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Is mobile banking safe?

Highlights
  • Banking by phone has increased tenfold from 2008 to 2009.
  • Security is the No. 1 concern of would-be mobile banking customers.
  • Banks use SMS, mobile Web or client applications to enable you to bank via phone.

A rock climber clinging precariously to the side of a cliff gets a text alert on her cell phone that her checking account balance is low. She quickly transfers funds to avoid an overdraft, then resumes her ascent.

A couple on a road trip suddenly remembers they forgot to send their car payment before they left home. No problem -- the wife, sitting in the passenger seat, zaps it off from her handset as they zoom down the highway.

Judging from these TV commercials, using a cell phone to check your bank balance, transfer money and pay bills seems like a no-brainer, so easy and convenient that anyone who doesn't do it must be some kind of Luddite. More than 3 million people used mobile banking last year, up a remarkable tenfold from a year earlier, according to ABI Research, a technology market research firm. And that trajectory is likely to continue.

If you're not yet using your phone to check your balance, pay your bills or move money from account to account, you will soon. "There's little doubt that the era of mobile banking is coming," says Mark Schwanhausser, an analyst at Javelin Strategy and Research in Pleasanton, Calif.

That begs the question: How safe is it? With all the tech-savvy crooks and identity thieves lurking about, is it really a good idea to have your precious financial information floating around the airwaves or residing on a piece of gear that you could easily lose? According to a recent Javelin study, security, or the lack thereof, is the No. 1 fear among potential mobile banking customers.

The good news is that the fear is so far worse than the reality, thanks in part to the financial industry's heavy investment in security technology. Among other things, "all information transmitted between servers and the mobile device is encrypted as with regular online banking," says Steve Furman, Discover Card's director of e-business. As a result, "the likelihood (of fraud) is no greater than using your desktop browser," he says. Discover, like many banks and credit card companies, promises to cover 100 percent of a customer's mobile fraud losses. Other banking institutions, such as Bank of America, offer zero liability as long as customers report the fraudulent transaction within 60 days and have not violated other protection rules.

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Mobile banking comes in three different flavors. Most banks emphasize one or a combination of them.

SMS

Short message service, or SMS, works with just about any cell phone sold in recent years. It basically involves you and the bank exchanging text messages, like infatuated teenagers. Once you have registered your phone with the bank, you can ask the institution to send you a text alert when, say, your checking balance drops to a specific level or when your credit card is approaching its limit. 

You can also request your current balance by sending the bank a message code, like BAL, and get a quick response. By sending various codes, you can learn what checks have cleared recently or move funds to a linked credit card. Because the bank will accept instructions only from your phone, you don't have to worry about someone impersonating you unless you lose or loan your phone. 

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