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Banks Lose Business As Consumers Lose Faith in Online Security

By Martin H. Bosworth
ConsumerAffairs.com

April 13, 2006

Phishing • FDIC Warns Against Fake Bank Failure Scam • Consumers Want Better Online Banking Security • Puddle Phishing: Online Fraud Goes Local • New Phishing Attacks Target Specific Individuals • Online Banking Needs Stronger Security • Offline Identity Theft Still a Threat • Consumers Vulnerable To Exploitation Online and Off • FDIC Warns of Phishing Scam • Consumers Not Secretive Enough, Study Finds • Billions Lost in Phishing Scams • AOL Phishers Settle Federal Charges • AOL, PayPal Phishers Hooked • Citibank E-Mail Scam Making the Rounds • Amazon, Microsoft Sue Alleged Phishers, Spoofers • Teen-Aged Phisher Nabbed --- • Identity Theft News

Fewer bank customers are adopting Web for their business and a desire for better security may be one of the reasons, recent surveys find.

The growth of bank customers performing transactions online grew by only 3.1 percent in the fourth quarter of 2005, the lowest sequential growth in three years, according to a study from consumer behavior researcher ComScore Networks.

The year-to-year growth of online banking was 40 million customers in 2005, a 27 percent increase from 2004, according to the study, but the sequential numbers still represented a decrease.

Another study conducted by financial security firm Entrust found that 18 percent of respondents polled had moved away from online banking as a result of fears of fraud and identity theft.

The Entrust poll, conducted in 2005, found that 94 percent of respondents were willing to utilize extra security measures when using their online accounts.

A survey conducted by the RSA Security firm that found 60 percent of respondents wanted their banks to notify them when irregularities popped up on their accounts, and 90 percent wanted their banks to monitor their online banking transactions as closely as they do credit card purchases.

In the ComScore study, 23 percent said that increased security was their prime reason for switching to online banking, but free offers and products were the chief reason for 33 percent of the respondents to do so.

The Entrust study found that 81 percent of consumers polled did not want to pay extra fees for security improvements, feeling that banks have adequate resources to improve their systems without charging their customers more money.

The study found that online bill paying experienced an uptick, with nearly 25 percent of bank customers paying their bills from their bank accounts via the Web.

Bank of America topped the list, with 5.1 million customers using its online bill paying system in the fourth quarter of 2005, nearly half of all customers using online payment systems with their banks.

Bank of America also topped the charts for overall online banking growth in 2005, with 15 million subscribers. Cardweb.com reported the Charlotte, NC-based banking behemoth experienced a 69% increase in signups and sales through its Web site, and earned substantial gains from its purchase of MBNA.

But the company also experienced many egregious security breaches and data thefts in 2005, starting with the loss of data tapes containing information on thousands of the bank's federal clients.

Employees at Bank of America and Wachovia participated in a scheme to sell customer data to collection agents, putting as many as 500,000 accounts at risk.

Bank of America is one of the many financial institutions wrestling with implementing new security measures for online transactions in response to a mandate from the Federal Deposit Insurance Corporation.

The FDIC, concerned about the prevalence of bank-based identity theft and fraud cases, gave banks until the end of 2006 to improve their online security.

As the FDIC did not endorse any specific method for improving the safety of online transactions, banks are trying a number of different approaches, including verification "site keys," where the customer types in a series of specific characters to validate their account and prevent automatic logins. Other methods include physical "tokens," biometric readers, and specific authentication questions

Online verification systems, no matter how complex, don't address issues of physical theft or misplacing of unsecured information.

In addition to its loss of data tapes, Bank of America was one of the many companies that recently lost laptops containing data on its customers, in this case users of the discontinued "Visa Buxx" prepaid spending cards.

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