Banking used to run on business hours, but now it runs on customers expectations,and those don’t stop at 5 PM. Customers want to access their accounts, resolve issues, and make financial decisions at any time, on any channel. If banks, credit unions, and other financial institutions want to stay competitive, they must create and maintain a “digital-first” mindset, and today, a simple mobile banking application is no longer enough.
The shift is already well underway. According to a 2025 survey, 54% of bank customers now use mobile apps as their primary method for managing their accounts. And it's not just younger generations driving this: for the first time, Baby Boomers reported using mobile banking apps more than any other channel.
And as digital-only challengers, fintechs, and neobanks raise the bar on experience, banks face a clear choice: modernize or lose ground. In 2026, neobanks are expected to surpass $4 trillion in market value, while fintechs are expected to double their market share by 2028, so the challenge is real.
This article breaks down what defines a digital financial institution, how it differs from traditional banks and fintech players, and what the shift means operationally for institutions managing high servicing volumes across multiple product lines.
Going digital-first is a strategic commitment. In a digital-first model, a physical branch doesn’t disappear, it simply evolves. Customers who are visiting expect digital tools to be part of that experience too, from self-service kiosks to digital assistants that can answer questions on the spot.
The goal across all touchpoints is the same: reduce friction, increase accessibility, and give customers control over how and when they engage.
Without the overhead of maintaining a branch network, financial institutions operate at lower costs and reinvest in improved products, lower fees, and more competitive rates. They can also scale capacity and serve customers across geographies and time zones without extra headcount.
Not all digital banking is the same, and the distinction is important to understand, especially for those trying to benchmark where they stand.
|
Traditional Banks |
Fintechs |
Neobanks |
Digital Financial Institutions |
|
|
Service model |
Branch-based, face-to-face |
Specialized, niche-focused |
Digital-only |
Digital-first, omnichannel |
|
Physical presence |
Yes |
Rarely |
No |
Optional |
|
Service scope |
Full-service |
Narrow |
Full-service |
Full-service |
|
Regulatory standing |
Fully chartered |
Varies |
Partners with chartered banks |
Fully chartered |
Each model has its strengths and weaknesses. Traditional banks have deep customer trust but are slowed down by legacy infrastructure. Fintechs move fast but lack the regulatory standing and full-service scope of a chartered institution. Neobanks have raised the bar on experience and speed without the branch overhead. The downside is that they rely on partner banks for regulatory coverage.
For mid-to-large retail banks and credit unions, the competitive threat comes from all three simultaneously.
What separates a truly digital financial institution from one that simply developed a mobile app? Here are a few traits that consistently show up across institutions that successfully made the shift.
Digital-first institutions offer consistent experiences across all access points: web, mobile, in-branch, and self-service. Customers can start a process on one channel and complete it on another without having to repeat themselves or feeling any friction. Digital tools need to be present in physical branches too, since customers are now used to self-service alongside human assistance.
Digital institutions must replace their legacy systems with cloud-based, modular systems that can be updated, extended, and scaled without overhauling the entire stack. This way, product launches are faster, integrations are easier, and maintenance costs drop in the long term.
Customers have access to much more financial products without switching providers if financial institutions adopt open banking standards and connect with third-party services and even fintech partners.
Digital institutions use data analytics to understand customer behavior, anticipate needs, and deliver personalized products and offers at scale. This way, every interaction becomes an opportunity to serve customers with offers that are more relevant and don’t feel intrusive.
Digital-first doesn’t have to mean less secure, but the opposite. Modern financial institutions embed security directly into the customer experience: biometric authentication, real-time fraud alerts, digital signatures, and online notarization are all part of the model.
After making the case for the benefits that financial institutions see after going digital-first, you need to be aware of the obstacles. For most banks and credit unions, this path looks more like a transformation layered on top of decades of existing infrastructure, processes, and customer expectations.
One of the practical entry points for digital transformation is deploying banking AI agents that work on top of existing systems, without requiring you to rip and replace everything.
Instead of replacing core infrastructure, banking AI agents integrate with your stack through prebuilt connectors, adding a conversational layer that lets you access your legacy systems through digital channels. They are always-on and handle high-volume routine interactions so your human agents can focus on more complex conversations that build trust.
Druid’s banking AI agents are already in production at mid-to-large retail banks and credit unions and provide reusable workflow templates, predictable pricing, and plug-in integration to core banking stacks. For institutions managing high servicing volumes, it's one of the fastest ways to start showing measurable results without disrupting what's already working.
How can financial institutions integrate digital banking with core systems?
The most practical approach is layering integration tools on top of existing core infrastructure, rather than replacing it. This allows institutions to connect digital channels to core banking systems, CRMs, and third-party services without the cost and risk of a full migration.
How can financial institutions accelerate digital transformation?
Start with high-volume, high-friction processes and automate those first. Quick wins build internal confidence and demonstrate ROI without requiring a full organizational overhaul. Banking AI agents are one of the fastest ways to show measurable results while keeping existing systems intact.
What are the drawbacks of digital banks?
Digital banks can struggle to build the same depth of trust as traditional institutions, particularly for complex financial decisions where customers prefer face-to-face interaction. They're also heavily dependent on system uptime. Without physical presence, reaching less digitally confident customer segments remains a challenge.
How is a digital financial institution different from a digital bank?
A digital bank is typically a fully licensed institution that operates exclusively online. A digital financial institution is a broader term. It includes any bank, credit union, or financial services provider that has adopted a digital-first model, whether or not it maintains physical branches.