WHAT IS ELECTRONIC BANKING?
Electronic banking, also known as electronic funds transfer (EFT), is simply the use of electronic means to transfer funds directly from one account to another, rather than by check or cash. You can use electronic funds transfer to:
- have your paycheck deposited directly into your bank or credit union checking account.
- withdraw money from your checking account from an ATM machine with a personal identification number (PIN), at your convenience, day or night.
- instruct your bank or credit union to automatically pay certain monthly bills from your account, such as your auto loan or your mortgage payment.
- have the bank or credit union transfer funds each month from your checking account to your mutual fund account.
- have your government social security benefits check or your tax refund deposited directly into your checking account.
- buy groceries, gasoline and other purchases at the point-of-sale, using a check card rather than cash, credit or a personal check.
- use a smart card with a prepaid amount of money embedded in it for use instead of cash at a pay phone, expressway road toll, or on college campuses at the library’s photocopy machine or bookstores.
- use your computer and personal finance software to coordinate your total personal financial management process, integrating data and activities related to your income, spending, saving, investing, recordkeeping, bill-paying and taxes, along with basic financial analysis and decision making.Automated Teller Machines (ATMs) also called 24-hour tellers are electronic terminals which give consumers the opportunity to bank at almost any time. To withdraw cash, make deposits or transfer funds between accounts, a consumer needs an ATM card and a personal identification number. Some ATMs charge a usage fee for this service, with a higher fee for consumers who do not have an account at their institution. If a fee is charged, it must be revealed on the terminal screen or on a sign next to the screen.
Direct Deposit and Withdrawal Services allow consumers to authorize specific deposits, such as paychecks or social security checks, to their accounts on a regular basis. It is also possible to authorize the bank, for a fee, to withdraw funds from your account to pay your recurring bills, such as mortgage payment, installment loan payments, insurance premiums and utility bills.
Pay by Phone Systems let consumers phone their financial institutions with instructions to pay certain bills or to transfer funds between accounts.
Point-of-Sale Transfer Terminals allow consumers to pay for retail purchase with a check card, a new name for debit card. This card looks like a credit card but with a significant difference¾ the money for the purchase is transferred immediately from your account to the store’s account. You no longer have the benefit of the credit card “float”, that is the time between the purchase transaction and when you pay the credit card bill. With immediate transfer of funds at the point-of-sale, it is easy to overdraw your checking account and incur additional charges unless you keep careful watch on spending.
Personal Computer Banking Servicesoffer consumers the convenience of conducting many banking transactions electronically using a personal computer. Consumers can view their account balances, request transfers between accounts and pay bills electronically from home.
Types of Electronic Currency
- Check Cards, the new name for debit cards, can be used instead of cash, personal checks or credit cards. As stated, when you use a check card you transfer funds immediately from your account to the store’s account. A growing number of consumers use check cards because they eliminate the hassle and risks of writing checks or carrying large amounts of cash. Important facts you need to know are:
- You have less bargaining power with a check card than with a credit card. With a credit card you have the right to refuse to pay for the purchase if you are not satisfied. With a debit card you have already paid for the product, so you have less bargaining power with the merchant.
- A thief with your check card and PIN number can take all the money in your account. The thief can even make point-of-sale purchases without your PIN.
- Your liability is limited to $50 if you report the checkcard loss within two days, any longer and your liability can go to $500. After 60 days, you can be responsible for the entire amount.
Note: MasterCard and Visa have voluntarily capped the loss liability of checkcard holders at $50. “As welcome as these voluntary protections are, they are too important to be left to the kindness of bank marketing departments,” writes Consumer Reports. The consumer advocacy magazine advocates federal law changes to make consumer liability caps mandatory.
- In an era of increasing bank fees, consumers can expect to pay for the service of using a checkcard.
- It is the consumer’s responsibility to keep checkcard receipts and deduct the dollar amounts of the purchase from your bank balance immediately, in order to avoid overdraft changes.
Smart Cards, sometimes called stored-value cards, have a specific amount of credit embedded electronically in the card. For example, a $100 smart card that you have purchased in advance can be used to cover expenses such as pay phone charges, bridge or expressway tolls, parking fees or Internet purchases. These cards make the transaction fast, easy and convenient.
Smart card technology is in a period of rapid change. Ultimately consumers should be able to customize their smart cards to suit their financial needs with access from their personal computer or cellular phone. Some important consumer issues are:
- Smart cards are the equivalent of cash so must be guarded.
- Procedures for recovering the value of a malfunctioning smart card are unclear.
- The computer chip within the card will contain both financial and personal information. Privacy and security issues could be a problem.
Smart cards may not be covered by the Electronic Funds Transfer Act in case of loss or misuse of the card.
Digital Cash is designed to allow the consumer to pay cash rather than use a credit card to purchase products on the Internet. One type of digital cash allows consumers to transfer money from a financial institution or a credit card into an “electronic purse”. The cash is held in a special bank account that is linked to your computer. Another type of digital cash converts money into digital coins that can be placed on your computer’s hard drive.
Digital checks allow consumers to use their personal computers to pay recurring bills. Consumers can use computer software provided by a bank, or they can use personal finance software packages such as Quicken or Microsoft Money and subscribe to an electronic bill-paying service.
The technology of paying bills electronically by home computers is advancing rapidly, but relatively few businesses currently can accept payments made directly by computers. Digital checking is expensive. Fees generally run from $5 to $10 a month for 20 transactions. Privacy and security issues are major consumer concerns. Encryption technology may lessen privacy concerns in the future.