Online banking's best lure: online bill paying

By Kim Komando

Of all the promises made by the Internet, online banking has been one of the brightest. With a few clicks, people can pay their bills, check their balances and see what has cleared.

Up to now, Internet users have been slow to act on that promise. According to the Online Banking Report, a publication that tracks the industry, only about 20% of all U.S. Internet users were accessing online banking services in early 2004. That figure is expected to grow to 33% by 2006, meaning about two-thirds of users will still not be banking online.

However, with increased promotion of online banking by banks, and with increased overall use of the Internet, online banking continues to gather steam. Jupiter Research projects the number of U.S. households banking online to jump from 29.6 million in 2003 to 56 million by 2008, and the percentage of those paying bills online to increase from 50% in 2003 to 85% in 2008.

"The rate at which consumers are adopting online banking and bill-payment services ranks these two activities among the fastest growing on the Internet," says Mike Sinco, director of analytics for comScore Networks, a Reston, Va.-based Internet behavioral research firm.

An executive for Bank of America says that its percentage of business customers using online banking has tripled since early 2002. Bank of America, according to comScore Networks, has the most online banking customers of any U.S. bank, followed by Wells Fargo and Citibank.

What's this mean for you?

What I'd like to say is, "Get with the program." But I won't. However, there are many reasons why you, as a business owner and consumer, should be doing your banking online. Here are a few:

Your account balance is available night and day.
You can easily transfer money between your accounts, both business and personal.
You can easily tell which payments have cleared.

But the best reason, far and away, is online bill paying. This can make your life much simpler.

Didn't I just see you fumbling around to find your checkbook? Instead of writing a check, finding a stamp and running off to the mailbox, you simply click a few buttons on the bank's Web site. Several bills can be paid in minutes.

Security concerns not warranted

According to Jupiter Research's statistics, half of all online banking households paid at least one bill online in 2003. This represents a sizable increase in recent years -- only about 12% of the online banking customers paid at least one bill online in the fourth quarter of 2002, according to comScore Networks. However, most experts have been wondering what has taken online bill paying (and online banking) even this long to catch on.

Security appears to be the public's No. 1 concern. The idea of putting a bank account number on the Internet still frightens a lot of people. If I can sign on and pay bills, the skeptics ask, why can't somebody else?

But they can't -- because you have a password. It's just like other products on the Internet. Lots of people trade stocks online. They have accounts at Amazon.com and other retailers and use online services such as America Online. These accounts, too, are protected with passwords.

Additionally, most banks protect you 100% in case of fraud. So, even though it may not be required by law, they promise to make you whole in case someone gets into your account.

When you sign into your account, you are in a secure area. Actions you take, even if just checking balances or seeing what has cleared, are encrypted. Modern Internet browsers, such as Microsoft Internet Explorer and Netscape Navigator, use 128-bit encryption. That is virtually unbreakable. It's transparent; you only know it is there because the lock icon in the browser's status bar closes.

I consider this much safer than putting a paper check in a mailbox. But it is simply going to take time to make people comfortable with online transactions.

Some paper checks still needed

So how does online bill paying work? You use the bank's Web site, and set up a list of "payees" (the phone company, other utilities, your suppliers, etc.). When you receive a bill, you enter the amount next to the name of the payee. Click a button to submit the payment, and you're done.

Even if you're paying bills online, you'll have a supply of checks from the bank. You'll need to write one occasionally. For instance, the guy who fixes your network may expect to be paid immediately.

There may also be situations where you want to enclose the biller's invoice. You can't do that if you write a check online. For example, we do a lot of business with FedEx and we need to include the account number and the invoice number. The bank doesn't have a place to put the invoice number, so we send paper checks to FedEx.

Checking your balance online is easy -- handy if you don't do a good job of maintaining a separate register. And transferring money between accounts is generally simple.

Note also that people who pay bills through their bank's online bill-payment service are more loyal online banking customers. The comScore research found that those paying bills online were more than twice as likely to remain active online banking users -- and carried bank balances that were twice as high as the average online banking customer.

Other benefits not as beneficial

Other supposed benefits of online banking are less valuable, in my opinion. One that is touted regularly is downloading of bookkeeping data. You write your checks and complete other banking transactions, and that data is downloaded directly to your personal or your business accounting software. But few people use this service.

Rob Johnston, a senior vice president at Bank of America, says his online customers perceive it as too difficult to use. He believes it needs to be simplified and integrated into the bank's Web site. I agree. When this is automated, it will be a very worthwhile service. Another benefit is reordering checks online. Of course, you may not be using many checks. And mailing in the form every couple years isn't a big deal, but I can't deny that reordering online is handy.

One of the benefits touted by banks is online bill presentment. This just means you get your bills online, rather than through the mail. Who does that benefit? The biller. I prefer to get the paper versions, but maybe you'll like this service.

Don't get me wrong: Although online banking is sometimes over-hyped, it is worth pursuing. It is safe and handy. The bill-paying service alone makes signing up worthwhile. I can't imagine going back to checks.