Online banking is by far the preferred method of banking in the U.S. A quarter of respondents to Mintel’s consumer survey for this report say they have an account at an internet-only bank, but only 3% bank exclusively at online-only banks.

Security is the biggest concern respondents have about internet banks. But customer-service issues also rank highly, such as the lack of branch offices, concerns about depositing or cashing checks easily and ATM fees. More than a third of respondents who don’t have an internet bank account say they would never use such a bank because they prefer in-person branch service. The rollout of remote check deposit capture services should obviate concerns about depositing checks, but only a handful of banks offer the service, which may be a must-have offering for small, online-only banks.

Online banking is by far the preferred method of banking in the U.S. A quarter of respondents to Mintel’s consumer survey for this report say they have an account at an internet-only bank, but only 3% bank exclusively at online-only banks.

Security is the biggest concern respondents have about internet banks. But customer-service issues also rank highly, such as the lack of branch offices, concerns about depositing or cashing checks easily and ATM fees. More than a third of respondents who don’t have an internet bank account say they would never use such a bank because they prefer in-person branch service. The rollout of remote check deposit capture services should obviate concerns about depositing checks, but only a handful of banks offer the service, which may be a must-have offering for small, online-only banks.

Despite these concerns, customers of online-only banks have a surprising number of accounts at those institutions. More than 10% have a certificate of deposit and a credit card, and nearly one out of ten has a mortgage, retirement account, or insurance policy, in addition to savings and checking accounts.

Nearly 80% of survey respondents who pay their bills online say they would stop using their bank’s online bill payment service if it ceased to be free. But banks need to be careful about imposing such fees because consumers have options: More than a quarter of respondents pay their bills at the biller’s website, just slightly below the percentage that pays bills at their banks’ website.

Net income at banks and credit unions rebounded sharply in 2010, the result of lower net interest expense and reduced loan losses. But earnings remain significantly below the levels prior to 2008, as loan volume remains weak. In addition, the Federal Reserve and Congress continue to target bank fees. A Fed proposal to sharply limit interchange fees in 2011 may decimate bank debit card revenue, which could mean the end of free checking at many banks. That may give internet-only banks a competitive advantage over brick-and-mortar banks that may be more dependent on debit fees.

U.S. banks and credit unions had combined assets of $14.3 trillion at the end of the third quarter of 2010. Credit unions have grown their share of the industry by nearly a full percentage point during the past three years; credit union assets have increased by more than 22% since 2007, compared to just 5% at banks.