Online banking is suffering through a withdrawal phase. A study last fall by I.T. security firm Entrust found that 18 percent of Americans who bank online plan to do so less often because of security concerns. A third of the respondents said they were worried about their bank's Web site being spoofed by a fraudulent facsimile that would trick them into divulging their logon information.
"Consumer confidence in online banking security has been damaged," said Chris Voice, vice president of technology at Entrust. "This is bad news for banks. If consumers start defecting from online banking to call centers or branches, this will put banks' costs up."
According to Voice, a call-center transaction costs a bank 10 times as much to process as an online transaction. And if people start beating a path back to the branches, where a transaction is even more expensive than at the call center, banks will have to hire more staff, he said.
Banks are reluctant to share hard data  on the scale of online fraud. But in response to the growing threat, financial institutions around the world are stepping up their user-authentication systems and strengthening their risk-monitoring technology.
In the U.S., the federal government has given banks until the end of the year to install better online-security measures. Some companies, such as Bank of America and E*Trade, have gotten a head start by introducing two-factor authentication technologies to complement the traditional user name and password required for accessing online services.
A SiteKey for Sore Eyes
Two-factor authentication combines something you have, such as a hardware device or a software application, with something you know, such as a password.
Bank of America's new authentication system , called SiteKey, is now mandatory in all markets across the U.S. in which the bank offers online-account services, with the exception of Washington and Idaho. The bank said it will roll out SiteKey to its online customers in those two states by April.
SiteKey, developed by PassMark Security in Menlo Park, California, is designed to prevent account holders from falling prey to bogus Web sites that troll for sensitive information. It does this by asking you to select an image and a phrase that only you know. If this image and phrase are not displayed on the Bank of America Web site when you log in, then you know the site is fraudulent. (continued...)
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