Electronic banking – what’s the worry?

Electronic banking in all its forms – from debit cards you swipe at the counter or pump, to Internet banking, paperless billing, and even wireless transactions – has been embraced in Canada. We have more bank machines and use our debit cards more than people in almost any country of the world.

It’s easy to understand why electronic banking is attractive to both financial institutions and consumers alike. For the financial institutions electronic banking enables them to deliver services from central areas like call centres which can result in a lot of cost savings. And for consumers it’s all about convenience.

But should you worry about electronic banking? What about the possibility of fraud and identity theft? Here’s a look at the realities of modern banking and what you should consider when making the choice.

Automated tellers and debit card use
The banks want you to use their machines (ABMs) and your debit card – it’s good business for them on a variety of levels. And of course these are both really quick and easy ways to bank and make purchases.

Any use of your bank card, however, depends on the use of your PIN or personal identification number – and every time you type it into a keypad, there is a risk someone might record that information in some way. Debit card fraud is a large issue in Canada. Although rates are difficult to find, in some municipalities debit card fraud has been estimated to more than double the rate of credit card fraud.

And consumers can end up on the hook for debit card fraud. If you have contributed to the debit card fraud in any of the ways below, you may be responsible for the full amount:
• writing your PIN on or near the card, such as elsewhere in the wallet
• using an easily deduced PIN such as one’s birth date
• failing to notify the financial institution immediately on becoming aware of the loss, theft or misuse

And even if you haven’t, the protection for consumers is not as clear as with credit card. Review your banking agreements or call your bank and be sure you understand what your liability is. If you’re concerned, consider keeping a small amount of cash in an account that you use for small purchases and withdrawals, and keeping the remainder of your funds in an account where you do not use a debit card to access the account on a regular basis.

With those caveats, the banks in Canada want you to feel comfortable about using your debit/bank card. Many banks are quick to respond to concerns and willing to repay any fraudulent amounts in full.

Internet banking
A 2004 CBA survey found the percentage of Canadians who bank primarily through the Internet had almost tripled in the past four years from eight per cent in 2000 to 23 per cent in 2004. The survey also found that 32 per cent of the respondents who were not currently banking online expected to be conducting banking transactions over the Internet within the next two to three years. But in 2005 the number of people who were adopting Internet banking leveled off. A survey conducted on behalf of TD Canada Trust suggested that fears around Internet security were part of the reason.

There’s no doubt that Internet banking is amazingly convenient. 24 hour access, the ability to download all your statements directly into software packages on your computer (like Quicken or Excel) in order to track your finances, and the capacity to see your payments laid out on the screen (unlike phone banking) makes Internet banking highly attractive. Bill statements can also be delivered electronically, cutting down on paper waste and time spent opening envelopes. It’s also a useful tool for those who find it difficult to get out of the house.

However there are again possibilities for fraud. Understanding the points where your information can be accessed is important in your decision whether or not to use Internet banking.

Once again one of the weak links is your account number and password. Do not leave this information near your computer or store it in a file on your computer.

Another concern is hacking. Some software can be surreptitiously installed on your computer that records the keys you press, including your password and account information. To avoid this you may want to look into installing firewall software, or ensuring that the firewall protection available in some operating systems (like some versions of Windows) is turned on.

A third area of concern is phishing, a scam where an unscrupulous party sends you an email that looks like it comes from your bank, directing you to a website where you enter your information. Always log into your bank account from the website address you were given by your bank – not by clicking on any links in email.

In brief, electronic banking carries risks, just as using credit cards or even carrying cash carry risks. But once you understand the basic issues, it’s your call to make.

On guard: a layman’s guide to cyber safety
Protecting your good name
Protect yourself against identity theft