Report: U.S. consumers losing trust in online banking

Computerworld - U.S. consumers are not as enamored with online banking as they once were and are citing online security as their top concern, according to a report.

"The result is a slowing rate of adoption, with online banking households increasing by only 3.1% in the last quarter of 2005 -- the lowest increase in three years," according to Lisa Phillips, senior analyst at eMarketer and the report's author. "The number of online banking households as a percentage of total online households is pretty stagnant, too. It is expected to grow by just four percentage points between 2006 and 2010, from 45.4 million in 2006 to 56.2 million in 2010."

While that number may seem high, it is actually more conservative than the estimates of other researchers, Phillips said.

Web site security tops the list of consumers’ concerns about online banking, she said.

"Being able to trust a banking site is extremely important to customers, with more than 87% saying in an Ipsos Insight survey that they wanted assurance that the bank would not sell their personal information, and 83% wanted assurance that such data was protected from hackers," according to the report.

"Security is not a luxury to online banking users, and it cannot be for online banks," Phillips said in a statement.

Phillips said 75% of European consumers do more than half of their banking business online, compared to 38% of Americans. Europeans have confidence in Internet financial transactions as a result of more advanced authentication and ID policies, she said.

"Trust is eroding [in the U.S.] as security breaches rise," Phillips said. "There were a total of 130 data breaches reported in the U.S. in 2005, according to the Federal Trade Commission, so it is not surprising that concern about online security is on the rise."

Phishers once were considered the chief threat to online financial security, but now banks are focusing on dangers that can crop up during online banking sessions, according to the report. In October 2005, the Federal Financial Institutions Examination Council issued guidelines urging U.S. financial institutions to implement stronger, two-factor authentication practices before the end of 2006, Phillips said.

"Banks must make this as simple and as unobtrusive as possible," she said.

Online banks should take steps to ensure that their customers are satisfied with their online experiences, according to the report. Online banks also must strictly enforce their privacy policies or risk losing customers. They also must make sure they keep transaction times short.

"Technical difficulties, encountered even one time, are enough to drive 34% of online bankers to find better service on a competitor's site," Phillips said in the report. "The link between customer satisfaction with a bank's Web site and overall satisfaction with the bank is overwhelming."

Read more about security in Computerworld's Security Knowledge Center.