Online Banking and Security

Over 1500 attendees showed up for FinovateFall in NYC during September 23-24. Steve had a chance to answer some questions about the state of security and online banking.

Question 1. Let’s start with a general safety question. In your opinion, where are we in terms of account safety? Obviously, security measures improve by the day (and certainly in response to specific incidents!), but if I was going to convince my grandmother to attempt to save online, what would I tell her if she had concerns about sharing her financial information online?

Steve: Banks, and businesses in general, are really battling with security right now. It’s not just online that has security issues either, it’s the management of customer data in general. Loss of credit card account numbers, account passwords and other security breaches are affecting customer databases that are not just online so there really is a heightened awareness and risk across the board. When you hear about Heartbleed and the issues surrounding that people tend to think the bad guys are winning. But in truth, the response from the industry to this was fantastic. The communication strategy from the industry, the branding of the Heartbleed bug, and the Heartbleed website all conveyed real sense of concern, purpose and community and people really responded. I’m actually carefully optimistic about the future. With this education, the consumer is beginning to understand that threats are everywhere and as technology evolves, old threats dissipate and new threats mature. Moving forward, I’m convinced there will be more communication, community, and general dialog that happens and the consumer will be better for it.

As for your grandmother, I know it may be a lot to ask for, but I’d tell her that there are brilliant people working really hard to keep her safe. When you go to the website of a bank, go to their Security Center and really read it. Call customer service. Your Online Bank better have knowledgeable Customer Reps who should be able to assuage her fears, and if they can’t, find a bank that will. After all, a $100,000 5 year CD can earn tens of thousands of dollars more interest over it’s lifetime at a typical online bank than at a National bank.

Question 2. Now, a cost/reward question if you feel comfortable answering it. Online accounts have gotten more popular certainly for convenience. How can you make the subtle point that technology drives costs down and allows institutions to offer better rates, lower fees, etc. than terrestrial banks. Do you see this as the wave of the future for bank-related savings?

Steve: I do see this as one potential wave of the future and one we’re working hard to make happen. A few top online players have really achieved significant scale. I think, at this time, the larger terrestrial banks are going for share-of-wallet and while they have fairly mature online experiences, they don’t feel they need to be as competitive in their rates for their deposit products. They are competing on the broad array of services they can offer and trying to make it easy and convenient for the customer to use them for everything. Of course as innovation occurs and as more and more friction is removed from the market, customers can move money between their core bank and the online only bank more readily. Additionally, it’s easier than ever for customers to view their account balances across multiple banks with account aggregation tools (Mint, Yodlee, etal) so you have this market force (high rates) that should be drawing customers to online only banks as the online bank has mindshare even when customers don’t directly access them. To counter this though, I think we’ve seen in the past year the big banks fight back by charging Funds Transfer Fees where they have not in the past to protect their turf. It’s hard to figure out where this will all net out and many a pundit will try, but I’d argue there is enough good quality competition out there that all banks absolutely need to invest in the customer experience in order to achieve long-term success.

Question 3. Anything else you’d like to add.

Steve: Access to banking via mobile is still growing at double digit rates and customer engagement via the mobile channel can be multiple times per day. The mobile touchpoint is going to be increasingly important in the next two years as I expect to see online banks continue to battle via the addition of aggregation tools, remote deposit capture, and personal financial management tools. I expect the online banks to offer a more diverse array of products as well such as checking and whole other business units like mortgage banking and personal loans.