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Deena M. Amato-McCoy
Deena M. Amato-McCoy
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Distribution: Creating Virtual Value in Banking

By integrating business channels, consolidating customer histories and beefing up security, banks are improving their online offerings to provide customers with all the conveniences of branch banking in the comfort of their own homes.

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Don't Underestimate Customer Loyalty

Compared to conventional banking customers, online customers seem to have a higher level of confidence in their financial institutions. If banks violate consumers' trust on even one occasion, however, banks can kiss these loyal customers goodbye, according to the 2005 Privacy Trust Survey for Online Banking. The study, sponsored by Watchfire and conducted by the Ponemon Institute, surveyed more than 2,300 adults about how confident they were that their banks are committed to protecting their privacy.

Seventy percent of consumers believe their banks are committed to protecting their personal information, the study reports. However, 57 percent of consumers who have a high level of trust in their banks say they would cease all online services with their current banks in the event of a single privacy breach.

"The best customers are often also profitable customers," says Michael Weider, founder and chief technology officer, Watchfire. "The more complex accounts and transactions they have make them more profitable. A single breach could translate into the potential loss of millions of customers. If these customers leave, it could cause a lot of damage and be a very costly problem for banks."

According to the study, 77 percent of these consumers view their statements online. Additionally, 51 percent make payments on bank products or services such as credit cards or home mortgages online. Yet, these consumers would quickly give up these conveniences if they are offended by privacy violations.

Surveyed consumers also feel that some online advertising - including pop-up and pop-under ads and spam - treads on their privacy. For example, only 21 percent of respondents want to receive e-mails from their banks, according to the study.

Banks need to ensure that their online efforts do not sacrifice customer loyalty and profitability. "If a customer's trust is breached, banks will feel huge implications beyond a loss of data," adds Dr. Larry Ponemon, chairman and founder of the Ponemon Institute. "It could be damaging for the bank's brand, and they will gain a negative perception in their customers' eyes."

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