Citibank iPod Deal and Online Banking

Citibank is offering a free iPod shuffle for opening an EZ Checking account and for using its online bill payment for 3 months. The details are available at this Citibank page.

Looks like the main intention of Citibank is to have you become an active user of their online bill paying system. As this New York Times article explains, online bill payment customers can be extremely profitable. Studies have indicated these types of customers tend to keep higher balances, buy more products, and are less likely to switch banks. So like Citibank, many banks offer online bill payment for free.

Online Banking Risks

According to this article, banks are not having an easy time attracting online customers. Security concerns are preventing many people from online banking. Even though the risk is very small, all the news about hackers, browser vulnerabilities and phishing attacks make the risk seem much greater.

I think banks can still do more to improve online security. The article mentioned that E*Trade Financial has offered its best customers a small token device that generates a password every minute. I've used this type of device with my employer, and it works well. You combine your own pin number with the displayed token value and input this as a password. Even if a hacker gets the code, it's useless since it changes every minute.

Some other security features the article mentioned included one from Bank of America which has an extra step in the login in which the user must click on an assigned photo. If you don't see the assigned photo, it might be a phishing site.

However, for the person interviewed for this article, the issue was more about habit than security. The adage "old habits die hard" applies here. Once people get use to something like writing paper checks, it's hard to change.

Finally, the article mentioned some online banking risks that are not as well known. One is the risk that people will be late with their payments because they wrongly assumed there wouldn't be a delay with online bill payment. The other risk is that you might have a harder time defending yourself against a bill collector or an IRS audit without a paper trail.