Online banking (Internet banking) is a term used for performing transactions, payments etc. over the internet through a banks secure site. 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 normal internet browser such as Internet Explorer or Netscape Navigator is ultilised and any normal internet connection is suitable. No special software or hardware is usually needed.
Protection through a single password, as is the case in most secure internet shopping sites, is not considered secure enough for personal online banking applications. 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. There is also the danger of password cracking and physical theft of passwords written down by careless users.
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 slighlty 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.
Many 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, "convetional" banking practices may be more prone to abuse by fraudsters than online banking. Credit card fraud, signature forgeryand identity theft are far more widespread "offline" crimes than malicious hacking. Online banking is however less forgiving to human error and it can be more insecure if users are careless, gullible or computer illiterate. An increasingly polular criminal practice to gain access to a gullible user's finances is phishing, whereby the user is in some way persuaded to hand over the password(s) to the fraudster.
The number of customers who choose online banking as the preferred method of dealing with their finances ishowever growing rapidly due to the clear improvement in convenience it offers. There are also more and morebanks that operate exclusively online.