The popularity of receiving and paying bills online and Internet banking is steadily growing in Canada, but privacy and security remain major concerns for online banking users and non-users alike, say industry experts.

“Privacy and security are valid concerns that any supplier providing services through the Internet has to take into account,” says Roger Couldrey, Toronto-based president and CEO of epost, the Internet mailing division of Canada Post Corp.

Couldrey says 11.5 million Canadians use Internet banking services; of those, 2.75 million use epost, which electronically mails out bills and notification of payment for partner firms, including most Canadian banks, to registered users. As with regular mail, the firm charges the billing firms, but not recipients, a fee for the service.

A study on Internet banking by Cambridge, Mass.-based Forrester Research Inc. shows 51% of Canadians pay bills online; by 2009, that will rise to 56%, Forrester analyst Catherine Graeber said at a recent Toronto forum on electronic bill payment sponsored by epost.

Despite the growth of online billing and payment, the study shows three-quarters of online Canadians are either concerned or very concerned about e-mail fraud, and about 40% say they haven’t started paying bills online because they are worried about security and privacy. Twenty-seven per cent say it is easier to pay by cheque.

“Security is obviously an issue, but in general, it is a controllable one,” says Colin Henderson, director of direct banking at Toronto-based Bank of Montreal. “Banks are spending a lot of time on this, but a lot of it is in the hands of the consumer, too. People are getting smarter at avoiding fraudulent e-mails and Internet service providers are getting better at identifying them.”

In his own Internet usage, Henderson is careful about opening e-mails from unknown senders or clicking on links in an e-mail unless he is sure its source is trustworthy.

“In my view, there is more risk from people going through your garbage and finding your statements and account numbers,” he says. “The bad guys can put together a pretty good composite of you, then apply for credit cards in your name.”

All banks have information on their Web sites on how to avoid e-mail fraud while using their systems.

In the U.S., some major banks are introducing a two-step authentication system; users are asked to identify themselves with a PIN number when they log in, and to use another identification such as answering a question or putting in a different code to access more sensitive banking actions.

Graeber suggests that a key benefit of providing clients with online banking and bill-payment options is that it helps retain customers and deepen the banking relationship. She says Canadian banks should beef up security guarantees, introduce two-step authentication systems and continually upgrade the online banking experience.

Despite their security reservations, an overwhelming majority of Canadians were satisfied overall with the online banking and bill-payment services provided by their primary banks, according to the Forrester study.

However, the study also showed that Canadians tend to favour online banking for simpler transactions rather than for more advanced functions. Although 96% of online banking customers looked up their transaction histories online, for example, only 35% of clients transferred money between financial institutions online.

Henderson says that after people sign on and begin to bank online, they gradually build up a comfort level with the service.

“In the first year to year-and-a-half, most people are feeling their way through it,” he says. “But you become educated by using it, by virtue of going into it every day. By the second, third and, especially, the fourth year, the confidence and willingness to use the channel for more services is greatly enhanced.”

Henderson believes financial institutions need to make many channels available through which customers can conduct their banking business and not penalize them for choosing any particular one.

“Until the Internet is perfect —and we all realize that is never going to happen — you have to help customers manage things the way they want,” he says. “The idea of some channel disappearing and everything [switching] over to the Internet is a fallacy. I don’t see that happening.” IE