From the September 1997 issue of Startups

Think of some of the disadvantages of traditional banking--long lines, inconvenient hours, the wait for monthly statements--and you'll discover the advantages of online banking. A typical online account allows you to bank 24 hours a day, seven days a week. If you have a computer, a modem and a telephone connection, you can access your account, whether you're in your office, at home or on the road.

There are two different types of computer-based banking:

With online banking, if your bank or credit union supports a software program such as Quicken, QuickBooks, Microsoft Money or Managing Your Money, or offers its own software (usually free), you store financial data on your computer, transferring information between your computer and your bank's. Using your financial-management program or bank-supplied software, you maintain your records, view the latest information about your accounts and have the bank write checks from your accounts to pay bills. Nationally known banks such as Chase Manhattan Bank (http://www.chase.com/ ), Fleet Bank (http://www.fleet.com/ ) and Bank of America (http://www.bankamerica.com/ ) provide this type of online banking.

Some banks offer Internet banking, which allows you to use the bank's software and computers to maintain your records and pay your bills. You can opt to use your financial-management program instead.

The main difference between online banking and Internet banking is the location of records. Online banks support financial-management software installed on your computer. Internet banks provide software on their computer systems, so users don't have to store records or software on their own computers.

You won't have to wait for a monthly statement with either system; banks update accounts every day, and you can view your account information any time. For example, you can see if an important check has cleared or a deposit has been made. Because your account is always up to date, it should be much easier to balance your books at the end of the month.

You'll also be able to avoid envelopes, post office lines and check writing because the bank issues electronic or paper checks for you. You don't have to give up paper checks altogether if you use a financial-management software program on your computer. Even if you don't have your own software, the bank will still issue paper checks for you, but you'll have to call them and request this service.

If you use financial-management software, you can produce a variety of forms, using templates defined by the software developer or custom forms that you create. Other advantages include the electronic transfer of money between online accounts, automatic payment of recurring bills and messages that alert you to pay a particular bill at a particular time.

"The advantages of online banking are that it's quick, easy and inexpensive," says Eric Holmquist, a technology-solutions consultant for an accounting firm in Glendale, California. "However, don't have high expectations yet; the technology is maturing. There are some good opportunities for cash management, but don't throw out the checkbook just yet. If I were running a small business now, I would update my registers and pay bills manually, because online banking still takes a lot of effort. But for things like checking balances, transferring funds, and researching checks, online banking is great."

Many banks don't offer online banking yet, and many organizations don't accept electronic checks or don't know what to do when they receive electronic payments. Electronic payments are credited directly to a company's bank account, so they don't even need to be online to receive them. But if you can't include an invoice with your payment, some businesses won't know what the payment is for.

Sometimes paper checks are required. For example, if you have to submit a registration form or an application, you may have to use a paper check. To address these problems, many banks offer the option of paying with paper checks that they issue and send for you. You won't have paper copies of these checks; however, you'll be able to view the image of a particular check on your computer screen, and information about the check will appear in your electronic check register.

Because electronic payments are almost instantaneous, companies with cash-flow problems might have to spend more time paying bills than they would if they were issuing paper checks. They'll need to be sure they have enough money in the bank to cover the checks they send; transactions are processed quickly when mailing time is eliminated, so they might have to pay some bills and then wait for a few days to pay others.

"The advantage of online banking is primarily convenience," says Irvin Feldman, a Certified Management Accountant in Flushing, New York, whose firm helps companies use accounting software. "The main disadvantage is that, unless you keep track of your accounts, things can easily get out of your control. You must keep careful tabs on bank charges, verify all transactions for accuracy and make sure that the transactions are properly authorized. In small businesses, this isn't always possible, because tracking bank accounts can be a full-time job."


Sandra E. Eddy is the author of The GIF Animator's Guide (MIS:Press, $39.95, 800-288-2131) and Mastering Lotus SmartSuite 97 for Windows 95(Sybex, $39.99, 510-523-8233).

Is Online Banking Secure?

"Worry about online transaction security is much ado about nothing," Holmquist says. "You have 10 times more exposure when you give someone your credit-card number over the phone--particularly a cellular phone--or on mail order forms than you do through the Internet."

The financial-management program Quicken, for example, allows you to protect your accounts three ways:

  • It encrypts data (that is, translates the data into a scrambled format) as it's being transferred between computers.
  • You must type a Personal Identification Number (PIN) to access an account. When you first start an online account, you'll be assigned a PIN. You should change the PIN immediately so that you're the only one who knows your password.
  • Quicken also allows you to assign another password within the financial-management program. Anyone attempting to look at the data will have to know the passwords for both your program and your account.

Choosing an Online Banker

When selecting a bank for your online account, look for the following:

  • How long has the bank been doing business? Is it insured by the Federal Deposit Insurance Corporation (FDIC), the state they're in, or another legitimate insurer?
  • If you already use a particular financial-management program, do the bank's computer programs match yours? If you need software, will the institution provide it?
  • What services does the bank provide? What is the monthly fee? How many free transactions are you allowed each month?
  • How many checks will the bank write before passing on a surcharge? Will the bank issue paper checks for those creditors that don't accept electronic payments?
  • How do you deposit or withdraw cash? Does the bank include an ATM card or debit card? How much will it cost you?
  • Does the bank also provide other services, such as investment and financial services?
  • Reliable banks provide reliable customer service. Before you sign up, contact the bank by telephone and e-mail. Can you talk to a real person on the phone? When you send an e-mail message, do you get a prompt reply?
  • Study the bank's Web site. Is it well-designed and easy to use? Does it load quickly? Does it provide a demonstration of its online-banking program? Does it provide links to sites that cover your other interests, such as stock-market quotes or business news?

If you decide to do your banking online, you may eventually obtain loans, trade stocks and bonds and get business advice--all at your own online branch office.

Bank On It

If you want to learn more about online banking, Internet banking and online-banking software programs, these resources can help.

Intuit Inc. (http://www.intuit.com/ ) provides links to its products, Quicken, QuickBooks and TurboTax; product demonstrations and trial versions; and services such as the Quicken Financial Network and Quicken Financial Planner. Be sure to check the list at http://www.intuit.com/quicken/technical-support/quicken/faq.areas/faqs/on_bk116.html if you're looking for a financial institution that offers online banking using Quicken.

Home Banking ( ) provides an overview of banking from home featuring Microsoft Money. Also included are links to an online banking demonstration, frequently asked questions about online banking and other related information.

Online Banking and Financial Services Directory (http://www.orcc.com/banking.htm ) includes links to many bank and credit-union Web sites. Also included are links to pages of bankers offering free banking and bill-payment software, as well as Web-banking demonstrations and bill-payment services. This site is a good place to start if you're looking for a bank in a particular area.

BanxQuote Online Banking (http://banx.com/banx/online/usonline.htm) provides a table of selected financial institutions and their online services and fees.

Open Financial Exchange White Paper (http://www.intuit.com/ofx/wpaper.html ) is a detailed, 15-page document discussing how financial data is exchanged using a new standard developed by Intuit, Microsoft and CheckFree. You can also browse through frequently asked questions at http://www.intuit.com/ofx/faq.html .

Worth Visiting

Popular Science Magazine

Online Banking

http://new.popsci.com/content/com-puters/features/onlinebanking/ob.1.html

This site covers the basics of online banking.

Federal Reserve Bank of Boston

A Consumer's Guide to Payment

http://www.bos.frb.org/finance/direct.htm

Learn more about electronic payments and purchases, online banking and security.

Contact Sources

Irvin Feldman, c/o Feldman and Feldman Consulting, (718) 886-4102, ifeldman@compuserve.com

Eric Holmquist, c/o Hutchinson and Bloodgood LLP, 101 N. Brand Blvd., #1600, Glendale, CA 91203, EHolmquist@hbllp.com<</a>