- The Washington Times - Wednesday, December 8, 1999

Deborah Gaynor has made monitoring her checking account by computer part of her daily routine.
“I get up in the morning and before I brush my teeth, I turn on my computer and look at what’s going on in the banking world today,” Ms. Gaynor said.
She is among the 10 million consumers who have set aside fears about cost and security to bank on line. Analysts say the number of customers who bank electronically is poised to multiply, as more banks offer Internet access, more consumers make their first Internet purchases this holiday season and more companies take advantage of a new federal law to get into banking.
“I think this New Year will be a time when consumers sit down and make a bunch of resolutions about their life in general, but it’s also a time when they want to get their finances in control,” said Kenneth Clemmer, an analyst with Forrester Research Inc., a Massachusetts market research and consulting firm.
“They want to bank like it’s the 21st century,” he said.
Mr. Clemmer expects the number of people transferring money or paying bills on line to jump more than 500 percent by 2003, from 3 million to 18.5 million. He thinks as many as 65 percent of Americans will eventually engage in electronic banking.
For customers such as Ms. Gaynor, a legal secretary at a Bethesda law firm, on-line banking is already an integral part of how she handles her money.
With a few clicks of the mouse, Ms. Gaynor pays her electric and gas bills and checks her account balance. What usually would take a trip to a mailbox or an ATM has been achieved in her living room.
She said she is confident in her bank’s ability to protect her account information on line.
Cost and safety have been two major concerns on-line banks have had to confront in their efforts to get more customers to do business electronically. Many banks charge a monthly fee for on-line bill payment and consumers are wary of giving personal financial information electronically.
Though no banks have reported financial losses from on-line security breaches, experts say the technology may be moving too fast for the safety infrastructure to keep pace.
A July General Accounting Office (GAO) report surveyed banking regulatory agencies to find out what they had discovered about on-line banking security.
“We found that there were no security breaches over the Internet and no financial losses,” said Richard Hillman, associate director of financial institution and market issues for the GAO.
The report noted, however, that 25 percent of the banks investigated by other agencies had deficiencies in strategic planning regarding on-line banking. In other words, computer hackers have not succeeded in stealing money, but some banks are poorly prepared in the event of problems.
Jim Bruene, editor of Online Banking Report, a financial services industry newsletter in Seattle, said he thinks on-line banking is relatively safe. But if a bank saw a monetary loss, it would be a huge public relations blow.
“The bank has a huge incentive to keep it quiet… . I’ve honestly never even heard a rumor of a loss,” he said.
Banks are beginning to see offering on-line banking as a competitive necessity.
The Washington area, where a recent Scarborough Research study estimated nearly 60 percent of the adult population is on line, is considered particularly ripe for Internet banking.
“The consumer in Washington is very time-impoverished, and Washington is also the nation’s leading wired community,” said Mark Hendrix, chief marketing officer for Riggs Bank. “So we don’t really view technology as a wave of the future. We view it as a wave of today.”
The number of banks providing services on line is still a small percentage of the total, but it’s growing rapidly.
Cynthia Bonnette, an examination specialist with the Federal Deposit Insurance Corp., estimates there are 3,000 FDIC-insured financial institutions with World Wide Web sites. Of those, 890 allow customers to view their accounts or transfer funds on line. That’s out of about 10,400 insured banks and thrifts.
In 1995, only two banks offered such services, Ms. Bonnette said.
Banks are marketing on-line transactions for several reasons. Electronic transactions are cheaper than those at brick-and-mortar branches, though financial institutions won’t experience cost savings for a few years because of start-up expenses.
And consumers who bank on line tend to be better customers with more accounts. So offering them more services, including electronic investment and insurance, makes sense to banks.
“It is a convenient way for our customers to use us, 24 hours a day, which in turn builds loyalty and hopefully helps us retain the customer over the long term,” said Gene Kirby, director of Internet and electronic business services for SunTrust Banks Inc., which owns Crestar.
Mr. Kirby added that banks will see increasing competition on line because of federal financial modernization legislation passed last month. The new laws break down the remaining barriers between brokerages, banks and insurance companies, enabling financial-services companies to provide multiple services on one site.
“From a competitive standpoint, the Web opens up the market for many non-banks to get into the field,” he said.
His bank has tried to provide services that will keep customers from looking elsewhere. Five percent to 10 percent of Crestar’s customers bank on line. As at most banks, they either have the option to connect with the bank via a dial-up, direct line, or access their account through the bank’s Web site.
Though basic on-line access is free at Crestar, bill-payment services cost $9.95 per month. The bank also allows customers to apply for loans on line and, like most large banks, has a brokerage site.
Ms. Gaynor’s financial institution, Bank of America, touts itself as the biggest electronic bank, with 1.6 million on-line banking users out of its 30 million total customers. The bank is adding 100,000 on-line customers a month.
Internet banking continues to evolve as Charlotte, N.C.-based First Union becomes the first area bank to give customers the option of receiving electronic bills on line rather than in the mail.
Bill presentment, as the service is called, is also being offered by Chase Manhattan and Wells Fargo.
But the efficiency of regular on-line bill payment and bill presentment depends on the level of technology of billing companies.
When customers pay bills on line, the amount is deducted from their account. Banks then send the money on to the power company or cable provider, for example. Depending on the receiver’s capabilities, the bank can send the money electronically or write a check.
Companies also need to be equipped to send bills on line.
“Initially, the businesses are going to have to take a leap of faith and invest in the cost of their systems before there are lots of consumers using it,” said Mr. Kirby of SunTrust.
He drew a parallel to the introduction of credit cards, which merchants were slow to adopt before their usage exploded. Mr. Kirby and representatives at other banks hope to see on-line banking grow nearly as widespread as the ubiquitous plastic.

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