Consider it one of the worst predictions of all time. In 1903, the president of the Michigan Savings Bank tried to discourage Henry Ford's lawyer from investing in the Ford Motor Co. He said,
The rest, as they say, is history.
The horse is here to stay but the automobile is only a novelty – a fad."
Some people just fear change. And no matter how clearly beneficial, progress always comes with its fair share of skeptics. The same is true for online or mobile banking. But the tide is changing.
PricewaterhouseCoopers' 2017 Digital Banking Consumer Survey found nearly half (46%) of consumers use only digital channels for their banking needs. That is almost double from 2013. Further, 60% of smartphone users surveyed said they used mobile banking in some way.
For those who remain skeptical of online banks, have no fear. From security to customer service, we debunk seven common myths about mobile banking.
Myth 1: Traditional Banks are Safer
Unlike a traditional bank, an online-only bank has no physical location. As the name suggests, everything from how you deposit checks to how you transfer money is generally done online. Some skeptics, perhaps influenced by innumerable news stories on security breaches, may deem that as unsafe.
The truth is all banks store your information electronically, meaning they all contend with the same security threats. Any reputable online bank will provide identical security measures as traditional banks. Personal information and transactions are protected with encryption and firewall technology. Many online banks also offer multifactor authorization, which is an additional layer of security that requires users to provide a code (usually sent in a text or email) to access their accounts.
Moreover, there are several ways to make your online or mobile banking experience safer. First and foremost, you want to choose a financial institution that provides FDIC insurance of up to $250,000, which any established online bank does. To prevent identity theft, be sure to create secure passwords and change them periodically.
Lastly, keep watch. It turns out online banking may help you become more observant with your money. A study by the Better Business Bureau (BBB) and Federal Trade Commission (FTC) found that in more than two-thirds (68.2%) of cases, online banking users identified fraudulent activities on their own accord.
Myth 2: Traditional Banks are More Convenient
One of the top criteria consumers use to choose a financial institution for their banking needs is convenience. It's true you won't find an online-only bank on a street corner near you. But, that's the point – you don't need one. You can't beat the convenience of never having to leave your house to open an account or wire money. Online or mobile banking apps allow users to perform banking activities in literally seconds. No lines, no waiting.
Want to know the variety of convenient things you can do with a few taps of your finger by mobile banking? Let's count the ways:
- Deposit checks just by snapping a picture
- Set up direct deposits
- Transfer money instantly
- Schedule automatic payments
- Apply for lines of credit
You may be wondering about cash. Online banks can issue debit cards just like a traditional bank. That lets customers make deposits and withdrawals from ATM machines for free within their network. Some online banks though will refund any out-of-network ATM fees you may incur.
With an online bank, services are available to you 24 hours a day, 365 days a year. There's a reason major banks like Wells Fargo and Chase make mobile banking a centerpiece of their service offerings.
Myth 3: Online Banks Have No Customer Service
With eliminating the need for a brick-and-mortar presence, it's easy to assume customer service would go with it. If you can't speak to a teller, who can you speak to? Well, the answer is any number of customer service reps that can be contacted in ways other than face-to-face.
Most online banks have robust customer service options that rival traditional banks. If you need help, you can expect an online bank to provide a toll-free number to call and speak with a real person. Some online banks even give customers 24/7 phone support.
If talking over the phone isn't your thing, there are online banks that offer to correspond with you via text messages and email. For even faster responses, you can find online banks that have online chat features. Get your questions answered by simply typing a few words.
It's worth reiterating how convenient online or mobile banking is, especially when it comes to customer service. Through an online bank's digital customer service features, you can have your needs addressed in a matter of minutes. You can save time and energy and retain a record of your correspondence, which helps should you continue to have a problem.
Myth 4: Traditional Banks Suffer Because of Online Banks
Competition among banks has been fierce ever since the days of the Medicis. Take a drive through your town and you'll likely see a plethora of banks, credit unions and other financial services firms. Traditional banks have such a large market share that they aren't going away any time soon.
The reality is that traditional banks are more vulnerable to economic pressures than innovations like online-only banks. Consider the contraction the banking industry experienced in the aftermath of the financial crisis in 2008, as many small and medium-sized banks closed their doors or merged with much larger banks. That was the result of suffering from huge financial losses or an inability to meet strict government regulations.
It's true that online banks, as independent companies, generally have more room to try new things that may attract customers from traditional banks. But many of the major traditional banks have the ability to see what works and then adopt it. Although an increasing number of customers use mobile or online banking channels as their preferred method of banking, it's too early to say traditional banks are suffering. What is apparent is the competition to provide better services at lower costs is a benefit to all consumers.
Myth 5: You Lose Out on Perks
The reasoning goes most traditional banks are bigger and have more resources, so they can offer generous perks. Therefore, by switching to an online bank, you would be missing out. As they say, big things can come from small packages. Online banks actually use their smaller footprint to provide very attractive perks of their own to consumers.
Look no further than the fact that online banks typically offer higher interest rates on deposit accounts. That means you can grow your money much faster than with a traditional bank. Consider some online banks provide APYs (annual percentage yields) above 1.5%, whereas the national average sits at 0.09%. What better perk could you ask for from a bank than the ability to earn more money?
But wait, there's more. Some online banks, in addition to checking and saving accounts, offer investment accounts to help you reach your biggest financial goals. Then there are the unique perks. The online bank Good Money offers its customers equity shares in the company. Another is early paydays, in which you can access the direct deposit from your employer up to two days before it reaches your account. You can also get a digital change jar by having your purchases rounded up to the nearest dollar with the difference saved in a savings account.
Myth 6: It's Expensive and Time Consuming
A significant advantage online banks have over traditional banks is low overhead costs. They don't have to pay to maintain physical branches. And those savings online banks pass on to customers in the form of lower fees. Some of the best online banks don't charge account fees at all. Further, online banks tend to have no or little minimum balance requirements to open and maintain an account.
In addition, think of the ancillary cost savings you get from online and mobile banking. You don't have to spend money on checks and postage to pay bills. Nor do you have to waste gas traveling to your nearest branch.
Most importantly, you can save time. Sure, you will be required to spend a little time learning how to navigate an online bank's app and web portal. But once you do, you can say goodbye to having to wait in line to use an ATM or work with a bank teller. Further, you won't have to spend time driving to your bank or the post office to send a check. With all those time-saving advantages, it's no wonder the FTC and BBB calculated the average online banking user could save 60 hours in their lifetimes. That's almost enough time to binge watch the entire Game of Thrones series.
Myth 7: Online Banks Aren't Stable Institutions
Without the long history of some major traditional banks, it's reasonable to have reservations about the stability of online banks. But this sentiment is really unfounded. For one, many online banks are FDIC-insured. Therefore, should anything happen, your money is protected for up to $250,000.
You can also glean the stability of online banks by the amount of money that's being invested in these companies. A CB Insights report analyzed dozens of online banking startups that collectively raised more than $1.7 billion in venture capital in 2018. It's safe to say online banks are here to stay.
Of course, there's nothing wrong with being skeptical of something you don't have much experience with. Hopefully, the truth about these mobile and online banking myths help you think differently.
Ultimately, the right banking method for you is a personal decision. But it's worth mentioning that there are no rules about having multiple bank accounts. If you're beholden to the familiar offerings of a traditional bank, but are attracted to the advantages provided by an online bank, why not do both?