Beginning in the 1950s, banks undertook extensive auto-mation of operations, starting with electronic funds trans-fer (EFT) systems. Check clearing (the sending of checks for payment to the bank on which they are drawn) was facilitated by the development of magnetic ink character recognition (MICR) that allowed checks to be automati-cally sorted and tabulated. Today an automated clearing house (ACH) network processes checks and other payments through regional clearinghouses.
Starting in the 1960s, the use of credit cards became an increasingly popular alternative to checks, and they were soon joined by automatic teller machine (ATM) networks and the use of debit cards (cards for transferring funds from a checking account at the point of sale).
Direct deposit of payroll and benefit checks has also been promoted for its safety and convenience. Credit card, ATM, and debit card systems rely upon large data process-ing facilities operated by the issuing financial institution. Because of the serious consequences of system failure both in immediate financial loss and customer goodwill, these fund transfer systems must achieve a high level of reliabil-ity and security. Reliability is promoted through the use of fault-tolerant hardware (such as redundant systems that can take over for one another in the event of a problem). The funds transfer messages must be provided a high level of security against eavesdropping or tampering through the use of algorithms such as the long-established DES (Data Encryption Standard)—see encryption. Designers of EFT systems also face the challenge of providing a legally acceptable paper trail. Electronic signatures are increas-ingly accepted as an alternative to written signatures for authorizing fund transfers.
Online Banking
The new frontier of electronic banking is the online bank, where customers can access many banking functions via the Internet, including balance queries, transfers, automatic payments, and loan applications. For the consumer, online banking offers greater convenience and access to informa-tion than even the ATM, albeit without the ability to obtain cash.
From the bank’s point of view, online banking offers a new way to reach and serve customers while relieving the strain on the ATM hardware and network. However, use of the Internet increases vulnerability to hackers and raises issues of privacy and the handling of personal information similar to those found in other e-commerce venues (see computer crime and security and privacy in the digi-tal age). In 2006 a Pew Center survey found that 43 per-cent of Internet users were banking online—a total of about 63 million American adults. Other surveys have found about a third of Internet users now pay bills online. There are also a relatively small but growing number of Internet-only banks, many of which are affiliated with traditional banks. A particularly attractive feature of online banking is the ability to integrate bank services with popular personal finance software such as Quicken.
As impressive as it has been, the growth in online bank-ing may have been inhibited by a perceived lack of security. A 2006 Gartner Research survey reported that nearly half of adults surveyed said that concerns over the potential for information theft and computer attacks had affected their use of online services such as banking and e-commerce transactions. Gartner translates this to an estimated 33 mil-lion U.S. adults who do not bank online because of such concerns. (Banks are frequently impersonated in deceptive emails and Web sites—see phishing and spoofing.)
In response, government regulations (FFIEC or Federal Financial Institutions Examination Council) guidelines issued in October 2005 required banks by the end of 2006 to provide detailed risk assessments and mitigation plans for dealing with data breaches. Large banks spent about $15 million each on this process in 2006. Much greater expenses are likely as banks find themselves compelled to purchase and install more-secure user authentication software. They face the multiple challenge of securing their systems while reassuring their users and not forcing them to go through complicated, hard-to-remember log-in procedures.
Credit card issuers are also starting to turn to the Inter-net to provide additional services. According to the com-Score service 524 million credit card bills were paid online in 2006. By 2007 about 70 percent of all credit card holders had logged on to their accounts at least once. Many custom-ers have responded to incentives to discontinue receiving paper statements.
Starting in the 1960s, the use of credit cards became an increasingly popular alternative to checks, and they were soon joined by automatic teller machine (ATM) networks and the use of debit cards (cards for transferring funds from a checking account at the point of sale).
Direct deposit of payroll and benefit checks has also been promoted for its safety and convenience. Credit card, ATM, and debit card systems rely upon large data process-ing facilities operated by the issuing financial institution. Because of the serious consequences of system failure both in immediate financial loss and customer goodwill, these fund transfer systems must achieve a high level of reliabil-ity and security. Reliability is promoted through the use of fault-tolerant hardware (such as redundant systems that can take over for one another in the event of a problem). The funds transfer messages must be provided a high level of security against eavesdropping or tampering through the use of algorithms such as the long-established DES (Data Encryption Standard)—see encryption. Designers of EFT systems also face the challenge of providing a legally acceptable paper trail. Electronic signatures are increas-ingly accepted as an alternative to written signatures for authorizing fund transfers.
Online Banking
The new frontier of electronic banking is the online bank, where customers can access many banking functions via the Internet, including balance queries, transfers, automatic payments, and loan applications. For the consumer, online banking offers greater convenience and access to informa-tion than even the ATM, albeit without the ability to obtain cash.
From the bank’s point of view, online banking offers a new way to reach and serve customers while relieving the strain on the ATM hardware and network. However, use of the Internet increases vulnerability to hackers and raises issues of privacy and the handling of personal information similar to those found in other e-commerce venues (see computer crime and security and privacy in the digi-tal age). In 2006 a Pew Center survey found that 43 per-cent of Internet users were banking online—a total of about 63 million American adults. Other surveys have found about a third of Internet users now pay bills online. There are also a relatively small but growing number of Internet-only banks, many of which are affiliated with traditional banks. A particularly attractive feature of online banking is the ability to integrate bank services with popular personal finance software such as Quicken.
As impressive as it has been, the growth in online bank-ing may have been inhibited by a perceived lack of security. A 2006 Gartner Research survey reported that nearly half of adults surveyed said that concerns over the potential for information theft and computer attacks had affected their use of online services such as banking and e-commerce transactions. Gartner translates this to an estimated 33 mil-lion U.S. adults who do not bank online because of such concerns. (Banks are frequently impersonated in deceptive emails and Web sites—see phishing and spoofing.)
In response, government regulations (FFIEC or Federal Financial Institutions Examination Council) guidelines issued in October 2005 required banks by the end of 2006 to provide detailed risk assessments and mitigation plans for dealing with data breaches. Large banks spent about $15 million each on this process in 2006. Much greater expenses are likely as banks find themselves compelled to purchase and install more-secure user authentication software. They face the multiple challenge of securing their systems while reassuring their users and not forcing them to go through complicated, hard-to-remember log-in procedures.
Credit card issuers are also starting to turn to the Inter-net to provide additional services. According to the com-Score service 524 million credit card bills were paid online in 2006. By 2007 about 70 percent of all credit card holders had logged on to their accounts at least once. Many custom-ers have responded to incentives to discontinue receiving paper statements.
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