What is online banking?

What is online banking?

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 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 tog
• ether 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.