Banks courting online customer

Think of it. No more standing in line just to ask a simple question. No more surprises when the monthly statement comes because someone forgot to tell you that they wrote a check or made a withdrawal. Less time spent wading through receipts and duplicate checks when it’s time to balance the checkbook.

With Internet banking, account holders can do everything — from checking balances and transferring funds to paying bills and ordering checks — all from their computers.

Most of Boulder County’s banks offer some form of Internet banking for the consumer or the commercial market with the exception of Vectra Bank Colorado, Pueblo Bank & Trust, First Community Industrial Bank, Valley Bank & Trust and Peak National Bank. They serve their account holders through the traditional “brick-and-mortar” branch and automated telephone systems, but most of them now are researching Internet banking systems.

Over the last three years, the number of people signing online for banking business jumped 3,100 percent from about 250,000 at the end of 1994 to 8 million at the end of 1998, says Jim Bruene, editor of the Seattle-based Online Banking Report and a former banker for U.S. Bancorp. Projections are that 25 million people will be using the Internet, online or PC banking services in 2001.

Online banking, which is relatively new, is an outgrowth from e-commerce. More people than ever are shopping and trading online, and banks are now providing what people evidently want.

They have to.

Banks no longer can depend on customer loyalty with the wealth of Internet banking programs offered by competing branches. Customers want more for their bucks. Because Internet-only banks and online mortgage brokerages have low overhead costs associated with maintaining buildings and paying lots of employees, they can offer higher interest rates, which essentially has forced traditional banks online to compete.

The terms Internet, PC banking and online banking often are used interchangeably but mean different things. Online banking refers to transactions that are downloaded into money management software such as Quicken or Microsoft Money. Internet or PC banking allows account holders to view their transactions and conduct other business from a bank’s Web site and can be accessed from any computer with an Internet connection. From the Web sites, people can download transactions onto spreadsheets or wherever they choose. Internet banking is generally free, but online banking usually comes at a small cost.

Account holders can link up to larger banks such as Wells Fargo, Keybank and U.S. Bank through money-management software with a few clicks of the mouse. Once identification and account information is entered, the banks typically mail out further instructions and passwords.

If people so choose, they could check balances daily and download transactions straight into the software, which allows people to categorize their purchases and deposits. That way, they could find out just how much they are spending on gas, ATM fees or anything else. The beauty of online banking is that if you forgot to enter anything into your register, you will be reminded as soon as you get online.

Increased security

Wells Fargo/Norwest Bank is the largest Internet banking institution with 1 million users nationwide, industry analysts say. Wendy Grover, a spokeswoman for Norwest Bank and Wells Fargo, says the banks have 30,000 people using Internet banking in Colorado, 11,000 of which signed on in July when Wells Fargo extended offerings to their Norwest Bank customers. The two banks completed a merger in November 1998 and a name change is anticipated by June 2000.

Bankers, in general, view their Internet and online offerings as an enhancement of their services. Banking by computer is efficient for the banker and convenient for the consumer, and several Web security standards, such as improved encryption and fire walls, are now in place to ease people’s fears about computer hackers being able to steal their financial information.

Wells Fargo/Norwest Bank this year implemented a 100 percent guarantee to protect its customers from theft online.

“If there were any problems to a customer’s account as a result of a breach in security that was not their fault – like they didn’t give someone their password or something – we would cover them,” Grover says.

One of the more popular features of Internet banking is bill paying. After account holders enter information about their bills, the bank will electronically send out a check on the date in the amount specified. For businesses that aren’t set up to receive electronic payments, Wells Fargo/Norwest provides a service called “Pay Anyone Bill Pay,” through which the bank will issue and mail out paper checks. The fee for this service at Wells/Norwest is $5 per month.

“It’s definitely a time saver and a money saver,” says Jeff Runnfeldt, an e-finance industry analyst with the San Francisco-based Dain Rauscher Wessels. “I think the estimates you see out there is that the average household pays roughly 200 bills per year and spends close to $200 per year in postage and check or credit fees. A lot of estimates also will talk about a 60 percent reduction in the cost and time.”

Internet only?

Internet-only banks market themselves on that very basis. You don’t have time to mess around with paper, they say. But people should beware. The Federal Deposit Insurance Corp. (FDIC) has a list of about 20 Internet-only banks that proved to be fakes. People can check the validity of online banks on the FDIC Web site (www.fdic.gov).

Laura Starita, an Internet banking industry analyst with the GartnerGroup, based in Stanford, Conn., estimates there are about 10 Internet-only banks nationwide. Telebank, which is presumed to be one of the largest with $1 billion in deposits, Netb@nk and Wingspan are examples. People might choose such options, Starita says, because Internet-only banks offer higher interest rates for personal checking and savings accounts.

“Some offer a 6 percent interest rate compared to 21/2, which is the industry average,” she says.

Offering such Internet banking services is not only a benefit for the consumer — banks also gain.

“What the Internet has really proven to be so far is a tremendous retention tool and a good cross-selling tool,” Runnfeldt says. “What Wells (Fargo) will tell you is that their average Internet customer is 30 percent less likely to leave the bank than their offline customers. And if that same customer uses electronic bill pay, they’re 50 percent less likely to leave the bank.

“With bill pay there’s this big front-end investment in that you have to enter all this data about your bills, and you don’t want to redo that.”

A drawback with using Internet-only banks for account holders might be the method in which deposits are made. It could be difficult to find an appropriate ATM that accepts deposits, leaving account holders to send checks through the mail so they can be credited to the account. That could be a scary proposition for some.

Runnfeldt did a study in which he found whatever account holders could earn in interest by using Internet-only banks they might lose in ATM fees when they wanted to withdraw funds.

“I would weigh how important regular access to the institution is,” Runnfeldt says. “People appreciate the ability to go in and make a $10,000 deposit rather than mailing it to a bank. I myself wouldn’t be comfortable sending a large check through the mail. I really like to hand it to somebody and make sure it gets deposited into my account and get a receipt.”

So bankers aren’t ready to close their branches.

Benna Leinwand, a spokeswoman for Valley Bank & Trust, which is researching online banking options and could implement a system in the future, says the lack of person-to-person interaction that comes with Internet-only banks concerns her.

“From a security point of view, I want to know that the signature in front of me is the person who signed it,” she says. “I was a new account rep when I started in banking, and if you don’t have the person in front of you sign the card, how do you really know that that’s their signature?”

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