A Glitch In E-Banking

Need some fast cash? Deepgreen Bank will wire you as much as $25,000 in 20 minutes. In the market for a mortgage? Everbank will shell out $300 if you find a competitor with lower rates. Savings account? ING Direct offers 4.75% interest--no fees or minimum balance required. All good deals, but we doubt you'll take the bait. E-banks, it seems, can't even give money away. Despite being offered great rates, muscular security and ubiquitous ATMs, consumers are reluctant to store money in the ether. They fear thieving hackers, even though the deposits are federally insured, and they don't like the hassles of making deposits or cashing checks through an e-bank.

Only about 1 in 7 U.S. households has ever tried some form of electronic banking. And of those willing to venture into e-territory, 96% are logging on to the Web version of a bricks-and-mortar institution, according to Gomez Advisors. The remaining 4%, roughly 800,000 strong, live by their ATM cards and are tired of paying for the privilege of maintaining a checking account. Sign-up incentives, like $50 cash, also help.

To most consumers, though, if there's no building, no tellers and no long lines, there's no bank. "For the vast majority of people, dull and boring are exactly the attributes they're looking for in a bank," says Octavio Marenzi, managing director at research firm Celent Communications.

Too bad, since low overhead enables virtual banks to offer checking accounts with an average of triple the interest and half the maintenance fees of off-line banks, according to Bankrate.com . Now, with slow customer growth and high marketing costs, the e-field is narrowing. Bank One is grounding WingspanBank.com after a $150 million launch. CompuBank sold its accounts to NetBank in March, and Lighthousebank is looking for a buyer.

Ironically, some e-banks are dealing with the catch-22 of being branchless by building branches. E*Trade Bank, 13th largest FDIC-insured savings bank by assets and leader of the Internet-onlies by a mile, piggybacks on its parent, which opened a superstore in April in New York City, and is launching mini-branches in Target stores across the country.

Nearby in Manhattan sits the new ING Direct cafe. The casually clad employees can't conduct transactions but can serve lattes and answer questions. "Is it pronounced I-N-G or Ing?" a first timer asks. (The former.) With a hip sound track and stacks of ING Direct clothes for sale, the cafe feels more like Banana Republic than a bank. "It's not supposed to be avant-garde," says CEO Arkadi Kuhlmann. "We're basically saying banking should be as uncomplicated as a cup of coffee."

It should be, but too many e-banks have provided customer service that is virtual, as in virtually nonexistent. One ex-patron says he spent 40 minutes on hold every time he called NetBank. Jim Bruene, editor of Online Banking Report, agrees that virtual banks need faster service. "Now you're lucky to get an e-mail response in two days," he says. "At some point, that response at a good wired bank will be in two minutes."

There is no question that e-banks are a better deal, if slightly less convenient. Mailing deposits is a drag, but direct deposit helps, as do new super ATMs. And because most branchless banks reimburse you for ATM fees, "they're essentially offering more freedom than any other bank," says analyst Greg McBride. More freedom, but less hand holding. Kind of like growing up.