Sometimes also referred to as Internet or smartphone banks, online banks like Revolut and N26 have been on everyone’s lips for some time. But what is behind these banks that provide their services primarily over the Internet? And how do online banks differ from traditional banks like PostFinance?

Behind online banks like Revolut or N26 are companies – or, more specifically, fintech startups – that offer a range of digital banking services. Since all of the banking for the account is done via a digital app or the website, such accounts are generally aimed at young, tech-savvy people. There are also differences in the services offered, be it in terms of the accounts, the options for withdrawing cash or the fees. These are the most important features that distinguish online banks from traditional Swiss banks:

Communication via the chat function in the app

In contrast to traditional banks, online banks are based on a smartphone or web app.

Such financial institutions, which unlike traditional branch-based banks do not have their own branch network, are also known as direct banks. Users carry out all banking transactions and submit all applications for their account themselves via the online banking system. They open the account online in the app or on their desktop and communicate with customer service via the chat function in the provider’s app. What’s the advantage? There is no closing time for digital services – they are available around the clock, including at weekends. Traditional banks generally have an online offering, too. At PostFinance, it is the e-finance online banking system, for example. However, since online banks do not have to cover the costs of maintaining a branch network, they can offer a cheap basic service. The disadvantage is that it is not possible for customers to request a personal consultation.

People who need and value personal advice could well be disappointed. If this kind of service is not so important to you and you prefer to take care of everything digitally, you will probably cope well with a pure online bank.

A clear offer: basic and premium

The banks’ basic service usually includes free management of a current account with a card. At PostFinance, this is the private account. A credit card from Visa or Mastercard® can be ordered as well, usually at an affordable price. To be able to carry out an unlimited number of cash withdrawals and transactions, you will need a premium account from the online bank.

The range of features offered by some online banks is still relatively limited. Some do not support Apple Pay or Google Pay, for example – two important functions, especially for young people. Something else that Swiss users should be aware of is that N26 is a German provider and Revolut a British company. As a result, many online banks are less well integrated into the Swiss payment transaction system than domestic banks. Some current accounts from online banks are not suitable for use as salary accounts, for example, because the provider cannot issue a Swiss account number.

No ATMs, but free cash withdrawals throughout Europe

In addition to the lack of branches for personal contact with bank employees, online banks generally do not have their own ATM network for cash withdrawals, either. So where and how can customers withdraw money from their account? The service providers solve this problem as follows: they offer a certain number – at N26 the figure is five – of free cash withdrawals at a range of ATMs. For every additional withdrawal, a fee is incurred. Payments into your account are generally only possible online, via a bank transfer. Transfers by credit card are subject to a fee, as are most other non-online payments.

Security: monitoring with automated security tools

As already mentioned, online banks are very anxious to save costs in order to keep their basic offer cheap. One way they do this is to cut down on personnel expenses wherever possible. These cost savings are often reflected in the lower number of staff employed in the field of security and monitoring, who are replaced by automated security tools. Time will tell whether this approach comes close to the standard maintained by Swiss banks, many of which have large compliance teams.

There are also reports of problems with phishing attacks at online banks in which a number of customers have been cheated out of large amounts of money. Phishing is a technique used by fraudsters to obtain and then abuse confidential information such as access details for e-banking systems or credit card information from Internet users. However, phishing attacks are a widespread phenomenon that does not just affect online banks. Read our article “11 tips for your online security” to find out how to increase your security on the Internet.

Last but not least, users cannot assume that online banks are affiliated to a deposit protection scheme – in Switzerland, deposits of up to CHF 100,000 per customer are protected. In Switzerland, there are exceptions for institutions that have a fintech or sandbox authorization. Other regulations may apply abroad. To reduce the deposit risk, it is therefore advisable to check with the relevant institution to see if country-specific deposit protection schemes apply, and which ones.

A free basic offer with fee-based additional services

Because they save money with their simplified model involving fewer employees and no branches or ATMs, online banks offer preferential conditions. Cash withdrawals abroad and international transactions are often free of charge, for example. A word of caution, however: there are hidden costs and online banks will constantly try to make the various additional services that are only available with a premium account attractive to customers.

Useful as a second credit card

Do you value the option of being able to go to a physical branch of your bank in person? Do you require personal contact with your customer advisors from time to time? For many people, it is important to simply be able to talk to someone in person every now and then – especially when it concerns their hard-earned money. Some require more detailed advice and support from specialists. These customers will be better served at a traditional bank.

Lower security standards and limited customer service may well be the price many online bank customers pay for the otherwise low costs. If you are cautious and know how to protect yourself on the Internet, an additional account with an online bank – for use as an additional credit card on holiday or for online shopping in foreign currencies, for example – could well be worth considering.

Everyone who prefers to play it safe would be better off at a traditional bank like PostFinance.

Did you know that PostFinance offers accounts with free foreign cash withdrawals as well as accounts in euros and other foreign currencies?