Online banking is supposed to be about convenience, but it only reminds me of the fuel shortage problems the Japanese faced during World War II.

Because Japanese petroleum stocks were so scarce, jet planes were pulled to the end of the runway by mules so they would not waste gas by taxiing to the takeoff point.

Now consider those who choose to bank online. First you have to go to the Internet and find the bank with the highest certificate of deposit rates. Then you have to open the account. After that you have to write a check on your primary bank account, send it out in the mail, and hope it gets to the online bank in a reasonable amount of time without getting lost. Talk about cumbersome.

Withdrawing cash is similarly unwieldy. In a recent issue of Bank Technology News, D.R. Grimes, vice chairman and CEO of NetBank, described the procedure for getting cash from his institution. NetBank will not reimburse you for the cost of using an automated teller machine, but it will send you a "free ATM locator" that tells you where to find a teller machine that does not charge a fee for withdrawal. If you want more than the ATM's limit, the bank will send out a cashier's check overnight at no fee. No wonder Tom McGrath, a managing partner of Bank Earnings International LLP, wrote in the Sept. 21 American Banker: "Internet-only banks pay higher interest rates on deposits because they must. Paying premium rates is the only way these institutions can even hope to attract deposits.

"Competing on rate is not competing," he writes. "It is merely admitting that you have nothing else of value with which to attract customers."

Additionally, Office of Thrift Supervision director Ellen Seidman - whose agency has chartered eight of the country's 15 Internet-only banks - states that online institutions are more expensive to operate than projected, are attracting an unstable deposit base, and cannot easily satisfy demand for personal interaction and access to cash.

"The savings that Internet-only banks have achieved by not having branches have often been more than offset by the high costs associated with acquiring and retaining customers and with updating and improving their technology infrastructure," she said recently. "The promise of low general and administrative expenses has yet to be proven."

Mr. McGrath's and Ms. Seidman's comments tell me that community banks are really in a different market than Internet-only banks. There are more similarities between Internet banks, with their heavy reliance on CDs for funding, and investment houses trying to sell Treasury bills and other money market instruments.

As they look at this Internet competition, community bankers must ask themselves, "What are we here for - what do our customers want?" They want convenient ways to move money into and out of their accounts. They want advice about borrowing and saving.

That's not to say that Internet banking doesn't have a place. What can be more convenient than paying bills online? But other than that, it appears that community banks already offer most of the things customers really want and therefore shouldn't have much to fear from Internet-only banks.

Mr. Nadler, an American Banker contributing editor, is professor of finance at Rutgers University Graduate School of Management.

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