ATMs they’re not.
While banks and other institutions have been adding online services for some time now, consumer acceptance has been moderate at best, and online-only banks are struggling.
Though use of ATMs and direct deposit are as commonplace as white bread, banking veterans say it will be some time before Internet banking finds its footing.
One problem: consumers like people.
“It is very difficult to sit down with the Internet and negotiate a loan or structure a particular transaction,” said Robert Keller, president of Laguna Hills-based Eldorado Bank.
“Thus far, we’ve seen some change, but we’ve just scratched the surface,” Keller said.
The number of households using online banking services is expected to reach 18 million by 2002, according to research by Jupiter Communications.
The services have yet to really catch fire among customers, though. Bank of America, which counts 30 million households as customers, reports about 2.5 million people have signed up to use its online services.
That total is respectable, but hardly the usage ATMs achieved in just a few years.
Still, the number of banks offering online services is growing. About 24%, or 2,000, of the banks, thrifts and credit unions in the nation have online operations, though only about one quarter of those have transactional capabilities.
The Internet “is going to cut down the lobby traffic,” Keller said. And it’s a cost-effective proposition for the banks, despite high startup costs. According to several studies by the General Accounting Office, the cost of a typical transaction at a bank branch is more than $1, while an ATM transaction costs about 25 cents and an Internet transaction runs about a penny.
The savings for the bank may not mean much to the consumers, though, since consumers like having the option to bank online, but they also want to be able to visit a branch if a problem arises.
“Most of our customers are interested in electronic banking, but not exclusively,” Keller said.
The Internet-only banks attract customers with higher interest rates on savings and checking accounts, certificates of deposit and money market accounts.
“The bricks-and-mortar banks can’t offer the same high rate. The advantage is we don’t have any branches,” said Richard Waterfield, chief executive of Irvine-based National Interbank.com.
But that brings up a problem for the Internet-only banks: how to handle cash and check deposits. Some online banks have partnered with mail services companies to give consumers a place to make payments. A common complaint among online bank users is the two weeks it takes for a transaction to push through the mail service and the bank’s processing center. Some online banks have partnered with ATM networks that will credit the deposits within three business days. In the future, online-only banks hope to allow consumers to use their computers and a scanner to instantly deposit checks from their homes.
Right now, however, “customers want something of a physical presence and we are giving that to them,” said Waterfield. National Interbank partnered with Mailboxes Etc. to offer bill payment and deposit services at its 3,500 national locations.
National Interbank only has 8,000 accounts, but Waterfield said the bank is still young and he is ready to stick it out.
“We believe the consumers will move to the Internet,” Waterfield said. While other Internet-only banks have grown through direct marketing, Waterfield’s banks hopes to attract accounts though what he calls “affinity banking,” or offering banking services to Websites that already have established traffic like About.com and pnv.com.
But as traditional banks become more sophisticated with their online operations and offer higher rates for deposit-based products, the Internet-only banks will be severely challenged.
Though with ATMs convenience quickly won out over consumers’ desire to see faces with their transactions, the scales have yet to tip all the way in favor of Internet banking. n
