Internet banking is a young art, even by the warp-speed reckoning of Internet time. The world's first Internet bank opened its virtual doors in the fall of 1995. Today, about 200 banks offer Internet--or Web-based--banking, according to Online Banking Report. Wells Fargo, the industry's most aggressive Internet player, claims 450,000 online customers, up 50% from the start of last year. Just about every big bank in the country will be offering Internet banking sometime this year. What does all this mean to a community bank, dwarfed in size and resources by the big players, yet likely to be doing very well, thank you, in terms of profits, customer loyalty, and community support? Like it or not, it's definitely time for community bankers to start planning their inevitable move to the Net.
Internet banking belongs to the species of financial services variously known as home banking, remote electronic banking, online banking, self-service banking, and other names indicating that customers do their banking at home or at work. They are connected to their bank account(s) by either a private line or by the public Internet. In the early versions of online banking, the software that was needed to manipulate and display raw account data coming from the bank was all contained in a package that lived on the customer's PC. She got the software either free from her bank or bought it from a retail store in the form of personal-financial-management (PFM) package such as Intuit's Quicken, Microsoft's Money, or Meca's Managing Your Money. This form of online banking, still the dominant one, is known as PC banking.
Internet banking, or Web banking, takes a small but radical departure from PC banking, even though both operate from the same desktop computer. The software that runs Internet banking programs resides not on the user's PC, but on the bank's Web server. The benefits of having the software on the Web are substantial: The bank or the PFM manufacturer doesn't have to send out a new physical package to every customer every time the program is updated. Bank customers can access their bank accounts from anywhere in the world they can get access to the Internet, not just from the one PC where the software lives.
Millions of people are by now seasoned Web "surfers," comfortable with how browsers work; this translates into faster learning of the banking software and less hand-holding by the bank. Finally, the Web provides easy links to other sites--which in turn can enable such services as bill payment, bill presentment, stock trades, investments, insurance sales, auto or real estate sales, or other financial services offered by the host bank or its partners.
Only a few months ago, the general perception was that the Internet may not be secure enough for financial transactions. That's one reason why PC banking dominates the online market today.
However, recent experience shows that the general public is now willing to trust banks to make the call on security. And since insiders overwhelmingly agree that Internet security is adequate and in fact better than present ways of transmitting financial data, all players are now making firm commitments to Internet, or Web-based, banking. …