Is Internet Banking for You?

Banking in cyberspace promises speed, convenience, and maybe lower costs. Here's what your association can get and how to evaluate it.

Remember when payday meant paper checks? Not anymore. In most offices, direct deposit has made actual checks obsolete for both payroll officers and employees, who like the luxury of sitting at their desks instead of standing in a teller line as their money flows into their bank accounts.

Financial experts predict that soon your association will use the Internet for banking in the same way you now routinely use direct deposit--to speed up and simplify many complicated tasks.

Online banking today comes in two basic forms. The older way, sometimes also called PC banking, works through special software and a dial-up service that uses a modem to connect your association's business office to an electronic bank site, from which you can access financial information.

The newer way, which has gained prominence in the past two years, lets your association use the Internet to access your bank without custom software. A business staff can check balances in various accounts (including investment balances when these are managed by your bank or its affiliates); manipulate your balances, including transferring money; implement wire transfers; place stop payments; and more, depending on what services your bank offers.

"Associations have been very positive about embracing Web sites for communicating with their members," says Patty Brooks-Smith, senior vice president at Bank of America's Not-for-Profit Specialty Banking Group in Washington, D.C. "The natural extension of that is to ask, How can I use the Internet to allow my business to run more efficiently? And it is much more efficient to use online banking, because it helps lower costs, provides timelier information, and increases your ability to execute e-commerce solutions."

The big benefit to Internet banking: no more software upgrades for your IT staff to install, and fewer problems communicating with the bank's mainframe, Brooks-Smith says. For those reasons, associations have been quite receptive to Internet banking, she adds.

Tim Lee agrees. "I can safely say that more nonprofit organizations are getting basic information over the Internet today than ever," says Lee, senior vice president with SunTrust Bank in Washington, D.C. "Two thirds to three quarters of our customer base is using the Internet to pull off simple information on a periodic basis--their bank balance as well as historical information about what checks have cleared and what wires have been received. The Internet is becoming the vehicle of choice."

Just what can Internet banking do for you? Many of the same things your dialup service allows, but in real time and more directly. Here are some of the possibilities your business staff can ask your banker about.

* Treasury management services that let you manage your money, including reviewing and reconciling your business accounts. Usually you get current-day or previous-day information, which means, for example, no more calling to ask if a check has cleared. You can go online and see immediately.

* Payment information, including online bill payment and fund transfers. Some banks also offer extra security features, such as electronic positive pay, to prevent checking account fraud. "All you need is one fraudulent $10,000 check slipping through before you learn the value of services like this," says Brooks-Smith.

* Receipts information, including the ability to view transactions and information regarding funds coming into your account online. This can include obtaining fast, up-to-date detail from lockbox accounts.

* Miscellaneous financial transactions, such as getting financial planning and brokerage services; purchasing foreign currency, typically via foreign wire; and handling a variety of e-commerce tasks, such as processing payment online when members use credit cards to buy books or register for your convention from your Web site.

Will these services automatically mean financial nirvana for your association? Maybe--but maybe not. As with any new business offering (especially ones involving the Internet), this latest style of banking requires both changes in the way you do business and tradeoffs you may not have considered. That's why you and your staff need to weigh the following factors.

1. Security. According to the October 9, 2000, Business Week, in September hackers broke through an Internet security breach at Western Union Financial Services and accessed some 20,000 credit- and debit-card numbers used by both commercial and individual clients for money transfers. Western Union worked fast to shut down its servers and let customers know, even urging them to request new credit cards. But, Business Week added, "Banks and customers take note: This case is another sign that as financial institutions rush to the Web, they are more exposed than ever."

Indeed, says Brooks-Smith, "the biggest problems people have with online banking involve security." That's why it's vitally important to understand how your bank addresses security in an online environment.

However, she adds, all risks are relative: "In this world, what is secure?" With today's sophisticated reproduction equipment, it's just as easy to commit fraud with those old reliables, cash and checks. She believes that Internet transactions are no more vulnerable to abuse--and possibly less so--than paper ones.

2. Cost. Your staff needs to find out exactly what your association will pay for everything from check processing to fund transfers, and how those charges compare to what you're spending already. Keep in mind that everything costs something. For example, if you compare SunTrust's monthly fee of $7.95 for online bill paying to your paper and postage costs, you may break even or perhaps save money paying by Internet. The important thing is to find out for sure. Remember too that if banks find it less expensive to work with customers via the Internet than, for example, via the old dial-up service, they'll no doubt adjust their pricing to steer you to the cheaper path.

3. Overall fit. When considering Internet banking, "think about your association's size and sophistication," Lee says. He has seen cases in which even the smallest nonprofit organizations are champing at the bit for more electronic capability--often because one or two employees with a strong high-tech orientation steer their organization toward cuttingedge capabilities.

In other cases, however, board and management are uncomfortable abandoning a tried-and-true system for what they view as unproven new techniques. Time-starved staff members are reluctant to rethink their procedures and controls for everything from getting lockbox information to obtaining double signatures on checks. Associations like these, Lee says, "are probably happier with a paper-based system. In my opinion, not all nonprofit organizations are ready to give up that feeling of safety and security."

But in Brooks-Smith's experience, associations that aren't yet using Internet banking are nevertheless giving it a close look. One big reason, she says: If you don't, your members will wonder why not. She estimates that Bank of America has 3 million consumer clients who use online banking for such now-routine tasks as bill paying and account reconciliation. Trade associations, in particular, serve companies "that are using online banking and electronic banking to the nth degree. They expect their association to operate in that same realm.

"Online banking, as I view it, is the next step," she says. "Many new services are just coming out of the chute. I don't think associations have the luxury to sit back and wait for them."

WHAT YOU NEED TO KNOW ABOUT ELECTRONIC SIGNATURES

You may have heard about a recent federal law that has moved legal and financial matters further into the electronic age. As of October 1, 2000, the Electronic Signatures in Global and National Commerce Act (ESIGN) officially recognizes the validity of electronic documents and signatures. In addition, as of March 1, 2001, record-retention provisions of this act authorize the validity of contracts, leases, and similar documents that are stored electronically.

But before you get too excited about the application to Internet banking, keep in mind that although this new law is broad in application, many traditional banking activities are not covered. Check with your association counsel regarding the application of ESIGN to your association's transactions.

An example of a transaction that is covered under ESIGN is the signing of a hotel contract. That contract is equally valid when you use an electronic signature and send it by e-mail as when you hand over a paper-and-ink copy. Also, official transaction records that your association must retain are as legitimate when you scan them in and save them on disk as when you place the paper originals into cold storage.

The law firm Shaw Pittman, Washington, D.C., has written an issues paper that explains the new law. For details, go to www.shawpittman.com and conduct a search on the term "electronic signatures act."