UNIVERSITY OF MUMBAI

“ INFORMATION TECHNOLOGY IN BANKING SECTOR “

BACHELOR OF BANKING AND INSURANCE

SEMISTER VI

SUBMITTED

IN PARTIAL COMPLETION OF REQUIREMENT FOR THE AWARD OF THE DGREE OF

BACHELOR OF BANKING AND INSURANCE.

BY

YASH VINOD AMBRE

ROLL NO:- 3102

UNDER GUIDANCE OF
 PROF. VRUNDA YADWAD

KARNATAKA SANGHA’S

MANJUNATHA COLLEGE OF COMMERCE, THAKURLI ( E )

2020-2021
 ACKNOWLEDGEMENT

It gives me immense pleasure while submitting the project report on the topic. (

information technology in banking industry ). I wish to take opportunity to express my

deep sense of gratitude to

ASST. PROF.VRUNDA YADWAD for her help in all stages of preparing project. She has

given the tremendous helping hand in completing this difficult task.

I had easy or anytime access to such knowledge and guided spirit. I fell there is ample

scope of improvement upon work of this nature and I shall be thankful if any suggestion

is offered for it’s improvement.

(Name);-
 DECLARATION

I MR YASH VINOD AMBRE student of T.Y.BBI ROLL NO;- 3102 here wish to state that the

work embodied in the project entitled , “ IT IN BANKING INDUSTRY “ by me to

UNIVERSITY OF MUMBAI FOR SEMESTER-6 EXAMINATION during the Academic Year

2020-2021.

The said reports are forms of my own contribution best on actual work carried by me

under guidance and supervision of ASST.PROF.MS. VRUNDA YADWAD and PRINCIPAL

DR.V.S. ADIGAL SIR.

I further wish to state that this work is original and has not submitted for any other

degree of this or any other examination. Whenever the reference have been made to the

previous work of others, it has been clearly indicated as such and included in the

bibliography or list of references.

Your Name

ROLL NO:-

PLACE :- THAKURLI SIGNATURE OF STUDENT:

DATE :-
 CERTIFICATE

This is to certify that MR. YASH VINOD AMBRE, ROLL NO:- 3102. 2020-2021 BBI

semester-6 (2019-20). He successfully completed the project on “INFORMATION

TECHNOLOGY IN BANKING INDUSTRY“ under the guidance of ASST.PROF.VRUNDA

YADWAD and PRINCIPAL DR. V.S ADIGAL.

I further declare that the information presented in this projects is true and original to the

best of my knowledge.

INTERNAL EXAMINER EXTERNAL EXAMINER

CO-ORDINATOR PRINCIPAL (COLLEGE SEAL)

 TABLE OF CONTENT

1. INTRODUCTION

a) OBJECTIVES OF THE STUDY

b) LIMITATIONS OF THE STUDY

c) RESEARCH METHODOLOGY

2. E-BANKING: IN NASCENT STAGE IN INDIA

3. ELECTRONIC CHEQUES & EVIDENTIARY VALUE

4. THE FUTURE OF PLASTIC MONEY

5. LEADING ISSUES IN BANKING TECHNOLOGY

6. TECHNOLOGY & FRAUDS

7. CREDIT CARD FRAUD ON INTERNET

8. INFORMATION TECHNOLOGY RISK IN BANKING: MANAGEMENT & MEASUREMENT

9. PRIMARY DATA & ANALYSIS

10. FINDINGS & CONCLUSIONS

11. SUGGESTIONS & RECOMMENDATIONS

12. BIBLIOGRAPHY
 1. INTRODUCTION

The Indian Banking system has an old age legacy. Earlier there were indigenous bankers

who consisted mainly of unorganized moneylenders, mahajans and sahukars. Later,

when British came to India they brought with themselves the concept of organized

banking. British while leaving India left behind large number of small and privately held

banks. In 1964, the first major banking reform took place when 14 banks were

nationalized. It led to the rising of Indian Public Sector Banks. The second banking reform

was witnessed in 1990s when Indian Banking Sector underwent complete change after

the recommendations of the Narsimhan Committee. Private and MNC banks entered

banks entered into the Indian Banking arena and challenged the monopoly of the PSU

banks. The Private and MNC banks brought new technologies and technology intensive

services with themselves. They rendered quality service, which PSU banks were not

providing, to service starved Indian customers. There were a series of technological

innovations and up-gradations, e.g., ATMs, Internet Banking, credit cards and online

banking, etc. Private banks and MNC banks had to At present provide something extra

and it was their service, which attracted a bulk of customer from the PSU banks. Indian

customers were lacking the world-class service in baking; they were accustomed to the

PSU (Sarkari) culture and the service of Private and MNC banks was a delight for them.

When private and MNC banks initiated the world class service to their customers and

started snatching customers from Public Sector Banks, Public sectors banks were bound
to follow the path of Private Banks. The PSU banks felt the heat and realized their mistake.

They also followed the Private Banks in their technology initiatives and services. The

Indian Banking Sector with the progress in Technology is facing the biggest challenged of

rapidly changing customer expectations against the backdrop of LPG (Localization,

Privatization and Globalization). Retail banking clients today demand more care and

extra facilities. They want more mobility of investments, interactive accounts, and better

segmentation of banking products to cater to different segmental needs, convenience and

untimely hour services. Even the PSU culture could not adjust to the pace of the new

technology and changes. At present also it is moulding and adapting itself to new needs

and the dynamism of the environment. Technology is helping the Indian Banks to cater

to customer needs in a much more efficient manner continuous and error free services to

customers. With the help of computerization and the use of modern software, which can

be called the gift of technology, the banks have been able to provide single window system

to their customers. In a single window system, all the needs of the customers are taken

care at a single counter. It is like a multipurpose counter where one can deposit cheque,

receive payments and deposit cash etc. This has been made possible only due to the use

of technology. Earlier one had to move from one counter to the other counter for different

sort of works. Thus this type of service not only helps in better customer service but also

minimizes the customer service time as it avoids duplication of work and unnecessary

hassles to the customers. With the use of technology, banks are trying to minimize there
per customer service cost. According to industry estimates, assume teller cost Re.1 per

transaction, ATM transactions cost Re.0.45, phone banking at Re.0.35, debit cards at

Re.0.20 and Internet banking at Re.0.10 per transaction. So, now the emphasis ismore on

net banking then on real banking or brick and mortar banking. Indian Banking system is

moving from real banking realm to virtual banking realm. Banks are establishing more

and more ATMs at different convenient locations and interconnecting these ATMs not

only with their networks but also with their partner banks. Network with whom they

have got mutual understanding for sharing ATMs. With the least cost of Internet banking,

banks are paying higher emphasis on Internet banking. As per IDC estimates, the total

number of registered users for Internet banking in India is over two million. But this

figure needs to be adjusted for dormant users and multiple accounts (a user having

accounts with more than one bank). India has one million active Internet Users

populations. Thus, this is just around 0.1% of the total population; to represents 15% of

the India’s Internet user (most of the people in India use internet from cyber café). Thus,

indicating that the concept of Internet banking is surely catching on. India is far behind

in the use of Internet banking than the other Asian countries like Korea and Singapore

where nearly 10% of their population is banking over the Internet but India is fast

catching up. In India, the biggest drawback for Internet banking is the Internet

penetration among the masses. We lack the infrastructure facility for providing Internet

services but with the IT ministry keen on expanding the Internet penetration the day is
not too far when greater part of our population would be using the Internet banking

facilities. In India, ICICI bank was the pioneer to introduce Internet Banking. And later

Citibank, HDFC Bank and other banks followed the suit. PSU banks have lagged far behind

in adoption of the Internet banking facilities. But State Bank of India, which entered the

arena of ATM banking quite late, was able to expand at a rapid pace and cover almost all

the cities of India. Now ATM banking has become an integral part of traditional cheque or

withdrawal based banking. These services have helped the PSU banks to maintain their

customers. Now money is transferred more in electronic form than in physical form. With

the cost of PC fast declining and the government’s initiative in providing the

infrastructural facilities for net banking and the faster developments in the

telecommunication sector would be helping in the adoption of new technology and

ITbased banking services. Some authors’ view that the Internet banking is just the

extension of the traditional banking services because it is the same service with customer

friendly technologicalinterface. So, it is the value addition to the existing services. Banks

are reaping following benefits with the use of technology:

• With low investment, banks would be able to satisfy large customer base. The

technology has allowed the banks to move from brick and mortar building to virtual

interface which cost less in comparison to the rising real estate prices which in turn leads

to increase investment. Low investment in turn helps in satisfying large client base.
• With modern facilities more and more customers get attracted to the banks and they

are viewed as technology savvy and modern or state-of-the –art banks. Brand image of

the banks also get enhanced thus building their goodwill and brand equity. Even

customers want to be associated with the brand personality of the banks.

• With the increase in quality and competition, the customers are having several choices

among which to choose instead of Hobson’s choice in some case. Now banking services

have become customer centric instead of service centric or bank centric approaches as in

earlier cases. Now, it is the customers market rather than a sellers (bankers) market. All

the services are customer driven.

• Network sharing by different banks is enabling the banks to reduce their investment

(sharing of ATMs of partner banks) and provide better services to the customers. This is

also helping them in delivering quick services and it also reduces the risk of fraudulent

practices as verification becomes quite easier and quick.

• These practices are leading to lower service cost per customer. Thus leading to enhance

profitability forthe banks, which in turn enhances the corporate image of the banks.

• With the use of technology banks are in a position to obtain the customer database with

a press of key and this helps the bank to maintain high profile customers because it is an

accepted marketing principle that 80% of the revenue are generated by 20% customers
(20:80 principle). Thus, the modern technology helps in tracking the key customers and

provides them better services or customized services.

• The alternative channels of service helps the bankers to add new products to their

portfolio and it helps them to device new products according to customer needs. The

banks can provide customized value added services or tailor-made service to each

customer based on his/her requirement, e.g., foreign money transfer service, electronic

money etc.

• It helps the banks to manage their funds in a much better way as the technology

provides round the clock interface to the outside world and thus it helps in hedging the

risk of the banks at real time. Banks are able to minimize the risk and maximize returns

by investing in different avenues and they have greater control over the fund

investments.

• Technology helps in increasing the labor productivity because it increases the output

per labor to multifold. Earlier works had to be performed manually and it used to take

days to complete in minutes or in seconds. So, it helps in updating the customer status as

well as increased labor productivity.

• The customer service cost decreases and the productivity of the staff increases and this

adds to the profitability of the banks. This helps the banks to take care of even larger

customer base and this will ultimately ass up too the bottom-line of the banks.Public
sector banks have been shy in implementing new technology brick mortar banking in

comparison to the technology driven banking while the client base of Private and MNC

banks are mostly young people who are technology-savvy and who like to interface more

with the technology than man. Aged people are not comfortable with the technological

interface. They feel complexity and uncomfortable with technology intensive services.

With the present avenues being saturated and greater competition due to the entry of

more players in the arena, the banks are diversifying into new areas where they can use

their financial expertise in financial consultancy, insurance sectors, and fee-based

earnings instead of fund-based earnings. The mushrooming of the multichannel,

multifunction, self-service electronic delivery channels is fast replacing the brick and

mortar branches (real to virtual). There is a need to redefine the business model of the

Indian banking sector so that to optimize the resources and deliver world class service in

the light of modern day technology. Today’s concept is to minimize the visit of the

customer to the bank and let him usethe technology or let technology handle him-this is

the new survival mantra in the cutthroat scenario for banks.

OBJECTIVES OF THE STUDY

The objectives of the project “The Study Of Application of Information Technology In

Banking Sector” includes the following: -

• To know the present condition of technology in Indian banking sector. • To know about

the electronic payment system.

• To know about the hackers and frauds in online banking.

• To know about the risk management policies of Indian banking sector.

• To know about the electronic banking sector.

 LIMITATIONS OF THE STUDY

The scope of the project “ The Study Of Application Of Information Study In Banking

Sector” has been restricted to some extent i.e. the project does not include the following:

• Supervision of Electronic Banking by Reserve Bank Of India

• Information Technology in Banks in International Scenario

• Software Application to Protect from Hackers & Frauds

• Case Studies Related To Hackers & Frauds

 RESEARCH METHODOLOGY

COLLECTION OF PRIMARY DATA:-

The primary data has been collected from various sources which are as follows:

• Questionnaire method.

• Surveys in banks.

• Surveys in banks related offices such as agent’s office etc. COLLECTION OF SECONDARY

DATA: The secondary data has been collected from various sources which are as follows:

• Various books related to information technology.

• Brochures of various banks.

• Weekly journals.

• Articles in newspapers.

SAMPLE FRAME:

The data has been analyzed using ten samples of employees of three different banks viz.,

Bank of Maharashtra, HDFC Bank and ICICI Bank.

 2. E-BANKING: IN NASCENT STAGE IN INDIA

To keep pace with the changing environment worldwide, Indian banking industry is fast

adopting technology. It has embraced many new features like Internet banking, ATMs,

Phone banking etc. With the help of new technology, banks are now able to offer products

and services, which were difficult or impossible with traditional banking. But the banks

in India still have to go a long way before making themselves technology savvy.

With IT integration, a paradigm shift in the banking norms is on cards. Banking

fundamentals are thus facing major overhauls/ reengineering/ restructuring.

Two major trends have emerged in the transition of traditional banking to high-tech

banking:

➢ Advancements and restructuring through mergers, acquisition and alliances.

➢ Universal banking where one stop shop provides all related products and services

to a customer.

At this point, it should be emphasized that mergers, acquisitions, alliances, and adoption

of Universal Banking concept are just outcomes of IT-banking integration.

Banking and IT

Advancements and innovations in IT industry have created a revolution in the

communication and distribution system of various products and services through Web

networking. Networking, as we know has connected people around the globe, thus

creating a revolution in modern business activities.

Integration of these technological advances and existing banking structures has

changed and will change the definition and faces of global banking. Internet banking has

made banking a commodity where quality is measured by efficient servicing and effective

pricing and timeliness .

However, PC banking is not new. Bank of Scotland Started offering its Home Office

Banking Services (HOBS), more than a decade ago, although it was only in 1996 that it

was upgraded to make software work with the now dominant windows operating

systems. HOBS later joined hands with TSB, which in 1996 launched banking services

accessible through the CompuServe online network, nationwide.

Technology Solutions for Indian Banks

Two types of technology stock bank products are available in the market.

➢ Hardware products like ATMs and

➢ Software products like branch connectivity, cluster-banking software, and trade

finance software.

3. ELECTRONIC CHEQUES AND EVIDENTIARY VALUE

The advancement in technology has led to the creation of electronic cheques, particularly

in a business environment. Different countries have a choice of cheque systems, which

are governed by the laws applicable to each country’s jurisdiction. The authentication of

these electronic instruments is proposed to be endorsed by digital signature. In India, the

enactment of the Information Technology Act, 2000 obligated amendments to The

Negotiable Instruments Act, 1881 in order to impart legal validity to such electronic

instruments. The authors in this article elucidate the amended provisions and examine

the evidentiary value of such electronic instruments. The electronic cheque or simply the

e-cheque is gradually replacing the longstanding paper cheque. The Negotiable

Instruments (Amendments and Miscellaneous Provisions) Act, 2002 was amended to

include the phrase “electronic cheque” in the definition of a cheques in Section 6 reads as
“ A ‘cheque’ is a bill of exchange drawn on a specified banker and not expressed to be

payable otherwise than on demand and it includes the electronicform. “Explanation I. –

For the purpose of this section, the expression- “A cheque in the electronic form” means

a cheque which contains the exact mirror image of a paper cheque and is generate,

written and signed in a secure system ensuring the minimum safety standards with the

use of digital signature (with or without biometrics signature) and asymmetric

cryptosystem.” An electronic cheque simply means a cheque in the electronic form, which

is an exact replica of a physical cheque. It contains all the information that is found on a

physical cheque, but it is “signed digitally” or “endorsed”. In an attempt to provide

authentication, an apparatus commonly known as “signature” was evolved as a proof

asserting intention. This involved appending a unique identifier to a message to identify

the sender/recipient. Conventionally, handwritten signatures are affixed paper-based

cheques. These signatures affixed using ink are used as an authentication tool to identify

that the person signing the document has read and understood the contents. In the

anonymous digital world, where individuals may not actually communicate with each

other, much emphasis is placed on the authentication of the electronic information.

Therefore, it becomes necessary for evolving a secure authentication tool, which led to

the promotion of digital signatures.

 DIGITAL SIGNATURE – HOW IT OPERATES

It is a data string, which associates a message in the digital form with some originating

entry. It is created and verified by means of cryptography, the branch of applied

mathematics that concerns itself with transforming messages into apparently

meaningless forms and back again. It uses a scheme or mechanism consisting of signature

generation algorithm with a method for formatting data into message to produce a digital

signature, and a related signature verification algorithm with the method to recover data

from the message to authenticate a digital signature. It is important to note that, the

Information Technology Act, 2000, in Section 3(2) provides for a particular asymmetric

cryptosystem and hash function as a means of authentication should be recognized as a

source of legal risk.The digital signature mechanism follows an “asymmetric

cryptosystem”. In this method of creating and verifying a digital signature, there are two

basic technical processes or functions: “Public key encryption”, where encryption is the

process by which information is scrambled by the use of a code and “hash”.

The process of a creation and verification of digital signatures using hash algorithm

involves the following steps:

• Create a data unit that is to be signed, e.g., precisely an encircled portion of data in

digital form, which can be a text document, software or any other digital information.

• Generate hash value called “Message Digest” or “Fingerprint” of the message. A hash

function is a process that creates a relatively small number (called message digest) that

represents a much larger amount of electronic data.

• This hash value is computed from the data unit- a number using a hash algorithm, which

creates the compressed digital signature. Digital signatures use a “one way hash function”

and the important thing about such a hash value is that it is nearly impossible to derive

the original data unit without knowing the data unit used to create the hash value.

Therefore, if the data unit is changed or otherwise tampered with, the hash value will no

longer correspond to this data unit and produces an error message.

• Encrypt hash value with the private key of the signatory. Encryption is a process of

disguising a message in such a way so as to conceal its meaning and substance. It also

consists of a procedure of converting plain text to a cipher text. Hence, the plain text refers

to the original digital file, whereas the ciphertext refers to the disguised file.

• Final step in the verification process, which involves the regeneration of the hash value

on the basis of the same data unit and the same algorithm. The determined hash value is
again computed with rhea public policy key, which is then compared with the signature

attached to the data unit. If the product is matching, it will verify the signatory’s private

key, which is used to sign and guarantee that the data unit has not been altered. In this

context, digital signatures are created when the drawer of the cheque runs, the cheque

through a one-way function creatinga message digest. The private key used by the drawer

of the cheque is known only to him. The drawer encrypts the resulting message digest by

using an asymmetric cryptosystem will allow the paying banker to verify the signature

by using it to decrypt the cheque.

EVIDENTIARY VALUE OF DIGITAL SIGNATURE ON E-CHEQUES

Generally, authentication is achieved by what is known as security procedure, but from

the legal perspective, the security procedure requires to be recognized by the law as a

substitute for signature.

With the emergence of cyberspace it became necessary to amend certain provision of the

Indian Evidence Act to make electronic evidence admissible in courts of law. Accordingly,

the second schedule to the Information Technology Act has amended the Indian Evidence

Act, 1872 to remove any obstacle to the legal acceptance and validity of electronic

evidence. According to the amended Section 3 of the Evidence Act, electronic records
stand on par with paper-based documents and will be deemed as documentary evidence

in a court of law.

While Section 22(A) of the Information Technology Act amends Section 17 of the Indian

Evidence Act, 1872 to provide that oral admission as to the contents of the electronic

records are relevant, the written admission of the content of any document or electronic

record can be proved under Section 65 of the Evidence Act.

Section 39 of the Indian Evidence Act provides, “when any statement of which evidence

is given forms part of a longer statement, or is contained in a document which forms part

of a book, or is contained in part of electronic record or of a connected series of letters or

papers, evidence shall be given of so much and no more of the statement, conversation,

document, electronic record, book or series of letters or papers as the court considers

necessary in that particular case to the full understanding of the nature and effect of the

statement, and of the circumstances under which it was made.” It can be inferred from

this provision that where entry of an electronic cheque forms a part of an electronic

record, only that part which is relevant may be taken as evidence before the court. Again

what partis relevant depends on the discretion of the court. The court must exercise this

discretion judicially to determine such relevance. Accordingly, Section 5 of the

Information Technology Act 2000 prescribes, “ Where any law provides that information

or any other matter shall be authenticated by affixing the signature or any other
document shall be signed or bear the signature of any person then, not with standing any

document contained in such law, such requirement shall be deemed to have been

satisfied, if such information or matter is authenticated by means of digital signature

affixed in such manner as may be prescribed by the Central Government.” Explanation-

For the purposes of this section, “signed”, with its grammatical variations and cognate

expression, shall, with reference to a person, mean affixing of his handwritten signature

or any mark on any document and the expression “signature” shall be constructed

accordingly”. This provision explicitly explains that a digital signature is legally

recognized as the method of authentication. The authority to use digital signatures in

thegovernment and its agencies is accordedin Section 6 of the Information Technology

Act, 2000, which reads as-

“ 1) Where any law provides for-

a) This filing of any form, application or any other document with any office, authority,

body or agency owned or controlled by the appropriate government in a particular

manner.

b) The issue or grant of any license, permit, sanction or approval by whatever name

called in a particular manner.

c) The receipt or payment of money in a particular manner, then, notwithstanding

anything contained in any other law for the time beginning in force, such requirement

shall be deemed to have been satisfied if such filing, issue, grant, receipt or payment, as

the case may be, is effected by means of such electronic form as may be prescribed by the

appropriate government”.

The words in Section 6(1)(C) “ the receipt or payment of money in a particular manner …

is affected by means of such electronics forms as may be prescribed by appropriate

government” may be understood to include e-cheque.

A system of digital signature like handwritten signature is use to protect confidential

information. Form the legal perspective, two presumptions that could be raised in respect

of digital signature are:

• Signatory’s personal participation in the Act of signing or any person authorized by

him.

• The intention of the signatory to endorse or approve authorship of a text and the

fact that the signatory had been at a given place and time.

The presence of intention has an integral part of a signature is essential as lack of

intention could be raised with regard to circumstances including fraud and

unconscionable conduct.
To regulate the use of digital signature, the Central Government is empowered to lay

down rules under Section 10 of the Information Technology Act, 2000 that reads, “The

central government may, for the purposes of this Act, by rules, prescribe-

• The type of a digital signature;

• The manner and format in which the digital signature shall be affixed;

• The manner or procedure which facilitates identification of the person affixing the

digital signature; • Control processes and procedures to ensure adequate integrity,

security and confidentiality or electronic records or payments; and

• Any other matter which is necessary to give legal effect to digital signature.”

In India, evidentiary value of the digital signature has been in question for long. A genre

of evidence dominating the digital transaction world leads to be recognized by the Indian

Evidence Act, 1872, by making the necessary amendments there in.

The IT Act 2000 provides for specific evidentiary value for secure records and

secure digital signatures. Subsequently, sub-section (2) to Section 85B of the Indian

Evidence Act has been inserted to be in consonant with the IT Act to provide that, “ In any

proceedings, involving secure digital signature, the court shall presume unless the

contrary is proved that-

• The secured digital is affixed by the subscriber with the intention of signing or

approving the electronic records;

• Except in the case of a secure electronic record or a secured digital signature, nothing

in this Section shall create any presumption relating to authenticity an integrity of the

electronic record or any digital signature.”

The section limits its opinion to a secure digital signature by indicating that there shall be

no presumption relating to authenticity and integrity of a digital signature except where

it is a secure digital signature. If, by application of a security procedure agreed to by the

parties concerned it can be verified that a digital that a digital signature, at the time it was

affixed, was-

• Unique to the subscriber affixing it

• Capable of identifying such a subscriber

• Created in a manner or using means under the exclusive control of the subscriber and

is linked to the electronic record to which it relates in such a manner that if the electronics

record was altered the digital signature would be invalidated then such a digital signature

shall be deemed to be a secure digital signature. As distinct from such a secure digital

signature, Section 67A of the Indian Evidence Act provides for proof as to the digital

signature, and Section 73A prescribes the method by which such a digital signature may
be proved. According to Section 67A of the Indian Evidence Act, “ Except in case of a

secure digital signature, if the digital signature of any subscriber is alleged to have been

affixed to an electronic record the fact that such digital signature is the digital signature

of the subscriber must be proved.”

The Information Technology Act by inserting a new Sub-Section A to Section 47

recognizes opinions of third parties not relevant as evidence unless specifically provided

for Section 47A reads as, “ When the court has to form an opinion as to the digital

signature of any person, the opinion of the certifying authority, which has issued the

Digital Signature Certificate, is an relevant fact”. An opinion of third parties is in

admissible and as evidence except in certain cases when the court requires an opinion of

experts. With this insertion, opinion of third parties became relevant.

 4. THE FUTURE OF PLASTIC MONEY

Use of plastic Money is growing at an unprecedented rate in India. Lesser number of

installed Point-of sale (PoS) terminals is the major obstacle in the growth of debt cards;

smart card has many innovative features, which may spurt the use of cards in India. Smart

card is safer to use in electronic form than the present form of cards

“ Credit card business is a volume game and initially highly capital intensive.”

- A senior banker

Plastic money is growing by leaps and bounds in India. Today, many banks are offering

cards. Though the foreign banks have a dominant share, aggressive entry of the Indian

banks like SBI, ICICI and HDFC Bank may soon change the rules of the game. Today, SBI-

GE is the third largest issuer of credit cards.

The credit card market in India is projected to grow at the rate of 20-25% per annum in

the coming years. There are currently around 3.8 million credit card users compared to

3.0 million in 1990. Visa credit card grew by 46.4% in India while the growth in Asia

Pacific was only 6% for Q3 of 2003. The competition among banks has been growing and

they are offering so many add-on incentives like waiver of first year annual fee, discount

on retail stores, personal loans etc., to woo the customers. Debit card is another segment,

which is catching up fast. There are only 80,000 to 90,000 merchants having point-of-sale
(PoS) terminals installed and majority of them are located in metros, which is the major

obstacle to the growth of debit cards. To increase the usage of debit cards, banks should

concentrate on increasing installation of PoS terminals in semi-urban and rural areas.

Smart Card: A Future Card

Smart cards are the wave of the future for consumer use, commercial use and terminal

network security. Smart cards are in much wider use in Europe than in US.

A smart card is a plastic card with an imbedded computer chip that has been stored

inside the card. It has the capacity to store up to 80 times more information than other

magnetic stripe cards. This mini-computer using an intelligent chip, stores payment

information similar to a magnetic stripe card, but it also includes additional information

such as online authorization controls, credit limits, stored value (gift card), reward points

(loyalty), Personal Identification Number (PIN), etc. Smart cards can be contact less,

suggesting that the chip transfers data via a built-in antenna without physically touching

the smart card reader.

There are over 3 billion smart cards in use currently. Today, smart cards are used

worldwide and it is the most flexible payment option available in the world. Smart cards

have been used in Europe for over 10 years and now they are the accepted mode of

payment. In developing countries and continents such as Africa and Asia, the use of smart
cards has been growing rapidly. In the US, major retailers, banks and processors are

preparing to accept global cards and some are adding smart gift cards and promotional

application to build loyalty for the growth of their business. American Express and

Financial Institutions have issued over 21 million PIN-secured smart cards to their

customers. By the end of 2005, there will be over 100 million smart cards to their

customers. By the end of 2005, there will be over 100 million smart cards in use in the

United States.

In order to accept smart cards, the business must have an EMV ready smart card Point-

of-Sale (PoS) terminal. Merchants can be standalone PoS smart card terminals or smart

card readers that are integrated with cash registers. Currently, over 90% PoS terminals

are not EMV smart card ready.

Smart Cards and Internet Payment

Issues of security and fraud are major drawbacks to using credit and debit cards over the

Internet. Unlike the hand-written receipts, there are no signed sales receipts associated

with today’s ecommerce transactions. Without such evidence, it is difficult as much as

84% of all electronic commerce transactions.

At the same time, consumers are holding back on making Internet purchases due to

lingering security concerns. According to Master Card, 90% of Internet non-buyers worry
that their personal and financial information may fall into the hands of hackers. It is this

reluctance that is the real barrier to building an online business. Using smart cards along

with a strong Internet authentication will help overcome these issues. American Express,

Master Card and Visa smart cards currently support Internet authentication and payment

using built-in digital certificates and digital signatures. For smart cards to be successful,

the cardholders must connect an EMV approved smart card reader to their PCs. Smart

cards have the capacity to replace the thirty plus years old magnetic stripe cards

5. LEADING ISSUE IN BANKING TECHNOLOGY

Many Indian banks are adopting the information technology not merely as a frill, but as a

dire need. It is helping the banks in many core and diversified functions. Technology is

key business enabler in six critical areas of banks. These are augmentation profit pool,

operation efficiency, customer management, product innovation, distribution and reach,

and efficient payment and settlement system. For the success of any IT program,

integration of IT and business strategy is crucial factor.

Banking basics have undergone radical shifts, thanks to the advent of modern technology,

increasing pace of globalization and the need for stronger fundamentals to operate in the

fiercely competitive environment. The digital divide among Indian banks that was quite

discernible before the millennium has considerably narrowed down with many banks
taking to technology not merely as a frill, but as a dire necessity. Technology today

catalyzes many core and diversified functions in banks, including issues like transaction

automation and multiple delivery channels, product innovation, data warehousing and

effective MIS, secured storage mechanisms and a real-time based payment and

settlement system.

Seen in the present context, technology is a key business enabler in six critical areas of

banking.

Augmenting Profit Pool; Operational Efficiency; Customer Management; Product

Innovation; Distribution and Reach; Efficient Payment and Settlement.

Augmenting Profit Pool

Sustained profits and profitability have been major yardsticks for assessing the true

health of banks in a fiercely competitive and compelling business environment.

Technology has proved, at least in case of new generation banks and major public sector

banks to be a major profit driver. With progressive decline in interest rates, banks’

spreads have come under pressure, which per se, affects their profitability. However,

technology had a favorable effect in terms of reducing the operating cost and improving

the burden to a considerable extent. Technology also enable commissioning of new

products like Net banking, mobile banking and other forms of 24X7 banking like ATMs
and Networked services across branches likeanywhere banking, electronic funds

transfer, customer relationship management, call centers across the banks. Hi-tech and

hi-touch services, it goes without saying, have also enlarged the clientele base in banks

and commanded considerable customer loyalty. Technology has created an enabling

environment for banks to diversify into various fee-based activities like bancassurance

and funds transfer arrangements.

Operational Efficiency

Operational efficiency, in terms of optimum utilization of resources, has been one of the

most positive offshoots of technological application in banks. Thanks to greater

technological application, banking system has seen a near consistent improvement in the

intermediation efficiency and consequent decline in transaction cost. Yet, technology

application has been by and large confined, especially in the state-owned banks, towards

cost saving and improved service standards through product innovation. While savings

in cost and improvement in service quality could turn out to be short-term in nature, it is

essential that technology is leveraged as a long-term and efficient cross-functional

application. It is also time that the focus of technology shifts from product innovation to

process innovation commonly referred to as Business Process Reengineering (BRP), for

banks to gain long-term operational efficiency.

Customer Management

Technology also spells significant benefits on the realm of customer research and

management. In a predominantly buyers’ market and high propensity if customers to

switch service providers, customer management need no longer be a front office function,

but a bank-wide obsession. Many banks have duly realized the significance of such

functions and introduced new models like the High Net Worth clients’ branch, imbued

with state of the art technology, exquisite ambience and quickest possible processing of

transactions. Customer management is a very sensitive issue entity hears only from 4%

of its dissatisfied customer, while 96% of its customers quietly go away of which 91%

never come back. Technology, thus, already implemented the tech aided e-CRM

application as strategic tool to retain as well as expand theircustomer base. The bottom

line is that banking products are getting commodities and price wars are slowly leading

to a zero-sum game. In such a scenario, technology backed customer orientation will hold

the key to take service standards anywhere near to world-class.

Product Research

In the field of product research as well, technology plays a decisive role, in terms of swift

product innovation, an active R&D set up effective pricing of products to protect banks’

margins and safeguard customers’ interests. Banking product life cycles are getting
shorter day by day and more than delivery, product servicing defines competitive edge

for banks. Marked to market product processes are equally important for sustained

improvement in the value chain of services and command ‘top of the mind recall’ from

the customers. Technology also aids product profitability research and review, which

have not adequate attention in many of the banks.

Distribution Reach

The thumb rule for strategic management masters is that structure must follow strategy

in any business reorganization.Technology, thus, calls for attendant restructuring

endeavors that will be in tune with the level of technology application. For instance, many

banks need to put in a place a leaner structure and remove intermediate decision-making

tiers. That is how one can see that many of the regional outfits of banks are slowly being

dismantled while branch expansion is not being accorded the thrust it used to be given

earlier. Rightsizing of human and physical overheads is a major strategy adopted by many

banks wherein the role of the earlier brick and mortar banking is slowly getting

dissipated. In turn, devices like Internet and mobile banking. Technology, thus, facilitates

downsizing of overheads cost without compromising much on clientele reach. Public

sector in the rural and semi-urban areas. Many of these branches are not performing to

their potential mainly because of their typical business mix, cost diseconomies and lack
of technology-based services offered in these branches. Technology can facilitate the

branch rationalization exercise such as setting up mobile branches and satellite branches,

especially in the rural areas, and bring many of those into the “Performing” category

without affecting the extent of client reach.

Efficient Payment and Settlement

Innovation in technology and worldwide revolution in information and communication

technology have emerged as dynamic sources of productivity growth. This is true about

banking as well as its relationship with technology has become symbiotic fundamentally.

Payment system is probably the most important mechanism in the banking sector where

technology’s interactive dynamics is getting manifested in an increasing measure each

day.

Banking system has adopted a holistic approach for designing a modern, robust, efficient

and integrated payment system. The approach to the modernization of the payment and

settlement system has been basically three pronged – consolidation, development and

integration. Consolidation of the payment system has revolved round strengthening

computerized cheque clearing and expanding the reach of electronic clearing services

through state-of-the-art technology. Critical elements under the developmental strategy

related to the opening of new clearing houses, interconnectivity of clearing houses

through INFINET and optimizing the development of resources the Negotiated Dealing

System, Structured Financial Messaging System (SFMS) and the recently introduced Real-

TimeGross Settlement (RTGS) system. Integration is the next stage that the banking

system is currently going through which is premised on a high degree of standardization

within a bank and seamless interfaces across banks, leading to Straight Through
Processing (STP) of transaction on a regular basis. Further, cheque truncation system will

also pave way to expedite settlement of payments process.

However, so far as integration is concerned, Indian banks still have a fair distance to

traverse. In order to efficiency leverage an integrated payment and settlement systems,

banks, especially those in the public sector, need to address certain core issues

expeditiously. These include the following:

• Toning up of infrastructure in terms of standardization and build up security features

like firewalls, Intrusion Detecting System (IDS) and implementing a security policy.

• Total inter-branch connectivity.

• Popularization of electronic funds transfer mechanism.

• Institute collaborative arrangements, including outsourcing of IT expertise.

In addition to the above, banking sector is also confronted with a classic dilemma. It

relates to differentiating between and mapping the role of business vis-à-vis the role of

information technology, a feature typifying an enterprise wide technology initiative. This

is where the significance of integrating business and IT plans comes to the fore.
 Integration of IT and Business Strategy

Many banks, especially those in the public sector, are embarking on a comprehensive set

of IT initiatives encompassing total branch automation, core banking solution,

networking of ATMs, Internet and mobile banking, data warehousing and a

comprehensive MIS backed decision support system. Contrary to popular perception,

such initiatives are not merely because of competitive pressure from the foreign and new

generation private banks. The avowed goal of these initiatives was to improve overall

efficiency in terms of lower intermediation cost, swifter decisionmaking process, grater

customer convenience and effective internal control, including an objective risk

management mechanism. It goes without saying that the fast pace of globalization and

progressive move towards reaching global operational benchmarks also catalyzed the

technology drive dividends to these banks although the need of the hour is to consolidate

the gains so far and address the weak links.

One such weak link relates to lack of integration between the IT strategies which, it is

felt, is applicable to many of our banks. Technology introduction can offer significant

benefits only when they are in total alignment with business strategies. Especially, in

public sector banks, a phased approach is desirable in view of the heterogeneous nature

of their branch architecture and vast area specific differentials in their branch

functioning. In the current context, business strategies may differ from bank to bank, yet
a core set of business objectively will, for sure, be common to all the banks. Such

commonalities call for at least an open technology plan, in board consonance with the

business objectives, and the same can be fine-tuned on an ongoing basis to suit the

business model.

Recently, a study was conducted by National Institute of Bank Management, at the

behest of RBI, for suggesting a methodology to integrate IT and business plans in banks.

The study has proposed an ‘Enterprise Maturity Model’, for attaining total convergence

of technology and business strategies with focus on selected, generic business

strategies. The model suggests solutions not merely for business and technology, but for

issues related to human resources and customers who form an integral part of banks’

strategic road map.

The suggestions in the study promise to be useful benchmarks for banks in their complete

switchover to the virtual mode. Application of the model can help banks to develop

effective Executive Information System as effective decision support, integration of

varied workflow processes, objective customer analysis and most importantly, devise

simulative and real-time based tools to track business, profits and profitability. Effective

and an objective technology application system will also enable a business process

reengineering mechanism that will considerably enhance the real technological

capabilities of banks.

Core Banking Solution

In the light of ongoing emphasis on business process reengineering, one comes across

many banks assiduously pursuing a centralized server-based system, better known as

Core Banking Solution (CBS). CBS offers, among others, benefits like privilege of single

window service to customer in order to facilitate a shift from “customer of the branch” to

“customer of the bank” concept, online transfer of funds, longer business hours, lower

transaction costs, slimmer staff structure at branches, effective monitoring of business,

comprehensive MIS as a policy support and above al, improved visibility of the banks

implementing CBS. A robust MIS also supports vital functions like ALM, risk management,

product profitability and customer profitability analyses leading ultimately to efficient

portfolio management in banks. CBS also leads to significant mileage in terms of staff and

other overhead costs. Staff rendered surplus on account of CBs can also be put for

marketing and recovery functions, which warrant dedicated staff in the present context.

One major issue in CBS relates to security aspects and a host of operational risks that

banks are confronted with. Be it system failure or planned hacking or any kind of human

error, centralized system is perennially susceptible to failure which may prove to be

endemic across the financial system and result in vital data erosion. Retrieval of the same

may also cost dearly to the banks and theirassociates. Security aspects like implementing

a robust security policy, firewalls, IDS are, therefore, indispensable for preventing any

systematic problem. There are even cases where multi-point security has not been able

to check the fraudulent practices. Thus, security aspects need to be examined threadbare

before putting core banking in place.

 6. TECHNOLOGY AND FRAUDS ATM CRIMES FRAUDS:

ATM crimes and frauds are rising throughout the world.

ATM industry and money other organizations are fighting with them in many ways like,

by issuing security tips, making ATMs more innovative etc. In India, where the use of

ATMs is growing by exponential, banks have to take benefit from international

experiences and safeguard their customers from frauds.

ATM crimes and frauds are mounting day by day. Even though they make up a small

percentage of criminal activities they are not less important. Criminals are raiding

millions every year.

Popular Ways to Card Frauds:

Some of the popular techniques used to carry out ATM crime are:

➢ Through Card Jamming ATM’s card reader is tampered with in order to trap a

customer’s card. Later on the criminal removes the card

➢ Card Skimming is the illegal way of stealing the card’s security information from

the card’s magnetic stripe.

➢ Card Swapping, through this customer’s card is swapped for another card without

the knowledge of cardholder.

 ➢ Website Spoofing, fictitious site is made which looks authentic to the user and

customers are asked to give their here a new card number, PIN and other

information, which are used to reproduce the card for removing the cash.

Global Measures to Fight the Frauds

To guard against these frauds ‘The Global ATM Security Alliance (GASA)’, which was

formed in June 2003, has issued the customers guide and some tips to prevent against

card-related frauds.

The World’s Top 20 tips for ATM Use to Enhance the ATM customer Experience and

Security
CHOOSING AN ATM

Tip 1: Where possible, use ATMs with which you are most familiar. Alternatively, choose

well-lit, well-placed ATMs where you feel comfortable.

Tip 2: Scan the whole ATM area before you approach it. Avoid using the ATM altogether

if there are any suspicious-looking individuals around or if it looks too isolated or unsafe.

Tip 3: Avoid opening your purse, bag or wallet while in the queue for the ATM. Have your

card ready in your hand before you approach the ATM.

Tip 4: Notice if anything looks unusual or suspicious about the ATM indicating it might

have been altered. If the ATM appears to have any attachments to the card slot or keypad,

do not use it. Check for unusual instructions on the display screen and for suspicious

blank screens. If you suspect that the ATM has been interfered with, proceed to another

ATM and inform the bank.

Tip 5: Avoid ATMs which have messages or signs fixed to them indicating that the screen

directions have been changed, especially if the message is posted over the card reader.

Banks and other ATMowners will not put up messages directing you to specific ATMs, nor

would they direct you to use an ATM, which has been altered.

USING AN ATM .
Tip 6: Is especially cautious when strangers offer to help you at an ATM, even if your card

is stuck or you are experiencing difficulty with the transaction. You should not allow

anyone to distract you while you are at the ATM.

Tip 7: Check that other individuals in the queue keep an acceptable distance from you. Be

on the lookout for individuals who might be watching you enter your PIN. Tip 8: Stand

close to the other ATM and shield the keypad with your when keying in your PIN (you

may wish to use the knuckle of your middle finger to key in the PIN).

Tip 9: Follow the instructions on the display screen, e.g., do not key in your PIN until the

ATM request you to do so.

Tip 10: If you feel the ATM is not working normally, press the cancel key and withdraw

your card and then proceed to another ATM, reporting the matter to your financial

institution.

Tip 11: Never force your card into the card slots.

Tip 12: Keep your printed transaction record so that you can compare your ATM receipts

to your monthly statement.

Tip 13: IF your card gets jammed, retained or lost, or if you are interfered with at an ATM,

report this immediately to the bank and/or police using the help line provided or nearest

phone.
Tip 14: Do not be in a hurry during the transaction, and carefully secure your card and in

your wallet, handbag or pocket before leaving the ATM.

MANAGING YOUR ATM USE

Tip 15: memorize your PIN (if you must write it down, do so in a distinguished manner

and never carry it with your card).

Tip 16: NEVER disclose your PIN to anyone, whether to family member, bank staff or

police.

Tip 17: Do not use obvious and guessable numbers for your date of birth.

Tip 18: Change your PIN periodically, and, if you think it may have been compromised,

change it immediately.

Tip 19: Set your daily ATM withdrawal limit at your branch at levels you consider

reasonable.

Tip 20: Regularly check your account balance and bank statements and report any

discrepancies to your bank immediately.

While the ATM industry is aggressively addressing ATM-related frauds and crimes, few

in the industry know about these extraordinary efforts. Some of the important works are

given below:

o From time to time the Electronic Funds Transfer Association (EFTA) with

the help of ATMIA is publishing tips on PIN security.

o To combat the cross-border crimes, GASA is working in association with

Interpol, the Metropolitan Police Flying Squad for New Scotland Yard and

leading card issuers.

o ATMIA is educating the people and ATM industry about most effective way

of fighting ATM crimes and frauds and honoring with award that

contributes significantly counter the fraud.

o Fair Isaac Card Alert – it is a service, which analyzes millions of daily

transaction, identifies the suspicious transactions and sends the card

number and related information of suspicious transaction to the concerned

bank. This services has helped alot in solving many card-related frauds

including high-profile skimming cases.

o Leading ATM manufacturers are producing innovative ATMs, which are

helping to counter the frauds. Biometric technology is one of the examples,

which removes the need of Personal Identification Numbers (PINs).

 o Biometric systems identify or authenticate a person’s identity using

different alternatives like face expressions, fingerprint, hand geometry,

voice, retina, etc.

INTERNET BANKING AND FRAUDS

Fraudsters are using innovative ways like Web and Mail spoofing, attacking the bank’s

server etc. to break the security walls and commit fraud. There is a need for

arrangements, which help presence of integrity, confidentiality and authorization of

information.

“Thieves are not born, but made out of opportunities”

This quote exactly reflects the present environment related to technology, where it is

changing very fast. By the time regulators come up with preventive measures to protect

customers from innovative frauds, either the environment itself changes or new

technology emerges. This helps criminals to find new areas to commit the fraud.

Some common Internet banking frauds and their causes have been discussed here.
 o Attacking the Bank’s Server

In this case, the fraudster takes control of the server of the bank and by visiting the bank’s

website carries out transaction through impersonation.

These attacks are due to bad programming, which mostly prevail in general purpose

software. Such attacks are called bufferover-flow attacks. Due to buffer-over-flow defects

in the software, fraudster can use the commands on the server without providing

essential information like password etc.

o Mail Spoofing

In the mail spoofing or e-mail forgery, the fraudster sends the information to bank

customers in such a form that it seems that information is from the authentic bank source.

One such incident happened with ICICI Bank customers to disclose passwords and other

information. The e-mail said:

“For security purpose your account has been randomly chosen for verification. To verify

your account information we are asking you to provide us with all the data we are

requesting. Otherwise, we will not be able to verify your identity and access to your

account will be denied. Please click on the link below to get to the ICICI secure page and

verify your account details. Thank you.”

Mail spoofing happens due to lack of criteria to verify the source address authenticity.

Anyone can set up a mail server and can forge a mail posing as an authentic source.

o Web Spoofing

In Web Spoofing, customers of the bank are lured to log in at the fraudster’s website,

which is similar to the bank’s website. Once the customer provides sensitive information,

they can be stolen easily by the fraudster, who uses the stolen sensitive information like

password and username etc., to carry out the transaction on the bank as a real customer.

In the whole case, the only loser is the customer because he does not have any means to

prove that it was not he who did those transactions, but the fraudster.

Ignorance of the customer to intercept Universal Resource Locator (URL) is the major

cause of Web spoofing. Look at the following two URLs

• http://secure.bankname.com/carloanfind/carloans.asp

• http://secure.bankname.com? @569857125/carloanfind/carloans.asp

It is very difficult for a normal customer to understand the difference between these two

URLs. He can be easily cheated because the first URL will drive him to the original site

while the second one to the fraudster’s site.

 Denying Service from Bank’s Server

The fraudster’s intent here is not to commit any fraud but to create inconvenience for the

banks. The customer here literally cannot access the services of the bank.

Intervention of fraudster’s with Transmission Control Protocol/Internet Protocol

(TCP/IP), the computer communication languages, Router Poisoning that help the

customers to reach different parts of the network and Domain Name System (DNS)

service, that helps the two computers to communicate through IP number are some

reasons for such inconvenience.

It is clear that to plug all the loopholes is very difficult for any regulator. This is a

challenge to the mission of fast automation. It is essential on the part of the banks, the

regulators and the service providers to create a source and safe automation environment

that has the confidence and trust of the customers.

7. CREDIT CARD FRAUD ON INTERNET

Credit card fraud has become regular on Internet. All the agencies involved in the

transaction, cardholders, online merchants and the card issuers suffer losses. However,

it is the online merchant who suffers the most. This article examines the nature of credit

card fraud, types of credit card frauds, and the effects. This article also discusses the
preventive measures. Internet commerce is growing very fast. From a customer base of

28.8 million spending US$12 bn in 1999, Internet Commerce has grown exponentially

during the past few years and is still growing. But, unfortunately, the growth is not on the

expected lines. The credit card fraud, which has become common, has retarded the

ecommerce growth. A 1999 survey by US National consumer’s league reported that 7%

of customers were victims of the credit card fraud; recent surveys indicate that one out

of three online customers have become victims to this kind of fraud. Customers, credit

card companies, banks and merchants are battling this problem; still this crime is on

ascendancy.

Common Types of Card Frauds

There are different types of frauds involving credit cards. The fraudulent activities start

from the application process itself.

Application Fraud:

In application fraud, the fraudster obtains personal confidential information of the other

person needed in the credit card applications, like social security number, date of birth

using a variety of means. Internet search engines and databases are making these tasks

easier. Using this information, he fills in an application for a credit card and after receiving
it, uses it as if he is the true holder. The person in whose name the card is issued might

come to know about this only after the damage is done.

Counterfeit Cards:

In this, a criminal gains access to a valid card number and other information. For

example, the salesperson at the supermarket briefly takes possession of the customer’s

card during payment process, which he runs on a terminal. But without the knowledge of

the cardholder, the salesman can also run it on another machine, which can capture all

the details in the card. Using this information and tools like embossing machines, a

fraudster can create a counterfeit card. This process is known as ‘skimming’ and simple

hand-held devices are now available for the purpose. Further, the information skimmed

can also be used for purchases on the Internet or Telephone.

Account Takeover: In account takeover, the fraudster first all the personal confidential

information about the other person. Then impersonating as the other person, he informs

the bank that there is a change in his residential or office address. Next, he informs them

that his credit card is lost and request for a new card on the new address. After receiving

the card, the criminal successfully takes over the account.

Stolen and Lost Cards:

By far, this is the most common form of fraud in the market place. When the criminal has

access to a stolen or lost card, he also gains access to all the personal information. Apart

from using this card fraudulently, the criminal can also use the information to‘broaden’

the fraud by applying for new cards or fabricating new ones.

Other Forms:

From the point of view of a merchant, credit card frauds can be divided into three ways.

There are organized fraud, opportunistic fraud and cardholder fraud. The advantages

offered by Internet are also attracting the criminals in a big way. In an organized criminal

activity, the gang’s obtain credit cards using any of the means discussed above. They

normally identify a drop location like a vacant house or warehouse, spend the card up to

the maximum limit, and ask the merchandise to be dropped at this selected location.

These gangs have a thorough understanding of the system and take advantage of the fact

that there is normally a time gap of more on to the next card. Opportunistic fraud is

committed normally by amateurs who get an opportunity of handling credit cards, like

waiters in restaurants. Cardholder fraud involves the cardholder himself who might

claim that he never placed the order or he never received the goods. It could also involve

one of his family members or friends who used the card without his knowledge.
Bust Out Fraud:

According to Daniel Buttafogo of Juniper, an Internet-based credit card company, in this

fraud, true customers gradually build up as much available credit card and then ‘bust out’

with large purchases of items that could easily resold like jewelry or draw large cash

advances etc. Here the fraudster will draw bad checks on one account to pay when this

cannot be done any longer, the customer does a vanishing act. This kind of fraud is the

most difficult to catch, as the customer exhibits exemplary behavior till the last moment.

Friendly Fraud / Denial of Receiving Product:

Friendly fraud occurs when the actual cardholder carries out a transaction but later

denies or claims that his card was stolen or used without his authorization. Customers

might deny receipt or signing or even ordering the product.

Nature of E-Commerce Transactions:

In e-commerce transaction, face-to-face contact between the merchant and customer is

absent and this causes most of the creditcard frauds. In online transactions, after filling

in the online order form, the customer is expected to give his credit card number to

conclude the transaction. In real world, after the purchase, the customer hands over the

credit card, which the merchant swipes using a terminal. The merchant also obtains the
signature of the customer on the credit card receipt. He also verifies the charge

authorization. In case of fraudulent use of a card like using a stolen card, the merchant or

the customer are reimbursed by the credit card company. In online transactions, the card

is not present during the transaction and there is no signature of the customer on the

receipt. These transaction, treated as card not present transactions, in which the card

issuing companies do not reimburse the merchant. In reality, speed, which is the most

important benefit of the Internet, facilitates the fraud. A physical transaction takes

several minutes; where as Internet transaction takes only a few seconds. Real-time

transaction reduces the overheads, but at the same time, increase the number of

fraudulent transactions. For example, a fraudster can give the same fraudulent card

number to a number of e-business sites simultaneously and there is no way the merchants

can know about it.

8. INFORMATION TECHNOLOGY RISK IN BANKING:

MANAGEMENT & MEASUREMENT

Information Technology (IT) is not merely a technical function, but a management

process, which needs to be managed effectively. To measure the IT risk in banks there are

various methodologies available. All of them at large follow the same primary steps like
threat analyst etc. for technology risk assessment; American Banker Association has

recommended various resources.

Risk management approach had widely the baseline approach in which a baseline/

standard set of polices and practices are followed in taking business decision without

considering the criticality of the business asset or decision. In business sense, risk is the

probability of getting loss from taking or not taking a business decision. The loss can be

tangible or intangible. Risks can be avoided, controlled, shared, transferred and accepted.

Risks can be controlled through objectives, policies and procedures.

Risk management approach enables the management to give appropriate treatment to

the business assets and decisions based on their criticality to business goals and business

continuity. While the basic concepts remain the same, Information Technology

introduces new vulnerabilities as well as new techniques for risk management.As such,

technology risk management, while following the fundamentals, needs to address these

new vulnerabilities.

Technology Risk Management

Information Technology Risk is the risk that can arise due to use or non-use of technology

in business or for business. The primary objective of an organization and its ability to

conduct business. The business of IT in business is to see that the business continues. IT
risks management has to ensure that this purpose is achieved. As such IT risk

management process should not be treated as a mere technical function carried out by

the IT people and should not just confine to IT assets. It is essentially a management

function. However, the role of IT people is also vital because IT security and IT risk

management are interrelated and an effective risk management process is an important

component of a successful IT security program.

The broad objective of performing IT risk management is to enable the organization to

achieve its business goals by better securing the IT systems and enabling management to

make well-informed risk management decisions in areas where technology is involved.

IT risk management is to the process that helps to balance the operational and economic

costs of risk mitigation measures and achieve gains by protecting the IT systems and data

that support their organization’s goals. A well-structured risk management methodology,

when used effectively, can help management identify appropriate controls for providing

the mission-essential security capabilities.

Various organizations worldwide have come out with risk management frameworks,

policies, standards and principles that are quite useful in IT risk management and

measurement.
The committee set up Bank for International Settlement (BIS) has identified fourteen Risk

Management Principles for Electronic Banking to help banking institutions expand their

existing risk management policies and processes to cover their electronic banking

activities.

Similarly, the Committee of sponsoring Organizations of the Tread way Commission

(COSO) Board and Project Advisory Council took on the responsibility to expand and

address theremodeled components of internal control. The end product of this is the

COSO Enterprise Risk Management (ERM) Framework.

The Information Systems Audit and Control Association (ISACA) has developed a

framework called Control Objectives for Information and related Technologies (COBIT)

which helps in IT risk management.

The ERM and COBIT frameworks provide a useful evaluation tool for informing

management, directors and other stakeholders about a process, procedure and policy to

identify, measure, prioritize and respond to finding risk.

In India, RBI has been providing much guidance in this area to Indian banks. There is a

good number of references and guidelines provide in the reports of various RBI

Committees. The report of the RBI Committee on computer audit provide a

comprehensive checklist covering many technology-related areas, which is useful in

Technology Risk Assessment.

Technology Risk Assessment/Measurement

Risk assessment/measurement is a process used to identify and evaluate risks and their

potential effect/exposure. Risk exposureis equal to the amount of probability multiplied

with impact on business.

Risk management covers three processes: Risk assessment, risk mitigation, and

evaluation. Risk assessment is the first process in the risk management methodology and

also is necessary for the extent of the potential threat and the risk associated with an IT

system throughout is System Development Life Cycle (SDLC). The output of IT risk

assessment process helps to identify appropriate controls for reducing or eliminating risk

during the risk mitigation process.

Unlike financial risk, technology risk cannot be easily quantified or measured. But, banks

can gain financial and operational benefits by conducting an effective Technology Risk

Assessment (TRA). These include enhancing corporate governance over IT activities,

proactively identifying vulnerabilities and implementing risk business imperatives, and

efficiently using corporate risk management resource, including audit, in ensuring a cost-

benefit control environment.

Threats to an IT system must be analyzed in conjunction with the potential

vulnerabilities and the controls in place for the IT system to determine the likelihood of

a future adverse event and its impact. Impact refers to the magnitude of harm that could

be caused by a threat. The level of impact is governed by the potential impact on

organizational goals and, in turn, determines the level of criticality of an IT

asset/resource.

Technology Risk Assessment (TRA) Methodologies

The quality of the technology risk assessment affects the effectiveness of risk-based

decision of management. With the increasing interest in operational risk management

and concerns about corporate governance, may proprietary enterprise riskmanagement

methods/solutions came in the market to help banks to meet the assessment challenge.

Since these methodologies are mostly developed for and by traditional risk managers,

they are generally weak in areas relating to technology, although they provide an

adequate perspective from a credit, financial, and environmental standpoint.

Risk assessment methodology generally follows the following primary steps:

• Threat and Vulnerability Identification

• Probability/Likelihood Determination

• Impact Analysis

• Risk Determination

• Control Recommendations

• Results Documentation

Technology Risk Assessment (TRA) methodologies are not much different from general

risk assessment methodologies and they, too, follow these steps. However, the risk

assessment tools would be different in case of technology risk because to assess

adequately and to prioritize technology risk, the risk assessment tools must be

supplemented with methodologies specifically geared to technology.

As in the case of enterprise risk assessment tools, ready-made methods and tools

developed by vendors can be used for TRA also. However, a number of challenges are

involved in using these ready made tools like vendor methodologies which may not

continuously update the TRA throughout the year due to the costs involved; the

outsourced methodology/tool may not understand the bank’s specific issues, etc.
The American Bankers Association lists the following recommended resources for TRAs:

• International Standards Organization (ISO) 17799 (ISO Standards)

• Control Objectives for Information Technology (COBIT)

• SysTrust

• Operationally Critical Threat, Asset and Vulnerability Evaluation (OCTAVE)

• National Institute of Standards and Technology (NIST)

These resources are inexpensive to implement and serve the purpose in most cases. They

are based on extensive research from government and professional security experts and

are vendor neutral. These methodologies enjoy excellent reputation among corporate

governance experts.

A summary description of each of the above TRA methods is as follows:

ISO Standards

The ISO along with the International Electro-technical Commission forms the specialized

system for worldwide standardization. The stated purpose of the ISO standards is to

“provide a common basis for developing organizational security standards and effective
security management practice and to provide confidence in inter organizational

dealings.” Originally, developed in Britain, it is a favored TRA approach in Europe. The

standard is often referenced and leveraged by other prominent methods and covers 10

areas namely, Security policy, Communications and operations management,

Organizational security, Access control, Asset classification and control, System

development and maintenance, Personal security, Business continuity management,

Physical and environment security, and Compliance.

COBIT

COBIT has been developed as a generally applicable and accepted standard for good IT

security and control practices that provides a reference framework for IT governance.

COBIT is sponsored by the IT Governance Institute, established by the Information

Systems Audit and Control Association (ISACA), and addresses risk from both the

business and technology perspectives. It is an internationally recognized tool,

incorporating both operation management and audit concerns, which have been adopted

in organizations including the US House of Representatives, Charles Schwab & Co., and

Swift.

The framework compromises 34 high-level control objectives belonging to four domains.

For each control objective, audit procedures and management guidelines are provided.
The latter guidelines uniquely provide COBIT with a business management perspective;

maturity models, critical success factors, key goal indicators, and key performance

indicators are provided for each of the high-level control objectives.

COBIT focuses on processes and their ownership. It provides excellent methodology for

various parts of an organization to have the same perspective at IT risk management.

However, COBIT is more of a general assessment tool and detailed issues are to be

considered in the form of audit programs. As such some consider it to be too theoretical.

Sys Trust

The American Institute of Certified Public Accountants (AICPA) and the Canadian

Institute of Chartered Accountants (CICA) introduced a service to provide assurance on

the reliability of systems. The purpose of this service, known as Sys Trust, is to increase

the comfort of management, customers and business partners with the systems that

support a business or particular activity. The service considers four principles to evaluate

whether a system is reliable.

• Availability: The system is available for operation and use at times set forth in service

level statements or agreements.

• Security: The system is protected against unauthorized physical and logical access.
• Integrity: System processing is complete, accurate, timely and authorized.

• Maintainability: The system can be updated when required in a manner that continues

to provide for system availability, security and integrity.

Although, SysTrust was not necessarily developed as a risk management tool, many

organizations have found that the SysTrust principles could be adopted as an effective RA

tool since the principle provide a stake holder’s perspective on the impact of technology

on business activities. The AICPA/CICA is currently considering a new version of the

SysTrust tool that would also incorporate e-commerce activities. Under the revision, five

principles would replace the four above. Principles consider would include security,

availability, processing integrity, online privacy and confidentiality.

SysTrust provides good high-level questions for an overview on overall reliability but

may not provide detailed methods for intended objectives. It is more of an executive level

assessment perspective rather than at operational level. However, it also has provision

for third party assessment and covers security also.

OCTAVE

Developed by the Software Engineering Institute (SEI) at Carnegie Mellon University,

OCTAVE is a comprehensive, selfdirected approach to TRA. It differs from traditional

TRAs in that it first determines which information assets really need to be protected and

then evaluates the technology infrastructure to determine the vulnerability of those

assets. OCTAVE presents an exciting TRA to ORMs because the SEI is home to the CERT

alerts and other information relating to managing security vulnerabilities. This

robustness of tools, workshops, and publications relating to OCTAVE significantly

enhances an effective assessment by the ORM.

Specially, OCTAVE uses a three-phased approach to identify the technology risk

management needs of an enterprise:

• Build asset-based threat profiles: Identify important information assets, the threats to

those assets, security and current risk mitigation strategies.

• Identify infrastructure vulnerabilities: Examine technology infrastructure for

vulnerabilities that can be compromised.

• Develop security strategy and plans: Based on the results of the first two phases,

develop a strategy-based on business priorities to mitigate risks.

OCTAVE is a full methodology with supporting tools and leverages from a combination of

academic research and industry practices but, it is geared to larger institutions and the

use of it without formal training is difficult.

NIST

The Information Technology Laboratory (ITL) at the NIST in USA is a body, which

provides technical leadership for the nation’s measurement and standards

infrastructure. These include developing standards and guidelines for the cost-effective

security and privacy of sensitive unclassified information in federal computer systems.

Like the other organizations mentioned previously, NIST provides a detailed checklist of

IT-related risk mitigation strategies that should be assessed as a part of a TRA. In addition

to its detailed coverage of security issues, the checklist enables to determine if risk is

managed by using five “levels of effectiveness”.

1. Control objectives documented in a security policy.

2. Security controls documented as procedures.

3. Procedures have been implemented.

4. Procedures and security controls are tested and reviewed.

5. Procedures and security controls are fully integrated in to a comprehensive program.

However, this is mostly followed by big government organizations and following these

methodologies could be too burdensome in a smaller organization.

 9. PRIMARY DATA & ITS ANALYSIS

The primary data has been collected through surveys in banks (questionnaire) viz., Bank

of Maharashtra, ICICI bank, HDFC bank.

Q.1) I.T. in banks is much more advanced than traditional banking?

BANK OF ICICI HDFC

MAHARASHTRA

AGREE 96% 98% 100%

DISAGREE 3% 2% 0%

FIFTY-FIFTY 1% 0% 0%

EXPLANATION: - It is cleared from questionnaire method that every one agrees to the

statement “I.T. in banks is much more advance than traditional banking”. Approximately

ninety eight percent of bank employees agree to the above statement.

Q.2) The ratio of online transaction v/s manual transaction. 1:2 2:1 Equal Can’t Say

ANALYSIS: -
 BANK OF ICICI HDFC

MAHARASHTRA

1:2 30% 0% 0%

2:1 60% 100% 100%

EQUAL 0% 0% 0%

Can’t Say 10% 0% 0%

EXPLANATION: - According to the above data collected it is clear that approximately ten

percentage of employees says that the ratio of online transaction v/s manual transaction

is 1:2, eighty sevenpercentage says it is 2:1, zero percent says it is equal & three percent

cant say anything.

Q.3) Information technology in banks encouraging online frauds.

Yes No To some extent

ANALYSIS: -
 BANK OF ICICI HDFC

MAHARASHTRA

YES 90% 92% 98%

NO 6% 5% 1%

TO SOME EXTENT 4% 3% 1%

EXPLANATION: - According to the above data collected it is clear that approximately

ninety three percent of employees says yes, four percent says no and three percent says

to some extent

Q.4) Type of banking facility that will be friendly to illiterate customer.

Online banking Manual-banking Both ANALYSIS: -

 BANK OF ICICI HDFC

MAHARASHTRA

ONLINE BANKING 2% 0% 0%

MANAUAL 97% 98% 100%

BANKING

BOTH 1% 2% 0%

EXPLANATION: - According to the above data collected it is clear that approximately

ninety seven percent of employees says that manual banking type of facility is friendly to

illiterate customers, two percent says online banking and one percent says both online as

well as manual banking is friendly to the illiterate customers.

Q.5) In what way I.T. in banks affects the work of the employees.

Increases the work Decreases the work Same at both levels

ANALYSIS: -
 BANK OF ICICI HDFC

MAHARASHTRA

INCREASES TH 45% 30% 40%

WORK

DECREASES 50% 63% 55%

BANKING

BOTH 5% 7% 5%

EXPLANATION: - According to the above data collected it is clear that approximately

thirty eight percent says I.T. in banks increases the work of the employees, fifty six

percent says decreases the work and six percent says it is same at both the levels.

Q.6) Does I.T. in banks increasing the cost of banking operations / banking transaction.

Yes No Equal

ANALYSIS: -
 BANK OF ICICI HDCF

MAHARASHTRA

YES 98% 94% 100%

NO 2% 5% 0%

EQUAL 0% 1% 0%

EXPLANATION: - According to the above data collected it is clear that approximately

eighty seven percent of employees says yes i.e. I.T. increases the cost of banking

operations or banking transactions, two percent says no and one percent says equal.
 10. FINDINGS AND CONCLUSIONS

According to the survey conducted in Bank of Maharashtra, ICICI Bank & HDFC Bank, the

following points are concluded:

1. I.T. in banking sector is much more advanced than traditional banking.

2. Online transactions are widely used than manual transactions.

3. Manual banking facility is more friendly to illiterate customers.

4. I.T. in banks to some extents reduces the work of employees.

5. I.T. in banks to some extent encourages online frauds.

6. Online banking is much more costlier than manual banking. It increases the cost

of banking operations

7. Online banking facility can lead to progress of the banking sector.

 11. SUGGESTIONS AND RECOMMENDATIONS

1. Some highly advanced softwares / programs should be implemented in banking

sector in order to prevent hackers and frauds.

2. Online banking operations cost or banking transaction cost should be reduced so

that middle class customer can have access to online banking facility.

3. Further research can be done in topics related to this project viz., software

application in banking sector, technology and frauds.

4. Awareness programs related to online banking for middle class people.

BIBLIOGRAPHY

REFERENCE RELATED TO BOOKS

• Katuri Nageshwara Rao & Yashpaul Pahuja, (2005), ‘IT IN BANKS – EMERGING

TRENDS’

• Kamlesh k Bajaj & Debjani Nag, ‘ELECTRONIC COMMERCE- THE CUTTING EDGE OF

BUSINESS’, Delhi, Tata McGraw Hill Publishing Co. Ltd.

JOURNALS AND MAGAZINES

• Ravi Kumar Sharma, ‘PROFESSIONAL BANKER’, Nov.2005.

RESEARCH REPORTS

• THE EFFECT OF INFORMATION AND COMMUNICATION ON THE BANKING SECTOR

AND PAYMENT SYSTEM

-BY ARBUSSA REIXACH

• INTERNET BANKING

COMPTROLLERS HANDBOOK

INTERNET

• www.banknetindia.com

• www.microsoft.co