Are we in danger of getting this whole internet security scare out of proportion?

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The Independent Online

Can you trust your money to the internet? This question must have occurred to many of us this week as we digested the fact that Barclays, Britain's leading web-bank with 1.25 million online customers, had suffered a breach in security. A number of Barclays customers were able to log on to other people's accounts and see their details, including name and balance.

Can you trust your money to the internet? This question must have occurred to many of us this week as we digested the fact that Barclays, Britain's leading web-bank with 1.25 million online customers, had suffered a breach in security. A number of Barclays customers were able to log on to other people's accounts and see their details, including name and balance.

Barclays blamed the breach on faulty installation of a new generation of software and insisted no money had been at risk. But this is just the latest in a long line of security scares involving online services. Last month PowerGen agreed to pay £50 compensation to 7,000 customers, whose credit card details and addresses could have been available to fraudsters through its website.

Last November Halifax had to suspend its share dealing service just two months after launch, when customers found they could see other people's account details. The service was suspended on a Friday and reinstated on the following Monday. Halifax insists customers would not have lost out by not being able to deal on the day they wanted, as they could have used the phone dealing service instead.

What should you do to guard against being caught out by one of these online glitches? One answer would seem to be to avoid these new net-based services altogether and stick to more traditional methods of communication, at least until the various providers have ironed out the bugs in their systems.

On the other hand, are we in danger of getting this whole internet security scare out of proportion? After all, people are quite happy to hand over their credit cards in restaurants. And how many of us have given our credit card details over the phone to a complete stranger in order to book a cinema seat, for instance? At least online transaction details are usually encrypted but, you might counter, one restaurant bill isn't as important a matter as your whole bank account.

Fear of breakdowns in confidentiality and insecure online transactions could inhibit the whole e-commerce revolution. Over 4,000 finance-related websites have been launched in the UK alone in the last year or so. The traditional high street banks are closing swathes of branches to switch to the far cheaper "distribution channel" of online services. Just in the personal finance sector, you can now deal in shares online and gain investment advice, buy insurance, search for a new home and so on. Will this whole revolution be stymied by fear of security failures?

It shouldn't be. While the recent breaches are serious, you should keep in mind a broad understanding of risk. Yes, Barclays should have ironed out its teething problems, but that's what they are - teething problems. Long term, banking online is hugely convenient and bound to get safer. Encryption systems are being improved all the time. Without wishing to sound like a cheerleader for the online revolution, the old paper-based systems were just as prone to error as their electronic successors.

One Barclays spokesman pointed out after this week's scare that people still get the wrong bank statements in the post, but journalists don't consider this to be a "story" anymore. This is a rather double-edged excuse, yet true after all. Banks have always made mistakes, and will go on doing so, whatever medium they use. It is up to the regulators and the banks themselves to make sure that their systems are as well tested as possible, and that the compensation procedures are in place if customers do happen to lose out because of a systems failure.

John Willcock is Personal Finance Editor of The Independent

j.willcock@independent.co.uk

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