The Effect of the Internet Banking on Local Banks

The concept of banking at an Internet based financial institution has been around almost as long as the World Wide Web itself. The Internet has completely revolutionized the banking industry, and has had a profound effect on local banks. While it has proven problematic in some cases, online banking has also helped community financial institutions.

Online banking has led to the creation of new financial institutions that compete with local banks for depositors' money. These companies include dedicated online banks like PayPal and WorldPay. Theoretically, since local banks invest their money in the community where they reside, online banks can affect how much local money goes back into the community. Practically however, many customers still fear the dangers of hackers and scammers stealing money from online banks, and as a result will stay with their local bank.

The technological nature of Internet banking has enabled millions of transactions per day to happen at a far faster rate than would be possible by visiting an ATM or a bank teller. This has made all banks more efficient, including local banks, of which many have added online banking as an option. As a natural consequence of this, local banks potentially enjoy lower operating costs, including a reduced need for tellers. However, online banking also offers smaller banks the ability to re-deploy their tellers for 24-hour customer support to go with their round-the-clock automated financial services, effectively making them competitive with larger banks.

Online banking offers new employment opportunities in a community as well. For instance, local banks that wish to take the plunge and adapt to the Internet will need to hire someone to upgrade their system. This can include network administrators, security experts and programmers. Since local banks are very concerned about their security, they will be more reluctant than bigger banks to hire help from outside the country.