After the gold rush

The Northern Rock debacle has taught valuable lessons to banks whose internet operations are growing ever more popular, writes Claire Shoesmith

Trust is integral when it comes to the relationship between you and your bank. After all, for many people, their bank manager will know more about their personal lives than members of their own family.

However, in today's society, where more and more people are moving away from over-the-counter banking in favour of transacting their finances online, this hands-on relationship between the customer and the bank is changing.

The trend has been exacerbated by the banks themselves, which have been rationalising their branch networks.

All the main banks proudly cite growing online customer bases and this move to online banking is an area that has become even more topical in light of the recent Northern Rock debacle.

Pictures of hundreds of people queuing for their money in a fashion not seen since food rationing will have done little to help this relationship, although the banking industry is insistent that no long-term damage has been done.

"There is nothing inherently wrong with the [ online banking] model itself," says Felix O'Regan, head of public relations and public affairs at the Irish Banking Federation. "It was simply a question of people feeling that they didn't have ready access to their money when they felt they needed it most. It was an operational issue which can be addressed."

According to Northern Rock, its Irish website, which was jammed for about a week as a result of the large numbers of people trying to gain access, is now operating as normal.

A spokesman for the bank in Ireland declined to say how many customers it had lost as a result of recent events - at the end of July as many as 13,400 Irish people had online accounts with it - but several other banks, including Bank of Ireland and AIB, have reported a pick-up in new customers recently.

Another of those benefiting from the Northern Rock fallout is Greg McAweeney, general manager of online bank RaboDirect. ie. He says business is booming and there are no signs of any backlash from customers against online banking. In fact, he is forecasting that by the end of the year, RaboDirect.ie will have more than 50,000 Irish customers who carry out all their financial transactions, including investing in funds, online.

"We are an online-only operation and as a result we are 100 per cent focused on it," McAweeney. says. "That is our model."

Although he believes Northern Rock did its best in a difficult situation - it was forced to seek an emergency loan from the Bank of England on September 13th after struggling to raise money to cover its lending - he does think it made errors, particularly when it came to communicating with its customers.

After all, the reason so many people queued outside the bank's call centre in Dublin's Harcourt Street - its only Irish base - was because they were left with no choice if they wanted to find out what was going on, as the bank's internet site and telephone lines stopped working.

This in itself enraged many Irish customers, who saw no news as bad news. As a result they decided to withdraw their funds despite a guarantee from the British government and further assurances from Minister for Finance Brian Cowen that their savings were secure.

It is worth pointing out that the situation would be different if it had been the online operations of one of the Irish high street banks that had been affected. In this case, if for any reason customers were unable to gain access to their finances through the bank's website or telephone lines, they could simply visit one of the bank's branches and carry out exactly the same business over the counter as they would have on their home computer.

Still, this shouldn't detract from the inadequacy of Northern Rock's IT infrastructure, says McAweeney, referring to the inability of the bank's website to cope with the large numbers of people who tried to log on at the same time as news of the crisis emerged.

He says RaboDirect.ie's site has undergone significant testing to ensure it can cater with high demand and that all other online banks should do the same. He also says he is currently working with the Irish Banking Federation to try to encourage tighter security controls among all online banking operations in Ireland.

One that is already on top of its game in this area is AIB. Unlike the online banking arms of several other traditional high street banks, AIB provides its internet customers - 36 per cent of its total personal banking clientele - with a special code card, which provides an extra level of security for customers who wish to set up payments to third-party accounts or make overseas transfers without having to make a time-consuming call to a telephone centre.

The bank has operated this system since the end of 2005. Seán Jevens, head of e-channel development, says it is becoming increasingly popular in situations where in the past cheques or cash were used, such as in paying money to a friend or a family member.

Others are starting to cotton on too, with Ulster Bank recently advising its online customers that it will soon be sending out card readers to make their online transactions safer. This is something that will become increasingly important as internet banking usage increases, says Jevens.

While there is plenty of material around warning consumers not to divulge their security codes via e-mail or over the telephone, some people are still falling victim to so-called phishing scams. These are usually e-mails written in the style of a legitimate message in an attempt to gather personal information from recipients and then use it to withdraw money from their accounts.

While there are no figures detailing the number of phishing incidents in Ireland, it is believed the banks are forced to fight off as many as seven individual cases each a week. Still, consumers can breathe a sigh of relief as the Irish Banking Code requires all banks to investigate any reported fraud and, if a fraudulent incident is found to have taken place, the bank is obliged to refund the customer provided he or she hasn't been lax in their own approach to security.

Moreover, online banking customers, whether they are with an overseas-based internet-only bank like Northern Rock or RaboDirect.ie or with the internet operation of a traditional Irish high street bank, will be pleased to hear that they are afforded the same regulatory security as those who continue to bank over the counter.

This comes in the form of the consumer protection code, which falls under the remit of the Irish Financial Services Regulatory Authority.

Furthermore, all Irish authorised credit institutions, including those with online operations, are covered by the Irish Deposit Protection scheme, which provides compensation to savers if a credit institution is forced to go out of business. The scheme is funded by the institutions authorised by the financial regulator and a limit of 90 per cent of all deposits subject to a maximum of €20,000, applies, although the Government has come under pressure to raise this ceiling - the minimum permitted within the EU.

Consumers who have an account with a bank that operates in Ireland but is registered in its home country, such as RaboDirect.ie in the Netherlands, can usually claim compensation under the schemes in the country where the institution is regulated.

So although the events of recent weeks may have marred the consumer perception of internet banking in some people's eyes, there seems to be no evidence of this negative impression filtering though in practice.

All of the Irish banks are upbeat about their online operations, although they are quick to point out that it is a lifestyle choice as to whether people want to have access to their financial accounts online or prefer to meet with a banking employee face to face.

Still, whatever your personal choice, there is a general consensus that what happened at Northern Rock could ultimately lead to a better service. "The online banking model should be better, more customer-focused and friendly than it ever was before," says the Irish Banking Federation's Felix O'Regan. "There are definitely lessons to be learned."

BOOM IN ONLINE BANKING

By the end of 2006, almost 1.9 million payment accounts, excluding credit cards, were registered for online banking access in Ireland, according to IPSO, the Irish Payment Services Organisation. Of those, just over 1 million had been activated.

Since then, considerably more customers are expected to have signed up for internet offerings, with Bank of Ireland reporting a 30 per cent increase in online transactions in the four months to the end of August when compared with the same period last year. It is not alone in its growth, with Ulster Bank reporting a 47 per cent increase in usage of its online service in the past 12 months and Permanent TSB estimating that about 1.3 million transactions a month are carried out on its website by about 46 per cent of its customer base.

Internet banking is not just a youngster's game either, with RaboDirect.ie revealing that 46 per cent of its customers (the bank only operates online) are over the age of 45, and 16 per cent are over the age of 56.

So what's the attraction? The answer is simple: it's all about convenience. There are no restricted working hours for internet banking, with Permanent TSB's Open24, Bank of Ireland's Online365 and Ulster Bank's Anytime Banking - the names say it all - open for business around the clock.

For the traditional high street banks with online operations, most of the services offered over the counter are also available online, with the exception of direct cash lodgements and withdrawals.

While the range of internet-based services available varies from bank to bank, in most cases customers can check their balance, pay bills, transfer funds and apply for financial products with the click of a mouse.

Customers of some banks, Permanent TSB being one, can request to be alerted by text message when certain events occur, such as large withdrawals. Others, such as National Irish Bank and AIB, even offer online share trading facilities.

It is worth noting, though, that some banks such as Permanent TSB require you to telephone a call centre and wait for a call back from another member of staff in order to set up a standing order, a process that can be time-consuming. With other banks, such as Allied Irish Bank, you are able to set up such a payment yourself online with the use of a special code card for security purposes. AIB also allows you to make international transfers directly online, something which Permanent TSB is hoping to introduce next year.

Setting up online banking is relatively straightforward and none of the main retail banks charges a fee to use the service. As a result, when compared with some current accounts, e-banking could even save you money. In fact, you may even be registered - Permanent TSB pre-registers all of its account holders for its online service - and just haven't yet made use of it.