Security fears stunt online bank growth

I first discovered the joys of online banking in the late 1990s. I was living in Canada, but working for the Monitor in Boston. All my paychecks were being deposited in my Cambridge, Mass., bank account. By using Internet banking, I could pay my bills in the United States and transfer money to my Canadian accounts. I was sure that in a few years, everyone would bank online.

We aren't there yet. Still, about 42 percent of Americans now bank online, often via a website offered by their regular "brick and mortar" bank, according to a survey by the Pew Internet and American Life Project. Of all the Internet activities Pew has studied since its inaugural survey in March of 2000, Internet banking has grown the fastest.

But Americans' interest in online banking may be waning, The number of people banking online is expected to grow by just 4 percent between 2006 and 2010, according to Lisa Phillips, senior researcher at eMarketer, a market research firm in New York.

Why would consumers move away from banking online?

Basically, concerns about security. People still do many things online that don't make a lot of sense - open e-mails with suspicious attachments, give away information to shifty e-mail marketers, forget to log off their machines when they leave a public Internet terminal. But when it comes to their money, most folks display a heightened awareness that seems missing at other times.

In a 2005 survey of 1,000 American adults conducted by the global market research firm Ipsos Insight, 72 percent said they were worried about banks selling their information to a third party, while 73 percent said they had concerns about identity theft. People wanted banks to provide greater assurances about protections in these areas and make it easier to actually contact a "real person" when they needed help.

It's easy to see why people have security concerns. Most probably receive several "phishing" e-mails a day from crooks trying to get them to hand over their banking, credit-card, or other personal information. Recent events, such as the theft of personal data from about 26.5 million vets from the Department of Veterans Affairs, may not affect everyone directly, but it makes us nervous. Even commercials about identity theft, aimed at reassuring people that they are protected, probably move some people toward not doing any online banking at all.

Some analysts forecast that one type of online banking will grow more rapidly in the years ahead. "Virtual banks," with no brick-and-mortar components, account for only about 2 percent of all deposits made in the US, according to The Online Banking Report, an independent newsletter that has reported on the subject since 1995.

But Jim Bruene, editor of the report, writes that rising interest rates will make more people consider banking only online, especially those with high incomes. The more money you have, the more you can take advantage of the services and higher rates virtual banks offer, For instance, the average interest-bearing checking account earns 1.96 percent at a virtual bank and 0.32 percent at a traditional bank, reports Bankrate Inc., which compares rates at banks across the US. The minimum balance requirements set by some virtual banks may be too large for small savers to participate, however.

Another factor is moving people in this direction: Many online banks don't charge fees for similar services offered by brick-and-mortar banks. Some virtual banks even refund the processing charge consumers are assessed each time they use a "real world" bank's ATM.

Virtual banks can absorb such fees because they don't face the expenses that come with opening branches in every state in order to do business there. Currently ING Direct is the biggest online banking company, with about 4 million customers. reports the Associated Press.

For those concerned about security issues, the First National Bank of South Africa recently created a checklist that consumers can use to protect themselves when they bank online:

• Pick a username and password that can't be guessed easily (include numerals, special characters, and upper- and lower-case letters). Change them regularly.

• Update your computer software, especially antivirus and spyware programs; perform regular system scans.

• Avoid using public terminals (such as Internet cafes) for Internet banking.

• Check for the padlock symbol in the lower right of your browser window. (The padlock indicates that it's a secure site. You can click on this padlock to verify the authenticity of the site.)

• Never give your password over the Internet (by e-mail) or over the telephone to persons purportedly from the bank.

• Don't trust a .pdf payment proof unless it's verified by the bank. These documents can be manipulated easily by fraudsters.

As someone who has banked online for eight years, I can tell you the convenience is wonderful. But I'm also glad to see that banks are finally addressing people's security concerns in a serious way.

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