Online Banking: Advantages and Disadvantages
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If 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 and efficiently.
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.
Brick-to-click banks
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.
Virtual banks
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
Convenience: 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.
Ubiquity: 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.
Effectiveness: 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.
