Online Banking

Online Banking

Introduction

The World Wide Web has changed our culture in so many ways. People are able to do so many activities over the World Wide Web, it is unbelievable. You can pursue a degree through online universities, communicate with users around the world, purchase goods and services online, and yes, you can bank and pay your bills online. This new technology has enabled us to make payments, maintain a checking/debit card account, balance transfers, all via the web. You can maintain your entire financial portfolio through online banks that provide this feature. There are online banks that can provide interactivity between popular financial management software programs, such as Quicken and Microsoft Money. When using online BillPay, in most cases, you even have the option to stop receiving your bills through the mail altogether.

Of course, as there always are with any new technology, there are "strings attached", if you will. When placing information of such high value on the Internet, hackers, phishers, and other con artists can be expected to attempt to retrieve it. Identity theft, fraud, and security breaches are a few of the issues that surround this new technology. There are organizations dedicated to overseeing the developments of online banking. These organizations provide guidances and regulations to assist in resolving the issues outlined above.

History of Online Banking

The first online banking service was offered by Presidential Savings Bank beginning October 6, 1995. Security First Network Bank followed suit, as an Internet-only bank. Soon "real-space" banks began to offer services online. These "real-space" banks who also offer services online are known as "brick and click" banks. Among the first brick and click banks to offer these services were Wells Fargo, Chase Manhattan Bank, and Bank One. The increase in the growth of online banking has nearly tripled from 2000 to 2005. According to research done by David Hallerman, Senior Analyst at eMarketer, the estimated amount of households banking online in 2000 was 12.5 million. His research shows that in 2005, there are 35 million households banking online. This is approximately thirty-four percent of the U.S. Internet-using population. The projected amount of households banking online in 2007 is 45 million. EMarketer is a New York-based research company.

Among the most prominent and popular brick-and-click banks are Wells Fargo, Bank of America, and CitiBank. Bank of America has 13.2 million online banking customers.

Advantages and Disadvantages of Online Banking

Although for the most part, the advantages and disadvantages of online banking are pretty cut and dry, I found a great summary at bankrate.com, a site dedicated to educating new e-bankers about online banking. The most obvious advantage is convenience. If you do not have the time to make a trip to the bank, or to the ATM, your transactions can be handled online from the convenience of your very own PC. Not only does this mean convenience, but convenience from anywhere with a working Internet connection.

Another advantage is the speed at which transactions take place. If you submit a payment via the U.S. Postal Service, you have to account for the time it will physically take for your payment to travel, and how long it takes for the recipient to process the payment. An online transaction is much faster and more efficient for both parties. Most online banking transactions are processed in a matter of hours.

Another advantage of online banking is how inexpensive transaction processing is. Of course, there is the cost of implementing your online banking service, but the actual cost of each online transaction is a mere one cent. Compared to other methods of transaction, this is by far the cheapest. ABC News' Mellody Hobson describes the differences in cost between the most popular methods of transaction. At a full-service bank branch, a transaction costs $4.07. A phone transaction costs $0.54, and finally an ATM transaction costs $0.27. Because of how cheap it is to process a transaction online, most financial institutions offer their web services online for free. These services used to range from free to fifteen dollars per month.

Disadvantages of online banking include the amount of time it takes to create and authorize your account. In most cases, you will be required to visit the local branch to sign verification papers and provide authentic identification. I must say I disagree with the article calling this a disadvantage. It is certainly not convenient, but I would not call it a disadvantage. The learning curve is listed as a disadvantage. Online banking sites can be very difficult to navigate, especially for new users.

Finally, and probably the most obvious, is the issue of trust you have in your online banking facility. How secure is the transmission of my private information? How can I be sure the transaction went through? Who else will have access to my information? This trust issue and skepticism of security is by far the biggest concern of potential online banking consumers. The Ponemon Institute is dedicated to studying ethical information management practices and research. The institute conducted a survey this year entitled Privacy Trust Survey for Online Banking with 2,300 participants. In the institute's research, it is found that eighty two percent of banking consumers say identity theft is their main concern. The next two biggest concerns are telemarketing abuse and unauthorized access to consumer accounts.

The security issue may be eased once a consumer is educated about how authentication is verified online. In an article by Kim Komando, from Microsoft Small Business Center, she explains the methods of encryption and security your browser will most likely use. To begin with, your account is protected by a password, I will go into more detail about this later in the section on regulation of online banking. When you enter your account, you are in a secured connection area. Any action, as simple as checking a balance, is encrypted. Komando explains that modern internet browsers, such as Netscape Navigator and Internet explorer use 128-bit encryption, which is virtually unbreakable. To verify whether or not you are in a secure area, you should check to see that the padlock image in the lower corner of your browser is set to closed. This is a great security feature, but It is important to note that this image can be created to display by hackers, according to Cyota's Anti-Fraud Command Center.

One of the problems with password security occurs when e-bankers use the same password