Tradition meets flexibility: loans from traditional banks and what they have to offer

There is hardly a traditional bank left that does not offer online business or is even expanding it massively. Customers know the changes well, because online banking is on offer and account administration is increasingly happening online too. Even transfers can often no longer be submitted on a paper form, because the terminal is there for customers to use. Traditional institutions are becoming just as modern in the area of loans. This article shows what makes loans from traditional banks special and how they are getting even better through the use of modern elements.

Figure 1: Online loans are no longer anything special today. Traditional banks are also setting more and more of the tone in this area. But where do the advantages actually lie? Image source: @ Burst / Unsplash.com

What makes loans from traditional banks special

Traditional banks almost always have branches on the spot. This is particularly evident with the German savings banks in larger cities, because account numbers sometimes vary from district to district – customers always find their own contact person where they are assigned. In the typical course of business around cash withdrawals from machines, transfers or other “simple” matters, traditional banks have long been set up online as well and advise their customers to use online banking directly. Nevertheless, there are some particular features:

• Contact person – customers of traditional banks can visit a contact person on the spot or arrange an appointment. Personal contact is important for many people, and it sometimes even offers advantages, because in a face-to-face conversation issues can be explained and resolved considerably better.
• A known customer – at traditional banks the customer is usually still known personally. That can make taking out a loan easier, because problems or hurdles can be discussed far better in person than online. One example would be a previous, but concluded, insolvency. The house bank can look at the account specifically and establish that the customer has long since emerged from insolvency and that the balance is sufficient for a loan. This is no guarantee of a loan, but an unfamiliar bank would certainly issue a rejection.
• Special arrangements – at a house bank it is not uncommon to be able to create options outside the usual rules. An overdraft facility can be increased quickly, for example, if the reason is sound and the customer can demonstrate on the spot that the financial dilemma will resolve itself within a short time. Other scenarios can also often be discussed and clarified well in personal contact.

In the end, however, the advantages also depend on the bank itself. To this day, the greatest advantages go to those whose family has always been with one institution and who are therefore known there. Long-standing customers, known even across generations, often have a foot in the door, whereas at pure online banks they have to be seen as one of many.

Examples of traditional banks going the online route

The German banking system rests on a three-pillar structure. This structure comprises the cooperative banks, the semi-public banks (savings banks) and also commercial banks and other banking institutions. All of these banks belong to the traditional structure and are, in an emergency, at least partly supported by the state. Profit is not necessarily the focus in this model; in fact, for Germany it is considered below average.

Many of the banks have long been active in traditional business as well as online. But where is the difference?

• Traditional online – ultimately this simply means online banking, together with all the functions needed for everyday life. Banking apps, push TAN or other administrative features are part of it. Since pure online banking today involves considerably more facets than it did 15 years ago, it already looks impressive.
• The online route – these banks go one step further. Customers often experience it in everyday life as restrictive, because individual branches may disappear and, on top of that, almost everything is carried out at the terminal or online.

Quite a few providers, however, go one step further. The savings banks, for example, offer:

• Online loans – savings bank customers can easily apply for a loan online. Customers of other banks are accepted too, although the application is of course easier for savings bank customers because of the savings bank’s high level of knowledge. Ultimately the bank can look directly at the account history of recent years instead of relying on the last three months. If there has been a weak spot in recent months but the general outlook is positive, lending on good terms is still possible.
• Account administration – through online banking, savings bank customers have long been able to create and name sub-accounts, and also to create and manage overnight and fixed-term deposit accounts.

Banks such as Commerzbank went a step further straight away and split up their banking business. With the founding of Comdirect, a separate internet bank was created that is nevertheless firmly interwoven with Commerzbank. Comdirect customers have no, or only a subordinate, claim to direct service in branches, but manage their banking affairs on their own or with the help of the service hotline.

Traditional direct banks with an early online focus

The internet quickly became the focus for all direct banks. A direct bank traditionally has no branches, or only very few, but works together with traditional banks to dispense cash. Postbank users know the principle too: they can also withdraw money free of charge from Deutsche Bank machines.

Banks such as SWK Bank or CreditPlus extended this first principle further. From the outset they focused on online business and practically encouraged customers to become their own bank advisers. What was once regarded as an absolute novelty is commonplace for most bank customers today. Transfers, direct debits, account statements or other small banking transactions are today carried out almost exclusively online, but back then it was an exception. What starts as an exception and becomes the norm, however, also requires further development. This means:

• Connectivity – a modern online bank today offers all kinds of connections. Mobile payment systems such as Google Pay and Apple Pay have to be supported, and at the same time it is important that interfaces are created to accounting and tax programmes, but also to other types of investment.
• Trading – more and more people are venturing into share dealing, at least via ETFs. A good online account at an online bank allows trading and even helps laypeople to set it up correctly and safely.
• Investment – modern online banks no longer rely solely on ordinary account movements; they also offer customers that certain extra. Investment accounts have to be quick to create and manage without detours. That applies to overnight and fixed-term deposit accounts as well as to savings accounts or other investment options. Customers should be able to inform themselves through the site and thus make a decision that suits them specifically.
• Loans – loans can also be applied for conveniently online. Potential borrowers receive an immediate answer on the basis of their details and only have to submit a few documents. Identification is handled conveniently by video identification. The SWK reviews on smava also show just how straightforward that is.
• Extended services – through online banking, tools for liquidity and cash flow planning can subsequently be connected as well.

Many direct banks have discovered the internet for themselves not only on the customer side; they also offer a safe harbour to founders and to those who earn money through online payment providers. The connection of payment providers in particular is enormously important for entrepreneurs of every size.

What distinguishes modern online loans?

Viewed soberly, an online loan is just an ordinary loan too. Nevertheless it has advantages that anyone can quickly recognise. The biggest distinguishing feature is probably that these loans are to be found on practically every virtual corner. A few examples of the online variants:

• Comparability – in contrast to the products of traditional banks, a person can effortlessly compare the loans of countless providers online. They are not tied to one provider but can pick out the loan that suits them from the crowd. Through comparison, customers quickly recognise which loans are genuinely favourable and which have weak points. Comparison portals help with this decision because they already filter the results on the basis of the customer’s pre-selections.
• Flexible – the online variants usually score highly on flexibility. Customers have the option of determining their term, and thus their instalments, themselves. At the same time they can independently agree additional options such as an instalment holiday. Short-term loans or mini loans are also possible this way. Traditional banks have adapted their loans, but often still require a minimum amount.
• Fast – online loans can be very fast. Digital processing and application procedures cut the processing time to a minimum. How quickly payment is made nevertheless depends on a number of factors.
• Unusual – call-off loans, for example, are almost only to be found online. These loans are effectively an overdraft facility, but one that is held apart from your own account, even though it is linked to it. Customers have to request the money from the call-off loan specifically, so they cannot simply overdraw their account. Many see this option as an additional safeguard.

Ready-made “off-the-peg loans” in particular score online with tremendous speed and ease. More specialised requirements, a second borrower for example, take their time on the internet too.

Figure 2: Traditional banks are offering more and more online services in the lending area. Potential borrowers can look forward to many advantages. Image source: @ Markus Spiske / Unsplash.com

Conclusion – the boundaries are blurring

Pure direct and online banks do without local branches or personal customer contact, but anyone who studies the media more closely knows that this is happening at traditional banks too. More and more branches are closing, and those that remain fall back on offerings that are stationary yet online-based. At the same time online business is being expanded. Even so, at these banks it is still possible to get a personal appointment on the spot and thus to make special arrangements. Quite a few direct banks in the traditional sense made the first move; the others are now following suit.