Online banking is an internet-based electronic banking service that allows customers to manage their finances electronically using a computer or mobile device. Due to technological advances, nearly all banks offer an online banking option. This allows business owners to keep up with their finances on the go and continue running their business without interruption.
How Does Online Banking Work?
For web banking, you need to have a computer or device connected to the internet and will have to register with your financial institution’s online banking service. The transactions you can perform online will depend on your provider—many allow fund transfers and bill payments, while some go a step further by letting customers open new accounts and apply for credit cards and loans.
Generally, online banking covers typical banking activities. You can:
- View account balances
- Pay bills
- Make deposits
- Manage accounts
- Transfer funds between accounts
- Set up account alerts
- Order checks and stop payments
- Request debit card replacements
- Check account history via online statements
Some online upgraded banking features can be activated if needed, such as:
- Online domestic and international wire origination
- ACH origination
- Payroll transmission
- Positive pay check fraud management
- Remote deposit capture
- Merchant services
- Lockbox
- Sweep account management
- Cash management
According to MX Blog’s Mobile Banking Trends and Statistics for 2024, 68% of US consumers view or manage their accounts with a mobile app. The most common tasks are checking balances, transferring money, depositing checks, sending money to a friend, and scheduling a bill for payment.
Also, 48% have three or more different mobile banking applications active on their devices. These statistics show that most customers regularly use mobile apps to process banking transactions and check balances.
Is Online Banking Safe?
When banking via the internet, you’re using secure websites and services to conduct your transactions. Banks do their best to keep your account secure, but it’s up to you to take precautionary measures to ensure you’re banking safely.
There are always risks involved, and your information can be compromised—whether you’re doing traditional or online banking. As such, protecting your online password and monitoring your account regularly will keep your account safe wherever you choose to bank. It’s also a good idea to activate the firewall on your computer or install antivirus software.
Most checking and savings accounts under online-only banks are insured by the FDIC for up to $250,000, similar to brick-and-mortar banks. You can always verify this before opening an account. However, some online-only banks, such as Live Oak Bank, provide higher FDIC insurance protection through IntraFi Network Deposits.
Over the years I’ve spent in banking, I have helped many users take precautions to keep their online profiles safe. Here are a few things to consider when banking online, whether with a traditional bank with a brick-and-mortar branch or an online-only bank:
1. Choose a strong password and set up two-factor authentication.
- Avoid including personal information, such as your birthday, for your password, and set up a unique username that doesn’t contain your name.
- Combine special characters, upper and lower case letters, and numbers; some letters can easily be used as numbers, e.g., the letter S and number 8, as well as letter E and number 3, can be interchanged. This allows you to use something familiar with alterations, making user names and passwords more secure.
- Change your password regularly.
- Enable two-factor authentication (2FA) for an added layer of security.
2. Check that your connection is secure.
- Refrain from accessing online or mobile banking when connected to public Wi-Fi or using public computers.
- Choose to access online banking using 4G, even if public Wi-Fi is available, to limit risks.
- Use a virtual private network (VPN) whenever you’re connected to public Wi-Fi for added security for your personal information.
3. Monitor your account routinely.
- Review your bank statements regularly to find discrepancies.
- Set up account alerts to be notified of any unusual activity.
- Report suspicious activity immediately to prevent further fraud.
- Register for banking alerts.
4. Don’t share personal information.
- Keep your online login information private.
- Restrict access to the email address associated with your bank account to steer clear of password reset requests via email.
5. Have a backup account.
- Keep a second bank account at a traditional bank in case your online bank account is compromised.
- Secure your money by moving your funds to your second bank account if a data breach is detected.
6. Lock your account on purpose if you suspect it’s compromised.
- Log in three times by using the wrong password deliberately; doing so will lock your account, preventing any unauthorized activity or person from accessing your account until you can reach out to the bank for help.
Types of Online Banking
Online banking covers mobile banking and digital banking. It is also synonymous with online-only banks and financial technology (fintech) providers since both typically do not offer a physical branch network and provide in-person banking.
Mobile Banking
Mobile banking is performing financial transactions through a mobile app—you can easily send money, pay bills, deposit checks, and review your account balance. It is typically available 24 hours a day, allowing you to skip branch visits.
Traditional banks often offer mobile banking to provide convenience to their customers. You can download the Android or iOS app by visiting the Play Store or App Store, respectively. Once you have the app loaded, you can access it using the same username and password assigned by the bank. This login information will work on a PC or your mobile device.
Digital Banking
Even if it seems similar to online banking, digital banking is far more extensive. It’s broad and includes online and mobile banking services, which entails using a web browser and mobile app. It has a high level of process automation and digitizes both the front and back ends of banking. It’s offered by traditional banks, credit unions, and online-only banks.
With it, users can do much more than standard banking activities. You can use customized money management tools, open investment accounts, apply for loans, and access high level treasury management tools. As technology grows more sophisticated, users can expect digital banking to flourish even more. For instance, AI is becoming increasingly popular in digital banking, and this can be observed through chatbots providing automated customer service.
Online-only Bank
An online-only bank is a financial institution that offers various banking products and services, including checking and savings accounts. These banks usually don’t have physical branches and operate through digital platforms.
Although the lack of physical locations means cash processing is inconvenient, most people won’t find this a big obstacle with electronic deposits and transfers. Opening a business account through an online-only bank is convenient, especially for businesses that don’t need to deposit cash daily.
Fintech Provider
Fintech is a term that combines the words financial and technology. It has brought technology into banking, allowing users to perform banking tasks electronically instead of in person. This has created an opportunity for financial institutions to operate using fully digital banking models without having physical branches.
Fintech companies are not banks—but they offer retail banking services and provide FDIC insurance coverage through bank partnerships. They make lending, investment, and banking efficient for consumers and businesses since they can maximize automation and digital technology to streamline their operations.
With fintechs bringing innovation to financial services, they can disrupt the banking industry easily, given their focus on consumers. Fintechs compete with traditional banks through their tech-advanced products and services offered virtually and without personal assistance. As a result, the operational cost is much lower than traditional banks. Service fees are also minimal to none.
Pros & Cons of Banking With Online Banks & Fintechs
Online banks and fintechs usually provide some or all of the banking products and services that most traditional banks offer, often at a lower cost. And while online banking offers many great benefits for consumers, it also comes with some drawbacks.
| PROS | CONS |
|---|---|
| Are convenient and make it easy to monitor your account and perform transactions | Lack branches; all transactions are done through the fintechs’ websites or mobile apps |
| Typically, they have better Annual Percentage Yields (APYs) | Have fewer products than what traditional banks offer |
| Pass on their savings from fewer overhead costs in the form of lower account costs | Sometimes lack cash deposit services, so they’re not a good option for businesses with regular cash transactions |
Fintechs vs Online-only Banks vs Traditional Banks With Online Banking
Fintechs, online-only banks, and traditional banks offering online banking are often interchanged, but these are three different types of financial providers. The table below helps to distinguish one from the other.
Online-only Bank | Fintech | Traditional Bank with Online Banking | |
|---|---|---|---|
Financial Institution | |||
FDIC-insured | ✓ | Backed by banks that are FDIC-insured | ✓ |
Accessibility | Fully online | Fully online | Online with physical branches |
Products and Services | Savings, CDs, and lending | Checking and lending | Checking, savings, CDs, lending, credit cards, merchant services, and collection services |
For More Information | Read our Bluevine business checking review | Read our U.S. Bank business checking review |
When to Consider an Online-only Bank
Online-only banks are great for those who don’t make cash deposits or need in-person services regularly. Since most already bank online with their major banks, the transition from traditional to an online-only bank shouldn’t feel much different from utilizing the online banking features with a major bank. With online-only banks and fintechs, you can still make online payments, fund transfers, and deposits.
Business owners also find online-only banks and fintechs more enticing because most offer low-cost accounts and higher interest rates on savings accounts. Further, even if the online-only bank you choose has no physical branches, it’ll likely have a large surcharge-free ATM network available for all account holders.
Frequently Asked Questions (FAQs)
Internet banking is a convenient method of performing banking transactions using your desktop computer, laptop, or mobile device and the internet. It is also referred to as online banking.
An online bank is a financial institution with similar products and services to traditional banks and permits users to conduct banking activities through a website. It offers convenience but may provide limited customer support.
Yes. Online banks are safe if they are FDIC-insured and have strong data security technology.
The term bank generally refers to a traditional bank with physical branches you can visit. An online bank has the same capabilities as a traditional bank; however, all transactions occur online without needing a visit to the bank. Online-only banks do not have physical locations.
You will need to have an active account at a financial institution. The bank will assign you a login, complete with a username and a password, so that you can access your account.
Bottom Line
Online banking is a convenient method of managing business finances since you can transact anytime and anywhere you choose. Since it relies strictly on the internet, users will need to take precautions to minimize exposure to risks. Utilizing built-in firewalls along with antivirus software will help minimize online compromise. Following best practices for online banking can allow you to perform most banking transactions electronically, saving time and unnecessary trips to the bank.
