WORLD'S BEST INTERNET BANKS, 2005

In the first of a two-part series, Global Finance identifies the best online corporate and consumer banks by country and product or service category.

With all the headlines about identity theft, phishing attacks, computer hacking and exposure of customer creditcard numbers, it's easy to think that banks are on the defensive with their Internet banking efforts these days.

A study by Stamford, Connecticut-based research firm Gartner Group found that 28% of respondents say online attacks are causing them to reduce their web-banking activity. According to Gartner, the number of phishing attacks-scam emails that attempt to get people to visit phony copies of legitimate financial sites and reveal their personal data-increased by almost 30% in the past year alone.

A recent study by Calabasa, California-based Informa Research Services found a decline (from 70% in 2003 to 59% in 2005) in the number of consumers who believe Internet-based financial transactions are safe and secure. Despite the decline in confidence, more people are banking online. The number of consumers who reported they used, the Internet for a transaction in the past six months increased 15% between 2003 and 2005, according to the Informa Research study.

At least one analyst says banks will overcome the security concerns. "Confidence has doubtless taken a hit. But I think the majority of banks are in the process of cranking up security," says Craig Weber, senior analyst at Boston-based research firm Celent. "The convenience factor is simply too compelling for customers to walk away from online banking."

As part of that cranking-up effort to help stop identify theft, banks are rolling out email alerts that are designed to help customers detect more quickly when their account has been compromised. The secure email alerts tell clients when transactions have been made, when checks have been posted against their accounts, when their account balance reaches a certain level, and when someone tries to access the customer's account with an incorrect password. South Africa's Standard Bank has begun using a two-factor authentication system for online accounts, where clients receive a second password via their cell phones and independent of an Internet-banking session. Standard Bank will also protect online credit-card use with a secure code, which will authenticate every online transaction. The service makes use of information not included on a customer's credit card.

Weber authored the Celent research report, "Emerging Affluent Baby Boomers, Financial Services & The Web." He found that banks are ahead of their insurance and securities brokerage counterdrops in connecting with wealthy baby boomers, including online.

"Banks appear to be the trusted partners. Customers have a long history with banks," he says, adding that banking customers also interact with their banks much more often to pay bills, check and balance accounts, etc.

In the Informa Research survey, banks were rated the most innovative type of financial institution in employing technologies to serve their customers. Seventeen percent of consumers ranked commercial banks as the most innovative. Though that's down from 33% two years ago, banks still beat out all other types of financial companies in perceived technology innovation, according to the Celent study.

Playing Offense

Banks are also playing offense on the Internet, rolling out new products and services that push the envelope of innovation and boost client productivity and convenience.

For example, Wells Fargo recently introduced what it called the "Desktop Deposit" service. Available through the bank's Commercial Electronic Office portal, which processed $4.1 trillion in payments in 2004, it is the only remote Internet-based deposit service on the market that does not require the client to install any software on his computer. Customers can make deposits from multiple offices and remote locations.

On the consumer side, Wells introduced a tool called "My Spending Report," which automatically combines spending transactions from a customer's check card, credit card, checking account and bill-payment service in one convenient location.

"In the early days of Internet banking, customers were most interested in looking at balances and transferring money between accounts," says Jim Smith, executive vice president ofWells Fargo's Consumer Internet Channel. "Now, as we celebrate the 10th anniversary of Internet banking at Wells Fargo, they are looking for free online tools, such as email alerts and My Spending Report, that can help them better organize their money," he adds.

Wells Fargo says its consumer Internet product sales increased 42% in 2004. The bank has 6.8 million active online consumer customers as of the end of June 2005, up 21% from the prior year. More than one in two Wells Fargo consumer-checking accounts are accessed online.

The latest release of Citigroup's CitiDirect online-banking service allows corporate clients to make payments in 90 countries and obtain real-time access to important transactional information.

Banks are also squeezing cost savings and operating efficiencies from their Internet banking initiatives. For example, United Kingdom-based Alliance & Leicester recently reported that its 2005 operating expenses will fall short of 2004 expenses as the bank saves money by getting more of its customers to bank online and through automated, self-service telephone systems. A&L reported that 35% of all sales of the bank's four main products were generated over the Internet in the first six months of 2005, compared to 20% in 2004. The bank has 750,000 customers registered for Internet banking, an increase of 50% over a year ago.