Interest High in Online Banking
Anthony “A.J.” Felderhoff is a fairly conservative man. An air-traffic control specialist in New York, he tends to approach new situations with reserve and caution.
But then came Internet banking, and Felderhoff, who said he normally believes in testing new waters by dipping in just one toe, jumped in with both feet.
Two years ago, Felderhoff, 48, started banking at NetBank Inc., a small Alpharetta, Ga.-based Internet bank that offered online bill payment and other banking services for free and higher interest rates on various accounts.
Felderhoff, who previously dabbled with more limited and cumbersome versions of online banking, said NetBank has become the most convenient way for him to handle his financial transactions.
“My wife and I own several properties, and on any day, we have as much as $5,000 coming and going out of our accounts, so it was a major task to write checks each month,” Felderhoff said. “When I saw that there were no fees and higher interest rates, I began using them right away.”
Felderhoff is not alone. In the last six months, consumers have put their distrust aside and flocked to Web sites to bank online. Internet-only banks have seen a particular surge in activity because of their low-to-no-fees policies and enticing interest rates.
Bricks-and-mortar banks with Web sites, known as bricks-and-clicks, also are luring customers with brand recognition, improved Web sites and the option of talking with someone face to face to solve problems.
Online-banking users--defined as people who occasionally do basic banking tasks such as transferring money between accounts online--jumped to an estimated 20 million in December from 15.9 million in September, which is almost as big as the increase between December 1999 and September 2000, according to a survey by Gomez Inc., a Waltham, Mass.-based research firm specializing in the Internet companies.
A survey by BankRate.com, a Manhattan banking research service, found that the annual percentage yield of Internet-only banks is on average more than three times higher than traditional banks. Convenience, of course, also is a major factor in customers going online, experts said.
“Nobody in their right mind wants to go to a bank where they have to find parking, wait on a long line and possibly come in contact with a surly teller,” said Paul Jamieson, director of financial services at Gomez. “Many people lead more and more complicated lives, so much so that convenience has become a priority.”
On Jan. 9, Bank of America Corp. said it had more than 3 million online banking customers and that it was adding them at a rate of 130,000 a month. Five days earlier, E-Trade Bank, an Internet bank in Menlo Park, Calif., which is owned by Internet brokerage company E-Trade Group Inc., said it had added more than $1 billion in new deposits in its fourth quarter, bringing its total deposits to more than $5.7 billion. E-Trade had a total of $1.1 billion in deposits at the end of 1998. In October, NetBank said it had added 29,000 Net accounts, the highest number of deposits it had earned in a quarter.
Convenience is what got a wary Jeffrey Forgacs of West Babylon, N.Y., to finally bank online. Forgacs, 29, banked with Republic National Bank of New York for six years.
Then the company was acquired by HSBC Holdings last year, and suddenly banking became “a pain in the neck,” he said.
He finally settled on NetBank and has been satisfied with its service for the past year.
CyberDialogue, an Internet consulting firm in Manhattan, predicted that by year’s end 24.6 million people will bank online, which the firm defines as checking account balances, transferring funds or paying bills online. The company predicted the number will rise to 50.9 million customers by 2005.
This is propelled mostly by bricks-and-mortar banks marketing their own Web sites to their own customers, said Sam Callard, a senior analyst at CyberDialogue. But some critics say such forecasts are grossly overblown, despite the expansive marketing.
Michael Riley, a vice president at Mercer Management Consulting in Manhattan, says consumers are much more skeptical about banking online than most people would believe.
Consumers are far more likely to buy computer hardware, books, clothing and other consumer goods or services online than they are to perform financial transactions online, Riley found after surveying 1,200 consumers nationally last year.
Even Felderhoff does not have all his assets in NetBank. “I have assets in a credit union in Oklahoma and with a brokerage. In case something happens, I won’t be wiped out,” he said.
Internet-only banks and bricks-and-clicks are working hard to dispel consumer fears and distrust.
NetBank offers free bill payment and three times the average interest rates on accounts. D.R. Grimes, NetBank’s chief executive, has said he believes that because his company does not have the additional costs of branches, those savings ought to go to the consumer.
But some analysts say very few companies will be able to remain profitable with a business strategy that provides fee-less services and high returns on various accounts.
In early January, First Internet Bank of Indiana said it would lay off some employees. Sluggish revenue was the reason, analysts said. BankDirect, a Dallas-based Internet company, has quietly upped its fees. WingspanBank.com, the Internet subsidiary of Bank One Corp., also said it would be raising fees and trimming interest rates on certain accounts.
