RealTime IT News

Consumers Losing Trust in Online Banking

Stung by breaches of personal financial data, U.S. consumers are quickly withdrawing their confidence in online banking.

Adoption of online banking rose just three percent in the end of 2005, according to eMarketer, a research firm that specializes in online trends.

The lackluster growth is expected to continue, as online financial dealings jumped just four percent between now and 2010, according to eMarketer.

Meanwhile analysts are skeptical that banks will meet a year-end deadline to implement federal guidelines calling for improved security.

The Federal Financial Institutions Examination Council in October 2005 issued guidelines prodding banks replace simple passwords with stronger authentication.

"Security is not a luxury to online banking users, and it cannot be for online banks," according to Lisa Phillips, analyst with eMarketer and author of the report.

Phillips also found that Europeans are more accepting of online banking, according to Phillips. Three-quarters of European consumers bank online compared to 38 percent of U.S. households.

Analyst attribute the differing views to Europe's earlier adoption of greater security measures, including disposable passwords and two-step authentication.

Because security concerns are lower, European seek greater convenience while American’s online still focus on security matters.

Other research backs up the importance of security. Forty-five percent of consumers asked by JupiterResearch said they were concerned about data breaches, according to analyst Ed Kountz. (JupiterResearch and internetnews.com are both owned by Jupitermedia)

But despite consumers being concerned about banking security, it doesn't need to be a "body blow to the financial industry," Kountz told internetnews.com.

Kountz pointed to a dichotomy in what is felt to be most important about online banking.

The nearness of ATM machines and other convenience issues topped the list of concerns in the JupiterResearch findings. Security was fourth in importance.

Although banks understand the importance of improving security, they are not likely to follow a single approach.

Instead, banks adopt multiple solutions from varying vendors.

However security is upgraded, the key is making it transparent to the user.

"The real fraud detection is transparent," said Gartner analyst Avivah Litan. "As long as it doesn't interfere with convenience."

Ensuring security doesn't interfere has become a huge factor for online bankers. For the first time, security departments need to list to marketers, according to Gartner.

While optimistic about the future, Kountz believes this year could be critical for online banking. If no security breaches occur, online banking could see greater popularity.

"But it takes a long time to undo the damage," said Litan.