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The online finance industry needs a makeover. Like any product or service presented to consumers, it's all about image. A new report by Javelin Strategy and Research shows that the online finance industry is suffering from an image problem.
According to the latest Javelin Online Finance Update, consumers by an 8 to 1 margin are letting their fears about online identity theft limit their expanded use of online financial services.
"Their number one fear is risk," Javelin's founder and chief analyst, James Van Dyke, told the E-Commerce Times. "Fear of online identity theft has risen 20 percent in the last year," he said.
Until now, consumer interest in online finance centered on ease of access. Now consumers are worried about control and safety issues.
The Javelin report reveals that 75 percent of the online population has at least four years of Internet experience. Yet despite their Internet savvy, fear rather than a lack of interest is keeping the vast majority of consumers from banking online.
Faulty Media Perception
Van Dyke attributes much of this bad public image to inaccuracies presented by the mainstream news media. He says decidedly that the news media is being fed bad information about the state of online banking.
Most of the financial industry's sources that provide information give the news media false impressions about the causes of identity theft. That leads to the public believing that high risk is associated with online banking, Van Dyke said.
He said the Federal Trade Commission reports indicate that 14 percent of all fraud is traced to paper trails. Only half of all fraud victims find out from law enforcement agencies how their identity was stolen.
"Based on police interviews, trash can diving is greatly underreported as the source of identity theft," Van Dyke said. "Consumers don't realize that they are vulnerable whether they are on the Internet or not. One doesn't make the other any more likely," he said.
Online security boils down to consumer discretion and education. Van Dyke in particular and computer security experts in general say the same thing about risk factors involving the Internet:
Phishing, spoofing (both a fraudulent baiting in order to get personal information from people), and key-logging malware (malicious software) all pose threats to computer users. But those who are smart about security and keep their virus and intrusion detection systems up-to-date won't be victimized by identity theft by using online financial services.
User Demographics Changing
Van Dyke said his latest analysis shows several very significant trend shifts. If online financial service providers are going to get the best bang for their technology investment bucks, they need to start adjusting their consumer marketing strategies to reflect the shift in user demographics.
One approach is for online executives to offer financial services that target online-savvy consumers. But they can't ignore the less-experienced users if they want to expand their user base.
The report also revealed that services to new users must target women. The proportion of experienced male and female users is nearly equal. But two out of every three users with less than two years of Internet savvy are women. This is significant, Van Dyke said, because women differ greatly in their online finance and payments behavior.
The Javelin analysis shows that in the last year the largest movements to online banking took place for capabilities available at only a fraction of all Web sites. Consumers who do their household financial activities online continue to use the simpler online financial features, such as banking and bill payment and presentment. But they are avoiding the more difficult and static capabilities, such as aggregation, insurance, lending and account management software products.
Other Online Banking Trends
Online banking is rapidly supplanting automated telephone banking systems. According to the Javelin report, consumers decreased their reliance on automated telephone systems. They are responding to the convenience and capabilities of financial services delivered online. But automated telephone systems at financial institutions remain an essential part of a financial institution's access options.
Van Dyke said this is dramatically significant because many sites do not offer the ability to view images of checks written, see several billing statements at one site and transfer funds from one bank to another.
More consumers are using person-to-person payment services since last year. The number of consumers using the Internet to pay for online auction transactions has shown a marked increase as well, according to the Javelin update.
Van Dyke predicts that the trend into next year will place more importance on security alerts and the ability to view consolidated statements and check images.
Electronic Bill Paying Needs New Deals
Fifty-nine percent of the consumers surveyed said they want the ability to view all of their bills from a central location to make payments easier. Yet only 25 percent of those respondents use "biller-direct" Web sites.
Van Dyke concluded that consumers are dissatisfied with the fees and the lack of content and services available at pay-direct web sites. They want the ability to simply find and add new vendors and make last-minute payments. They also want to use easy centralized alerts and archival services.
"Maturing online users more and more will look for convenience, increased content and advanced services at central sites," Van Dyke concluded in his analysis. He added that centralized bill-paying Web sites will have to develop simple and secure capabilities for transferring online statements from delivery to biller sites to central sites.
To respond to consumer awareness of security issues, central sites will also need to add the capability to refresh account details regularly. This same strategy will enable individual merchants who want to encourage their customers to pay online directly, the Javelin report suggested.
Van Dyke sees a healthy future for online banking. Currently, 56 percent of all online households do some banking online. So segmented pricing, features and services make sense from a marketing 
viewpoint.
However, growth for insurance and other financial sectors will be less healthy. Those industries are not structured for direct Internet sales or support, Van Dyke concluded.
"Longer term, we predict steady increase in basic, consolidated and control-oriented services offered through established and known providers at the expense of individual sites or portals like AOL and Yahoo," he said.
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