Online Banking - The Evolution Of Online Banking, Lukewarm Customer Response

When the clicks-and-bricks euphoria hit in the late 1990s, many banks began to view Web-based banking as a strategic imperative. The attraction of banks to online banking are fairly obvious: diminished transaction costs, easier integration of services, interactive marketing capabilities, and other benefits that boost customer lists and profit margins. Additionally, Web banking services allow institutions to bundle more services into single packages, thereby luring customers and minimizing overhead.

A mergers-and-acquisitions wave swept the financial industries in the mid-and late 1990s, greatly expanding banks' customer bases. Following this, banks looked to the Web as a way of maintaining their customers and building loyalty. A number of different factors are causing bankers to shift more of their business to the virtual realm. Among these are electronic billing; the validity of e-signatures, approved by Congress in 2000; account aggregation (whereby a customer's entire range of financial relationships are coalesced on a single Web site); and the move in the wake of the Financial Services Modernization Act to create one-stop shopping for financial services. A report by New York-based eMarketer Inc. estimated that about 86 percent of all banks, credit unions, and savings institutions would offer online transactional sites by 2003.

Online banking encompasses both the Web-based operations of established brick-and-mortar banks as well as Internet-only banks. The latter offer several perks, including higher interest rates on checking accounts, higher yields on certificates of deposit, and electronic billing free of charge. However, Web-only banks suffer from several drawbacks, such as the inability to provide local business loans and other regionally-based services, a lack of ATM machines, and sketchy viability in the minds of consumers.