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Online banking: What is it?

Online systems allow customers to plug into a host of banking services from a personal computer by connecting with the bank's computers over telephone wires. The convenience can be compelling. Not only is travel time reduced, but ATM machines, telephone banking or banking by mail are often unnecessary.

And, technology continues to make online banking, once attempted only by computer enthusiasts, easier for the average consumer.

Even that may not be easy enough, though. Many systems that offer greater financial control also require more work. Online bill payment is an example of an effort that requires setting up which leads to ultimate convenience.

Banks use a variety of names for online banking services, such as PC banking, home banking, electronic banking or Internet banking. Regardless of the name, these systems offer certain advantages over traditional banking methods


Online banking: Many advantages

Regardless of the name, these systems offer certain advantages over traditional banking methods.

  • Consumers can use their computers and a telephone modem to dial in from home or any site where they have access to a computer.
  • The services are available seven days a week, 24 hours a day.
  • Transactions are executed and confirmed quickly, although not instantaneously. Processing time is comparable to that of an ATM transaction.
  • And the range of transactions available is fairly broad. Customers can do everything from simply checking on an account balance to applying for a mortgage.


Online banking: There are disadvantages

There are also disadvantages.

  • The most obvious: Technophobes need not apply. You must be comfortable using a computer.
  • Investment of time upfront can be formidable. The data entry is necessary before the numbers can be massaged and money managed successfully. Online bill payment is an example of an effort that requires setting up which leads to ultimate convenience.
  • Switching software or banks can mean re-entry of data, although Internet-based systems are less impacted by this. But competition seems to be minimizing this problem. The personal finance management software Microsoft Money enables users of competing software to import data easily.



Online banking: Levels of service vary

What services are available varies from bank to bank. Virtually all of the banks that offer electronic services allow consumers to check the balances in their accounts, transfer funds among accounts, and order electronic bill payments.

More sophisticated systems allow customers to apply for loans, download information about accounts into their own computers, trade stocks or mutual funds, and look at images of their checks and deposit slips.


Online banking: Two approaches, dial-in and Internet

Banks take two approaches to online services. Most require consumers to have specialized software in their computers, while newer Internet-based systems allow customers to simply dial in and use the bank's software or software provided by an Internet service provider, such as America Online (AOL).

The two approaches have distinct advantages and disadvantages for consumers. Yet bank customers who do not yet use electronic banking would probably do well to choose Internet banking because the older systems are likely to be phased out during the next few years.

"Online banking will become Internet banking. Banks will just have this Internet branch," said James Verbrugge, a banking expert and chairman of the Department of Finance at the University of Georgia.


Online banking: Client-based uses personal finance software

The "client-based" systems, in which customers use their own software, generally use personal financial managers – specialized computer programs that help customers carry out a variety of personal finance activities. The most popular programs are: Intuit's Quicken, MECA's Managing Your Money, and Microsoft's Money.

These programs typically allow consumers to do much of their work off-line, and then dial in to complete their bank transactions. These client-based systems have the advantage of allowing consumers to integrate all their banking information with other personal finance data using a single program.

Although these software products can be purchased at computer stores, the versions offered by the institutions are enhanced to adapt to their systems. Some banks will allow customers to download the program for free, or will mail a copy to customers free or for a small fee. Shopping elsewhere is likely to reduce the efficiency of the system.

For those who already own a personal finance program or enjoy learning how to use new software, the client-based approach works well. However, switching accounts from one bank to another may also require switching to new personal finance software, and customers will have to invest some time (and possibly the purchase price of the new program) in order to make the switch. It could also entail transfer of a lot of information from one program to another.

A few banks have developed proprietary software for online banking, which is usually free. Again, changing banks would present the drawbacks associated with learning a new program.

A handful of banks currently allow customers to choose between the older online banking systems or the Internet. However, this is expected to be a transitional approach that will stay in place only until all the online banking customers switch to the Internet. David Smith, director of access management at Citibank, one of the first banks to offer both approaches, said the older system might well be eliminated within a year as customers switch to Internet banking.


Online banking: Internet more portable, less versatile

The newer Internet-based systems allow users to dial in and then use the bank's own software (or that of an Internet service provider, such as AOL). Many consumers will find them easier to use than the older systems, especially customers who want electronic banking services but are not interested in doing a lot of other personal finance calculations. This interaction can be initiated from any computer, anywhere.

But an Internet system is less versatile as well. It cannot consolidate extensive personal finance information within a single program.

Using an Internet-based system may also be less expensive in many cases. In general, a bank's costs will be lower when it provides a single electronic banking service via the World Wide Web section of the Internet. The bank then supports a single computer system instead of a multitude of personal finance programs that its customers may use. Cost savings allow the banks to charge lower fees for online banking, or to simply eliminate them completely. A few large banks that have set up Internet-based systems charge no monthly fee for online banking services and electronic bill payment.


Online banking: Expect to pay fees

Microsoft's Cone said that banks originally viewed PC banking as "a pilot program" or a process to be tested. But the Internet is finally taking online banking mainstream.

"What is going to happen," said Cone, "is that there is a broad pricing issue at work here. Just as banks charge for checking accounts, there are different variations on that theme. Some charge for entering a branch. My sense is that online banking will be the lowest cost channel for banks, simply because they don't have to maintain a physical branch or presence to provide the service."

The most expensive aspect of online banking is bill payment, Cone said. "Banks that offer that service for nothing are eating the cost. It costs the banks $6 to $10 per month to provide bill payment."

"The bank should save money," said Tripp Rackley, president of nFront Inc., an Internet banking software company in Athens, Georgia. "On Internet banking, they're really not charging anything right now."

Still, consumers can run into fees regardless of which type of online banking system they use. Fees typically range from $3.95 to $6.50 a month for basic electronic banking services. Some banks charge an additional fee for electronic bill payment, ranging from $4.50 to $6.

Rackley recommends shopping around for those banks that have no monthly charges but provide a wide array of services at their Internet branches. "I would make sure I could do everything. You wouldn't put your money in a brick and mortar bank where the window was broken."


Why spend your lunch hour standing in long bank lines, or go crazy manually updating your checkbook, when you can track your finances online? The ability to pay your bills, transfer money, and view transactions electronically is what online banking is all about, and it's never been easier to discard your paper bank records and move into the digital age of economics. All exchange of online banking information is encrypted or secured with a sophisticated encoding system so it's safe as well as easy to do.

A good way to start is to visit your bank's website (assuming it has one) and find out if it offers online banking. While some banks offer free online services, others, like Citibank, charge $25 a month. Some also require that you install their banking software.

Another option is to interface your bank statements with a personal finance program, such as Quicken or Microsoft Money.

Citibank's online service used to require that you use its 'Citibank on the PC' software. Now, you can just go to the Citibank Web site and click on the 'PC Banking' link. All clients are alloted individual PIN numbers, and can manage the following online:

-- Your money in the bank
-- Securities
-- Loans
-- Credit cards
-- Summary and service

Wells Fargo Bank's Web site has a link to its online banking system as well; once there, you need only enter your social security number and password to access their online banking services.

Bank of America's (BOFA) online system can be accessed by legal customers at their Web site. They provide direct access to customer accounts through the following services:

-- HomeBanking allows you to see your checking and savings accounts free of charge. You could access it either through the Internet, AOL or BOFA's own financial software.
-- BankAmericard lets you check your balances; your account history and gain access to customer service at no charge.
-- PC BANKING FOR BUSINESS allows small businesses to access accounts and get timely information needed for controlling finances.



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E-commerce has come to be defined as every type of business transaction in which the participants prepare or transact their business electronically. The scope of e-commerce is very wide, covering all forms of electronic processes.

On line technologies are the most significant kind of e-commerce and include Internet retailing, Electronic Data Exchange, electronic settlements, browsing and the selection and buying of products and services over the Internet.

These Internet technologies are transforming business practices, creating entirely new fast growing businesses and leading to substantial efficiencies and cost savings within companies all over Australia.  Internet technologies are already making major improvements in profits of many Australian companies, and will for many years to come.

The common misconception about e-commerce is that it is simply a method of selling goods and services on line and typically there has been most fuss over business to consumer activities, while the real activity, savings and business is coming from business to business e-commerce.

Business to business e-commerce revolves around an electronic value chain of suppliers, resellers, distributors and other key business partners who communicate, transact and run internal operations using the Internet or other forms of electronic communications channels.


In reality the commercial supply chain is substantially more complex and is driven by a great deal of specific purpose paper work which is exampled in the following diagram summarising the "order to cash and purchase to pay" cycles.


The delivery component of the supply chain is characterised by an even more complex documentation process, largely dependent on paper documents based around incompatible proprietary tracking, product numbers and people's ability to accurately transcribe information.

Traditional, non e-commerce supply chains are characterised by a great number of faxed documents which achieve different results eg. order goods, confirm availability, provide pricing and delivery information. All this material requires re-keying and is error prone, expensive, time consuming and inefficient.

Is it any wonder that the introduction of supply chain based e-commerce systems in a number of companies is leading to reductions of costs from about $75 to about $5 per order? In addition, it is leading to other advantages and savings such as; improved inventory management, improved accuracy and quicker delivery times, reductions in shrinkage and increased customer satisfaction.


Most developed countries are currently grappling with readiness issues and developing a range of activities which would enhance their e-commerce intensity. It is clear that Australia is among a small group of countries with high levels of readiness and many business initiatives, across most sectors of the economy, which are leading to e-commerce intensity.

Electronic payment systems including Internet Banking is clearly an important component of the e-commerce supply chain. Logically, payment is a procedure which would be addressed at a later stage in implementing a comprehensive e-commerce system, after automating the ordering, buying, consigning and logistics procedures. Much of the cost savings and efficiencies are only achieved by implementing a comprehensive e-commerce supply chain rather than simply installing an electronic banking facility or just an automated transport and delivery system on an otherwise antiquated supply chain.

You Can Do It Now!

Internet Banking for Business is one of the new, fast growing, applications of e-commerce in Australia. This booklet  provides information on the electronic banking facilities offered by 13 banks in Australia. Most of the major business banks presently offer either a browser  based Internet banking service for business or a specialist software based service which you will need to acquire from the bank and install on your computer, some banks currently offer both.

As can be seen from the final section of this booklet, the usefulness, features and capabilities of  these services varies widely. In many cases there are constraints on financial transfers, on the flexibility of the bill payment offerings and the range of commercial services offered. Over the past year the banks have been moving vigorously to improve their business offerings.

Four interlinked factors are driving the global acceleration of business banking on the Internet. These are:

Clearly it is possible to do your business banking today electronically and over the Internet. You may find that the services do not entirely suit your business needs, however rapid progress and product improvement is taking place in this area and it is likely that in the near future improved products will be available for your use.

What's on offer?

The list of customer offerings is extensive but generally falls short of what business would require as a fully comprehensive Online business banking service. Features such as full payroll, superannuation, tax and global multicurrency transfers do not form part of most banks current offerings.

We were not able to identify any offerings, which provided a comprehensive and seamless link into an electronic commerce supply chain offering business customers full product and services reconciliation and  payment.

This development is clearly the next major challenge for the banks and will require close cooperation with their business customers.

Details of current services can be sourced by examining the Offerings of individual banks, included in the final section of this publication. In summary the extent of banks smaller company Offerings include:

Is it Secure?

A brief summary of individual bank's security arrangements for their personal Internet customers is included under the final section "Who's Offering What" of this publication. Clearly it is important for customers to familiarise themselves with the detailed security arrangements in place for their intended bank and reconcile that with their business work place and practices. Most banks include a "Security Section", accessible to their personal Internet customers on their Web sites.

The security protections offered by banks, and which customers expect, generally should include:

In many cases these broad expectations are exceeded with the banks providing additional security measures such as customised software, hand held authentication and challenge and response devices and additional password protection on all payment transactions.

Is my privacy protected?

In December 1998, the Commonwealth Government announced that it was to develop "light touch" legislation to support and strengthen self-regulatory privacy protection in the private sector.

The privacy standards in the legislation will be based on the National Principles for the Fair Handling of Personal Information (NPPs), originally released by the Privacy Commissioner in February 1998.

While it is acknowledged that Australian banks have an excellent record regarding security of customer information, surveys show that net users are concerned about privacy issues including transparency, collection, use and disclosure of their personal information.

While few banks presently have explicit privacy statements on their web sites, as a minimum standard, banks adopting the Code of Banking Practice are bound by the Privacy and Confidentiality provisions of the Code. The Code of Banking Practice can be accessed on the ABA website.  The website also is a useful point of reference for bank websites. It may be necessary to research the individual bank's privacy policy regarding the collection, use and disclosure of personal and business information.

Banks and financial institutions that are credit providers are subject to Part IIIA of the Privacy Act, which regulates credit reporting. Where an Internet banking facility offers Online credit applications, this legislation applies.

There are two types of costs associated with business Internet banking

The range of costs varies widely and there does not appear to be any move to standardise fee offerings for competitive purposes. At one end of the spectrum several banks offer services with no additional charges for Internet banking. While at the other end, certain banks require some or all of the following: a software provision fee, monthly charges for software, start-up or installation fees, monthly account fees, transaction fees, funds transfer charges and charges for providing "help" services. In a number of cases these fees are stated to be volume based.

Because this is a complex area and most banks have adopted different approaches to fees and charges, often down to the individual customer level, it is necessary for customers to clarify this issue with individual banks.