How confident are you that if you click on a retailer’s e-mail promo and shop on its Web site, you’ll be safe from identity theft? What about an e-mail from your bank? Are you just as comfortable logging in to your account as shopping for a pair of shoes?
For many Americans, a new report by eMarketer.com says, the answer is “no.” While more than 63 percent of U.S. online households shop online, it says, less than 56 percent bank online, and the figure isn’t expected to surpass 60 percent anytime soon.
The main reason, eMarketer senior analyst David Hallerman found, is concern about fraud.
“The causes of consumer anxiety are clear: fears about identity theft, fanned by data loss, account attacks and phishing,” he said. “These problems are worrisome across all aspects of Internet commerce, but consumers are far more conservative about their finances than they are about purchasing books, computers or three-week vacations in New Zealand.”
Hallerman’s report, which combines original research with data from leading sources such as Gallup, Forbes.com and Forrester, says the perceived insecurity actually exceeds the true risks of online banking, and reassuring consumers should be a priority for banks.
A June survey by The Conference Board found 57.4 percent of U.S. online households were “extremely concerned” about the security of financial transactions, compared with 48.4 percent feeling that way about online purchases, and 29.2 percent about e-mail.
And a September 2004 Forrester survey found the biggest barriers to online banking were worries about data security (44 percent) and privacy (43 percent). Only 7 percent of consumers, by contrast, said their bank didn’t offer the service.
Annual growth in online banking is also slowing, the eMarketer report says, citing Ponemon Institute data, from an April report, showing that 69 percent of users had banked online since at least 2003, while 22 percent started in 2004. This year will be the last for double-digit growth, Hallerman predicted, and after that, online banking will rise by only about 5 percent per year.
Yet from banks’ perspective, promoting online banking is key – as a cheaper alternative to branches and even ATMs and call centers, and for its marketing and loyalty-building value. An April Forrester report found nearly three in 10 consumers said banking online had caused them to grow their relationship with the bank by considering additional bank products.
Bank of America, considered an online pioneer (as was Fleet before it was bought), has been particularly aggressive in developing its Web services, and it’s paid off: Forrester recently put it at the top of the industry in penetration rates, especially after considering demographics, and its online banking numbers also continue to rise rapidly.
As of September 2004, the bank had 11.8 percent active online banking customers, with 4.8 million paying bills online, spokeswoman Betty Riess said. As of last month, the numbers had risen to 14.3 million and 7 million, respectively.
“We continue to see tremendous growth,” Riess said. But she also made it clear that Bank of America invests heavily in its online services: It offers a “zero liability” guarantee to protect online banking users against fraudulent transactions, and it keeps bolstering security behind the scenes and in more visible ways, such as a new SiteKey feature that adds an extra layer of verification for users – both to ensure it’s them logging into the account, and to assure them that they’re really on the Bank of America Web site. (The service is still being rolled out.)
Such features make a big difference for consumers, said George Tubin, a senior analyst at the Tower Group in Boston. Zero-liability guarantees, for example, are key “because until a bank stands behind their product, the consumer isn’t going to be comfortable,” he said. And features like SiteKey may soon be the norm, Tubin said, because the Federal Financial Institutions Examination Council has just issued a guidance to banks calling for the use of stronger authorization systems than just a login and password.
Unlike eMarketer’s Hallerman, however, Tubin speaks confidently of continued online banking growth.
“Since the beginning of online banking, consumers have had a security concern …but the fact is that online banking is the fastest-growing channel that consumers use,” he said. “It’s getting tremendous take-up, and it continues to grow in spite of everything we’re hearing.”
But does it matter what size your bank is? Do consumers trust larger banks better?
“It cuts both ways,” Hallerman said. Some consumers may perceive bigger banks as safer, he said, but those “marquee names” are also the top targets for phishing. (In fact, Bank of America just got targeted again a few days ago.)
James V. DeRentis, chief business officer at Bank Rhode Island, said there’s “definitely the perception” among many consumers that small banks are less equipped to fight fraud, “but the reality is that what banks our size do is work with third-party vendors to provide the technology, versus Bank of America, which develops it on its own.”
The flip side is that even smaller banks can be targeted for spoofs, DeRentis said, so BankRI works to “constantly communicate” with customers to keep them on the alert. But to avoid any confusion, BankRI puts its messages for customers on its Web site, instead of sending them by e-mail, DeRentis said.
At this point, he said, about 45 percent of BankRI’s customers bank online, and he’s confident that the numbers will keep rising.
