NEW YORK (TheStreet) -- While many traditional banks like Citigroup (C - Get Report) are cutting physical branches and focusing more on their mobile platforms, a new wave of businesses is taking the trend one step further: They're doing away with brick-and-mortar locations altogether.
Companies like Simple and BankMobile in the U.S. and Atom in the U.K. have launched as app-only banks, dealing with customers via mobile messaging, taking deposits with photographed checks and providing withdrawals through a network of partner ATMs. Their emergence coincides with technological advances that are reshaping the finance industry, with the four largest U.S. banks reducing the number of branches almost 4% in the past two years and expanding their mobile businesses 32%.
While the digital banks are banking on tech-savvy millennials to spur early growth, they still have to convince prospective customers that their money is just as safe -- and just as real -- as it would be in a vault.
"We're focusing on the millennially-minded," Krista Berlincourt, communications representative at Portland, Oregon-based Simple, said in an interview. "They're comfortable with these kinds of interactions, and they care about immediacy and efficiency."
While millennials, the generation born from 1980 to 2000, already use their phones and laptops for all sorts of commercial activities, convincing them to use an app-only bank isn't as easy it sounds. Many of them came of age during the financial crisis, and find security in having a physical branch near their homes, according to a survey by New York-based Goldman Sachs. To compensate, the new businesses are offering a variety of online functions to pull customers into cyberspace.
Simple, which was acquired in 2014 by Spanish bank BBVA, has continuously updated status pages for users to get a live feed of their financial transactions. That's made possible by a cloud-based network of servers as opposed to the more traditional mainframe servers used by larger financial institutions.
BankMobile allows customers to sign up for an account by uploading a picture of a driver's license. The company also offers a person-to-person money-transfer service akin to Venmo or Paypal.
"We are educating our customers," Warren Taylor, president of New York-based BankMobile, said in an e-mailed response to a question about how to reassure customers who might prefer the option of going to a physical branch. "This makes a difference."
For all the ways that app-only banks are trying to differentiate themselves, their fundamentals are nothing new. Simple and BankMobile are both regulated by the Federal Reserve and insured by the Federal Deposit Insurance Corp. If they were to dematerialize in the manner of many young Silicon Valley companies, the government would step in and reimburse account-holders.
"We're not an early stage company," said Simple's Berlincourt, noting that the business has 260 employees and placing its number of customers in the hundreds of thousands. "We've proven ourselves."