Banks at risk of losing customers from card fraud??
Financial fraud and high-profile data breaches could drive consumers away from banks to use electronic payment systems, such as PayPal, that they perceive to be more secure.
That is one of the findings in a new report from Gartner titled “2008 Data Breaches and Financial Crimes Scare Consumers Away”. The report estimates that around 7.5% of US adults lost money to some form of financial fraud in 2008.
The analyst says its results add to a growing body of evidence that fraud costs banks customers, not just money. In 2008, the research found that victims of electronic-checking and/or savings-account transfer fraud were five times more likely to change banks because of security concerns.
Fraud involving credit and debit/ATM cards was the method most actively used by crooks to steal money, claiming 36% more victims in 2008 than other types of fraud, according to Gartner.
Of the 5,000 US respondents to the Gartner survey, 14% said they were victims of credit card fraud and 7% said a thief used their debit or ATM card to make purchases or withdraw cash. Six percent said they were victims of new account fraud, where a thief opened an account in their name, while 5 % said a criminal stole money out of their existing checking or savings account and 4 % said a thief forged checks on their account.
Compared to the average consumer, nearly twice as many people who lost money to fraud changed their shopping, payment and e-commerce behavior, according to Avivah Litan, VP and distinguished analyst at Gartner.
“We all read about the data breaches. This survey certainly proves they’re having an impact in terms of spooking customers,” said Litan.
Victims of electronic checking and/or savings account transfer fraud were almost five times more likely to change banks due to security concerns, compared to the average consumer, according to the report.
“From a bank point of view, this is really causing customer churn,” she said. “It’s costing them customers.”
Consumer security concerns have a big impact on online banking, she said, with 20% of survey respondents worried about security, saying they stopped or won’t start transferring money between accounts. The percentage doubled among fraud victims.
While only 6% of the consumers surveyed said they changed banks due to security concerns, the number jumps to 28% among checking/savings account transfer fraud victims, according to the report.
Security Thirty-five percent of survey participants said security was an important factor in their decision to bank online or do more business with their bank online, but security is not as important to consumers as bank fees and customer service, the Gartner survey showed. Security, however, becomes much more important for consumers who have been victims of a financial account takeover, according to the report.
Litan advised financial institutions that have implemented strong security to publicise that fact to their customers to gain their confidence. They should also engage customers to participate in security; an example would be to sign up for a service that alerts them to suspect transactions, she said.
“There’s a lot of value in advertising your security,” Litan added. “Right now, banks aren’t using security as a customer retention tool.”
Litan said that one company that is benefitting from consumers who change their online payment behaviors due to security concerns, particularly those who are fraud victims, is PayPal. Survey participants said they switched to PayPal because of concerns about online payment safety while using other payment systems. PayPal has promoted its security, which has helped the company’s profile.