Privacy of Online Banking Key to Customer Loyalty

WALTHAM, MA and TUCSON, AZ – April 5, 2005 -According to the 2005 Privacy Trust Survey for Online Banking released today, consumers who have a high level of trust in their bank are more likely to perform a wider variety of more complex online banking tasks, such as automated bill payment or applying for new products or services. The study, sponsored by Watchfire, Inc. and conducted by the Ponemon Institute, also revealed that these consumers are more likely to remain loyal to the financial institution they trust, translating into more profitable transactions for banks.

The survey reveals consumers with a high level of trust in their primary bank are loyal – they aren’t seeking services from other institutions, with 55% stating they have never even visited another bank’s website. However, the study also revealed that 57 % of consumers with high trust in their primary bank say they would cease all online services with their current bank in the event of a single privacy breach. That could translate into the potential loss of millions of customers making even a single breach a very costly problem for banks.

“There has been no shortage of high profile online privacy breaches fueling consumer fear of completing online banking transactions and sharing personal information over the Internet,” said Peter McKay, president and CEO of Watchfire. “Mainstream media focus on phishing and identity theft is pushing online privacy and trust to the forefront and customers are more anxious than ever before of how their personal information is being used. Banks need to keep a close eye on the integrity of this critical online channel or face costly customer defections.”

This Web-based study, conducted in late February and March, asked respondents to indicate how secure and confident they felt that their primary bank is committed to protecting the privacy of their personal information. A total of 2,328 responses were received (17.2% response rate) and the top banks selected as their primary bank for online banking are National City, Washington Mutual, U.S. Bank, PNC, Citibank and Wachovia.

“Trust is becoming the vital component in customer loyalty and brand strength,” said Dr. Larry Ponemon, chairman and founder of Ponemon Institute. “Our study reveals that, even among banks with the highest level of consumer trust, it only takes one privacy breach to destroy that relationship. In other words, not only do customers expect that their bank has procedures in place to protect them from identity theft, but if it becomes obvious that those safeguards are not working, they will walk.”

Earning Consumers’ Trust
The study revealed the number one reason consumers use Web banking is convenience (71%). 59% are “much more confident” or “more confident” in online banking than branch banking. Combining convenience with confidence is a win-win situation for financial institutions with the potential of adding more online customers.

Respondents were also asked to indicate what steps a bank should take to gain or increase consumer trust in its ability to protect personal information. The number one reported answer is to limit the sharing of personal information with third parties, followed by fewer annoying or irrelevant online ads or marketing promotions. The next most frequent response is having procedures in place to validate the consumer’s identity when they transact business with the Website.

Some other findings include:

· Significant customer acquisition opportunity still exists for banks.
· 70% of respondents strongly agree or agree that their bank is committed to protecting their personal information.
· Only 21% of respondents reported that an email from their bank is “always” or “most of the time” information they want to receive. Banks should be concerned that email communication may scare some consumers.

Given that email has been one of the main avenues for targeted phishing scams, it is not surprising that the survey points to identity theft as the biggest customer concern in the event of a breach or violation of personal information. Although gaining and maintaining consumer trust is challenging, it must be a priority. Building consumer trust in the Web channel will impact customer acquisition and retention rates.

To download a complimentary copy of the report, please visit http://www.watchfire.com/resources/privacy-survey.pdf

Privacy and Trust Webinar

Watchfire will host a one-hour webcast on April 19th at 2:00 p.m. ET with Chris Musto, VP Research Watchfire, and head of the Watchfire G??mezPro research team and Dr. Larry Ponemon, founder of the Ponemon Institute and the former global managing partner of compliance risk management at PricewaterhouseCoopers Dr. Ponemon is a pioneer in the development of privacy audits, privacy risk management and ethical information management. Mr. Musto and Dr. Ponemon will discuss the key survey findings and will highlight various “trust” strategies for online banks to improve success rates among their retail clients. To register, please visit: http://www.watchfire.com/news/seminars.aspx.

About Watchfire
Watchfire provides software and services to manage online risk. More than 250 enterprise organizations and government agencies, including AXA Financial, SunTrust, Nationwide Building Society, Boots PLC, Veteran’s Affairs, United States Postal Service and Dell, rely on Watchfire to monitor, manage, improve and secure all aspects of the online business including security, privacy, quality, accessibility, corporate standards and regulatory compliance. Watchfire’s alliance and technology partners include IBM Global Services, PricewaterhouseCoopers, TRUSTe, Microsoft, Interwoven, EMC Documentum and Mercury Interactive. Watchfire is headquartered in Waltham, MA. For more information, please visit www.watchfire.com.

About Ponemon Institute
Ponemon Institute is a “think tank” dedicated to advancing responsible information management practices in business and government. To achieve this objective, Ponemon Institute conducts independent research to promote best practices, to educate leaders from the private and public sectors and to verify the privacy and data protection practices of organizations. The Institute is headquartered in Tucson, Arizona with offices in Michigan and Amsterdam. For more information, visit www.ponemon.org.

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