The future of banking is here
Technology has touched pretty much every aspect of modern life, not least the world of banking. The digital age has transformed how our money is managed, to a degree unimaginable as recently as 15 years ago.
In May 1997 Nationwide became the first UK provider to launch a basic internet service, with other banks and building societies following over the next few years.
Since then the appeal of internet banking has really grown among the British public. According to a survey earlier this year by Amarach Research on behalf of Halifax, just under 39% – about seven million people – of those with internet access regularly logged on to check balances, pay bills and handle their finances from the comfort of their own computer screen.
While internet banking is now a well-established part of the British banking scene, there's no stopping the relentless march of technology, and there's plenty more electronic wizardry either already coming into use or just around the corner.
One such is the chip authorisation program (CAP). This is used to identify any cards with a chip that can process data – so-called smartcards – when banking online.
Customers who have been issued with a CAP reader by their bank insert their card and enter their PIN into the machine, and both must be valid to complete a transaction.
Barclays began issuing CAP readers (which it calls PINsentry) to its customers in 2007. The idea is to cut down on identity fraud or 'phishing', where fraudsters send you emails pretending to be from your bank and ask you to re-verify details such as your online banking passwords or PIN numbers. NatWest is another bank offering CAP readers to its customers.
But while the devices are promoted as adding another layer of security, they are still vulnerable to sophisticated scammers, says Graham Cluley, senior technology consultant at Sophos, a developer of security software.
"These chip and PIN devices do not prevent all identity theft – hackers can still steal screenshots of what you are doing on your PC, and find out information about you and your account which could potentially be used for fraudulent purposes," he warns.
Another recent innovation is mobile phone banking. Late last year Lloyds Banking Group became the first bank in the UK to allow customers to transfer funds between accounts with the same bank via their mobile.
The system, run by a mobile money network called Monilink, allows customers to download software to phones with internet access and a colour screen. They then have to enter a six-digit security code before they can view their balance or transfer money between their accounts.
It costs £2.50 a month, although this service was free to some premium banking customers and student account holders until October this year.
"Just as internet banking has taken the country by storm over the past decade, mobile banking is now set to change the way we manage our money," says Catherine McGrath, head of current accounts at Lloyds TSB.
With 95% of the UK population owning a mobile phone, this is expected to become a "key channel" for people to manage their money, according to Ben Evetts, spokesperson for Monitise, which created the Monilink system.
However, he expects this to be primarily used for basic payments, with consumers preferring to set up long-term standing orders or conduct complicated transactions using their computers.
In many respects this is playing catch-up to something Nationwide already has in place. For a couple of years now it's been giving its customers online access through Apple's iPhone and iPod Touch.
But while online and mobile phone banking is great for checking your bank account or transferring money, you would still have to whip up your card or cash when making a real world purchase.
A solution to this is contactless payment, which – thanks to the wonders of smartcard technology – allows you to make a purchase by tapping a teller's 'reader' device with your wallet. The computer inside the till takes the tap as confirmation of payment and subtracts the right amount from your account.
Barclays has issued debit cards with contactless payment technology, and predicts that more than three million consumers will be using them by the end of the year. This makes it the first bank to apply the technology to its Visa cards in the UK.
Like the contactless credit cards already issued by Barclaycard, the debit cards allow transactions of £10 or less. The cards still incorporate chip and PIN security, which is used for other purchases and cashpoint transactions.
As a security measure, the card will prompt for the PIN to be entered to verify the customer's identity from time to time.
Taking this a step further, back in March, Barclaycard announced an agreement with mobile phone network Orange to launch mobile contactless payments, whereby customers can make payments simply by tapping their mobile phones on a contactless reader.
Tom Alexander, chief executive of Orange UK, says: "Today, you pay for things by cash or on your credit card. Tomorrow, you'll use your mobile to buy the things you want, whether that's on the high street or on the internet."
Meanwhile, smart cards themselves also look set to become even smarter. With cases of 'skimming' rising (where you swipe a credit or debit card on a device called a skimmer that captures the information stored on the magnetic strip), banks are planning to introduce EV (European MasterCard and Visa) technology.
These 'smarter cards' will carry an embedded microchip with new payment options and services, offering greater security, convenience and choice.
But even this technology could be obsolete before long, if Nick Ogden gets his way. He's the founder of VoicePay, which is aiming to bring the concept of biometrics into widespread use.
Already fairly common overseas, particularly in the US, biometrics requires the scanning of customers' fingerprints, irises or voices as a security measure to authorise payment.
Ogden predicts the technology will enter the UK mainstream within the next five years, and he thinks voice biometrics will be the preferred option, largely because it can work remotely, while the other two techniques require a physical presence.
"Let's say you create a voice signature with the bank," he explains. "Unlike the physical signature that you give the bank when you open an account, which then languishes in a drawer somewhere, a voice biometric can be used over and over again to verify and authorise your transactions."
VoicePay is already in talks with Visa and MasterCard about this new technology, and has established an open system for financial services companies in around 50 countries, which will allow them to establish a central voice biometrics registry. Once a customer is registered centrally, Ogden says that voice signature can be used globally.
At the moment, the technology is not entirely foolproof and is susceptible to the same kind of mistakes as humans – for example, mistaking a stranger for a known person or failing to recognise a voice. Having said that, experts say the error rate experienced overseas is generally quite low.
New banking versus old banking
Despite the attraction and convenience of operating your account online, old-style branch-based banking does have its merits. Here we'll look at some of the pros and cons of each:
Convenience: It allows you to perform transactions, pay bills and check balances 24 hours a day, seven days a week. No matter where you are in the country or in the world, you can visit your online bank and handle money matters.
You can even schedule to pay several payees ahead of time rather than keeping up with paper bills or trying to remember when to visit a payee's website to make an online payment.
Fast, efficient and effective: Through the internet, transactions are typically performed and executed at a faster rate than if you went into a branch. In addition, online banks give you the ability to handle several bank accounts from one site.
Lack of trust: The main issue for most people is that of trust. They may wonder if their transaction went through successfully or if they clicked on the correct button. The best way to overcome this uneasiness is to make a habit of printing the transaction receipt.
Keep this receipt until your bank statement or online account view confirms that you have successfully executed the transaction.
Difficult: Online banking can also take a while to master. But most banks, if not all, will offer an online banking tutorial. Some even offer live customer support for online banking via chat, email or phone.
Human contact: A friendly, smiling face behind the counter is more appealing than a computer screen. Also, by physically paying in a cheque or settling a bill, you can be sure that the transaction is going through. What's more, there could be benefits to getting to know the manager of your branch personally, especially if you run a small business.
Simplicity: If you can sign your name you can open a bank account at a branch.
Inconvenient opening hours: People used to make jokes about 'bankers' hours' when they used to open at 10am and close at 4pm. Branches are open longer these days, but they are still difficult to get to if you've got a full-time job.
Delayed performance: It can take up to four days for a cheque to clear, while other business can also take an age to complete.
How can I stay safe when banking online?
1. Always check financial websites carefully. Make sure the web address is correct.
2. Never give your bank account details, credit card numbers or other personal information to anyone you don't know or haven't checked out. And never give PIN numbers to anyone – genuine bank officials would never ask for this information.
3. Don't be fooled by professional looking websites. It's easy and cheap to create, register and promote a website. And always read the small print carefully, even online.
4. Delete any emails you receive promoting get-rich-quick schemes or chain letters and requests to send cash through the post. They're not worth reading.
The illegal copying of information from the magnetic strip of a credit or debit card by “skimming” it through a rogue card reader out of sight of the cardholder or attached to an ATM machine. Skimming is a more direct version of a phishing scam. Once scammers have skimmed the card, they can create a fake or “cloned” card with the cardholder’s details on it and can then run up charges on the account, borrow money or take out loans in the cardholder’s name and use the details to commit identity fraud.
Phishing scams are typically fraudulent email messages from seemingly legitimate sources (your internet service provider, mobile phone provider, bank etc). These messages usually direct you to a counterfeit website or ask you to divulge private information (password, PIN, credit card numbers, or other account updates), which is then used to commit identity theft.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
A property chain is a line of buyers and sellers (the “links”) who are all simultaneously involved in linked property transactions. When one transaction falls through – for instance, someone can’t get a mortgage or simply withdraws their property from sale, the entire chain breaks and all the transactions are held up or even fail entirely.
Issued by a bank as part of a current account and, in a nutshell, serves as electronic cash. Unlike a credit or charge card, where you get an interest-free period before you have to settle the bill, the funds spent on a debit card are withdrawn immediately from your current account. Unless you’ve arranged an overdraft, if you don’t have the cash in the account, you can’t spend it.