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A direct bank (sometimes called a branch-less bank or virtual bank) is a bank without any branch network that offers its services remotely via online banking and telephone banking or through an independent banking agent network and may also provide access via ATMs (often through interbank network alliances), mail and mobile.Direct banks reduce the significant costs of maintaining a branch network.
The concept of a direct bank gained prominence with the advent of online banking technology in the early 1990s which led to a number of direct banks being created, although many were owned by traditional banks. A number of direct banks offer only online savings account and these banks typically offer higher interest rates than their traditional competitors as these banks can be very cost efficient to operate. Since mid-2000s online and telephone banking has become a mainstay of retail banking and most banks have incorporated these into their core services and transforming or reducing their branch network to mirror the advantages that direct banks have.
In the United States, many online banks are insured by the Federal Deposit Insurance Corporation (FDIC) and can offer the same level of protection for the customers' funds as traditional banks.
One of the world's first fully functional direct banks was First Direct, which launched telephone banking in the United Kingdom on 1 October 1989. A subsidiary of the then Midland Bank, it pioneered the concepts of no branches and 24-hour service through a call center. The commercialization of the Internet in the early 1990s was the biggest driver in the creation of full direct banking models. As the Internet became more widely accessible, traditional banks sought to reduce operational costs by offering internet banking services.
At the same time, internet-only banks or "virtual banks" appeared. These banks did not have a traditional banking infrastructure, such as a branch network, a cost-saving feature that allowed many of them to offer savings accounts with higher interest rates and loans with lower interest rates than most traditional banks. Virtual banks could operate virtually from a single PC and server administration without a substantial infrastructure. However, there was an initial consumer hesitation in conducting monetary transactions over the Internet, especially with an entity that they could not deal with face-to-face.
One of the first fully functional direct banks in the United States was the Security First Network Bank (SFNB), which was launched in October 1995,and was the first direct bank to be insured by the Federal Deposit Insurance Corporation. Though SFNB did not make much profit in its initial years, it demonstrated that the concept of direct banking could work.
Some direct banks focused only on online savings accounts, providing higher interest rates than traditional banks for customers who were happy to only have access to their account on the internet. One of the first and most successful adopters of this was ING Direct that launched its first such bank in Canada in 1997, expanding this to the UK, Australia and the United States before its owner sold them around 2010.
One of Europe's first full-service direct banks was First-e, launched by ENBA, a Dublin-based internet incubator company under the banking license of French bank, Banque d'Escompte. First launched in the United Kingdom in September 1999, it garnered appreciable attention, resulting in more such ventures all over Europe. After about two years of operations, it shut down its operations during the dot-com bubble bust.Rival Egg Bank was launched in October 1998 by Prudential plc as a direct bank, however it took several years before it became a full-service direct bank.
Asia's first direct bank was finatiQ, a division of the Oversea-Chinese Banking Corporation (OCBC) of Singapore, launched in April 2000. It was shut down in 2011 and its operations merged into the mainstream banking structure with its parent OCBC saying that "Internet Banking has since become a core part of OCBC Bank’s multi-channel strategy – which also encompasses branches, ATMs and Mobile Banking".
The direct bank model was used by many of the challenger banks created in the UK during the period 2015-2018.
The Federal Deposit Insurance Corporation (FDIC) is one of two agencies that provide deposit insurance to depositors in U.S. depository institutions, the other being the National Credit Union Administration, which regulates and insures credit unions. The FDIC is a United States government corporation providing deposit insurance to depositors in U.S. commercial banks and savings banks. The FDIC was created by the 1933 Banking Act, enacted during the Great Depression to restore trust in the American banking system. More than one-third of banks failed in the years before the FDIC's creation, and bank runs were common. The insurance limit was initially US$2,500 per ownership category, and this was increased several times over the years. Since the passage of the Dodd–Frank Wall Street Reform and Consumer Protection Act in 2011, the FDIC insures deposits in member banks up to US$250,000 per ownership category.
A transaction account, also called a checking account, chequing account, current account, demand deposit account, or share draft account at credit unions, is a deposit account held at a bank or other financial institution. It is available to the account owner "on demand" and is available for frequent and immediate access by the account owner or to others as the account owner may direct. Access may be in a variety of ways, such as cash withdrawals, use of debit cards, cheques (checks) and electronic transfer. In economic terms, the funds held in a transaction account are regarded as liquid funds. In accounting terms they are considered as cash.
Online banking, also known as internet banking or web banking, is an electronic payment system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial institution's website. The online banking system will typically connect to or be part of the core banking system operated by a bank and is in contrast to branch banking which was the traditional way customers accessed banking services.
A savings and loan association (S&L), or thrift institution, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans. The terms "S&L" or "thrift" are mainly used in the United States; similar institutions in the United Kingdom, Ireland and some Commonwealth countries include building societies and trustee savings banks. They are often mutually held, meaning that the depositors and borrowers are members with voting rights, and have the ability to direct the financial and managerial goals of the organization like the members of a credit union or the policyholders of a mutual insurance company. While it is possible for an S&L to be a joint-stock company, and even publicly traded, in such instances it is no longer truly a mutual association, and depositors and borrowers no longer have membership rights and managerial control. By law, thrifts can have no more than 20 percent of their lending in commercial loans — their focus on mortgage and consumer loans makes them particularly vulnerable to housing downturns such as the deep one the U.S. experienced in 2007.
Oversea-Chinese Banking Corporation, Limited, abbreviated as OCBC Bank (华侨银行), is a multinational banking and financial services corporation headquartered in OCBC Centre, Singapore. OCBC Bank was born out of the Great Depression through the consolidation of three banks in 1932 - the Chinese Commercial Bank Limited, the Ho Hong Bank Limited and the Oversea-Chinese Bank Limited.
HSBC Bank Australia Limited was granted a banking licence in 1986 by APRA having been established as HSBC Finance Company Limited in 1965. It is part of the worldwide HSBC Group. HSBC Bank Australia is a foreign bank in Australia, offering a wide range of banking products and services to the retail, commercial, corporate and institutional sectors.
China Banking Corporation, commonly known as China Bank, is a Filipino bank established in 1920. It was the first privately owned local commercial bank in the Philippines initially catering to the banking needs of Chinese Filipino businesspeople. It offers various banking services and products related to deposit, investment, trust, cash management, remittance, and financing products and services. It also offers insurance brokerage and bancassurance services through its subsidiary and affiliates.
NetBank, formerly named Atlanta Internet Bank (1996) and Net.B@nk (1998), was a direct bank.
First Internet Bancorp is a bank holding company that operates First Internet Bank of Indiana, sometimes called First Internet Bank or First IB, one of the first state-chartered, Federal Deposit Insurance Corporation-insured institutions to operate without physical branches.
A branch, banking center or financial center is a retail location where a bank, credit union, or other financial institution offers a wide array of face-to-face and automated services to its customers.
Dollar Bank is a full-service regional bank serving both individuals and business customers, operating more than 70 offices throughout Pennsylvania, Ohio, and Virginia. The bank's Pennsylvania headquarters is located in downtown Pittsburgh, Ohio headquarters is located in downtown Cleveland, and Virginia headquarters is located in Hampton Roads.
An online savings account (OSA) is a savings account managed and funded primarily on the Internet.
EverBank, now TIAA Bank, is an American diversified financial services company providing banking, mortgages, and investing services. It is based in Jacksonville, Florida, U.S. It operates through standard banking offices and through its Direct Banking division. EverBank Direct operates by telephone, mail, and over the Internet. As of September 30, 2015, EverBank had approximately $25.2 billion in total assets.
Citibank Berhad is a licensed commercial bank operating in Malaysia with its headquarters in Jalan Ampang, Kuala Lumpur. Citibank Berhad operates as a subsidiary of Citigroup Holding (Singapore) Private Limited. Commencing its banking operations in Malaysia in 1959, Citibank Berhad was locally incorporated in 1994.
A bank is a financial institution that accepts deposits from the public and creates a demand deposit, while simultaneously making loans. Lending activities can be performed either directly or indirectly through capital markets.
Nevada State Bank, a division of Zions Bancorporation, N.A., is a full-service bank with branches statewide. Founded in 1959, Nevada State Bank serves 20 communities across the state of Nevada. Zions Bancorporation, N.A. operates in nearly 500 local financial centers across 11 Western states: Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oregon, Texas, Utah, Washington and Wyoming. Zions Bancorporation, N.A. is included in the S&P 500 and NASDAQ Financial 100 indices.
CompuBank, N.A. was a financial company engaged primarily in retail banking, mortgage banking, business finance and providing ATM and merchant processing services. CompuBank was founded in 1998 by banking veteran Frank Goldberg and launched on the internet in early October the same year. It was one of the pioneers of the Internet banking industry, and recognized as one of the first internet-only banks.
Sterling Bank was a wholly owned subsidiary of Sterling Bancshares, Inc., of Houston, Texas. Sterling has total assets of $5 billion and operates 56 banking centers in the greater metropolitan areas of Houston, San Antonio, Dallas, Fort Worth, as well as in the Texas Hill Country. The bank was founded in 1974 as Jersey Village Bank. Of the bank's 56 banking centers, 13 are in Dallas and Fort Worth, 29 are in Houston, 8 are in San Antonio, and 5 are in the Texas Hill Country.
The Insured Cash Sweep® or ICS® service is used by banks and savings associations that are insured by the Federal Deposit Insurance Corporation (FDIC). Financial institutions that are in the ICS Network can place the deposits received from their customers into interest-bearing savings accounts at other FDIC-insured banks in the Network.1 Banks can also place their customer funds into demand deposit accounts using the ICS demand option.2 Because the funds are placed at multiple banks across the Network in amounts that stay within the FDIC deposit insurance limit at each bank ($250,000), the customer is eligible for total amounts of deposit insurance that are greater than the standard insurance limit for any one bank.3
Tangerine Bank, operating as Tangerine, is a Canadian direct bank and a subsidiary of Scotiabank. It offers no-fee chequing and savings accounts, Guaranteed Investment Certificates (GIC), mortgages, and mutual funds. Many savings and investment products are eligible for registration under a Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP), or Registered Retirement Income Fund (RRIF). Despite being a subsidiary of Scotiabank, it retains its former separate Institution Number 614.