Online banking beats standing in bank lines - trend to banking via the Internet - Brief Article

Kiplinger's Personal Finance Magazine, June, 1999 by Melynda Dovel Wilcox

Now that banks have shifted from expensive software-based programs to the Internet, it's possible--even preferable, perhaps--to do all your banking without ever setting foot inside a branch office. In addition to the usual online-banking tasks, such as checking your account balance and paying bills, you can order checks, verify a check that's been cashed, apply for a mortgage or other loan--even buy CDs and investment products.

By 2003, 60% of adults in the U.S. are expected to have access to online services. And "the more they shop online, the more they will want to bank online," says Thomas Miller, vice-president of Cyber Dialogue, a research and consulting firm.

Banks will do battle on a whole new playing field. In cyberspace, small banks look just like big ones. In fact, the fourth-ranked banking site in the country (based on 50 criteria, including ease of use, cost, customer confidence and on-site resources) is Salem Five Cents Savings Bank, a small community bank in Massachusetts with $1 billion in assets (www.salemfive.com).

A fierce fight is brewing between "Net only" banks and bricks-and-mortar institutions. With their lower costs, the pure Internet banks can pay better rates on deposits. For example, First Internet Bank (www.firstib.com) pays 5.2% on six-month CDs, compared with the national average of 4.1%. As long as you keep a $5,000 balance, the bank will give you a rebate of $10 worth of ATM surcharges a month.

Traditional banks will counter with their own Net-only accounts. You'll get better rates, but your only access to the bank will be via the Internet, the phone center and ATMs, and you'll be charged for visiting a branch, says Lauri Giesen, editor of Financial Service Online magazine. "Banks recognize that customers who don't use branches don't cost as much." Salem Five Cents already gives Internet customers slightly higher rates on CDs and money-market accounts.

Competition is just starting to heat up. "We'll see new start-up companies that specialize in a single financial product," such as car loans or loans for people with bad credit, predicts Jonathan Whaling of PSI Global, a consumer-research organization for the banking industry. Whaling also expects that rather than trading stocks through an exchange, investors will go to an auction site, similar to those that are so popular for consumer goods, where buyers and sellers can meet directly.

But keep your letter opener handy because online bill delivery is still down the road. True, some merchants already let you bypass paper to receive and pay your bills online. One banking site, First Union, offers so-called bill presentment, in which a number of bills are sent to you electronically instead of by mail. But so far only 20 large companies, mostly utilities, are participating in the program, and there's a $9.95 monthly fee unless you maintain a sizable account balance.

What would make e-billing really attractive is the ability to get all of your bills at one site, and that's still a ways off. Merchants would have to invest in parallel systems to handle both electronic and paper-check payments, and "consumers aren't willing to let go of their love affair with checks," says Whaling.