Originally created 05/01/00

Banking takes to the Internet



Less than a year ago, some banks were charging fees for electronic access to accounts; now many are begging their customers to bank electronically by offering special incentives.

The strategy shift shows just how badly companies want to get customers onto the Internet and how costly it is becoming to continue using traditional methods. Banks realize it costs far less to process an electronic funds transfer than to process a check.

"It's much cheaper," says SunTrust City President Bill Thompson.

By urging customers to bank electronically, banks can add more customers without adding more personnel. They also don't need as much paper or as many branches.

Some banks have even flirted with the idea of charging customers to get help at a teller. But public resistance and negative media attention forced many of them to reverse their policies.

At the same time, banks are trying to help traditional customers catch up with technology that has been available for years. The technology is always way ahead of the public's acceptance of it, Mr. Thompson said.

First Union has offered some forms of Internet banking for free since 1996. It charges a monthly fee for many accounts. But if a customer opts for a special account that only is accessed electronically, the account is free.

The bank also is offering five free Hallmark cards as a premium to customers who use their debit card seven or more times in April. Other banks are using similar incentives. They have offered candy and other goodies to customers willing to swipe instead of sign, too.

Moving customers from traditional to online banking is not the company's strategy, First Union vice president Parrish Arturi said. But, in effect, it might be what is happening.

Smaller banks are getting in the act, too.

Georgia Bank & Trust Co. has offered online banking for more than two years. Initially, the bank planned to charge a nominal fee for the service, but market pressure and a nominal cost savings led the bank to dump the fee.

So far, nearly 1,000 customers have signed up for the service, bank Chief Executive Officer Dan Blanton said. More are expected to turn to Internet banking as they learn how to use it.

"It was a relatively inexpensive investment," Mr. Blanton said.

For a relatively small amount of money, banks can offer customers a service they want and realize cost savings. The savings are difficult to calculate, but they are there, Mr. Blanton said.

First Bank Chief Executive Officer Patrick Blanchard said there are tremendous savings in offering online banking services. His bank is experimenting with it and plans to offer the service.

It costs, for example, about $3 to issue and process a payroll check. The same check can be issued and processed electronically for about 25 cents, he said.

In addition, the price of the technology is dropping quickly.

Even Federal Reserve Chairman Alan Greenspan recently said that the central bank needs to modernize the way it processes checks. Even in an electronic age, Americans cling to paper -- writing about 68 billion checks a year, he said.

The banking industry is experimenting with electronic money transfers that don't require bank accounts. The Fed also is testing new systems for electronic check presentation.

Some customers already have found a way to keep some of the savings that electronic banking creates. More than 100,000 customers in the United States bank at institutions that have no branches. They conduct most of their transactions via Internet, ATM, fax, phone or mail.

TeleBank, a publicly traded company with $4 billion in assets, is one of the nation's largest branchless banks. The Arlington, Va.-based bank passes its savings on to customers by offering them higher interest rates on accounts.

If the industry keeps moving in the same direction, some industry experts predict, all banks will be like Telebank, with electronic access to accounts from anywhere.

Reach Frank Witsil at 823-3352.