Local firms benefit from online presence in industry. (Special Report: The Top Bankers).

WHEN the ATM first hit the banking scene in the early 1970s, consumers were skeptical about exchanging the personalized service they'd come to expect from the bank teller for a visit to a machine.

But the technology marked the first move by the financial services industry to cut the operational costs of serving bank customers. It also provided those same customers with something they have since grown to demand: options.

For years and up to the present day, the San Fernando Valley has been a focus of those efforts to take banking online. Among the local players are Countrywide Credit Industries Inc., one of the nation's largest home mortgage lenders; WMC Mortgage Corp., which shut down almost three dozen brick-and-mortar branches three years ago to go online full time; and Digital Insight Corp., which hosts Internet banking services for more than 1,000 financial institutions.

Today, the ATM card threatens to replace the checkbook and automated tellers dot every corner of the urban landscape, from sidewalks to supermarkets. But with the move of the Internet into the mainstream, consumers have grown to demand even more options, and just as banks pushed their customers to embrace the idea of getting cash off the street, they are now trying to steer them someplace else: to their computers.

Welcome to online banking, or as it was called when it surfaced about seven years ago, "armchair banking," where it's estimated roughly 30 million consumers log on each day to transfer funds, pay bills, balance their checkbooks, apply for loans, set up college piggy banks for their kids or even get investment advice.

"Right now, we gauge that roughly 30 million people are registered for online banking, and about half of them are what we call active users," said Paul Jamieson, president and director of analytics for Colorado-based FiSite Research, which tracks online financial services firms.

According to Jupiter Media Metrix, roughly two-thirds of all households have Internet access; of that number, about 25 percent were online in 2002. By 2005, that number is expected to jump to about 60 percent.

Although the number of registered users is growing daily, banks face a challenge in both getting customers online and enticing them to come back again.

Big players like Wells Fargo and Bank of America have capitalized on the technology and remain key players in the online market. But online banking is also serving smaller, regional banks as well, despite initial fears that the Internet would mean the death of the neighborhood bank.

Roughly 50 of the 1,000 customers at Mission Valley Bank, which opened last year in Sun Valley, are using the service, according to bank senior vice president Marianne Sederland.

She said they're primarily business clients.

"They love the service because it helps them manage their accounts more efficiently," she said. "And, as accounts are maturing, more and more are logging on."

Sederland said online products do serve to keep costs down for both the bank and its clients, but in no way would it ever replace the branch.

"We aren't going anywhere, no matter how many of our customers log on," she said.

Mortgage lenders have also jumped on the bandwagon, and are profiting as a result. According to Economy.Com, Americans took out about $160 billion in online mortgages in 2001, roughly 8 percent of the market.

At the head of the game is Calabasas-based Countrywide, which reported $17 billion in loan funding for July, with close to 50 percent of that coming through online channels.

In fact, consumers shopping for mortgages took to online financial services early on, prompting Woodland Hills-based WMC Mortgage Corp. to do the unthinkable in June of 1999. That's when the company shut down all 33 of its brick and mortar branches and went completely online.

It was a risky move, but worth it. WMC posted $112 million in loans in July and kicked off August with anticipated sales of $130 million.

"Clearly the idea behind online services is to reduce overall operating expenses, and it's starting to bear fruit across all sectors of the financial services industry," said Jamieson.

Consumers who've been reluctant to bank online often say the sites are "too complicated or too overwhelming or loaded with data," according to Jamieson. As a result, the industry has been in constant upgrade mode since its inception.

Vendors of the technology are scrambling to keep pace with the fruits of their own labor. One of those leading that segment of the industry is Digital Insight, also based in Calabasas, which hosts Internet banking sites for more than 1,000 smaller banks and credit unions.

The company was recently ranked the top small financial institution Internet banking vendor in the country by Celent Communications, a New York-based Internet financial services research firm.

"Digital focuses on the most important element of online banking," said Alenka Grealish, senior analyst with Celent based in San Francisco. "That's customer feedback. They really listen to customer feedback throughout the process, from sales to implementation. And, while they have a strong market position, they don't rest on their tech laurels. They continue to invest in research and development to design new platforms to keep up with demands."

Jamieson agreed. "Digital Insight has done a great job of serving community banks in an inexpensive way, but offers some of the same sophistication as the other larger vendors do for the big banks," he said.

According to Susan Steele, vice president of sales for Digital, the company does about 40 upgrades each year.

What will the technology look like five years from now?

"No question, in five years what you will be able to do easily is not just work with your primary institution, but you'll be able to go online and virtually transfer money and access multi-accounts and various institutions," she said. "The big picture is having more control. Within Internet banking we see the future for people to plot their own charts and graphs with their real income and real money and figure out where they want to put it all."

But as good as that technology gets, converting in-store customers to the Web remains an ongoing challenge. Consumers get a little jittery when it comes to putting financial information on the Web, so encryption programs tailored for online banking sites will also be evolving.

"In addition to making the technology easier to use, what's also holding back consumers now is concern over the safety of their personal information and their privacy," Jamieson said. "But I think it's fairly safe. Hacking is a reality, but over the seven or eight years since online banking surfaced, we haven't had much of a problem. The United States has a very long history of securing data."

What about the branches?

"We'll always need them," Jamieson said. "Some still need to know that if their computer blows up they can go in and talk to someone, face to face.

"On the other hand, they will also need to evolve."