What is online banking?
you're like most people, you've heard a lot about online banking
but probably haven't tried it yourself. You still pay your bills
by mail and deposit checks at your bank branch, much the way your
parents did. You might shop online for a loan, life insurance or
a home mortgage, but when it comes time to commit, you feel more
comfortable working with your banker or an agent you know and trust.
Online banking isn't out to change your money
habits. Instead, it uses today's computer technology to give you
the option of bypassing the time-consuming, paper-based aspects
of traditional banking in order to manage your finances more quickly
Origin of online banking
The advent of the Internet and the popularity
of personal computers presented both an opportunity and a challenge
for the banking industry.
For years, financial institutions have used powerful
computer networks to automate millions of daily transactions; today,
often the only paper record is the customer's receipt at the point
of sale. Now that its customers are connected to the Internet via
personal computers, banks envision similar economic advantages by
adapting those same internal electronic processes to home use.
Banks view online banking as a powerful "value
added" tool to attract and retain new customers while helping
to eliminate costly paper handling and teller interactions in an
increasingly competitive banking environment.
Today, most large national banks, many regional banks and even smaller
banks and credit unions offer some form of online banking, variously
known as PC banking, home banking, electronic banking or Internet
banking. Those that do are sometimes referred to as "brick-to-click"
banks, both to distinguish them from brick-and-mortar banks that
have yet to offer online banking, as well as from online or "virtual"
banks that have no physical branches or tellers whatsoever.
The challenge for the banking industry has been to
design this new service channel in such a way that its customers
will readily learn to use and trust it. After all, banks have spent
generations earning our trust; they aren't about to risk that on
a Web site that is frustrating, confusing or less than secure.
Most of the large banks now offer fully secure, fully
functional online banking for free or for a small fee. Some smaller
banks offer limited access or functionality; for instance, you may
be able to view your account balance and history but not initiate
transactions online. As more banks succeed online and more customers
use their sites, fully functional online banking likely will become
as commonplace as automated teller machines.
If you don't mind foregoing the teller window,
lobby cookie and kindly bank president, a "virtual" or
e-bank, such as Virtual
Bank or Giant Bank, may
save you very real money. Virtual banks are banks without bricks;
from the customer's perspective, they exist entirely on the Internet,
where they offer pretty much the same range of services and adhere
to the same federal regulations as your corner bank.
Virtual banks pass the money they save on overhead
like buildings and tellers along to you in the form of higher yields,
lower fees and more generous account thresholds.
The major disadvantage of virtual banks revolves around
ATMs. Because they have no ATM machines, virtual banks typically
charge the same surcharge that your brick-and-mortar bank would
if you used another bank's automated teller. Likewise, many virtual
banks won't accept deposits via ATM; you'll have to either deposit
the check by mail or transfer money from another account.
Advantages of online banking
Unlike your corner bank, online banking sites never close; they're
available 24 hours a day, seven days a week, and they're only
a mouse click away.
If you're out of state or even out of the country when a money
problem arises, you can log on instantly to your online bank and
take care of business, 24/7.
- Transaction speed:
Online bank sites generally execute and confirm transactions at
or quicker than ATM processing speeds.
- Efficiency: You
can access and manage all of your bank accounts, including IRAs,
CDs, even securities, from one secure site.
Many online banking sites now offer sophisticated tools, including
account aggregation, stock quotes, rate alerts and portfolio managing
programs to help you manage all of your assets more effectively.
Most are also compatible with money managing programs such as
Quicken and Microsoft Money.
Disadvantages of online banking
- Start-up may take time:
In order to register for your bank's online program, you will
probably have to provide ID and sign a form at a bank branch.
If you and your spouse wish to view and manage your assets together
online, one of you may have to sign a durable power of attorney
before the bank will display all of your holdings together.
- Learning curve:
Banking sites can be difficult to navigate at first. Plan to invest
some time and/or read the tutorials in order to become comfortable
in your virtual lobby.
- Bank site changes:
Even the largest banks periodically upgrade their online programs,
adding new features in unfamiliar places. In some cases, you may
have to re-enter account information.
- The trust thing: For
many people, the biggest hurdle to online banking is learning
to trust it. Did my transaction go through? Did I push the transfer
button once or twice? Best bet: always print the transaction receipt
and keep it with your bank records until it shows up on your personal
site and/or your bank statement.
-- Updated: March 28, 2003