NEEDHAM, Mass. – Perception is reality when it comes to deciding whether to bank online, and persuading consumers who think the computer's not a safe place to bank is going to be a high bar to hurdle, according to a new report from TowerGroup. "TowerGroup primary market research has found that a persistent inhibitor of consumer adoption of online banking is concern about security," George Tubin, a senior analyst in retail banking for the financial services think firm says in a new report, "e-Security: Consumers' Perception is the Bank's Reality." Among households that are online but don't bank there, 26% cited security concerns as the reason, compared with 22% who says they're not comfortable banking online and 21% who cited a preference for face-to-face transactions as their reason. News accounts are creating a widespread awareness of problems with Internet commerce, and the numbers are there, too. The Internet Fraud Complaint Center, for instance, referred 48,252 complaints to law enforcement agencies in 2002, a tripling over the year before. "While online banking fraud is not directly tracked by the IFCC, the growth in Internet fraud certainly increases consumers' trepidation about conducting financial transactions via the Internet," Tubin says. For obvious reasons (it's where the money's kept), financial institutions have been "generally well ahead of other industries in understanding, developing and implementing IT security enhancements" such as protection against hackers, viruses and network sabotage, Tubin says. That's not what generally concerns consumers, Tubin says, because they tend to view such crimes as attacks on the institution, not on their personal assets. "A banking customer's primary concern with Internet security is identity fraud," the TowerGroup analyst says. Many believe that signing up for online banking can enable someone to gain access to their account through intercepted or hacked passwords and user names. Ironically, Tubin says, "Consumers believe that without an online account set-up, they are not vulnerable to this type of fraud. They are unaware that thieves can use stolen identification information to establish an online banking account." Furthering the perception of possible problems is publicity about such recent situations as one in Australia where customers were lured into imitations of their banks' Web sites; fictitious IRS documents seeking personal information were sent by e-mail in this country, and a scam aimed at PayPal clients who were asked to put financial account information into an e-mail response. What to do? Counter bad publicity with good information. "While financial institutions continue to work behind the scenes to enhance their security infrastructure, they must also take a public stand to ensure consumers that online banking is a safe and secure channel," Tubin says. For starters, they should prominently display online and offline clearly written, non-technical explanations of the security measures the financial institution has put in place and what steps consumers must take to protect their personal information, he says. TowerGroup also recommends that banks and credit unions prominently display their indemnification policies for fraudulent online activities, and should consider going beyond federal regulations and completely indemnify consumers against any losses. As Tubin's report says, "If the financial institution will not stand behind its online banking service, why should consumers trust it?" He concludes: "Financial institutions must take on the responsibility of educating consumers on e-security matters and indemnifying consumers for e-security breaches. "Those that take these steps and then boldly market their positions will outpace their competitors and be at the forefront of the next wave of online banking adoption." -

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