Online vs. Traditional Banking: Which One Is Better For Small Business Owners?

December 21, 2020

Nowadays, there are a multitude of options when it comes to choosing your business’ bank. Maybe too many. There’s a different brick and mortar branch on every block where you can deposit or withdraw cash, plus countless online banks for wire transfers and ACH payments.

When determining which one is better for your small business, the question of value arises. 

Do you value the convenience of online banking, or the personal connection at a local, traditional branch? Of course, there’s more to it than just convenience and personal connection when it comes to choosing your traditional bank or credit union.

This guide will walk through everything you need to make your decision, including:

  • An explanation of traditional banking
  • A primer on online banking
  • A comparison of the two

Traditional Business Banking 101

When people picture a bank, the first kind that comes to mind is a traditional brick and mortar branch, also known as a “financial center.” Both personal and business banking happen under one roof. Meaning, as a small business, you’ll have access to similar features you would with a personal account.

Picture the classic financial institution layout. Its features account for the various functions it provides:

  • ATMs – Located up front, or outside, for quick and easy access to basic account features like checking your balance or depositing cash or checks.

  • Teller windows – For assistance with account functions from a bank employee. Tellers can help you with more complicated or robust transactions, such as large transfers.

  • Private offices or cubicles – For longer, more intimate meetings with bankers or specialists, covering functions like account management, loans, and investments.

Personal and business clients alike use brick and mortar branches as a hub for these services, and more. If you prefer to talk with a banker personally, a traditional financial institution is a great option.

Pros and Cons of Traditional Banks

Traditional brick and mortar banks are a staple of most cities and towns across the country, and that’s one of their biggest benefits. There’s likely a bank branch (or a few) just a short drive or walk away from your home, workplace, or business headquarters. Handling bank transactions in person with staff you’re familiar with can be more convenient and comfortable than lengthy phone calls.

Having a one-stop shop for your banking needs, especially nearby, is an undeniable benefit.

Unfortunately, not everyone can rely on proximity as a pro, as branches have been steadily disappearing from smaller, remote towns over the course of the past decade because of the rise of virtual bank options. Another con comes from banks needing to rent or own the property of a branch and populate it with experienced staff. Those costs can translate into higher interest rates and account fees. Traditional banks also tend to have additional fees, for activities such as out of network withdrawals. 

Online Business Banking 101

Not all banks have physical branches; not all clients need them. Many personal and business clients opt for bank accounts they can access, monitor, and manage remotely. “Online banking” here refers to banks that operate 100% through phone, web, and app-based communications.

Clients who choose these banks expect nearly all the same banking functionality available in brick-and-mortar branches, just without having to travel to one. These features include:

  • Security, availability, and visibility of funds
  • Checking features (deposits and withdrawals)
  • Savings features (interest and linkage to checking) 
  • Quick and easy transfers and payments 

For business owners without an ideal branch nearby, or those who value streamlined technological solutions, online banking may provide value over its traditional counterpart.

Pros and Cons of Online Banking

The most obvious and immediate advantage of online banking is convenience and flexibility to bank from the comfort of your home, workplace, or anywhere. Because a virtual bank does not have to have a physical location for client visits, they operate with fewer costs, which enables them to offer account services at lower (or no) fees to clients.

Another related pro of online banking is that businesses and personal clients can expect significantly higher (as much as 12x) interest rates on savings accounts:

  • Brick and mortar savings account often offer rates below 0.05% APY
  • Online savings accounts are much higher, often .6% APY or more

However, digital banking does come with its downsides. While most online banks offer clients the ability to withdraw and deposit money from select ATMs, free of charge, not all of their ATMs offer deposit functionality. Furthermore, both withdrawing and depositing large sums of cash can be challenging, as ATMs impose stricter limits on transactions than what a branch allows. Cashier checks are also tougher to get through online banks.

Deciding Between Online Banking vs Traditional Banking

When choosing between traditional or online banking for your business, it’s important to keep the various features and pros and cons from above in mind. But ultimately, the criteria that matter most will depend on the specific needs and means of your business.

Three categories of criteria to narrow down your decision include:

  • Customer service – The service offerings are different. Online banks tend to have better online chat support, which offers the immediacy some customers prefer. However, traditional banks allow you to build strong relationships with staff, and they provide account managers who will look over your accounts with you to resolve issues.

  • Web and app platforms – While traditional banks, or brick-and-mortar banks, often include online services, their functionality can pale in comparison to online-only banks. And even if you don’t bank exclusively online, you’ll likely use online features often. Since online banks rely on their online services, they pour more resources into optimizing user experience.

  • Specialties and niches – This category is a toss-up and relies heavily on the specific features your business needs most. To offset relative disadvantages in terms of cost and convenience, brick and mortar banks offer tangible benefits like notary services, safe deposit boxes, cashier’s checks, large cash transactions, and currency exchanges.

Another area to consider when comparing online and traditional banks has less to do with checking and savings, more to do with lines of credit available via loans or credit cards.

Online vs Traditional Business Credit

It often makes sense to pair a line of credit with the traditional or online bank(s) in which you carry checking and savings accounts. However, there’s also value to be found from online-only, credit-only institutions that specialize in credit without offering other banking products.

The best corporate cards, whether online or physical, offer premium features like:

  • Cash back and rewards – Ideally, your line of credit should also empower you to save money. Many business credit cards offer rewards programs, incentivizing spending for marginal savings. The best ones offer unlimited, flat cash back on all purchases.

  • Flexibility and mobility – A useful feature more common for virtual cards is the ability to make as many cards as you need in order to more effectively monitor and control employee expenses. This pairs especially well with a dedicated spend management platform.

  • Spend management platform – The best cards include robust software capabilities, like expense management, real-time visibility, automation, and integration into existing accounting and messaging systems for optimal efficiency.

There’s no real difference between a virtual and physical card. But the creditor you choose, online or traditional, can make a difference in the value your line of credit can provide.

Power Your Business With Ramp

When it comes to business banking, there are various reasons your company might prefer a traditional or online-only solution; each has its own advantages and disadvantages.

Whatever banking solution you choose, Ramp’s smart charge card is the ideal line of credit for your business. With robust spend management and an unlimited 1.5% cash back on all purchases, all at no cost to you, our virtual (and physical) cards can power your business.

See how Ramp’s capabilities can empower your business.


HTG Architects. Looks Awesome Vs. Works Awesome – A Look at Bank Floor Plans.

Motley Fool. 7 Reasons to use a Brick and Mortar Bank. 

Nerdwallet. What Are Online Banks? Learn the Pros and Cons
USA Today. Bank Branches Vanishing in Small Towns.

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