Online Financial Services Essay Example

Online Financial Services Essay Introduction Services What are services? They are defines as concerned with performing tasks in and around households, business firms and institutions. Services industries are those domestic establishments which are providing some kind of services to businesses, governments and other organizations. FIRE, business and health services are the largest service industries. Business services include activities such as consulting, advertising, marketing and information processing. Categorizing service industries With these service industry groups, companies can be further categorized into those that involve transaction broking and those than involve a ‘hands on’ service. For instance, one type of financial service involves stockbrokers who act as the middle person in a transaction between buyers and sellers. Online mortgage companies refer customers to mortgage companies that actually issue the mortgage. In contrast, legal, medical and accounting industries perform specific hands on activities for their customers. In order to provide their service, these professionals need to interact directly and personally with their client. In this the opportunities for ecommerce are somewhat different. Currently doctors and scientists cannot treat patients over the internet but internet can at least assist their services by providing consumers with information, knowledge and communication. Features of service industries Knowledge and information intensity – With some exceptions such as providers of physical services such as cleaning, gardening and so on, and the most important feature of service industries is that they are knowledge and information intense. They process a great deal of information and employ people with the requisite skill and expertise. We will write a custom essay sample on Online Financial Services specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Online Financial Services specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Online Financial Services specifically for you FOR ONLY $16.38 $13.9/page Hire Writer For example lawyers for legal services. However, financial services sector is not so knowledge intensive, but it requires much larger investments in information processing just to keep track of transactions and investments. In fact the financial services sector is the largest investor in information technology, with over 80% of their invested capital going to information technology equipment and services. For this reason, many ecommerce services are suited to ecommerce applications and strengths of the internet to collect, store and disseminate information and provide reliable and fast communication. Personalization and customization – Services differ in the amount of personalization and customization required in them to be delivered but still all types of services involve some amount of it. Services like legal, medical and accounting require extensive personalization – the adjustment of a service to the precise needs of a single individual or object. Others allow individual some personalization to choose from a restricted as in case of financial services. The ability of internet and ecommerce technology personalize and customize service or components of service is a major underlying the extremely rapid growth of ecommerce services. Further the amount of customization also depends on the ability of ecommerce or internet to do so. Online Financial Services The online financial services sector is a shinning example of an ecommerce success story. With the innovative, pure online firms have been instrumental in transforming the brokerage industry, the impacts of ecommerce have been somewhat less powerful in banking, insurance and real estate where customers are more likely to use the web for research, but conduct research for traditional suppliers. In addition, pure online financial firms are not yet profitable. The costs of marketing and technology have far exceeded the early estimates of experts. As in the retail marketplace, it is the multichannel financial firms who are showing the fastest growth and strongest prospects of long term revival. Online Banking and Brokerage Online baking was pioneered in the US by NetBank and Wingspan in 1996 and 1997 respectively. Traditional banks had developed earlier versions of telephone banking but did not use online services until 1998. Although late by a year or two, the established brand name banks have taken a significant lead in market share as measured by number of unique visitors. Same goes as true for the brokerage firms as well Early innovators such as E*Trade and Ameritrade had been displaced from their leadership positions by the financial industry giant Fidelity and discount broker pioneer Charles Schwab. Merrill Lynch, The largest brokerage firm in the United States did not develop an online presence until 2000, but it rapidly added new clients after going online. Online Banking Behavior and Preferences Any belief {or maybe even wishful thinking) that the Internet is just a passing fad seems to be laid to rest by a new survey from CashEdge in New York. The survey polled more than 400 consumers nationwide who use online banking. Eighty-five percent of the survey participants said they would bank only with an institution that offered online banking capabilities. In addition, 82 percent said they would use more online capabilities if offered to them. Other survey findings noted that 87 percent of respondents have more than one institution where they keep their money. Along those same lines, 71 percent said they would prefer not to have to use checks or cash, but would rather use online funds transfers. Online usage has also created more of a demand for speedier service. Seventy-four percent of those polled said they expect a new bank account to be available for use the same day that they sign up for it. The popularity of online banking has been based on both speed and convenience. A majority (66 percent) of those surveyed considered having to go to a branch to be a chore. At the same time, 88 percent said they tried to cut down on their visits to the bank while 75 percent said that if they could, they would never go for a branch and would instead do all their banking online. Granted, these are online banking customers being polled, so the results may be somewhat biased. Still, the numbers do show a growing reliance on the Internet as a means for banking. Finally, customers polled said they do have concerns regarding online banking. Close to 50 percent cited security as a main concern about conducting banking transactions over the Internet. In addition, 14 percent said the issue of security keeps them from banking online. Online Mortgage and Lending Online mortgage lending is a growing field that is starting to seriously compete with traditional ‘person lenders’. The process is relatively easy. The important thing to remember is to make sure your know the ins and outs of any and all online home mortgage loans prior to submitting your personal information. In some cases, youll find fees can be much cheaper than traditional in person lenders. Further, you may discover a greater range of mortgage loan programs available. Among the highlights of these programs may be lower rates of interest and flexible repayment terms. Also, borrowers with a bad credit history may find online mortgage lending to be the answer to their prayers. In most cases, web-based lenders offer more alternatives to those with less than desirable credit ratings. Finally, it can shave a ton of time off of the traditional in person route and having to wait (what might be several days) to be approved. The bonus here is if you dont get approved the first time, you can apply to another lender right away and like the first time; youll get your answer quick. Its important to realize that not all online mortgage lenders have representation in all states. Before taking the time to apply online, its in your best interest to make sure that the lender in question is represented in the state in which you reside. A big negative is unfortunately accountability. Its your job as the potential borrower to do your homework and keep on top of your application. Its wise to check out the company to make sure theyre legit and will be able to fulfill any promises they make regarding terms and interest rates. Unfortunately with both traditional and online mortgage lending, the mortgage loan programs offered may be more in lenders best interest than in yours. Again, its so very important that you do some research and comparison shopping. Just like with traditional in person lenders you want to make sure that it is in your best interest not theirs. Another possible negative is the fact that some lenders will charge you a fee prior to you learning whether or not your application has been successful. Please note that some traditional lenders also ask for a fee upfront. Borrowers beware there are many legitimate traditional and online lenders than dont insist on such a fee. Unlike any negative dealings you may have with traditional mortgage lenders, online mortgage lending isnt regulated by a governing organization in which you can complain to. The bottom line is that while online mortgage lending may be the way of the future, its also important to research the lender and ask the right questions. And, while applying for a mortgage loan online may seem like a great idea, dont discount the value of getting a comparison quote from a traditional in person lender. Financial portals A website that provides a variety of financial data and information, acting as an information hub for clients who are individual investors requiring timely financial news and data to make their investment decisions. Financial portals are intended to give clients all the finance-related information they need. Often, the portals themselves will provide visitors with quotes, research, articles, analyst recommendations, etc. Financial portals may also provide links to various relevant sites that offer this kind of information. In addition, many financial portals provide email accounts, chat rooms and web forums. They provide their comparison with comparison shopping services, independent financial advice and planning. On the contrary, independent portal do not themselves offer financial services but act as steering mechanisms to online providers. They generate revenue from advertising, referral fees and subscription. Financial portals are a major source of visitors to major established financial services sites. For instance, about one third of visitors to Wells Fargo began their sessions at a financial portal. About 20% of visitors to established sites exit to portal sites. These have become so important to established online service firms that some providers like Charles Schwab and Citibank went ahead and have developed their own portals myschwab. com and myciti. om respectively, which permits users to personalize their financial web pages and provide account aggregation services. In general, financial portals do not offer financial services but instead they make their money from advertising and add to the existing online price competition in the industry. They are also a counter strategy of the large banking institutions to ensnare consumers into a single branded financial institution system with a single account and high s witching costs. Financial Portals are Hot, but for Whom? Suddenly-even by Internet time-the long sought one-stop financial portal has arrived. E-banking watchers are predicting that very soon, most big banks and some smaller ones will be sporting websites where customers can come to handle all of their financial affairs. Whats been missing until now is the ability to aggregate information and perform transactions that involve a customers accounts at rival institutions. Rich payoffs await the bank that can field a full-service financial portal. Its customers will likely visit he site more often, stay longer, and use more services. An early-adopting bank has the chance to become its best customers primary bank, where all financial information is consolidated into always-available net worth statements. For high-net worth customers, basic banking will likely evolve into online versions of what is now being called wealth management. Financial services industry trends The financial services industry provides four different types of services: sto rage and access to funds, protection of assets, means to grow assets, and movement of funds. These have been traditionally provided by separate firms. However, changing the institutional structure of the financial services industry has direct consequence for the online financial services. The trend contributing towards this cause is the industry consolidation or in other words movement towards integration financials services. Unlike in the traditional times, when banks were not allowed to operate in more than one area and industries like banking, insurance, brokerage were prohibited to from having significant financial interests in one another. Due to this concept only, some very small banks emerged in US in the past and it was also once called the most over-banked country in the world at that time. But this has long back faded into oblivion. Today the concept which is fast catching up is integration of financial services under one umbrella. Industry Consolidation and Integrated Financial Services Financial supermarket Most of the big online stockbrokers offer basic banking services like check-writing, automatic deposit, online bill payment and even A. T. M. cards. Now some companies are pulling out all the stops to convince customers to combine all their financial accounts with them, instead of keeping money at an assortment of institutions. This is called a financial supermarket. First, Bank of America announced that customers with at least $25,000 in traditional bank accounts — like checking, savings, money markets and certificates of deposit — could trade stocks free on the company’s brokerage Web site. Now some online brokers have sharply raised the interest rates they pay on checking accounts. Some time back, E*Trade Financial, based in New York, raised its top rate for checking to 3. 25 percent from 0. 8 percent. In late April, Charles Schwab bolstered its top checking rate to 4. 25 percent, from 2. 58 percent. Consumers have often preferred choosing their financial services a la carte — picking an interest-bearing checking account here, and a stock-trading site there. But financial services companies clearly have something else in mind. But there is dark side to it as well. Consumers should think carefully before combining their financial accounts with one company. The flip side to the convenience may be a decrease in investor privacy and data security. If a hacker broke into a company’s computers, then potentially they will know all of your sensitive information. People who combine their checking and brokerage accounts with one company should be prepared for cross-selling, the industry’s term for marketing many different financial products and services to customers. It is advised that customers should shop around before buying additional financial products, like mortgages and certificates of deposit, and not just to accept the rate at a company where they already have an account. Mortgages are a great example because the difference in cost over the life of a mortgage can be truly astronomical. The promise of internet and ecommerce technologies in the long rum would be to take the financial supermarket model one step further by providing a truly personalized, customized and integrated offering to customers based on their complete understanding in terms of his financial behavior, life cycle status, and unique needs. It will take time to accomplish this thing and also develop the technical infrastructure and consumer behavior toward a much deeper relationship with online financial service institutions. Online Financial Supermarkets. Dont bet on them. Big brokers would love nothing better, but consumers arent likely to bite At E*Trades Web site, you can buy shares in initial public offerings, do your banking, and get a 5% discount on a bottle of Le Parfum de Golf. At the American Express Co. site, you can pay your charge-card bill, trade stock, and book a flight to Kiev or Kuala Lumpur. Merrill Lynch Co. s ML. com will soon have $29. 95 stock trades, videos featuring Merrill market mavens, and an auction for diamond earrings. The Web sure is hip. But does anyone really want all this from a stockbroker? Financial-services companies have long wanted to create giant financial super markets. And financial services companies on the Web are no different. The goal has been to offer consumers banking, investments, insurance, loans, and financial planning in one convenient place. The strategy has failed for decades, and it will fail again online unless financial-services firms radically change the way they sell their products and learn to compete on price. The core difficulty for such would-be supermarkets is that they face a constant barrage of competition from companies pitching better products or services at lower prices. Just as online brokers squeeze commissions down to an average of $15 a trade, American Express offers free buy orders for customers with balances of at least $25,000. Just as portal Yahoo! Inc. popularizes a Visa card featuring 5% discounts for online purchases, startup NextCard Inc. offers similar shopping bargains plus a choice of cards with various rates and terms. And you can design the picture on your card yourself. For free. Funneling The truth is, it probably doesnt hurt to offer sideshows such as earring auctions and perfume discounts. The problem for the one-stop shops comes when they try to funnel online customers into high-priced, proprietary products, which may well alienate Netizens accustomed to saving money online. Those potential customers will click through and be on their way, and its not hard for them to find a better deal. At E-Loan Inc. , you can compare low-rate mortgages from countless lenders. At least a dozen sites offer insurance shopping services. And new firms such as VerticalOne Corp. and a host of others let you maintain multiple online financial accounts from different companies at one Web site. Internet or not, people dont want to be tied downsomething online brokers know all too well. Many customers use online trading as a mere adjunct to their primary accounts at full-service brokers. And if they arent satisfied with one online broker, theyll switch to anotherand complain about their problems on message boards for all to see. A Forrester Research study found that only 16% of consumers are willing to keep their assets in a single institution. And theyre not eager to give up choice, especially when new financial products and services pop up online all the time. The Web is a world where consumers are in charge, and they can move money in an almost frictionless environment, says Forrester analyst James Punishill. Its easy to understand why the financial industry is rushing to develop large-scale financial Web sites. Consumers want to consolidate their financial lives on the Webbut not with just one firm. Successful online companies wont try to pigeonhole customers into the same old proprietary products they sold pre-Internet. Theyll offer a broad selection, use the power of the Web to facilitate comparison shopping, and explain why a premium is justified for higher-priced products. In financial services, the Net has changed the rules. Account aggregation Account aggregation is a method that involves compiling information from different accounts, which may include bank accounts, credit card accounts, investment accounts, and other consumer or business accounts, into a single place. This may include a database or may be provided through screen scraping where a user provides the requisite account-access information for an automated system to gather and compile the information into a single page. Usually this database resides in a web-based application or in client-side software. While such services are primarily designed to aggregate financial information, they sometimes also display other things such as the contents of e-mail boxes and news headlines. One of the first major account aggregation services was Citibanks My Accounts service, though this service ended in late 2005 without explanation from Citibank. Much has been said in the financial services and banking industry as to the benefits of account aggregation principally the customer and web site loyalty it might generate for providers but the lack of responsibility and commitment by the providers is one reason for skepticism about committing to those same providers. The service helps users to manage their money on the Internet (typical desktop alternatives include Microsoft Money, Intuit Quicken etc) in an easy to use manner wherein they get functionalities like single password, one-click access to current account data, total net worth and expense analysis etc. Multiple U. S. financial institutions and credit unions are providing the service, however most of the time a vendor, such as Yodlee or Vertical One, is the technology solutions provider. Both these are the leading account aggregators. They use the screen scrapping technology and software tools to pull information from upto one thousand different financial sites. A smart mapping technology is also used sometimes so that if the underlying websites change, the scrapping software can adapt and still find the relevant information. Account aggregation has evolved with single sign-on at most major banks such as Bank of America. With SSO (usually implemented via SAML) major financial institutions are now expanding their aggregation services into new areas. Rich Presentment (getting all the information about a bill that you owe) is a service that uses Aggregation extensively, and can be seen at AOL, using AOL Bill Pay. Aggregation also powers applications such as Funds Transfer, New Account Openings, Card Based Bill Pay and so on. Independent Financial Advisors are another group that account aggregators are beginning to focus their attention. Having seen increasing competition from the wirehouses and breakaway brokers, positioning themselves as their clients primary advisor is not as easy as it once was. Account Aggregation should be able to help many of these advisors gain the competitive edge by providing a look into their clients held-away and non-managed accounts. Aggregators such as Advisor Exchange and CashEdge specialize in working with the advisor industry and provide historical, transaction level data that is normalized and reconciliation ready The main consumer and regulatory issues generated by account aggregation services include: †¢Disclosure including disclosure about the risk of using an aggregation service; †¢Liability for unauthorised transactions it is important to determine for losses caused by unauthorised transactions. For example, under the current regime, a consumer who discloses their password or PIN to an aggregation service may lose the protection offered by the EFT Code if an unauthorised transaction occurs; †¢Liability for other losses for example, losses caused by misrepresentations, inaccurate information, poor quality of the service, downloading software, interruption of the service, etc; †¢Privacy – e. g. ho has access to personal information, and what will the information be used for; †¢Security especially the security of any location where account information is stored by the aggregator;†¢ consumer education; †¢Complaints and dispute resolution most aggregation services surveyed do not appear to provide internal or external complaints resolution processes; †¢Cost of aggregation services, and debt recovery; †¢Cross-jurisdictional issues for example, what are the implications if the ggregator is based in another jurisdiction; †¢Regulatio n of aggregators should they be subject to the same prudential supervision framework and other regulations that apply to deposit-taking institutions and/or other financial institutions? ; †¢The implications of the Financial Transaction Reports Act, which is designed to deter money laundering and tax evasion. Security Understanding Consumer Preferences for Authentication Methods Would online banking increase if financial institutions provided their customers with ways to enhance security? A new survey TriCipher Consumer Online Banking Study, suggests that may well be the case. Conducted by Javelin Strategy Research, the survey found that 31 million U. S. consumers would begin banking online and another 39 million consumers would increase their online banking activity if offered free identity protection software by their banks. In fact, this authentication method was chosen by 53 percent of respondents. The second most popular authentication method—chosen by 33 percent of survey respondents—was biometrics, which uses a dedicated hardware device to verify such physical characteristics as a fingerprint. The survey also tracked consumers preferences of the following authentication methods. †¢ E-mail or SMS One Time Password (21 percent): An e-mail or text message is sent with a random second password. †¢ OTP Token (20 percent): A small electronic device provides a constantly changing password. †¢ Out-of-Band (16 percent): A call is made to a registered phone number, requesting that a user enter his or her password over the phone, †¢ Peripheral Device Recognition (15 percent): Connection of a removable device (e. g. iPod, cell phone) owned by the consumer †¢ Scratch-off Card (11 percent): A card containing several PINS that are scratched off one at a time Exploring the Electronic Vault With electronically signed documents growing in popularity, especially for processing mortgages, banks are facing the question of how to protect and manage them. Banks must provide airtight security, yet at the same time make the documents accessible to a broad range of personne l. Electronic vaults can solve the problem, according to ‘Advanced Electronic Vaulting Solutions. A white paper from eOriginal, a Baltimore based provider of electronic document solutions. An electronic vault, as defined in the companys white paper, manages the legally binding. Authoritative Copy of an electronically signed contract or other document, and possibly its related transaction documents, in a secure location where it is held and transitioned during the entirety of its lifecycle, Electronically signed documents have been legally viable since 2000, when President Clinton signed the Electronic Signatures in Global and National Commerce (E-SIGN) Act into law. When an electronic vault is in place, once a document has been e-signed, a final copy is immediately sent to an electronic vault, where access can be controlled. From then on, a log will keep track of anyone who accesses the document, including such functions as printing or copying. An electronic vault can provide additional benefits beyond chose of security and access. For example, using electronic vaults can demonstrate that an institution has an original, untampered document, which enhances the integrity of the document. In addition, the secondary market requires that documents be stored in a secure, closed system, and electronic vaults fit the bill. An effective vault system can even indicate the new owner of a loan document, without tampering with the original document in any way. When judging the effectiveness of an electronic vault system, financial institutions should consider several requirements: 1. All documents should be protected, encrypted and time-stamped. 2. Privileged access rights to the documents should be maintained and enforced. . A complete audit trail should be kept for each document, including document access and transfer of ownership. 4. The document should be tested on a regular basis to determine whether any alterations have been made. 5. A vault system must be able to destroy an electronic original in the case where a paper copy becomes the legal version. Financial industry requirements for better authentication The success of this Web-based channel has bred new problems, pri marily in the orm of new types of online fraud, online versions of traditional fraud, or offline fraud that leverages vulnerabilities in online services. So far, the financial industry has been remarkably effective at controlling this fraud,1 but financial institutions cannot assume that current fraud-control measures will always be effective, and in any case the public visibility of fraud schemes such as phishing is eroding consumer confidence in the safety of on-line financial services, which troubles both financial institutions and their industry regulators. One fundamental issue is authentication. Consumers are not as sure as they should be of the legitimacy of the Web sites they interact with, while the ability of financial institutions to authenticate their customers is being undermined by phishing schemes and other attacks aimed at stealing passwords and other sensitive information. The net effect is that people are losing confidence in the safety of conducting their financial business on the Web, which will have a negative impact on the growth and adoption of online financial services no matter how effective the financial industry is in controlling actual fraud losses. Government regulators, of course, are also concerned about this trend. With these concerns in mind, the Financial Services Technology Consortium (FSTC) last year initiated a project aimed at defining â€Å"Better Mutual Authentication† practices for online delivery of retail financial services. This project has brought together major financial institutions from the banking and securities sectors, along with leading technology vendors, industry associations and observers from government agencies. New insights have emerged from this Project regarding the nature of authentication in a Web/Internet context, including the conviction that—although the necessary technology is largely available in theory—current Web authentication practices must be substantially improved if customer confidence is to be restored. FSTC’s BMA Project encourages and supports efforts by W3C to coordinate broad-based initiatives to improve Web authentication, and Project participants are likely to contribute to, or leverage, W3C’s initiatives. From the FSTC BMA Project’s perspective, requirements need to be addressed in the following eight areas: 1. Usability 2. Mutuality 3. Credibility2 4. Scalability 5. Availability 6. Interoperability 7. Flexibility 8. Adaptability For financial services, the first three— usability, mutuality, and credibility—are the core requirements. Usability is vital. Embedded in the hardware, operating system, browser, and internet services available today in the average computer is a truly impressive array of security technology, but it’s nearly impossible for the average consumer to make effective use of it, or even to determine if it is working correctly. Customer confidence in financial services can only be achieved if customers are able to confirm through trustworthy user interfaces that their Web interactions are safe. At the same time, customer safety depends on protection from impostors who may attempt to impersonate either the customer to the financial service, or the financial service to the customer; hence, the need for mutual authentication. Credibility2 of authentication requires that both customer and financial institution confirm the authenticity of the other party using something better than just passwords or other shared secrets. Beyond these core requirements, no authentication solution can be effective for retail financial services unless it can scale to support the entire consumer population. And consumers will resist adopting any new measures that impact availability of services, or that are too likely to break. Given the diversity of consumer needs, various authentication techniques will be required, and so interoperability is essential. Evolving consumer requirements indicate that flexibility is necessary to allow consumers to utilize multiple platforms in an anywhere, anytime online context. And, emerging threats and ever more sophisticated attacks from increasingly organized adversaries implies that viable solutions must be adaptable to a range of new threat scenarios. FSTC’s BMA Project participants recognize that the problems of Web authentication cannot be addressed by any one organization, or even by an entire industry acting alone. Instead, a coordinated approach is required involving: †¢ Operating System (OS) developers †¢ Providers of end-user computing platforms—e. g. PCs, mobile devices †¢ Browser developers/vendors †¢ Web server software vendors †¢ Vendors of authentication techniques †¢ PKI service providers †¢ Web content providers—e. g. , financial institutions †¢ Internet Service Providers (ISPs) †¢ Standards-setting organizations †¢ Industry associations †¢ Government agencies †¢ End users—e. g. , consumers, citizens W3C is well positioned to bring together many of the se players to establish common objectives and align their respective strategies. Financial Industry Recommendations Leverage PKI More Effectively – PKI alone, as currently implemented, does not allow a user to distinguish between a financial institution Web site and one that, although belonging to an impostor, has nevertheless obtained some sort of certificate and supports https sessions One possible approach would be for the financial industry to establish new guidelines for a restricted subset of the existing certification hierarchy that would issue certificates only to financial institutions, and then to add new indicators to the browser â€Å"chrome† that would let the user know whether a site’s certificate is certified by this â€Å"strong† certification hierarchy. †¢Engage End Users in Mutual Authentication Perhaps the greatest concern with current Web authentication practices is that end users—the customers of financial nstitutionsâ₠¬â€ are severely handicapped in their ability to know if the Web site they are viewing is legitimate or an impostor. The financial industry would like to see new approaches to Web authentication that actively engage the user in authenticating Web sites (financial services) as well as providing stronger evidence of the user’s authenticity. This will require active, two-way communications with users that provide consistent, understandable interfaces into the complete authentication process. However, user engagement should not become an additional burden or hurdle to be overcome. Instead, users should, at the very least, be given a dashboard they can trust and that provides the information they need when they need it, including useful alerts or warnings. Achieve Synergies with Alternative Authentication Techniques The financial industry recognizes that reliance on passwords alone is no longer adequate, given the current threat levels. Furthermore, the industry must address new regulatory guidance3,4 that calls for use of alternative authentication techniques that protect consumers from password theft and abuse. Multi-factor authentication is widely viewed as one of the more effective alternatives available to financial services providers. However, there are significant challenges with rolling out new authentication techniques that will adequately scale up to the many millions of consumers that already use online financial services. In particular, consumer adoption is a major concern. †¢Improve Techniques for Managing Passwords No matter what new authentication techniques get deployed, the financial industry will continue to utilize passwords and other shared secrets that can be exchanged bi-directionally between customers and Web sites. Browsers already provide password management tools for users, and increasingly serve as the preferred â€Å"password vault† for end users. Unfortunately, this concession to user convenience also heightens exposure to potential abuses, and financial institutions are increasingly concerned about the mounting threats to their financial services and customer interests. Browsers also provide various means for end users to enter passwords through special-purpose dialogs, though all of these mechanisms are considered deficient in one way or another. The financial industry would like to see new password entry procedures incorporated into browsers that require prior establishment of TLS (SSL) sessions and that enforce effective security practices for use of passwords. Growing importance Small-biz adoption of online banking to surpass 50% More than half of U. S. small businesses will have adopted online banking by the end of 2007, according to a new research report. Small-business use of online banking grew dramatically from 1998 to 2007, and Tower Group, a Boston-area research firm focused on the financial-services industry, estimates a further 10-percent penetration by 2010. Despite the growth and revenue potential of small-business online banking many financial institutions continue to under-serve this vital market, Tower Group says its research shows. While 95 percent of banks in the U. S. offer a dedicated small business online-banking product. Many banks simply provide a re-branded version of consumer online offerings — rather than creating more advanced features that meet the unique needs of small businesses, the research firm contends. Small-business owners straddle the line between consumer banking and corporate cash management. They appreciate the simplicity of retail online banking, yet value the features such as multiple user access and electronic payments found in corporate online banking, Tower Group contends. Banks, credit unions and emerging non-bank competitors of all sizes are chasing the small business market in an effort to capture a share of this expanding segment, said Patricia Hines. senior analyst in the Wholesale Banking pra ctice at Tower Group and author of the research. Highlights of the research include: †¢ In order lo retain existing small business customers, banks offering minimal features must expand online capabilities. Tower Group research found that less than 50 percent of banks include electronic payments in their small business online banking offering. †¢ At the upper end of the feature set, Tower Group expects banks to increase integration with other high-value online services such as employee payroll, merchant services, and investment management.