E-banking may cut services along with costs

Virginia C McGuire

NerdWallet

More and more of our lives have moved online, and managing our money is no exception. If you're thinking of ditching your bricks-and-mortar bank for an all-digital provider, here's what you need to know.

What's the difference?

Because most traditional banks also offer digital banking, "it's really hard to distinguish between the two," says David Albertazzi, a senior banking analyst with Boston-based Aite Group, a financial industry consultant. "The lines are getting blurry between an offline experience and an online experience."

Online-only banks usually invest more in digital tools for the web or for mobile banking customers. Albertazzi pointed out that for many traditional banks, online and mobile tools are just add-ons, not the central focus of their customer interactions.

Yet the Internet has become the most important way consumers interact with banks, and while branch offices still rank second, they declined in importance this year, according to consulting firm Capgemini's 2014 World Retail Banking report. Today, people use branches mostly to get advice from bankers there, Capgemini says.

But in-branch transactions are tapering off. At Pittsburgh-based PNC Bank, 47% of customers currently use non-branch channels such as automated teller machines (ATMs), online access or mobile apps for the majority of their transactions, up from 38% a year ago, says Pat McMahon, a spokesman.

Cost comparisons

While free checking is getting harder to find at traditional banks, some waive fees for students, seniors or other groups, as well as when depositors meet certain conditions, like maintaining a minimum balance or using a debit card at a specified rate. In contrast, digital-only providers such as Moven, Capital One 360, Simple and AllyBank all offer online checking accounts with no monthly fees or balance requirements.

Getting cash may cost you, however. Using an ATM that's not affiliated with your bank can trigger double fees – one from the company that owns the machine and one from your own bank. Bricks-and-mortar institutions, especially large ones, are more likely to have ATMs in convenient locations.

If you choose an online-only bank, look for one affiliated with a big ATM network. For example, Capital One 360 participates in the Allpoint network, with 55,000 cash machines worldwide, and First Internet Bank uses the Plus network, with more than 1 million.

The convenience factor

There's no question that online and mobile banking is more convenient for many transactions. Online bill pay saves postage and time, and the technology that lets you deposit checks electronically or pay friends back for picking up a bar tab is getting better and better. But if you occasionally need to deposit checks written in foreign currency, it's helpful to have access to a bank branch.

Service disruptions are also a concern. The online-only provider Simple had a snafu in August when a scheduled maintenance project dragged on for an extra day, blocking about 10% of customers from getting access to their accounts, according to news reports. The Portland, Oregon-based unit of Spanish banking giant BBVA now provides an online status report that is regularly updated for all to see.

Security

Data security is a major concern for 69% of respondents who decide against using mobile banking apps, according to a Federal Reserve surve. But Albertazzi says there's no significant difference between traditional financial institutions and online-only service providers when it comes to security.

"The way to have the most secure system is not to let anybody in," Albertazzi says. "That's not that friendly to the consumer."

Balancing customer privacy with convenience will lead more banks to adopt biometric security systems, Albertazzi says. These technologies use physical traits like fingerprints or retina scans for user identification instead of relying on passwords and personal identification numbers, or PINs.

Branch offices beat online-only banks in one security-related service – storage of valuables. Many people still use safe deposit boxes to keep important documents, expensive or heirloom jewelry and other treasures from harm or theft. The ability to get a box protected by a vault keeps some customers wedded to their banks.

Extra perks

Many customers expect their banks to provide an online experience like Mint, with apps to analyze spending or graphs showing progress toward goals. Online-only providers dominate this arena, although Albertazzi said some traditional bricks-and-mortar institutions like Wells Fargo and Bank of America are also making strong plays in digital services.

Meanwhile, as free checking becomes more elusive, traditional banks are expanding rewards programs to build customer loyalty. Credit card companies have been offering points programs and other perks for years, but now such programs are available with debit cards too.

Bottom line

Should you switch to an online-only bank? That may not be the right question to ask. Instead, think about what must-have services you expect from your bank. You may find them – and lower fees –at an all-digital financial provider. But don't dismiss traditional bricks-and-mortar banks just yet. Their adaptability may surprise you.

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