of the spread of negative information about the bank’s financial position, the image that comes to mind will be a long line of people standing outside the headquarters The president or the various branches of the bank to withdraw their money.
This picture is completely absent when we talk about digital banks, especially banks that operate entirely in digital form, as they do not have a headquarters or branches that customers can go to to withdraw their money in moments of crisis.
Before talking about digital banks and researching their future, and before we wonder to what extent these banks are a real threat to financial stability or supportive of it, especially since modern technology and social media play a leading role in their work, we must point out that the tweets on Twitter that contained Negative information about the Silicon Valley Bank, which recently declared bankruptcy in the United States, was sufficient for depositors to withdraw $40 billion, or 23 percent of the bank’s total deposits, within hours. Washington Mutual, the largest savings and loan union in the United States that collapsed in 2008, took nine days to lose $17 billion, or 9 percent of its deposits, as electronic means had no effect as it is now.
This simple comparison reveals an important role played by social media in determining the fate of banks, and then the banking system as a whole. This role is becoming increasingly dangerous in digital banks. What is a digital bank?
According to the definition available on the Santander Bank website, digital banking combines traditional banking services with the Internet, providing regular banking services, but on a website or mobile app.
However, Professor S. is not enthusiastic. Dalton, Professor of Banking and Money at the University of London, describes this definition as inaccurate.
He told Al-Eqtisadiah, “There are some differences between online banking and digital banking services. The first is a form of banking that most of us are familiar with. Internet banking is simply any form of personal banking that we conduct using the Internet, such as checking From our balance and previous account statements, and with the development of online banking services, the services provided have evolved, and customers can now apply for a loan or make international money transfers within certain limits.”
“Digital banking is a more comprehensive term that refers to all forms of financial transactions that take place with the help of technology. Internet banking is a form of digital banking, but digital banking is much more than just online banking,” he added.
“As we move more quickly towards a cashless society, digital banking is the system that allows an entire online economy to grow and thrive, so we may interact with various aspects of digital banking on a daily basis,” he continues.
There is no doubt that the available figures are all in the interest of the prosperity of digital banks, and it is expected that the global digital banking services market will reach $27 trillion by the end of this year. Experts believe that the growth of the financial technology sector is evidence of the dominance of technology in the market, and by 2030 the banking and financing foundations will be completely redesigned thanks to innovations in the field of cloud computing, block chain, robots and other advanced technologies, and banks are now aware that it is no longer possible to support the business that operates In the banking system with outdated techniques and inefficient manual procedures.
Nevertheless, the matter is not devoid of a conservative point of view regarding the future of digital banks and their reason for referring traditional banks to retirement. In this context, banking expert Wesley and Klan raise the issue from two different angles. The first relates to the ability of traditional banks to compete with digital banks? The other relates to the extent to which depositors accept the idea of ”pure digital banks”.
He told Al-Eqtisadiah that “traditional banks have a number of assets and basic aspects on which they are based, which will require digital banks to have decades of continuous work in order to be able to acquire them. Firstly, traditional banks have a natural acceptance by depositors. The psychological aspect of the depositor requires seeing Bank headquarters and have a branch next to his house, and always – especially the elderly – need face-to-face interaction with bank employees, and often with the passage of time a human relationship develops between the bank employee and the customer, and this aspect should not be underestimated, as that relationship gives the customer a sense of security Because this relationship provides him with the latest news of the bank and whether he is facing difficulties or not, and he also gets unpaid financial advice from the bank employees after the relations between the two parties have been strengthened, and traditional banks have a strong infrastructure represented in the amount of data they keep to its customers.”
Thus, banking expert Wesley and Klan believes that the competition between traditional and digital banks is not easy and simple as some believe, and that modern technology, although it is in the interest of digital banks, traditional banks have a heritage that makes many depositors prefer them over digital banks, secondly, what some refer to as “Pure digital banks”, which are banks that operate entirely via the Internet and have no headquarters that the customer can visit. They enjoy the speed, agility, and innate flexibility of modern technology companies, but they do not yet have the confidence and safety standards that the depositor demands, and the experience of these banks is still in its stage. First, it will take a long period of time to become a prominent player in the international banking system.
But this point of view does not appeal to Anna Andrew, a member of the digital development group at Rivulet Bank, a fully digital bank in the United Kingdom, which she considers a very conservative view regarding the future of digital banks.
And she told Al-Eqtisadiah, “In an opinion poll, a simple question was asked to the participants, and the question was: What would you save if your house was burning to ensure that you are financially secure? In the past, the answers ranged between bonds or insurance policies, but in 2022 the answer was my mobile phone, and this It gives us a clear awareness that technology has become more dominant in our financial life, and in a recent opinion poll conducted in the United Kingdom, 60 percent of bank customers answered that digital banking financial operations are very important, and that what bothers them most about traditional banks when managing their financial resources is working hours. Ltd., the long time required to complete financial transactions, and the time wasted visiting the bank branch, and this reveals a growing tendency towards the idea of digital banks in general and pure digital banks in particular.
And she added, “This does not mean that digital banks do not face challenges that put restrictions on their growth, perhaps the most prominent of which is the lack of a sense of security offered by traditional banks at the present time. Internet crimes and bank fraud, although they exist in traditional banking systems, are linked in the minds of More depositors with digital banks and online banking services.
Certainly, there is still a desire by depositors to see the bank’s headquarters on Main Street, which a customer of any age can visit because he has questions about how to manage his money, but digital bank accounts, according to several studies, are more common among people between the ages of 18 and 24. years, and this gives a positive impression about the future of digital banks, but at the same time it creates another challenge for this category of banks. Daniel Dean, Professor of Social Economics at the University of Cambridge, highlights this challenge by noting the strong association between this age group and social media.
And he assures Al-Eqtisadiah that banks keep part of the deposits as a reserve, while they invest or lend the largest part with the aim of achieving profits, and this means that if a large number of depositors demand their deposits at the same time, this paralyzes the bank, because it will not have enough. To pay off those deposits, and the spread of such fears leads to the collapse of the bank, and then panic in the banking system as a whole, and the economy suffers from recession.
He says, “When examining the causes of recent bankruptcies, whether in the United States or Switzerland, we will discover that this happened in part because of social media. The bank is suffering. Now rumors and negative information spread from one customer to another at lightning speed due to social media, and young age groups are more connected to social media, which makes tweets that carry negative news have a great impact on their relationships with their accounts in the digital bank to which they belong.”
From this standpoint, some experts believe that modern technology, although it provides a strong impetus for digital banks to grow and prosper, and urges traditional banks to develop themselves towards further transformation into digital banks, the matter is not without challenges that may require the search for technological solutions as well to ensure Dimensions of the negative impact of social networking sites on the performance of digital banks.
