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Online banking is about more than cost cutting. Banks are just waking up to its potential for increased revenue and new business opportunities. In this context, online security is not just a cost of business to be weighed against losses to fraud. It is the key that opens the door. But it will only work if banks change the way they build a business case for trust and security.
Every business unit in a bank needs a presence online. People expect to do more online and banks that meet these expectations will gain a competitive advantage over those who see the internet as nothing more than a way to cut costs. Bank innovation and vision lead the way but trust and security form a barrier; customers will only use the online channel if they trust it. ‘Good enough’ security isn’t good enough anymore.
In this context, banks need to re-evaluate their cost-benefit calculations for online security. If they only count the cost of fraud they will miss the bigger picture. Poor security has a significant opportunity cost. Banks should focus on the benefits of moving a customer online and getting them to buy more when they get there. Increased security makes each customer more valuable and more profitable.
The security paradox
Which came first, the chicken or the egg? Or, to put it into banking terms, which came first, improved online security or new online services? It’s a common mistake to believe that current levels of bank security, and particularly static passwords, are sufficient and don’t need to be improved.
In reality, when security is poor, everyone focuses on the cost of fraud and the difficulty of developing new services in an insecure environment. This makes it hard to upgrade security and hard to develop new business opportunities.
The real cost of insecurity
The cost of any fraud incident can be divided into several parts:
In many cases, banks base their business case for improved security on the direct costs alone. This is rarely enough to justify an investment in stronger security, such as two-factor authentication. Yet, it only takes account of a tiny proportion of the total cost. This false consciousness is the root cause of the security paradox.
To break the paradox, you need to have a baseline of trust and security. Customers need to feel confident to transact with you online. Staff need to be free to focus on business development and service innovation rather than firefighting security problems on a daily basis.
The future of banking
This brings me to the fourth cost of poor security: the opportunity cost of delayed innovation and missed business opportunities. Only once a secure foundation exists, can banks build new high-value services online.
The trend in Northern Europe is for branches to switch focus from low-value transactions, such as cash withdrawals and cheque deposits, to high value sales, such as loans, financial and business advice. The branch becomes a venue where bank can meet their affluent customers.
In Sweden, Nordea has already opened cash-less branches. In the UK, Nationwide has started charging a small fee for cash withdrawals in the branch. Another trend sees banks buying real estate companies in order to put their mortgages and insurance in front of house buyers.
The business value of security
With the right security, banks’ online portals can become an integrated part of this trend towards high-value, high-touch customer service. It can also take care of many more low-value transactions and enable completely new lines of business. Opportunities include:
Trust and confidence are valuable assets for banks. Back in the nineteenth century, banks invested in lavish marble halls and iron strong rooms to encourage deposits. Today, in the 21st century, robust authentication and trustworthy online services have the same role. If banks want to attract customers, upsell new services and out-compete their rivals, they need good security. It’s not just a cost of business. It’s good for business.
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
Victor Irechukwu Head, Engineering at OnePipe Services Limited
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Nkahiseng Ralepeli VP of Product: Digital Assets at Absa Bank, CIB.
Valeriya Kushchuk Digital Marketing Manager at Narvi Payments
28 November
Alex Kreger Founder & CEO at UXDA
27 November
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