Consumer Confidence In Internet Banking Fragile, FSA Reveals

by Robin Pilgrim, LawAndTax-News.com, London

25 January 2006

The FSA's Financial Risk Outlook 2006, published today, aims to encourage banks to further engage consumers in their fight to combat the rise in online banking fraud.

The Financial Risk Outlook highlights the risks the FSA believes will be important in the next 18 months, and how these may affect the regulator's ability to meet its statutory objectives and strategic aims.

Research undertaken on the regulator's behalf to gauge confidence in internet banking found that it is fragile in the United Kingdom.

Half of active internet users said that they were 'extremely' or 'very' concerned about the potential fraud risk of making an online transaction. Consumers who conduct their banking online are taking steps to protect themselves against fraud, by installing security software on their PC, but over a quarter did not know when they last updated their software or updated it infrequently.

According to APACs, the UK Payment Association, fraud losses through internet banking were GBP14.5 million in the six months to June 2005. Although this is relatively low, losses have more than trebled since the same period in 2004 (GBP4 million).

The FSA's research found that if banks were to tackle these losses by shifting the liability fully towards the consumer, more than three quarters (77%) of users say they would abandon internet banking.

Nearly all users (95%) surveyed believed that at least some security responsibility should lie with the bank, while 45% believed that banks should take sole responsibility.

Philip Robinson, Financial Crime Sector Leader at the FSA, announced that:

"If consumers were asked to foot the bill for internet banking fraud losses, our research shows that they would stop using the tool. Most consumers recognise they have some responsibility for security but they are not necessarily following this obligation through. To tackle the losses associated with fraud, banks should continue to drive security and this must include educating consumers on the importance of protecting themselves."

"We recognise that many banks are already taking steps to engage consumers. Initiatives like the 'Get Safe Online' campaign between the Government and the private sector show consumer education is beginning to happen. But banks need to look carefully at consumer attitudes and whether their initiatives are effective in maintaining confidence."

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