Not New, But Improved
Online banking itself is nothing new; indeed, traditional brick-and-mortar banks began offering many online services in the early 1990s. What's different about the virtual bank is that, because it exists almost exclusively on the Internet, it enjoys a significant cost advantage that can be passed on to the customer.
How? Traditional banks build branch offices complete with elaborate vaults and security systems, and they employ tellers, managers and loan officers. Sure, banks don't typically pay tellers and managers big salaries, but customers still foot the bill for these costs as a variety of fees that quickly add up.
The virtual bank, in contrast, needs no brick-and-mortar branches, no secure vaults, no tellers and no managers, so it brings significant costs savings to the game. Indeed, according to Richard Parlontieri, chairman and CEO of Atlanta-based Ebank.com Inc., industry figures show that a typical transaction involving a teller costs a brick-and-mortar bank about $1 and a typical ATM transaction 25 to 30 cents. The cost of a typical Internet transaction? One cent, Parlontieri says.
Lest you think the information is a little less than objective, consulting firm Booz Allen & Hamilton offers similar numbers: $1.44 for a teller-assisted transaction and four cents for an online transaction.
If you think these numbers make brick-and-mortar bankers nervous, you're right-because the future of banking, like the future of any business, lies with the cost-effective. Traditional banks are responding to this hard fact by offering online banking for consumers and business owners; many operate subsidiary units as virtual banks, and as time passes, their number will grow.
As yet, only a handful of virtual banks exist, but their number, too, will grow, according to Paul Murphy, author of Banking Online for Dummies (IDG Books Worldwide). "Virtual banking is empowering, and it's absolutely the wave of the future,' Murphy says. "You know exactly how much money you have in your account, what checks you can write against it, and how much you can sweep into an interest-bearing account until you need it-for example, on payroll day.'
Murphy makes a distinction between virtual banks and the online services offered by most brick-and-mortar banks. Virtual banking is Web-based banking, Murphy notes. You connect through the Internet-a simpler process than dialing into your brick-and-mortar bank's online system using a modem and special software-and you get a real-time view of the activity in your account.
Virtual banking also allows you to reconcile your account automatically, he adds; with online banking, you commonly compare your own account data against your bank's and manually reconcile any differences, deposit by deposit, debit by debit. That takes time, Murphy notes, and can prove frustrating. Virtual banking, says Murphy, turns the ordinary business owner into a professional money manager capable of improving the company's bottom line.
"Web-based virtual banking works today, and it's robust,' Murphy says. "There are still some wrinkles to be ironed out with online banking.'