Internet Banks-The way of Exposure

In recent years, large companies have set up internet-only banks as a means of diversifying into the financial sector and providing internet only banking services compared to a traditional brick and mortar bank is that this type of bank has very low costs. These savings come as a result of the low overhead costs that are associated with electronic transactions. For example, internet-only banks can avoid paying bank tellers, renting the physical location of the bank branches and other overhead costs associated with running a regular bank. 

As a result of these low costs, internet-only banks are able to offer special deals such as higher interest rates on savings/checking accounts, unlimited free internet transactions and/or no-fee checking to their customers. These act as incentives and are typically unattainable at traditional banks. These benefits can be worth a substantial amount to a consumer when you realize that most traditional banks change fees every month for using checking accounts and pay little to no interest for savings/checking accounts.

As nice as these benefits sound, there are some drawbacks that should be considered before you rush off to join an internet-only bank. Seeing as internet-only banks do not have branches where you can conduct transactions, it can be hard to deposit money into your account. Someone who has  direct deposit can easily direct an employer to send a paycheck to the online bank account, but for those who do not have direct deposit or want to deposit extra cash into their accounts, having an internet-only bank could be an inconvenience. 
Another drawback to consider has to do with automatic teller machines (ATM) and the fact that most internet-only banks do not have their own machines. Typically, you will need to pay a fee of a couple of dollars in order to use another bank's ATM to withdraw cash. People who make frequent cash withdrawals with ATMs can incur large costs that may outweigh the costs of traditional bank transaction fees. 
Depending on the internet-only bank you choose, you may have two solutions. Some internet-only banks can accept non-electronic deposits (cash or check) through the mail, which results in a time delay before you can access your money and/or a possible safety issue of mail theft. Other internet-only banks have another solution in which you create two accounts - this allows you to deposit your cash or check at a brick and mortar bank and then transfer your money to an internet-only bank account. This way, money can easily be moved back and forth between both accounts. While this solution is a lot safer and faster than the first method, it is still fairly complicated.
Overall, internet-only banking has some obvious benefits compared to traditional banks, but due to the inherent nature of internet-only banking, it may not be for everyone. But if you decided that is for you than Internet bank accounts offer a significant increase in the amount of interest that you can collect as compared to traditional savings and checking accounts offered by your neighborhood bank. In fact, many traditional banks are now offering these types of online only accounts as well.

What to look for when Opening an Internet Bank Account:

• High annual percentage yield (APY). No brainer.
• Transfer of Funds. How do you fund the account and how do you withdraw funds from it? Do they offer bank account to bank account transfers? Are these transfers free? Is ATM access included with the account? Do they have a transfer arrangement of some kind with your existing bank?
• FDIC insured? If the account is not FDIC insured, do they offer any protections at all regarding your money?
• Online Security. Online banking is considered very secure, but this is such a critical concern that it is worthwhile to thoroughly review the security policy of the bank.
• Customer Support. Can you get someone on the telephone if you have a problem or a question or do have to use email to communicate with them? Are questions answered in a timely manner?

There are Popular Banks Offering Online Accounts

Ing Direct
Emigrant Direct
HSBC Direct
Capital One Bank
Countrywide Bank
Zions Bank
World Savings
NetBank

Convenience is the key reason of why millions of people are opting out of traditional banking for online banking. Nearly 45 percent of the 141 million adults in America pay they bills on line(according to The Garter 2004 Survey)Banks also enjoy providing the option of online banking because they can save on operating cost. After a dozen years of on-line banking, many financial institutions are still struggling with the business case for Internet based services. Having been disappointed by excessive clams made during the dot com era, some financial institutions have reacted by dismissing on-line services as a necessary but unprofitable expense undertaken solely to stay competitive with they peers. Unfortunately, this view can blind an institution to the proven potential of on-line services. On-line banking is not a panacea, but when it is carefully deployed and supported, it can increase customer retention dramatically, deepen and widen customer relationships, and generate significant additional revenue. Today, the overwhelming majority of US financial institutions with more than $100 million in assets have adopted the Internet. Their experience with on-line banking has been mixed. For many institutions, the results have been overwhelmingly positive: They have more loyal customers purchasing more products and services than ever. Other financial institutions have not been so successful. In a recent industry survey of more than 1,000 U.S. banks, less than half said they believe that the Internet channel can bring in business they would not otherwise obtain.

For example Bank One Corp. has joined the ranks of financial institutions that have waived, lowered or put off charges for on-line bill payment effective Aug. 1; the company dropped its $4.95 monthly fee, a decision that benefits 1.9 million on-line accounts.

"We've looked at what creates customer loyalty and found that people who have electronic bill payment become much longer-term customers than the average customer," says Thomas Kelly, a spokesman for Bank One. The move is part of a larger corporate effort to focus on checking as a primary business, Kelly says. Following its 1998 merger with First Chicago NBD Corp., Bank One experienced integration and customer-service problems, and its Internet bank, wingspanbank.com, never took off. Those and other factors led to a net loss of 300,000 checking accounts in 2000 and 2001. But by the first half of 2003, the bank had gained back 196,000 net accounts through enhanced services and marketing. Gomez recently placed Bank One's Web site among the best banking Internet sites in terms of speed and performance. The Atlanta-based Internet bank has about $300 million in assets and over 15,000 customers. "Net.B@nk's lack of a branch network gives it a sizable cost advantage over traditional bank competitors. Traditional banks generally don't price their Internet offerings to reflect the lower cost of distribution ... In contrast, Net.B@nk passes part of the differential on the customers in the form of higher deposit and lower loan rates.TeleBanc Financial Corp., which has had a so-called branchless banking concept for more than 10 years, had its roots in telephone banking and is now tapping the Internet as a distribution channel. "You are seeing some displacement of core deposits among the legacy institutions, with new start-up institutions like Telebanc Financial, which are proving that retail marketing and banking are synonymous," Gary Craft, an analyst at BancBoston Robertson Stephens said. With just one physical location in Arlington, Va., Telebanc saw its deposits more than double as of the end of last year. It ended the year with $2.3 billion in assets and more than 50,000 customers, a Telebanc spokesman said. First Internet Bank of Indiana, another Internet-only bank, also opened for business . Its chairman, David Becker, said the bank hoped to finish the year with 10,000 to 15,000 customers, calling it a "pretty huge market." Christopher Kelley, an analyst at Morgan Keegan & Co. said: "You need to consider these companies as banks that are starting from ground zero. That's what makes the Internet so interesting. Starting from scratch at ground zero you have exposure to a lot of people." So who are those people who does internet banking?Here is some statistic(most resent statistic covers 2002-2003 but the progression of activity on-line banking  during last  year did not changed since that)

 Robyn Greenspan reported 164 percent increase in online banking last few years.  Pew Internet and American Life Project found that 32 percent of Internet users (roughly 37 million Americans) have done their banking online in 2002 - up from 17 percent (roughly 14 million Internet users) in 2000 - and 10 percent are currently e-banking on a daily basis. While e-banking may not be the most popular activity - gathering hobby information weighs in at 77 percent, e-shopping is conducted by 62 percent, and making or buying travel arrangements are at 50 percent - online banking has the highest growth rate, largely due to its wide reach. Pew's research, conducted during fall 2002, indicates that there is little variation in e-banking activity between men and women (33 percent versus 30 percent), age groups (33 percent of 18-29 year olds; 36 percent of 30-49 years olds; and 27 percent of 50-64 year olds), and ethnicities (33 percent of Hispanics, 32 percent of Caucasian, and 30 percent of African-Americans bank online). The biggest disparities in e-banking activity occur among education, income levels, and online experience. More than 4-in10 (41 percent) of online bankers are college graduates compared to 23 percent of those with a high school education; 44 percent of e-bankers are in $75,000+ annual income households, as opposed to 21 percent of those in less than $30,000 per year households; 39 percent of online veterans (4+ years), 20 percent of those with 2-3 years of experience, and 6 percent of newbies (less than one year) bank via the Internet. A TowerGroup survey of nearly 4,000 U.S. households revealed strong growth in the online banking sector, but found that many still maintain a preference for paper checks and paying bills with conventional methods. While 13 percent of consumers have paid bills online in 2002 (up from only 2 percent in 1998), 41 percent of e-bankers prefer to write checks and use the U.S. mail for bill payment purposes. "The use of EBPP [electronic bill presentment and payment] services is accelerating, but not without concern and hesitation demonstrated by many consumers," said Elizabeth Robertson, senior analyst in the TowerGroup e-Banking practice. On the European front,Jupiter Research (a unit of this site's corporate parent) predicted that 39 percent (roughly 54.1 million) will bank online by the end of 2002, stretching to 51 percent (103 million) by the end of 2007. Sweden will lead the charge, as more than 54 percent are expected to bank online through 2002 - growing to over 63 percent in 2007 - followed by Finland and Norway. Internet users in Greece are least likely to bank online, accounting for just over 13 percent in 2002, and 30 percent in 2007.

That is the facts that clearly shows the popularity of internet banks all around the word.

Marina, Reporter of Ecommerce Journal