Interest rises in online access to bank accounts

Change: Millions of consumers invest their money and trust in cyberbanking, often noting the convenience.

August 09, 1999|By Ina Paiva Cordle | Ina Paiva Cordle,Knight Ridder / Tribune

Ask your friends and co-workers if they know anyone who banks online, and the response you get may well be a blank stare. But maybe not for long.

Consumers have been slow to click on to cyberbanking, yet the Internet may still live up to its promise as the new growth frontier for banks.

Today, 3.3 million computer-savvy households do their banking through the Internet, paying bills and transferring money between accounts -- up from 2.5 million in 1998, according to a report issued in June by Forrester Research. Another 4.5 million dabble in online banking by checking their account balances and account activity.

"It's not a mainstream activity, any way you slice it," said Kenneth Clemmer, an analyst with Forrester Research.

Nevertheless, the number of online customers has surged in the past year, with as many as 8.6 million adults viewing their account details, compared with 4.4 million in 1998, a Dataquest study issued in May shows.

The most popular reason given by those who have signed onto online banking was having access to account information 24 hours a day, seven days a week, Dataquest found. The second-most common reason was gaining access to that information from anywhere.

For Davie, Fla., resident Natasha Mullin, who put her family's checking, savings and Visa account online at NationsBank more than a year ago, the main advantage is the efficiency and speed of paying bills through the Net.

"I was desperately looking for an easier way," said Mullin, an advertising copywriter at Norwegian Cruise Line whose husband is a tax attorney. "I have three daughters and we have a complicated household, and there are a lot of checks coming out of this place."

While the percentage of U.S. households making bank transactions online represents only 3 percent to 4 percent, the forecast is that 20 percent will turn to their computers to handle their finances by 2002, according to a recent report from Goldman Sachs Investment Research.

The potential is hard to deny, as increasing numbers of households become comfortable with cyberspace. About 40 percent of U.S. households own personal computers, and about 60 percent of those have modems that would give them online banking capability, Goldman Sachs said. That 24 percent of households with online bank access is expected to reach about 60 percent by 2002, the securities firm estimates.

"There's no question that Web-based banking is going to revolutionize the way most of us are going to do our banking," said John Hall, a spokesman for the American Bankers Association in Washington, D.C. "But technophobic consumers shouldn't worry, because this is really meant to be a complement to existing services, not a replacement. They're still going to have ATMs, branches, tellers, telephone banking and debit cards. It's just one more product the banks are bringing consumers to make their lives easier."

Nonetheless, online banking's acceptance trails far behind the brokerage industry's online trading, which has caught on like wildfire, with about 30 percent of retail trades now executed over the Internet.

Many consumers, like Bal Harbour, Fla., resident and insurance agency owner David Dunbar, comfortably trade online, but are reluctant to let go of their checkbooks.

"Why bother?" said Dunbar, citing the added cost and perceived hassle of transferring his bill-paying to the Net.

Banks are doing their best to boost their volume of online banking customers, having found that they are among their best -- and most profitable -- clients. More than 600 of the more than 10,000 U.S. commercial banks offer Web-based online banking, the Office of the Comptroller of the Currency's data shows. And many are offering free online trials or waiving their fees for customers with sizable investments or loan balances to lure consumers online.

First Union Bank is among those that have made online delivery a top priority. Chairman and Chief Executive Edward E. Crutchfield recently told analysts that the Internet, not acquisitions, will be the source of the bank's future growth.

Charlotte, N.C.-based First Union said it tripled its number of online banking customers last year, and now has more than 700,000 online -- but still only 4.4 percent of its 16 million retail clients. The bank said it is signing up 3,000 to 4,000 online banking customers a day.

"That's faster growth than ever before," said spokeswoman Danielle Deabler.

The added benefit for the banks is that once they make the initial investment in online banking, their cost of servicing customers in cyberspace is far lower than the cost of taking care of them at a branch.

The Tower Group estimates vast differences in cost: 20 cents for delivering services through PC banking vs. $1.40 through a branch teller and $4.05 through a branch-based representative.

Analysts who have profiled online banking users describe a set of affluent, young, predominantly male and electronically oriented customers.

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