For the first time ever, U.S. bank account holders would rather visit a Web site than a bank branch, according to an industry survey. Nearly 25 percent of those surveyed said they preferred online banking, compared to about 20 percent who favored walk-in visits, according to the American Bankers Association survey.
Despite horror stories about identity theft, computer viruses, password hassles and other troubles, online banking has enjoyed a steady rise in popularity.
"This marks a watershed change," said Nessa Feddis, ABA senior counsel and a retail banking expert. "It ... tells us that consumers now have confidence in the accuracy and security of online banking."
Still, consumers haven't turned away from other banking outlets – 55 percent of customers said they preferred using ATMs, the telephone, old-fashioned mail, a mobile device or had no preference.
Banks have been nudging consumers toward online banking for years. An online transaction can cost a bank 90 percent less than an in-person transaction.
Greg McBride, a senior financial analyst with Bankrate.com, said the results of the survey are consistent with other research he's seen.
"The way we handle our finances has changed," he said. "We don't sit at the kitchen table with a stack of envelopes anymore to pay our bills. Now we open up a laptop."
He pointed to the convenience of services like direct deposit of paycheck as one impetus for online banking.
"It sure beats standing in line during your lunch hour on Fridays," he said.
Web banking has also been spurred by new regulations issued by the Federal Financial Institutions Examination Council in 2005. These rules required banks to add layers of security to Web sites beyond requiring user names and passwords.
Consumers know these tools well now. Bank of America customers, for example, see pictures of familiar tea cups or flowers when they log in as reassurance they're not at a phishing site. ING Direct customers are sometimes asked to identify their high school mascots or enter PINs. These changes have enhanced security and reassured consumers, said Eric Skinner, chief technology office of security firm Entrust. Still, Web users should not become overconfident, he said.
"The appropriate tone is caution," Skinner said. "Banks have come a long way in recent years, thanks in part to regulatory pressure. But the reality is that there are still problems related to fraud."
Some security techniques are mere "feel good" measures, he cautioned.
Meanwhile, the pace of innovation among online criminals is much faster than that of real-world bank robbers, he said. Real-world thieves still use the same strategies they've used for years, while "in the online world, attacks change monthly," he said. Phishing attacks have recently given way to sophisticated computer viruses, for example.
"Banks have to step up their game to stay ahead," he said.
Avivah Litan, a bank security expert from analyst firm Gartner, said consumers are right to feel relatively safe when banking online. Federal law protects them against losses, so their risks are minimal.
But there is irony in this week's announcement from the bankers association, she said. Just last month, a banking industry security group named the Financial Services Information Sharing and Analysis Center issued a fairly dire warning to commercial Web banking customers. The alert was first published in the Washington Post.
It recommends that firms employ extreme security measures, such as limiting online banking to ultra-secure computers that have no e-mail or general Web browsing capabilities. The warning came in response to a dramatic rise in online thefts from small and medium-sized businesses. Unlike consumers, businesses are not protected by federal banking regulation and are not entitled to automatic refunds of losses, Litan said.
"Consumers feel safe and they should feel safe. But it's odd that this comes at a time when banks are telling business customers not to feel safe," she said.
Fortunately for corporate customers, or anyone else who still doesn't feel comfortable with online banking, branch banking isn't going anywhere. In fact, McBride said, despite the huge industry push toward online banking, the nation's largest lending institutions have been engaged in massive branch building during recent years. The number of branch offices has more than doubled in the past two decades, according to the FDIC, even as the number of banks has sharply fallen as a result of mergers and failures.
"There has been a building bonanza," he said. "The branch is really the retail floor for banks. That's where they sell their loans, their other products. Branches aren't going away."