Consumers who have a high level of trust in their bank's ethics and actions are most likely to use that bank for a wider variety of complex online banking tasks than those who don't have such a degree of faith in their bank, according to the '2005 Privacy Trust Survey for Online Banking' sponsored by Watchfire Inc. and conducted by the Ponemon Institute.
The study found a direct link between the consumer's trust in their bank and their loyalty to the bank, as well as their willingness to use its online services such as automated bill payment or applying for new products and services. According to the report, this loyalty - which comes as a result of banks providing privacy and ethical policies that consumers trust - translates into more profitable transactions for the bank.
Consumers with a high level of trust in their primary bank proved loyal in the survey, saying that they aren't seeking services from other institutions. More than half (55%) said 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 would cease all online services with that bank in the event of a single privacy breach - which could translate into the potential loss of millions of customers, making even a single security or privacy breach a very costly worry.
Scams causing fear
"There's been no shortage of high profile online privacy breaches, fuelling consumer fears of online banking and sharing personal information over the internet," explained Peter McKay, president and CEO for 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 risk customer defections."
The web-based study, conducted in February and March 2005, asked consumers in the USA 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 (a 17.2% response rate) and the top banks selected as their primary bank for online banking were: National City, Washington Mutual, US Bank, PNC, Citibank and Wachovia.
Trust for loyalty
"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."
The study revealed the top reason for consumers using online banking services: simply put, it's convenience (71%). Of these, 59% are "much more confident" or "more confident" in online banking than branch-based banking. Combining the convenience and confidence factors presents something of a win-win situation for financial institutions, bringing the potential of increasing numbers of online customers.
Respondents were also asked to suggest what steps they thought banks should take to increase their trust in its ability to protect their personal details. The top answer was to limit the sharing of personal information with third parties, followed by fewer annoying or irrelevant online advertisements and marketing promotions. The third most popular answer was to have procedures in place to validate the consumer's identity when they transact business through the website.
Other findings included:
- A significant customer acquisition opportunity still exists for banks.
- The majority of respondents (70%) "strongly agree" or "agree" that their bank is committed to protecting their personal information.
- Only 21% of respondents reported that e-mail messages from their bank are wanted "most of the time" or "always". However, banks should also be aware that e-mail communication may scare some consumers due to media coverage of 'phishing' scams (where criminals forge emails that look like they're from the bank in order to trick consumers into providing personal and financial data).
Given that email has been one of the main avenues for targeted phishing scams, it is not surprising that the survey cites 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 now become a priority, the report warns. Building consumer trust in the online channel will doubtlessly impact customer acquisition, loyalty, and retention rates for a long time to come.
Download the report
The report has been made available for free download from Watchfire's web site - click here (Acrobat PDF document).