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The Indian Internet Banking Journey Globally, The Banking Business Has

The Indian Internet Banking Journey Globally, The Banking Business Has

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Published by: gautham9944 on Aug 15, 2009
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Globally, the banking business has always been in the forefront of harnessingtechnology to improve its services and efficiency. Banks have been quick to adoptrapidly evolving electronic and telecommunication technologies to deliver anextensive line of value added products and services to their customers. By the early1990s, direct dial-up connections, personal computers, tele banking and automatedteller machines (ATMs) became common in most developed nations. Internet bankingevolved 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 authorizedcustomers 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 personalidentification number (PIN).The banking system verifies the user and provides access to the requestedservices. The range of products and services offered by each bank on the Internetdiffers widely in their content. Most banks offer Internet banking as a value-addedservice. Internet banking has also led to the emergence of new banks, which operateonly 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 dividedinto three types:
Information Kiosks
: It includes providing information regarding various productsand services offered by the bank to its customers and others in general. The bank's sitereceives 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, purchaseand sale of securities and online real time purchases and payments.In a typical Internet banking transaction, customers' requests for online bankinginformation 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 authenticatedrequests reach the Internet banking server. The customer information database isstored on a bank's server, which is protected by the use of various security tools inaddition 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 withthe customer database, thus ensuring the safety of operation and customer data. Whenthe customer requests reach the Internet banking server it passes the requests to the bank server hoarding customer database. The database provides the requiredinformation to the Internet banking server, which is in turn passed on to the webserver, through the firewall, from where the customer is able to access it (Refer FigureI). This sort of architecture, known as the 'three-tiered architecture' (comprising of aweb server, Internet banking server and customer database protected by firewalls)creates a controlled environment, which allows quick incorporation of Internetsecurity technologies.ICICI bank was incorporated as a commercial banking company, by theIndustrial Credit and Investment Corporation of India (ICICI), in May 1994. The firstICICI branch was started in June 1994 at Chennai. The bank provides an array of domestic and international banking services to enable national and international tradeand business, investment and foreign exchange and treasury services.Right from its inception the bank focused more on incorporating advancedtechnology. The bank operated the largest chain of ATMs in the country, whichamounted to more than 450 in 2000.All the bank's branches were fully computerized and networked through V-SATtechnology. By 1999, the number of branches increased to 65 and the bank plans tohave 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 IndianInternet 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 accountand 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 financialservices portal to the customers.It offered access to account information, bill payment, cash management, tradefinance 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 generatedfrom 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 workingin the corporate sector and proficient in using technology. However, over the next fewyears, the bank enhanced its services to attract other customers as well. As a result, byearly 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, ICICIfocused on enhancing and extending its business-to-business (B2B) and B2C servicesthrough tie-ups and acquisitions. The bank entered into a 50-50 joint venture withSatyam Infoway in December 1999 to offer retail banking products and services onthe Internet.
In 2001, a Reserve Bank of India survey revealed that of 46 major banksoperating in India, around 50% were either offering Internet banking services atvarious levels or planned to in the near future. According to a research report, while in2001, India's Internet user base was an estimated 9 lakh; it was expected to reach 90lakh by 2003. Also, while only 1% of these Internet users utilized the Internet bankingservices 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 TrustBank (GTB), Bank of Punjab and UTI were offering Internet banking services. Basedon 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

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