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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 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).

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, conventional banking practices may be more prone to abuse by fraudsters than online banking. Credit card fraud, signature forgery and identity theftIdentity theft is the deliberate assumption of another person's identity, usually to gain access to their credit or frame them for some crime. Less commonly, it is to enable illegal immigration, terrorism, espionage or changing identity permanently. It ma are far more widespread "offline" crimes than malicious hackingThe term hacking has a number of meanings, not always very well-defined: In connection with computers and computer software, see hack, hacker, and phreaking To attack something with a blade in an imprecise manner "hacking down the tall grass with a machet. Online banking is however less forgiving of human error and it 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 phishingIn computing, phishing short for password harvesting fishing is the luring of sensitive information, such as passwords and other personal information, from a victim by masquerading as someone trustworthy with a real need for such information. It is a form, whereby the user is in some way persuaded to hand over their password(s) to the fraudster.

The number of customers who choose online banking as the preferred method of dealing with their finances is however growing rapidly due to the clear improvement in convenience it offers, including such features as electronic bill paymentElectronic bill payment is a feature of online banking, similar in its effect to a giro, allowing a depositor to send money from his demand account to a creditor or vendor such as a public utility or a department store to be credited against a specific ac. There are also more and more banks that operate exclusively online.