May 6 (The Washington Times/KRTBN)--Dan McShea was fed up with First Union Corp. It was charging him a fee every time his checking account balance fell below a minimum, and it paid him a pittance in interest.
The final straw came when he got married and tried to close his account to combine his money with his wife's: The bank charged him a $25 fee to close his account, he says. That's when Mr. McShea turned to Net.Bank Inc., one of a growing pack of on-line banks that pay higher interest rates while charging low or no fees.
"We were frustrated that they were nickel-and-diming us on everything," said Mr. McShea, 34, a pilot with a corporate jet charter company who lives in White Plains, N.Y. He now has a no-fee, no-minimum-balance checking account that yields 3.05 percent a year.
Mr. McShea isn't alone in switching to on-line banking, which has taken off in the past year. Net.Bank, for example, has almost tripled its number of accounts to about 24,600 in the past year, and some analysts predict 17 million U.S. households will do some banking on line by 2002.
The appeal of banking on line has banks of all sizes rushing to get plugged in -- even if it means losing money in the short run.
A number of on-line banks have sprung up: TeleBanc Financial Corp.'s TeleBank; CompuBank; First Internet Bank of Indiana; Royal Bank of Canada's Security First Network Bank; and Porter Bancorp's USAccess Bank Online, to name a few.
And traditional banks, trying to keep up with the competition and hold on to young, educated and affluent consumers, are allowing customers to access account information, transfer money and pay bills from the comfort of their home PC.
"On-line banking is going to revolutionize the way we bank today," said John Hall of the American Bankers Association in Washington.
The main lure of the new crop of on-line banks is simple: high interest rates. Internet checking accounts can pay as much as 4.45 percent a year with no fees, compared with a U.S. average of 1.5 percent annual interest and $9 monthly fees, according to bank analyst Richard X. Bove of Raymond James & Associates in St. Petersburg, Fla.
The drawbacks to on-line banks are that most don't have automated teller machines, which means customers can run up fees for withdrawing cash. And there can be fees for writing checks. Many people won't bank on line because they believe transmitting financial information over the Net isn't safe.
Another problem with on-line banking is glitches. Up to 500,000 customers nationwide tried doing on-line business last week only to be confounded by a computer glitch that was finally fingered Friday, fixed by Saturday and fully tested by Tuesday.
Wells Fargo introduced the nation's first Web banking program in the United States in 1995. This year, an estimated 6 million to 9 million households are expected to bank on line, according to the Online Banking Report, a Seattle-based monthly newsletter.
Last year, 17 of the 100 largest banks offered their customers the ability to bank on line. This year, 22 more banks started offering those services, said Chris Musto, a research analyst with Gomez Advisors, a Massachusetts company that studies financial services on the Internet.
NationsBank Corp. -- now BankAmerica Corp. -- rolled out its PC banking product in 1996. PC banking predated most Internet bank programs. It differs in that users dial the bank through a modem and use the bank's own software system to access their accounts.
"To be honest, the bank is not making money on it," said Dave Wolding, vice president of electronic delivery for the Charlotte, N.C., bank. "There was a high degree of demand. ... Ultimately this will reduce costs associated with customers who like to stand in line at the banking center to inquire about their account."
The bank found that its on-line programs draw two types of users: older and affluent or young and broke.
"As a function of their youthfulness, obviously they don't have the kind of incomes and savings that older people do," Mr. Wolding said.
Bank customers like those at Sandy Spring National Bank in Sandy Spring are betting that those money-losing customers of today will become the cash cows of tomorrow.
The community bank, with 21 branches, introduced a high-tech banking program, BankXpress, this year. It includes everything from Visa check cards to Internet banking. Customers pay $5.50 a month, but the program costs more than that to run.
"Where we hope to make money is off the balances that customers maintain, the relationship they establish with us" and the multiple products they buy, said Tina Giorgio, vice president of electronic banking.
By operating mostly as Internet-only banks, Net.Bank, Security First Network Bank and TeleBank are able to save the money it costs traditional banks to build and staff branches. Some of that savings is passed on to customers in the form of higher interest rates on accounts. Recently, Security First Network Bank announced an introductory interest rate of 6 percent for a checking account, almost four times the national average, according to Bank Rate Monitor.
Siddhartha Arora, 24, a computer consultant with Cambridge Technology Partners Inc. in the District, says he banks on line because he travels in Europe and Asia for months at a time and needs to pay bills from his laptop computer.
He said Citigroup Inc.'s Citibank wouldn't give him an on-line account for security reasons because he doesn't have a home telephone number, just a cell phone. That wasn't a problem for TeleBank.
Mr. Musto said the so-called "branchless" banks are still small by traditional bank standards. TeleBank has about 50,000 accounts, Net.Bank has about 30,000, Security First Network Bank has fewer than 16,000.
Wells Fargo, on the other hand, has 820,000 customers doing their banking on line. The San Francisco-based bank added 164,000 in the first three months of this year alone.
Now, traditional banks are seeing the potential in Internet-only banks. Last month, Sovereign Bancorp, North Fork Bancorp and Synovus Financial announced they are filing for separately chartered, Internet-only banks. Synovus plans to have an Internet-mostly bank that will be able to offer lower rates than its traditional bank cousin by 2000. |
