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E Banking: Changingscenario and effects

A

Project

On

E-BANKING( THE CHANGING SCENARIO AND EFFECTS)

Submitted To Submitted By

Prof. Ankita Gupta Gagandeep Singh

Lecturer in Management Uni.Roll No:80804317016

PIMT Class:MBA (Semester-IV)

Session 2008 -10

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DECLARATION

I , GAGANDEEP SINGH, student of Masters of Business Administration from Punjab

technical University, Jalandhar hereby declare that I have completed the project on the

topic E-BANKING:THE CHANGING SCENARIO AND EFFECTS as part of

my course requirement.

I further declare that the information presented in this project is true and original to

the best of my knowledge.

Date: Name: Gagandep Singh

Place: Mandi Gobindgarh roll. No: 80804317016Program: MBA

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CERTIFICATE FROM THE GUIDE

This is to certify that the project work titled E-BANKING:THE CHANGING

SCENARIO AND EFFECTS is a bonafide work of GAGANDEEP SINGH,

University Roll No- 80804317016 is carried out in partial fulfillment for the award of

M.B.A. From PUNJAB INSTITUTE OF MANAGEMENT AND TECNOLOGYaffiliated to PANJAB TECHNICAL UNIVERSITY under my guidance. This

project has not been submitted earlier for the award of any degree/diploma of any

other Institution/University.

PLACE: MANDI GOBINDGARH (PUNJAB)

NAME OF THE GUIDE: Prof. ANKITA GUPTA

DESIGNATION OF THE GUIDE : LECTURER IN MGT

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Acknowledgement

Many talented people have contributed to the successful completion of this work and

I would like to extend a word of thanks and appreciation to all of them.

First, I wish to express my gratitude to all mighty GOD and then Miss. ANKITA

GUPTA my faculty guide, Punjab institute of management and technology for

providing me the opportunity to complete my Project under his esteemed guidance. I

shall always remain indebted to her valuable guidance and keen interest at all stagesof this work. Working with him was a delightful and enriching experience.

I would also extend my acknowledgement to the library staff for their kind assistance.

Sincere thanks to my parents and friends who are a constant source of inspiration and

pillars of support.

Name & Sign: Gagandeep Singh

Roll. No: 80804317016

MBA

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CONTENTS

S. No. Chapter Name PageNo.

1 Introduction..7

2 Literature Review51

3 Problem Statement..53

4 Methodology.....55

5 Analysis and conclusion..56

6 Recommendation & Suggestions....68

References

Annexure

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Objective of the project

As the title of the project suggests, the objective of the project is to find out the

satisfaction level of customers who go and use electronic banking.

The following are the sub objectives of the project:

Understanding the attitude and behaviour of the bank clients towards the

changing scenario

Find out there preference parameters for which they feel is important in e-

banking.

Understanding the emerging trend and significance of e-banking

Finding out ways and means to improve on the services provided by banks

electronically

Understanding the future potential of electronic banking as illiteracy is

high in our country

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CHAPTER : 1

INTRODUCTION

EVOLUTION OF BANKING

Origin of the Word Bank

The word bank is originally derived from the German word back meaning a joint-

stock fund. This then Italianized into banco.

Early History of Banking

As early as 2000 B.C., the Babylonians developed a banking system. The public felt

secure in depositing money and valuables in temples, and the priests working as

financial agents.

Again the origin of modern banking traced its way back around the 14 th century where

the money dealers who received money on deposit, and were lenders of money soon

became famous throughout Europe, as Bankers.

Development of Banking in India

The post-independent India has witnessed a vibrant evolution in industrial sector

which has made the country very noticeable in the global context. Growth in the

industry has resulted in growth in trade, which in turn has compelled the financial

sector to both broaden and deepen itself.

The earliest attempt in India in the direction of formulation of a definition was that of

the Hilton Young Commission, which in para 162 of its Report, put forward the

recommendation that The term bank or banker should be interpreted as meaning

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every person, firm or company using in its description or every company accepting

deposits of money subject to withdrawal by cheque, draft or order.

Ever expanding sphere of banking activities

Bankers have nowadays, to deal with a large number of matters. They serve as

custodians of stocks and shares and other valuables. Imports into and exports out of a

country are financed by banks, and documents relating to the goods so imported and

exported, at one time or another, pass through the hands of bankers. Thus, they have

to deal not only with bill of exchange, but also with bill of lading, railway receipts,warehouse warrants and receipts, marine insurance policies and various other

documents. As bankers, they advance money on securities, and issue letters of credit,

travelers cheques and circular notes to customers wishing to travel abroad, as also to

effect purchases and shipment of goods. They are often required to countersign

indemnities and guarantees given by their customers, and they undertake the

administration of estates.

ROLE AND SIGNIFICANCE:

If computerization has today become a byword in banking, its sustained growth is

wholly due to its role as an enabler in the smooth and efficient conduct of a whole

range of banking practices. Computers were originally destined for a minor role in

banks, primarily intended to facilitate accounting transactions. Subsequently, once its

superiority was firmly established, it grew in status as a tool for managementinformation and a host of other inventions. Although the accounting aspect is still

quite important and relevant, IT has a far greater role to play to day to day banking

operations, especially in decision making process. Further, facilities like ATM,

Anywhere Banking, Internet as well as Mobile Banking have been increasing their

presence. It has, to be conceded that Information Technology is not the end in itself,

but is useful tool in the hands of the management to leverage business prospects in its

favor and enhance efficiency.

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Banks now have come under great pressure to reduce operational costs to safeguard

their bottom lines. With banking tuning more and more customer-centric with every

passing day, technology as an enabler has helped banks to launch a whole array of

customer-centric products such as ATMs, Debit Cards, 24 hour Anywhere Banking.

The nomenclature Banking Accounts have also yielded to more sophisticated term

banking relationship. Customer Relations Management is now a very potent and

potential concept. E-Banking also has a role to play in ensuring a fair return to

shareholders, by facilitating in ensuring greater profits to the banking sector. The

recent emerging trends in self-service channels, namely ATM,s, Call-centers, Internet

and mobile banking would increase the use of E-banking as this offer the twin benefit

i.e convenience to the customers and reduction and cost of operation to the banks. E-

banking can increase the easy access of internet facilities among the masses which

would rise the comfort level for transacting via the web. The popularity of internet

banking likely depends upon inculcating in customers about their security and

personal privacy of their money and assests.

Public Sector Banks vs. Private Banks: the technology divide

Surely, the attack from none other than union finance minister Palaniappan

Chidambaram, for lagging behind their private sector counterparts in mobilising

deposits and customers, had forced all the public sector banks (PSBs) to go in for a

deep soul-searching exercise. But beyond a point, PSBs point their fingers to their

owner, the Government of India for the situation they find themselves in. ''The bank's

wide product range, superior service delivery and expanding branch network have all

helped the bank sustain growth in deposits and loans,'' he explains. Technology - not

just in terms of having a fully automated back-end and accounting system, but in

terms of being able to leverage technology to provide the bank's customers superior

and innovative products and greater convenience, has made all the difference.

Multiple delivery channels like ATMs, phone banking, net banking, etc. in the last

couple of years, the use of technology for data warehousing and CRM solutions have

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also helped the bank strengthen its customer relationships and to increase cross-sell,

he adds. ''There is no doubt, therefore, that technology has been a key business enabler

in supporting the bank's customer acquisition efforts we are in an expansion mode,'' he

avers. A small private sector bank like IndusInd Bank has added close to four lakh

customers in one year under the retail segment. So, if PSBs are to compete effectively

as the finance minister wants, technology and operational freedom are two

imperatives.

SOME FOREIGN BANKS IN INDIA:

Abu Dhabi Commercial Bank LtdAmerican Express Bank Ltd

Barclays Bank PLC

BNP

Citibank

DBS Bank Ltd

Deutsche Bank AG

HSBC Ltd.Standard Chartered Bank

Global banking

In the 1970s, a number of smaller crashes tied to the policies put in place following

the depression, resulted in deregulation and privatization of government-owned

enterprises in the 1980s, indicating that governments of industrial countries around the

world found private-sector solutions to problems of economic growth and

development preferable to state-operated, semi-socialist programs. This spurred a

trend that was already prevalent in the business sector, large companies becoming

global and dealing with customers, suppliers, manufacturing, and information centres

all over the world.

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Global banking and capital market services proliferated during the 1980s and 1990s as

a result of a great increase in demand from companies, governments, and financial

institutions, but also because financial market conditions were buoyant and, on the

whole, bullish. Interest rates in the United States declined from about 15% for two-

year U.S. Treasury notes to about 5% during the 20-year period, and financial assets

grew then at a rate approximately twice the rate of the world economy. Such growth

rate would have been lower, in the last twenty years, were it not for the profound

effects of the internationalization of financial markets especially U.S. Foreign

investments, particularly from Japan, who not only provided the funds to corporations

in the U.S., but also helped finance the federal government; thus, transforming the

U.S. stock market by far into the largest in the world.

Nevertheless, in recent years, the dominance of U.S. financial markets has been

disappearing and there has been an increasing interest in foreign stocks. The

extraordinary growth of foreign financial markets results from both large increases in

the pool of savings in foreign countries, such as Japan, and, especially, the

deregulation of foreign financial markets, which has enabled them to expand their

activities. Thus, American corporations and banks have started seeking investmentopportunities abroad, prompting the development in the U.S. of mutual funds

specializing in trading in foreign stock markets.

Such growing internationalization and opportunity in financial services has entirely

changed the competitive landscape, as now many banks have demonstrated a

preference for the universal banking model so prevalent in Europe. Universal banks

are free to engage in all forms of financial services, make investments in client

companies, and function as much as possible as a one-stop supplier of both retail

and wholesale financial services.

Many such possible alignments could be accomplished only by large acquisitions, and

there were many of them. By the end of 2000, a year in which a record level of

financial services transactions with a market value of $10.5 trillion occurred, the top

ten banks commanded a market share of more than 80% and the top five, 55%. Of the

top ten banks ranked by market share, seven were large universal-type banks (three

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American and four European), and the remaining three were large U.S. investment

banks who between them accounted for a 33% market share.

This growth and opportunity also led to an unexpected outcome: entrance into the

market of other financial intermediaries: nonbanks. Large corporate players were

beginning to find their way into the financial service community, offering competition

to established banks. The main services offered included insurances, pension, mutual,

money market and hedge funds, loans and credits and securities. Indeed, by the end of

2001 the market capitalisation of the worlds 15 largest financial services providers

included four nonbanks.

In recent years, the process of financial innovation has advanced enormously

increasing the importance and profitability of nonbank finance. Such profitability

priorly restricted to the nonbanking industry, has prompted the Office of the

Comptroller of the Currency (OCC)to encourage banks to explore other financial

instruments, diversifying banks' business as well as improving banking economic

health. Hence, as the distinct financial instruments are being explored and adopted by

both the banking and nonbanking industries, the distinction between different

financial institutions is gradually vanishing.

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Part 1: - E-Banking

1.1 Introduction of E-Banking

1.2 Meaning of E-Banking1.3 Functions of E-Banking

1.4 Types of E-Banking

1.5 Advantages of E-Banking

1.6 Limitations of E-Banking

1.1 Introduction of E-Banking: -

The acceleration in technology has produced an extraordinary effect upon our

economy in general has had a particularly profound impact in expanding the scope

and utility of financial products over the last ten years. Information technology has

made possible the creation, valuation, and exchange of complex financial products on

a global basis and even that just in recent years. Derivatives are obviously the most

evident of the many products that technology has inspired, but the substantial increase

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in our calculation has permitted a variety of other products and, most beneficially,

new ways to unbundled risk.

What is really quite extraordinary is that there is no sign that this process of

acceleration in financial technology is approaching an end. We are moving at an

exceptionally rapid pace, fueled not only by the enhanced mathematical applications

produced by our ever rising computing capabilities but also by our expanding

telecommunications capabilities and the associated substantial broadening of our

markets.

All the new financial products that have been created in recent years contribute

economic value by unbundling risks and reallocating them in a highly calibrated

manner. The rising share of finance in the business output of India and other countries

is a measure of the economic value added by the ability of these new instruments and

techniques to enhance the process of wealth creation. The reason of course, is that

information is critical to the evaluation of risk. The less that is known about the

current state of a market or a venture, the less the ability to project future outcomes

and, hence, the more those potential outcomes will be discontinued.

1.2 Meaning of E-Banking: -

E-bank is the electronic bank that provides the financial service for the individual

client by means of Internet.

1.3 Functions of E-Banking: -

At present, the personal e-bank system provides the following services: -

1. Inquiry about the information of account: -

The client inquires about the details of his own account information such as the cards

/ accounts balance and the detailed historical records of the account and downloads

the report list.

2. Card accounts transfer: -

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The client can achieve the fund to another persons Credit Card in the

same city.

3. Bank-securities accounts transfer: - The client can achieve the fund transfer between his own bank savings

accounts of his own Credit Card account and his own capital account in the securities

company. Moreover, the client can inquire about the present balance at real time.

4. The transaction of foreign exchange: -

The client can trade the foreign exchange, cancel orders and inquire

about the information of the transaction of foreign exchange according to the

exchange rate given by our bank on net.

5. The B2C disbursement on net: -

The client can do the real-time transfer and get the feedback

information about payment from our bank when the client does shopping in the

appointed web-site.

6. Client service: -

The client can modify the login password, information of the Credit

Card and the client information in e-bank on net.

7. Account management: -

The client can modify his own limits of right and state of the registered

account in the personal e-bank, such as modifying his own login password, freezing or

deleting some cards and so on.

8. Reporting the loss if the account: - The client can report the loss in the local area (not nationwide) when

the clients Credit Card or passbook is missing or stolen.

1.4 Types of E-Banking: -

1. Deposits, withdrawals, inter-account transfer and payment of linked accounts

at an ATM;

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2. Buying and paying for goods and services using debit cards or smart cards

without having to carry cash or a cheques book;

3. Using a telephone to perform direct banking- make a balance enquiry, inter-

account transfers and pay linked accounts;

4. Using a computer to perform direct banking- make a balance enquiry, inter-

account transfers and pay linked

1.5 Advantages of E-Banking: -

1. Account Information: Real time balance information and summary of days

transaction.

2. Fund Transfer: Manage your Supply-Chain network, effectively by using our

online hand transfer mechanism. We can effect fund transfer on a real time

basis across the bank locations.

3. Request: Make a banking request online.

4. Account information: The complete database that the banks has about our

company is available to us at our terminal. It provides us:

Current balance in our account on real-time basis.

Days transactions in the account.

Details of cash credit limit, drawing power, amount utilized, etc.

5. Downloading of account statements as an excel file or text file. The statements

can be integrated with your ERP systems for auto-reconciliation.

6. Fund Transfers: Manage our Supply-Chain network, effectively by using our

online fund transfer mechanism. We can effect fund transfer on a real time

basis across the bank locations. The product facilities.

(a) One-to-one fund transfer between two linked account.

(b) Bulk fund transfers; In bulk fund transfers, we upload a flat

file containing payment / collection information. Our systems

take care of processing the entire file and once the file is

processed file to our ERP for auto reconciliation.

7. The real life situation of user-wise limits and multilevel signatories can be

mapped in the net-based fund transfer module too. We can specify user-wise

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cap for fund transfer and the number of approvals needed for each fund

transfer. The fund transfer will not take place unless the required number of

signatories has approved it.

8. With a power of Attorney from our dealers, we can link the dealers accounts

to our account in order to have an online fund transfer, saving us time and

money involved with cheques collections systems. Alternatively, the dealer

can credit our account through this channel. Similarly, we could also effect

vendor and other payments online.

9. Customers can also submit the following requests online: Registration for

account statements by e-mail daily / weekly / fortnightly / monthly basis.

(1) Stop payment or cheques

(2) Cheque book replenishment

(3) Demand Draft / Pay-order

(4) Opening of fixed deposit account

(5) Opening of Letter of credit

10. The company does not have to spend anything extra to avail such facilities. All

it requires is an Internet connectivity. The product enables the company to pro-

actively manage its cash flows, ease reconciliation efforts as all the MIS is

available at the click of the mouse.

11. Customers can Integrate the System with his own ERP: The customer can

download the account statements either as a text file or as an excel file. The

bank can help him in integrating the account statements and bulk payments

files with his ERP system. The bank may charge a nominal fee depending

upon the nature of work involved.

12. Bill Payment through Electronic Banking: Internet has thus ushered theconcept of anytime and anywhere banking. To the individual the onerous task

of visiting several places to settle his service bills like telephone, water,

electricity, etc., can be overcome through the electronic Bill Pay service

provided by the bank. He can pay his regular monthly bills (telephone,

electricity, mobile phone, insurance, etc.) right from his desktop. No more

missed deadlines, no more loss of interest. He can schedule his bills in

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advance, and thus avoid missing the bill deadlines as well as earn extra interest

on his money.

13. The Electronic Shopping Mall: The customer can also make his shopping

payment through the Banks secure website-so that he can shop online without

any security worries, as the bank can provide online real time shopping mail

services through partner shopping sites.

14. Effecting Personal Investments through Electronic Banking: The banks

website can also allow the customer to invest in shares, mutual funds and other

financial products.

15. Investing in Mutual funds: Electronic banking also brings the customer the

same convenience while investing in Mutual funds- Hassle free and Paperless

Investing. He can invest in mutual funds without the hassles of filling

application forms or any other paperwork. He needs to provide no signatures

or proof of identify for investing. Once he places a request for investing in a

particular fund, there are no manual processes involved. His bank funds are

automatically debited or credited while simultaneously crediting or debiting

his unit holdings.

16. Initial Public Offers Online: The customer could also invest in initial public

offers online without going through the hassles of filling ANY application

form / paperwork. Get in-depth analyses of new initial public offers issues,

which are about to hit the market and analysis on these. Initial public offer

calendar, recent initial public offers listings, prospectus / offer documents, and

initial public offer analysis are few of the features, which help a customer to

keep on top of the initial public offers markets.

17. Other benefits: The e-banking provides some other benefits also.They are:

(1) Convenience.

(2) Speed of concluding transactions.

(3) Safety-banking from own home.

(4) Economy- banking without visiting your bank.

(5) Cheaper service fees.

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(6) Seamless Integration with existing environment (IDM-Intelligent Data

Module).

(7) Highly Scaleable.

(8) Easy Customization.

(9) Lower Costs of both Installation and Maintenance.

(10) Platform Independence.

(11) Round-the-Clock and Cross-Border Availability.

(12) Remote Authorization.

1.6 Limitation of E-Banking: -

1. Safety situations around ATMs.

2. Abuse of bank cards by fraudsters at ATMs.

3. Danger of giving your card number when buying on-line.

The modern technology has influenced the financial sector to a large extent. It

increases the competitive efficiency of the firms and provides sophistication to the end

users. It makes everyone fittest to survive.

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Part 2: - Internet Banking

2.1 Internet Banking

2.2 Risk & Rewards

2.1 Internet Banking:-

a) Introduction: -

The delivery channels include direct dialup connections, private networks,

public networks, etc. with the popularity of computers, easy access to Internet and

World Wide Web (WWW), Internet is increasingly used by banks as a channel for

receiving instructions and delivering their products and services to their customers.This form of banking is generally referred to as Internet Banking, although the range

of products and services offered by different banks vary widely both in their content

and sophistication.

b) Banking Services through Internet: -

i. The Basic Level Service is the banks web sites which disseminate

information on different products and services offered to customers and

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members of public in general. It may receive and reply to customers queries

through e-mail,

ii. In the next level are Simple Transactional Web sites which allows customers

to submit their instructions, applications for different services, queries in their

account balances, etc. but do not permit any fund-based transactions on their

accounts,

iii. The third level of Internet banking service are offered by Fully Transactional

Web sites which allow the customers to operate on their accounts for transfer

of funds, payment of different bills, subscribing to other products of the bank

and to transact purchase and sale of securities, etc. The above forms of

Internet banking service the customer or by new banks, who deliver banking

service primarily through Internet or other electronic delivery channels as the

value added services. Some of these banks are known as Virtual banks or

Internet only banks and may not have physical presence in a country despite

offering different banking services.

c) The Indian Scenario: -

The entry of India banks into Net Banking

Internet banking, both as a medium of delivery of banking services and as a

strategic tool for business development.

At present, the total internet users in the country are estimated at 9 lakh.

However, this is expected to grow exponentially to 90 lakh by 2003. only

about 1 percent of Internet users did banking online in 1998. This is increased

to 16.7 percent in March 2000 (India Research, May 29, 2000, Kotak

Securities). Cost of banking service through the Internet from a fraction of costs through

conventional methods. Rough estimates assume teller cost at Re.1 per

transaction, ATM transaction cost at 45 paise, phone banking at 35 paise, debit

cards at 20 paise and Internet banking at 10 paise per transaction.

d) Product and Services Offered: -

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Banks in India are at different stages of the web-enabled banking cycle.

Initially, a bank, which is not having a web site, allows its customer to

communicate with it through an e-mail address communication is limited to a

small number of branches and offices which have access to this e-mail count.

With gradual adoption of Information Technology, the bank puts up a web site

that provides general information on deposits products, application forms for

downloading and e-mail option for enquiries and feedback.

Vijaya Bank provides information on its website about its NRI and other

services. Customers are required to fill in applications on the Net and can later

receive loans or other products requested for at their local branch.

A few banks provide the customer to enquire into his demat account

(security/shares) holding details, transaction details and status of instructions

given by him. These web sites still do not allow online transactions for their

customers.

Some of the banks permit customers to interact with them and transact

electronically with them. Such services include request for opening of

accounts, requisition for cheque books, stop payment of cheques, viewing and

printing statements of accounts, movement of funds between accounts within

the same bank, querying on status or requests, instructions for opening of

Letter of Credit and Bank Guarantees, etc.

These services are being initiated by banks like ICICI Bank Ltd., Citibank,

Global Trust Bank Ltd., UTI Bank Ltd., Bank of Citibank Bank of Madura

Ltd., Federal Bank Ltd., etc.

Some of the more aggressive players in this area such as ICICI Bank Ltd.,

HDFC Bank Ltd., UTI Bank Ltd., Citibank, Global Trust Bank Ltd., and Bank

of Punjab Ltd., offer the facility of receipt, review and payment of bills online.

The Infinity service of ICICI Bank Ltd. Also allows online real time

shopping all payments to be made by customers.

HDFC Bank Ltd. Has made e-shopping online and real time with the launch of

its payment gateway.

Banks providing internet banking services have been entering into agreements

with their customers setting out the terms and conditions of the services.

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The terms and conditions include information on the access through user-ID

and secret password, minimum balance and charges, authority to the bank for

carrying out transactions performed through the service, liability of the user

and the bank, disclosure of personal information for statistical analysis and

credit scoring also, non-transferability of the facility, notices and termination,

etc.

e) The Future Scenario: -

o Compared to banks abroad, India banks offering online services still have a

long way to go. For online banking to reach a critical mass, there has to be

sufficient number of users and the sufficient infrastructure in place.

o Various security options like line encryption, branch connection encryption,

firewalls, digital certificates, automatic sign-offs, random pop-ups and disaster

recovery sites are is in place or are being looked at, there is as yet no

Certification Authority in India offering Public Key Infrastructure, which is

absolutely necessary for online banking.

o The communication bandwidth available today in India is also not enough to

meet the needs of high priority services like online banking and trading.

o Banks offering online facilities also need to calculate their downtime losses,

because even a few minutes of downtime in a week could mean substantial

losses.

o Users of Internet Banking Services are required to fill up the application froms

online and send a copy of the same by mail or fax to the bank.

o A contractual agreement is entered into by the customer with the bank for

using the Internet banking services.

o Domestic customers for whom other access points such as ATMs, telebanking,

personal contact, etc. are available, are often hesitant to use the Internet

banking services offered by Indian banks. Internet Banking, as an additional

delivery channel, may, therefore, be attractive/ appealing as a value added

service to domestic customers. Non-resident Indians, for whom, it is expensive

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and time consuming to access their bank accounts maintained in India find net

banking very convenient and useful.

o Cyber crimes are, therefore, difficult to be identified and controlled.

o In order to promote Internet banking services, it is necessary that the proper

legal infrastructure is in place.

o The Department of Telecommunications (DoT) is moving fast to make

available additional bandwidth, with the result that internet access will become

much faster in the future.

o Reserve Bank of India has constituted a group to examine different issues

relating to i-banking and recommend technology, security legal standards and

operational standards keeping in view the international best practices. In the

following paragraphs a generic set of risks discussed as the basis for

formulating general risk control guidelines.

2.2 Risk & Rewards: -

a) Operational Risk: -

Operational risk, also referred to as transactional risk is the most common

form of risk associated with i-banking.

It takes the from of inaccurate processing of transactions, non-enforceability of

contracts, compromises in data integrity, data privacy and confidentiality,

unauthorized access / intrusion to banks systems and transaction, etc.

Such risks can arise out of weaknesses in design, implementation and

monitoring of banks information system.

Besides inadequacies in technology, human factors like negligence by

customers and employees, fraudulent activity of employees and crackers/

hackers, etc. can become potential source of operational risk.

b) Security Risk: -

Security risk arises on account of unauthorized access to a banks critical

information stores like accounting system, risk management system, portfolio

management system, etc.

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Other related risks are loss of reputation, infringing customers privacy and its

legal implications, etc.

Attackers could be hackers, unscrupulous vendors, disgruntled employee or

even pure thrill seekers.

In addition to external attacks banks are exposed to security risk from internal

sources e.g. employee fraud. Employee being familiar with different systems

and their weaknesses become potential security threats in a loosely controlled

environment. They can manage to acquire the authentication data in order to

access the customer accounts causing losses to the bank.

Unless specifically protected, all data/ information transfer over the internet

can be monitored or read by unauthorized persons.

c) System architecture and design: -

Banks face the risk of wrong choice of technology, improper system design

and inadequate control processes.

Numerous protocols are used for communication across internet. Each

protocol is designed for specific types of data transfer.

A system allowing communications with all protocols, say HTTP (Hyper Text

Transfer Protocol), FTP (File Transfer Protocol), telnet, etc. is more prone to

attack than one designed to permit say, only HTTP.

Many banks rely on outside service providers to implement, operate and

maintain their e-banking system.

Security related operational risk include access control, use of firewalls,

cryptographic techniques, public key encryption, digital signature, etc.

d) Reputational Risk: -

Reputational risk is the risks of getting significant negative public opinion,

which may result in a critical loss of funding or customers. Such risks arise

from actions which cause major loss of the public confidence in the banks

ability to perform critical functions or impair bank-customer relationship. It

may be due to banks own action or due to third partys action.

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The main reasons for this risk may be system or product not working to the

expectations of the customers, significant security breach (both due to internal

and external attack), inadequate information to customers about product use

and problem resolution procedures, significant problems with communication

networks that impair customers access to their funds or account information

especially if, there are, no alternative means of account access.

e) Legal Risk: -

Legal risk arises from violation of, or non-conformance with laws, rules,

regulations, or prescribed practices, or when the legal rights and obligations of

parties to a transaction are not well established.

A customer, inadequately informed about his rights and obligations, may not

take proper precautions in using Internet banking products or services, leading

to disputed transactions, unwanted suits against the bank or other regulatory

sanctions.

f) Money Laundering Risk: -

o As internet banking transactions are conducted remotely banks may find it

difficult to apply traditional method for detecting and preventing undesirable

criminal activities. Application of money laundering rules may also be

inappropriate for some forms of electronic payments.

o To avoid this, banks need to design proper customer identification and

screening techniques, develop audit trails, conduct periodic compliance

reviews, frame policies in internet transactions.

g) Cross-Border Risks: -

Internet banking is based on technology that, by its very nature, is designed to

extend the geographic reach of banks and customers. Such market expansion

can extend beyond national borders. This causes various risks.

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Such considerations may expose banks to legal risks associated with non-

compliance of different national laws and regulations, including consumer

protection laws, record keeping and reporting requirements, privacy rules and

money laundering laws.

The foreign-based service provider or foreign participants in internet banking

are sources of country risk to the extent that foreign parties become unable to

fulfil their obligations due to economic, social or political factors.

h) Strategic Risk: -

For reducing such risk, banks need to conduct proper survey, consult experts

from various fields, establish achievable goals and monitor performance.Also they need to analyze the availability and cost of additional resources,

provision of adequate supporting staff, proper training of staff and adequate

insurance coverage.

i) Other Risk: -

Traditional banking risks such as credit risk, liquidity risk, interest rate risk

and market risk are also present in internet banking.

These risks get intensified due to the very nature of internet banking on

account of use of electronic channels as well as absence of geographical limits.

Credit risk: Is the risk that a counterparty will not settle an obligation for full

value, either when due or at any time thereafter. Banks may not be able to

properly evaluate the creditworthiness of the customer while extending credit

through remote banking procedures, which could enhance the credit risk.

Another facility of internet banking is electronic money. It brings various

types of risks associated with it. If a bank purchases e-money from an issuer in

order to resell it to a customer, it exposes itself to credit risk in the event of the

issuer defaulting on its obligation to redeem electronic money.

Liquidity risk: It is important for a bank engaged in electronic money transfer

activities that it ensures that funds are adequate to cover redemption and

settlement demands at any particular time. Failure to do so, besides exposing

the bank to liquidity risk, may even give rise to legal action and reputational

risk.

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j) Risk of unfair competion: -

Internet banking is going to intensify the competition among various banks.

The open nature of internet may induce a few banks to use unfair practices totake advantage over rivals. Any leaks at network connection or operating

system, etc. may allow them to interfere in a rival banks system.

Thus, one can find that along with the benefits internet banking carries various

risks for bank itself as well as banking system as a whole.

Part 3: - Internet Banking: Challenges for Banks & Regulators.

3.1 Internet Banking in the United States

3.2 The Basel Committees Electronic Banking Group

3.3 E-Finance Oversight

3.4 Security Controls

3.5 Legal & Reputational Risk Management

3.1 Internet Banking in the United States: -

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An average industry estimates indicates the about 13 million US households

banked online by the end of 2000 twice as many as in the pervious years.

At the beginning of 2001, 37% of all US national banks, including nearly all of

the largest national banks, were offering full transactional capabilities online

a near twofold increase in little over a year.

Banks offering Internet-based transaction service and there are more of them

each day should be well positioned to compete in the financial markets of the

future.

New Risks: -

Internet banking poses risks that are different from those that bank supervisorscustomarily dealt with in assessing credit, market, or interest rate risk.

First, banks must manage the unprecedented speed of technological change,

and assess how it relates to their technology investments and their ability to

provide consistently high-quality customer service.

Second, bank are increasingly dependent on third parties to provide the

necessary information technology.

Security is another area of significant risk. So far, relatively few financial

institutions have reported being victimized by online security violations.

3.2 The Basel Committees Electronic banking Group: -

o The Basel Committee on Banking Supervision has taken the lead in

this area through the creation of its Electronic Banking Group (EBG)

in late 1999 a group whose members represent 17 Central banks and

bank supervisory agencies.

o The major focus of the EBGs work has been to develop risk

management guidance for Internet banking that will guide bankers and

promote effective and consistent bank supervision around the world.

o The EBG has identified fourteen Risk Management Principles for

Electronic Banking to promote sound risk management of e-banking.

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These principles are intended to help banking institutions expand their

existing oversight policies and processes to cover their e-banking

activities.

3.3 E-Finance Oversight: -

The EBG has dedicated considerable time and effort to communicating supervisory

expectations and guidance for home country supervisors to oversee cross-border

Internet banking activity conducted by their local institutions.

In February of this year, the Financial Stability Forums Contact Group on E-Finance held its first formal meeting. This group was formed to promote

enhanced information-sharing among the various international sector-based

working groups dealing with e-finance supervisory issues e-banking, e-

trading, retail payments systems, e-commerce, and so on.

3.4 Security Controls: -

Authentication of e-banking customers.

Nonrepudiation and accountability for e-banking transaction of duties.

Appropriate measures to ensure segregation of duties.

Proper authorization controls within e-banking systems, databases and

applications.

Data integrity of e-banking transactions, records and information.

Establishment of clear audit trails for e-banking transactions.Confidentiality of key bank information.

3.5 Legal & Reputational Risk Management: -

Appropriate disclosure for e-banking services.

Privacy of customer information.

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Capacity, business continuity and contingency planning to ensure availability

of e-banking systems and services.

Incident response planning. The complete EBG Report on Risk Management

Principles for Electronic Banking can be obtained at the Bank for International

Settlements web site at www.bis.org .

Part 4: - What do Computers do in Banks

The different uses of Information Technology: -

a) Single Window System

b) Any Time Banking

c) Automated Teller machine

d) Shared Payment Network System

e) Customer Service

f) Telebanking

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g) Home Banking

h) Electronic Fund Transfer

i) Plastic Cards as Media for Payment

1. Credit Card

2. Debit Card

3. Smart Card

4. ATM Card

j) Intra-bank and Inter-bank Applications

4.1 The different uses of Information Technology: -

a) Single Window System (SWS): -

The cashier or teller who accepts the cash, keys in the data from his terminal after

receipt of the amount.

o The amount is straight away posted to the system.

o If the customer wishes to update passbook the same is also updated through

the security form printer/pass book printer.

o

If a customer wishes to obtain a draft, the clerk keys in the details of theaccount to be debited and the particulars of the drafts to be issued on the

machine.

o The customers account is debited and security form printer prints out draft

and clerk can hand over the same to customer duly signed.

b) Any Time Banking: -

This refers to banking service available 24 hours a day and 365 days a year.

Such facility is made available to the customer through the Automated Teller

machine.

Banking, being a service industry, is primarily driven by customers needs.

Each customer is willing to pay a price for the services provided it is made

available to him when he wants and where he wants.

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In the present day of server competion, banking services are driven by

technology, which is more oriented towards providing better services to the

customer.

The concept of banking hours has been changed from the fixed 4 hours to 24

hours.

This has been made possible through use of ATMs. Even under the manual

service, the banks have stated to extend the service from the traditional 4 hours

to 5 hours and even up to 12 hours say from 8 AM to 8 PM.

Some banks have introduced the practice of Sunday Banking or Holiday

Banking.

c) Automated Teller Machine (ATM): -

ATM is a machine in the nature of a computer in general sense, but is

dedicated to do certain types of specific jobs only.

The hardware and the proprietary i.e. the software used in one machine can not

be used in one machine.

d) Shared Payment Network System (SPNS): -

The SPNS, named SWADHAN, has been sponsored by the Indian Banks

Association (IBA).

It is a network of ATMs, points of sale terminals and Cash Dispensers with a

view to pool the resources of the banks and underlines the spirit of competition

through cooperation.

It became operational in Mumbai on 1 st February 1997 and in two years about

150 ATMs were owned and installed by 38 banks including foreign banks,

public and private sector Indian commercial banks as also cooperative banks.

The biggest advantage of the network is that the ATM cards issued by

different banks can used at any member banks ATM.

Banks can have as many ATM as they want and follow some standards set by

the SPNS committee.

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The heart of the network is the Switch and its main components are: Tandem

Mainframe Computer, BASE 24 Software, Motorola networking equipments

and the leased lines.

e) Customer Services: -

The following customer services are offered through the system:

i. Cash withdrawal (up to a specified limit)

ii. Cheque/Cash deposit (the receipt being only for the deposit of the envelope

containing cash but not for the amount therein)iii. Enquiry about balances

iv. Printing of statement of accounts

v. Request for cheque book and standing instructions.

vi. Transfer of funds

vii. PIN change

f) Telebanking: -

From the conventional banking, where the services were provided manually

across the table, it has come to a stage where the customer is not required to

visit the bank enquiry of balance in the account, sending a remittance, to get a

statement of account, etc.

The concept has become so popular that in USA customers do not visit the

bank for 97% of their transactions and these are done from either customers

residence or office using a telephone or a home PC.

In telebanking the customer is required to open the account with the bank

initially by visiting the bank.

Telebanking services are, generally, provided by the bank over the telephone

on a special number.

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The number at the bank is connected to a terminal in the bank, which is either

handled manually or is automated by connecting the same to the computer

network.

Where the system is automated, two types of technology are used.

g) Home Banking: -

Under home banking the customer is served at his residence and there is no

need for the customer to visit the banks premises for a number of routine

transactions.

If the customer needs some information the same can be got by contacting the

bank over the phone as described in the telebanking.

If the customer wants to put through transaction and wishes to see his account

or to get a statement of his account, he may have to use a PC.

This type of facility is available with a town, city or metropolitan area.

Under such a situation the customer should have a:

PCModem

Telephone line

A compatible software for the home PC

The home banking service can be broadly classified under two groups,

one without using the information technology and another using information

technology.

When customer contacts the bank o the phone no specific technology isinvolved and the service of telebanking are provided to him.

h) Electronic Fund Transfer (EFT): -

o In India the fund transfers are basically done through Mail Transfer, Draft or

Telegraphic Transfer.

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o In case of Telegraphic Transfer (TT) again the Department of

Telecommunication was the sole provider of Telephone, Telex and Telegram

facilities.

o With the process of liberalization private operators have started providing

alternative voice communication channels through mobile phones and vast

communication as an alternative channels for data communication.

o It was normal for any TT to be credited to the beneficiarys account after delay

of 2 to 4 days

o The different forms of EFT prevalent in the use are:

EFT through Electronic Data Interchange

BANKNET

RBINET

IDRBT VSAT Network

EFT from Point of Sales

Electronic Cash

SWIFT- Global System for Funds Transfer

Electronic Clearing Settlement

i) Plastic Cards as Media for Payment: -

There are four types of plastic cards being used ad media for making payments. These

are:

1. Credit Card

2. Debit Card

3. Smart Card

4. ATM Card

1. Credit Cards: -

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The credit card enables the cardholders to:

Purchase any item like clothes, jewellery, railway/air tickets, etc.

Pay bills for dining in a restaurant or boarding and lodging in a hotel

Avail of any service like car rental, etc.

2. Debit Card: -

A debit card is issued on payment of a specified amount by the issuing company like a

telephone company to a customer on cash payment or on debiting his account by a

bank.

Thus it is like an electronic purse, which can be read and debited by the requiredamount.

It may be noted that while through a credit card, the customer first makes a purchase

or avails service and pays later on, but for getting the debit card, a customer has to

first pay the due amount and then make a purchase or avail the service. For this

reason, debit card are not as popular as credit cards.

3. Smart Cards: -

Smart Cards have a built-in microcomputer chip, which can be used for storing and

processing information. For example, a person can have a smart card from a bank with

the specified amount stored electronically on it. As he goes on making transactions

with the help of the card, the balance keeps on reducing electronically. When the

specified amount is utilized by the customer, he can approach the bank to get his card

validated for a further specified amount. Such cards are used for paying small

amounts like telephone calls, petrol bills, etc.

In India, a smart card, suiting Indian banking environment, is being developed and

tested at IIT, Mumbai, in collaboration with the RBI and SBI. The card is being used

as an experimental tool for promoting cashless society in and around the IIT Campus.

The latest smart card being developed will combine all the features of electronic

purses, credit cards and ATM cards.

4. ATM Cards: -

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The card contains a PIN (Personal Identification Number) which is selected by the

customer or conveyed to the customer and enables him to withdraw cash up to the

transaction limit for the day. He can also deposit cash or cheque.

Function of ATM Card: -

The customer has to enter the card into the machine slot. The machine first

reads for hot carding of the card number, i.e. it checks whether the card has

already been cancelled or placed on the rejection list.

Rejection can be because of the reason like lost card or stolen card.

The machine then reads the PIN and asks for the PIN from the customer.

If the PIN matches, it present the main menu on the screen. The menu contains

options from which the withdrawal option is selected.

The ATM then checks whether the amount is under the day limit magnetically

inscribed by the customer. Accordingly, the ATM dispenses cash. It then

releases the card and a printed statement comes out of the slot.

5. Intra-Bank & Inter-Bank applications: -

Computerization is now all pervasive in banks. Almost all the activities in a bank can

be performed more efficiently with the help of computers. Broadly, we can divide the

applications of computerization in banks in two types

A) Intra-Bank Applications: -

i. Funds transfer and payment message

ii. Banks owned ATM/Credit Card and other application on the corporate

network

iii. Inter-Branch Reconciliation

iv. Quick disposal of loan/investment proposal

v. Funds information from clearing centers to the fund management office for

optimal allocation of funds.

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vi. Cash Management Product

vii. Treasury Management

viii. Any Branch Banking

ix. Asset Liability Management

x. E-mail

xi. Software distribution in the bank

xii. Organizational bulletin boards may contain the following:

a. Circulars

b. News letters, phone and address directories

c. Undesirable parties

d. Missing security items

e. Confidential circular on attempted frauds.

xiii. Human Resources Development and Personnel Administration

xiv. Auditing and Inspecting computerized branches using the network

xv. Organizational database may include

a. Statutory returns

b. Control returns

c. Standardized returns

xvi. Management Information Systems

a. Borrowers profile

b. Branch profile

c. Employee analysis

d. Product/service profile

e. Business profile of branches.

xvii. Apart from providing efficient service to customers the financial network willalso fulfill the following objectives:

a. Timely information to top management

b. Helping in development of new products

c. Speedy communication among branches and with the controlling

offices.

B) Inter-Bank Applications: -

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i. Electronic Funds Transfer

a. Retail EFT (Small value credit transfer) on net settlement basis.

b. Wholesale EFT (Large value credit transfer) on Real Time Gross

Settlement (RTGS) basis for time critical payments.

ii. Clearing and settlement systems for securities Delivery vs. Payment (DVP).

The final delivery of securities will occur if and only if final payment occurs.

iii. Transferring balance from net settlement systems to RTGS Server at periodic

intervals. The net obligation could be from:

a. Local paper-based clearing

b. Inter-city paper-based clearing (including IT discounting facilities)

c. Bulk payments ECS (Debit, Credit, RAPID) including intercity.

d. Shared ATM networks

e. Smart cards and other pre-paid/pre-authorized debit cards

iv. Exchange of defaulting borrowers list among RBI and banks

v. EDI services to the extent they pertain to payment cycle to EDI (Electronic

Data Interchange)

vi. Consolidation of current account balance from the existing DAD (Deposit

Accounts Department in RBI Offices) applications

synchronously/asynchronously to facilitate balance enquiry by banks on all

India/center-wise basis and if necessary to activate transfer of funds among

DADs at different centers.

vii. Reporting of government account transactions

viii. Reporting of BSR (Basic Statistical Returns) etc. to RBI

ix. Asset Liability Management

x. Intranet in RBI to enable banks to get circulars, press releases etc.xi. Returns to be submitted by the banks to Departments of Banking Supervision

(DBS) for off-site supervision and monitoring.

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5.1 Credit Card Frauds

5.2 The Prevention of Frauds

5.3 How to Accept the Master Card

5.4 How to get reimbursed

5.1 Credit Card Frauds: -

Meaning: -

A credit card is a money transaction device without using cash or fiduciary

documents.

Defrauder: -

The defrauder has been slow to exploit the credit card, for making a fast buck. In

USA, he made 15 million dollars. through the cards, in 1981. in 1982 his earning

through the card, rose to 50 million dollars. in 1983, the fraudulent card brought over

100 million dollars to its creators. The fraudulent card industry is rising higher and

higher to dizzy height every year. Like other countries if the genuine credit card has

come in India, the fraudulent credit card cannot be far behind.

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Aware of Credit Card: -

The credit card, as already seen, is a money transaction device. The institutions

issuing the credit card give the card holders authority to obtain money, goods, servicesor any other thing of value, on credit. They guarantee payment of debit so raised.

These institutions are banks and other financial institutions, clubs and travel agencies

and departmental stores, etc. Credit Cards, Bob Cards, Master Cards, Visa Cards,

express Cards, Euro Cards have wide circulation. Some of them have wide

circulation. Some of them have world-wide circulation..

Advantages of Credit Cards: -

Following types of safety measures are being introduced increasingly in the credit

card manufacture. They can be adopted with advantages

1. Simultaneous printing on both sides of the cards,; creating some superimposed

graphics, patterns, digits or writings.

2. Multi-layered laminates incorporating lateen images which may distinguish

the genuine from the forged.

3. Intricate graphics and distinctive letter and digit designs.

4. Laser printing to engrave the letter and digits on the credit card.

5. Three dimensional insignia, logo of high artistic quality on the credit card.

6. Encoded information track in magnetic inks on magnetic stripe.

7. Cards inserted in the imprinter head, designed and manufactured to rigid

specification to permit limited tolerance to admit only genuine credit cards.

8. Secure Signature Panel.

9. 3- Dimensional hologram.10. U.V. fluorescent images and designs.

11. Micro printing

12. Optically illusive figures, designs, etc.

13. heavy duty embossing logo.

Credit Card Frauds: -

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Credit card frauds manifest themselves in a number of ways:

1. Genuine cards are manipulated.

2. Genuine cards are altered.3. Counterfeit cards are created.

4. Fraudulent telemarketing is done with credit cards.

5. Genuine cards are obtained on fraudulent applications in the names/addresses

of other persons and used.

It is feared that with the expansion of E-Commerce, M-Commerce, and Internet

facilities being available on massive scale, the fraudulent fund freaking via credit

cards will increase tremendously. The shape it takes will be limited only by theingenuity of the future.

5.2 The Prevention of Frauds

Duplicate Card: -

The duplicate fraudulent credit cards are those where the defrauders have made

sincere efforts to duplicate the original cards through photo-mechanical processes.

They follow the footsteps of the original manufactures of the genuine credit cards to

produce as close a replica of the genuine card as possible, employing similar materials

and similar processes of printing and embossing, besides magnetic encodings.

White Plastic: -

The counterfeit credit cards known as white plastics are imitations of credit cards ingeneral aspect.

Bankers Role: -

The credit card industry is one of the fastest growing activities of the banking

industry. The artist has to be there (where the money is). The banks have to suffer

losses.

Cyber Laws: -

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Information Technology Ministry be approached for stringent laws against credit card

crimes.

Altering Sales terminals: -

Internet E-Mail should be utilized on the pattern of Hot Box organized about a decade

ago, suitably modified to benefit from the advances the information technology has

made since them.

Internet Relays: -

Computers should be pressed into service via internet connection by suitably

upgrading the Television System Vertical blanking Intervals for notifying the

fraudulent cards in the market.

Monitoring Deposit: -

Monitoring system can help locate the unscrupulous merchants who use or allow the

use of white plastics and fraudulent cards, knowing fully well their fraudulent nature

for making a fast back.

Risk Management: -

To meet the menace one of the top card companies has imitated risk management

service to identify these high risk centers where daily all the inter-change transactions

of the areas are scrutinized and the credit card number are checked against those

which have been declared fraudulent, stolen or lost.

Central credit Card Clearing House: -

There should be a joint list of credit card holders on central basis with their addresses

and other details, if any. New applicants to any bank for credit cards should be

checked: -

If he is holding card from other issuers.

If he has held a card at other times. If so, when? Why did he discontinue?

If he has applied to more than one credit card issuers

The new card holders business transactions should be watched for some time.

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Loss of Credit cards in Transit: -

It must be prevented.

It is simple for either the customer to collect personally or the banker should deliver it

personally, or it should be sent by courier and confirmation obtained on telephone, in

addition to the paper receipt.

Fraud Consciousness: -

The problem of credit card frauds must be brought to the notice of users as well as of

the servers at sale terminals.

Proper training in the check up of the credit card in its various aspects has no

substitute and in view of the huge issues the same is indispensable.

Physical Evidence: -

Immediately on the discovery of fraud all the physical evidence available should at

once be taken into possession and the case reported to the police for investigation.

Check the Handwriting: -

Handwriting (in signatures) is available on sale drafts and on credit cards. The

comparison of hand-writing inter se and with that of the suspect and of genuine card

holders, can lead to the identity or non-identity of alleged writer.

How to accept: -

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Master Card International guarantees payment of all Master Card Travelers Cheques

if the following procedures are followed: -

Watch the customer signs each cheque in ink on the countersignature line. Compare this signature to the original signature. Ensure they look the same.

If a cheque is already countersigned, or if you doubt the two signatures are the

same, ask the customer to sign the cheque again on the back for comparison.

Also, request identification such as a passport, driving license or similar

document, and write the details on the back of the cheque.

If a cheque is presented by anyone other than the original purchaser, treat it the

same way you would a personal check from a third party. You should know

the customer and be able to contact the customer if theres problem.

How to get Reimbursed: -

Stamp or write your company name on the front of the cheque where it says,

Issuer will pay to the order of.. and also endorse at the back of the

cheque. Deposit cheques in your bank as cash items. US dollar Master Card Travelers

Cheques, regardless of location of issuer, are cleared and paid in the US.

Do not send cheque directly to the issuing institution.

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Part 6: - Banks Control in Online Banking

6.1 Will Banks Control Online Banking: -

6.2 Banking in the Cyberworld: -

6.1 Will Banks Control Online Banking: -

Internet Banking in India: -

Online banking is expected to explode in the ext few years. We will be entering the

age of non-physical exchange of cash aided by complete transparency leading to

perfectly competitive electronic market place and inevitably to customer supremacy.

Growth in online banking will be driven by the following reasons:

Increasing access to low cost electronic services

Emergence of open standards in the banking industry

Improved customer awareness

Entry of global majors in the market

Integration of banking services with e-commerce and emergence of e-cash

Convenient international transactions as Internet eliminates geographic

boundaries

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Shift from one-stop shopping to unbundled product purchases

Internet Banking An Overview: -

Internet Banking sites can be segregated into four categories from Level I, which offer

just minimum functionalities such as access to ones deposit account data, to Level IV

sites that offer sophisticated services. To be successful, an Internet bank must offer:

High rates on deposits

24 hour access

Free checking and bill payment facilities with rebates on ATM surcharges

Credit cards with low rates

Simple and easy online applications for all accounts including personal loans

Innovative products

High quality customer service

Real Threats: -

A majority of leading online brokers are beginning to offer banking products

and services as part of their overall offers.

They are actively seeking to capture excess balances in existing checking and

saving accounts by offering better rates.

There are other threats to banks as well. Several leading system providers have

developed bank-in-a-box solution unbranded, electronic, full-service,virtual-bank system that can be bought, branded, and offered to consumer by

any authorized company that wishes to provide banking service.

Online: -

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An online service that merely mimics an offline one has a second problem as well; it

doesnt give customers an adequate inducement to move a significant portion of their

banking online.

As a result, most customers tend to tend to treat online banking as no more than an

extra channel to check their balance and transaction histories, and they continue to do

the rest of their business at the ATM or the teller window.

A vicious offering increase the banks total costs. This makes the banks reluctant to

make further large investments in the online channel, which thus, does nothing to

move customers away from tellers and ATMs.

In fact, consumers didnt stop using tellers to the extent that banks has hoped, but they

also used ATMs so frequently that the reduction in cost per use was more than offset

by the higher volume of transactions.

The study of information systems through broad band connection, satellite, a network

or through a view chat.

This online information systems provides information about all aspects, Information

providing on the demand of the subscriber.

This online information systems may be of study program, a graduation program or

sharing of data through internets, extranet and internet.

Sharing of Data: -

The data base store data and information extracted from selected operational and

external databases. The database has most needed information by a manager or any

end users. This database can be accessed by the ONLINE ANALYTICAL

POCESSING (OLAP) systems.

This network model can access a data element by several paths. In an organization

departmental records can be related to more than one employee record.

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Thus in an organization data can be shared through internet, internet and extranet.

6.2 Banking in the Cyberworld: -

Internet Purchases without Payment Gateway: -

The dangers are three-fold

Since a manual process requires human intervention, risk of information

leakage exists.

No exchange of Digital ID, so no authentication of the merchant risk of bogus merchant.

No exchange of Digital Certificate to authenticate card holder risk of

repudiation of transaction by the card holder.

The benefits which the user would get by using the Internet payment gateway are

Card details travel encrypted on the Net (if encryption facility available on the

gateway).

On-line status of order, if the gateway has on-line authorization.

Secure Merchant identification, so that fraudulent web sites posing as genuine

merchants get weeded out

CHAPTER 2 :

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LITERATURE REVIEW

This study lies at the intersection of two issues. The first is the technology adoption

decision-making process. The second is the determinants of information technology

acceptance and utilization among users. This section presents a review of existing

literature on these two areas. Literature of five widely validated models/theories is

reviewed and linked to the adoption of Internet Banking,

Social Psychology

Information systems researchers have suggested intention models from social

psychology as a potential theoretical foundation for research on the determinants of

user behavior (Swanson, 1982). Fishbein and Ajzen's (1975) Theory of Reasoned

Action (TRA) is an especially widely validated intention model that has been proven

successful in predicting and explaining behavior across a wide variety of domains.

TRA is concerned with the determinants of consciously intended behaviors (Ajzen

and Fishbein, 1980; Fishbein and Ajzen, 1975) composed of attitudinal, social

influence, and intention variables to predict behavior. TRA hypothesizes that an

individual's Behavioral Intention (BI) to perform a behavior is jointly determined by

the individual's Attitude Toward performing the Behavior (ATB) and Subjective

Norm (SN), which is the overall perception of what relevant others think the

individual should or should not do. The TRA has been successfully applied to a large

number of situations to predict the performance of behavior and intentions (Prestholdt

et al., 1987; Fredricks and Dossett, 1983; Timko, 1987).

Despite the predictability of TRA being strong across studies, it becomes problematic

if the behavior under study is not under full volitional control. To deal with these

problems, Ajzen (1985, 1991) extended TRA by including another construct called

perceived behavioral control, which predicts both behavioral intention and behavior.

The extended model is called the Theory of Planned Behavior (TPB). TPB expands

the boundary conditions of TRA to more goal-directed actions. TPB has been

successfully applied to various situations in predicting the performance of behavior

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and intentions (Mathieson, 1991; Young et al., 1991; Madden, Ellen, and Ajzen, 1992;

Man, 1998; Cheung, Chan, and Wong, 1999). Empirical results (Mathieson, 1991;

Taylor and Todd, 1995) show the appropriateness of using these two theories for

studying the determinants of IT usage behavior. Nevertheless, many have found that

TPB has a better predictive power of behavior than TRA (Madden, Ellen, and Ajzen,

1992; Man, 1998; Cheung, Chan, and Wong, 1999).

Information Technology Information

The Technology Acceptance Model (TAM), introduced by Davis (1989), is an

adaptation of TRA specifically for modeling user acceptance of information systems.

It attempts to provide an explanation of the determinants of computer acceptance that

is general, and is capable of explaining user behavior across a broad range of end-user

computing technologies and user populations. TAM posits that two particular

behavioral beliefs, Perceived Usefulness (PU) and Perceived Ease Of Use (PEOU),

are of primary relevance for computer acceptance behavior, and that the effect of

external variables on intention are mediated by these two key beliefs. IS researchers

have used TAM to examine the possible antecedents of PU and PEOU toward

microcomputer...

CHAPTER 3 :

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PROBLEM STATEMENT

Internet poses a range of risks and threats. Some of them are:

Security risks that may arise due to unauthorized access to a bank's key information

like the accounting system, risk management system and portfolio management

system. A breach of security could result in direct financial loss to the bank. In

addition to external attacks, banks are exposed to security risk from internal sources

e.g. employee fraud. Employees can acquire the authentication data in order to access

customer accounts, causing losses to the bank.

Operational risks that may arise due to inaccurate processing of transactions.

nonenforceability of contracts, compromises in data integrity, data privacy and

confidentiality, unauthorized access/intrusion to bank's systems and transactions, etc.

These risks may arise due to weaknesses in design, implementation and monitoring of

banks' information system, inadequate technology, negligence by customers and

employees, fraudulent activity by employees and hackers.

Banks face the risk of the wrong choice of technology, improper system design and

inadequate control processes. Technology, which is outdated, not scalable or not

proven, may lead to the loss of bank's investment and risk its business. Many banks

rely on outside service providers to implement, operate and maintain their e banking

systems since they do not have the requisite expertise. However, it adds to the

operational risk.

Legal risk arises when violation of laws, rules and regulations or prescribed practicestakes place, or when the legal rights and obligations of parties to a transaction are not

well established. These risks may also arise due to uncertainty about the validity of

some agreements formed via electronic media and law regarding customer disclosures

and privacy protection.

E banking extends the geographic reach of banks and customers beyond national

borders which may lead to cross border risks. This risk involves legal and regulatory

risks, as there may be uncertainty about legal requirements in some countries and

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jurisdiction ambiguities with respect to the responsibilities of different national

authorities. Such considerations may expose banks to legal risks associated with non

compliance of different national laws and regulations. Crossborder transaction also

involves credit risk, since it is difficult to appraise an application for a loan from a

customer in another country. Banks accepting foreign currencies in payment for

electronic money may be subjected to market risk because of movements in foreign

exchange rates.

Reputational risk is the risk of getting significant negative public opinion, which may

result in loss of funding or customers. The main reasons for this risk may be the

system or product not working to the expectations of the customers, systemdeficiencies, security breaches, inadequate information to customers about product

use and problem resolution procedures, problems with communication networks that

impair customers' access to their funds or account information. This may cause the

customer to discontinue the use of product/service.

As e banking transactions are conducted remotely, banks may find it difficult to apply

traditional method for detecting and preventing undesirable criminal activities, which

may lead to money laundering risk. Application of money laundering rules may also

be inappropriate for some forms of electronic payments. This may result in legal

problems for non complying to 'knowing your customer' laws.

Banks, international organizations, governments and financial institutions have to

work together to manage all the risks mentioned above which requires a proper

regulatory framework to be put in place. It is critical that partnerships should continue

to enhance consumer trust towards e banking. Banks conducting business online haveto consider security and reliability as their first business priority for customer

retention.

CHAPTER 4 :

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METHODOLOGY

Materials and Methods

Sources of Data

A Descriptive research design has been used to know the potential of E-Banking in

Banking and Financial Industry. In this study qualitative and quantitative technique

will be used. Data collection will be done both from primary research and secondary

research .

Primary Data Collection: A questionnaire will be prepared and personalinteraction done with Banking Personnel .

Secondary Data Collection: The secondary data collection will be done through

internet by logging into interviewed companys website and other references books.

CHAPTER 5 :

ANALYSIS AND CONCLUSION

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Q.1 AWARENESS OF E-BANKING FACILITY GIVEN BY BANKS :-

AWARENESS AMONG PEOPLE

The awareness of e-banking is very much there with in every customer of the bank.

Q.2 USAGE OF THE FACILITY BY CUSTOMERS?

57

y

n

0

10

20

30

40

50

60

70

80

90

100

yes no

Serie


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USAGE DONE BY CLIENTS

The usage of e-banking is almost there within every client .Either ATM OR credit

card something or other is always a service used by them.

Q.3 IS THE FACILITY BENEFICIAL :-

58

VERY STRONG

STRONGLY

FAIR

NOT REALLY

NOT AT ALL


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BENEFITS OF FACILTY

The service of e-banking is preferred by most of customers. They are open towards

the new technology which saves the time and efforts

Q.4 Is the public secured about the E-banking facility given to them?

59

0

10

20

30

40

50

60

70

80

YES NO

Serie


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SECURITY PERCEPTION AMONG PEOPLE

The public have mixed reviews about the security of e-banking. They still feel

insecure while using the facility. The cases in news make them hesitant towards the

security

Q.5 Rating of E-banking by various customers

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RATINGS CUSTOMERS FEEL ABOUT ELECTRONIC

The facility and new trend has mixed views amongst the users. Few feel safe to use

while mixed reviews have also been witnessed by few. The technology needs more

upgradation so that good response is obtained from others

61

05

1015

20253035

UNSA

FE-1

SOME

TIMES U

NSAF

E

NUE

TRAL

SOME

TIMES

SAFE

SAFE

ST

Serie


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E Banking: Changingscenario and

ashish e banking

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