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STUDY SUGGESTS ONLINE BANKING IS TAPPED OUT

Posted on February 2, 2005

      Internet security, consumer choice and lack of services are some of the main reasons behind results of a survey that shows online banking has reached a plateau after an explosive growth period between 2000 and 2003, according to a Canadian marketing research firm.

      In its annual How Canadians Bank study, which was conducted last fall, TNS Canadian Facts found 30 per cent of Canadians reported using an online banking service in the month prior to the survey. Out of that number, the largest group to use online banking is 25 to 34 year olds at 48 per cent. That number drops to 35 per cent for those aged 35 to 49.

      The results, similar to the 2003 study, also revealed that only six per cent of non-users are likely to do so in the first half of 2005. For the survey, TNS sent out 4,500 questionnaires to its panel of men and women 18 years and older. Approximately 2,800 or 48 per cent of that group responded.

      Between 2000 and 2003, the proportion of Canadians who were banking online doubled from 14 to 33 per cent in 2003 compared with only two per cent in 1997, said Rhonda Grunier, a vice-president at TNS, which has been tracking online banking since 1997.

      "It had been growing at such a fast pace it would be difficult to maintain that," said Grunier. "We'll still see growth but it's going to be at a much slower pace."

      One of the main reasons behind this plateau in online banking among non-users is concern about Internet security, Grunier said.

      "We find consistently about a third of them say they're concerned about online security so they would be hesitant to bank online because of that," she said.

      Despite concerns about Internet security, Scotiabank continues to see increasing customer adoption rates of online banking. About 50 per cent of Scotiabank's customers across Canada bank online, said Bob Grant, senior vice-president of electronic banking at Scotiabank in Toronto.

      "Once (customers) are on the Internet, they use it for more and more activities," said Grant. "Our customers continue to think the Internet is a great way to bank. More and more customers are adopting it."

      Grant added Scotiabank has been relatively unscathed by recent phishing expeditions, where users are sent false e-mails that resemble legitimate communication from banks, thanks to some initiatives it has undertaken.

      However, Christopher Musto, vice-president of research at Watchfire Corp. , said a big concern among banks is that consumers are starting not to trust online banking and because of that are less willing to try it.

      In the past, Musto said people used security as an excuse for not signing up with online banking services.

      "By saying security, they're able to say, it's not that I'm not ready for online banking, it's that online banking isn't ready for me," said Musto.

      Now Musto said security really is a threat.

      "If they're saying security is the reason, it really is the reason," he said. "What banks are doing is giving security around the sanctity of your money and computer-related fraud. They're trying to create an environment in which consumers can make educated choices to make their online experience more secure."

      Scotiabank, for example, has provided an online section for its consumers to educate them about ways to protect their online banking password and to make sure they follow safe computing practices. These include clearing caches, changing passwords regularly and ensuring there are no viruses on their PC, Grant said.

      Scotiabank has also assured customers that it would never ask them for a personal identification number and password on the Internet and stopped providing linked URLs with our customers, Grant added.

      While Scotiabank has tried to track down and take action against people behind these types of schemes, Grant said many of them are in inaccessible places such as former Russian republics.

      Scotiabank has also recently launched a service that allows users to save their Scotia card number on their hard drive. In the event of a phishing attack on their computer, the person can't get into the customer's online banking account because the Scotia card has been saved.

      Another contributing factor is people who bank online are satisfied with the number of ways they can bank whether it is at their local branch or on the phone. However, the report also found that phone banking usage is down from 26 per cent in 2001 to 20 per cent in 2004, mostly due to the boom in online banking, said Grunier.

      "If you look at people who are signed up for online banking we ask them prior to banking online did you use to bank by phone and almost half of them said that they did," she said.

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