University of Dhaka

An Assignment On The Trend on E-Banking Of Bangladesh

Retail and E-Banking

Course Id No: 304 Dept. of Banking

Submitted To
Mr. Mohammad Ariful Islam

Lecturer
Department of Banking

Submitted By Tanvir Ahmed ID No: 16-009

BBA Batch: 16th Dept. of Banking

Date of Submission: 26 January, 2012

Introduction:
Internet technology has brought a revaluation in our conventional banking system. Now it is an era of electronic banking. Electronic banking is the banking activities performed through the electronic means, i.e., using telecommunication network, web technology, computers, etc. In 1961, First National city bank of New York introduce successful electronic system based transferable deposition certificate. With the advancement of technology, the first phase of E-banking was Electronic fund transfer (EFT).

E-banking is now a global phenomenon. It is an invaluable and powerful tool driving development, supporting growth, promoting innovation and enhancing competitiveness. Technological innovations have been identified to contribute to the distribution channels of banks and these electronic delivery channels are collectively referred to as electronic banking. The evolution of banking technology has been driven by changes in distribution channels as evidenced by automated teller machine (ATM), Phonebanking, Telebanking, PC-banking and most recently internet banking. E-banking can provide speedier, faster and reliable services to the customers for which they are relatively happy. E-banking services not only can create new competitive advantages, it can improve its relationships with customers.

Electronic banking does not mean only 24 hours access to cash through an Automated Teller Machine (ATM) or Direct Deposit of pay checks into checking or savings accounts as many consumers may think. Electronic banking (e-banking) involves many different types of transactions; it is a form of banking where funds are transferred through an exchange of electronic signals between financial institutions, rather than exchange of cash, check or other negotiable instruments.

The developed country as a part and parcel of their economy is now using electronic banking or online banking. As like as the financial institutions in Bangladesh seem to increasingly adapting e-banking and improving banking capabilities.

What is E-Banking?
The following chart exhibits the definition of E-Banking

E-commerce E-finance E-money

E-banking ATM Services Any branch banking Internet Banking Virtual Banking SMS banking Wireless Application Protocols Telephone Banking Electronic Fund Transfer (EFT) SWIFT Channel Other electronic delivery channels

other on line Financial Services and Products

Growth E-Banking in Bangladesh:

E-Banking satisfied customer demand in banking activities electronically throughout the world. At present, several private commercial banks (PCBs) and foreign commercial banks (FCBs) in Bangladesh offered limited services of telebanking, internet banking, and online banking facilities working within the branches of individual bank in a closed network environment. The FCBs played The pioneering role with adoption of modern technology in retail banking during the early 1990s whereas the state owned commercial banks (SCBs) and PCBs came forward with such services in a limited scale during the late 1990s.

Present Status of E-banking in Bangladesh:

At present most of the banks in Bangladesh are using electronic banking services in this and other forms. Nevertheless, the banks can be profitable if they use E-banking. Local and foreign private banks operating in Bangladesh are the pioneers to introduce the electronic banking facilities in the country. Among the indigenous Banks, the private banks are ahead of the public banks. Bangladesh Bank, the Central Bank of Bangladesh, is also trying to formulate the structure of electronic banking facilities. The e-banking services provided by the banks in Bangladesh could be divided in three groups: ATM Services, Internet Banking, and SMS Banking. The scopes of these services are vast, but the banks in Bangladesh do not provide all of these services. Some of the banks provide these or other services and charges fees for ATM transaction, SMS and I-Banking while the western banks inspire clients to do ATM banking without fee or a minimum fee to reduce banking expense. The existing form of e-banking that satisfies customer demand in banking activities electronically throughout the world are:

PC banking or PC home banking:

PC banking refers to use of personal computer in banking activities while under PC home banking customers use their personal computers at home or locations outside bank branches to access accounts for transactions by subscribing to and dialing into the banks' Internet proprietary software system using password. PC banking or PC home banking may be categorized into two types such as
online banking internet banking

Mobile banking:
Mobile banking (also known as M-banking or SMS banking) is a term used for performing balance checks, account transactions, payments etc. via a mobile device such as a mobile phone. Mobile banking is most often performed via SMS or the Mobile Internet but can also use special programs called clients downloaded to the mobile device. The standard package of activities that mobile banking covers are: mini-statements and checking of account history; alerts on account activity or passing of set thresholds; monitoring of term deposits; access to loan statements; access to card statements; mutual funds/equity statements; insurance policy management; pension plan management; status on cheque, stop payment on cheque; ordering check books; balance checking in the account; recent transactions; due date of payment (functionality for stop, change and deleting of payments); PIN provision, change of PIN and reminder over the internet; blocking of (lost/stolen) cards; domestic and international fund transfers; micropayment handling; mobile recharging; commercial payment processing; bill payment processing; peer to peer payments; withdrawal at banking agent;3 and deposit at banking agent. Despite huge prospects, only a few banks adopted mobile banking in Bangladesh during the last year.

Tele-banking:
Tele banking refers to the services provided through phone that requires the customers to dial a particular telephone number to have access to an account which provides several options of services. Despite huge potential, tele banking services have not been widened enough in daily banking activities in Bangladesh. Only four banks so far provide a few options of tele banking services such as detail account information, balance inquiry, information about products or services, ATM card activation, cheque book related service, bills payment, credit card service and so on. Funds transfer between current, savings and credit card account, stock exchange transactions etc are still inaccessible through tele banking in Bangladesh.

Banks using E-Banking in Bangladesh:

Now-a-days many banks of Bangladesh is using E-banking in their banking activities. The name of the Banks that are given below:

Dutch-Bangla Bank Limited (DBBL) Premier Bank Islami Bank Bangladesh Limited (IBBL) IFIC Bank Standard chartered grind laysbank Ltd HSBC Eastern bank limited Bank Asia BRAC bank Arab Bangladesh bank Ltd

E-Banking Products and Services:

E-Banking products and services can include wholesale products for corporate customers as well as retail products for individual customers. Ultimately the product and services obtained through internet banking may mirror products and services offered through other bank delivery channels. A brief description of retail and wholesale products and services are given below:

Automated Teller Machine (ATM) Debit Card Credit card Point of sale Check Truncation Home Banking Retail Automated clearing house service Wire Transfer Corporate Automated Clearing House Security measures of E-Banking Encryption Decryption

Secure socket layer Authentication

Advantages of E-Banking in Bangladesh:

There were a substantial number of educated unemployed youth forces, with ability to read and write English exist in the country. They trained within a required skill in a short time. So it is very easy to adopt E-Banking in the banking activities in all banks of Bangladesh. Moreover there have some advantage of E-Banking. The advantage is given below:

Short term benefits:

Reduce extra time Increase productivity and efficiency Eliminate duplication and wastage; Cut down maintenance Shortage cost Curtail security cost

Long term benefits:

Create new opportunities of jobs for jobless participate in the countrys economic health proper planning and monitoring Proper use resources

Benefits from the banks point of view:

From the banks view point, the first benefits for the banks offering e-banking services was better branding and better responsiveness to the market. The other benefits were possible to measure in monetary terms. The main goal of every company was to maximize profits for its owners and banks were not any exception .Automated e-banking services offered a perfect opportunity for maximizing profits.

Benefits from the customers point of view:

The main benefit from the bank customers point of view was significant saving of time by the automation of banking services processing and introduction of an easy maintenance tools for managing customers money. The main benefits of e-banking were as follows:

Increased comfort and timesaving-transactions Reduced costs Speed Funds management

Economical benefits:
E-banking served so many benefits not only to the bank itself, but also to the society as a whole Ebanking made finance economically possible by: Lower operational costs of banks Automated process Accelerated credit decisions Lowered minimum loan size to be profitable.

Potentially lower margins by: Lower cost of entry Expanded financing reach Increased transparency.

Also Expand reached through self-service by: Lower transaction cost Make some corporate services economically feasible for society Make anytime access to accounts and loan information possible.

Challenges of E-Banking in Bangladesh:

Generally it is believed that banks in Bangladesh are facing different problems adopting e-banking. Among them some problems are described in below:

1. Inefficiency and lack of adequate knowledge:

Inefficiency and lack of adequate knowledge of the top management of the last generation about e banking may have to be put at the first place. The top management set the way for future development. For the change they must have understood its significance and prospect. Only so, proper strategic plan could be done, appropriate adjustment with changing national and international business and technological environment could be made, the coming challenges from the national and international competition successfully faced, and the market share retained and gained.

2. Lack of communication channel:

The lack of communication channel and technological and technical infrastructure support may be seen as the second crucial challenges of e-banking in Bangladesh. It is not enough that there are enough communication channels, but they must be efficient, competitive, competent, cost effective and supportive to the services. In the millennium of ICT every nation has to think global, so worldwide efficient networking and WAP have to be ensured.

3. Ensuring mature technology:

Ensuring mature technology is also very important for successful introduction of the e-banking which includes adequate software. Modern technology is available but frequently very costly, but the countries like Bangladesh have other decisive comparative advantages that could be used to compensate the cost of the modern technology. In this way, the modern technology could be made economically viable, costeffective and competitive even in the world market.

4. Qualified human resource:

Qualified human resource is another factor that has to be considered, which means experts have to be made available in the market. In the long run such services cannot be made competitive with hired or imported human resources. So, respective educational institutes must be established for the supply of the

experts for the management of the hard- and software of the sectors. It is expected that a part of the existing employees both from the rank and file may resist the change. To motivate and integrate them in the change, training and reorientation program must be launched.

5. Security of the services:

Security of the services is very important to popularize it. To protect the service from piracy and fraudulency reliable security systems must be ensured. In this regard, government, banks, and Bangladesh Bank must work together. So and so, ways and means must be found to protect fraud and money laundering but at the same time ensuring fund transferring.

6. Acceptance of the services by the clients:

The success of the e-banking depends on the acceptance of the services by the clients of banks. So the users of the service must be made aware of it. First of all the services must cost effective and financially genuinely attractive to the clients. The technology and the services must be cheap, user-friendliness, easy to navigate, and simple to use

7. Market size:

The success of the e-banking depends on the market size because the investment must also be economically viable to the banks. In this relationship, the size of population of Bangladesh with 155 million people should be considered as encouraging. However, they must have a minimum literacy grade to use the user-friendly services of e-banking. The literate and half-literate people must the employed and earn a minimum income to have interest in the e-banking services. The success of e-banking in Bangladesh or anywhere else depends on the level of economic and social development standard. It means, however, not that one must wait for another; on contrary one should help the progress of other.

Policy Implications:
The comprehensive set of e-banking products can help us run our business more effectively by automating many of our critical banking activities and interacting electronically with our bank. Initial cost of e-banking may be high, but it can be recovered within a few years. Electronic banking may play a vital role in order to promote an automated service to the potential customers. Ministry of finance can also play some role for conveyance. Arrange monthly seminar in the banks or in the training academy of the banks to make awareness about the new technology available in banks. Electronic security and viability may require taking faith from the potential clients. Communication should be liberalized for technological advancement. Bank should develop own online software rather depending on other vendors.

Conclusion:
A well functioning e-banking network is dependent on availability of a backbone network connecting the whole country; reliable and secure information infrastructure including telecommunication infrastructure; ICT penetration in the banking sector; skilled operational personnel; and legal and regulatory framework. The government, Bangladesh Bank and scheduled banks are related to these issues. Therefore, both individual and joint efforts are needed to overcome the constraints in promoting e-banking in the country. In respect to technology adoption, the PCBs and FCBs have attained greater success relative to other bank categories but their coverage is concentrated mainly in urban and semi-urban areas. The rural parts of Bangladesh still remain outside of their services. Since the SCBs and SBs have branches throughout the country including the rural areas, penetration of technology in banking activities of these two categories of banks are crucial to wider spread of e banking services. For the purpose, the management of these banks might allocate a part of their yearly profit for ICT penetration in banking activities and human resources development supported by fixed targets.

Recommendation:
Some recommendations are given below:

E-banking services should try to mobilize more deposit schemes through better marketing and incentive measures. E-banking system should be more flexible. E- Banking should develop their communication among branches. ATM booths should be increased. The decision making process should be faster. SME section of e- banking should be more flexible. E-banking service should be according to the customer expectation and satisfaction. E-banking services have to resolve the entire problem very quickly that customer face in the online transaction. The bank should arrange the demonstration programs for the clients to enjoy the services properly. Government should be pioneer to develop the IT infrastructure in Bangladesh.

Reference:
Jannatul Mawa Nupur (Sep, 2010) E-Banking and Customers Satisfaction in Bangladesh: An Analysis. International Review of Business Research Papers Volume 6. Number 4. Pp. 145 - 156

Rahman, M. (2008), Innovative Technology and Bank Profitability: The Bangladesh Experience, Working paper series 0803, Research Work, Policy Analysis Unit (PAU), Bangladesh Bank, (www.bangladeshbank.org.bd).
Dr. Shyamapada Biswas, Abu Taleb, and Salman Salem Shinwary,Electronic Banking in Bangladesh:Security Issues, Forms, Opportunities and Challenges, Canadian Journal on Scientific and Industrial Research Vol. 2 No. 5, May 2011

A. H. M. Saidul Hasan1, Md. Azizul Baten2*, Anton Abdulbasah Kamil2 and Sanjida Parveen3,Adoption of e-banking in Bangladesh: An exploratory study. African Journal of Business Management Vol. 4(13), pp. 2718-2727, 4 October, 2010
(http://www.academicjournals.org/AJBM)