Online banking lets customers do all their banking from anywhere they like on the secure website of a their financial institution. You can perform the same tasks as you could with a brick and mortar bank, such as:
- Transactions like bill payment, transferring funds and completing loan applications
- Non-Transactions such as checking online statements, asking questions and obtaining location information
- Financial management support which allows you to import your online banking data into a personal accounting software system so you can manage several accounts at once
Online Banking Evolution
Online banking has its origins in the distance banking services that some banks used in the 1980s. With these systems, you could use a monitor and access your banking information over a phone line. The first financial institution to offer online internet banking services was the Stanford Federal Credit Union in 1994.
Today, most large national banks, credit unions, and regional banks offer some sort of online banking. There are also several online banks that do not have any brick and mortar locations. They are sometimes called virtual banks.
Fully functional online banks are readily available for free or a small free. Some have limited functionality. However, with an estimated 13 million people logging in daily to check their balances and do transactions, soon all banks will have full service online banking.
The biggest obstacle to overcome with online banking was to design the system in such a way that the customers trusted it. If the website turned out to be confusing, hard to use, inaccurate or especially, not trustworthy, it would not work.
So, from the start, security was the biggest issue.
Online Banking Security
You usually use a single password authentication for online shopping. However, that is not enough for online banking applications. Currently, there are two security approaches used by banks:
- All transactions are digitally signed and encrypted. The signature generation and encryption are stored on smartcards or other memory devices.
- The system we are used to in the US is called the PIN/TAN system. The way this works is that the PIN represents a password that you use to login. The TAN is a password which is used to authenticate your transactions. The best way to generate a TAN is to do it when needed using a security token which contain completely unique characteristics. They most common way to distribute them is via letter.
When you use PIN/TAN online, SSL secured connections also help prevent any data theft issues.
When an online bank is under “attack”, the method is usually to deceive you into providing legitimate TAN and login in information. One of these methods is called phishing. This is where you receive an apparently valid email from your institution asking you to go online to “verify your account” or something of that nature. Of course, it is not a valid financial institution and if you follow the instructions, your financial information will have been provided to a scammer.
Digital certificates and virus scanners are used to counterattack these security breaches.
Advantages and Disadvantages of Online Banking
Banks see online banking as a dynamic, value added, efficient way of not only doing business but of adding and retaining customers. It also acts to reduce paper handling and personal interaction costs enabling them to be more competitive.
Some of the advantages of online banking include:
- 24/7 access- These banks never close (unless the site is briefly down for maintenance). They are only a mouse click away.
- Convenience- You can do your banking online from anywhere you can obtain internet access and at any time of the day or night.
- Money Management- You can usually access different financial tools to effectively manage all of your accounts. This includes stock quotes, alerts, spreadsheets and the ability to download your financial data.
- Speed- The transactions are handled with a speed that usually surpasses that of an ATM.
- Your money is usually FDIC insured just like in a brick and mortar facility.
Some of the disadvantages of online banking include:
- There may be somewhat of a learning curve at first until you find out how to access everything.
- When you start-up, it might take awhile until all of your assets can be viewed especially if you are planning for multiple users on the site.
- It also can take time to build trust on a site. For example, initially you might be wondering if the transaction actually made it through the system or if that transfer will show up.