A Brief History of Internet Banking

The main purpose that banks have been serving since their inception is keeping our money safe for us. While keeping our money safe, they also let us earn a certain amount of interest on the money deposited with them. Traditional banks have been doing this, and internet banks continue the same function. The only difference is in the way the transactions are made.

Online banking has been around for quite a few years. In fact, it was introduced in the 1980s and has come a long way since then. The last decade has seen a profuse growth in internet banking transactions. Several pieces of legislation have also been introduced in this area.

Though it began in the 1980s, it was only in the mid nineties that internet banking really caught on. What attracts customers to internet banking is the round the clock availability and ease of transactions. Studies estimate that internet banking still has a long way to go. There are several banks that have customers who prefer banking in the traditional ways. Statistics released by the FDIC show that only 40% of the banks in the U.S. offer internet banking facilities worth mentioning. All the others may have an online presence but do not have enough online transactions to justify their presence on the internet.

Some customers have been known to turn to internet banking due to dissatisfaction with standard procedures and practices. The total absence of human interaction appeals to some people. Some customers turn to internet banking facilities for security reasons. This is mainly because of customers being assured of banks’ ability to keep transactions safe and secured.

Most online transactions are made using the Internet Explorer interface. The Internet Explorer has been around for more than ten years now.

What Are Internet Banks?

The Internet has changed greatly the way people live. Through the Internet, we can do many things from shopping, gaining educational certificates and diplomas, and even work at home via the Internet. At the same time, banks have also come up to date and now we are able to process our financial transactions with the use of our personal computers through an Internet bank.

Internet banking or otherwise called as online banking is a term used for the many different functions that a bank can perform with the use of a computer. There is just a particular difference between an internet bank and a traditional bank: the Internet bank does not require any customer to set of his foot in the actual bank. People usually have to place their salary into a bank account and the money can be utilized to do different transactions. All of these can be done online with the use of a personal computer.

In fact, there are so many uses of an internet bank. Normal or traditional banking hours are usually short but through having an internet bank account, you will be able to do your baking transactions even within the limits of the normal banking hours. You can also shop instantly via online and make use of your internet banking account to pay for them. You can also have the chance to set up direct debits and pay utility bills and credit cards through an internet bank. There is no more need for you to fall in long line waiting for the completion of the transactions.

You do not have to dispense with your normal bank altogether. Most of the banks today offer an internet service that can be used to conjunct with your normal banking service. Online facilities may vary from bank to bank but most of them will be able to provide you with the basic banking services. Through them, you should also be able to review and pay bills, transfer funds, apply for credit cards, and provide you with the ability to access account information.

And since online technology is becoming more and more sophisticated, you now have the option to open an Internet Only virtual bank account. These banks actually do not have buildings because they only exist online. They all provide customers with the same services provided by traditional banks but you can never set your foot inside the bank.

But before enrolling in an internet bank, you have to check the policy information of the bank so you will be able to learn how they handle the security and privacy of their customer’s accounts. Check the bank’s security procedures and never send PIN through emails. It is best to change your passwords regularly.

Offshore Internet Banking Advantages and Disadvantages

The topic of offshore internet banking is a hot one and one that is increasingly growing in popularity not only within the consumer banking community, but also the business or corporate banking sector.

The beauty of offshore online banking is that in addition to enabling you to conduct banking activities allowed by traditional and local brick and mortar businesses, it allows you more variety and flexibility in terms of your banking needs. For example, if you travel often, offshore online banking gives you the flexibility to conduct business on to go from anywhere, while ensuring that you have access to the type of currency if you need at a time you need it.

Having said that, not all banks offer online or internet banking services as this service costs the banks a significant amount of money. Programming sophisticated and secure systems require the effort of several full time computer engineers, full security and compliance departments, as well as heavy overhead to support the service on an ongoing basis.

Because there are so many variables involved in offering this service, offshore internet banking services vary from one financial institution to another. Some have better systems while others have work to do. A lot of this is predicated on the resources the bank has dedicated to this initiative, both in terms of quantity and quality.

Opening an Offshore Bank Account

Before diving further into this topic, I want to clarify that engaging in offshore internet banking is not about evading taxes. It is about mitigating risk of capital loss due to no fault of your own. So when considering a foreign jurisdiction in which to establish an offshore bank account, consider one that is politically stable and financially strong. In addition, it helps to select a jurisdiction that pays an attractive interest rate and has low to no income tax. Some of the most preferred jurisdictions over the years have been Switzerland, Cayman Islands, Singapore, Hong Kong and the United Arab Emirates (UAE).

Opening a personal bank account is usually a very personal activity. With offshore internet banking however, there are ways you can get started remotely without having to show up to the bank’s local office, saving a ton of time, money and mainly frustration.

One such way is by visiting a local bank’s branch in your domicile state, or home country. Many big banks that offer internet banking have a multi-national presence. Chances are good that your selected bank has a local branch near where you live, despite being headquartered in another offshore jurisdiction.

In other cases, there are international banks that may not have local branches near where you live, but are willing and able to establish an offshore bank account for you through email, snail mail, fax and telephone. There are usually a set of documents required by banks in order to execute this process. Therefore you can still open a foreign bank account with an offshore bank without having to leave your country, but it may come with a little more effort, and sometimes the struggle involved in communicating with someone overseas.

The Advantages of Offshore Internet Banking

Here are some advantages of offshore internet banking that you should know about.

Protection from sovereign risk – as mention already above, parking funds in foreign bank accounts mitigates the risk of loss of capital resulting from freeze or confiscation of funds by Governments without any fault of your own. This risk is less of a concern in a developed economy with a solid banking infrastructure such as the United States, but it is nonetheless an inherent risk that exists.

Tax benefits – many offshore jurisdictions have low to no income tax implications on interest income, or income from business activities.

Higher Interest Rates – because many offshore banks operate with low costs, they can afford to offer higher interest rates compared to larger multi-national names. In fact, in developed economies like in Europe and North America, regulatory compliance requirements is seen by many as form of taxation on banks, thereby increasing overhead costs and lowering interest rates.

On Demand Access to Statements – offshore internet banking gives you instant access to your statements where you can view your activities on a real time basis. This includes past and pending deposits and withdrawals. You can therefore access your account balance at anytime.

Money Management – with offshore internet banking you can transfer funds between accounts across the globe instantly. Offshore banks have inventories of various currencies and can help you fulfill banking transactions in multiple countries. You can schedule automatic payments to vendors to release automatically.

There are several other advantages to offshore internet banking. You can open offshore trading accounts and establish offshore brokerage accounts to conduct trading and investment activity (there can be tax advantages to this). Conducting transactions online is not only mostly free, but also very efficient. Transaction time online is simply much less. You can also have streams of income potentially directly deposited straight into your offshore online bank account.

From a personal finance perspective, downloading banking activity from your offshore online bank account is easy and can be done instantly. Most online banking platforms are designed to feed information into financial or personal accounting software or to spreadsheets like Excel. Individuals can save a significant amount on accountant fees just by utilizing this feature. Not to mention more intimate knowledge and management of their own finances.

For those looking for anonymity, offshore online bank accounts also allow you to conduct banking anonymously as per bank secrecy guidelines.

The Disadvantages of Offshore Internet Banking

Merely establishing an offshore bank account can be a reason for the Government to put more focus on your activities. After all, many use offshore internet banking as a mechanism to conduct illegal activity and evade taxes. Some specific disadvantages of offshore internet banking as a result of conducting business through foreign bank accounts are the following:

Knowledge of Internet – There is a certain level of internet savvy required to be able to navigate your way through offshore internet banking platforms to ensure you are getting exactly what you want. This is a big reason why some elderly shy away from conducting banking online.

Deposit Timeline – Because many banks do not have the technology to be able to collect deposits remotely, you may have difficulty depositing all your proceeds. While many banks have developed electronic scanning technology, others have yet to catch up. There is no consistency to say the least.

Security / Fraud Implications – because banking is conducted online, offshore internet banking exposes you to the risk of network intrusion or breach. Because information is transferred electronically and stored in various databases, breaches can cause private and sensitive information to leak out into the wrong hands. But then again, this is no different than losing your check book if compared to traditional brick and mortar banking.

Spam Mail – offshore online banking also means that you will receive emails from the foreign bank you have your offshore bank accounts with. Internet predators recognize this as an opportunity for phishing, or fish for private and sensitive information. Many times you may see an email in your inbox from what seems like your foreign banking institution. However it is not. These are phishing emails hoping for you to login and enter your personal information such as login and password.

TIPS: Here are a few tips to avoid falling for phishing scams. First, when you receive an email from your bank, call them to verify that they sent the email. Second, instead of opening the email they sent you, visit the bank’s website directly and see if you can conduct what’s asked of you on their site by you logging in directly rather than clicking a login link in an email message.

Third, if you were to open the email and click on any link in it for whatever reason, once the link takes you to a website where you are required to enter personal information, look for security symbols such as an https URL address or a padlock on the lower right hand side corner of the web browser. There are other security measures as well that can be visible spotted. Read online for more on this topic.

Financial Security – some offshore bank locations are not very financially secure or stable. For example, during the global economic crisis of 2008, many savers lost money parked in offshore bank accounts in some destinations such as Iceland. I don’t mean to scare you by any means as this situation is rare, and in most cases those who suffer losses are compensated in some way over time. However, know that this inherent risk exists. Always look for deposit insurance. The bigger the allowance the better.

Credibility by Association – as I’ve already mentioned, offshore internet banking has negative connotations attached to it, often associated with money laundering, use of illegal monies, untaxed monies and support of illegal causes. Offshore bank accounts at times are tied to crime rings and terrorists. What does this mean for you? Although you may engage in offshore banking legally and legitimately, understand that there will be closer scrutiny over you by the Governments.

Access Restrictions – offshore banks are in destinations far away from you, therefore more difficult and expensive to access. In many countries, communication in person is preferred to communicating over phone, email and snail mail, therefore internet banking can get a bit difficult and frustrating. I see this trend slowly changing with banks understanding the need to communicate at all levels and mediums to satisfy a global audience.

Expensive – offshore internet banking is usually more expensive to set up and administer and thus more accessible and feasible for those more affluent or high income earners. It’s not so much that it is expensive to open a foreign bank account. It is not. However, many times you will need to go through a firm that specializes in helping expatriates establish and manage foreign bank accounts. All these activities cost money.

Internet banking today is very convenient and is accessible to almost everyone. For the average individual it can be a great offshore tax planning tool to add to the mix. For those that travel, foreign internet banking can provide all sorts of convenience, allowing one to transact anywhere and with anyone. So if you liked what you read about offshore online banking, I highly recommend you look into it further to see how it can help you meet your objectives.