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Industry News Advanced security features a double edged sword for customer loyalty in banking 2010-07-08 As banks work on upgrading their security features to prevent fraud and protect customers, they are being forced to deal with resistance from those customers about the inconvenience that comes along with the added layers of authentication, according to US Banker magazine. While consumer funds are protected from fraud by the Federal Reserve, business accounts are not. So if those accounts are breached, while the bank is not liable for the money, the publication notes they will have to deal with a "damaged customer relationship" and the possibility of a lawsuit. To help maintain customer loyalty, some banks have even volunteered to pay for the lost funds so they don't compromise the ongoing relationship with the customer. To help mitigate this threat, banks have tried to implement a "token" security system, which sends an alert to customers when money is being transferred from their account. But financial institutions have run into a pair of roadblocks as they try to upgrade their systems, the magazine says. Many banks work with payment processors that don't support the new technology. Many other financial institutions told the magazine that while they have attempted to integrate the new security features, customers themselves have been unwilling to deal with the additional layers of authentication because they don't feel that fraud is a legitimate threat. "Banks traditionally have sold convenience, and convenience has been one of the primary attractions of online banking," says Samuel A. Vallandingham, vice president and chief information officer of First State Bank. "Things that impede that convenience are seen as bad." Even some banks that did make their systems more secure, such as First State, have faced a strong backlash from their customers. "Several clients complained that they liked the old system better and that the new one was more cumbersome and difficult to use," Vallandingham said. "Some threatened to switch banks if we didn't make changes." While still a small portion of total bank fraud, a recent study by the FDIC found that electronic bank fraud has risen sharply over the past few years. Since the fourth quarter of 2008, the amount of money lost due to phony wire transfers and computer intrusion has risen from nearly $80 billion to more than $120 million by the third quarter of 2009, and has continued to grow since then. 
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