Over the last couple of decades, virtual banks have become an incredibly viable and popular option. More people than ever are choosing the convenience and accessibility of virtual banking. In fact, over a quarter of the UK population now have a digital-only bank account.
Traditional banks aren’t going anywhere, but Coronavirus made virtual banks even more popular. The risk of catching COVID-19 at a bank and using cash made virtual banks a safer alternative. But even before the pandemic, virtual banks like Wise and Starling Bank were growing.
If you’re thinking about virtual banking for your business but need to know more first, we’re here to help. At Mint Formations, we assist hundreds of companies in finding the best banking solutions. Hopefully, this guide will help you do the same. It includes what a virtual bank account is, how they differ from traditional accounts and the benefits of virtual banking.
What Is Virtual Banking?
On the face of it, a virtual bank account is hardly any different from a traditional account. You get access to all the features of high street banking, including:
- A chip and pin debit card
- Current accounts
- Savings accounts
- Bank transfers
- A mobile bank app
You can make the same transactions as a traditional account using a virtual bank. You can receive client payments, pay suppliers, withdraw cash and complete bank transfers. As with all UK bank accounts, you’ll receive a bank account number and sort code. You’ll also get an IBAN (International Business Account Number) if you open a business account.
With a virtual bank account, you’ll be able to receive and make payments in GBP and make international money transfers in other currencies. You’ll also be able to receive payments from online marketplaces like Amazon, eBay and Etsy. Plus, you can connect your account to HM Revenue and Customs to pay VAT and National Insurance contributions (NI).
The Difference Between Traditional and Virtual Bank Accounts
You might be thinking there’s not a lot of difference between a virtual account and a traditional one, and in many ways, you’re not wrong. But the one big difference between the two is that virtual banks are entirely digital.
Virtual banks have no brick and mortar banks anywhere, and all banking happens on a single app. That’s right, no more queuing at your local branch or booking an appointment with the bank manager. All you need to carry out all your banking is a smartphone.
Virtual banking is a good option for non-UK residents starting businesses in the UK. You can open a UK limited company from anywhere globally as long as you have a registered office address in the UK. But one of the issues that non-UK residents face is opening a traditional UK bank account.
The Financial Conduct Authority (FCA) and the British government have strict Anti-Money Laundering (AML) regulations that make opening a traditional account tricky. Non-residents usually need to travel to the UK to open a conventional bank account. But, even then, there’s no guarantee of success. Opening a virtual bank account is both cheaper and guaranteed.
But it’s not only international business people who use virtual bank accounts. Millions of people now choose virtual accounts because of the many benefits of virtual banking.
The Benefits of a Virtual Bank Account
Open an Online Bank Account Quickly
To open a traditional bank account, you’ll often need to visit a physical branch, which is usually to verify your identity before you can access the account. As we’ve already mentioned, this can be challenging and expensive for non-UK residents who want to open a UK limited company.
Virtual banks allow you to set up an online bank account entirely online. You’ll still need to verify your identity, but with virtual verification software, it takes seconds. Once you complete the verification, you’ll be able to start using your account immediately.
Easy Access with a Mobile App and Online Banking
Most traditional banks now offer online banking through a mobile app. But many of the features on their apps take inspiration from virtual banking features. Virtual bank accounts are accessible through mobile devices and web browsers to make money management easy. With a few taps, you can complete free bank transfers, open new savings accounts and apply for credit cards.
Cheaper International Money Transfers
International money transfers with high street banks can be expensive. Not only do they often use lower conversion rates, but there’s also usually a conversion charge. This is because traditional banks have physical branches and overheads to pay for.
Virtual accounts often offer lower fees for international money transfers and currency conversion. You can sometimes find virtual accounts with free international transfers. This makes them an ideal solution for overseas businesses or if you’re planning on spending abroad. It’s also a popular choice for UK businesses and freelancers with international clients.
Round-the-clock Customer Support
One of the most frustrating aspects of traditional banking is the limitations of the bank’s opening hours. You’ll often need to wait until the bank opens to carry out certain transactions or receive support. If you need help outside of those hours, you can end up on hold for hours.
With a virtual account, support is available at all times. These banks don’t need to follow traditional banking hours as they are virtual. Alongside this, virtual banks don’t rely on in-branch bankers to explain and promote their services. This often means that the support you get is more transparent and reliable.
Insights into Spending Habits
Gone are the days of trawling through paper statements to work out your income and outgoings. Virtual banks make it easy to keep track of everything you spend and earn. Most virtual banks now use artificial intelligence (AI) and machine learning to help their customers manage their finances.
Virtual accounts use customer data to provide instant spending notifications and regular spending insights. These are excellent ways to stay on top of your finances and keep them secure. The instant notifications mean that you’ll know instantly if anyone but you uses your account.
Lower Fees and More Interest
The overheads and cost of physical branches mean that traditional banks have higher monthly fees and transaction fees and lower interest rates. Virtual banks don’t need to worry about physical branches, so they can reduce their fees and give more interest to their customers.
Possible Disadvantages of a Virtual Bank Account
Potential Security Threats
One of the most common questions our customers ask is: Are virtual online banks safe? As virtual banks are entirely app-based, there is always the danger that somebody else could access your account. This is one of the reasons that many people are cautious about virtual accounts. But the truth is that all modern banking systems are IT-based, so they’re all at risk. But as virtual accounts are entirely web-based, virtual banks do absolutely everything to ensure their money is safe.
Less Personalised Banking Services
One of the most significant benefits of virtual banking is that you never need to visit a bank again. But this is potentially a disadvantage, too, if you have specific banking needs. With a traditional bank, you can go to a branch and speak to someone about what you need from your account. While this isn’t a huge concern for many account holders, some people prefer the personal interaction of a traditional bank.
More Fixed Offerings
Another aspect of not having a physical location is that banking services offered by virtual banks are more standardised. If you visit a traditional bank, you can speak to bankers about the needs of your business. Traditional banks often find bespoke banking solutions for you and your business. These tailored services are less available through virtual accounts, but some offer them.
Ready to open a virtual bank account? At Mint Formations, we’ve helped thousands of businesses find the best banking solutions. Get in touch today to find the right one for you.
