Consumers Now Opt for the Web Over the Branch

CU360
November 20, 2009 | COMMENTS

For the first time ever, U.S. bank account holders would rather visit a Web site than a bank branch, according to an industry survey. Nearly 25% of respondents prefer online banking, compared to about 20% who favor walk-in visits, according to the American Bankers Association survey.

Despite horror stories about identity theft, computer viruses, password hassles, and other troubles, online banking has enjoyed a steady rise in popularity. And an online transaction can cost a financial institution 90% less than an in-person transaction.

Still, consumers haven't turned away from other retail financial channels. About 55% of customers prefer using some combination of ATMs, the telephone, snail mail, a mobile device, or had no preference.

The results of the survey are consistent with other research, says Greg McBride, a senior financial analyst with Bankrate.com. “The way we handle our finances has changed,” McBride tells MSNBC.com. “We don't sit at the kitchen table with a stack of envelopes anymore to pay our bills. Now we open up a laptop.”

Web banking has also been spurred by regulations issued by the Federal Financial Institutions Examination Council in 2005. These rules required financial institutions to add layers of security to Web sites beyond user names and passwords.

Images, phrases, personal identification numbers, and challenge questions are now familiar to consumers. These tools have enhanced security and reassured consumers, says Eric Skinner, chief technology office of security firm Entrust. Still, Web users should not become overconfident, he adds.

“The appropriate tone is caution,” Skinner says. “There are still problems related to fraud. The pace of innovation among online criminals is much faster than that of real-world bank robbers. In the online world, attacks change monthly.” Phishing attacks, for example, have recently given way to sophisticated computer viruses.

Consumers are right to feel relatively safe when banking online, according to Avivah Litan, a bank security expert from research firm Gartner. Federal law protects them against losses, so their risks are minimal. But she notes an irony in this week's announcement from the bankers association. Just last month, the Financial Services Information Sharing and Analysis Center issued a fairly dire warning to commercial Web banking customers.

It recommends that firms employ extreme security measures, such as limiting online banking to ultra-secure computers that have no e-mail or general Web browsing capabilities. The warning came in response to a dramatic rise in online thefts from small and medium-sized businesses. Unlike consumers, businesses are not protected by federal banking regulation and are not entitled to automatic refunds of losses.

The alert indicates that the sophistication, stealth, and sheer volume of malicious software being distributed these days is testing the limits of traditional anti-malware protections, such as anti-virus software. The alert also warns that attackers in some cases are using password-stealing malware designed to swipe so-called “two-factor authentication” credentials such as one-time passwords from scratch-off pads or battery-operated key fobs.