Web Banks Can Make Managing Business Accounts Faster, Easier

The Web wants you to change the way you do your business banking, and if you haven’t done so yet, you’ll probably want to think about it--and soon.

Why? In a word, Web-based banking offers you real efficiency, with benefits that flow to the bottom line.

Brick-and-mortar banks took to the Internet earlier in this decade, offering online banking services to businesses and consumers alike. These services made the chore of managing the business banking account faster and easier, though not necessarily cheaper. Although this improved things for the harried business owner, the improvement didn’t come without some inconvenience.

For one thing, you had to buy and install software compatible with your bank’s. You also had to dial into your bank via a modem and download your account information into your computer. Then you had to compare the bank data to the information in your own records and, last but not least, reconcile any differences.

That took some doing. Indeed, it was awkward and time-consuming, and it offered up altogether too many opportunities for error. And if you did go astray, finding the error was like searching for a snowflake in an avalanche.

Now the latest spawn of the electronic age, the virtual bank, has taken things farther down the road to real efficiency for small and mid-sized businesses. These banks exist exclusively on the Internet, or largely so, which differentiates them from brick-and-mortar banks offering familiar online banking services.

As yet, only a handful of virtual banks target the business market. They include OneCore.com (https://www.onecore.com), CompuBank (https://www.compubank.com), Ebank (https://www.ebank.com) and First Internet Bank (https://www.firstib.com). New competitors pop up on the Web every month, however, with no end in sight.

The innovations of the virtual bank are simple, and they make it clear why business owners use the service.

Virtual banking is Web-based banking that gives you real-time access to your business account. In plain English, you connect to your bank via your Web browser, using special software such as Quicken or Microsoft Money. Best of all, you gain the ability to see the activity in your account as it happens, 24 hours a day, seven days a week.

This access to real-time information gives you the ability to better manage your business cash. For example, if you have two weeks before you must write your payroll checks, you can park extra cash in an interest-bearing money-market account. Then you can wait until the last minute to transfer those funds back into your business account to meet payroll.

In short, you can use the 24-hour, real-time accessibility of virtual banking to turn yourself into a money manager mindful of your own bottom line.

Depending on your virtual bank, you can also get interest-earning money-market operating accounts, ATM debit cards, wire transfers, online bill payment services, payroll processing, credit card services, direct-deposit services and even 401(k) plan administration.

And you don’t have to sacrifice safety to take advantage of all these services. Just like their brick-and-mortar counterparts, virtual banks offer the security of insured deposits. Compubank, Ebank and First Internet Bank all insure accounts up to $100,000 through the Federal Deposit Insurance Corp., while OneCore.com insures accounts up to $500,000 through the Securities Investor Protection Corp.

Virtual banking is also nearly paperless, and it may save you money. Brick-and-mortar banks commonly charge you for nearly every service you use, so monthly fees can add up quickly. With a virtual bank you pay a low fee--sometimes no fee--for certain basic services, including wire transfers and automated bill-paying. When you do pay fees, they are competitive with those charged by brick-and-mortar banks.

The savings, of course, stem from the cost advantage enjoyed by virtual banks. Unlike traditional banks, virtual banks don’t saddle themselves with branch offices complete with vaults, security systems, tellers and managers. According to one study, a typical brick-and-mortar transaction involving a teller costs about $1, while a typical ATM transaction costs around 25 cents. In contrast, a typical Internet transaction costs one cent. Another study pegs the cost of a teller-assisted transaction at $1.44 versus four cents for an online transaction.

Whatever the details, the savings are real. And while not all of those savings flow to the business customer, there’s no doubt that virtual banking is exerting downward pressure on banking costs.

That’s good news for the business customer. Indeed, the cost advantage of the virtual bank is great enough to prompt brick-and-mortar banks to consider establishing their own virtual banks, if only to hold on to their existing customers. As this competition heats up, it’s likely that costs will fall even further.

However, there are some disadvantages to Web-based banking. Since virtual banks don’t have branch offices, you must make your deposits via the mail, which is clumsy and time-consuming.

In addition, while virtual banks may assign a specific person to manage your business account, you communicate by phone, rather than face to face, which makes it tougher to establish a personal relationship with your banker.

Finally, you can’t get a business loan from most virtual banks, so don’t expect to get the counseling that many traditional loan officers offer their customers. You can, however, borrow money on the Web, and we will take a look at some sources in next week’s column.

Juan Hovey may be reached at (805) 492-7909 or via e-mail at jhovey@gte.net.