Online Banking: Definition, Benefits, Disadvantages & How to Use

Online banking allows you to carry out various actions, such as contracting banking products, personal and individual consultation of doubts about the services of the entities, or the payment and transfer of funds.

Almost all traditional banks practically already have online banking. They have taken advantage of the rapid growth of this type of service in recent years and have seen it as another way to expand their business. In this way, they intend to reach new customers, mainly in the younger segment of the population.

Other ways of calling this concept is virtual banking, electronic banking or e-banking. The proliferation of Internet access thanks to the exponential expansion of networks to all corners of the world has driven the advance of this banking model.

Definition of Online Banking

Online Banking Definition, Benefits, Disadvantages & How to Use

Online Banking is a service of conducting banking transactions via the internet network. This is a banking activity that utilizes internet technology as a medium. To make transactions and obtain other information through the bank’s website .

This activity uses the internet network as an intermediary or liaison between the customer and the bank without having to go to the bank office. Customers can use desktop computers , laptops, tablets or  smartphones  that are connected to the internet network as a link between the customer’s device and the bank’s system.

Feature of Online Banking

Internet banking  service features  include general information on savings/current accounts, time deposit accounts, account mutation information, transfers of funds, both transfers between accounts and between banks, purchases of credit, information services such as interest rates and exchange rates, and payments, for example telephone payments, internet, cable TV, electricity and various other types of payments.

How Online Banking Works

To use  internet banking, customers must have  a user id, password, token or  One Time Password  (OTP), and an internet network. User id, password,  and token can be obtained by registering with the bank.

When using  internet banking, the customer must ensure  that the website  accessed is  the bank’s internet banking website . then the customer will be asked to enter a user id  and  password  on the home page or  login.

When carrying out financial transactions, customers will be asked to enter the OTP obtained from the token. After the transaction is complete, the customer must ensure that he has logged out  of  the internet banking page. The bank sends a notification via  e-mail  as proof that the transaction has been successful.

The cost of online banking

In this sense, this type of online service is usually offered free of charge or at a very low cost by banks. This is thanks, above all, to the evident reduction of the entity’s own costs when putting it into operation without the need for more workers or physical attention points.

On the other hand, it is expected that this is a concept yet to be exploited and improved in the coming years, due to the fact that the banking model in electronic media is currently in full modeling and expansion.

Advantages offered by online banking

Among the advantages offered by electronic banking are:

  • Speed ​​of operations, which can even be carried out in real time.
  • Almost complete disappearance of schedules for the client.
  • Easy access through multiple types of devices.
  • Significant reduction of material costs, personnel and facilities for banking entities.

Disadvantages of online banking

However, the main drawbacks of electronic banking are:

  • Distrust on the part of customers towards traditional banking, as well as distrust in terms of data protection and security.
  • Creation of greater distance between client and bank.
  • Not all geographical areas and population sections of different ages have experienced the entry of the Network to the same extent. For this reason, adaptation follows an increasing but rather slow pace.

How to set up online banking

Ask your bank or credit union if they offer online banking, and they can send you the details you need to set it up.

If they don’t offer the features you need, you can find bank accounts you can run through online banking by using our comparison.

When you set up a new or existing bank account, your bank will send you login details, usually by post or email. Some banks allow you to set it up when you apply.

When you log in, you will normally have to enter:

  • Your username or customer number
  • a password
  • Other memorable information such as a place or a date.

Please keep this information safe and do not write it down. Here’s how to keep your banking safe and how to set a strong password.

Use card readers

Some banks give their customers card readers, which are plastic devices you use to log into your account:

  1. Insert your card into the reader
  2. Enter your PIN
  3. The card reader displays a code that you can enter online to log in

Instead, some banks offer a key card, which works the same way, but you don’t have to insert your card into it.

How to use online banking

How to verify your transactions

You can log in to your account to check:

  • your balance
  • Recent transactions on your account
  • Complete monthly statements for your account

If you spot a suspicious transaction, such as paying money for something you didn’t buy, contact your bank as soon as possible.

Most banks allow you to choose to access your statements online instead of sending you monthly paper statements.

Some even offer rewards like a higher interest rate or no monthly fee if you go paperless.

How to send a payment

You can transfer money from your bank account to:

  • Bank account of a friend or relative
  • Another account in your own name
  • Business account if you need to pay a bill

To send a payment you must:

  1. Log in to your online banking on your computer or through your bank’s app
  2. Select the option send a payment
  3. Enter the sort code, account number, and destination account name
  4. Choose a reference (usually your name or what the payments are for, but if you’re paying an invoice some companies specify the reference they want you to use)
  5. Check that the details are exactly correct
  6. Send the payment and the funds should leave your account immediately

Some banks have additional security requirements if you need to send money to an account you haven’t paid for before. They may need to:

  • Enter your password again
  • Generate an access code using a card reader, access card or your app
  • Sign in with a computer instead of an app

How long does it take?

Most online transfers are sent as faster payments. Funds usually arrive within two hours. Sometimes it can take just a few minutes, but in some circumstances, it can take 24 hours.

How to set up regular payments

Log in to your online account, choose to set up a new standing order and enter:

  • The amount
  • The date it starts
  • The frequency of payment
  • The payment account number
  • Your classification code
  • The account name

You can use standing orders to regularly pay friends, family, businesses, or an account in your name. You can usually also cancel them through online banking.

How to set up direct debits

You can only set up a direct debit by contacting the company you need to pay. You can use Internet banking to check or cancel direct debits to your account.

How to send a secure message

Most banks allow you to send a message to their customer service team through their online banking, which works like email.

Sign in to your account and select the secure messaging option to send a message or check your bank’s response.

How to use mobile banking

You can use most internet banking features through your mobile phone if your bank has an official app.

You can download the app and follow the onscreen instructions to sign up for mobile banking. Then you can use functions like:

  • Checking your balance
  • Checking recent statements and transactions
  • Move money between your own accounts
  • Send money to other people if you have paid them with online banking before
  • Checking your direct debits and standing orders
  • Sending a secure message to your bank

Text banking

Many banks offer a text message (SMS) banking service, which allows you to set up alerts on your mobile phone. You can get weekly balance updates or choose when you get them, including:

  • If your balance falls below zero or an amount of your choosing
  • If an international payment is made
  • If a large amount is sent to or withdrawn from your account

Some banks also allow you to send them a text message to request confirmation of your current balance or most recent transactions.

Is online banking safe?

Online banking could leave your account less secure if someone:

  • I discovered your login details
  • Hacked your phone or computer
  • hacked your bank

However, banks try to make online banking as secure as possible, and many offer free antivirus and security software with their online banking.

You can also take steps yourself, such as keeping your login details secret and setting a PIN or other screen lock on your phone.

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