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Global banking crisis opens the door for digital banking boom

As the biggest US banking failure since the Great Recession recently took hold, banks have begun to strategise their financial stability options. Traditional banking is set to plummet as scaremongering and social media fuel an ongoing crisis in confidence, with digital banking likely to come out on top. 

The foundations of traditional banking lie in the premise of creating capital and these financial institutions rely on customers depositing funds into the banking system and lending these funds to other customers through loans and mortgages. Those who take out loans generate capital for the bank by paying interest and fees on the money they borrow. Customers can physically visit a branch and deposit or withdraw money from their accounts.

On the other hand, digital banking is all about convenience. Cutting out long queues, travelling to branches, and introducing lower fees, digital banking has made significant progress worldwide throughout the last decade. As a result, customers have the option to pay bills, transfer funds, perform online transactions and create a range of savings accounts, all from the comfort of their own homes. Popular European digital banks include Revolut, Monzo and Black Banx. 

Founded in 2015 by German billionaire Michael Gastauer, Black Banx has been a force for borderless financial change. Offering a unique approach to crypto and a staggering 20 million customers, Black Banx is a leader in the fintech industry. After making a $1.1bn revenue in 2022, the company hails its success on its remote customer-focused approach. Around 24% of Brits have a digital-only bank account as of 2023, compared to only 9% in 2019. In addition, 93% of British customers used online banking in 2022. 

California-based Silicon Valley Bank collapsed on Friday, 10 March 2023, following an increase in clients withdrawing money from their accounts – otherwise known as a bank run. Inflation and higher interest rates raised borrowing costs throughout the US economy, resulting in some SVB customers withdrawing their money to meet liquidity needs. To raise money to pay those withdrawing, the bank announced on 8 March that it had sold over $21bn worth of securities, borrowed $15bn and would hold an emergency sale of its treasury stock to raise another $2.5bn. This announcement caused a bank run, with customers withdrawing $42 million in the following days. Control of SVB has been turned over to the Federal Deposit Insurance Corporation (FDIC). 

In Europe, a pillar of Switzerland’s financial sector, Credit Suisse has found itself at the heart of the banking crisis. What happened to the bank? Over the last few years, the company has been hit by corporate espionage, defrauding investors and an announcement by the Saudi National bank (which owns around 10% of Credit Suisse) that they were not increasing investments, was enough to create a large-scale bank run. As Europe’s 17th largest lender by assets, Credit Suisse is far larger than Silicon Valley Bank. After being rescued by UBS, the takeover has hindered Switzerland’s financially stable reputation, with many wondering if this is the start of a global banking crisis similar to the 2008 recession. 

The reality is that ordinary people need not be worried. A banking crisis typically affects highly-affluent individuals at a more significant rate. The US government safeguards deposits of up to $250,000 for a length of time, with a similar policy in place by the European Union. In the unlikely event of a UK bank collapse, up to £85,000 per person per institution is protected. Last week, the Bank of England reassured customers that the UK banking system “remains safe, sound, and well-capitalised.”

In the wake of the potential banking crisis, it’s been suggested that the digital era has only increased its likelihood. The digital environment is littered with a range of social media and easy access to funds and financial services on a round-the-clock basis. In a statement following the fall of SVB, Rep. Patrick McHenry, R-NC, Chair of the House Financial Services Committee, said, “This was the first Twitter fuelled bank-run.” Mass panic via social media caused industry professionals to withdraw funds before getting clarity on the situation. After a less-than-favourable financial report, some startup depositors discussed concerns in Whatsapp and Slack groups. Other major investors took to Twitter to voice the bank’s collapse potential. 

But can the digital era be a force for good in the financial sector? Mercury – a US financial technology service – reported that in just six days, the company added more than $2bn in deposits and an extra few thousand customers to its 100,000 user base. An alternative to startups than Silicon Valley Bank, its digital nature and near enough instant account opening have made digital banking a clear choice for ex-SVB customers. Whilst many are expected to move to JP Morgan, America’s biggest bank, other clients are to source out digital-only banks due to their convenient nature and easy access to funds. Digital banks are set to capitalise from the collapse of SVB and the fall of Credit Suisse as populations shun the traditional banking model to prepare for another banking crisis. 

Could Black Banx be the alternative for you? The financial service focuses on borderless banking, putting customers at the heart of their business model. Self-funded by Gastauer and its lack of third-party ties, Black Banx ensures transparency in fund transfers, security in deposits and instant access to your wealth. With the bonus of a debit card, crypto and interest-bearing savings account, the Group, which operates out of 180 and deals with 28 currencies, is a confident choice as the world of traditional banking continues to decline.