San Jose Mercury News, Business Monday, by Carol Holding, September 16, 1996

Security. The word deflates any enthusiasm about banks and the Internet. And even though I have not read or heard of any actual breaches in security which have left bank customers holding the bag, everybody, banks and customers, are scared to death.

Periodically, banks have faced crises in security and subsequently have had to pick up the pieces of their shattered image. After the bank collapse of the 1930’s, banks turned to FDIC insurance to ensure that customers would never again lose their life savings. They then managed perceptions of risk by stamping that logo on just about everything. After all, the assurance of safety is a bank’s key point of difference and the reason consumers are willing to pay high fees and accept low interest rates. In fact, the FDIC logo rebuilt the security promise of banks to such an extent that by the 1980’s, people assumed (wrongly) that all bank products, including their mutual funds, were thus insured.

Symbols associated with security, like the FDIC logo, have always played a key role in engendering public confidence. From royal stamps on fourteenth century bills of exchange to stage coaches and barred windows to imposing bank building facades and high-tech theft-proof safes, symbols of security have helped bank customers throughout time feel they are protected.

Yet today, as banks attempt to promote Internet banking products, security symbolism is nowhere to be seen. Moreover, on-line messages such as, “You are now leaving an unprotected area,” appear to foist the burden onto customers – as though he or she has willfully strayed into the danger zone.

Even the people you turn to for advice, the techno-nerds, the “decision influencers,” will probably tell you to stay away. According to Bank of America Interactive’s research maven Kay Parekh: “We’ve found that the more technically savvy the customer, the greater their sense of fear about Internet banking.”

This unwillingness of the banks to accept Internet banking risk may be due to the fact that banks themselves consider electronic transactions unsafe. According to a 1995 Ernst & Young survey of banks, “Ninety percent of banking respondents indicated that information security risks have increased.” And nowhere more so than with an Internet connection, where your bank transaction relies on software, Internet service providers, the phone company – all factors over which the bank has no control, any of which could leave big holes through which cyber-thieves could enter. But banks must move customers on-line: the promise of universal cash access has been made by technology. Customers are primed and banks can’t afford the long term risks of continuing to conduct financial transactions in expensive branch offices.

So the only thing holding back electronic banking is the universal perception of unacceptable risk. Consumers are just waiting for some authority to ensure that their money is safe. Many companies are vying for this position, but banks are the obvious choice. As Anthony B. Perkins, Publisher and Editor-in-Chief of The Red Herring, writes in last month’s Harvard Business Review, “Ultimately the banks and credit card companies will solve those issues for us, not fledgling companies such as DigiCash and CyberCash. After all, we have paid banks and credit card companies handsomely in the past to protect us against fraud, and we don’t see why this will change in the future.”

What is called for is radically altering current perceptions by managing security in the same way banks always have. Think of going to a branch to visit your safe-deposit box. The experience is loaded with symbolism. Even the name is “safe-.” The iron clad sanctuary, the armed guard, the impossibly thick steel door covered with rivets and deadlocks, the matching key the manager withdraws as you produce your own – who knows if any of this really protects your valuables, your feelings of safety and security are completely validated.

Whoever can mimic this experience on the Internet will surely stand to benefit. And though banks are the obvious choice, there’s no telling how long they can stand idle before someone else (credit card companies or brokerages) fills their shoes.