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Consumers in the U.S. are responding to growing fears of online identity theft by going offline. Enterprises - especially those in the financial services sector - must counter this trend by reinforcing their efforts to deploy secure transaction-based applications.

Financial Institutions Especially Vulnerable

A new survey (see below) shows the first evidence that fears of identity theft are starting to cut into online usage statistics.

Online usage rates are especially critical for banks and other financial services institutions. The sector is marked by intense competition, relatively little differentiation between institutions, and low levels of customer loyalty.

Two key strategies have emerged in the fight to maximize the size and activity level of the current customer base:

- Increase Internet banking usage. By boosting the percentage of customers using online services, banks can raise per-client revenue, reduce transaction costs, and increase long-term loyalty.

- Reduce churn. By minimizing the percentage of clients who switch their business to another institution, banks can maintain market share in an otherwise competitive market.

Despite the fears addressed by the Consumer Reports survey, demand for Internet-based banking continues to grow. The Pew Internet & American Life Project reports that over 50 million adult Americans now do their banking online. This figure is up 47% since 2002.

Info-Tech sees the online market as the next major competitive differentiator in the banking sector. Despite increasing market demand, the perception of risk is perceived as a threat to ongoing penetration of online services.

Institutions that re-orient their offerings to address nagging security concerns and meet exploding demand will obtain competitive advantage over those that choose to take a more conservative approach. Banks can ill afford to ignore this trend.

Internet Usage Maximization Best Practices

1. Address security up front. Identity theft concerns have become top-of-mind for consumers. Online marketing efforts must directly focus on steps the bank is taking to secure all transaction-based and personal data. Build a communication plan with the following key elements:

Messaging on the corporate home page that speaks to specific anti-identity theft steps that the bank has taken.

Specific branding for the bank's security efforts. Include this branding on all customer literature.

FAQs that outline steps customers can take to boost their online security. This includes using 128-bit-encrypted browser sessions, never responding to e-mail claiming to be from any bank, and telltale signs of questionable URLs. To maximize buy-in, focus on the cost and time savings for consumers.

2. Track current usage. Understand how current services are being used by applying Web analytics to capture end-user experiences. Survey customers to better understand why they use online services. Include assessments of in-branch and phone-based services as well to ensure all contact points are optimized.

Outline prioritized responses to this data. If key performance indicators are breached, have a plan in place outlining who does what – and who funds it – to address the matter.

3. Educate the customer. Do not assume that all customers are automatically ready to go online. The late adopters might require additional handholding and training before they are comfortable. Add FAQs and other training material to the institution's Web site to ensure they get the help they need.

4. Look to the leaders. The Canadian banking market leads the world in online banking penetration. According to a recent comScore Media Metrix Canada report, 40% of Canadians use online banking services. The following banks' attention to security issues have led to solid year-over-year increases in user activity:

- TD Bank Financial Group has developed a leading-edge secure application infrastructure.

- The Canadian Imperial Bank of Commerce has been particularly effective in updating its customers with details of its security-related initiatives.

- The Bank of Montreal has trumpeted its lack of major breaches in the past year.

Bottom Line

Banks that fail to address customers' online security concerns will continue to lose ground to those institutions that make it a priority. Listen to clients and redesign online services accordingly.

ID Theft Scares Consumers OfflineK

A recent survey by Consumer Reports WebWatch sheds light on the impact of identity theft concerns on American consumers.

- 80% are at least somewhat concerned about identity theft arising from online activity.
- 30% say they have reduced online activities as a result.
- 53% say identity theft fears have prompted them to stop providing personal information to Web sites and online marketers.
- 29% have reduced the amount of Web-based shopping.
- 25% have stopped buying from e-commerce sites altogether.