Electronic Banking – Mapping of Latest

Range of Products and Services –

Terminologies, Comparative Analysis

submitted By

Melissa Jose

Kannan Thampi

Sujilesh

Sapna

Sabitha

Lakshmy
INTRODUCTION

E-banking is a generic term for delivery of banking services and products through electronic
channels, such as the telephone, the internet, the cell phone, etc. The concept and scope of E-
banking is still evolving. It facilitates an effective payment and accounting system thereby
enhancing the speed of delivery of banking services considerably. While E-banking has
improved efficiency and convenience, it has also posed several challenges to the regulators
and supervisors.

HISTORY

Computer has eased the human life. Every day new dimensions of its utility are emerging. E-
Banking is one of the gifts to human beings by computer technology. Use of computers have
automated banking process and thus has given birth to e-Banking.

E-Banking is a fast spreading service that allows customers to use computer to access
account-specific information and possibly conduct transactions from a remote location - such
as at home or at the workplace.

Electronic banking started after Second World War with the use of proprietary software and
private networks.

But the whole credit of making e-Banking big hit goes to Internet.
Internet made e-Banking trustworthy and useful. International trade has increased
significantly in post world war period and with it monetary transactions between different
countries have increased. E-Banking has facilitated trading between distant corners of the
world without worrying about monetary transactions.

E-commerce has grown exponentially over last 30 years. Electronic Data Interchange (EDI)
and Electronic Funds Transfer (EFT) were introduced in the late 1970s, to send commercial
documents like purchase orders or invoices electronically.
In 1980’s e-Banking got a new dimension by the use of credit cards, Automated Teller
Machines (ATM) and telephone banking. This was the revolutionary period in e-Banking.
Now whole Commerce seems to be shouldering on these electronic systems.

DEFINITION

E-banking is a form of banking in which funds are transferred electronically between

financial institutions instead of cash, checks, or other negotiable instruments being physically
exchanged. The ownership of funds and transfers of funds between financial institutions are
recorded on computer systems connected by telephone lines. Customers of the financial
institutions can access their records using a password or personal identification number
(PIN).
REQUIREMENTS OF E-BANKING

E-Banking has certain features which give it edge over traditional banking system.
Features which make it so popular are –

Real time banking- Unlike traditional banking which suffers from time consuming
procedures, e-Banking provides real time banking to the customers.
You get all the relevant information about your account instantly.
You can access all the details about your account sitting at home or at any distant location. E-
Banking has turned whole world into a small village.

24/7 banking- E-Banking has removed the time constraint from banking. Now you can
withdraw cash or get any banking facility anytime. You are not required to ask bank
employees for it. Electronic system will do all of this for you instantly.

Banking from anywhere- Don’t worry if you are sitting in Middle East country and want to
check your account in New York. E-Banking certainly leaves no room for blaming the
distances. Smart banking is ready to serve you anywhere, anytime.

Safe and secure Banking- Electronically enabled banking is more immune to security and
safety related problems. Password Based Encryption (PBE), Secure Socket Layer (SSL),
electronic signatures and electronic tokens gives a high level of security.
Any malfunctioning or any inconsistency in your account can be traced easily. This makes e-
Banking more reliable.

Easy Loans, Instant Loans- Use of smart cards, debit cards, credit cards has eased you from
hatred, time consuming loaning procedures. Your banks provide you instant loans. No need
to keep cash with you at all, a small chip card has replaced piles of cash.
Certain web sites provide facility of online loaning. You can get instant loan there, just by
filling a small form.

High Performance and flexibility- E-Banking is a high performance system satisfying its
customers for their every banking related queries and desires. What makes it more interesting
is its flexibility. E-Banking is using everyday advancements in technology, which makes it
smart and banking system of today and tomorrow. There is also a Stress on branchless
banking and increasing volume of banking transactions are also considered during this.

SCENARIO IN INDIA

Liberalization brought several changes to Indian service industry. Probably Indian banking
industry learnt a tremendous lesson. Pre-liberalization, all we did at a bank was deposit and
withdraw money. Service standards were pathetic, but all we could do was grin and bear it.
Post-liberalization, the tables have turned. It's a consumer oriented market there.

Technology is revolutionizing every field of human endeavour and activity. One of them is
introduction of information technology into capital market. The internet banking is changing
the banking industry and is having the major effects on banking relationship. Web is more
important for retail financial services than for many other industries.

Retail banking in India is maturing with time, several products, which further could be
customized. Most happening sector is housing loan, which is witnessing a cut-throat
competition. The home loans are very popular as they help you to realize your most cherished
dream. Interest rates are coming down and market has seen some innovative products as well.
Other retail banking products are personal loan, education loan and vehicles loan. Almost
every bank and financial institution is offering these products, but it is essential to understand
the different aspects of these loan products, which are not mentioned in their coloured
advertisements.

PLASTIC MONEY
Plastic money was a delicious gift to Indian market. Now several new features added to
plastic money to make it more attractive. It works on formula purchase now repay later.
There are different facts of plastic money credit card is synonyms of all.

Credit card is a financial instrument, which can be used more than once to borrow money or
buy products and services on credit. Banks, retail stores and other businesses generally issue
these. On the basis of their credit limit, they are of different kinds like classic, gold or silver.

Charged cards-these too carry almost same features as credit cards. The fundamental
difference is you cannot defer payments charged generally have higher credit limits or
sometimes no credit limits.

Debit cards-this card is may be characterized as accountholder's mobile ATM, for this you
have to have account with any bank offering credit card.

Over the years, the banking sector in India has seen a no. of changes. Most of the banks have
begun to take an innovative approach towards banking with the objective of creating more
value for customers and consequently, the banks. Some of the significant changes in the
banking sector are discussed below.

MOBILE BANKING
Taking advantages of the booming market for mobile phones and cellular services, several
banks have introduced mobile banking which allows customers to perform banking
transactions using their mobile phones. For instances HDFC has introduced SMS services.
Mobile banking has been especially targeted at people who travel frequently and to keep
track of their banking transaction.

RURAL BANKING
One of the innovative scheme to be launched in rural banking was the KISAN CREDIT
CARD (KCC) SCHMME started in fiscal 1998-1999 by NABARD. KCC made it easier for
framers to purchase important agricultural inputs. In addition to regular agricultural loans,
banks to offer several other products geared to the needs of the rural people.

Private sector Banks also realized the potential in rural market. In the early 2000's ICICI bank
began setting up internet kiosks in rural Tamilnadu along with ATM machines.
NRI SERVICES
With a substantial number of Indians having relatives abroad, banks have begun to offer
service that allows expatriate Indians to send money more conveniently to relatives India
which is one of the major improvements in money transfer.

E-BANKING
E-Banking is becoming increasingly popular among retail banking customers. E-Banking
helps in cutting costs by providing cheaper and faster ways of delivering products to
customers. It also helps the customer to choose the time, place and method by which he wants
to use the services and gives effect to multichannel delivery of service by the bank. This E-
Banking is driven by twin engine of "customer-pull and Bank-push".

Periodically, almost once in five years since the early 1980s, the Reserve Bank appointed
committees and working Groups to deliberate on and recommend the appropriate use of
technology by banks give the circumstances and the need. These committees are as follows:
-Rangarajan committee -1 in early 1980s.
-Rangarajan committee -11 in late 1980s.
-Saraf working group in early 1990s.
-Vasudevan working group in late 1990s.
-Barman working group in early 2000s.

Two momentous decisions of the Reserve Bank in the 1990s changed the scenario for ever
there are:
a) The prescription of compulsory usage of technology in full measure by the new private
sector banks as a precondition of the license and
b) The establishment of an exclusive research institute for banking technology institute for
development and Research in Banking Technology.

TECHNOLOGICAL DEVELOPMENTS IN INDIAN BANKING

• The introduction of MICR based cheque processing – a first for the region, during the
years 1986-88;

• Computerization of branches of banks – an activity which commenced from the late

eighties with the introduction of ledger posting machines (LPMs), advanced ledger
posting machines (ALPMs), followed by stand alone computer systems which
metamorphosized into network based systems and the latest development pertaining
to the installation of Core Banking solutions;

• Facilitating computerization of Government business – from the late nineties which

has now resulted in all branches handling Government business functions using
technology;

• The setting up of the Institute for Development and Research in Banking Technology
(IDRBT) in 1996, Hyderabad in the mid nineties, as a research and technology centre
for the Banking sector;
• Reserve Bank of India had introduced the Electronic Funds Transfer System (EFT) in
the year 1996 for quick movement of funds between different banks for the bank
customers.

• The commissioning in 1999, of the Indian Financial Network as a Closed User Group
based network for the exclusive use of the Banking sector with state-of-the-art safety
and security. The network supports applications having features such as Public Key
Infrastructure (PKI) which international networks such as S.W.I.F.T. are now
planning to implement;

• The Government of India enacted the Information Technology Act, 2000 (IT Act,
2000), with effect from the 17th October 2000 to provide legal recognition to
electronic transactions carried out by means of electronic data interchange and other
means of electronic communication

• Commencement of Certification Authority (CA) functions of the IDRBT for ensuring

that electronic banking transactions get the requisite legal protection under the
Information Technology Act, 2000;

• Ensuring Information Systems Audit (IS Audit) in the banks for which detailed
guidelines relating to IS Audit were formulated and circulated;

• Enabling IT based delivery channels which enhance customer service, in areas such as
cash delivery through shared Automated Teller Machines (ATMs), card based
transaction settlements etc.;

• Providing Guidelines for Internet Banking, which facilitated the banks to ensure that
common minimum requirements relating to Internet Banking offerings were provided
for;

• Providing detailed specifications to banks on the configuration of systems relating to

critical inter-bank payment system applications such as Real Time Gross Settlement
(RTGS) System, Negotiated Dealing System (NDS), Centralized Funds Management
System (CFMS) etc.;

• Implementation of the National Financial Switch (NFS) to ensure interconnectivity of

shared ATMs and to provide for funds settlement across various banks.

• Establishment of e-payment gateways for the benefit of customers (such as the

gateways for funds transfers and other account related transactions) and for
facilitating e-commerce.

• Sharing of information through the secured Internet website for the Centralized Data
Based Management System-Internet (CDBMSi) project.

• Providing a platform for transmission of electronic messages across banks using

common standards, for facilitating ‘Straight Through Processing’ (STP) in the form
 of the Structured Financial Messaging System (SFMS), which will be similar to the
SWIFT messaging pattern;

• Setting up connectivity of all clearing-houses of the country so as to enable the

introduction of the National Settlement System (NSS)

• Introducing a secured web site for Internet based data transfer to Central and State
Government. Government Departments may populate the data from the secured web
site to their own systems based on their requirements.

• Introduction of technology aided products like ATMs, Point of Sale devices,

Anywhere banking, Smart cards, Internet banking, WAP banking etc.

DIFFERENT TECHNOLOGIES IN DETAIL

I. pc banking:-Uses special software distributed by the bank, which is installed in

the users’ PC. Customers access banks via modem linked directly to the bank. PC
Banking allows you to easily control your finances from your home or office
computer with your Personal Financial Management software, such as Quicken®
or Microsoft Money®. Once you're online, you can safely and securely access
your bank account information, check on balances, pay your bills electronically,*
transfer funds between accounts, and more

II. Internet banking:- customers access their bank account via Internet

III. Managed network:-The bank makes use of an online service provided by another
party such as AOL

IV. TV based banking:-Use of satellite or cable to deliver account information to TV

screens of customers

V. Telephone banking:-Customers can access their bank via regular phones or

mobile phones using SMS or WAP services

VI. ATM:- ATMs provide cash accessibility and account information and in some
cases enable to transfer funds

VII. EFTPOS:-Electronic funds transfer at point of sale (EFTPOS) is essentially a

payment system for purchases through debit cards within the store itself.

VIII. SMART CARDS:-Microchip based cards can be used between individuals to

exchange electronic cash or can interface with ATMs, telephones and retailers.

IX. ELECTRONIC FUNDS TRANSFER (EFT):- Uses computer and electronic

technology as a substitute for checks and other paper transactions
 X. ELECTRONIC DATA INTERCHANGE (EDI):-Transmit financial information
and payments in electronic form.

XI. ELECTRONIC CLEARING SYSTEM (ECS):-Paperless mode of effecting

payment for handling bulk and repetitive payment transactions.

XII. SHARED PAYMENT NETWORK SYSTEM (SPNS):- A large network of

ATMs, Cash Dispensers belonging to different banks to provide anytime and
anywhere banking service.

XIII. BANKING KIOSKS:- The integration of phone banking, ATM and PC based
banking services, where customers are able to access their accounts either by
telephone, ATM or computer terminal.

ATM

ATM) is a computerized telecommunications device that provides the customers of

a financial institution with access to financial transactions in a public space without the need
for a human clerk or bank teller.

customers can access their bank accounts in order to make cash withdrawals (or credit
card cash advances) and check their account balances as well as purchasing mobile cell phone
prepaid credit.

Most ATMs are connected to interbank networks, enabling people to withdraw and deposit
money from machines not belonging to the bank where they have their account or in the
country where their accounts are held (enabling cash withdrawals in local currency).

pros cons

Cost effective Require power, communications

Increase hours and accessibility Regular cashing

Innovations to support semi literate Central database

Support infrastructure

Appropriate locations often limited

Electronic fund transfer

EFT is a Scheme introduced by Reserve Bank of India (RBI) to help banks offering their
customers money transfer service from account to account of any bank branch to any other
bank branch in places where EFT services are offered.

Steps for EFT

Step-1: The remitter fills in the EFT Application form giving the particulars of the
beneficiary (city, bank, branch, beneficiary’s name, account type and account number) and
authorises the branch to remit a specified amount to the beneficiary by raising a debit to the
remitter’s account.

Step-2: The remitting branch prepares a schedule and sends the duplicate of the EFT
application form to its Service branch for EFT data preparation. If the branch is equipped
with a computer system, data preparation can be done at the branch level in the specified
format.

Step-3: The Service branch prepares the EFT data file by using a software package supplied
by RBI and transmits the same to the local RBI (National Clearing Cell) to be included for
the settlement.

Step-4: The RBI at the remitting centre consolidates the files received from all banks sorts the
transactions city-wise and prepares vouchers for debiting the remitting banks on Day-1 itself.
City-wise files are transmitted to the RBI offices at the respective destination centres.

Step-5: RBI at the destination centre receives the files from the originating centres,
consolidates them and sorts them bank-wise. Thereafter, bank-wise remittance data files are
transmitted to banks on Day 1 itself. Bank-wise vouchers are prepared for crediting the
receiving banks’ accounts the same day or next day.

Step-6: On Day 1/2 morning the receiving banks at the destination centres process the
remittance files transmitted by RBI and forward credit reports to the destination branches for
crediting the beneficiaries’ accounts.

TECHNIQUES OF MONEY TRANSFER

1. RTGS: 'RTGS' stands for Real Time Gross Settlement. RTGS system is a funds
transfer mechanism where transfer of money takes place from one bank to another on
a 'real time' and on 'gross' basis. This is the fastest possible money transfer system
through the banking channel. Settlement in 'real time' means payment transaction is
not subjected to any waiting period.
 2. NEFT

National Electronic Funds Transfer (NEFT) system is a nationwide funds transfer

system to facilitate transfer of funds from any bank branch to any other bank branch.

RTGS NEFT

• RTGS is supposed to be the faster one • NEFT is slightly slower compared to

as it is done in real time. RTGS.

• In RTGS, the beneficiary bank has to
credit the the beneficiary's
account within two hours of receiving
the funds transfer message.
• However, RTGS is only for
transactions above Rs 1 lakh.
• This means bank club transactions
together and only the net amount is
transferred. This settlement is done 6
times per day on weekdays and 3
times on Saturdays.
• Your transaction is for less than Rs 1
lakh, you have to use NEFT.

PERSONAL DIGITAL ASSISTANTS (PDA)

Small, handheld digital computers that can run specialized programs to manage MFI and
client data and perform financial calculations

Requirements:

• Well functioning MIS

• High speed access to MIS data from branch offices

• Capable technical support

• Solid institution and good products

pros cons

• Increased productivity of field • High initial maintenance costs

staff
• Long development process( 9
• Applicable to range of tasks months to 2 years)

• Can run various software • Need for custom designed

programs database applications
 • Standardize procedures

• Reduced paper volumes

• Reduced labor costs

SMS BANKING

SMS banking is a technology-enabled service offering from banks to its CUSTOMERS,

permitting them to operate selected banking services over their mobile phones using SMS
messaging.SMS banking services are operated using both PUSH and PULL messages.

Push messages are those that the bank chooses to send out to a customer's mobile phone,
without the customer initiating a request for the information.

Pull messages are those that are initiated by the customer, using a mobile phone, for
obtaining information or performing a transaction in the bank account.

MOBILE BANKING

Mobile banking (also known as M-Banking, mbanking, SMS Banking etc.) is a term used for
performing balance checks, account transactions, payments etc. via a mobile device such as
a mobile phone.

The biggest attraction of mobile phone banking to financial institutions is vast available
network of mobile phones. Mobile phones now outnumber fixed lines in India and networks
are expanding fast. Handset manufacturers are able to offer relatively cheap handsets even
those offering sms only services. However, the challenges in operating a mobile banking are
significant.

Phone Ownership: Many poorer people don’t own a phone, but can borrow one from a
neighbour or family member.

Loss of SIM: This often occurs whilst “SIM swapping”.

Old phones: Not all phones have the same functions and capabilities with many of the
poorest having access to

Liquidity of Agents: Where phones are used to access cash the agent has to have money
available

THE IMPLICATIONS FOR BANKS

The internet has enormous potential for the banks in terms of cost-saving and increased
revenue generation through more effective cross-selling

But there are also risks

• strategic

• legal

• operational

• reputational

• liquidity and credit

Strategic risk

“Will the bank get it right?”, will it invest in the wrong technology? should it be an innovator
or a follower? how should it cope with competition from low cost entrants? what should it do
with the existing branch network? How does it retain customers as their power to “shop
around” is increased? How can it build and exploit its brand name?

Operational risk

Although banks face all sorts of security risk day to day, the internet poses new challenges
because of its open nature. Perhaps the biggest concern among customers and therefore the
biggest barrier to customer acceptance of internet banking

Legal risks

There are many aspects to this (e.g. legal recognition of digital signatures). But an aspect of
particular concern to HKMA is to ensure a fair division of loss-sharing between bank and
customers. Our view is that customers should not be liable for losses from a security breach
or system problem that is not caused by their own negligence

Reputational risk

The threat of damage to the bank’s reputation goes along with the other risks successful
hacking of a system may cause bad publicity and undermine customers’ confidence in
internet banking even if they suffer no loss system breakdown may also arouse public
concern Banks therefore need to adopt specific strategies to manage reputational risk.

Banking risks
Internet banks face the same types of banking risk as conventional banks, but the risks may
be heightened in some respects liquidity risk may increase if it becomes easier for depositors
to transfer deposits at the touch of a button (the “virtual” run) credit risk may increase if the
relationship with the customer becomes more distant and transitory, or if competitive
pressures lower credit standards

RECOMMENDATIONS OF WORKING GROUP ON INTERNET BANKING

Technology and Security Standards:

Banks should designate a network and database administrator with clearly defined roles.
Banks should have a security policy duly approved by the Board of Directors. Information
Systems Auditor will audit the information systems. Banks should introduce logical access
controls to data, systems, application software, utilities, telecommunication lines, libraries,
system software, etc. which include user-ids, passwords, smart cards or other biometric
technologies.

Banks should use the proxy server type of firewall so that there is no direct connection
between the Internet and the bank's system.

Usage of PKI (Public Key Infrastructure), SSL (Secured Socket Layer) etc.

Physical access controls should be strictly enforced.

All applications of banks should have proper record keeping facilities for legal purposes.

Legal Issues:

There is an obligation on the part of banks to make enquiries about integrity and reputation of
the prospective customer. Therefore, even though request for opening account can be
accepted over Internet, accounts should be opened only after proper introduction and physical
verification of the identity of the customer.

Security procedure adopted by banks for authenticating users needs to be recognized by law
as a substitute for signature. There is an obligation on banks to maintain secrecy and
confidentiality of customers' accounts.

Banks' liability to the customers on account of unauthorized transfer through hacking, denial
of service on account of technological failure etc. needs to be assessed and banks providing
Internet banking should insure themselves against such risks.

Regulatory and Supervisory Issues:

 Only such banks which are licensed and supervised in India and have a physical presence in
India will be permitted to offer Internet banking products to residents of India. The products
should be restricted to account holders only and should not be offered in other jurisdictions.
The services should only include local currency products.

Overseas branches of Indian banks will be permitted to offer Internet banking services to
their overseas customers subject to their satisfying, in addition to the host supervisor, the
home supervisor.

CUSTOMER BENEFITS AND SUPPLIER BENEFITS ON E-BANKING

Customer Benefits Supplier Benefits

Improved customer service Profitable growth

Convenience Lower cost per transaction

Tailored products and services Increased customer knowledge

Confirmation- Transactions are Retain customers and attract new customers

executed and confirmed almost
immediately

Increased comfort and time saving Improved market image – perceived as leaders in new
technologies implementation

Speed of transaction Better and quicker response to the market evolution

Better administration of funds Increased market penetration

Ease of access to product Ability to tailor products and services

information

Quick and continuous access to The use of the Internet site to advertise/sell new financial
information products

Ease of shopping around for best Ability to access a large market

price Competitive prices and good
returns

Ease of changing supplier Increased customer relationships

Low cost Reduced errors, time, and overhead costs

Financial planning capability Improved product quality

Basic transactions to be “got right”, Improved Competitiveness

efficiently, effectively, reliably,
and with courtesy