Digital Account: What is it and how does it work?

Over the past two decades, the growth of technology has influenced the banking system as well. A digital account or digital savings account is nothing but a technological advancement of the banking system. A digital account allows users to open, maintain, make transactions or even make investments with the help of their smartphones and laptops by using the internet. The importance of a digital account was highly visible during the time of COVID-19. The Canadian fintech industry has unlocked a new high record of valuation in 2021. 

What is a Digital Account?

Digital accounts, also known as online bank accounts, are different from traditional bank accounts. A Digital account comes with an IBAN number that is regulated by bank security regulations. It allows transactions as well as balance and activity queries. 

A digital account serves the features of a savings account on a digital platform. Modern banking systems can be accessed using apps or websites and transactions can be made paperless. With the concept of a digital savings account it is easier to manage the account today. The account holder can use banking services like instant transfer, mobile banking, SMS banking in a shortest possible time and in a secure way. After each transaction the account holder will get an SMS and email alert. 

When you open a digital account, you can also sign up for a debit card. You can make payment in both physical and digital stores. 

Benefits of a Digital Savings Account

Digital accounts have made our lives so much easier than before. Standing on the line for hours to get a bank statement was the previous scenario. But now you can have your bank statement, transactions within a second by using a digital account. 

1. Interest Rates: You can earn a good interest by your digital account or your digital investment account. The Bank will pay you an interest on the money that you have maintained in your digital account. It is undoubtedly a great benefit that you can get from a digital account. Although interest rates may vary due to market changes.
2. Easy Access: A digital savings account can be managed from home and all the transactions can be made from your smartphones. Digital accounts have made banking processes so easier. Also, you can get access to your account anywhere at any time. It is accessible from mobiles and laptops. Transferring funds is also much easier than before, but there are some limitations to the number of transactions.
3. Low Maintenance Charges: A digital savings account will give you an advantage of maintaining less charges in your bank account. Some banks also provide online savings accounts at zero balance.
4. Safety and Security: The digital savings account is a safe and secure banking system. The details of your account will be under your supervision. You can check each and every transaction in detail. Also, your account will be covered under the banking security system.
5. Easier to Manage: Using a digital account you can track your each and every account details by sitting at home. All you have to do is log in to your account and search for whatever information you are looking for. Digital accounts make the banking system easy and quick.

How Does a Digital Bank Work?

A question can pop up in your mind that how digital banks offer banking services without a physical existence? The answer is they typically partner with traditional banking systems to provide all banking facilities. Online banking software helps them to manage all account activities. Customers can open an account, deposit and withdraw the money, make payments, transfer money, and get other banking services digitally. Some points are given below how a digital bank works. 

• Account Opening: What do we do if we want to open an account with the traditional banking system? We went to a bank and filled up the form. Opening a digital account starts with the same process but you have to visit their website or download their mobile app rather than going in-person to the bank. 

The account opening process includes providing personal information, identity verification, and submitting the necessary documents digitally. Personal information required such as name, address, contact details, national identification number, to set up the identity. 

Digital banks offer strong verification systems to ensure security. These security measures help to prevent identity theft, money laundering and fraud activities. Some digital banks use artificial intelligence and machine learning algorithms to analyze customer data to verify their identities. 

• Digital Transaction: Digital accounts offer money deposit and withdrawal with the help of digital technology. Money deposit services include electronic fund transfers from different bank accounts, linking external accounts for fund transfers and more. Customers can also make withdrawals. They can transfer funds to other accounts or can make digital payments like mobile wallets or peer-to-peer payment.
• Digital Payment: Digital accounts enable customers to make online payments. This includes transferring funds in terms of payment, bills payment for utilities or subscriptions, and more. The benefits of digital payments is you do not need to write checks or carry cash. Just tap into the recipient number, insert the amount and within just a second the payment will be done.  
• Account Management: Using a digital account customers can continuously manage their accounts. They can monitor their account balances, transaction and payment history whenever they want. You have to log in your digital account using a user ID and password then you will have access to the dashboards. It will show you graphs, and spending analysis reports so that you can get insights of your financial activities. Also, you can update personal information. You will get SMS and email notification on each transaction.
• Interest: Many digital accounts offer interest rates on the money that is available in their account. Some digital banks also provide Interest on the money that is available in the account. 
• Investment: There are some specific digital accounts available for investments in Canada. Wealthsimp, Questrade are the best examples. If you want to buy and trade in stocks, ETFs or cryptocurrency you can use those digital investment accounts. They will offer you lower fees compared to traditional brokerage services. 
• Loans and Credit: Digital accounts offer different types of loans. Customers can easily apply for the loan and manage it digitally. The loan application process is usually very complicated. This involves submitting necessary documentation like Identity verification, income verification, documents verification. But the digital banking system provides those solutions within a shortest possible time. Approved loans and directly disbursed into the customer’s account all those processes can be done using digital platforms.

Some Popular Digital Account in Canada

When it comes to digital accounts, you have a lot of options in Canada. The digital account that will be best suited for you will depend on your preferences and needs. However, some most popular digital accounts in Canada are given below: 

1. Koho:  Koho is a digital account that was founded in 2014. Koho is a digital banking app that can be used in different ways. But Koho works best as your regular banking system. Koho allows its users to manage financial banking activities on digital platforms. This will help you to track your payment, transactions and more.

To transfer using Koho, you need to recharge money in your app from your regular bank account. You can use e-transferring or a direct deposit or by linking it to your bank account. 

2.Neo Financial: Neo Financial is a Canadian company. It allows multiple financial tools with no monthly fees. It is integrated with the Neo Money account. Neo financial is for those who prefer to use a debit card but want the offers that a credit card can provide. You can get access to your money using any ATM worldwide. Opening a Neo Money account from home will take less than 5 minutes.

On every dollar in your account balances, Neo Money card will give you 2.25% interest and average cashback of 5% on your spending.

3. Tangerine: Tangerine is a subsidiary of Scotiabank. Tangerine has zero monthly maintenance fees. Tangerine offers low-fee investment and is designed for long-term wealth building. 

Tangerine also offers credit card facilities. It will be a good choice for those users who are looking for credit card facilities and cash back.

4. EQ Bank: EQ Bank is best known as a savings account supplement. Because EQ Bank does not offer a debit card or ATM access. EQ Bank’s digital account allows you to pay bills and transfer money. It will also provide you a high savings interest rate of 1.25% to 2%. But, it does not work as a chequing account for everyday transactions.

5. Simplii Financial: Simplii Financial is a Canadian bank subsidiary of the Canadian Imperial Bank of Commerce, or CIBC. Using Simplii Financial digital account  you can transfer funds, deposit cheques, pay bills, manage your investments and more. Simplii Finance has 128-bit encryption to protect your confidential information. 

Simplii has no-fee on chequing accounts, but overdraft, insufficient funds and out-of-network ATM fees are still applicable.

Is It Safe to Use a Digital Account?

Digital accounts may seem less secure than traditional bank accounts. Because in digital accounts, transactions are made virtually. So, security is the most important factor to consider in a digital account. Digital banks use advanced security to protect customer data and transactions. 

• Multi-Factor Authentication: Digital accounts require multiple forms of authentication, like passwords, fingerprint, facial recognition, or one-time verification codes sent to registered devices for making any transactions. By confirming customer identity using different authentication methods, multi-factor authentication adds an extra layer of security to your digital account.
• Encryption: In digital banking all the customer data that is transmitted between the customer’s device and the digital bank’s servers is encrypted. Digital banking system uses robust encryption protocols. This makes sure that sensitive information remains secure and isolated to unauthorized individuals. 
• Fraud Detection: Digital accounts use advanced fraud detection systems. This system monitors suspicious or fraud activities. If any abnormal types of transaction behavior is noticed, the bank investigates the issue and takes appropriate action.

Beside those, any reputed bank or federally regulated financial institution has to be a member of the Canada Deposit Insurance Corporation (CDIC). To ensure your money is safe, check if the financial institution of your digital account is a member of the CDIC. 

Having a digital account has several advantages. You can access your digital account from anywhere at any time. There are several digital accounts available in Canada. Find the right that suits you the best.