By Mallory Cage
Edited by Corbin Ensminger
In over 30 years in banking, Peter Prioleau has seen checks replaced by ATMs and retail banking become highly competitive. Now, as a South Carolina Community Bank branch manager, he's trying to keep brick-and-mortar banks from being replaced by those that exist only online.
"The traffic inside our bank has dropped tremendously," Prioleau said. "In banking we now have to compete. The industry has to change with the technology."
Community banks, which have seen an increase in deposits by over 5 percent since 2006 according to the Federal Deposit Insurance Corp., are relying more on things like personal service and security to keep customers from defecting. But the convenience and interest rates for online-only banks are growing, making the switch tempting.
Online banks, like Ally and USAA, were viewed as the cost-effective choice in the early 2000s. But according to the American Bankers Association, online-only banks had just 9 percent of the industry's total deposit growth in 2011. Still, online-only banks continue to offer higher interest rates then their brick-and-mortar counterparts.
For instance, Ally, formally GMAC Bank, was recently paying 0.84 percent interest on an online savings account, almost 17 times the amount a customer can get from Bank of America.
Alex Keyser of Columbia is the kind of customer who gives bankers like Prioleau hope. Keyser used a traditional bank, switched to an online-only - and then changed back because he missed the security. Keyser, like many people, is balancing the lure of higher rates and the increasing convenience of online against the feeling of security from a brick-and-mortar bank.
He switched to an online-only bank because when he moved his Seattle bank didn't have Columbia locations.
"But after a while I found that sometimes you need a physical bank," he said.
Robert Schmitt, a Columbia X-ray technician, says that although he does all his banking online with Bank of America, he doesn't want to switch to a bank without the security of having a physical location.
"It's more of a psychological thing, seeing their name on the side of building and knowing I can always go in," Schmitt said.
Carol Kaplan, senior director of public relations for the American Bankers Association, says that she has noticed more people doing their banking online but she thinks they will continue to stick with traditional banks for complex transactions and the comfort that comes with putting a face to their bank.
"There is less overhead with an online bank, but there are some things you can't do with online-only banks," said Kaplan. "We don't see online banks as a threat because every bank has a purpose."
The FDIC reports that the number of branches in the U.S. had grown to 82,641 in 2010 from 64,900 in 2000 and in South Carolina the number grew from 1,025 in 2000 to 1,264 by 2010.
South Carolina Community Bank's basic savings account rate is 0.25 percent. Prioleau says he thinks that combined with the bank's service, the rate is enough to stay competitive.
"Community banks will continue to grow because they can deliver more personalized service while addressing the community needs versus the bigger banks that are more fee - driven," Prioleau said. "I believe people still want personal service."
But Keyser, who runs a hot dog stand in downtown Columbia, recently added a credit card reader to his cell phone and now uses his bank's online options more than ever. Keyser wouldn't say what bank he uses because of security reasons, but said it's a national bank.
"I can do everything online now. It's more convenient, I can do my banking here at work between customers," Keyser said.
At South Carolina Bank and Trust, Senior Vice President Montague Laffitte sees a balance. He says the Internet has given customers more options but that limits remain when withdrawing money.
"I think online banking gives you a competitive advantage," Laffitte said. "It has allowed us to grow, but having locations has allowed us to grow as well."
One of the limits is that SCBT customers can use ATMs only from banks within its network without extra fees, unlike Ally and USAA, which reimburse customers for all ATM charges.
On the other hand, some people remain leery of online banking. Over 40 percent of bank customers don't use their bank's online bill payment options because of security concerns, according to a February report by market research company comScore. Instead, these customers mail in their payments and stick to traditional banking.
Wayne Ogburn of Columbia is one of them. He doesn't have a debit card and says he still mails in his payments.
"I've heard too many horror stories about too much information being taken away from online accounts," he said.
Alex Chastain, a financial planner for Abacus Planning Group in Columbia, says this shouldn't be a concern and that she often encourages her clients to use online options.
"The chance of someone stealing your information out of the trash is actually much higher than them breaking into your online account," Chastain said.
Many traditional banks are also encouraging customers to sign up for email alerts and online statements, specifically to reduce the risk of identity theft.
Since switching from an online-only bank to a traditional one, Alex Keyser, who runs KC Hotdogs in downtown Columbia on weekdays, says he still does his banking through his bank’s online options.
