Online banking moving beyond the password

For Victoria Powers, online banking is a lifesaver. The 68 year-old resident of Eugene, Oregon uses LibertyBank’s Web site because she finds it less time-consuming than traditional banking. She simply types in her identification number and password on and pulls up her account. From there she can check her balance, pay bills and transfer funds into savings accounts for her grandchildren.

"Since we immediately know that the money's there, we can go ahead and pay our bills and be on time with them," she said.

But by the end of next year, it may take more than just an ID number and password for Powers and other bank customers to access their online accounts. In the face of increasing online banking fraud, federal agencies announced they are requiring all financial institutions in the country to beef up their Internet security measures by the end of 2006. That means customers may soon have to navigate through more security screens.

Tighten up or else
The Federal Financial Institutions Examination Council (FFIEC), which consists of five federal agencies including the Federal Deposit Insurance Corp. (FDIC) and the Federal Reserve, released a report in October stating that account fraud and identity theft often occurs due to the simple "password/ID" security mechanism customers use to access their accounts. Banks must conduct risk assessments of their online banking features and, if the password/ID feature is inadequate, institutions should strengthen ID verification, the report stated.

Federal regulators will examine a bank's risk assessment and determine whether its online security is sufficient. The deadline for meeting the requirement is the end of 2006. Banks that don’t comply may face civil monetary penalties or cease-and-desist orders.

FDIC spokesman David Barr said the moves are necessary, even if they make it more cumbersome for customers to access their accounts. "We have to balance the ease and convenience with security," he said. "If we don't do anything, criminals will become more sophisticated in separating people and their money.”

One of the most prevalent new online attacks is "phishing," where hackers send e-mails that resemble official bank communications to customers. They set up lookalike websites where duped customers enter their password/ID information. According to the research firm Gartner Inc., 73 million Americans said they received phishing e-mails in the 12 months ending in May 2005, an increase of 28 percent over the previous year.

According to Barr, the trend is growing. "Over time, we're seeing more and more e-mails reporting phishing activities, often coming from smaller and smaller banks," he said.
"Hackers are moving out and expanding their operations to smaller institutions because the big banks like Bank of America are phished out."

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