The Dangers of Online Banking

Posted on 28. Jul, 2006 by in Saving & Investing

onlinebanking.gifHopefully you know by now that I am a big fan of online banking. I’m not talking about your online account with Wells Fargo though – I’m talking about “pure” online banking through an online bank such as Emigrant Direct, HSBC, or ING Direct. However, a few days ago the big news around the personal finance blog water cooler was the broken website at Emigrant Direct. Shortly thereafter I received the following comment regarding the site being down:

Emigrant has had a pretty sad start to their “new and improved” user interface. I encountered server issues today, and that was AFTER my account had been locked on me. Currently, the site is displaying a “due to high volume this page is unavailable” message on their home page. I understand that there are bugs to be smoothed out, but it’s as if they weren’t the least bit prepared for anything.

I did contact customer shortly after returning home from the office and only had a wait time of about 6 minutes. The representative was friendly and reset my account so I could log in again. Of course, once I got in I was immediately met with a notice that said, “we can not process your request at this time”. It’s just a tad bit frustrating, to say the least.

And shortly after, I received this follow-up comment:

Well, in all fairness, I was finally able to access the account and I think everything should be okay now. Emigrant Direct did post a customer service number while the site was down, but I still think they may have alienated many customers. In this day and age there is not much patience to go around, especially when talking about the Internet and the desire for convenience and efficiency.

I’ve been with ED for over 2 years now and this was the only issue I’ve ever had.

Those comments got me thinking about the online banking industry as a whole, and I realized that I never really considered the biggest risk that industry has: failing technology. If wellsfargo.com goes down for some reason, I can always walk down to the local branch or use a local ATM for my immediate banking needs. Although many of the online-only banks do offer an ATM card for deposits and withdrawals at local ATMS, many carry surcharges and fees for access.

The biggest risk these online-only banks have is that all of their eggs are in one basket – a very large and complicated basket called the Internet. Without a brick-and-mortar business to back these online-only banks, they must be extra careful to backup databases, servers, etc. as well as create some sort of backup system. There’s no reason why Emigrant Direct’s website should have been down that long. If they were updating the site then they should have thoroughly tested it before going live – and even then they should have gone online with a parallel system in place just in case something failed.

With so many customers who need online access to their accounts they should have invested enough time and money into creating contingency plans. I know if I were a customer of Emigrant Direct I would seriously consider leaving. As Sark mentioned above, this was the first time this has happened, but that’s enough to cause me to worry every time I login. Is it going to work this time? With my luck the site would go down that one day I needed my money right away. I need my bank – of all places – to be safe, reliable, and there for me.

This post isn’t meant to deter you from opening an account with an online-only bank, but it should force you to think about the potential risks that come from doing business online. I’m going to hang on to my HSBC account, but I will be looking closely at their ability to handle any online problems.

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8 Responses to “The Dangers of Online Banking”

  1. AJ

    28. Jul, 2006

    Coincidentally enough, after reading this post I went to check on my Washington Mutual account and saw that they were “unable to process my request at this time.” I realize that there are plenty of brick and mortar branches but not on the east coast where I live so it is essentially an online only bank for me. Bottom line is that it is annoying when they go down.

  2. financial freedumb

    28. Jul, 2006

    I don’t think HSBC is an online only bank…Looks like they are pretty big in NY.

  3. Jesse

    29. Jul, 2006

    Emigrant’s web site upgrade has to be one of the worst I’ve ever seen. Let’s not taint those online banks who have responsible technology decision makers and strong development, quality assurance and operations groups with the same brush as Emigrant.

  4. AJ

    31. Jul, 2006

    Turns out it wasn’t a minor thing with WaMu.

    http://news.com.com/Glitch+continues+to+plague+Washington+Mutual/2100-1038_3-6099998.html

    It is fixed now but I’m glad I didn’t have a critical bill during that period.

  5. Moving On

    25. Aug, 2006

    I just closed my Emigrant Direct account today. Last month, I had to scramble to find alternate funds to pay bills during that abominable website blackout, that went on for days. I was completely locked out, Customer Service could only tell me to “wait”, and I received no reply to my deperate e-mail for a full week. Today, after I thought the problems were resolved, I was once again locked out, Customer Service could only advise “wait”, and I had to sweat over unpaid bills once again. This bank is totally over its head, and in my opinion is not worthy of remaining in business.

  6. Milton Kent Chalifoux

    03. Feb, 2009

    I’ve used Wells Fargo Online Banking for 3 years now. Do you have reports about anybody having any problems with this service?

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