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Definition: virtual bank


A financial institution that handles all transactions via the Web, email, mobile check deposit and ATM machines. By not having the overhead of physical branches, people expect a virtual bank to offer higher interest rates on their accounts. Traditional banks may also own a virtual bank subsidiary.

Also called a "direct bank," "neobank," "branchless bank" and "online bank," the first bank without branches debuted in 1989 in the U.K. when First Direct bank offered telephone banking. However, in the mid-2000s, many virtual banks began to emerge due to the ease of access via the Internet and mobile phones.

Virtual Banks vs. Online Banking
All transactions in a virtual bank are handled entirely online, whereas "online banking" is an Internet-based option offered by regular banks. See mobile check deposit and online banking.