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1.1 Purpose of the study The main purpose of this study to get an overview of the internet banking sector in the Indian economy and study as to how it has helped change the banking habits of various individuals
1.2 Research Objectives of the study Objectives of a project tell us why project has been taken under study. It helps us to know more about the topic that is being undertaken and helps us to explore future prospects of the topic. Basically it tells what all have been studied while making the project. The various research objectives of the study are:
To study the internet banking facilities offered by the banks to
To study as to how much internet banking has penetrated in
the minds of the customers
To gain insights about functioning of internet banking. To explore the future prospects of internet banking. To study the benefits that are provided to the individual under
1.3 Research Methodology
Research is a process through which we attempt to achieve systematically and with the support of data the answer to a question, the resolution of a problem, or a greater understanding of a phenomenon. This process, which is frequently called research methodology, has eight distinct characteristics: 1. 2. 3. 4. 5. 6. 7. 8. Research originates with a question or problem. Research requires a clear articulation of a goal. Research follows a specific plan of procedure. Research usually divides the principal problem into more Research is guided by the specific research problem, question, Research accepts certain critical assumptions. Research requires the collection and interpretation of data in Research is, by its nature, cyclical; or more exactly, helical.
manageable subproblems. or hypothesis.
attempting to resolve the problem that initiated the research.
Descriptive research is used in this project report in order to know about cash management services to clients and determining their level of satisfaction. This is the most popular type of research technique, generally used in survey research design and most useful in describing the characteristics of consumer behavior. The method used were following:
research.2 MODE OF DATA COLLECTION Primary Data: . 4 . Situation Analysis: . and of Indian Airlines in particular. its market.1 Research Design: There are three kinds of research designs namely. The situation analysis is a background investigation. as well as the buying behaviour of travellers.The sources of Primary data were questionnaires and personal interviews.3. 1. Questionnaire method Direct Interaction with the clients. • • • Exploratory Descriptive Causative In my project.Conducting a situational analysis means analysing the company. 1. It involves obtaining information about the company and its business environment by means of library.3. a Descriptive Research was initiated because it was generally a study which was carried out to describe the market characteristics of various airlines. its competition and the industry in general.
1 Instruments for data collection: The research instruments used for this survey were structured questionnaires.3.80 1. one can carefully and consciously choose the elements to be included in the sample. 5 . Our sampling decision should be in-coordination with the research and data objectives. The key assumption underlined this type of sampling is that. 1.3. with sound judgement or expertise. time etc. The questionnaires were designed to find the satisfaction levels of internet banking users. It was a `Purposive Non-probability sampling/ Judgement Sampling’ was used.4 METHOD OF DATA COLLECTION 1. as well as other restrictive parameters like cost.3.4. and an appropriate strategy.the sources of secondary data were internet. The method opted for taking samples was `Non-probability sampling’.3 Sample design Doing research via sampling was important because of impossibility of finding all of a population. Sample Size: . so that samples can be developed that are suitable for one’s needs. books and newspaper articles. Secondary data: .
Richa Dabas. I decided to keep majority of the questionnaire closeended. A copy of the questionnaire has been attached as an annexure to the project.2 Drafting of a Questionnaire: The formulation of the questionnaire.. the questionnaire is by far the common instrument used to collect primary data. the structure and the disguise to be used in the questionnaire depends upon the kind of information that is desired. Because of its flexibility. has resulted in the formulation of the questionnaire through which responses were collected and analysed. Ms. 6 . Questionnaire was prepared over a period of 5 days by intensive brainstorming. Valuable advice regarding changes was given by my project guide.3. i. 1.e.Questionnaire: A questionnaire consists of a set of questions prepared to respondents for their answers.4. Closed Ended as well as Open Ended questionnaire were used in my market research . Since my objective was to derive out the maximum information out of the passengers without making the whole exercise boring and troublesome.
the choice of their bank and the main areas of their transactions. the initial questions pertained to the gathering of simple information like the knowledge of inetrenet banking. I was compelled to squeeze in a lot of questions and club them up in a single question. I had to balance the twin objectives of gathering maximum information and at the same time retaining the interest of the customers.In order to generate and sustain the interest of the respondents. Since. 7 .
People were mostly unwilling to talk because of their heavy schedule or they get annoyed with the phone calls or even if they are asked about this face to face. 8 . Fraud can take place in many ways like stolen of Password. People have more faith on the conventional banking system rather than the internet banking 2. FRAUD The very common difficulty in online trading is Fraud which can be faced by any customer.5 LIMITATIONS The following are the limitations with this report 1.1. BUSY SCHEDULE. online fund transfer to some other account. 3.3. RISKY PROFILE. MORE FAITH ON THE CONVENTIONAL BANKING SYSTEM. Some people think that transferring money is having a lot of risk and rather a waste of time so they don’t want to transfer their money in from their respective accounts 4.
6. Sometimes the network fails in middle of their transaction making them worried as to whether their transactions got completed of not. customers have to face the problem of slow interface which is not satisfactory from the customer’s point of view.hacking etc. 9 . So some strict guidelines or actions should be taken by RBI in order to stop this kind of fraud which prevails online. LACK OF KNOWLEDGE Customers who do transfers online face the problem of proper knowledge regarding the use of their accounts. 5. And all the services which the banks provide them with their accounts. SLOW WEB INTERFACE Sometimes.
rather than by cheque or cash. using a check card rather than cash. gasoline and other purchases at the point-of- sale. • Have your government social security benefits check or your tax refund deposited directly into your checking account. 11 . at your convenience. You can use electronic funds transfer to: • Have your paycheck deposited directly into your bank or credit union checking account. • Have the bank or credit union transfer funds each month from your checking account to your mutual fund account. • Buy groceries. • Withdraw money from your checking account from an ATM machine with a personal identification number (PIN). also known as electronic funds transfer (EFT). credit or a personal check.ABOUT TH E TOPIC Electronic banking. such as your auto loan or your mortgage payment. day or night. • Instruct your bank or credit union to automatically pay certain monthly bills from your account. is simply the use of electronic means to transfer funds directly from one account to another.
integrating data and activities related to your income. 12 .• Use a smart card with a prepaid amount of money embedded in it for use instead of cash at a pay phone. spending. or on college campuses at the library's photocopy machine or bookstores. along with basic financial analysis and decision making. bill-paying and taxes. saving. investing. • Use your computer and personal finance software to coordinate your total personal financial management process. expressway road toll. recordkeeping.
The method of the invention includes the steps of inputting a customer banking request from among a menu of banking requests at a remote personnel computer. comparing the received request to a stored table of request types. transmitting the banking requests to a host computer over a network. receiving the request at the host computer. Internet banking system and method in which a personal computer is connected by a network service provider directly to a host computer system of a bank such that customer service requests can be processed automatically without need for intervention by customer service representatives. and pay bills electronically. depending upon the attribute. automatic logging of the service request.VARIOUS FORMS OF E-BANKING: INTERNET BANKING: Internet Banking lets you handle many banking transactions via your personal computer. each of the request types having an attribute to indicate whether the request type is capable of being fulfilled by a customer service representative or by an automated system. The system is integrated with the host computer system of the bank so that the remote banking customer can access other automated services of the bank. you may use your computer to view your account balance. and. identifying the type of customer banking request received. The system is capable of distinguishing between those customer service requests which are capable of automated fulfillment and those requests which require handling by a customer service representative. For instance. directing the request either to a queue for handling by a customer 14 . request transfers between accounts.
top up their mobile phones' pre-paid accounts or even buy postage stamps. the customer may perform a transaction. connected to a data system and related equipment and activated by a bank customer to obtain cash withdrawals and other banking services. The customer then verifies their identity by entering a passcode. Also called automatic teller machine. Upon successful entry of the PIN. some ATMs will attempt retain the card as a security precaution to prevent an unauthorised user 15 . cash machine. often referred to as a PIN (Personal Identification Number) of four or more digits. order or make cash withdrawals (or cash advances using a credit card) and check their account balances without the need for a human bank teller (or cashier in the UK). Also called money machine. On most modern ATMs. AUTOMATED TELLER MACHINES (ATM): An unattended electronic machine in a public place. the customer identifies him or herself by inserting a plastic card with a magnetic stripe or a plastic smartcard with a chip. Many ATMs also allow people to deposit cash or cheques.service representative or to a queue for processing by an automated system. transfer money between their bank accounts. An automated teller machine or automatic teller machine (ATM) is an electronic computerized telecommunications device that allows a financial institution's customers to directly use a secure method of communication to access their bank accounts. If the number is entered incorrectly several times in a row (usually three attempts per card insertion). that contains his or her account number.
the customer can access his account and by following the user-friendly menu. e-mail or ordinary mail. entire banking can be done through Interactive Voice Response (IVR) system. customer call will hardly fail. By dialing the given Telebanking number through a landline or a mobile from anywhere. Balance inquiry and transaction inquiry in all Inquiry of all term deposit account Statement of account by Fax. The Indian market today has approximately more than 17. Captured cards are often destroyed if the ATM owner is not the card issuing bank.000 ATM’s. 16 . as noncustomer's identities cannot be reliably confirmed. The system is bi-lingual and has following facilities offered • • • • Automatic balance voice out for the default account.from discovering the PIN by guesswork. TELE BANKING: Undertaking a host of banking related services including financial transactions from the convenience of customers chosen place anywhere across the GLOBE and any time of date and night has now been made possible by introducing on-line Telebanking services. With sufficient numbers of hunting lines made available.
The microprocessor on the smart card is there for security.• • • Cheque book request Stop payment which is on-line and instantaneous Transfer of funds with CBS which is automatic and instantaneous • • • Utility Bill Payments Renewal of term deposit which is automatic and instantaneous Voice out of last five transactions. SMART CARD: A smart card usually contains an embedded 8-bit microprocessor (a kind of computer chip). a person could make purchases from their credit account. The enhanced memory and processing capacity of the smart card is many times that of traditional magnetic-stripe cards and can accommodate several different applications on a single card. For example. The host computer and card reader actually "talk" to the microprocessor. The microprocessor enforces access to the data on the card. which means no more shuffling 17 . The chips in these cards are capable of many kinds of transactions. It can also hold identification information. The microprocessor is under a contact pad on one side of the card. Think of the microprocessor as replacing the usual magnetic stripe present on a credit card or debit card. debit account or from a stored account value that's reload able.
including grocery stores.S.through cards in the wallet to find the right one -. 18 . DEBIT CARD: Debit cards are also known as check cards. Debit cards look like credit cards or ATM (automated teller machine) cards. They offer an alternative to carrying a checkbook or cash.the Smart Card will be the only one needed." a debit card is a way to "pay now. they are just starting to take off in the U. Every German citizen has a smart card for health insurance. but operate like cash or a personal check. Debit cards are different from credit cards. Even though smart cards have been around in their modern form for at least a decade. Smart cards are much more popular in Europe than in the U. In Europe the health insurance and banking industries use smart cards extensively. Debit cards are accepted at many locations." When you use a debit card.S. While a credit card is a way to "pay later. retail stores. You can use your card anywhere merchants display your card's brand name or logo. Smart cards can also be used with a smart card reader attachment to a personal computer to authenticate a user. and restaurants. gasoline stations. your money is quickly deducted from your checking or savings account.
The paying bank validates the e-Cheque and then "charges" the check writer's account for the check 19 .E-CHEQUE: • • • An e-Cheque is the electronic version or representation of The Information and Legal Framework on the E-Cheque is the It can now be used in place of paper cheques to do any and all paper cheque. same as that of the paper cheque’s. The payee "deposits" the Electronic Cheque receives credit. • An E-cheque work the same way a cheque does. and the payee's bank "clears" the e-Cheque to the paying bank. the cheque writer "writes" the e-Cheque using one of many types of electronic devices and "gives" the e-Cheque to the payee electronically. remote transactions.
Etc.OTHER FORMS OF ELECTRONIC BANKING • • • • Direct Deposit Electronic Bill Payment Electronic Check Conversion Cash Value Stored. 20 .
and a well off one too. forms. Plus. The Internet also provides a level playing field for small banks who want to add to their customer base. Customer Service and Satisfaction. Efficiency.Banking on the Internet not only allow the customer to have a full range of services available to them but it also allows them some services not offered at any of the branches.Banks can become more efficient than they already are by providing Internet access for their customers. A person can print of information. it's cheaper to make transactions over the Internet. The Internet provides the bank with an almost paper less system. The person does not have to go to a branch where that service may or may not be offer.The Internet allows banks to reach a whole new market. Customer Base. and applications via the Internet and be able to search for information efficiently instead of waiting in line and asking a teller. because there are no geographic boundaries with the Internet. With more better and faster options a bank will surly be able to create better customer relations and satisfaction. 21 .In the long run a bank can save on money by not paying for tellers or for managing branches.BENEFITS/CONCERNS OF E-BANKING BENEFITS OF E-BANKING For Banks: Price.
Buy and Sell Securities. For Customers: Bill Pay: Bill Pay is a service offered through Internet banking that allows the customer to set up bill payments to just about anyone. A person may not want to use Internet banking but having the service available gives a person the feeling that their bank is on the cutting image. Besides the Customers can. 22 . Check Balances. Transfer Money. The second big benefit is better interest rates for the customer.Image. The best benefit is that Internet banking is free.A bank seems more state of the art to a customer if they offer Internet access. View Transaction History and avoid going to an actual bank. At many banks the customer doesn't have to maintain a required minimum balance. Customer can select the person or company whom he wants to make a payment and Bill Pay will withdraw the money from his account and send the payee a paper check or an electronic payment Other Important Facilities: E. Check Currency Rates. See which checks are cleared. Check Stock Market Information.banking gives customer the control over nearly every aspect of managing his bank accounts.
Companies will have to make sure that they have software in place software market. the law does. Laws . Other challenges: lack of knowledge from customers end. Any major problems or disastrous can destroy the banks reputation quickly an easily. By showing the customer that the Internet is reliable you are able to get the customer to trust online banking more and more. etc 23 . sit changes by the banks.While Internet banking does not have national or state boundaries. Banks have to make sure that the customers receive assistance quickly if they need help.banks will have to create a whole new customer relations department to help customers. There are always question whether or not something took place. Security: customer always worries about their protection and security or accuracy.CONCERNS WITH E-BANKING As with any new technology new problems are faced. creating a monopoly. Customer support .
new competition from pure online banks has put the profitability of even established brick and mortar banks under pressure. for the banks in US and in the European countries. they entered the ecommerce market as providers/distributors of their own products and services. banks promoted their core capabilities i. very few banks have been successful in 24 of a non-financial services centric electronic . However. Some banks have chosen a route of establishing a direct web presence while others have opted for either being an owner of financial services centric electronic marketplace or being participants marketplace. New banking intermediaries offering entirely new types of banking services have emerged as a result of innovative e-business models. The trend towards electronic delivery of banking products and services is occurring partly as a result of consumer demand and partly because of the increasing competitive environment in the global banking industry.e. Initially. products. More recently. Moreover. The dynamic and flexible nature of this communication channel as well as its ubiquitous reach has helped in leveraging a variety of banking activities. The Internet has emerged as one of the major distribution channels of banking products and services. services and advice through Internet.E-BANKING GLOBAL PERSPECTIVE The advent of Internet has initiated an electronic revolution in the global banking sector. banks have discovered that they can play their primary role as financial intermediators and facilitators of complete commercial transactions via electronic networks especially through the Internet.. due to advances in Internet security and the advent of relevant protocols. Then. The Internet has changed the customers' behaviors who are demanding more customized products/services at a lower price.
It also deals with the impact of E-banking on the banking industry structure. and issues related to E-banking in Asia with a focus on India. • E-banking Transactions: It discusses how Internet has radically transformed banking transactions. • E-banking Strategies: It reveals the key strategies that banks must implement to derive maximum value through the online channel. Ebanking has been a non-starter in several countries. promoting price discovery and spend aggregation and increasing the reach. Banking transactions had already started taking place through the Internet way back in 1995. It also brings guidance for those banks. For traditional banks to define what niche markets to serve and decide what products/services to offer there is a need for a clear and concise Internet commerce strategy. Electronic finance offered considerable opportunities for banks to expand their client base and rationalize their business while the customers received value in the form of savings in time and money.developing effective strategies for fully exploiting the opportunities offered by the Internet. In spite of all the hype. B2B transactions. The Internet promised an ideal platform for commercial exchange. Global E-banking industry is covered by the following four sections: • E-banking Scenario: It discusses the actual state. prospects. electronic bill payment and presentment and mobile payments. which are planning to build online businesses. 25 . helping banks to achieve new levels of efficiency in financial transactions by strengthening customer relationship. The section focuses on cross border transactions. US and Europe.
• E-banking Trends: It discuses the innovation of new technologies in banks. 26 .
to market information. banks in the developing countries use the Internet as an information delivery tool to improve relationship with customers. the major factor restricting growth of E-banking is security. Banks have established an Internet presence with various objectives. Around one fifth of Finish and Swedish bank customers are banking online. In early 2001. may be offered in an equivalent quantity with lower costs to the more potential customers. and with the expected 10-fold increase of the British E-business market by 2005. according to UNCTAD. while in US. In Asia. Financial services. to deliver banking products and services. There may be contacts from each corner of the world at any time of day or night. Most of them are using the Internet as a new distribution channel. While the banks in developed countries are working primarily via Internet as non-branch banks. Access to high-quality E-banking products is an issue as well..e. approximately 60 percent of E-business in UK was concentrated in the financial services sector. with the use of Internet.E-BANKING SCENARIO: The banking industry is expected to be a leading player in Ebusiness. online banking is growing at an annual rate of 60 percent and the number of online accounts has approximately reached 15 million by 2006. the share of the financial services will further increase. The banks in US are using the Web to reach opportunities in three different categories i. and to improve customer relationship. This means that banks may enlarge their market without opening new branches. in spite of several countries being well connected via Internet. Majority of the banks in Asia are just offering basic services 27 .
cited by 40 percent of respondents of the survey. However. Bill payment was the most popular feature. This reconfiguration is being further driven by the Internet. Some banks in US were targeting their Internet strategies towards business customers. The economics of E-banking was expected to favor large banks because of economies of scale and scope. distribution and advice. E-banking was expected to influence the banking industry structure. and the ability to advertise heavily. In 2001. E-banking offered entry and expansion opportunities that small banks traditionally lacked. Apart from affecting the way customers received banking services. large banks appeared to have a clear advantage over small banks in the range of services they offered. It is considered that E-banking will succeed if the basic features. Still. especially bill payment. providing this service would be difficult for banks in Asia because it requires a high level of security and involves arranging transactions with a variety of players. the Internet is accelerating the reconfiguration of the banking industry into three separate businesses: production. will have on current business models. E-banking seems to have a future in Asia.compared with those of developed countries. In Europe. are handled well. Moreover. However. it is very clear that it is having a significant impact on traditional 28 . over 50 percent of the banks in the US were offering Ebanking services. due to the combined impact of: • • • The emergence of new and more focused business models New technological capabilities that reduces the banking High degree of uncertainty over the impact that new entrants relationship and transaction costs. Though E-banking in Europe is still in the evolutionary stage.
though large banks in the Europe have a competitive edge due to their ability to invest heavily in new technologies.banking activities. Unlike in the US. they are still not ready to embrace E-banking. medium-sized banks and start-ups have an important role to play on the E-banking front if they can take concrete measures quickly and effectively. Hence. 29 .
Though banks have enrolled some existing customers in their online programs.E-BANKING STRATEGIES: E-banking offers vast opportunities. Just enrolling customers for online banking may not be sufficient until and unless they use the site actively. Banks must make efforts to increase their site usage by customers and effectively co-ordinate the online channel with branches and call centers. The major problem with the banks. they must constantly re-evaluate their strategy. is that their online offerings remain unprofitable. Then only they will be able to derive 30 . According to a study. This has made banks wonder whether there is any value in the online channel. But whether they adopt an offensive or a defensive posture. yet even less than one in three banks have an E-banking strategy in place. which have already invested huge amounts in their online initiatives. banks have to keep up with the constantly evolving business models and technology innovations of the Internet space. banks must recognize the seriousness of the challenge ahead and develop a strategy that will enable them to leverage the opportunities presented by the Internet. they are not getting customers in large numbers. Hence. Not many banks have been as e-business-savvy. In the fast-paced eeconomy. less than 15 percent of banks with transactional websites will realize profits directly attributable to those sites. Early e-business adopter like Wells Fargo not only entered the Ebanking industry first but also showed flexibility to change as the market developed. No single E-banking strategy is right for every banking company. But the pressure is now building for all banks to develop sound ebusiness strategies that will attract and retain increasingly discriminating customers.
Integrated channels working together are far more effective than a group of channels working without any coordination. the call center. An actively used online channel should also serve as a medium to sell banking services for the branch staff. The interactions in each channel can then be worked around these paths. and avoiding advanced features that most customers neither understand nor value. Customers have some rational reasons for staying offline. Each channel must have entry and exit points that must welcome customers and then 31 . banks must formulate paths that people in various customer segments are likely to take among the channels. For example. and the relationship manager. and higher customer retention. Developing advanced features that appeal to a relatively small numbers of customers. Some of these reasons include usability features of the site. This is important because nearly all the value of the online channel is realized offline _ in cross sales completed in other channels and in cost reductions.maximum value that includes cost reduction. Banks must make efforts to familiarize customers with their sites and show them how easy and efficient the online channel is to use. cross-selling opportunities. and which channel(s) the customer is likely to visit next. To facilitate this integration. a call center representative must work out which channel(s) the customer used before coming to her. concerns about security and frequent complaints that signing up is complicated and time-consuming. Integrating the online channel with the rest of the bank is another important issue that banks must focus upon. Banks can solve these problems by refocusing investment on improving the site's basic functionality and userfriendliness. creates far less value than strengthening core capabilities and getting customers to use them.
requires a major revision of incentive systems. the overall goal of banks is to create a seamless multichannel experience. make investments and have to develop a variety of partnerships. Hence. To make all this happen. disintermediation 32 . their efforts to build a sound e. those banks that are planning to build their online businesses will have to understand several strategic issues like do they have the right business model for E-banking? How should they price their E-banking products and services? Bankers planning to move into E-banking have to explore different options. Banks can exploit the opportunities provided by the Internet if they demonstrate courage. Banks have to be creative in rethinking organizational structures and management processes. Moreover. and management roles. In the case of traditional banks. Rapidly changing lifestyles of customers and their demand for more speed and convenience has subdued the role of branch banking to a certain extent. With the proliferation of new technologies. planning and budgeting processes. They have to put their time and efforts to identify the best opportunities. However. and take decisive action. if they are too aggressive in using price incentives to build their e-business. if they do not offer sufficient price incentives for customers to bank online. use their imagination. they risk the profitability of their traditional business. a new challenge in the form of mobile banking has emerged.banking business may not fructify. On the other hand. M-Banking is both an additional opportunity for banks to offer their online services and an additional channel from which to access new customers and cross-sell to existing customers. While most of the banks have started focusing on E-banking activities. getting people in the traditional business to help build an e-enterprise would not be an easy task. Traditional banks that are conservative in nature may find it difficult to attract and retain online talent.send to other channels.
they must form structured alliances with service affiliates. processing and deploying customer information 33 . Banks can go beyond their traditional role as a channel for banking/financial services and can become providers of personalized information. M-Banking gives banks the opportunity to significantly expand their customer relationships provided they position themselves effectively.of traditional channels is being witnessed. To leverage these opportunities. and acquire competitive advantage in collecting. transactions and third-party referrals. customers and thus increase customer loyalty. They can successfully leverage m-banking to: • • Provide personalized products and services to specific Exploit additional sources of revenue from subscriptions.
000 banks in the world now have transactional websites and the growth of online 34 . The cost of the average payment transaction on the Internet is minimum. As a result. deposits and withdrawals. banks can use the infrastructure and applications developed for the Internet and move it to mobile phones. with the emergence of Wireless Application Protocol (WAP) technology. Several studies found that the estimated transaction cost through mobile phone is16 cents. and on the Internet it costs just 13 cents. make bill payments. a fully computerized bank using its own software is 26 cents. customers had to come physically into the bank branch to do banking transactions including transfers. The Internet then brought another venue with which customers could do banking. The WAP interface is much faster and convenient than the Internet. and even check credit card balance. In the past. transaction details. reducing the need for ATMs.27. $1. allowing customers to see account details. practically anytime and anywhere. a bank branch. Online banking allowed customers to do financial transactions from their PCs at home via Internet. Automatic Teller Machines (ATMs) were then introduced which allowed people to do their banking on their own. a telephone bank is 54 cents. More than 2.E-BANKING TRANSACTIONS: The introduction of new technologies has radically transformed banking transactions. 27 cents. Banks had to employ several tellers to physically make all those transactions. Now people no longer have to be tied to a desktop PC to do their banking. This helped the banks cut down on the number of tellers and focus on managing money. an ATM. Now. the use of the Internet for commercial transactions started to gain momentum in 1995.
As more number of bill payers are getting online. Offering online bill payment and aggregation will increase the competitiveness and attractiveness of E-banking services and will allow banks to generate service-fee income from the billers. a group of banks and non-financial institutions led by Citibank and Wells Fargo have formed 35 a company called . According to a study. Recent developments are now encouraging banks to target small businesses as a separate lending category online. However. Banks are increasingly building payment infrastructure with various security mechanisms (SSL. digital money etc. the customer value proposition for online bill payment is more compelling. debit cards. In the B2B segment.lending solutions is making them more cost efficient. Established banks can emerge as key online integrators of customer bills and can capitalize on this high potential market. several banks are making efforts to find ways to meet the growing needs of EBPP. Growing with the popularity of EBPP is also the paying of multiple bills at a single site known as bill aggregation. SET) because there is tremendous potential for profit. e-checks. 18 million households in the US are expected to pay their bills online by 2003 compared to 2 million households in 2001. the challenge for banks is to offer a payments back-bone system that will be open enough to support multiple payment instruments (credit cards. B2B e-commerce is expected to grow from $406 bn in 2000 to $2. as more and more payments will pass through the Internet. The market for Electronic Bill Presentment and Payment (EBPP) is growing.7 tn by 2004. direct debit to accounts.) and scalable enough to allow for a stable service regardless of the workload. and more than half of all transactions will be routed through online B2B marketplaces. There is a need for automated payment systems to reduce cost and human error. and enhance cash-flow management. To meet this need.
payment technology vendors and e-commerce companies to form strategic alliances. payables/receivables data flows. Hence. A B2B marketplace would provide minimum value to its customers if it just matches buyers and sellers. the marketplace must be capable of providing the payments processing. treasury management services.FinancialSettlementsMatrix (FSMx). It provides business buyers and sellers with access to secure payment processing. This new form of collaboration between partners with complementary core competencies may prove to be an effective business model for e-business. and credit solutions to complete the full cycle of a commercial transaction on the Internet. invoicing and other services that participating financial services firms offer. 36 . The web-based B2B ecommerce offers tremendous opportunities for banks. leaving the financial aspects of transactions to be handled through traditional non-Internet channels.
the Scandinavian countries. 37 . Spain. with up to one-third of bank customers in Finland and Sweden taking advantage of E-banking. Korea. data on Internet banking are scarce. The Scandinavian countries have the largest number of Internet users. Singapore. and differences in definitions make cross-country comparisons difficult. Even so. one finds that Internet banking is particularly widespread in Austria. where more than 75 percent of all banks offer such services (see chart). Unfortunately.E-BANKING TREND: Internet banking is gaining ground. Banks increasingly operate websites through which customers are able not only to inquire about account balances and interest and exchange rates but also to conduct a range of transactions. and Switzerland.
and the European Union has several—either as separately licensed entities or as subsidiaries or branches of brick and mortar banks. While most U. an administrative office or nonbranch facilities like kiosks or automatic teller machines. consumers have accounts with banks that offer Internet services. only about 6 percent of them use these services. These "virtual" or Internet-only banks do not have a branch network but might have a physical presence. Asia has 2. for example. 44 percent of national banks maintained transactional websites.In the United States. These banks account for over 90 percent of national banking system assets. or only. In mid-2001. launched in 2000 and 2001. almost double the number in the third quarter of 1999. 38 . The United States has about 30 virtual banks.S. including loan applications and brokerage services. but a small number have emerged that offer their products and services predominantly. through electronic distribution channels. Internet banking is still concentrated in the largest banks. most banks have combined the new electronic delivery channels with traditional brick and mortar branches ("brick and click" banks). To date. The larger banks tend to offer a wider array of electronic banking services.
the outlook for the Indian industry remains optimistic. Competition and changes in technology and lifestyle in the last five years have changed the face of banking. Many global research companies believe that Ebanking adoption in India in the near future would be slow compared to other major Asian countries. The changes that have taken place impose on banks tough standards of competition and compliance. The group focused on three major areas of E-banking i. The Reserve Bank of India has also set up a "Working Group on Ebanking to examine different aspects of E-banking. as competition increases from private banks and non banking financial institutions. The impact of E.Banking in India is not yet apparent.Indian E-banking is still nascent. Despite the global economic challenges facing the IT software and services sector.' E-banking is likely to bring a host of opportunities as well as unprecedented risks to the fundamental nature of banking in India.e. although it is fast becoming a strategic necessity for most commercial banks. (1) Technology and Security issues (2) Legal issues and (3) Regulatory and Supervisory 39 . The issue here is – 'Where does India stand in the scheme of Ebanking.THE INDIAN EXPERIENCE India is still in the early stages of E-banking growth and development.
From a legal perspective.issues. security procedure adopted by banks for authenticating users needs to be recognized by law as a substitute for signature. the Information Technology Act.. in section 3(2) provides for a particular technology (viz. RBI has accepted the guidelines of the group and they provide a good insight into the security requirements of E-banking. Technological developments have been one of the key drivers of the global economy and represent an instrument that if exploited well can boost the efficiency and competitivity of the banking sector. there will always be people who want to use it to make illicit gains. Third. the rapid growth of the Internet has introduced a completely new level of security related problems. The second is the security of the environment in which the Internet banking server and customer information database reside. security measures must be in place to prevent unauthorized users from attempting to long into the online banking section of the website. The security issue can be addressed at three levels. The importance of the impact of technology and information security cannot be doubted. In India. The first is the security of customer information as it is sent from the customer's PC to the Web server. However. 2000. The problem here is that since the Internet is not a regulated technology and it is readily accessible to millions of people. the asymmetric crypto system and hash function) as a means of authenticating electronic record.. Any other method used by banks for authentication should be recognized as a source of legal risk. 40 .
and that collecting sales taxes on Net commerce could restrict its expansion. The Regulators themselves who will now be paying much more attention to the qualitative aspects of risk management have recognized this. if people have to feel more comfortable about transacting online.Regarding the regulatory and supervisory issues. the nature of risks in the international financial system has changed. While e-commerce has been causing loss of tax revenues to the Government. The explosive growth of e-commerce has led many executives to question how their companies can properly administer taxes on Internet sales. international tax rules that are neutral. simple and certain and 41 . online sellers get a price advantage over brick and mortar companies. Lack of consumer protection laws is another issue that needs to be tackled. Though the Indian Government has announced cyber laws. With institutions becoming more and more global and complex. most corporate are not clear about them. only such banks which are licensed and supervised and have a physical presence in India will be permitted to offer E-banking products to residents of India. A permanent ban on custom duties on electronic transmissions. and feel they are insufficient for the growth of E-commerce. Taxation of E-commerce transaction has been one of the most debated issues that are yet to be resolved by India and most other countries. many politicians continue to insist that the Net must remain tax-free to ensure continued growth. Without sales tax.
The Central Board of Direct Taxes. Thus efficiency. Also RBI is about to become the first Government owned digital signature Certifying Authority (CA) in India. The move is expected to initiate the electronic transaction process in the banking sector and will have far-reaching results in terms of cost and speed of transactions between government. growth and the need to satisfy a growing techsurvey consumer base are three clear rationales for implementing Ebanking in India. which submitted its report in September 2001.simplification of state and local sales taxes. convergence and globalization have the most important effect on the Indian financial sector and these changes are forcing banks to redefine their business models and integrate technology into all aspect of operation. recommended that e-commerce transaction should be taxed just like traditional commerce. technology.owned banks. 42 . The four forces-customers.
43 . depicting high-level tasks. Should we need an educated worker to compute this task again and again? A business needed human agents to attend to production. the basic knowledge of a language and minimum acquaintance with rules & procedures of the organisation that are followed day in day out and relevant to the job of the particular employee. The tools employed are "a pen. multiplying. dividing numbers. Clerical task is defined as a routine and repetitive performance involving. This created white-collar employment for educated persons by leaps and bounds. bills and multiple of such other functions. subtracting. attending/answering correspondence. repetitive clerical tasks. relating to record keeping. The Industrial Revolution on account of mass production of goods and services brought large commercial and business organizations. Two plus two is four. It is always four. adding. finance etc. Man continued to carry out only those functions that needed his thinking process to be involved. preparing vouchers. the knowledge of arithmetic tables. But more and more people were employed for performing low level tasks. Many activities that were hitherto performed by man employing his hands and his finger skill came to be carried at great speed and efficiency by machines. ink and paper".COMPUTERISATION OF BANKS INDIA .ISSUES & EVENTS In the Eighteenth and Nineteenth Centuries the Industrial revolution brought profound changes in the life style of man. maintaining accounts. marketing. transcending national boundaries that employed several thousands of persons for performing routine. and duplicating data/information from one source to another. invoices.
To quote a concrete example a major nationalised bank in India. After 15 years of educational studies. and aggressively utilise the bargaining power without reference to the input benefit the organization is deriving from them and the productivity they are providing.000 employees towards the end of the century.However as time went on the internal chorus of record keeping multiplied geometrically as commerce and industry grew in size and volume. an individual should not be employed for routine repetitive tasks.when I retired from service from that bank. year 1996-97. He feels happy once in a month on pay day. This 44 .e. As years passes the clerical employment results in the individual losing efficiency and productivity to progressively depict a trend of progress in reverse. The Government of India and the States including government owned bodies employed as many as 100 lakh junior employees at the clerical and subordinate level. Such employees by virtue of their strength of numbers organise themselves into powerful trade unions. i. The advent of mechanical calculating devices and later electronic computing in the West heralded a new age. but on other days his work leaves him nothing to rejoice.e. This makes him dull and feel the work monotonous without job satisfaction. which employed merely 3000 workers in the Fifties (around the time I entered its service in 1957). the trade union. came to engage over 70. He turns back and diverts his loyalty to an informal group i. In this world of human beings necessity is the mother of inventions. The civil services of the Government and service-based organizations came in the fore-front to inherit this overload of white-collar employment. There are neither opportunities nor challenges to bring in his innovative or creative genius. that dispensed with this white collar and white-elephant employment progressively.
56 Lakhs. If we project the future in respect of State owned banks. that for SBI is Rs. 50 percent is clerical staff and 25 percent is the officers) of the existing workforce by 2010.36. These are the State Bank of India.1.the statistics of two banking institutions in India.30 to 40 Lakh Crores. The bank started functioning from the year 1997 and has gained the No. while CMD of SBI around Rs. the largest and the next large in size can be fruitfully compared. The per employee turnover for ICICI bank is Rs. which employ presently nearly 10 Lakh employees. It will be interesting to know that CMD of ICICI Bank draws annual emoluments of Rs.000 Crores (Deposit 25000 + Advances 11000 Crores . that was until recently employing 2. Only in very few hinterland rural pockets there may be a possibility of a need of the 45 . By about the year 2010 the present turnover of commercial banks in India may double or even treble to around Rs. while SBI retained its manual operations in totality up to 1993 and maintained the work force of that time up to 2001.3 Crores. but the advent of this evolution in India is only now taking place.23000 Crores (Deposits 16 + Advances 7 thousand Crores).2. ICICI bank has at present less than 1000 branches and around 10000 employees.150 Lakhs.3 Lakh workers. for a turn over of Rs.2 position in status in India after SBI in volume of business turnover within 5 years of its operation.4 to 5 Lacs. but these Banks will have no need of 75 percent (today 25 percent of the work force is subordinate staff.latest). though it is partially computerised starting from the year 1993. The gap accounts for the difference between manual operations and high-tech banking. To quote again a concrete example. computerisation is destined to bring about rapid changes.evolved in the west three decades before. ICICI is a new age high-tech and fully computerised bank. It has a turnover of Rs.
improves customer care and customer-service tremendously and reduces substantially scope for corruption or extending undue favour to particular constituents and uneven service to others. It has to provide for electronic data to be accepted legally as evidence and in contracts. CHALLENGES FACED IN COMPUTERISATION Computerisation is expensive and needs huge investment in hardware and software and subsequent maintenance. But it needs elaborate steps to incorporate these features in the electronic system. India's No. New and better products are emerging in the market. It is easier to enforce security of information and accountability of performers in a manual system. more out of sheer compulsion and necessity to cope up increasing overload and incompatibility of the manual system to sustain further growth. The National Stock Exchange. Computerisation brings transparency.1 user in computerised service has spent Rs. The rate of obsolescence in respect of both hardware and software is considerable. whose use would enable a rival organization to throw a challenge. Computer crimes are committed widely in the West. The structure of legal system is so far based on manual record keeping. when turnover under Internet banking increases. 46 . India is no less potentially exposed to this risk.present structure of workforce. where banking will be more tech based and less people based. Indian banking has accepted computerisation since 1993.180 Crores to enable investors and brokers across the country to trade securities online. The objective of the recently administered VRS is to prepare for this reality of the first decade of the New Millennium.
Control. The Electronics Corporation of India Ltd.The following pages you are presented a series of articles discussing the various facets of this momentous event and its far-reaching effects anticipated to unfold in the coming decade. to serve the gap. ROLE OF RBI IN COMPUTERISATION OF BANKS IN INDIA Computerization became popular in the western countries right from the Sixties. when IBM left India. In the 47 . automation and Information Technology. Main Frames were extensively used both by the Public Institutions and Major Private Organizations. followed by introduction of several software products in high level language and simultaneous advancement in networking technology. CMC Ltd (Computer Maintenance Corporation of India Ltd. In the Seventies Mini Computer became popular and Personal Computers in early Eighties. was set up in 1967 with the objective of research & development in the fields of Electronic Communication. In the Private Sector the first major venture was TCS (Tata Consultancy Services) which started functioning from 1968. However in India organised Trade Unions were against introduction of computers in Public Offices. due to the directive of the then Central Government. This enabled the use of personal computers extensively in offices & commercial organizations for processing different kinds of data. instrumentation. Computerisation was restricted to major scientific research organizations and Technical Institutes and defence organizations.) was established in 1976 to look after maintenance operations of Main Frame Computers installed in several organisations in India. Indian Railways first accepted computerisation for operational efficiency.
48 .year 1980 a few batch-mates of IIT Delhi pioneered the effort to start a major education centre in India to impart training in Information Technology and their efforts resulted in the setting up of NIIT in 1981. The booming hardware and software industry in the West attracted Indian students and many of them migrated for better opportunities to the U.A. Rapid development of business and industry brought manual operations of data. when several Engineering Colleges and Technical Institutes introducing Post Graduate Degree courses in Computer Engineering. Several heads of accounts in particular inter-bank clearing and inter-branch reconciliation of accounts went totally out of control. Low productivity pushed cost of wages high and employees realised that unless they agreed for computerisation further improvement in their wage structure was not possible. a saturation point. but at the same time. Before large scale computerisation. and settled there. We have today the paradox of India being one of the major powers possessing diverse talents in fields of software development. we are still a decade back to the using computerised service extensively in the country and bringing the facility to the realms of the common man. Aptech Computer Education was established in 1986 following the experiment of NIIT. the Employees' Unions of Banks signed an agreement with Bank Managements under the auspices of Indian Banks' Association (IBA). Government owned banks in general found the "house-keeping" unmanageable. This acted as a overload on the growing banking operations. computer education became popular in India and coveted by bright students. This agreement was a major break through in the introduction of computerised applications and development of communication networks in Banks.S. In the year 1993.
Rangarajan. their adverse impact on customer services and the grave dangers to banks in the context of increasing incidence of frauds. Dr. stemmed out of the landmark report of the two committees headed by the former Governor of the Reserve Bank of India and currently Governor of Andhra Pradesh. there was a four-fold increase in the number of branches.The first initiatives in the area of bank computerisation. however. In the first phase of computerisation spanning the five years ending 1989. five-fold increase in advances and a six-fold increase in deposits'. regional / controlling offices and Head Office necessitated by the explosive growth in the geographical spread of banking following nationalization of banks in 1969. Against this backdrop. The Reserve Bank too had embarked upon an ambitious program to bring about state-of-the-art technology in the clearing process and had introduced MICR clearing at 4 centres and computerized clearing settlement at 9 centres.Rangarajan's Chairmanship to draw 49 . His Excellency. 233 mini computers at the Regional/Controlling office levels and trained over 2000 programmers/systems personnel and over 12000 Data Entry Terminal Operators. Both the reports had strongly recommended computerisation of banking operations at various levels and suggested appropriate architecture.C. In the 'seventies. the Committee on Computerisation in Banks was set up once again under Dr. the Committee on the Mechanization of the Banking Industry (1984) was set up for the first time to suggest a model for mechanisation of bank branches. viz. banks in India had installed 4776 ALPMs at the branch level. The first of these Committees. Mechanisation was seen as the best solution to the "problems inherent in the manual system of operations.
up a perspective plan for computerisation in banks. In its report submitted in 1989, the Committee acknowledged the gains of the initial efforts and sought to move away from the stand-alone dedicated systems to an on-line transaction processing environment in branch banking. It recommended that the thrust of bank computerisation for the following 5 years should be to fully computerise the operations at both the front and back offices of large branches then numbering around 2500.
CHALLENGES OF THE "E-BANKING REVOLUTION"
Electronic banking is the wave of the future. It provides enormous benefits to consumers in terms of the ease and cost of transactions. But it also poses new challenges for country authorities in regulating and supervising the financial system and in designing and implementing macroeconomic policy. Electronic banking has been around for some time in the form of automatic teller machines and telephone transactions. More recently, it has been transformed by the Internet, a new delivery channel for banking services that benefits both customers and banks. Access is fast, convenient, and available around the clock, whatever the customer's location (see illustration above). Plus, banks can provide services more efficiently and at substantially lower costs. For example, a typical customer transaction costing about $1 in a traditional "brick and mortar" bank branch or $0.60 through a phone call costs only about $0.02 online. Electronic banking also makes it easier for customers to compare banks' services and products, can increase competition among banks, and allows banks to penetrate new markets and thus expand
their geographical reach. Some even see electronic banking as an opportunity for countries with underdeveloped financial systems to leapfrog developmental stages. Customers in such countries can access services more easily from banks abroad and through wireless communication systems, which are developing more rapidly than traditional "wired" communication networks. The flip side of this technological boom is that electronic banking is not only susceptible to, but may exacerbate, some of the same risks —particularly governance, legal, operational, and reputational— inherent in traditional banking. In addition, it poses new challenges. In response, many national regulators have already modified their regulations to achieve their main objectives: ensuring the safety and soundness of the domestic banking system, promoting market discipline, and protecting customer rights and the public trust in the banking system. Policymakers are also becoming increasingly aware of the greater potential impact of macroeconomic policy on capital movements.
NEW CHALLENGES FOR REGULATORS This changing financial landscape brings with it new challenges for bank management and regulatory and supervisory authorities. The major ones stem from increased cross-border transactions resulting from drastically lower transaction costs and the greater ease of banking activities, and from the reliance on technology to provide banking services with the necessary security.
Regulatory Risk: Because the Internet allows services to be provided from anywhere in the world, there is a danger that banks will try to avoid regulation and supervision. What can regulators do? They can require even banks that provide their services from a
remote location through the Internet to be licensed. Licensing would be particularly appropriate where supervision is weak and cooperation between a virtual bank and the home supervisor is not adequate. Licensing is the norm, for example, in the United States and most of the countries of the European Union. A virtual bank licensed outside these jurisdictions that wishes to offer electronic banking services and take deposits in these countries must first establish a licensed branch. Determining when a bank's electronic services trigger the need for a license can be difficult, but indicators showing where banking services originate and where they are provided can help. For example, a virtual bank licensed in country X is not seen as taking deposits in country Y if customers make their deposits by posting checks to an address in country X. If a customer makes a deposit at an automatic teller machine in country Y, however, that transaction would most likely be considered deposit taking in country Y. Regulators need to establish guidelines to clarify the gray areas between these two cases.
Legal Risk: Electronic banking carries heightened legal risks for banks. Banks can potentially expand the geographical scope of their services faster through electronic banking than through traditional banks. In some cases, however, they might not be fully versed in a jurisdiction's local laws and regulations before they begin to offer services there, either with a license or without a license if one is not required. When a license is not required, a virtual bank—lacking contact with its host country supervisor—may find it even more difficult to stay abreast of regulatory changes. As a consequence, virtual banks could unknowingly violate customer protection laws, including on data collection and privacy, and regulations on soliciting. In doing so, they expose themselves to losses through
which requires great vigilance. Operational Risk: The reliance on new technology to provide services makes security and system availability the central operational risk of electronic banking. Banks' security practices should be regularly tested and reviewed by outside experts to analyze network vulnerabilities and recovery preparedness. Once a customer opens an account. so banking regulators and supervisors must ensure that banks have appropriate practices in place to guarantee the confidentiality of data. To combat money laundering. They typically comprise recommendations for verifying an individual's identity and address before a customer account is opened and for monitoring online transactions. according to the task force.lawsuits or crimes that are not prosecuted because of jurisdictional disputes. whose regulatory authorities will investigate and pursue money laundering violations? The answer. it is impossible for banks to identify whether the nominal account holder is conducting a transaction or even where the transaction is taking place. In a report issued in 2000. lies in coordinating legislation and regulation internationally to avoid the creation of safe havens for criminal activities. Security threats can come from inside or outside the system. as well as the integrity of the system and the data. Money laundering is an age-old criminal activity that has been greatly facilitated by electronic banking because of the anonymity it affords. the Organization for Economic Cooperation and Development's Financial Action Task Force raised another concern. With electronic banking crossing national boundaries. Capacity planning to address increasing transaction volumes and new technological 53 . many countries have issued specific guidelines on identifying customers.
developments should take account of the budgetary impact of new investments, the ability to attract staff with the necessary expertise, and potential dependence on external service providers. Managing heightened operational risks needs to become an integral part of banks' overall management of risk, and supervisors need to include operational risks in their safety and soundness evaluations.
Reputational Risk: Breaches of security and disruptions to the system's availability can damage a bank's reputation. The more a bank relies on electronic delivery channels, the greater the potential for reputational risks. If one electronic bank encounters problems that cause customers to lose confidence in electronic delivery channels as a whole or to view bank failures as systemwide supervisory deficiencies, these problems can potentially affect other providers of electronic banking services. In many countries where electronic banking is becoming the trend, bank supervisors have put in place internal guidance notes for examiners, and many have released risk-management guidelines for banks. Reputational risks also stem from customer misuse of security precautions or ignorance about the need for such precautions. Security risks can be amplified and may result in a loss of confidence in electronic delivery channels. The solution is consumer education—a process in which regulators and supervisors can assist. For example, some bank supervisors provide links on their websites allowing customers to identify online banks with legitimate charters and deposit insurance. They also issue tips on Internet banking, offer consumer help lines, and issue warnings about specific entities that may be conducting unauthorized banking operations in the country.
THE MACROECONOMIC CHALLENGES But the challenges are not limited to regulators. As the advent of Ebanking quickly changes the financial landscape and increases the potential for quick cross-border capital movements, macroeconomic policymakers face several difficult questions.
If electronic banking does make national boundaries irrelevant
by facilitating capital movements, what does this imply for macroeconomic management?
How is monetary policy affected when, for example, the use
of electronic means makes it easier for banks to avoid reserve requirements, or when business can be conducted in foreign currencies as easily as in domestic currency?
When offshore banking and capital flight are potentially only a
few mouse clicks away, does a government have any leeway for independent monetary or fiscal policy?
How will the choice of the exchange rate regime be affected,
and how will E-banking influence the targeted level of international reserves of a central bank?
Can a government afford to make any mistakes? Will the
spread of electronic banking impose harsh market discipline on governments as well as on businesses? The answers to these questions fall into two emerging strands of thought. First, the technological revolution—particularly the expansion of electronic money but also, more broadly, electronic advances in banking practices—could result in a decoupling of households' and firms' decisions from the purely financial operations of the central bank. Thus, the ability of monetary policy to influence inflation and economic activity would be threatened.
Second, as electronic banking expands, financial transaction costs can decline significantly. The result would be tantamount to a reduction in the "sand in the wheels" of the financial sector machinery, making capital flows even easier to effect, with a potential erosion of the effectiveness of domestic monetary policy. In this regard, proponents of the Tobin tax—which would tax shortterm capital flows to increase their cost and, thereby, the sand in the wheels—would feel that electronic banking makes an even more compelling case for introducing such a tax. While electronic banking can provide a number of benefits for customers and new business opportunities for banks, it exacerbates traditional banking risks. Even though considerable work has been done in some countries in adapting banking and supervision regulations, continuous vigilance and revisions will be essential as the scope of E-banking increases. In particular, there is still a need to establish greater harmonization and coordination at the international level. Moreover, the ease with which capital can potentially be moved between banks and across borders in an electronic environment creates a greater sensitivity to economic policy management. To understand the impact of E-banking on the conduct of economic policy, policymakers need a solid analytical foundation. Without one, the markets will provide the answer, possibly at a high economic cost. Further research on policy-related issues in the period ahead is therefore critical.
Adaptation: In light of how rapidly technology is changing and what the changes mean for banking activities. it will be essential to define an electronic signature and give it the same legal status as the handwritten signature. keeping regulations up to date has been. which should include measures to authenticate the identity and authorization of customers. For example. it recommends that a bank's board of directors and senior management review and approve the key aspects of the security control process. recognition. databases. and tailor the existing risk-management framework to the electronic banking setting. Regulators and supervisors must also ensure that their staffs have the relevant technological expertise to assess potential changes in risks. and complex task.REGULATORY TOOLS TO OVERCOME CHALLENGES There are four key tools that regulators need to focus on to address the new challenges posed by the arrival of E-banking. 57 . a far-reaching. Legalization: New methods for conducting transactions. and ensure segregation of duties within E-banking systems. new instruments. Existing legal definitions and permissions— such as the legal definition of a bank and the concept of a national border—will also need to be rethought. and new service providers will require legal definition. protect data integrity. adapt. For example. promote nonrepudiation of transactions. and applications." which discusses how to extend. the Bank for International Settlements issued its "Risk Management Principles for Electronic Banking. and continues to be. which may require significant investment in training and in hardware and software. timeconsuming. In May 2001. and permission.
bank examiners will want to know how well the bank's management has elaborated its business plan for electronic banking. as of this writing. The task of international harmonization and cooperation can be viewed as the most daunting in addressing the challenges of electronic banking. 58 . in limbo. The problem of jurisdiction that arises from "borderless" transactions is.Harmonization: International harmonization of electronic banking regulation must be a top priority. each country must decide who has jurisdiction over electronic banking involving its citizens. Integration: This is the process of including information technology issues and their accompanying operational risks in bank supervisors' safety and soundness evaluations. This means intensifying crossborder cooperation between supervisors and coordinating laws and regulatory practices internationally and domestically across different regulatory agencies. In addition to the issues of privacy and security. A special challenge for regulators will be supervising the functions that are outsourced to third-party vendors. For now. for example.
anytime. Generate account statements Setup Standing Instructions Configure profile settings Use eTax for online tax payment Use ePay for automatic bill payments Interface with merchants for railway and airline reservations 59 RTGS/NEFT feature • • • • • • . secure access to banking services for accounts in over 11. State Bank of India (SBI) offers a wide range of banking products and services to corporate and retail customers. The application is developed using the latest cutting edge technology and tools. The portal provides anywhere. The Retail banking application is an integration of several functional areas.000 branches across India. OnlineSBI is the Internet banking portal for State Bank of India.CASE STUDIES State bank of India State Bank of India is India’s largest bank with a branch network of over 11000 branches and 6 associate banks located even in the remotest parts of India. and enables customers to: • • • Issue Demand Drafts online Transfer funds to own and third party accounts Credit beneficiary accounts using the VISA Money Transfer. online access to accounts for State Bank’s Retail and Corporate customers. The infrastructure supports unified.
Admin.Electronic Vendor Finance Direct Debit Facility E Collection Facilities for: 60 site integration. and Auditor. Authorize. vendor and tax collection authorities. • Scheme) • • . Transaction Maker. Uploader. based Generate account statement Enquire on transaction details or current balance on rights assigned to the user • • In addition to the above the Internet banking application also provides the following value added services: • Tax payments to central and state governments through site to Supply Chain Finance( e-VFS. define rights and transaction rules on corporate Access accounts in several branches with a single sign-on Upload files to make bulk transactions to third parties. modify. Authorizer. • accounts. These roles have access to the following functions: • Manage users. Use online transactional features such as fund transfer to own accounts • mechanism • supplier. reschedule and cancel transactions. The corporate module provides roles such as Regulator.• Avail DEMAT and IPO services The OnlineSBI corporate banking application provides features to administer and manage corporate accounts online. and draft issues • • Make bill payments over the Internet. third party payments (both Inter and Intra bank).
long-term customer relationships with ease of banking wherever and whenever the customer wants it and enhanced profitability.D) and Satyam Infoway Ltd. and India’s largest private ISP and mega-Portal. the banking subsidiary of ICICI Ltd. which is expected to result in improved customer orientation.COM” company for on-line distribution of retail banking products and services on the Internet. (NASDAQ: SIFY) announced the setting up of a new “. Satyam Infoway. The marriage between banking and portals is expected to be a win-win potent combination. fixed deposits. ICICI Bank. (NYSE: IC and IC. bill payments and other retail banking products that ICICI Bank may offer through this on-line channel.• • • • Core Banking Transactions Inter Bank Transactions for incoming RTGS/NEFT Transactions Internet Banking Transactions for SBI & Associate Banks Direct Debit facility where suppliers can directly debit their customer’s account through Internet Banking ICICI Bank In a major development in the Internet world. current accounts. lower distribution cost. to create a unique partnership between a major Bank and a mega-Portal. The range of retail banking products to be distributed through the portal would include savings accounts. The surge in demand for e-commerce related services stems from 61 . This landmark agreement marks the coming together of India’s first Internet Banking provider. ICICI Bank.
which would effectively synergies the financial services strength of ICICI Bank and its Affiliates and the technological expertise of Satyam Infoway and its Affiliates. thereby increasing its reach across the country. H. A synergistic offering of these two products would be made so that such customers/users can complete the entire transaction and payments online. 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 and Satyam Infoway through this partnership will play a strategic role in providing revolutionary ecommerce solutions in India. ICICI Bank has developed an Internet based ‘business to business’ payment module for purchasers and sellers to effect payments online. Managing Director & CEO of ICICI Bank and Mr. Ramraj.N Sinor. enabling visitors to surf the Internet. SIFY has a buyer to seller ordering/selling website. It would also offer Satyam Internet terminals at its branches. This would include providing a platform for trade facilitation and payments over the Internet using innovative banking products of ICICI Bank. ICICI Bank. R. as a part of its “Click and Brick” strategic focus would set up ATMs at the Satyam Access Points and Cyber Cafes. which is on-line except for the payments that are still physical. thereby attracting new customers to branches. The two companies would therefore also explore several opportunities to complement each other’s strengths to capitalist on the opportunities in ecommerce.com. SeekandSource. The memorandum of understanding was signed today between Mr. Managing Director of Satyam Infoway. ICICI is a diversified financial services company offering a wide 62 .the rapid growth in Internet penetration in the country and a fundamental change in the business paradigm. The two companies shall examine further business opportunities.
com. khel.com with SIFY’s portals. The combined portal would be the largest India related Internet portal. 63 . ICICI Bank has been gearing itself for the opportunities that would be created from the e-Commerce revolution. ICICI Bank. a subsidiary company has been the pioneer of Internet banking in India. the most comprehensive portal site of Indian origin is one of the key offerings from SIFY in the business to consumer segment.com and khoj.range of products and services to corporate and retail customers in India. which would result in the integration of IndiaWorld’s popular websites like samachar. Recently it entered into an agreement to acquire IndiaWorld Communications Private Limited. Is the leading integrated Internet and ecommerce company operating in India. SatyamOnline. Satyam Infoway Ltd.
ANALYSIS 1. Are you aware of net banking services offered by the banks? (a) (b) Yes No 65 .
Analysis of the above diagram It is good for the banks as most of the respondents were aware of the internet banking and all the services provided under internet banking 2. In which company bank do you have your acccount? (a) (b) (c) (d) (e) Axis bank Standard Chartered Bank HSBC Bank HDFC Bank State Bank of India 66 .
Do you feel safe in disclosing your details on net? (a) (b) Yes No Analysis of the above diagram 67 .Multi-national banks are also making their presence noticeable in the Indian scenario 3.Analysis of the above diagram It was witnessed that today public sector bank State bank of India has the largest customer base but the private banks are also catching up and after State bank of India HDFC has the highest customer base .
This question witnessed a fifty fifty answer from most of the respondents. few of the respondents felt safe in disclosing their details but still there were a lot people who felt unsafe in disclosing and feared their personal information may used by some other person 4.the rest of the 68 . Are you satisfy with your bank services? (a) (b) Yes No Analysis of the above diagram It is very interesting to see that most of the respondents are happy from the services their respective bank is providing .
respondents felt there is a scope of improvement still they were also happy 5. What are your main transactions you would prefer to do by net (a) (b) (c) (d) (e) (f) (g) Money transfers Checking of your current balance Create Fixed Deposits Online Request a Demand Draft Pay Bills Order a Cheque Book Request Stop Payment on a Cheque 69 .
internet banking has a promising future ahead 6.Analysis of the above diagram It is interesting to see that a respondent would like to do all the transactions which one does personally on a visit to the bank. Are you aware of the benefits of net banking which are available (a) (b) Yes No 70 . Thus.
Are you aware of the methods which can be undertaken to make any kind of fraud (a) (b) Yes No 71 .Analysis of the above diagram It is pretty amazing to see that most of the respondents are aware of the benefits of internet banking 7.
Are you aware of all the methods which can be taken up to secure your transaction (a) (b) Yes No 72 .Analysis of the above diagram It’s pretty tragic but most of the respondents are unaware of the techniques which can be taken up for any type of fraud 8.
9.Analysis of the above diagram Even with the increasingly knowledge of internet banking most of the respondents are unaware the softwares and methods taken up by the bank to secure each and every transaction. Does your bank educate you about the internet banking services being offered? (a) Yes 73 .
10.(b) No Analysis of the above diagram Most of the respondents felt that they are not properly educated of internet banking and its benefits to them. Would you prefer using net banking instead of visiting your bank every now and then? (a) Yes 74 .
Thus . What benefits do you see in internat banking? (a) Convenience (b) Speed (c) Transparency (d) Time 75 .(b) No Analysis of the above diagram It was witnessed that most of the respondents preferred using internet banking over there conventional banking system. internet banking has a bright future ahead 11.
rest speed convenience and time are also the other motivating factors 76 .Analysis of the above diagram Most of the respondents felt that the transparency provided by internet banking is the highest motivating factor for an individual to use internet banking .
FINDINGS An old Chinese saying goes: If you don't know where you are going . 77 .you will never get there.
There is no need to stand in one more line to perform the most basic transactions when they can be done quickly from the desktop PC anytime. 11) Moreover complicated transactions or investment decisions. convenient way to shop for financial services.(refer question no. 1) Every day more and more people are turning to the Technology for their personal banking. maintain bank accounts and conduct business 24 hours a day.(refer question no. 78 . Many people suddenly choosing their personal computers as the new way to view and manage their money.(refer question no.because it is a valuable option to have. people like having direct control over their finances themselves. day or night. if you are already thinking about Technology as a tool in Banking you could probably set some of these goals: Selling financial products and services Cutting operational costs Branding & Market recognition Keeping profitable customers Bank customers can save time by banking online. It is a safe. why? Quite simple . 3) Now.
an array of checking accounts are available in which you may also request a FREE check card.(refer question no. Customers also choose banks whose online services are reliable. Navigation through online banking should be simple and intuitive. Cutting operational cost 79 .5) In addition. Hence most Banks of following Electronic Banking or Internet Banking FREE Benefits for the bank should always reflect benefits for the customer of banking services.(refer question no. including a FREE checking account and internet bill paying services.9) Most Banks now offers a comprehensive range of financial products and services.They find it convenient to access all of their financial information in one place. Ease of use is one of the most important factors.
Majority of banks see 80% of their business coming just 20% of the client base. This 20% customer base is vulnerable if the bank does not appreciate their time. The enclosed chart clearly indicates the benefits of E-banking over traditional methods banking. Cutting transaction costs results in higher profit margin for the banks. Building stronger customer relations 80 . It is a fact that people using E-banking are the ones who consider time as money and are the one with loads of money. As every Bank wants to be profitable E-banking is becoming necessity for survival. Electronic banking provides enormous benefits to consumers in terms of the ease and cost of transactions Taking over customers from competition Banks seeking new customers can use advantages of new distribution channels and acquire most profitable customer from their competition.
Bigger share in customer’s wallet It is well known fact that customers tend to keep their finances in one place. Investments are more than twice higher than the average. Offering new services. Recent studies show that banks in the USA lost 20% of their most valuable customers in favor of non-bank FI flexible enough to offer diversified services and products. Banks holding customer accounts therefore have opportunity to cross sell different products and services. Identifying profitable customers Customers using E-banking services have higher balances than average branch teller customers. results in improved customer experience and stronger customer retention. 81 .
In addition. 83 . banks would need to add “supermarkets” selling products such as mortgage. and should not require an engineering degree to get started or use the service. banks must act quickly. There is a need felt for the banks to promote the online banking services and proper promotional activities are not taking Banks need to appeal to customers who may not be technologically sophisticated.SUGGESTIONS To prevent online banking from remaining an expensive additional channel that does little to retain footloose customers. to meet the challenge of online brokerage and other new entrants. The banks should take up responsibility of educating the customers and all the benefits of internet banking place. mutual funds and insurance. The first and most obvious step they should take is to see to it that the basic problem fueling dissatisfaction have been addressed.
productive banking industry is providing services of greater quality and value. No country today has a choice whether to implement E-banking or not given the global and competitive nature of the economy. technology is allowing banks to offer new products. we have learnt that information technology has empowered customers and businesses with information needed to make better investment decisions. E-banking has become a necessary survival weapon and is fundamentally changing the banking industry worldwide. At the same time. raise productivity. expand geographically and compete globally. the click of the mouse offers customers banking services at a much lower cost and also empowers them with unprecedented freedom in choosing vendors for their financial service needs.CONCLUSION From all of this. The invasion of banking by technology has created an information age and commoditization of banking services. operate more efficiently. 85 . Banks have come to realize that survival in the new e-economy depends on delivering some or all of their banking services on the Internet while continuing to support their traditional infrastructure. A more efficient. Today.
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. banks must learn to capitalize their customer’s different online financialservices relationships 86 . being made available to retail and wholesale customer through an electronic distribution channel. Technology innovation and fierce competition among existing banks have enable a wide array of banking products and services.The rise of E-banking is redefining business relationships and the most successful banks will be those that can truly strengthen their relationship with their customers. While the new entrants have the advantage of latest technology. Technology is altering the relationships between banks and its internal and external customers. With one time investment. cross-border risk and strategic risk. collectively referred to as e-banking. Banks have traditionally been in the forefront of harnessing technology to improve product and efficiency. technology has brought about superior products and channel management with a special focus on customer relationship. 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. 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. which are unique to e-banking. Instead. Technology has also eroded the entry barriers faced by many industries. Internet has created plenty of opportunities for players in the banking sector. it is associated with risks such as reputation risk. security risk.
com Bank netindia- • • • • http://www.Dr A.com/20020916/indtrend1. K.banknetindia.shtml • E-finance by Vasant C Joshi.com/?A-Brief-History-of- Internet-Banking&id=353450 • Express cmputers: http://www. ICICI BANK – www. Mishra Hsbc bank :.BIBLIOGRAHY • • • HDFC BANK.com State bank of India.expresscomputeronline.www.co.com Internet Banking in India-Part I.www.hsbc.com/banking/ibkgintro.onlinesbi.hdfcbank. 87 .htm • Ez articles:- http://ezinearticles.www.icicibank.in THE BUSINESS LINE.
1. In which company bank do you have your acccount? (a) (b) (c) (d) (e) Axis bank Standard Chartered Bank HSBC Bank HDFC BANK STATE BANK FOF INDIA 88 . I am doing this research to compare different services provided by bank to its clients. Are you aware of net banking services offered by the banks? (a) (b) Yes No 2. I am student of Rukmini Devi Institute of Advanced Studies.Annexure QUESTIONNAIRE Dear Respondent.
Are you satisfy with your bank services? (a) (b) Yes No 5. Do you feel safe in disclosing your details on net? (a) (b) Yes No 4. What are your main transactions you would prefer to do by net (a) (b) (c) (d) (e) (f) (g) Money transfers Checking of your current balance Create Fixed Deposits Online Request a Demand Draft Pay Bills Order a Cheque Book Request Stop Payment on a Cheque 89 .3.
6. Are you aware of the methods which can be undertaken to make any kind of fraud (a) (b) Yes No 8. Are you aware of all the methods which can be taken up to secure your transaction (a) (b) Yes No 9. Are you aware of the benefits of net banking which are available (a) (b) Yes No 7. Does your bank educate you about the netbanking services being offered? (a) Yes 90 .
(b) No 10. What benefits do you see in internat banking? (a) Convenience (b) Speed (c) Transparency (d) Time Personal Information Name: Age: Sex: ( ) Male ( ) Female Phone No: Occupation: 91 . Would you prefer using net banking instead of visiting your bank every now and then? (a) (b) Yes No 11.
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