Online banking vs the High Street

The convenience of being able to organise mortgage repayments while transferring birthday money into the grandchildren's accounts – all from the comfort of your own home – is appealing to a growing number of people in the UK.

More of us are relying on the internet to do our banking, according to research from the Association of Payment and Clearing Services (APACS) and it is the older generation who are driving this trend.

Though the number of adults who do their banking online has shot up 174 per cent in the last five years, it is the over-55s who are really embracing the world of virtual money-management with a 350 per cent increase.

Sandra Quinn, director of communications at APACS, said: "The greatest proportion of new internet bankers are the over-55s. As a group they have come to embrace the ease and efficiency that online banking offers."

However, a poll of visitors to www.webuser.co.uk suggests that many still aren’t convinced by online banking, and it seems they may have good reason. Of 442 votes, nearly a quarter were cast by people who said that they did not bank online at all.

And one of the reasons that people may steer clear of online banks is that they don’t offer the same level of customer service, according to one company.

Transversal compared the service offered by several major internet banks with that offered by their telephone counterparts. The results suggest that even simple queries that take a few minutes to answer over the phone can take much longer when dealt with online.

Davin Yap, chief executive of Transversal, drew attention to one of the major problems for customers, saying that the websites contained a lot of unnecessary information which made it hard to find what you're looking for.

"Previously, online customers have had to cope with a lack of information. We're now seeing more content – but this makes finding the right answer as difficult as looking for a needle in a haystack," said Yap.

When online goes offline
A major selling point of any online bank should be its convenience, but one of the major disadvantages of the online-only model, such as that operated by Egg, is that if there is any kind of problem with the internet connection, everything grinds to a halt.

On 23 August this year, Egg suffered a technical problem which meant the website was offline for several hours. Though an Egg spokeswoman was at pains to point out that customers could still get through on the telephone, the inconvenience of the experience could be off-putting to the customer, one analyst warned.

Martin Stern, head of market research firm Keynote UK said: "It's imperative that a company whose total business model is based on online presence manages to maintain consistent website performance.

"Given the much lower operating costs of a branch-free model, their margins should be able to fund the building of a world-class online infrastructure," he said.

More recently Northern Rock was subjected to some harsh criticism when both the bricks-and-mortar and online branches of the bank experienced a rush of customer demand after news of financial troubles hit the headlines.

"Comprehensive testing is fundamental to ensuring that a website is capable of handling the strain of peaks in users. At best, website failure is tolerated by users, but even then it is likely the company will have damaged their brand," said Deri Jones of web application provider SciVisum.

Security concerns
The question of security is integral to any online banking offering, and with a House of Lords Select Committee describing the web as the "wild west", it is easy to see why people could be put off.

However, a recent survey conducted by Lloyds TSB found many online bankers aren’t that concerned, with more than half of respondents saying that they weren’t bothered by internet banking fraud.

According to the House of Lords Science and Technology Committee, many people expect the banks to be the sole guardians of security, an idea reinforced by the government’s recommendation earlier this year that online fraud should be reported to the banks rather than the police.

Lloyds TSB’s Ian Larkin cautioned customers who believed that security was not their responsibility.

“As a bank, we do everything in our power to keep fraudsters at bay by making sure our online security is second to none. But our customers also have a part to play in the fight against online crime,” he said.

Convenience and safety
Barclays is one bank aiming to lead the way in providing the most convenient and secure online banking facilities for its customers. As well as allowing its customers to check their balance using their mobile phones, it was the first to introduce a chip-and-pin device for customers to use at home to help them make totally secure online transactions.

Though other banks have since followed Barclays’ lead, it won praise from one security company for its innovative approach to keeping customers’ money secure.

"Consumer confidence in online transactions and online banking has been waning and better safeguards, such as biometrics or smartcards, need to be considered by other banks," said Raimund Genes of Trend Micro.

Another bank that has embraced the latest technology in an attempt to offer maximum convenience to its customers is First Direct.

iPhone users will be able to "seamlessly" connect to the First Direct website, according to the company, and will benefit from the device's touchscreen and fully-functional web browser.

Chris Pilling, chief executive of First Direct, said: "We currently have over 875,000 internet-banking users, and by working with the iPhone we will be giving our customers the opportunity of doing their banking when, where and how they want to."

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