A survey by Guardian Analytics and the Ponemon Institute of over 500 U.S. executives and business owners from small and medium businesses (SMBs) finds that banks are failing to protect this segment from online fraud. "The surve

y data proves that financial institutions are failing to protect the small and medium businesses that are at the heart of our economic recovery,” said Terry Austin, CEO, Guardian Analytics.

Guardian Analytics sells fraud-protection software, so the numbers have to be taken with a grain of salt. But they’re still an interesting benchmark of small-businesses’ level of confidence in online banking.

Fifty-five percent of respondents experienced fraud attacks in the last 12 months, and 58 percent of those were due to online banking. In 87 percent of the fraud cases, banks were not able to fully recover the funds.

In 57 percent of the cases, small businesses were not fully compensated for their losses, and 26 percent of the time they weren’t compensated at all. In 80 percent of the cases, banks were not able to identify the fraud until after the funds had left the bank.

These numbers need to be improved to retain small-business customers, forty percent of whom change banking institutions after a fraud incident.

“MBs are fed up with the banks that are leaving them vulnerable to fraud and not reimbursing them when they are attacked,” Austin said. “Banks that do not improve their fraud prevention practices will lose customers and hurt their own recovery."

The study also says that banks are not being transparent enough with their small-business customers about their security policies.

"Ultimately the data points to the need for banks to evolve their definition of reasonable security and proactively invest in process and technology to better protect their online banking customers," said Dr. Larry Ponemon, chairman and founder, Ponemon Institute.

By Mark Alvarez