combine your online bank account with an online brokerage account and you
are all set. some of the services for which banks charge, such as bill
pay, the online brokers provide for free. of course, the ATM's and web
sites need to be accessible.
Kelly
The New York Times
May 30, 2002
Online Banking Finally Takes Off
By ANDREW ROSS SORKIN
J. ALEX SLOAN could not care less whether his bank has an office nearby.
It does - a Wells Fargo branch within blocks of his San Francisco
apartment - but the only reason he has his account there is that he likes
the way the bank's online system works with his Quicken software.
"I don't know the last time I was in a branch," he said. "I have no need
to go there."
Mr. Sloan, a 33-year-old venture-capital investor, represents one of some
17.8 million American households that do at least some of their banking
online, according to IDC, a market research company. Put another way,
one-third of homes with Internet access are using that access to bank.
"I don't want to overstate the case, but it's changed my life," Mr. Sloan
said. "I have so much more control over my finances. I can see what's
going on with my account almost in real time. My dad has to wait until
the end of the month to figure it out."
To judge from the numbers, Mr. Sloan's father may soon be coming around.
More than half of all banks offer online banking today, up from 12
percent only two years ago, according to IDC. J. P. Morgan Chase said
that the number of customers using its online banking system had doubled
since last year, though it would not provide specific figures.
"This growth is not simply due to an increase in online households, but
is truly an increase in the popularity of online banking among Internet
users," said Aaron McPherson, research manager at IDC.
The striking increase has come as traditional banks and a new crop of
Internet-based banks - along with credit unions, brokerage firms and
other institutions - have finally created reliable, easy-to-use online
systems. For most of the 1980's and 90's, online banking was limited to
early technology adopters willing to put up with arcane software,
proprietary networks, system glitches and security concerns.
Now traditional banks, big and small, are devoting the kind of attention
to building and maintaining sophisticated online banking systems that
they previously lavished on branch services.
"Customers are finding online banking one of the top picks for why they
choose banks," said Yawar Shah, an executive vice president of J. P.
Morgan Chase.
But for consumers, there may be as many caveats as there are advantages
to digital banking.
For the banks, getting customers online is important to the bottom line.
It has diminished the importance of proximity: local banks can be
national banks, too, drawing from an exponentially larger pool of
potential customers. And as with automated teller machines, the cost of
serving a customer is significantly lower than with human tellers - at
least in the long run.
But along with reducing their expenses, such institutions have turned
online banking into a way extra money can be made. Depending on the
customer's minimum balance, some banks charge additional monthly fees for
their online services, including the ability to pay bills online or to
use software like Quicken from Intuit or Microsoft Money with the bank's
accounts.
For customers, the benefits of online banking are fairly clear. With
automatic bill paying, there is no need to remember to pay the monthly
utility bill and no stamps to lick; the system will ensure that the bill
is paid on the appointed date. Users can get an instant look at a balance
and a detailed summary of all recent transactions.
Of course, banking hours no longer apply online: moving money from a
savings account to a checking account or even into the stock market can
be accomplished from your living room at 3 a.m. Depending on the
software, users can also often get detailed spending reports, down to how
much money they spent at the dry cleaner every month.
The pitfalls tend to be less obvious but easily become noticeable if the
user fails to keep as careful an eye on the accounts as the computer
does. For one, electronic checks are typically treated as paid the moment
the user sends them, regardless of whether they are cashed or deposited
by the intended recipient days or months later. The float - the amount of
money the customer could be collecting in interest while the traditional
check remains uncashed - vanishes online.
More important, if regular monthly bills are set to be paid
automatically, the customer has to maintain a balance big enough to avoid
bouncing a digital check. Some banks will send out a payment whether the
account holder has the money to cover it or not, forcing the use of
overdraft protection - at a cost. (And online banking is not altogether
high-tech: banks often make bill payments for the customer by putting an
old-fashioned check in the mail because the recipient cannot accept an
electronic transfer.)
In addition, some banking experts express concern that people who use
online banking services rarely balance or reconcile their accounts and
therefore pay less attention to the details of their finances and could
possibly miss errors posted to their account.
Still, many of those who bank online say they are more conscious of their
finances than if they had simply received a monthly statement by mail.
(And yes, most online banking customers still receive a printed
statement.)
"If there is an error, I know it immediately," Mr. Sloan said. "That's
the benefit."
Mr. Sloan is a genuine power user of online banking. "I try to use very
little cash and just use my debit card," so that every transaction can be
reflected immediately in the online statement, he said. "When I download
my transactions, I can see exactly what I bought. I like to be able to
look at my spending and run reports."
Some banks have also begun offering online services that display all the
user's accounts in one place, allowing a customer to see balances for
multiple services, to make payments and to chart spending - even for
telephone bills and credit card accounts not provided by the bank. Such
Internet-based tools do what software packages like Quicken and Microsoft
Money have been doing for years, but remain more limited in their
functions.
Customers particularly concerned with security issues may want to avoid
using these so-called aggregation tools, experts warn, because they
depend on stored passwords to gain access to multiple accounts from
multiple sources. Security issues, or at least perceptions of security
issues, are still a stumbling block for banks seeking to get users
online.
"You hear all these stories about hackers breaking into accounts," said
Shana McCormack, a Harvard medical student who banks at Fleet. "I now do
some of my banking online - like looking at my balance and occasionally
paying bills - but I do worry about it."
Some online-only banks have also sprung up - for example, E*Trade, which
began as an online brokerage firm but recently expanded its offerings to
function more as a traditional bank. For people with little interest in
ever talking face to face with a teller, these online-only banks tend to
be cheaper - monthly fees are lower and minimum required balances tend to
be lower - but in some cases prove to be quite expensive. Without a
branch network to use, customers of such banks often have to pay hefty
A.T.M. fees and are typically obliged to deposit money into their
accounts by sending it through the mail.
These Internet-based banks sometimes offer a certain number of free
A.T.M. transactions each month to take away some of the sting, and some
have even begun setting up their own A.T.M. networks to accept cash
deposits. (Many accept only checks or money orders, deposited by mail.)
But most analysts contend that the customers suited to online-only
banking are those who receive money by direct deposit and rarely write
checks. And now that traditional banks are offering online banking,
online-only banks are being squeezed, with some going out of business or
being absorbed by rivals.
For those who have gotten out of the habit of using a checkbook and
balancing it with pen and pocket calculator, banking may be more
carefree, but it is not without its rude awakenings.
"I should probably know better, but every time I go to the A.T.M. machine
at the beginning of the month and read my balance on the slip, it
surprises me," said Josh Wolfe, a nanotechnology expert and co-founder of
Lux Capital, a New York venture capital firm, who does most of his
banking online with Citibank. "If I don't write the check myself, I don't
always remember it's gone out anyway."
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