Digital banking and virtual banks

Digitalization has not bypassed any sphere, including the field of service activities and the banking sector. Such a drastic change came as a result of current and future development trends and digital transformation of financial institutions and organizations, primarily banks and all of this under the substantial influence of information technology.

As in other areas, the application of information technologies in financial institutions and banking began with the first use of computers and the Internet. Further development was rapid, which implies the use of mobile devices for certain banking services, interaction with the bank via remote services, and then the use of mobile and other devices to predict the client’s habits, needs and customs. The speed and efficiency of digital transactions represent the most significant reasons for this expansion of digital banking due to the considerable enthusiasm of the business world due to time savings. On the other hand, a certain percentage of the population still retains apprehension due to insufficient trust in digital business.

A digital transformation in banking represents the integration of digital technology in all areas of the bank.Considering that this is a new trend, there are still no explicit definitions of digital banking, so we can observe the term extremely narrowly – to include the possibility of providing certain banking services digitally. On the other hand, we can expand this term, which would imply a complete reversal of ideas in comparation to traditional ideas about banks and other financial institutions. Therefore, it would be about a virtually existing corporation, which does not physically own its branches, but provides all services digitally through various platforms. Although it is difficult to imagine in today’s reality, in fact this form of banking business would reduce costs to a large extent and consequently make all the services offered by banks cheaper.

It is extremely significant to emphasize that all these trends are followed by appropriate legal regulations. For now, there are no digital banks in the true sense of the word on our market, but some classic banks offer digital services in addition to classic ones. The legal aspect and legal treatment of entering into legal relations with the bank in a digital way is specific, but as such it is still subject to legal and by-laws relating to this area. Regardless of the new form of entering into legal relations, the legal rules remain the same, and must be fully respected, given that it is about legal affairs undertaken on the territory of Bosnia and Herzegovina. For users of banking services, it is of great importance to know that carrying out certain banking operations in digital form does not prevent the bank from complying with all those binding norms as when it undertakes the same operations in the classic form, i.e. in the traditional sense.

Such trends represent a challenge for the existing regulators, which in this particular case are the RS Banking Agency, as the competent regulator in the territory of the Republic of Srpska, and the FBiH Banking Agency, as the competent regulator in the territory of the Federation of Bosnia and Herzegovina. It is difficult to establish a clear balance between supporting galloping innovations and protecting users of banking services. In this regard, the largest number of jurisdictions apply existing laws, but there are also pioneers of this type of regulation, who upgraded the existing legal regulation so that it fully corresponds to all forms of digital banking.

There is nothing left but to follow the further development of this process, as well as its accompanying regulations, which must serve as an adequate means of support for an accelerated and facilitated process, but also as a brake on the irregular behaviour of banks.

Author: Nikolina Pilipovic

E-mail: [email protected]

About the author