THE INDIAN INTERNET BANKING JOURNEY

Globally, the banking business has always been in the forefront of harnessing

technology to improve its services and efficiency. Banks have been quick to adopt

rapidly evolving electronic and telecommunication technologies to deliver an

extensive line of value added products and services to their customers. By the early

1990s, direct dial-up connections, personal computers, tele banking and automated

teller machines (ATMs) became common in most developed nations. Internet banking

evolved in the mid-1990s when Internet and the World Wide Web began to catch on.

Soon, many major banks in the US and Europe began to use the Internet to provide

banking services.

Internet banking is a web-based service that enables the bank's authorized

customers to access their account information. It allows the customers to log on to the

bank's website with the help of a bank-issued identification and a personal

identification number (PIN).

The banking system verifies the user and provides access to the requested

services. The range of products and services offered by each bank on the Internet

differs widely in their content. Most banks offer Internet banking as a value-added

service. Internet banking has also led to the emergence of new banks, which operate

only through the Internet and do not exist physically. Such banks are called 'Virtual'

banks or 'Internet only' banks.

The products and services offered by the banks on the Internet can be divided

into three types:

• Information Kiosks: It includes providing information regarding various products

and services offered by the bank to its customers and others in general. The bank's site

receives and answers queries of customers through e-mails.

• Basic Internet Banking: It includes enabling customers to open new accounts,

check account balance and pay utility bills.

• E-commerce Banking: Banks function as electronic market places (e-market place)

enabling customers to use their accounts for money transfers, bills payment, purchase

and sale of securities and online real time purchases and payments.

In a typical Internet banking transaction, customers' requests for online banking

information are passed on from Web server to the bank's Internet banking server

through the WWW interface. These requests pass through a firewall before they reach

the Internet banking server. Due to the use of SSL technology, only authenticated

requests reach the Internet banking server. The customer information database is

stored on a bank's server, which is protected by the use of various security tools in

addition to the firewall technology.

The WWW interface is the only media of communication with the Internet

banking server and Internet banking server is the only media of communication with

the customer database, thus ensuring the safety of operation and customer data. When

the customer requests reach the Internet banking server it passes the requests to the

bank server hoarding customer database. The database provides the required

information to the Internet banking server, which is in turn passed on to the web

server, through the firewall, from where the customer is able to access it (Refer Figure

I). This sort of architecture, known as the 'three-tiered architecture' (comprising of a

web server, Internet banking server and customer database protected by firewalls)

creates a controlled environment, which allows quick incorporation of Internet

security technologies.

ICICI bank was incorporated as a commercial banking company, by the

Industrial Credit and Investment Corporation of India (ICICI), in May 1994. The first

ICICI branch was started in June 1994 at Chennai. The bank provides an array of

domestic and international banking services to enable national and international trade

and business, investment and foreign exchange and treasury services.

Right from its inception the bank focused more on incorporating advanced

technology. The bank operated the largest chain of ATMs in the country, which

amounted to more than 450 in 2000.

All the bank's branches were fully computerized and networked through V-SAT

technology. By 1999, the number of branches increased to 65 and the bank plans to

have over 200 branches by the end of 2002.

In April 2000, ICICI became the first Indian bank to be listed on the New York

Stock Exchange. ICICI was always regarded as one of the best private banks to foster

advanced technologies in the banking sector.

As part of its technology drive, in 1997, ICICI launched 'Infinity,' the first Indian

Internet banking service.

The service was launched to reduce transaction cost and offer convenient

banking to customers. This meant enabling the customers to access their bank account

and make transactions at any time. ICICI realized that to make Infinity a success, it

would have to invest heavily in sound Internet banking e-commerce technology.

During 1995-99, ICICI invested Rs 50 million in online banking technology solutions.

In 1997, ICICI bought the 'BankAway' software from Infosys. BankAway was an e-

commerce solution that provided the bank a platform to offer an integrated financial

services portal to the customers.

It offered access to account information, bill payment, cash management, trade

finance and online shopping. Infinity' was initially targeted at the non-resident Indians

(NRIs) to enable them to manage their bank accounts in India through the Internet.

According to the bank's sources, Infinity helped to increase the business generated

from NRI customers from Rs 300 million in 1997 to Rs 1.4 billion in 1998.

The service was also aimed at individuals in the age group of 30 to 50 years working

in the corporate sector and proficient in using technology. However, over the next few

years, the bank enhanced its services to attract other customers as well. As a result, by

early 2000, ICICI had over 110,000 Internet banking customers. In the first half of

2000, ICICI's Internet banking customer base touched 275,000.

On account of the growing competition in the Internet banking sector, ICICI

focused on enhancing and extending its business-to-business (B2B) and B2C services

through tie-ups and acquisitions. The bank entered into a 50-50 joint venture with

Satyam Infoway in December 1999 to offer retail banking products and services on

the Internet.

SUMMARY:

In 2001, a Reserve Bank of India survey revealed that of 46 major banks

operating in India, around 50% were either offering Internet banking services at

various levels or planned to in the near future. According to a research report, while in

2001, India's Internet user base was an estimated 9 lakh; it was expected to reach 90

lakh by 2003. Also, while only 1% of these Internet users utilized the Internet banking

services in 1998, the Internet banking user base increased to 16.7% by mid- 2000.

Many of the major banks like ICICI, HDFC, IndusInd, IDBI, Citibank, Global Trust

Bank (GTB), Bank of Punjab and UTI were offering Internet banking services. Based

on the above statistics and the analysts' comments that India had a high growth

potential for Internet banking, the players focused on increasing and improving their

Internet banking services.

As a part of this, the banks began to collaborate with various utility companies

to enable the customers to perform various functions online. ICICI's 'Infinity,' which

was already a leader in the Indian Internet banking arena, began to allow its customers

to pay their online real time shopping bills. HDFC, through its 'payment gateway'

feature, allowed its Internet banking customers to make online and real time payments

for their purchases.

HDFC also entered into tie-ups with various portals to provide these business-

to-customer (B2C) e-commerce transactions. Centurion bank acquired an equity stake

in the teauction.com portal to bring together buyers, sellers, suppliers, registered

brokers and associations in the tea market and eliminate the need for their physical

presence at various auctions. As more banks entered Internet banking arena, the

competition between the banks also increased. This compelled the banks to focus on

capturing new markets and customers and adopting advanced technology on the

Internet. In the light of these developments, industry watchers remarked that Internet

banking had arrived in a big way. Though it had a long way to go compared to the

global standards, it was beginning to be seen as a replacement for the traditional

banking set up in the future.

IDENTIFICATION OF ISSUES:

Apart from the security issues, there are a host of other problems like:

• PC user base in India is extremely low compared to global standards.

• The Internet user base is limited.

• Lack of infrastructure to advanced technology based banking services.

• The absence of a regulatory framework for Internet banking transactions in India.

• The mindset of the Indian consumer, who prefers personal interactions and is not

very comfortable, doing transactions through the Internet.

• Limited awareness about the potential of Internet banking on the part of banks.

IDENTIFICATION OF ALTERNATIVES:

The internet user base must be advanced and the people are to be educated.

The infrastructure is to be maintained so that the framework of banking system can be

enhanced. Awareness must be created among the people to educate the potential of

Internet Banking.

CHOOSE THE BEST ALTERNATIVES:

The issue of banks not being ready to realize the full benefits of Internet

banking was aptly summed up by a critic, "Much of what is now on display at bank

websites is an embarrassment, to put it politely. The average site has information

about certain products, e-mail contacts of bank department, perhaps the Chairman's

annual general meeting speech as well. A mere information booth. This is definitely

not Internet banking." However, banks are working towards addressing these

problems. The security issues can be tackled by having the bank's systems

technologically equipped to evade operational and security risks. Reputation risks can

be prevented by testing of the system before implementation, developing contingency

plans (to handle system disruptions, system hackers, security lapses and virus attacks)

and creating back-up facilities.

Legal and cross-border risks can be avoided through proper customer

identification devices, information screening techniques, periodic reviews on

compliance with various laws, and gaining knowledge of various national laws

(applicable) and guide the customers through their cross-border dealings. Apart from

ensuring the security of the Internet-based transactions, ICICI is taking steps to

overcome the other hurdles. The bank is tying up with computer manufacturers to

make PCs available to customers at low prices. The bank also plans to tie-up with Sify

to place its ATMs in Sify cybercafes.

In 2000, ICICI opened Internet kiosks (cabins) at its ATMs to enable easy

Internet access to its customers for banking. Many other banks are also adopting such

practices. Analysts claim that Internet banking holds lots of potential with the

emergence of growing Internet awareness among customers, integration of banking

services with e-commerce service, the increasing reach of the Internet and the entry of

global players in the banking sector. Even the Reserve Bank of India has come out

with Internet banking related guidelines. With ICICI already having decided to make

the Internet an integral part of its future business plans and other banks reportedly

following suit, Internet banking seems poised to become an important part of the

Indian banking sector in the years to come.

CONCLUSION:

However, analysts felt the biggest gain was BoM's IT-savvy employees. By

2001, ICICI bank had emerged as one of the leading providers of Internet banking

services in India. The bank was reportedly moving towards becoming a full-fledged e-

commerce company in a couple of years. Nachiket Mor, Head of ICICI Treasury said,

"The Seven-Eleven supermarket chain in Japan has recently applied for a banking

license. This is the way world is moving. If supermarkets get into banking, then it is

also time for banks to get into the selling of consumer durables."