October 2000   

For customers who are tired of standing in line at bank counters or breathing exhaust fumes at drive-throughs, online banks may have just the solution. Deposits, withdrawals, bill payments, and other transactions can all be handled electronically. While there will still be a teller behind that counter for several years to come, even the old standard "marble and mortar" banks like Citibank, Bank of America, and Wells Fargo are going digital.

What's the Cost?

Consumers can see significant savings immediately, especially with banks that offer refunds on ATM charges and no-fee checking accounts. With online bill payments, the savings in stamps alone can add up to about $100.00 a year.

But the banks themselves often incur a significant initial investment, which explains why local banks and credit unions are just now beginning to test the choppy waters of the online ocean. So far, the most successful ventures, for consumers and the banks alike, originate in the larger traditional or Internet-only banks.

In the long run, though, cyberspace banking can save everyone money. Fewer buildings mean fewer administrative costs for the banks and processing savings can be dramatic. For example, the cost of processing a paper check averages $1.20, and credit card payments range between .40 - .60 apiece. Similar transactions done electronically cost a penny or less.

Who's Doing It?

According to The Tower Group, a market-research company, only about 5 percent of the 24,000 banks that handle retail deposits nationwide were offering online services in April of 2000. But the number is growing.

Smart Money magazine surveyed 18 online banks in the Spring of 2000. Their number one overall winner was Compubank, a Houston based, Internet-only bank. It was the first Internet-only bank to receive a charter from the Office of the Comptroller of the Currency in 1997. This is a real 24/7 bank, offering access online or by phone.

Wingspan, which is considered to be a Internet-only bank even though it is a division of First USA Bank and a subsidiary of Bank One Corp., came in 7th on their list. And of the "marble and mortar" banks, Citibank came in 2nd, Wells Fargo 11th, and Bank of America 12th.

Given a choice, customers with home computers seem to like the option of online banking. International Data Corporation of Framington, Massachusetts, states that there are currently 7.3 million online banking households, and it predicts 32 million by 2003.

What Services are Offered?

The Smart Money survey asked each bank 200 specific questions about their services. They found that customers could find everything online that they can find in their neighborhood bank plus a whole lot more.

Not every bank offers every service but most can be found in the banks mentioned in this article.

• ATM access (Compubank reimburses up to $1.50 per transaction four times a month and Wingspan rebates up to $5.00 a month.)
• CDs and IRAs
• Debit and checking cards
• Download ability into Microsoft Money or Quicken applications
• Electronic payments and fund transfers (Some banks charge a nominal fee or require a minimum balance for electronic bill payments.)
• Instant account updates
• Interest-bearing checking, savings and money-market accounts with 24 hour online access
• Mortgage and home equity loans
• Online check ordering and direct-deposit set-up
• Overdraft protection and line of credit
• Small business services
• Stock quotes and trading

Banks are realizing that they need to do more than just offer traditional services on a flashy web page. Those who are serious about succeeding in cyberspace are broadening services and reducing consumer costs. They are also offering personalized experiences and customized interactions.

Customer Service

The survey found Customer Service to be the one wide variable. It ranked Bank of America, which provides live and automated service 24 hours a day, as the number one winner in this category. But while researching this article, the writer found hold times to be a bit long, four minutes on one call and lots of switching from one department to another to get basic questions answered.

Web Reliability

If customers can't get pages to load up quickly and if they have trouble logging on to a site, they aren't going to be coming back for more. Surprisingly, the Smart Money survey found the Internet-only bank Wingspan to have one of the poorest performing sites. In their defense, they do have a message up on their site that promises a new interface soon. Hopefully, that will be an improvement.

How Secure Is It?

If Internet banks can't guarantee safety we may as well go back to keeping our money in a coffee can buried in the back yard. Fortunately, we won't need to because all the banks surveyed by Smart Money use the essential 128-bit encryption, a code almost impossible to break.

Each bank also has password protection and most support digital certificates as well. Many banks log you off after a certain amount of time if there is no activity, just in case you've walked away from your desk at the office and left your browser pointed to your bank account. All online banks are FDIC insured.

A Couple of Rough Spots...

• Some banks still require mail-in or walk-in for deposits, which means deposits are not credited for two to three days.
• Even though some banks refund ATM fees, others are still charging. Hopefully, they'll get the message soon, but until then, costs can add up for customers who are ATM junkies.

What the Customer Wants...

The author of an April 17, 2000, article in Information Week magazine stated that online services are a must for banks that want to compete in the growing global market. That may be true, but right now, most of the online customers are Internet savvy types who have been surfing and shopping online for a few years. If Internet banks are going to succeed, they need to sell to the millions of personal service seekers who balk at such simple technology as the automated phone system.

A good example of personalized service is a small Northeast Oklahoma credit union with only 31,285 members. Oklahoma Central Credit Union recently gave their members the ability to access accounts online. Other services are currently somewhat limited. But if you call their automated line for assistance, the first message you hear is, "For a customer service representative press 'O' now." This is a welcome change from phone menus that offer a "real person" as a begrudging, final choice.

If Internet banks want to woo the banking public, they still need smiling faces (or the illusion of smiling faces) to back up their services.