Online banking (or Internet banking) is a term used for performing transactions, payments etc. over the internet through a bank's secure website. This can be very useful, especially for banking outside bank hours (which tend to be very short) and banking from anywhere where internet access is available. In most cases a web browser such as Internet Explorer or Mozilla Firefox is utilised and any normal internet connection is suitable. No special software or hardware is usually needed.
Convenience
The number of customers who choose online banking as their
preferred method of dealing with their finances is growing rapidly.
Many people appreciate the convenience. Online banking usually offers
such features as electronic bill payment and the downloading of bank
statements for import in a personal finance program. There is a growing
number of banks that operate exclusively online. Because these online
banks have low costs compared to traditional banks they can offer high
interest rates.
Security
Protection through single password authentication, as is the
case in most secure internet shopping sites, is not considered secure
enough for personal online banking applications in some countries. Online
banking user interfaces are secure sites (generally employing the https
protocol) and traffic of all information - including the password -
is encrypted, making it next to impossible for a third party to obtain
or modify information after it is sent. However, encryption alone does
not rule out the possibility of hackers gaining access to a vulnerable
home PCs and intercepting the password as it is typed in (keylogging).
There is also the danger of password cracking and physical theft of
passwords written down by careless users.
Many online banking services therefore impose a second layer of security. Strategies vary, but a common method is the use of transaction numbers, or TANs, which are essentially single use passwords. Another strategy is the use of two passwords, only random parts of which are entered at the start of every online banking session. This is however slightly less secure than the TAN alternative and more inconvenient for the user. A third popular option is providing customers with chip card readers capable of generating single use passwords unique to the customer's chip card. Another option is using digital certificates, which digitally sign or authenticate the transactions, by linking them to the physical device (e.g. computer, mobile phone, etc). In the United States, most online banking still uses single password protection.
Fraud
Some customers avoid online banking as they (perhaps wrongly)
perceive it as being too vulnerable to fraud. The security measures
employed by most banks are never 100% safe, but in practice the number
of fraud victims due to online banking is very small. Indeed, conventional
banking practices may be more prone to abuse by fraudsters than online
banking. Credit card fraud, signature forgery and identity theft are
far more widespread "offline" crimes than malicious hacking.
Bank transactions are generally traceable and criminal penalties for
bank fraud are high. Online banking can be more insecure if users are
careless, gullible or computer illiterate. An increasingly popular criminal
practice to gain access to a user's finances is phishing, whereby the
user is in some way persuaded to hand over their password(s) to the
fraudster.
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