Popularity of online banking continues to grow

Journal Record, The (Oklahoma City), Jun 17, 2002

NEW YORK (NYT) -- 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."

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," 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, 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 1980s and `90s, 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.)