Originally created 03/31/97

PC banking: Is it worth the investment?



So what's with the pajamas?

It seems like every financial institution offering online banking is playing up the fact that now, thanks to your friendly neighborhood banker and your home computer, you can conduct your financial affairs dressed in nothing more than your bathrobe, your silk jammies and your fuzzy slippers. Or whatever else you might be wearing.

Of course, what people really want to know is how online banking will wear on them. Anyone who's used a PC very much understands the fatuity of claims, rampant among those offering online banking these days, like "simple," "fast" and "one-click access."

But what's it really like to subject one's personal financial affairs to these developing, sometimes-demanding operations? We asked five reporters willing to submit their real-life household budgets to various systems to write up their experiences. Then we conducted an e-mail survey and gathered more than 100 reports on the joys and sorrows of banking electronically.

Our conclusions? Online banking is a big hassle at the beginning. Nearly everybody suffers some troubles and traumas setting up, a few mistakes in the early going and the obligation to change the way they manage their financial dataflow. But practically everybody we talked to stuck with the program and now say it was worth the effort. Many vow they'll never go back to banking the old way.

On the other hand, some tell nightmarish stories, some of which took months to play out, of missed electronic payments for which they had no on-paper records. A few complained that by paying bills online they lost the ability to control use of the "float" - the days between when a check is written and when it clears the bank, during which a crafty customer can hope/pray/connive to make the money covering it appear in the account.

But others loved the ability to transfer funds between online accounts to patch over precisely this kind of problem.

If you're contemplating banking online, you'll find two avenues of approach: via your bank, savings and loan or other financial institution; or through a personal finance and banking software program, usually Intuit's market-leading Quicken or Microsoft's Money.

If you are already a committed user of Quicken or Money, you can begin online banking by choosing among the software firm's locally based banking partners.

If, on the other hand, you're more committed to a financial institution than to a software program, you can simply adopt the service your current bank offers - or will offer soon.

Citibank is the pioneer, having launched national online banking 11 years ago.

Along with many of our correspondents, I found the ability to pay bills online the closest thing to a life-changer. Setting up a list of all the utilities, companies and credit cards I wanted to pay electronically took about an hour.

Now when bills arrive in the mail I shove them into a folder and toss out the return envelopes and sit down every week or so to schedule the payments at the right time (five days before the due date). Recurring monthly payments now take place with no action on my part. This may say more about me than I should confess in public, but I kind of look forward to paying bills electronically. It's fun, in a nerdy way.

Several people were miffed to learn that many of the payments they make electronically result in an unseen bank staffer writing and mailing a paper check to the payee. But I don't care if caffeinated hamsters do it, as long as I don't have to and it gets done right.

Maintaining various accounts online takes some getting used to. Many of our correspondents reported being baffled in the early going as they learned to synch their on-screen account registers with those in their checkbooks.

When you dial into your bank via modem, you pull data about recent transactions into your software. If you've kept your on-screen account register up to date (by recording ATM withdrawals, paper checks you've written, deposits made, etc.), the program automagically identifies the downloaded transactions that match your manual entries. If you haven't kept up, you just load the transactions right into your account register - and silently hope the bank is right and you haven't forgotten to write something in your paper checkbook.

But what's in it for the banks? With their user-hostile hours, long lines, two-inch-plexiglass facades and growing schedule of miscellaneous fees, banks have not earned a reputation as customer-service leaders.

First, banks are seeking to retain their role in a changing, and increasingly digital, environment. If millions of Quicken users can pay bills, get credit cards and use checks and checkbooks without any participation by their banks, do they even need those banks? Retail bankers don't want to give customers a chance to find out. Many electronic-banking offerings are clearly defensive, designed to retain customers tempted to stray.

Smaller banks see another advantage. "Online banking makes us more convenient," says one bank vice president.

Matt Lawlor, founder and CEO of Online Resources, a firm that sells online-banking technology and services to financial institutions, sees other benefits for banks that take the electronic plunge - customer retention.

"Banks usually have a turnover rate of 20 to 25 percent of their customers every year," he says. "We've found that, with these services, turnover goes down to 10 or 15 percent."

And finally, these customers can be easily targeted for pitches on other bank products. It may not be long before banks offer additional products for sale via direct online links. Mutual funds. CDs. Insurance. Eventually, once the pipeline to electronic commerce is opened, other retail products as well.

Maybe someday your bank will sell you some silk jammies online too.