Internet banking: The Financial Web

Like many other banks, the Co-op is upgrading its internet package. "Up until recently, our internet banking product allowed customers to view their account online, make transfers between different Co-op accounts and print off statements," she says.

But the new internet service that the bank is introducing will allow customers to carry out more transactions online, including making foreign payments and setting up Bankers' Automated Clearing System (BACS) payments.

There is currently a migration occurring from the Co-op's electronic banking customers to its new internet service, says Luckman. "I don't think electronic banking will disappear, but it's clear that the internet will become much more important, as can be seen from the success of our online bank Smile," she says.

Unity Trust's Lennon, while agreeing that internet banking will grow in importance, is clear that charity customers will generally want more.

"People like the personal touch and our customers don't want to do everything online because they want to be able to talk on the phone or face-to-face sometimes. It's important for us to maintain a good, personal relationship with our customers," she says.


The internet is freeing up banking for the customer's convenience, but is now a good time to make the move from banks' proprietary electronic systems to the net, and will it compromise security? Patrick McCurry investigates.

A few years ago, online banking was restricted to charities that had signed up for electronic systems provided by the 'big four' banks.

But today the market is expanding rapidly thanks to the internet and those original electronic banking systems are being converted into web-based packages.

The advantages of internet banking are clear - it offers instant access from virtually anywhere and often 24 hours a day. Also, internet transactions can be cheaper than traditional banking methods. The systems offered by the banks can vary, though, with some providing view-only packages that do not allow transactions to be carried out and others offering systems that allow a range of transactions.

The downsides to internet banking often centre on worries about security, but the banks insist that they're getting on top of this issue.

Most of the high street banks developed electronic banking packages about 15 years ago for their corporate clients, including charities. These electronic systems involved installing bespoke software on the company's PCs and dialling-up to the system via a modem.

These electronic packages allowed various levels of access to the system, so that a charity or business could control who did what. According to Peter Mitchell, head of banking at CAF Bank, these services were largely targeted at bigger charities.

Nowadays, these packages are being replaced by internet banking. Naomi Shostak, a corporate accountant at Oxfam, says their banker, Royal Bank of Scotland, has said it will be replacing the dial-up modem system they use with internet banking.

The advantage of this, says Shostak, is that the charity will be able to access the account online from virtually anywhere, instead of it being restricted to PCs that have had the specialist software installed.

"Our main concern in the changeover would be security, because we'll have all our financial information on the internet and that's a risk that will need to be managed," says Shostak.

The RBS electronic banking system that Oxfam uses allows a range of authorisations.

This means that one group of staff are only allowed to input payments , while another group approves them. For payments over a certain amount two people must give their approval. Another group of staff are allowed to view the account online, so they can verify transactions such as whether a cheque has been cleared, but they are not allowed to carry out any transactions.

These kinds of controls are essential to many charities, but not always present in internet banking, says CAF Bank's Mitchell. He says that some high street internet banking systems designed for small businesses or personal customers are organised so that, once someone has put in the right password, they have complete access to the account.

"But most charities will require more control than that. The Charity Commission, for example, recommends that there be at least two signatories for cheques made out by the charity."

Despite this, Mitchell says there are charities using off-the-shelf internet packages: "Presumably the trustees of those charities feel they have enough controls in place, but for many others it's a governance issue."

Look, don't touch

The CAF Bank system is not "transactional" - in other words it can only be used by customers to view their account details but not to carry out transactions.

"We're in the process of putting in an enhanced service so that the system is transactional," says Mitchell: "But in order to do that we need to make sure we can offer the appropriate controls to charities so that they are comfortable with it."

This question of who has access to the service is important, says Mitchell: "When we first launched our internet banking we did some research about what charities wanted and one of the main issues was what controls would be put in place."

Perhaps it is because of such concerns that the growth in internet banking has not been as rapid as some would have expected. Stephanie Lennon, marketing director at Unity Trust Bank, which specialises in the voluntary sector and trade unions, says things are changing.

She says: "As with any new technology you always get a few people who embrace it and the rest who adopt a wait-and-see approach. We're now seeing a stronger stream of charity clients as people become more comfortable moving from a predominantly paper-driven system to online banking."

Charities with extended branch or office networks are particularly interested in the internet banking offer, says Lennon: "If a charity has offices or staff dotted around the country, online banking can be a boon because it means people can access the account from wherever they are."

Depending on the size of the charity, it may be the chief executive or the finance director that authorises transactions, she says. "If that person has had to spend the day in meetings, they can log onto the account when they get home and authorise the required transactions."

For a charity with a branch network, the various authorisation levels can be particularly useful, says Lennon. "It could mean that head office is authorised to view all the charity's accounts, regional offices can view their own and their branches' accounts, and branches can just see their own account."

As well as these different levels of access, there are different levels of activity, known as 'do, view and authorise'. What this means is that some staff will be authorised to do transactions, others simply to view account details and others to authorise transactions.

The Immigration Advisory Service, a London-based charity using the Unity Trust system, follows the principle of dividing roles.

"For an online transaction to be done, we have someone authorised who will approve the transaction and someone else who will actually carry it out," says June Aldous, senior financial officer.

Security is rigorous, she says, noting that each of the people authorised to use the account must choose their own login password. On receipt, the bank writes to the home address of the individuals with a further password that they must use to log on to the account.

One of the main advantages, says Aldous, is that online banking offers instant access to the charity's accounts. "It can also be much quicker to carry out some transactions than it would be in a more traditional way," she says.

Like the other banks, Unity Trust is in the process of developing an internet banking system. Lennon says: "Currently, you can get statements going back 13 months online and print them off, so you don't have to order them in the traditional way. But we're improving the system so you'll be able to see the whole of your banking history online."

The kind of service a charity will get from the banks may depend on its size. At Barclays, for example, charities with income of less than £100,000 will be directed to the bank's community account, which offers free internet banking. For larger charities, electronic banking would be a more appropriate choice because of the authorisation issues involved, and the tariff is negotiable, says business banking PR manager Alistair Smith.

Lloyds TSB is another looking to move its electronic banking system to a web-based product. Peter Burrows, a senior manager at the bank's public and community sector unit, says he expects a migration from electronic to internet banking in the coming years.

"Dial-up electronic banking is secure, robust and meets the needs of charities, including smaller ones. But in the past two to three years, we've been making the same sort of services available through internet banking."

Improved functionality

Currently, internet banking customers of Lloyds TSB can view their account online, transfer funds between accounts and carry out various other transactions.

In the coming year to 18 months, there will be further improvements in the functionality of the internet system, says Burrows, such as ordering currency to be delivered to the charity's office, electronic procurement and sending and receiving transaction images, such as images of cheques.

There is no problem in terms of controls on the internet system, says Burrows: "For a long time now we've been able to mirror the mandates of charities in terms of who is authorised to use our electronic banking. This is done through mechanisms such as chip-based cards. We're able to use these same tools in our internet system."

As for how secure the banks' own websites are, that's another issue, but one that the banks are increasingly aware of, says Ros Luckman, a senior manager at the Co-operative Bank.

"There are all sorts of testing levels that we go through before presenting something to our customers, but we're not complacent and security is something we're constantly looking at," she says.

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