Chapter 3.

Internet Banking
Internet banking (or Online banking) allows customers to conduct financial transactions on a secure website operated by their retail or virtual bank, credit union or building society. History of Internet Banking The precursor for the modern home online banking services were the distance banking services over electronic media from the early 1980s. The term online became popular in the late '80s and referred to the use of a terminal, keyboard and TV (or monitor) to access the banking system using a phone line. Home banking can also refer to the use of a numeric keypad to send tones down a phone line with instructions to the bank. Online services started in New York in 1981 when four of the citys major banks (Citibank, Chase Manhattan, Chemical and Manufacturers Hanover) offered home banking services[1] using the videotex system. Because of the commercial failure of videotex these banking services never became popular except in France where the use of videotex (Minitel) was subsidised by the telecom provider and the UK, where the Prestel system was used. The UK's first home online banking services[2] was set up by Bank of Scotland for customers of the Nottingham Building Society (NBS) in 1983[3]. The system used was based on the UK's Prestel system and used a computer, such as the BBC Micro, or keyboard (Tandata Td1400) connected to the telephone system and television set. The system (known as 'Homelink') allowed on-line viewing of statements, bank transfers and bill payments. In order to make bank transfers and bill payments, a written instruction giving details of the intended recipient had to be sent to the NBS who set the details up on the Homelink system. Typical recipients were gas, electricity and telephone companies and accounts with other banks. Details of payments to be made were input into the NBS system by the account holder via Prestel. A cheque was then sent by NBS to the payee and an advice giving details of the payment was sent to the account holder. BACS was later used to transfer the payment directly. Stanford Federal Credit Union was the first financial institution to offer online internet banking services to all of its members in October 1994.[citation needed] Today, many banks are internet only banks. Unlike their predecessors, these internet only banks do not maintain brick and mortar bank branches. Instead, they typically differentiate themselves by offering better interest rates and online banking features.

Features a. Transactional (e.g., performing a financial transaction such as an account to account transfer, paying a bill, wire transfer... and applications... apply for a loan, new account, etc.) a. Electronic bill presentment and payment - EBPP b. Funds transfer between a customer's own checking andsavings accounts, or to another customer's account c. Investment purchase or sale d. Loan applications and transactions, such as repayments of enrollments

e. Non-transactional (e.g., online statements, check links, cobrowsing, chat) f. Bank statements g. Financial Institution Administration h. Support of multiple users having varying levels of authority i. Transaction approval process j. Wire transfer Security Protection through single password authentication, as is the case in most secure Internet shopping sites, is not considered secure enough for personal online banking applications in some countries. Basically there exist two different security methods for online banking. The PIN/TAN system where the PIN represents a password, used for the login and TANs representing one-time passwords to authenticate transactions. TANs can be distributed in different ways, the most popular one is to send a list of TANs to the online banking user by postal letter. The most secure way of using TANs is to generate them by need using a security token. These token generated TANs depend on the time and a unique secret, stored in the security token (this is called two-factor authentication or 2FA). Usually online banking with PIN/TAN is done via a web browser using SSL secured connections, so that there is no additional encryption needed. Another way to provide TANs to an online banking user, is to send the TAN of the current bank transaction to the user's (GSM) mobile phone via SMS. The SMS text usually quotes the transaction amount and details, the TAN is only valid for a short period of time. Especially in Germany and Austria, many banks have adapted this "SMS TAN" service as it is considered as very secure. Signature based online banking where all transactions are signed and encrypted digitally. The Keys for the signature generation and encryption can be stored on smartcards or any memory medium, depending on the concrete implementation.

Online Banking in India The banking industry in India is facing unprecedented competition from non-traditional banking institutions, which now offer banking and financial services over the Internet. The deregulation of the banking industry coupled with the emergence of new technologies, are enabling new competitors to enter the financial services market quickly and efficiently. Indian banks are going for the retail banking in a big way. However, much is still to be achieved. This study which was conducted by students of IIML shows some interesting facts: Throughout the country, the Internet Banking is in the nascent stage of development (only 50 banks are offering varied kind of Internet banking services). In general, these Internet sites offer only the most basic services. 55% are so called 'entry level' sites, offering little more than company information and basic marketing materials.

Only 8% offer 'advanced transactions' such as online funds transfer, transactions & cash management services. Foreign & Private banks are much advanced in terms of the number of sites & their level of development. Steps To Apply For Internet Banking Step 1 You have to first acquire an online banking form from your bank. You can either get it from your bank branch or download the form online from the bank website Step 2 Fill in the necessary details in the form Step 3 Once you have deposited your form it will be verified by the bank officers and checked wether the information is correct eg the email address , customer account , phone number, etc match from the banks records. Step 4 You will First Receive your USER ID via email or post as you have choosen in your form in 7 days of deposit of form Step 5 You will Receive your Password in the next 7 days of receipt of your User ID (This Procedure is important as such confidential data could be misused if your user i.d and passwords are sent together and if it falls in the wrong hands in case of transit ) Step 6 You should go to the banks website and change your Password immediately after you receive your default password as a precaution. Step 7 Once all Security firewalls are verified your account is now ready to make monetary transactions online.

Benefits of online banking 1. Comfort - One of the advantages of internet banking is that you can do transactions from the comfort of your home or office. These transactions include transferring funds from your savings accounts to your checking accounts and vice versa, making credit cardpayments and paying bills. You can also transfer funds from your account at one bank to another bank account either yours or someone else's as long as you have the account numbers. In-house banking done online is usually free of charge. Transfer of funds to another bank may cost you a very minimum amount. 2. Cost Saving - You can do the above mentioned transactions through the ATMs but it is faster and cheaper if you do it through the internet. You save gas because you don't have to drive to the bank and save time on commuting and waiting for your turn to make the transactions. It's not significant for some people, but you do save on postage if you make check payments and mail them. It's less stressful because you don't have to take time off from work or get caught up in the traffic crawl to do all the banking and bill payments. 3. 24/7 - You can make your transactions any time during the day or night and anywhere around the globe as long as there is an internet connection and you remember your username and password. You can pay your bills individually anytime or give instructions to make an auto debit from any of your accounts. You can view your transactions and bank statements and print them if you want to. This is especially convenient if you do online shopping. 4. Comparison Of Financial Products - Another one of the advantages of internet banking is that you can also apply for loans and to redeem your rewards points by printing the application forms, fill them and fax the forms to the bank. And the other advantages of internet banking when it comes to applying for loans is that you can go the websites of several banks and make comparisons. You can view all the other services the banks provide and see their promotions. 5. Security - Online banking security is major concern for many people. The banks have enforced several measures to ensure that your banking transactions online are secure. You should click on the privacy policy and security arrangement and read the security measures that they enforce to avoid system abuse. Among them are secure sockets layer or SSL channel, 128-bit encryption, username and password protection and authentication, firewalls and account locking. If you need more information you click the FAQ. Most of the common questions are answered on this page and you can contact the bank via the form on the website if you need more assistance. The banks have done their part to ensure that their services are secure. It is your responsibility to avoid your account from being phished. One important thing to remember is that banks don't send you email to ask for your personal details, username or password. They may send you email to inform you that your e-statement is ready and you can view it online without any link to the website. Or some banks may send you email to let you know of their latest promotions but that's about it. 6. Updates Of Changes - You will normally be notified about any changes on the banking services, interruptions and updates via your message box when you log into your account. To ensure your internet banking security, never give your username and password to anybody. And don't leave them where other people can have access. When you want to log into your account, don't follow any links. Go to your browser and key in thewebsite address. Most secure banks have "https" with the "s" in their URLs.

Disadvantages of Internet Banking Internet banking services provide a number of benefits to consumers. But while it has its advantages, customers wishing to join the trend need to know its disadvantages as well. Despite the growing popularity of internet banking, it cannot be denied that some people still remain hesitant doing transactions online especially where money is concerned. Amidst the aggressive marketing made by the numerous financial institutions that have gone online, some sectors of society are still doubtful about this type of banking notably on the aspect of security. 1.Impersonal - Doing transactions on the internet can be very impersonal. In other words, you only do business with the use of a computer. No individual to receive and check your money or correct some wrong information that you might have written on a certain form. And so for people comfortable dealing with real people who provide personalized services and using paper and money, internet banking is not ideal. 2. Lack of trust - Let's face it, many people still don't trust the internet. For the new users who have performed financial transactions for only a few times, they may still have this doubt whether or not they did the right thing such as clicked the right button and so on. They can only be comfortable once they print the transaction receipt and the transaction appeared on the bank statement. 3. Difficult for first timers - For a first time user, navigating through a website of an internet bank may be hard and may take some time. Opening an account could also take time as some sites ask for numerous personal details including a photo identification which can inconvenience the potential customer. Because of this complexity, they may be discouraged to use this internet banking service. Tutorials and live customer support may be provided, though, to help the client in his or her needed tasks so it's best to take the time to know the virtual environment. 4. Security fraud - Many people shy away from internet banking because of the security threat. They can't help but worry about this aspect what with news on fraudulent bank transactions that pop up every now and then. However, this should not be a problem as banks that provide internet banking services prioritize security above anything else. Since they value their customers, they always use the most advanced security technology in protecting their websites. In addition, the Federal Deposit Insurance Corporation (FDIC) is also standing behind them. Bank site changes. Most banks upgrade their online programs on a periodic basis sometimes adding new features and products. When this happens, the bank may ask customers to re-enter account information which can be a cause of worry.