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Walled in by bank fees? Virtual
banks
offer an unconventional alternative
Part of our series: (un)Conventional
wisdom
By Michelle
Samaad • Bankrate.com
 Breaking
the rules at a bank can be costly.
Venture into some branch lobbies
to talk to a teller and you could be charged as much as $3. Call
that customer-service line once too often and the 50-cent charges
start piling up. Don't even think about asking for a blank deposit
slip at some banks.
So, what do we do? We grumble, pay the fees
and keep our accounts at MegaBank U.S.A. Why? Because we're used
to having that brick-and-mortar building down the street from the
grocery store with automated teller machines in every imaginable
nook and cranny.
Enter the virtual bank. These recent additions
to the banking world have no physical branches. Instead, their customers
are served solely via electronic channels, usually through some
combination of telephone, computer and ATM links. Because they have
no physical presence, virtual banks have no defined service boundaries
either, which means they can attract customers from anywhere in
the world.
Though relatively few and tiny, these banks
without walls are becoming a viable and inexpensive alternative
to MegaBank and its peers, especially to savvy Internet users and
people who do most of their banking through ATMs anyway.
So, why bank at a virtual bank -- a nonbank
with faceless tellers? Once that enter key is hit, will online transactions
disappear into cyberspace, never to be seen again?
The No. 1 reason is price.
"The rates for things like checking accounts
and online bill payment service are generally free," says James
J. Deupree, senior vice president of banking and Internet consulting
with Parks & Co., a Charlotte, N.C., consulting firm and author
of the 1999 Guide to Retail Banking on the Internet. "Secondly,
because they don't have the overhead to pay, they typically pass
the savings on to their customers. The security aspect still scares
most skeptics, but those who are veterans to online banking couldn't
fathom being without the convenience."
With that said, we explore the nonconforming
reasons to move your banking onto the Web.
Safety
Conventional wisdom: Money deposited at a brick-and-mortar bank
is safe and insured.
Unconventional wisdom: This probably is the main barrier that prevents
most skeptics from becoming virtual bank customers. But virtual
bank officials say online transactions are much safer than giving
your credit card to a cashier at a restaurant. Deposits can be made
by mail or direct deposit, and they are FDIC insured. Accessing
an account via the Internet is secure, too -- or at least as secure
as the Internet gets. Virtual banks tout their use of the highest
form of secure socket layer encryption, which prevents third parties
from gaining access to accounts.
Personal
service
Conventional wisdom: With brick-and-mortar banks, consumers
always have the option of human interaction, although sometimes
it carries a fee. Virtual banks never let you look anyone in the
eye.
Unconventional wisdom: Virtual banks have customer service around
the clock through e-mail and by phone. e-mail responses generally
are answered the same day an inquiry is sent. "As bank customers,
we're used to seeing the tangible movement of our money," says
Jim Bruene, editor of the Online
Banking Report, an industry newsletter based in Seattle. "Unconventionally
speaking, the physical branches might have a slight edge over virtual
banks in this area, but for those who do 99 percent of their banking
through the ATM, this isn't much of a factor."
One caveat: If you didn't enjoy waiting in line
for a teller, you won't enjoy virtual delays either. But they can
happen. Many virtual banks are growing fast, so their 800 numbers
are often busy or leave you on interminable hold. And as anyone
who uses the Internet knows, the system fails sometimes and you
occasionally can't get through.
ATM
network
Conventional wisdom: Big banks come with a big ATM network
-- and that lets consumers avoid fees.
Unconventional wisdom: While virtual banks usually don't
have their own ATM machines, they do belong to large ATM networks,
some do reimburse customers for surcharge fees and guide customers
toward no-surcharge ATMs. Arlington, Va.-based Telebank and Houston-based
CompuBank, for instance, will reimburse its customers up to $1.50
per transaction for up to four ATM transactions per month. WingspanBank.com,
a subsidiary of Chicago-based Bank One Corp., allows its customers
to use Bank One and First Chicago, NBD ATMs for free.
Checking
accounts
Conventional wisdom: Brick-and-mortar banks offer the most versatile
checking account options.
Unconventional wisdom: Not only do some virtual banks offer versatile
checking account options, rates for interest checking are significantly
higher. Atlanta-based Netb@nk.com's
NetValue checking account has no minimum, no service charge and
offers a 3 percent interest rate on deposits. Atlanta-based Security
First National Bank offers a 5.83 percent rate -- significantly
higher than the Bankrate.com's national average of 1.62 percent.
Basic checking accounts often require little -- if no -- minimum
deposit and provide unlimited check writing. Some will even throw
in free bill payment services and wire transfers.
Credit
cards
Conventional wisdom: If you want a credit card, the banks have
the best deals.
Unconventional wisdom: Virtual banks used to shy away from credit
cards, but they've begun to offer deals -- some with enticing fixed
annual percentage rates. For instance, First Internet
Bank of Indiana offers a low 10 percent rate on its Visa credit
card. The WingspanBank Visa Platinum is just as competitive at 9.99
percent. That's compared to the Bankrate.com's national average
of 13.2 percent. "It's the one area that may catapult online
banks into the mainstream," Bruene says.
The conveniences of virtual banking were enough
to convince Tina Yontes, a self-employed marketing consultant from
Durham, NC
Last year, she closed her local bank account
and opened an interest-checking account, a CD and applied for a
credit card at TeleBank. Her motivation?
"My job keeps my on the phone and on the
Internet most of the working day. Going to the bank became one less
trip to make during rush-hour traffic."
-- Posted: Aug. 3, 1999
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