THE NE WAY OF BANKING: ONLINE by Nick Harper What Is Online Banking Banks use a variety of names for online banking services, such as PC banking, home banking, electronic banking or Internet banking. Regardless of the name, these systems offer certain advantages over traditional banking methods. -Consumers can use their computers and a telephone modem to dial in from home or any site where they have access to a computer. -The services are available seven days a week, 24 hours a day. -Transactions are executed and confirmed quickly, although not instantaneously. Processing time is comparable to that of an ATM transaction. -And the range of transactions available is fairly broad. Customers can do everything from simply checking on an account balance to applying for a mortgage. Services vary from bank to bank What services are available varies from bank to bank. Virtually all of the banks that offer electronic services allow consumers to check the balances in their accounts, transfer funds among accounts, and order electronic bill payments. More sophisticated systems allow customers to apply for loans, download information about accounts into their own computers, trade stocks or mutual funds, and look at images of their checks and deposit slips. Online Banking: The Basics The following services are applicable to on-line banking. Most banks offer: Check account balances Transfer funds among accounts Pay bills electronically Some banks offer: Apply for loans Download information about accounts Trade stocks or mutual funds View images of checks and deposit Client-based on-line banking uses personal finance software The “client-based” systems, in which customers use their own software, generally use personal financial managers specialized computer programs that help customers carry out a variety of personal finance activities. The most popular programs are: Intuit’s Quicken, MECA’s Managing Your Money, and Microsoft’s Money. These programs typically allow consumers to do much of their work off-line, and then dial in to complete their bank transactions. These client-based systems have the advantage of allowing consumers to integrate all their banking information with other personal finance data using a single program. Although these software products can be purchased at computer stores, the versions offered by the institutions are enhanced to adapt to their systems. Some banks will allow customers to download the program for free, or will mail a copy to customers free or for a small fee. Shopping elsewhere is likely to reduce the efficiency of the system. Why Bank Online? Most electronic banks offer basic services such as the ability to check savings and checking account balances and transfer money between accounts. The draw is that customers can do these things without waiting in line or listening to muzak while on hold waiting for telephone customer service. It’s the extras that are enticing more and more people to use electronic teller services. Customers can schedule their bill payments, or even make sure that they add to their dividend reinvestment plan (DRP) account at the same time each month. If your bank has a brokerage arm, you may be able to buy and sell stocks through your checking account and check the current value. If it issued your credit card, you can check your account balance and transaction status. And should it hold your mortgage, you can see where you are in your payment cycle. Some banks will even e-mail you a note when your account balance drops below a certain amount. Should You Bank Online? If you’re reading this, chances are you’re sufficiently wired to bank online. All it requires is about eight megabytes of RAM (if you’re using a bank that requires customized software) and around 20 megabytes of free hard drive space for downloadable account information. The real question is whether you really need to do your banking electronically. How many accounts (checking, savings, money market, CDs, IRAs, credit cards) do you have with your bank? Do you frequently transfer balances among them? How many bills do you pay each month? Is the paperwork a monthly nightmare? If your accounts are spread across several institutions, or you write just a few checks a month, it may not pay to do your banking online. How Much Does it Cost To Bank Online? Banks calculate fees for online transactions much the same way they do for their offline clientele. Many charge a flat rate for the account (usually from $5 to $10 per month) and additional transaction fees for the extras. When banks first went digital, they charged for the software that enabled customers to use their services. Now those that require special software give it away. Here are a few things to look for when comparing fees: –Is there a free trial period? How long does it last and what exactly is “free”? –Does the institution charge a flat-rate monthly fee or is it based on account activity? –Is the online banking fee in addition to or in lieu of your regular checking account maintenance fee? –Will the bank waive any fees if you keep a minimum amount in your checking account? –Is there a charge to get a paper copy of a cancelled check? –Is there an additional charge to pay your bills online? (Those that do typically charge between $3 and $6 for the privilege.) –Is there an additional charge to use any teller services? –Are there any time/transaction limits when you’re online? –If you transact via your bank’s brokerage or money market accounts, are you charged a percentage of your assets or a flat rate? Add it all up. Look at your bank statements from the previous year to get a general sense of the number of checks you wrote and the transfers you made. Compare what you’d spend banking online vs. offline. Remember to include the value of any freebies. Fools should find the bank that offers all the services you need at the lowest annual cost. Make each dollar count — from the one they charge you to talk face-to-face with a teller to the cost of printing checks instead of paying bills them via computer. Other Things to Consider Before you make your final decision, consider the following: –If you often use the ATM machine to withdraw cash or transfer balances among your accounts, you should probably use a local electronic bank. Otherwise you’ll be forced to pay heavy fees if you use another bank’s ATM. –Make sure the merchants, lenders, and utility companies that you pay most often are on your bank’s payee list. –Make sure the monthly statements are readable. In fact, see if you can get a sample monthly and year-end account summary. The bank’s record-keeping prowess may be key around tax time. –Want to access your bank account from your home, your office, or any computer? Choose a bank that offers Internet services. Otherwise you’re beholden to the computer on which you downloaded the bank’s software. –If you’ll be transferring data from your online bank account to other personal finance programs, you should probably choose an Internet bank. –If you’re concerned with security, ask the bank what measures it takes and if it can handle encrypted messages. If you’re accessing your account through the Internet, most of the newer browsers scramble messages. The Online Banking Battle Bankers fight for profits online while consumers win. Secure Electronic Transactions are in place as Internet moves to the forefront for financial institutions. The competition is global. Financial institutions and technology firms want to set standards that advocates say will mean cheaper, quicker and more complete services. Online banking is a multibillion-dollar battle. It’s an opportunity – and a threat. By connecting retailers with consumers, capital with borrowers, and investors with securities, the Internet threatens to push bankers and other middlemen to the sidelines. The nation’s biggest banks are bringing their customers onto the Internet, cutting costs and boosting choices for borrowers, investors, savers and bill-payers alike. But first, they have to learn to talk the same language. In a race to set safe, reliable ground rules for online commerce and streamline the often antiquated array of computer systems, IBM and Microsoft have set up competing software standards and are rushing to sign up big banks as clients. Either way, online banking advocates say the changes will mean more choices and better prices for bank customers. It’s an arcane struggle of changing alliances between longtime competitors who admit they’re having a hard time following their rivals’ moves. The effort echoes the banks’ creation of Visa and MasterCard, which unified a confusion of credit-card labels into a worldwide payment system in the 1960s. Reality and Trends You do business online, stay in touch with friends and relatives via e-mail, and you’re an old hand at Internet shopping. So why not bank online? Online banking is a natural step for you and your PC. It’s all a matter of putting your computer to work doing what it does best: transferring data and performing calculations. Just over half of all home PCs are used to manage finances, but home banking hasn’t emerged as a must-have application for PC users with modems. According to Jupiter Communications, 13 million Americans will bank online in the year 2000. But there tens of millions of people equipped to bank at home today. So what’s the holdup? The main concerns consumers have with home banking are security, ease of use, and cost. The bottom line is, trading human tellers for the virtual variety is safe and convenient, and it offers a range of other benefits–as long as you follow our banking tips. Switching banks doesn’t have to be difficult For those who already own a personal finance program or enjoy learning how to use new software, the client-based approach works well. However, switching accounts from one bank to another may also require switching to new personal finance software, and customers will have to invest some time (and possibly the purchase price of the new program) in order to make the switch. It could also entail transfer of a lot of information from one program to another. A few banks have developed proprietary software for online banking, which is usually free. Again, changing banks would present the drawbacks associated with learning a new program. A handful of banks currently allow customers to choose between the older online banking systems or the Internet. However, this is expected to be a transitional approach that will stay in place only until all the online banking customers switch to the Internet. Less versatile, but less expensive The newer Internet-based systems allow users to dial in and then use the bank’s own software (or that of an Internet service provider, such as AOL). Many consumers will find them easier to use than the older systems, especially customers who want electronic banking services but are not interested in doing a lot of other personal finance calculations. This interaction can be initiated from any computer, anywhere. But an Internet system is less versatile as well. It cannot consolidate extensive personal finance information within a single program. Using an Internet-based system, however, may be less expensive in most cases. In general, a bank’s costs will be lower when it provides a single electronic banking service via the World Wide Web section of the Internet. The bank then supports a single computer system instead of a multitude of personal finance programs that its customers may use. Cost savings allow the banks to charge lower fees for online banking, or to simply eliminate them completely. A few large banks that have set up Internet-based systems charge no monthly fee for online banking services and electronic bill payment. Microsoft’s Cone said that banks originally viewed PC banking as “a pilot program” or a process to be tested. But the Internet is finally taking online banking mainstream. Nick Harper is a Van Nuys-based internet consultant.