September 30, 2003 2:30 PM PDT

Citigroup closes online payment service

Citigroup plans to cease offering an online payments service called c2it next month, citing the unit's lack of profits and slower-than-anticipated growth.

Thousands of c2it customers were notified of the impending shutdown of the service over the weekend, Citigroup spokeswoman Maria Mendler said. Citigroup will close all c2it accounts on Nov. 9, she said. The New York company will allow customers to view their c2it account history online until Feb. 22, 2004, the day Citigroup plans to switch the site off completely, she added.

Mendler refused to disclose how many people currently use c2it. More than 200,000 people were using the service about two years ago, the last time the company released usage data.

Citigroup launched the c2it service in 2000 to compete with some of the rising stars of the Internet, namely PayPal. Similar to PayPal--which has since been acquired by eBay, c2it allows people to transfer money from their bank, brokerage or credit card accounts via the Internet to individuals and businesses without giving financial account information to payees.

PayPal is by far the largest of the online payment services, with 30 million members. Wells Fargo also offers a competing service called SecureSource. But with PayPal cornering the market for online auction payments and not about to budge, Citigroup last year refocused c2it on international fund transfers, Mendler said. That service also failed to get off the ground, she said.

Citigroup had experimented with different economic models for the service, initially charging a fee for all U.S. transactions. Later, c2it waived those fees to attract more users, while PayPal moved the opposite direction and expanded fees.

"Three years ago, the whole Internet online space and the expectation of person-to-person payment were really different than they are today," said Mendler, adding that such services never expanded much beyond online auctions and into other areas such as Web retailing. Few online merchants, if any, depend on c2it as a primary form of receiving payments from customers, she said.

eBay's own statistics support that assertion. The company's online auction community accounted for nearly 70 percent of the $2.8 billion in payments PayPal processed in the second quarter, according to a recent Reuters report.

In addition, Citigroup recently fell victim to a growing form of online fraud called "spoofing" through its c2it unit. Also called "phishing," the scam involves imposter e-mails that direct people to phony Web sites that look like they are from legitimate companies such as Citigroup and eBay. When people enter their passwords, credit card numbers and other personal information on such a site, a thief on the other end collects the private information. Mendler said the spoofing incident had nothing to do with Citigroup's decision to terminate the service.

Citigroup plans to offer c2it employees positions in other divisions of the company and won't lay off anyone as a result of the shutdown, Mendler said. She declined to disclose the size of the unit's staff.

 

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