Direct bank

A direct bank is a bank without any branch network that offers its services remotely via online banking and telephone banking and may also provide access via ATMs (often through interbank network alliances), mail and mobile. By eliminating the costs associated with bank branches, direct banks can make significant savings which they may pass on to clients via higher interest rates or lower service charges.

The concept of a direct bank gained prominence with the advent of online banking technology in the early 1990s which led to a number of direct banks being created, although many were owned by traditional banks. A number of direct banks offer only online savings account and these banks typically offer higher interest rates than their traditional competitors as these banks can be very cost efficient to operate. Since mid-2000s online and telephone banking has become a mainstay of retail banking and most banks have incorporated these into their core services and transforming or reducing their branch network to mirror the advantages that direct banks have.

One of the world's first fully functional direct banks was First Direct, which launched telephone banking in the United Kingdom on 1 October 1989. A subsidiary of the then Midland Bank, it pioneered the concepts of no branches and 24-hour service through a call center. The commercialization of the Internet in the early 1990s was the biggest driver in the creation of full direct banking models. As the Internet became more widely accessible, traditional banks sought to reduce operational costs by offering internet banking services.

At the same time, internet-only banks or "virtual banks" appeared. These banks did not have a traditional banking infrastructure, such as a branch network, a cost-saving feature that allowed many of them to offer savings accounts with higher interest rates and loans with lower interest rates than most traditional banks. Virtual banks could operate virtually from a single PC and server administration without a substantial infrastructure. However, there was an initial consumer hesitation in conducting monetary transactions over the Internet, especially with an entity that they could not deal with face-to-face.

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