Online banking creates dilemma

No fees, convenience generate strong growth, but security fears linger

Rebecca Jones, Special to the Rocky

Monday, August 27, 2007

Security was uppermost in C.J. Grendahl's mind when she decided she wanted no part of her bank's offer of free online banking.

"You just hear of so many breaches of security electronically," said the 50-year-old title specialist, who lives and works in downtown Denver. "I don't know if they have everything in place at the bank to prevent that. Even though I order stuff online all the time, at least that doesn't give anyone access to my entire bank account."

Security also is a primary concern for 29-year-old Sara Rosenau, who has done her banking online for at least four years, and last year added online bill paying to her account.

"I definitely live in an area of Denver where I wouldn't be surprised if checks and bank statements get stolen out of the mailbox," said Rosenau, a graduate student. "Plus, I'm a person that likes to know what I have in my account. Online banking affords me the convenience of regularly checking my balance - and not only the balance, but the ins and outs of the activity in the account. If something's going on that shouldn't, I'll see it right away."

And therein lies the dilemma for consumers. Online banking's greatest advantages - easy access and paperless transactions - also are its greatest liabilities in the minds of some.

It's been more than 10 years since the first banks began offering customers the option of doing their banking over that newfangled thing called the Internet. Today, local banks estimate about half of their customers use it to check their balance and monitor transactions. Depending on the bank, anywhere from 35 percent to 60 percent of those online customers also pay their bills online.

A 2005 Pew Research Center national survey, the most recent available, found that of all the major Internet activities - including e-mail, shopping and following the news - it was online banking that grew the fastest in the previous four years. The growth has no doubt been helped by most banks' decision to stop charging for the service.

"We did charge for online banking and Internet bill-paying at the onset," said Rich Meszaros, vice president of corporate marketing for St. Paul, Minn.-based U.S. Bank, the second-largest bank in Colorado by deposits. "But from a competitive perspective, we removed those fees, and that really helped our rate of adoption."

Local bank officials won't reveal exact numbers, but the 2005 Pew survey indicated that 42 million U.S. households - almost 40 percent of the population - participated in online banking. Don Childears, president of the Colorado Bankers Association, says that given the local demographics, Coloradans are even more likely to bank online.

"We have a young, well-educated, relatively affluent population," he said. "When you look at the national data, those groups are the heavy users of online banking."

But holdouts remain, and fears about the security of online accounts remain the No. 1 roadblock. Beyond that, banks acknowledge that there's always a certain segment of the population that just prefers to do banking the old-fashioned way. They don't bank by phone, either. They want to see a human teller.

Then there are customers like the Rev. Chris Johnson, 49. He lives in suburban south Jefferson County and is pastor of a church in Denver's inner city. He's not opposed to online banking on principle, and he's not worried about security. He's just never found a compelling reason to switch.

"It's one of those things where, it's just one more thing to learn," said Johnson of his reluctance to embrace the new technology. "That means I'd actually have to sit in one spot long enough for someone to teach me to do it. And because I find it hard to do that, it's just something that doesn't take place."

Banks are doing all they can to overcome such reluctance because it's in their best interests to lure customers online. Teller transactions cost banks far more than if those same transactions are completed online. That's why they're willing to absorb the cost of the occasional stamp - they'll mail paper checks out when funds can't be moved electronically - in exchange for eliminating a lot of other processing costs.

It's relatively easy to enable an existing account for online access, and it can be done right at your home computer. As an account holder, you log into your bank's Web site, type in your password, and call up your account. You can see what checks or deposits have cleared, and even see an image of the cleared checks. You can transfer money from one account to another and see credit card statements. And you can do this at any time of day or night, from any computer with Internet access anywhere in the world.

If you opt for online bill paying, there are a few more steps. The first time you write an electronic check to pay a specific company, you must specify your account number with that company, as well as the date on which you want the payment to be made. If it's a regularly occurring expense, such as a credit card bill or a telephone bill, the account number will be somewhere on the monthly statement. If it's not a regular bill - you want to send $50 to your nephew for graduation, for example - and there's no account number, you specify the address to which a paper check is to be sent. After that first payment, it gets easier. Thereafter, the information for each payee is stored and you don't have to re-enter it a second time.

Online banking doesn't offer all the bells and whistles of such popular money management software as Quicken or Microsoft Money, which also offer electronic bill-paying capability. But users of those programs may still find it useful to be able to check their account status or download their monthly bank statements directly into their software program.

Proponents say online banking - especially online bill paying - is more efficient than writing out checks by hand and dropping them in the mail because it allows users to specify the day on which a bill is paid. This avoids potential late charges and uncertainty as to whether the check was actually received.

It also can save money. No stamps, for one thing. "And if you consider time as money, then being able to look at your account nine times a month from the convenience of your home or office is a time savings," said Jim Reuter, president of First Bank Data Corp. in Lakewood, which manages information and technology for First Bank.

Rebecca Jones is a freelance writer from Denver.