Cervantes 1

Marco Cervantes
Principles of Macroeconomics
Professor Wilson
April 28, 2016
Electronic Banking
What is electronic banking? This term is defined as banking conducted through
electronic means, via cellphone, computer, or any compatible device. In todays world,
most of our transactions are handled via debit/credit cards. With the proliferation of
technology and the easy access to the internet via telephones and computers, online
banking brings both, negative and positive effects on society and the overall economy.
Electronic transactions by consumers are used for various reasons; paying bills,
maintaining and checking accounts, making household purchases, and various online
products. According to Statia, in 2014, more than $2,517 billion in debit card
transactions were processed, a staggering compared to 2010s statistic of only $342
billion in debit card transactions. Additionally, online businesses like Amazon make it
easier for consumers to spend money online and use some form of electronic payment
to handle their transactions. With that said, it is becoming easier for consumers to
make purchases online, handle online banking, manage investments, etc. However,
there are some negative aspects to online banking, an obvious one is security. As
technology continues to expand, so do online crimes, and the complexity behind
security measures to protect information.

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In order to implement online banking, financials institutions have had to comply

with various regulations like the federal Electronic Fund Transfer Act (EFT Act), and
various state regulations on the subject of surcharges and convenience fees. The EFT
Act gives consumer a resource to file complaints and seek help regarding electronic
banking. Financial institutions must be able to adhere to these regulations in order to
maintain competitive and offer its customer options, when it comes to handling their
bank account. The ability to conduct transactions via electronic means also touches on
other regulations like the federal Truth in Savings Act, which states Financial
institutions that advertise deposit products and services on-line must verify that proper
advertising disclosures are made. Additionally, there are regulations relating to record
retention which state if the web site contains an advertisement, the same record
retention provisions that apply to paper-based or other types of advertisements apply.
Copies of such advertisements should be retained for the time period set out in the
relevant regulation. Although electronic banking cuts costs for financial institutions,
regulations relating to compliance and security must still be adhered to, this brings an
additional cost for financial institutions.
There are many alternatives and options when it comes to online banking some
of which are being able to use ATMs across the country to facilitate quick and easy
access to cash when needed, this is handled through a bank card, which can be a debit
or a credit card. Another great tool that makes it easier for one to manage an account is
the ability to view your bank account online. Prior to this, a consumer would have to go
to the financial institution to view balances and manage accounts. Direct deposit is one
of the most recent innovations that has changed the way consumers get paid, it has

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eliminated/reduced the hassle of having to deal with a paper check. This feature has
allowed employers to reduce the amount of paper being produced, and cutting down
overall costs on payroll. It has also reduced costs on consumers, they no longer have
to drive to a financial institution in order to cash a check. This is of great convenience
for consumers, as a consumer no longer has to plan around financial intuitions hours of
operation.
Another advantage of online banking is the ability to pay bill online either through
automatic recurring payments or single transactions. This has a positive effect on the
consumers and the entity receiving the payment. It allows a consumer to schedule
monthly recurring payments, without having to put any effort and thought into it, this
eliminates the possibility of late fees and other charges. On the other side of the
spectrum, an entity may receive and count on timely payments, which can bolster its
cash flows.
One of the disadvantages of online banking is security. Technological
improvements, in terms of security, has been a vital role for financial institutions. By
implementing features like Two Factor Authentication, financial institutions have been
able to remain vigilant when it comes to security. This security feature allows
consumers to have an extra layer of security. Another factor is hackers, account
information can be jeopardized and mishandled online by hackers this can result in
financial loss for consumers. Additionally, many transactions are facilitated via online
like an application to apply for credit. By doing that, a consumer is inputting personal
identifiable, this adds a greater financial risk for the consumer. If this information is
taken by a security breach on the institutions side, a consumer may face things like

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having their identity stolen, facing financial loss, loss of employment opportunities, etc.
In addition, phishing scams is another negative aspect of online banking, according to
the FTC thieves attempt to obtain consumers information by pretending to be a financial
institution by sending spam to get consumers to reveal personal information. This
requires the consumer and the financial institution to be aware of scams of these
nature, to become educated on the subject matter, and most importantly to be aware.
In conclusion, online banking has negative and positive aspects. I believe the
positive outweighs the negative for multiple reasons. Online banking provides
consumers with an efficient and convenient method of handling their transactions, this
can be done via multiple vehicles, it can be done on a personal computer, or even a cell
phone. This reduces costs for the consumer of having to travel to their financial
institutions to handle matters. It also allows the financial institutions to cut down on
wages for tellers. Although this may seem that it might a negative effect on the
economy because it eliminates jobs. More jobs are created to maintain and adhere to
regulations presented by conducting electronic transactions. This shift has ignited
financial institutions to remain vitally aware of technological revelations. For instance,
many institutions have created mobile applications that have allowed consumers to
have the ability to handle banking from their cellphones. Furthermore, some institutions
offer features like being able to deposit a check by simply taking a picture of it. Online
banking has brought another edge to the U.S. economy, it has shifted the manner in
which transactions are handled, and given consumers and financial institutions a
different perspective.

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Works Cited

https://www.ffiec.gov/PDF/EFS.pdf
http://www.statista.com/statistics/245396/debit-card-purchase-volume-in-the-

united-states-in-total/
https://www.consumer.ftc.gov/articles/0218-electronic-banking
http://echeck.org/pros-and-cons-of-online-banking/