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Project Done By-

Princly Gomes
Roll No – 24
St. Xavier’s College.
Internet Banking

1. Internet – Banking.
2. Internet Banking: Challenges for Banks and
3. What do Computers do in Banks?
4. Credit Card Frauds.
5. Banks Control in Online Banking.
6. ICICI Bank – A Case Study.
7. Recommendations.
8. Suggestions.
9. Role and Significance.

Internet Banking

1: - Internet Banking

 1.1 Internet Banking

a) Introduction
b) Banking service though Internet
c) The Indian Scenario
d) Product & Service offered
e) The future scenario

 1.2 Risk & Rewards

a) Operational Risk
b) Security Risk
c) System architecture & design
d) Reputational Risk
e) Legal Risk
f) Money Laundering Risk
g) Cross Border Risks
h) Strategic Risk
i) Other Risk
j) Risk of unfair completion

Internet Banking

1.1 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
members of public in general. It may receive and reply to customer’s
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

Internet Banking

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

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.

Internet Banking

d) Product and Services Offered: -

 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

 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

 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

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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

 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

 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

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

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

Internet Banking

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 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.

Internet Banking

1.2 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 them from of inaccurate processing of transactions, non-

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

confidentiality, unauthorized access / intrusion to bank’s 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: -
Internet Banking

 Security risk arises on account of unauthorized access to a bank’s critical

information stores like accounting system, risk management system,
portfolio management system, etc.

 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.

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 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 parties action.

 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
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account information especially if, there are, no alternative means of account


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.

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

screening techniques, develop audit trails, conduct periodic compliance

reviews, and 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.

 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 fulfill their obligations due to economic, social or political factors.

h) Strategic Risk: -

Internet Banking

 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

 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

 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

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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.

j) Risk of unfair completion: -

 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
to take advantage over rivals. Any leaks at network connection or operating
system, etc. may allow them to interfere in a rival bank’s 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.

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2: - Internet Banking: Challenges for Banks & Regulators.

2.1 Internet Banking in the United States

• New Risks

2.2 The Basel Committee’s Electronic Banking Group

2.3 e-Finance Oversight

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2.4 Security Controls

2.5 Legal & Reputational Risk Management

2.1 Internet Banking in the United States: -

• An average industry estimates indicates the about 13 million US households

banked online by the end of 2000 – twice as many as in the previous 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: -

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 Internet banking poses risks that are different from those that bank
supervisors customarily dealt with in assessing credit, market, or interest rate

 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 is 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.

2.2 The Basel Committee’s 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 EBG’s work has been to develop risk
management guidance for Internet banking that will guide bankers
and promote effective and consistent bank supervision around the

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o The EBG has identified fourteen Risk Management Principles for

Electronic Banking to promote sound risk management of e-banking.
These principles are intended to help banking institutions expand their
existing oversight policies and processes to cover their e-banking

2.3 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

 In February of this year, the Financial Stability Forum’s 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.

2.4 Security Controls: -

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 Authentication of e-banking customers.

 No repudiation and accountability for e-banking transaction of duties.

 Appropriate measures to ensure segregation of duties.

 Proper authorization controls within e-banking systems, databases and


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

 Establishment of clear audit trails for e-banking transactions.

 Confidentiality of key bank information.

2.5 Legal & Reputational Risk Management: -

 Appropriate disclosure for e-banking services.

 Privacy of customer information.

 Capacity, business continuity and contingency planning to ensure

availability of e-banking systems and services.

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 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

3: - What do Computers do in Banks

The different uses of Information Technology: -

a) Single Window System

b) Any Time Banking
c) Automated Teller machine
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d) Shared Payment Network System

e) Customer Service
f) Telebanking
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

3.1 The different uses of Information Technology: -

a) Single Window System (SWS): -

o 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.

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

o The customer’s 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

 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.

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

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

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

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 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


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

cannot be used in one machine.

d) Shared Payment Network System (SPNS): -

 The SPNS, named SWADHAN, has been sponsored by the Indian Bank’s
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 1st February 1997 and in two years

about 150 ATMs were owned and installed by 38 banks including foreign
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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.

 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
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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 customer’s
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.

 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: -

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• Under home banking the customer is served at his residence and there is no
need for the customer to visit the bank’s premises for a number of routine

• 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:

 PC
 Modem
 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

• When customer contacts the bank o the phone no specific technology is

involved and the service of telebanking is provided to him.

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h) Electronic Fund Transfer (EFT): -

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

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

Telecommunication was the sole provider of Telephone, Telex and Telegram

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 beneficiary’s account after

delay of 2 to 4 days

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

 EFT through Electronic Data Interchange

 IDRBT VSAT Network
 EFT from Point of Sales
 Electronic Cash
 SWIFT- Global System for Funds Transfer
 Electronic Clearing Settlement

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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: -

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.

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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 required

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
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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: -

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 presents 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.

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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
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.
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. Newsletters, phone and address directories
c. Undesirable parties
d. Missing security items
e. Confidential circular on attempted frauds.
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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. Borrower’s 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
will also 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

B) Inter-Bank Applications: -

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.

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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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4: Credit Card Frauds

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4.1 Credit Card Frauds

• Meaning
• Defrauder
• Aware of Credit Card
• Advantages of Credit Card
• Credit Card Frauds

4.2 The Prevention of Frauds

• Duplicate Card
• White plastics
• Banker’s Role
• Cyber Laws
• Altering Sale terminals
• Internet Relays

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• Monitoring Deposit
• Risk Management
• Central Credit Card Clearing House
• Loss of Credit Cards in Transit
• Fraud Consciousness
• Physical Evidence
• Check the handwriting

4.3 How to Accept the Master Card

4.4 How to get Reimbursed
4.5 ICICI Bank: Case Study

4.1 Credit Card Frauds: -

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Meaning: -

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


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.

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,
services or 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..

Internet Banking

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.

Internet Banking

Credit Card Frauds: -

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 the
ingenuity of the future.

4.2 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
Internet Banking

White Plastic: -

The counterfeit credit cards known as ‘white plastics’ are imitations of credit cards
in general aspect.

Banker’s 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

Cyber Laws: -

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: -

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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 full 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

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• The new card holder’s business transactions should be watched for some

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: -

Internet Banking

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.

4.3 How to accept the Master Card: -

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 there’s problem.

4.4: How to get Reimbursed: -

Internet Banking

• 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.

4.5: Credit Card Fraud in ICICI Bank:

ICICI Bank Credit Card Division is a Shame:
I lost my card a few months back and it was used by someone to make a
transaction of about 18k I raised a dispute with ICICI Bank which was settled
against me. After spending a month trying to get a copy of the investigation
report from ICICI Bank customer care and their hallowed and inaccessible
Chargeback Department - I have finally received it, and guess what, it’s an
utter pack of LIES!!

I am not kidding - some of it is plain unbelievable.

Here are some snippets from the report. CM=customer, ME=merchant

“ME told us that CM came to his outlet and taken original charge slip & bill, no
clue found, however the identity of card user was not ascertained, on asking CM of
show charge slip and bill copy he refused to show. “

Wow! I was never asked for a charge slip by the investigator, nor did I have one.
I accompanied the police to Big Bazaar (the merchant), where the police collected
the IMEI codes (the card was used to buy a couple of phones), but not the charge
slips. I went again recently, and I was told that I could not get the charge slip from
the merchant now, without the consent of the bank.

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So the investigator not only turned me into someone who “refused” to show charge
slip (when he has a disputed transaction of 18k!), he has turned the merchant into a
liar as well! So they don’t just screw their retail customers, but even their

CM had not informed field team that he himself had visited to ME ‘BIG
BAZAAR’ for investigation, When asked for charge slips CM refused to show
charge slip and bill copy.

CM was not responding well during Investigation.

The point is reiterated, and evidently “I had not informed the field team I had
visited the merchant”. This when I myself, gave the field team the contact number
of the concerned employee at Big Bazaar. Oh! By the way that amounts to
“not responding well during investigation”

CM is not working anywhere and staying in a hostel in Gurgaon.

This one takes the cake. It literally threw me over the edge. Here I am, a director
of a pvt. ltd. company, staying with my parents in Gurgaon - he turns me into an
unemployed hosteller! Phew! Unbelievable. And this is when the investigator
visited me at my residence!

So, you see what a fraud ICICI Bank credit card division is. Until now, my
concerns were around long waiting times, long turnaround times - but this takes it
to a whole new level.

5: - Banks Control in Online Banking

Internet Banking

5.1 Will Banks Control Online Banking: -

• Internet Banking in India

• Real threats
• Online
5.2 Banking in the Cyber world: -
• Internet Purchases without Payment Gateways
• Risk of Gateway

5.1 Will Banks Control Online Banking: -

Internet Banking

Internet Banking in India: -

Online banking is expected to explode in the next 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
 Shift from one-stop shopping to unbundled product purchases

Internet Banking – An Overview: -

Internet Banking

Internet Banking sites can be segregated into four categories from Level I, which
offer just minimum functionalities such as access to one’s 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

Internet Banking

consumer by any authorized company that wishes to provide banking


Online: -
An online service that merely mimics an offline one has a second problem as well;
it doesn’t 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 didn’t 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 system provides information about all aspects, Information
providing on the demand of the subscriber.

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

sharing of data through internets, extranet and internet.

Internet Banking

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

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.

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


This online information system provides online courses through internet, broad
band satellite connection.

The recent online course is provided by XLRI, (Xavier Labour Relations Institute)
joined hands with Hughes Escorts communication limited. Their main course is on

Hughes Escorts is the Indian Operations of US – based communication major,

Hughes network systems, which is a wing of Hughes electronics. This job is being
done by Directing Global education which is joint venture between Hughes
network systems and one touch knowledge systems.

This job arrangement with Hughes Escorts to offer Management training on

satellite platform will take expertise of XLRI faculty beyond the borders of their

This information has live videos, voice and transmission to classes through Hughes
broadband satellite network. Interaction is through voice and data.

This course is conducted across through four metros, Trichy, Bangalore,

Hyderabad, Chandigarh, Pune, Kochi, Coimbatore and Madurai.

This course is targeted at working executives

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This country studies by online service is from 1988 onwards. In this, the study of
every country is made.

B-B (Business – Business E-Commerce). Despite the entire buzz, we still don’t
know about what makes B-B. there is a growing relation that B-B will take years to
mature, and the rate of adoption – even if companies deliver a huge value equation
improvement – will be gradual because it requires system and individuals to act in
fundamentally new ways.

The next thing after B-B is enabling technologies to incorporate more sophisticated
back-end integration system, financing options and logistical support.

In India, NASSCOM puts the value of online B-B transactions at Rs. 400 crore in
1999-00 of total E – Commerce of Rs. 450.

But the question is how much B-B-E-Commerce is really happening in India? It is

hard to quantify in terms of real numbers with no established data available in
specific reference to the Indian context. But there is a possibility of this business
assuming a huge proportion in future.

B-B has been happening all through and a new channel has been opened with the
advent of the Internet. Obviously organizations will switch over to this channel for
the cost – effectiveness it provides. The market is emerging in the country and it
will be a boom time in the next year.

Internet Banking

5.2 Banking in the Cyber world: -

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
What’s a Payment Gateway?

A payment gateway is software that supports multiple payment models

simultaneously in a safe and secure manner.

Internet Banking

Funds can be transferred through credit, debit and smart cards, cheques, electronic
payment wallets and even direct debits through a central payment switch.

Put simply, a payment gateway enables on-line commercial transactions on the

internet on a secure system, which have firewalls against hacking.

Risk of Gateways: -

• Currently, in India – HDFC Bank and ICICI – have launched payment

gateways for business to customer (B2C) transactions.

• Payments can be effected through credit cards or through directly debiting

the account of the customers of the respective banks.

• Some payment mechanisms on the Internet are not safe, as they are in the
open-loop where a merchant portal can see the credit card number.

• This is unsafe for credit card holder and is susceptible to fraud as his number
can be physically seen.

• The dust is yet to settle in the B2C payment gateways, but action is already
heating up in the business to business (B2B) arena.

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• Besides HDFC Bank and ICIC, Global Tele-System and a few other non-
bank companies are toying the idea of launching payment gateways for inter
bank and B2B transactions.

• No prizes for guessing who they are targeting, Nationalized banks, of


Internet Banking


6.1: ICICI Bank and Sify for online distribution of retail banking
products & services.
In a major development in the Internet world, ICICI Bank, the banking subsidiary
of ICICI Ltd. (NYSE: IC and IC.D) and Satyam Infoway Ltd. (NASDAQ: SIFY)
announced the setting up of a new “.COM” company for on-line distribution of
retail banking products and services on the Internet. This landmark agreement
marks the coming together of India’s first Internet Banking provider, ICICI Bank,
and India’s largest private ISP and mega-Portal, Satyam Infoway, to create a
unique partnership between a major Bank and a mega-Portal. The marriage
between banking and portals is expected to be a win-win potent combination,
which is expected to result in improved customer orientation, lower distribution
cost, long-term customer relationships with ease of banking wherever and
whenever the customer wants it and enhanced profitability. The range of retail
banking products to be distributed through the portal would include savings
accounts, current accounts, fixed deposits, bill payments and other retail banking
products that ICICI Bank may offer through this on-line channel.
The surge in demand for e-commerce related services stems from the rapid growth
in Internet penetration in the country and a fundamental change in the business
paradigm. The two companies would therefore also explore several opportunities
to complement each other’s strengths to capitalist on the opportunities in e-
commerce. This would include providing a platform for trade facilitation and
payments over the Internet using innovative banking products of ICICI Bank. SIFY
has a buyer to seller ordering/selling website,, which is on-
line except for the payments that are still physical. ICICI Bank has developed an

Internet Banking

Internet based ‘business to business’ payment module for purchasers and sellers to
effect payments online. A synergistic offering of these two products would be made
so that such customers/users can complete the entire transaction and payments
The two companies would expect to co-operate wherever feasible to extend the
reach and channels for distribution of financial products from ICICI Bank and
Internet products from SIFY. ICICI Bank, as a part of its “Click and Brick”
strategic focus would set up ATMs at the Satyam Access Points and Cyber Cafes,
thereby increasing its reach across the country. It would also offer Satyam Internet
terminals at its branches, enabling visitors to surf the Internet, thereby attracting
new customers to branches. The two companies shall examine further business
opportunities, which would effectively synergies the financial services strength of
ICICI Bank and its Affiliates and the technological expertise of Satyam Infoway
and its Affiliates. ICICI Bank and Satyam Infoway through this partnership will
play a strategic role in providing revolutionary e-commerce solutions in India.
The memorandum of understanding was signed today between Mr. H.N Sinor,
Managing Director & CEO of ICICI Bank and Mr. R. Ramraj, Managing Director
of Satyam Infoway.
ICICI is a diversified financial services company offering a wide range of products
and services to corporate and retail customers in India. ICICI Bank, a subsidiary
company has been the pioneer of Internet banking in India. ICICI Bank has been
gearing itself for the opportunities that would be created from the e-Commerce
Satyam Infoway Ltd. Is the leading integrated Internet and e-commerce company
operating in India. SatyamOnline, the most comprehensive portal site of Indian
origin is one of the key offerings from SIFY in the business to consumer segment.
Recently it entered into an agreement to acquire IndiaWorld Communications
Internet Banking

Private Limited, which would result in the integration of IndiaWorld’s popular

websites like, and with SIFY’s portals. The
combined portal would be the largest India related Internet portal.

Internet Banking

6.2: Recent E-Mail Fraud:-

ONLINE fraudsters targeted ICICI Bank customers through spam mail that asked
them to disclose passwords and other information, but the bank said no financial
loss was reported so far.

E-mails from `' with the subject `Important information from

ICICI Bank' and `Official information from ICICI Bank' started circulating from
Monday. Once opened, the mail asked customers to click on a link.

"For security purposes your account has been randomly chosen for verification. To
verify your account information we are asking you to provide us with all the data
we are requesting. Otherwise we will not be able to verify your identity and access
to your account will be denied. Please click on the link below to get to the ICICI
secure page and verify your account details. Thank you," the e-mail said.

The ingenuity of the e-mail is striking as when clicked on the link, it opens a Web
page that is an exact replica of ICICI Bank's and simultaneously opens the bank
Web site.

Customers were asked to key in their identification number, login and fund transfer
passwords. The link, however, didn't work on Wednesday.

An ICICI Bank spokesman said so far no financial loss was reported because of the
fraud. "It's not easy to say how many of our customers have got it. First, we felt it
will be a large number. But now our assessment is it's a small number," the
spokesman said.

ICICI Bank sent e-mail to its customers, warning them about the fraud and urging
not to respond to such mails. "Such fraudulent communication may also be sent via
SMS or the phone," the bank said.

The ICICI Bank spokesman said the bank has alerted the cyber crime cells about
the spam mails. But the origin of the spam mail had not been traced, he said.

Such fraudulent mails are becoming rampant across the world as Internet banking
has grown in popularity.

Internet Banking

6.3 Online fraud: 60-yr-old seeks police action against ICICI Bank
Karve Nagar resident Vinod Malhotra suffered a loss of Rs 95,000, which was
transferred through 19 phone bank transactions in just two minutes

While cyber criminals are on the prowl, the increasing number of online fraud has
also put a question mark on the security system of banks. Vinod Malhotra, a 60-
year-old citizen from Karve Nagar, who lost Rs 95,000 to an online fraud, gave a
letter to the Shivajinagar police station today requesting the investigation officer,
police sub inspector S B Ghorpade, to book the ICICI Bank authorities in the case.

The police have so far booked Bhavin Gunwantilal Kakadia of Chira Bazaar,
Mumbai. That is because Malhotra’s money was transferred into Kakadia’s account
on June 2. But Malhotra has alleged that the loss occurred because ICICI Bank
failed to protect his account.

Malhotra received a fraudulent e-mail on April 18, carrying a logo of ICICI Bank,
seeking his credit card account details. Taking it to be genuine request, the elderly
citizen submitted the details. He then sent an e-mail to ICICI Bank to check if they
had actually sought the information.

On April 20, the bank replied that it was a fraudulent email. But on April 21,
fraudsters used his credit card for booking tickets worth Rs 4,000 for Adlabs
theatre, Mumbai. On April 21, the credit card was again used for online shopping
worth Rs 3,083 through a US-based website.

Malhotra received the customary SMS alert about this transaction. He immediately
contacted the bank and submitted details of the illegal transactions. The bank
replied that it was a “phishing” attack. The bank then blocked his credit card and
issued a new one, assuring him that his account would be protected properly.

But again on June 2, Rs 95,000 was transferred from his savings account. A
stunned Malhotra filed a complaint with the Kothrud police on June 3.

The case was transferred to Shivajinagar police station since his account was with
the Shivajinagar branch of ICICI Bank. “When I went to the bank with the police,
a senior officer from the Operations Department said that money was transferred
from my savings account through phone banking,” said Malhotra.

Internet Banking

“The officer said that my mobile number was changed from the system. The
fraudster replaced it with an Airtel mobile number from Punjab and then
transferred money to Kakadia’s account through 19 phone banking transactions of
Rs 5,000 each in just two minutes,” he added. “The money was further transferred
to a private business firm’s account in Mumbai and withdrawn by the fraudster
using cheques,” he added.

Malhotra said that he had given his mobile phone number to ICICI Bank only for
receiving SMS alerts on account details. “I never used the net banking and phone
banking facility. I don’t even remember the passwords required for these facilities.
So there was no chance of me submitting the passwords to any phishing mail or
person. I believe the fraud could have been avoided if ICICI Bank had not failed to
keep vigilance on its internal security system,” he said.

Malhotra communicated with K V Kamath, the MD and CEO of the bank,

requesting him to investigate the case and repay his money. After a 30-day internal
investigation, ICICI Bank replied that it was not at fault and would not compensate
for the loss. So Malhotra lodged a first information report (FIR) with the police on
July 12. On Tuesday, the bank replied that his case would be re-investigated.

When contacted, ICICI Bank Head (Corporate Communications) Charudutta

Deshpande said, “ICICI Bank has a fool-proof security system. But we don’t doubt
the genuineness of our customers. Proper investigations will be done.”

Police Sub-Inspector Ghorpade said, “We have dispatched a team to Mumbai for
investigations. But there is not much progress because the bank has not yet given
us complete information about the suspects.” “We have not yet booked the ICICI
bank officials. But we would be interrogating bank officials if required,” he said.

Pune police Cyber Committee Coordinator Sudam Choure said, “There have been
cases in the past where secret information was leaked from banks. Usually, the
bank employees on contract basis or courier companies were involved in the
frauds. There is need for the banks to increase their internal security system.”

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Recommendations: -

• Technological development has been nothing less than explosion. Banks

have been harnessing such technological innovations on one hand and
adapting themselves to such changes on the other hand.

• The most significant event has been development of semi-conductor

technology, which has resulted in spectacular expansion of automation.

• Processing, storage and transmission of information is very essence of

banking and financial services.

• The electronic technology has bought revolutionary changes in these areas.

The elimination of paper as medium for processing and storage of
transactions / information has been a great event. Large volume of
information can be processed, stored and retrieved very economically at
terrific speed, which is not possible manually.

• The space required for managing enormous volume of information has been
reduced dramatically.

• With the revolution in telecommunication technology, information can be

made accessible from remote distance at lightning speed. The final output of
information after manipulation and analysis can be printed by printer at high
speed directly from computers.

Internet Banking

• Thus, the computer now has the ability to retrieve data or update files
instantaneously. Subsequently with the development in telecommunication,
Local Area Network (LAN)/Wide Area Network (WAN) have been

Internet Banking

Suggestions: -

 To prevent online banking from remaining an expensive additional channel

that does little to retain footloose customers, banks must act quickly.

 The first and most obvious step they should take is to see to it that the basic
problem fueling dissatisfaction have been addressed.

 After repairing this basic deficiency, banks must ensure that their services is


 Obviously, it should include checking, savings and brokerage services,

which anchor customers to the institution.

 In addition, to meet the challenge of online brokerage and other new

entrants, banks would need to add “supermarkets” selling products such as
mortgage, mutual funds and insurance.

Internet Banking


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 management
information 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 favour and enhance efficiency.

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. Internet - 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. Internet - Banking can increase the
easy access of internet facilities among the masses which would raise 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 assets.

Internet Banking

Conclusion: -
Technology innovation and fierce competition among existing banks have enable a
wide array of banking products and services, being made available to retail and
wholesale customer through an electronic distribution channel, collectively
referred to as e-banking. The integration of e-banking application with legacy
system implies an integrated risk management approach for all banking activities
of a banking institution. Latest recommendations of Basle Committee recognize
that each bank’s risk profile is different and requires a tailored risk mitigation
approach appropriate for the scale of e-banking operations, the materiality of the
risks present and the willingness and ability of the institution to manage their risks.
This implies that a “one size fits all” approach to e-banking risk management
issues may not be appropriate.
Banks have traditionally been in the forefront of harnessing technology to improve
product and efficiency. Technology is altering the relationships between banks and
its internal and external customers. Technology has also eroded the entry barriers
faced by many industries. With one time investment, technology has brought about
superior products and channel management with a special focus on customer
relationship. The incremental costs incurred for expansion and diversification are
also more beneficial.

The major driving force behind the rapid spread of e-banking is its acceptance as
an extremely cost effective delivery channel. But on the flipside, it is associated
with risks such as reputation risk, security risk, cross-border risk and strategic risk,
which are unique to e-banking. Banks need to have an effective disaster recovery
plan along with comprehensive risk management tool is significant not only to the
bank but also to the banking system as a whole. All these issues underscore the

Internet Banking

importance of sound supervisory policies and high level of international co-

operation among the bank regulators. The Basle Committee on banking
Supervision has taken the lead in this area through the creation of its Electronic
Banking Group – a group comprising 17 central banks and bank supervisory
agencies in the late 1999. The main focus of this group has been to develop sound
risk management practices.
Internet has created plenty of opportunities for players in the banking sector. While
the new entrants have the advantage of latest technology, the good-will of the
established banks gives them a special opportunity to lead the online world. By
merely putting existing service online won’t help the banks in holding their
customer close. Instead, banks must learn to capitalize their customer’s different
online financial-services relationships. The article “Will Banks Control Online
Banking?” focuses on how banks have to reinvent their role to remain as their
customers’ preferred bank.

Coming home, India is on threshold of a major banking revolution with the

invasion of net banking. With the concept of payment gateway coming in, banks
are vying with one another for the lion’s share in the market. Highlighting the
benefits of payment gateway over the open-loop payment mechanism, the article
“Banking in the Cyber worlds” gives a brief report of the tug of war between the
two major Indian e-banking players.

Internet Banking


• O’ Brien James. A, Management Information System, Galgotia Publication

• Muedic & Ross, Management Information System

• Lucae, Management Information System

• Sen, Management Information System

• Indian Banking, S. Natarahan and R. Parameswaran

• Banking – In the New Millennium, ICFAI University


• Special Thanks to ICICI BANK – MALAD BRANCH