FCS 3400
What is Electronic Banking?
Electronic banking is the use of electronic means to transfer funds from one account to
another. The following are examples of electronic banking:
- direct deposit of paycheck
- withdrawal of money from your checking account from an ATM machine
- automatic bill payment (instructing your bank to automatically make your car payment)
- transfer of funds each month from your checking to a savings account
- use of a debit card to pay for purchases
- use of a smart card instead of cash
- use of a computer and personal finance software to coordinate your financial management
process
Automated teller machines (ATMs) also called 24-hour tellers are electronic terminals that
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 (PIN). 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
recurring bills, such as mortgage payment, installment loan payments, insurance premiums
and utility bills.
Point-of-sale transfer terminals allow consumers to pay for retail
purchases with a
check card, a new name for debit card. This card looks like a credit card but with a
significant difference - 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"
(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 services offer 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 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 check card loss within two days, any
longer and your liability can go up to $500. After 60 days, you can be responsible for
the entire amount.
- In an era of increasing bank fees, consumers can expect to pay for the service of using
a check card.
- It is the consumer's responsibility to keep check card receipts and deduct the dollar
amounts from your bank balance immediately, in order to avoid overdraft charges.
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 they 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
bill-paying service.
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.
Consumer Protection -- Electronic Funds Transfer Act
The 1978 Electronic Funds Transfer Act is the governing statute while the Federal Reserve
Board's Regulation "E" provides guidelines on electronic funds transfer card liability. The
regulations require that:
- a valid EFT card can be sent only to a consumer who requests it
- unsolicited cards can be issued only if the card cannot be used until validated
- the financial institution must inform you of your rights and responsibilities under the
law in a written Disclosure Statement, including the procedure to correct errors
in your periodic statements
- the user is entitled to a written receipt when making deposits or withdrawals from an
ATM or using a point-of-sale terminal to make a purchase. The receipt must show the
amount, date and type of transfer
- periodic statements must confirm the amount of all transfers, the dates and types of
accounts to or from which funds were transferred, and the address and phone number to
be used for inquiries regarding the statement
Problems and Errors
You have 60 days from the date a problem or error appears on your written receipt or on
your periodic statement to notify your financial institution. If you fail to notify the
financial institution of the error within 60 days, you may have little recourse. Under
federal law, the financial institution has no obligation to conduct an investigation if you
have missed the 60-day deadline.
Lost cards
If you report an ATM or EFT card missing before it is used without your permission, the card
issuer cannot hold you responsible for any unauthorized withdrawals. If unauthorized
use occurs before you report it, the amount you can be held responsible for depends upon
how quickly you report the loss.
If you report the loss within two business days after you realize the card is missing but
you do report the loss within 60 days after your statement is mailed to you, you could
lose as much as $500 as the result of an unauthorized withdrawal.
If you do not report an unauthorized withdrawal within 60 days after your statement is
mailed, you risk losing all the money in your account plus the usual portion of
your maximum line of credit established for overdrafts.