Can you bank on it?

With the Y2K concern almost behind us, industry analysts finger information security as the next big IT issue. This feeling is most prevalent in the financial sector, with emphasis falling more specifically on electronic banking.

Internet banking users can access their accounts and manage their finances at the click of a button. The primary advantage to this form of fund management is its convenience; Internet banking can generally be accessed at any time of the day or night.

Another benefit is the cost saving, as subscription fees and transaction charges can be almost 50% less than those charged for traditional banking.

Nedbank Electronic Banking Division`s product manager for NetBank Internet Banking, Lara Davidson, says its Internet banking user base is 40 000 strong, and grows at a rate of 5% per month.

"We based our original business case on NedTex, the BelTel-based PC banking offering. At the time of bringing NetBank on board, the PC banking customer base was only 8 000. The response to Internet banking far exceeded our expectations, and it continues to grow," she notes.

Carol Mileman, Standard Bank`s Internet banking manager, says its Internet banking subscriber base increased from 2 149 in May 1997 to 80 872 in October 1999.

Solly Bellingan, FNB`s project manager, Remote Network, Internet banking, adds: "We have noticed that regardless of the activity experienced at the branches, the FirstOnline product, which caters for personal banking, has an average monthly growth of about 15%."

Hubert Brody, GM for ABSA Direct`s Internet and contact centres, says ABSA has seen growth of about 3 000 to 4 000 clients per month, including business users. Brody adds that recent growth has also come from former Beltel users.

Lorna Cinnamond, electronic banking manager for Mercantile Bank, notes: "Over the past two years, Mercantile has enjoyed a steady growth rate, with over 25% of current accounts being accessed on Bank@bility, our electronic banking package."

A key factor impacting the perception of online banking is the security safeguarding the thousands of sensitive transactions performed every day.

Tim Ellis, MD of the South African Certification Authority (SACA), believes Internet banking is far more secure than regular banking at brick and mortar branches or ATMs.

All banks in SA have digital certificates, provided by SACA, certifying that all transactions are secured using 128-bit encryption, a protocol that Ellis says is "extremely secure".

Ellis explains the logic behind 128-bit encryption: "Security is based on the number of bits that is used to encrypt the session key, where the `session` is the communication between two parties, for example, bank and client.

"A new 40-bit encryption key is generated for each session. The difference between 40-bit and 128-bit encryption is the length of the key that is used. It would take three to four days to decrypt one session using 40-bit encryption. With 128-bit, it`s been calculated that it would take a few trillion years to crack the code."

In fact, the security of online banking is more likely to be compromised by people`s own lapses than by technological failure. Like many industry professionals, Etienne Greeff, sales manager, ECHold, believes the greatest risk ultimately lies in the realm of human error.

Angus Macintosh, GM, Foster Melliar, believes lax internal security is generally the result of security being "a secondary sale".

"It`s a grudge purpose, because it doesn`t add money to the bottom-line straight away. What corporations don`t realise is that the cost of proactive security is significantly less than that of reactive security."

All indications are that electronic banking users need to be more security conscious. A recent report issued by Jaco Grobler, manager, Technology Risk Services, PricewaterhouseCoopers, confirms that "while some online banking security concerns are well founded, others have been exaggerated".

Grobler maintains that security technologies have matured to a level where it is possible to conduct secure Internet banking. His conclusion is that the weak link will not be in the system technology applied to Internet banking solutions, but rather the way in which these technologies are implemented and managed.

As to the future of online security in SA, SACA`s Ellis believes the next level of information security will be authenticating the client by means of digital IDs imprinted onto smart cards, and biometric readers.

Online banking has evolved over the past two years to encompass most aspects of finance management, impacting banking in a number of capacities.

Most banks offer online registration to services. Mercantile Bank`s Bank@bility is probably the only non browser-based online banking service on offer. The service is a self-extracting zip file which, when downloaded, sets up a direct modem-to-modem connection between the user and bank.

Inevitably, many people are still wary of online banking. Those in the know believe this wariness to be born of the ignorance of electronic banking that prevails. Banks in general have various initiatives in place to educate consumers.

In order to ensure their client base remains stable, most banks have begun offering services that add value to the existing portfolios available to online bankers.

A recent addition to this type of service is Standard Bank`s secure online shopping option. Users can purchase flowers or, for a specific period, shares online.

ABSA Direct`s new look Web site will be launched by the end of the month, replacing the existing www.absa.co.za.

Mercantile Bank`s new products will include an online, real-time corporate cash management system, and enhancements such as e-commerce enablement, company-branded cards and electronic share dealing.

FNB has launched an upgraded version of FirstOnline, while Nedbank is redeveloping its Internet banking product. The new offering is expected to be able to accommodate thousands more users at acceptable levels of availability and speed, and should be rolled out early next year.

With the trend towards non-traditional financial institutions offering financial services, banks face the threat of losing market share.

Nedbank`s Davidson agrees. "We are very aware there are reduced barriers to entry for organisations like banks that have no brick and mortar branches. They may well be able to come into the market at reduced costs, which might be attractive to a lot of people."

Pick `n Pay`s financial service option is an example of such deviation. The retail chain launched Pick `n Pay Financial Services in September 1997, and offers its customers a cash account debit card, an investment account and an education savings plan. The retailer claims it will soon offer unit trusts, insurance and assurance.

As the use of Internet banking spreads, speculation drifts to the fate of brick and mortar branches.

ABSA`s Brody comments: "A number of clients are very branch-oriented and the expected dramatic drop in branch use has not transpired."

FNB`s Bellingan believes that with Internet banking currently on a steep growth curve, the market will eventually start showing signs of saturation. He adds that saturation will be determined by the extent to which South Africans have access to the Internet.

"As government and other organisations embark on initiatives to bring Internet access to the masses, it should definitely increase. With technology such as Web TVs and virtual private networks, the service becomes cheaper all round."

Nedbank`s Davidson does not believe branches will be phased out entirely. Instead, as the style of banking changes, so will the style of service at brick and mortars.

"Branches will grow smaller and will be placed more strategically; they`ll have a completely different blueprint. Inside the branch, we expect there to be a lot more electronic devices."

Mercantile Bank`s Cinnamond believes physical banking will only decrease if banks offer a "professional" service online. "Banks cannot expect quick response times internally and still offer slow response times to their external users. In fact, external users should get better response times."

Response time is one of the most desired components of online banking. Many will agree that banks are not renowned for their customer relationship management (CRM) in this regard.

Greg Reis, MD of business solution provider Business Systems Group (Africa), describes electronic relationship management (ERM) as an umbrella solution that couples CRM, customer self-service and electronic-commerce together to form a single, integrated component.

As Reis explains, ERM is a Web-centric solution that brings self-service closer to the client or customer, allowing them to control their own "customer experience".

On the whole, Internet banking is as secure as it can be - and performing a few transactions from your desktop is definitely safer than making the trip to a brick and mortar branch.