Citigroup Inc. will discontinue its c2it person-to-person online payments service on Nov. 9, according to the c2it.com Web site.
The service, which was introduced in October 2000 and has recently been run by the Citi Cards division, is a competitor to PayPal Inc., the payments service run by eBay Inc.
Citi was among the handful of U.S. banks that started offering person-to-person payment services during the dot-com boom, and c2it is the last remaining bank-owned service. Bank One Corp., which was early to market with eMoneyMail, found that fraud rates were too high to justify the cost of running it.
Unlike some banks, Citi offers various money transfer options through its online banking service, which is housed in a different division from c2it. The FAQ section of the c2it Web site suggests that c2it customers can take advantage of these by signing up for a Citibank online account.
Merrill Lynch & Co. on Tuesday issued a company update on eBay, reiterating its "neutral" rating on the company and saying that "the demise of c2it follows a string of failed online payment mechanisms, which have been unable to compete given PayPal's early success and dominance in online auction payments."
The eBay's payment segment, which includes PayPal, represented 20% of the parent company's revenues in the second quarter, or $106 million, Merrill Lynch said.
"Given PayPal's dominance in the p-to-p payment space, its competitors have continually been fading away," the Merrill Lynch report said. "Following the demise of c2it, there are only a handful of significant competitors left including PayDirect, a cooperative effort between Yahoo and HSBC, Western Union's BidPay, and CheckFree's Auction Payments." (Western Union is part of First Data Corp.)
Merrill Lynch estimated that c2it had more than 350,000 accounts at its peak, against 31.1 million PayPal accounts.
In a telephone interview Tuesday, Gregory Smith, a vice president at Merrill Lynch and the author of the report, predicted that Citibank's money transfer services for checking account customers may prove popular but probably will not take consumers by storm the way PayPal did. "The reason PayPal took off is because it is a de facto way for tiny merchants to accept credit cards," he said. "Peer money transfer is trying to replace writing a check to somebody.
