Online and Mobile Banking

Online and mobile banking are tools developed by commercial banks that allow customers to conveniently access their accounts using computers or mobile devices connected to the Internet. Customers using online or mobile banking can view savings and checking accounts, manage their personal data, obtain bank statements, order supplies, transfer funds between accounts, set up automatic bill payments, and deposit checks. The development of online and mobile banking systems has been one of the key innovations in personal banking since the 1990s. This has led to the emergence of online-only banking, in which banks do not have physical locations and handle all customer transactions remotely.

Although banking institutions have developed complex systems to protect their customers’ privacy and security, customers using online and mobile banking still place themselves at an increased risk of unauthorized account access. Still, Internet and mobile banking are considered safe so long as users adhere to basic principles regarding computer security and the protection of personal information. In addition, customers are advised to research account protection policies before opening an account at a bank or credit union.

History of Virtual Banking

The first financial institution to offer online banking was the Stanford Federal Credit Union, which debuted banking through a web browser in 1994. Interest in online purchasing and banking surged after the Y2K "crisis"—the anticipation that a glitch in computer calendars, also known as the "millennium bug," would cause a widespread cascade of problems at midnight on January 1, 2000—proved to have been exaggerated and misunderstood. By 2001, more than eight million customers were using online banking in the United States. The Federal Financial Institutions Examination Council (FFIEC), a governmental agency that develops national standards for the banking industry, issued the first set of online banking regulations in 2005.

Direct banks—banking institutions that do not have physical locations and offer their services entirely through telephone, Internet, or mobile access—first emerged in the late 1980s in Europe. The direct-banking industry expanded rapidly in the twenty-first century, with institutions such as ING Direct, HSBC, and E-Trade opening virtual banking services in many US cities.

The Apple iPhone, which debuted in 2007, was the first smartphone to have a full Internet browser, and it inspired a global trend toward using smartphones in business and commerce. In the United States, banks such as Citibank, Wachovia, Bank of America, ING Direct, and Wells Fargo were among the first to develop and offer mobile applications that allowed customers to access their checking and savings accounts.

As of 2016, the primary services offered through online and mobile banking programs include the abilities to access account balances and transaction records remotely, to transfer money, and to save, print, or view bank statements. Some such programs also allow customers to issue checks through an online system or to set up and manage recurrent payments to credit cards, utility companies, and other businesses. Once smartphone camera technology had advanced sufficiently, banks also began offering the ability to deposit checks via smartphone by photographing the front and the back.

Benefits and Disadvantages

The primary benefit of online and mobile banking is convenience. Online banking provides twenty-four-hour access to account information. The advent of mobile deposits, online checking, and online payment, coupled with mobile banking, vastly expanded users' ability to conduct important transactions from home. This is especially beneficial for those who have difficulty visiting a bank during business hours.

Online and mobile banking also made it possible for customers to access their accounts internationally, such as while on vacation or traveling for business. Online and mobile banking allows customers to avoid waiting in lines at bank branches, and many banking institutions offer personal customer service online, including virtual real-time chat and e-mail communication. In addition, banks can provide users with information on additional services, such as applying for loans and opening new accounts, and allow users to apply for these services online.

The primary disadvantage of online and mobile banking is the sacrifice of personal customer service, familiarity, and personal identity protection. At branch locations, bank tellers can verify a customer’s identity directly, thus reducing the possibility of unauthorized account access. Online banking effectively eliminates in-person identity verification. In addition, some customers may prefer personal interactions with bank employees, which may be difficult to replicate for virtual customers.

Safety and Security

In 2015, David E. Sanger and Nicole Perlroth reported in the New York Times that, according to an investigation by Internet security firm Kaspersky Lab, a group of Internet hackers had used malicious programs known as malware to steal as much as $1 billion from more than one hundred financial institutions in thirty nations over the course of two years. Such incidents raise questions about the safety and security of banking online.

According to the Federal Deposit Insurance Corporation (FDIC), online and mobile banking is safe for most consumers, as long as customers adhere to personal safety guidelines and only conduct banking with federally insured, legitimate banking institutions. The rise of Internet-only banking has left consumers vulnerable to exploitation by illegitimate banking institutions or by emerging banks that lack the ability to protect consumer assets. The FDIC therefore recommends that consumers research a bank before opening an account online and only bank at institutions that are insured by the FDIC. Similarly, credit union customers are advised to bank only at credit unions that are insured by the National Credit Union Association (NCUA), which provides protections against failure similar to those the FDIC provides to banks.

While the FDIC guarantees against loss due to bank failure, it does not guarantee against theft. However, banking institutions typically have a banker’s blanket bond, which is a separate insurance policy to protect the funds stored in the bank against theft, embezzlement, fire, flood, earthquake, or other incidents. Before joining an online bank, customers are encouraged to ensure that the bank offers insurance to protect customer accounts in the case of theft or cyberassault.

Most incidents of theft or unauthorized account access are a result of user error. Security experts recommend that users avoid sharing personal or sensitive information, especially when using mobile or online banking. Theft of passwords or other identifying information can allow criminals to access a customer’s bank accounts. Banks and security experts recommend that users avoid engaging with strangers online or opening e-mails or hyperlinks sent by strangers. These types of e-mails and communications are a primary avenue for introducing malware onto a computer or mobile phone, and malware can transmit sensitive data about a user’s browsing history.

The use of passwords and other security measures have greatly enhanced web security since the advent of online banking, but security experts argue that online safety is still highly dependent on the user. Customers are encouraged to choose unique, original passwords for online banking and for mobile banking access. Users are also cautioned to avoid giving away passwords or other sensitive information, such as Social Security numbers.

Many banking institutions offer identity theft protection, either as part of basic account services or for an additional fee. Consumers should research a bank’s identity theft and unauthorized access protection services before deciding to open an account or begin banking online. If unauthorized access is detected or suspected, users should contact their banking institution immediately. Many banking institutions offer twenty-four-hour phone or digital reporting for customers suspecting crime or unauthorized access to their account.

Impact

Online and mobile banking are the most important innovations of the banking industry in the twenty-first century, and the shift towards mobile services has greatly influenced the development of banking services. In 2013, the Pew Research Center reported that more than half of Americans were using online banking, and approximately 32 percent of US adults and 35 percent of all cell-phone users used some form of mobile banking. In addition, Zlati Meyer reported in the Detroit Free Press in 2015 that, according to a survey from behavioral biometrics company BioCatch, 36 percent of banking in the United States and the United Kingdom was done online.

Online and mobile banking services have become a major focus of banking development in the 2010s. For instance, in 2014, the Automated Clearing House (ACH) announced plans to develop a system to speed up the rate at which digital payments are processed through banking institutions. Due to lower costs, online-only banks may become the standard banking structure of the future, at least in terms of savings accounts. A February 2015 article in the US News & World Report reported that studies have found that online banks were able to offer interest rates seven times higher than traditional banks. Banks were also able to beat interest rates offered through credit unions.

Bibliography

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