If there is one thing that the web has impacted, but which isn’t discussed in the mainstream, it is the way in which we view finance. Most banks offer online banking services to their customers. This has enabled these customers to view their bank balances online, make and receive payments and even apply for overdrafts, loans, mortgages and insurance.

This is a tremendously significant development in the ways in which we can look at our finances, as well as make financial decisions. The use of such technology has paved the way for a slew of online finance systems, which offer many of the same features as banks – and crucially, a few more.

This has created a very fluid way of making and taking payments, which is not defined by limitations imposed in the traditional banking world, and ushered a new era of finance – you could call it Finance 2.0.

Are banks really preventing the cogs and wheels of change from turning?
Credit: Wikimedia Commons

Banks: lagging behind? Or resisting change?

The banks aren’t very popular these days. There’s a stereotypical image of a money grubbing old curmudgeon just waiting to pinch the pounds and pennies away from whomever he can, an image that is portrayed in the media – this is arguably rather unfair, as are all stereotypical images.

There’s another image we have of bankers just refusing to change with the times, limiting us with long clearance times and inflexible ways of paying in the digital age. Well, this is somewhat unfair too. The fact is that banks are constrained by a huge ream of rules and regulations, which makes it very difficult to implement any sort of change at all – this is a key reason why competing payment systems are making a big splash in the online world.

Online Competitors to Traditional Banking Systems - All Talk or The Real Deal?

When it comes to our money, we tend to get a little bit cautious – and so we should. Fraud and security issues are of paramount concern, this puts some people off new online money services. 10 years ago these people might have had a legitimate point, but the reality is that online money transfer services have now progressed to the point that they feature the same sort of security features that online banking has.

These features include 128-bit encryption technology, secure data centres and identity verification procedures. In addition to this, the online payment gateways now thriving are often accredited by governmental authorisation. In the UK, the Financial Services Authority (also known as the FSA) carries out stringent checks and assessments of the legitimacy and security of a particular service.

Many online payment sites have this level of accreditation, which makes them well placed to offer secure online payment options to their customers.

Online payments systems rival banking by ensuring customer data is safely locked away.
Credit: Wikimedia Commons

Online Payment Gateways - Necessary or Superfluous?

You might be thinking just why on earth anyone would bother with an online payment gateway. The key is, as mentioned earlier, they are free from the limitations imposed on banks.

Let’s imagine you are out with friends enjoying an evening meal, and you have forgotten your wallet. They agree to cover your share of the bill, being your friends, and you make your apologies and offer to swiftly pay everyone back. Using an online banking system, you would have to obtain very specific details for everyone you wish to pay – at a bare minimum banks require sort code and account numbers to make payments. This is a limitation due to the specificity of the information required and even if you do obtain it and process the relevant payments – your friends will be waiting a long time, up to 5 working days, to receive their money. This is especially true in the instance of transferring money between different banks.

The benefit of an online payment gateway is that you will need less specific information; often it is the case that only an email address will be required. In addition to this, the money is transferred instantly – with no waiting times once the recipient has an account on the site with which the transfer is made.

Another aspect of this online service that appeals to users is the ease in which an international money transfer can be made. By using an online payment account, it is possible to send money internationally instantly and avoid the limitations of traditional banking model – which often require a lengthy period of time to clear.

The speed of the transaction can be essential, for example in the case of an employer wishing to pay people their salaries over international borders. It may also be the case that a friend or relative is in need of money urgently whilst abroad, in which case the speed of transaction is of the utmost importance.

True Rivals? Or Wannabes?

It can be said that online payment systems external to the banking sector are currently rivalling their traditional models.

Many services offer a prepaid credit card, which has the funds present in an online payment account stored on it. These cards can be used in ATM machines or even in shops, which is a key feature for these services and a big selling point for customers. Money is easily transferred onto the card, and this allows instant access to one’s funds – for example, funds from a gaming site might take several days to clear in a bank account whereas they could be instantly transferred to a prepaid card and used on demand.

Banks vs Online Payment Gateways - a tense competition.
Credit: Wikimedia Commons

Freedom & Flexibility

The rise of these online services can be attributed to the consumers desire for freedom and flexibility when it comes their finances. Having such a service can often prove convenient and even invaluable in certain circumstances.

Limitations may be lifted for banks, and the flexibility that online payment gateways offer may one day be offered by our banks – particularly as they continue to grow. But, for now, these services continue to develop and are in fact thriving – which means banks certainly have a lot of catching up to do.