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Take your banking online
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May 21, 1999: 6:43 a.m. ET
Banks working hard to get you handling your bank duties on the Web
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NEW YORK (CNNfn) - Consumers are taking to the Web in increasing numbers -- and banks are hoping to sign more and more of them up for online banking services.
Many in the banking community believe computers will be the next step - after the introduction and acceptance of ATMs -- in making brick-and-mortar banks a smaller part of their overall plans.
During 1998, the number of PC banking households nearly doubled, rising to 7 million from 3.8 million during the same period one year earlier, according to a survey by Internet research firm INTECO.
The sharp increase was due to a number of factors, the survey concluded. One was a 68 percent jump in the number of households accessing the Internet, totaling 37 million by the end of last year.
Additionally, banks have also ramped up their commitment to online banking by trying to make it easier for customers to take care of more things online.
The market for these services is particularly attractive to banks. The INTECO survey showed two out of three households banking online were comprised of couples earning more than $50,000.
Banks will hungrily pursue this market and consumers could be the winners, according to James Shelton, executive director of the Online Banking Association.
"The more you take manually performed bank tasks and automate them, the more efficient it's going to be and the costs are going to go down," said Shelton.
Chasing the killer app
Despite their advances in luring more and more people to online banking, financial institutions still face difficult tasks in making computer banking as ubiquitous as ATM banking.
"The killer application has always been cash," said John Hall, spokesman for the American Bankers Association in Washington.
"The day you can get cash from your computer is the day everyone will switch to online banking."
"Smart cards" could allow you to load electronic money onto a card as needed, letting you put additional funds on as you run out.
With the addition of necessary software and attachments, this could let your computer act somewhat like an ATM. But getting this type of network in place has faced resistance.
Hall said banks face a "chicken and egg" problem.
Banks and other businesses don't want pay for the start up costs of a smart card system unless they're sure consumers will use them. Consumers won't use the cards unless the cards are widely accepted.
Experiments with this have met with mixed results. Chase Manhattan recently ended a smart card testing period in a New York City neighborhood with no immediate plans for any permanent programs.
Choosing your needs
Online banking offers consumers the capability to do most of their other banking chores. But since people have different reasons for banking online, it's important to narrow down banks based on your needs.
"It all depends on what you want to do," said Shelton. "Some people want to pay their bills online. Others feel they lose control when that happens."
Arranging to set up an online account with your bank is usually pretty easy, and there often will be no charge for it since you're usually saving them some money.
There are two main types of online banking. The first is known as client-based. Customers are sent software by the bank and connect with the bank's computers using a modem.
The other is Internet-based banking. Rather than using the bank's software application, the consumer accesses the bank using the Web and their normal browser.
The latter is becoming more common, according to the ABA's Hall. "You're not tied to a modem and you can do it from any computer, whether you're at home, work or traveling."
At this point, each still has its drawbacks, however. Client-based systems often need a lot of your financial data installed before you can begin banking.
On the other hand, Web-based banking is often more limited. Checking your balances and transferring funds is available, but paying your bills online often is not.
Also, Web banking doesn't often offer you the money management and charting options that software systems do.
Once you get started you'll need to keep an eye on fees. While banks may not charge you for getting set up, they may charge you to handle certain transactions.
Some banks charge between $4 and $8 for various services. Often, this charge is for paying your bills online.
Before you sign up for online banking with any firm, make sure that you know what they will charge you for the transactions you are most likely to make. Also, look for any extra charges or minimum balance requirements.
One area of financial services that looks poised for growth is online credit. Banks are hoping that one day applying for a mortgage or auto loan online will be as simple and quick as surfing the Web today.
As with other online financial transactions, bankers estimate savings in personnel and time will be immense.
For now, online loan applications are still in their nascency. According to a study by Forrester Research, less than 1 percent of total mortgage lending is originated online, although it is expected to climb to 10 percent, or $91 billion, by 2003.
Before that can happen, though, the banking industry says some things will need to change. It says current banking regulations are restrictive or unclear about such online-based transactions.
In addition, the customer side of the equation also presents problems. Many customers still fear the privacy of their finances can be invaded or, even worse, their money can be stolen online.
Banks face difficult problems with identity verification, especially with Web-based systems. The usual username/password verification process seems hopelessly lacking in security when a person's finances are at stake.
Still, most in the industry are optimistic that these problems will be ironed out. Net users are becoming more sophisticated and encryption technology may allay some of their fears about having their accounts vulnerable.
"These things are not going to evolve overnight but ultimately, we could be reaching the point where most people do their banking online," said Shelton.
-- by staff writer Randall J. Schultz
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