Key takeaways: 

• Traditional banks offer businesses the benefit of in-person interactions, providing a sense of trust, personalized service for complex issues and easy access to cash-heavy services.
  
• Online-only banks provide streamlined, cost-effective services with lower fees and higher interest rates due to reduced overhead, offering businesses the flexibility to manage finances 24/7 from anywhere.
  
• Traditional banks can present hurdles for businesses due to restrictive hours, geographical limitations and potentially higher costs stemming from operational overhead.
• Online banks face limitations regarding a lack of face-to-face interaction and the challenges associated with depositing physical cash.
  
  

Choosing the best bank for a business depends on your specific needs. Traditional banks offer personalized in-person support and a full suite of services. Online banks provide streamlined, accessible and often more cost-effective solutions, increasingly handling complex transactions with advanced digital tools.

As you navigate today's financial landscape, you will notice a significant shift in banking options. The traditional banking model, which revolves around visiting a local branch, is now just one of many available choices. The rise of digital technology has led to the emergence of online-only banks, which promise greater convenience and efficiency. This situation presents you with an important decision: which banking model will best support your financial goals, particularly if you are running a small business? Before we dive into the pros and cons of online banks versus traditional banks, let’s define them:

What is a traditional bank?

A traditional bank is a financial institution with a brick-and-mortar location that offers a range of in-person services, such as the ability to deposit cash or meet face-to-face with a banker. Traditional banks may offer a mobile app or online platform, but they are primarily distinguished by physical branches.

What is a digital bank?

A digital bank is an online-only, branchless financial institution. Account management, applications, meetings and other transactions are primarily handled using digital tools, online portals and technology to meet customer needs. Digital bank models vary in services, expertise and available technology.

What are the pros of a traditional bank?

The primary benefit of a traditional bank is the ability to show up in person, especially for cash-heavy services.

For years, your banking interactions likely involved visiting a physical branch. Maybe you appreciated the ability to walk in, speak face-to-face with a teller or banker and handle transactions in person, or maybe you dreaded the inconvenience.

In-person interactions can offer a sense of trust and security that some digital interactions haven't always replicated. Having a local branch also simplifies depositing cash and provides quick access to services like notarization or getting a certified check. If you prioritize in-person interaction and require frequent, easy access to physical cash services, a traditional bank still holds value.

What are the cons of a traditional bank?

The disadvantages of a traditional bank are restrictive business hours, geographical constraints and the possibility that operational costs may affect the cost of their products and services.

While traditional banks have their place, the modern business landscape often calls for a more agile banking solution. For many entrepreneurs, the limitations of brick-and-mortar banks can be a real hurdle. Restrictive branch hours can make it difficult to manage finances around a busy work schedule and the need to be physically present for transactions can be a major inconvenience in our increasingly mobile world. Additionally, their operational costs, including maintaining physical branches and a large staff, can sometimes mean you face higher fees or receive lower interest rates on your savings.

What are the pros of online banks?

The advantages of an online-only bank are the streamlined, accessible and cost-effective services.

In the evolving landscape of business finance, online banks have emerged as powerful contenders, leveraging technology to deliver a banking experience that is not only streamlined and accessible but often more cost-effective for businesses. Online banks can typically offer lower fees and higher interest rates on savings accounts and certificates of deposit, and they often require lower or no minimum balances because they don't have the overhead of physical branches.

If you have an internet connection, you can manage your finances 24/7 from anywhere, using intuitive websites and mobile apps. This means accessing your accounts, transferring funds and paying bills when and where it works for you. For most of us, convenience is crucial. This accessibility is a significant advantage if you value flexibility, efficiency and the ability to bank on your schedule.

What are the cons of online banks?

Limitations of online-only banks may include a lack of face-to-face interactions and an inability to deposit cash.

You may have heard criticisms of digital banks regarding a perceived lack of personalization and in-person support. The absence of physical branches means you cannot easily walk in to resolve complex issues or build the kind of personal relationship with a banker that some customers value. Depositing cash can also be more challenging. While technology is constantly improving, we understand that some individuals still prefer the human touch when it comes to their finances.

How to choose the right bank for your business

Understand your priorities and assess if the bank can meet your needs.

Choosing the right bank for your business is a big decision, and it really comes down to what matters most to you. If you’re someone who values walking into a branch, having face-to-face conversations about complicated financials and needing easy access to cash services, a traditional bank might be your best bet, despite the restricted hours. However, if you’re always on the go and prefer managing your money 24/7 from your phone or computer, an online-only bank could be a better fit, offering lower fees and higher interest rates. No matter what you choose, do your due diligence to ensure they have quality customer service and can provide the products you need to accomplish your goals.

How Live Oak Bank is meeting customers' needs with online banking

At Live Oak Bank, our approach combines the best of digital banking with the personalized service and expertise you deserve.

At Live Oak, we actively challenge the idea that digital banking means sacrificing personalized service or expertise. We've meticulously built our online model to prioritize your success, proving that the efficiency and convenience of a digital platform can seamlessly combine with a deep commitment to personalized customer service and specialized expertise, particularly for small business owners.

While we operate primarily as an online bank, we have built a model that prioritizes your success through dedicated digital support and specialized knowledge. We understand that your small business banking needs extend beyond simple transactions. You require a partner who understands your unique challenges, opportunities and the intricacies of your industry.

FAQs  

Q: Are online-only banks safe?

A: Yes, online-only banks that have FDIC insurance offer the same level of protection for your deposits as traditional banks, up to the standard insurance limit per depositor, per insured bank, for each account ownership category. When considering any bank, online or traditional, you must verify that it is FDIC-insured.

Q: Are online banks always cheaper than traditional banks? 

A: Online banks typically have lower operating costs, which often translates to fewer fees (like monthly maintenance fees) and higher interest rates on deposit accounts than many traditional banks. However, it's always wise for you to compare the specific fee structures and interest rates offered by different online and traditional banks based on your individual banking habits and needs.

Q:  Can online banks handle financial needs like business loans? 

A:  Absolutely. Many online banks, particularly those specializing in business banking like Live Oak Bank, offer a full suite of financial products and services, including various types of loans (such as SBA loans), treasury management services, and accounts tailored for businesses. Live Oak Bank has specialized teams with deep expertise in different industries and financial products to assist our business clients like you. 

Q:  How do I deposit cash with an online bank? 

A: Depositing cash can be less straightforward with online-only banks than traditional banks with physical branches. Common methods available to you might include using a linked account at a traditional bank to deposit cash and then transferring the funds, purchasing a money order and depositing it remotely (often via mobile check deposit) or utilizing ATM networks that accept cash deposits if your online bank is part of such a network.