Electronic banking is the automated delivery of

new and traditional banking products and

services directly to customer through electronic
interactive communication channels. Electronic
banking includes the systems that enable
financial institution customers, individual or
businesses, to access accounts, transact
business, or obtain information on financial
products and services through a public or private
network, including the internet, it should be
noted that electronic banking is a bigger plat
form than just banking via the internet.
Electronic innovation in banking can be traced back to the 1970s when the
computerization of financial institutions gained momentum. However, a
visible presence of this was evident to the customers since 1981, with
the introduction of the automated teller machine (ATM). Innovative
banking has grown since then, aided by technological developments in
the telecommunications and Information Technology industry. The early
decade of the 1990s saw the emergence of automated voice response
(AVR) technology. By using AVR technology, banks could offer
telephone banking facilities for financial services. With further
advancements in technology, banks were able to offer services through
personal computers owned and operated by customers at their
convenience, through the use of Internet proprietary software. The users
of these services were however, mainly corporate customers rather than
retail ones. The Security First Network Bank was the first Internet
banking in the world that that was built in 1995, USA. After that some
famous banks introduced their Internet banking one after another, such
as Citibank and Bank of America.
Electronic banking can also define as a variety of
plat forms such as
• Internet banking (Online banking),
• Telephone banking ,
• TV-based banking ,
• Mobile phone banking and
• PC banking (Offline banking)
whereby customers access these services using an
intelligent electronic device , like a Personal
Computer (PC), Personal Digital Assistant (PDA),
Automated Teller Machine, Point of Sale (POS),
Kiosk, or Touch Tone Telephone.
The levels of banking services offered through INTERNET can be
categorized in to three types:
(i) The Basic Level Service is the banks’ websites which disseminate
information on different products and services offered to customers and
members of public in general. It may receive and reply to customers’
queries through e-mail,
(ii) In the next level are Simple Transactional Websites which allow
customers to submit their instructions, applications for different services,
queries on their account balances, etc, but do not permit any fund-based
transactions on their accounts,
(iii) The third level of Internet banking services are offered by Fully
Transactional Websites which allow the customers to operate on their
accounts for transfer of funds, payment of different bills, subscribing to
other products of the bank and to transact purchase and sale of
securities, etc. The above forms of Internet banking services are offered
by traditional banks, as an additional method of serving the customer or
by new banks, who deliver banking services primarily through Internet or
other electronic delivery channels as the value added services.
Some of these banks are known as ‘virtual’ banks or ‘Internet only’ banks
and may not have any physical presence in a country despite offering
different banking services.
• It removes the traditional geographical barriers as it could reach out to
customers of different countries / legal jurisdiction. This has raised the
question of jurisdiction of law / supervisory system to which such
transactions should be subjected,
• It has added a new dimension to different kinds of risks traditionally
associated with banking, heightening some of them and throwing new
risk control challenges,
• Security of banking transactions, validity of electronic contract,
customers’ privacy, etc., which have all along been concerns of both
bankers and supervisors have assumed different dimensions given that
Internet is a public domain, not subject to control by any single authority
or group of users,
• It poses a strategic risk of loss of business to those banks who do not
respond in time, to this new technology, being the efficient and cost
effective delivery mechanism of banking services,
• A new form of competition has emerged both from the existing players
and new players of the market who are not strictly bank.s
1.Convenience
2.Overcome Infrastructural barriers
3.Anywhere, anytime banking
4.Time Saving
5.Saving in Operational Cost
6.Saving in Travelling Cost
7.Consolidated Interface
8.Low incidence of errors
9.Easy transfer the funds
1. Helpful in controlling over heads and operating cost
2. Greater efficiency,
3. Better time usage and enhanced control.
4. Enable banks to be more competitive.
5. Expansion of the banking industry
6. Opening of new avenues for banking operations.
7. Reduction in paper work
8. Green Economy
9. Proper documentation of records and transactions
10. Better delivery capabilities
11. Financial Inclusion
Electronic Banking as already stated has greatly serviced both the
general public and the banking industry. This has resulted in
creation of a better enabling environment that supports growth,
productivity and prosperity. Besides many tangible benefit in form
of reduction if cost, reduced delivery time, increased efficiency,
reduced wastage, e-banking electronically controlled and
thoroughly monitored environment discourage many illegal and
illegitimate practices associated with banking industry like money
laundering, frauds and embezzlements.
Further E-banking has helped banks in better monitoring of
their customer base. This it is a useful tool in the hand of the bank
to device suitable commercial packages that are in conformity
with customer needs. As e banking provide opportunity to banking
sector to enlarge their customer base, a consequence to increase
the of volume of credit creation which results in better economic
condition, Besides all this E-banking has also helped in
documentation of the economic activity of the masses.
 Infrastructural barriers
 Knowledge barriers
 Legal and security issues are one of the
challenges for implementation and
development of e-banking
 Social and cultural barriers
 Economic factors
 Management of banking issues
•Internet Banking
•Mobile Banking
•Market Assessment
•Customer’s Perspective
 Internet Banking
 Telephone banking
 Online banking
 Short Message Service (SMS) banking
 Mobile banking
 Interactive-TV banking .
Slide Number: 2,4,5,6 from Section B
Mobile banking is a term used for performing balance
checks, account transactions, payments, credit
applications and other banking transactions through a
mobile device such as a mobile phone or Personal
Digital Assistant (PDA).
Mobile Banking refers to provision of
banking- and financial services with the help of mobile
telecommunication devices. The scope of offered
services may include facilities to conduct bank and
stock market transactions, to administer accounts and
to access customised information.“
• The earliest mobile banking services were offered
over SMS, a service known as SMS banking. With the
introduction of the first primitive smart
phones with WAP support enabling the use of the mobile
web in 1999, the first European banks started to offer
mobile banking on this platform to their customers.
• Mobile banking has until recently (2010) most often been
performed via SMS or the Mobile Web. Apple's initial
success with iPhone and the rapid growth of phones based
on Google's Android (operating system) have led to
increasing use of special client programs, called apps,
downloaded to the mobile device.
Account information
• Mini-statements and checking of account history
• Alerts on account activity or passing of set thresholds
• Monitoring of term deposits
• Access to loan statements
• Access to card statements
• Mutual funds / equity statements
• Insurance policy management
• Pension plan management
• Status on cheque, stop payment on cheque
• Ordering cheque books
• Balance checking in the account
• Recent transactions
• Due date of payment (functionality for stop, change and deleting
of payments)
• PIN provision, Change of PIN and reminder over the Internet
• Blocking of (lost, stolen) cards
Payments, deposits, withdrawals, and transfers
• Cash-in, cash-out transactions on an ATM
• Domestic and international fund transfers
• Micro-payment handling
• Mobile recharging
• Commercial payment processing
• Bill payment processing
• Peer to Peer payments
• Withdrawal at banking agent
• Deposit at banking agent
• Communication enrichment: - Video Interaction with agents, advisors.
• Pervasive Transactions capabilities: - Comprehensive “Mobile wallet”
• Customer Education: - “Test drive” for demos of banking services
• Connect with new customer segment: - Connect with Gen Y – Gen Z
using games and social network ambushed to surrogate bank’s offerings
• Content monetization: - Micro level revenue themes such as music, e-
book download
• Vertical positioning: - Positioning offerings over mobile banking specific
industries
• Horizontal positioning: - Positioning offerings over mobile banking
across all the industries
• Personalization of corporate banking services: - Personalization
experience for multiple roles and hierarchies in corporate banking as
against the vanilla based segment based enhancements in the current
context.
• Build Brand: - Built the bank’s brand while enhancing the “Mobile real
estate”.
 Handset operability
 Security
 Scalability and reliability
 Application distribution
 Personalization
• There are a large number of different mobile
phone devices and it is a big challenge for banks
to offer mobile banking solution on any type of
device. Some of these devices support Java
ME and others support SIM Application Toolkit,
a WAP browser, or only SMS.
• Initial interoperability issues however have been
localized, with countries like India using portals
like R-World to enable the limitations of low end
java based phones
• Physical part of the hand-held device. If the bank is offering smart-
card based security, the physical security of the device is more
important.
• Security of any thick-client application running on the device. In
case the device is stolen, the hacker should require at least an
ID/Password to access the application.
• Authentication of the device with service provider before initiating
a transaction. This would ensure that unauthorized devices are not
connected to perform financial transactions.
• User ID / Password authentication of bank’s customer.
• Encryption of the data being transmitted over the air.
• Encryption of the data that will be stored in device for later / off-
line analysis by the customer.
• One-time password (OTPs) are the latest tool used by financial
and banking service providers in the fight against cyber fraud. [
Another challenge for the CIOs and CTOs of the banks is to scale-up
the mobile banking infrastructure to handle exponential growth of
the customer base. With mobile banking, the customer may be
sitting in any part of the world (true anytime, anywhere banking)
and hence banks need to ensure that the systems are up and
running in a true 24 x 7 fashion. As customers will find mobile
banking more and more useful, their expectations from the
solution will increase. Banks unable to meet the performance and
reliability expectations may lose customer confidence. There are
systems such as Mobile Transaction Platform which allow quick
and secure mobile enabling of various banking services. Recently
in India there has been a phenomenal growth in the use of Mobile
Banking applications, with leading banks adopting Mobile
Transaction Platform and the Central Bank publishing guidelines
for mobile banking operations.
Due to the nature of the connectivity between
bank and its customers, it would be impractical
to expect customers to regularly visit banks or
connect to a web site for regular upgrade of their
mobile banking application. It will be expected
that the mobile application itself check the
upgrades and updates and download necessary
patches (so called "Over The Air" updates).
However, there could be many issues to
implement this approach such as upgrade /
synchronization of other dependent
components.
Due to the nature of the connectivity between
bank and its customers, it would be impractical
to expect customers to regularly visit banks or
connect to a web site for regular upgrade of their
mobile banking application. It will be expected
that the mobile application itself check the
upgrades and updates and download necessary
patches (so called "Over The Air" updates).
However, there could be many issues to
implement this approach such as upgrade /
synchronization of other dependent
components.
It would be expected from the mobile
application to support personalization such
as :
• Preferred Language
• Date / Time format
• Amount format
• Default transactions
• Standard Beneficiary list
• Alerts
Market Assessment basically undertook a
survey of personal customers, which
confirmed their overall concern for security,
convenience and speed in the electronic
banking developments which are being
introduced. 
 Recent trend
 Advantages
 Challenges
Slide Number: 7 and 10 from Section B
 ECS
 EFT/NEFT
 RTGS
 Communication Network
 1995: Evolution of Electronic Clearing Service
and Electronic Funds Transfer system
 2004: Evolution of Real Time Gross
Settlement
 2005: Conversion of EFT into National EFT
 2007: Enactment of Payment and Settlement
Act
 2008: Formulation of Payment and
Settlement Systems Regulations
The introduction of electronic based mechanism
to make P & S of transactions led to:
 Downsizing the manpower requirement
 Reduced transaction costs and
 Lesser paper work
 More convenient
 Effective and efficient tool
 Recorded a significant growth not only in terms
of value but also volume of transactions.
The present system may be classified into two
broad categories viz.,
 Systemically Important Payment Systems
(SIPS) and
 Retail Payment Systems (RPS).
SIPS include RTGS and high value clearing.
However, high value clearing has been
discontinued w.e.f. April 1, 2010.
RTGS is a system to avoid risk involved in
transferring large value funds from one bank
to another. The system was being introduced
by the Central Banks of European Union and
later different other economies also signified
their acceptance thereto. In India RTGS
system was being implemented by Reserve
Bank of India (RBI) as on 26th March 2004 at
par with world’s best practices.
To use the RTGS, customer will have to go to an RTGS-enabled
bank branch where he maintains his account and give an
online instructions for the funds to be credited to the
beneficiary’s account, maintained in a bank branch having
RTGS linkage. The funds would be transferred
instantaneously.
RBI would recover Rs.25 for each transactions but banks will
have their own charges to vary from bank to bank. For a bank
branch to be part of RTGS, it has to be fully computerised and
networked.
Presently, about 3000 branches at 275 locations in India meet
this criterion. RBI expects about 20000-25000 cheques which
involve high value customer transactions to migrate to RTGS.
RTGS system processes only those inter-bank
or customer’s transactions which carry a
value of 2,00,000 or more. Under the system
of RTGS a sender bank has to issue payment
message which is to be routed through
central bank (RBI) and receiver bank. Though
the flow of message may take any form
ranging from V shape, Y shape, L shape to T
shape, RBI decided to use Y shaped message
flow structure in India (figure 2).
RTGS system is an electronic system to transfer
large value funds without netting debits
against credits. Unlike designated (deferred)
time settlement system, where settlement
occurs at one or more discrete times, it
processes final settlement on a continuous
basis during the processing day. Therefore it
provides a good mechanism to reduce
liquidity and credit risks.
RPS primarily concerns with the use of
Magnetic Ink Character Recognition (MICR)
clearing, ECS, EFT and NEFT. The use of
these systems revolutionized the entire
mechanism of payment and settlement. It
was further magnified by the establishment
of Structured Financial Messaging System
(SFMS).
ECS system is primarily a retail payment
system, facilitating bulk receipts and
payments like making utility payments,
payment of wages and salaries to employees,
payment of dividend/ warrants to different
investors, etc. The system has two
components viz.,
 ECS (credit)-facilitating bulk payments and
 ECS (debit)-facilitating payments by different
individuals/ organisations to a single receiver.
 ECS system ensures the settlement of
transactions on T+0 bases and the cycle gets
completed on T+1 basis.
 It is a very efficient mechanism to avoid the
risk of fraudulent encashment or loss of
certificate.
 It reduces administrative cost.
 It makes automated reconciliation by the
time of completion of ECS cycle.
One more facility is provided by ECS system
which is known as National Electronic
Clearing Service. This facility is centralised
one and is available at RBI Mumbai Office.
This service provides the facility of multiple
debit/ credit from/to customer at destination
branch across the country against a single
corresponding credit/ debit of user’s account
with sponsor bank from a single central
location at Mumbai.
 Year ECS/NECS Credit ECS Debit
Volume Value Growth Volume Value Growth

(Million) (Crores) Rate (Million) (Crores) Rate

2006-07 69.0 83,273 157.62% 75.2 25,441 95.91%

2007-08 78.4 7,82,222 839.35% 127.1 48,937 92.35%

2008-09 88.4 97,487 -87.54% 160.1 66,976 36.86%

2009-10 98.1 1,17,613 20.64% 149.3 69,524 3.80%

2010-11 117.3 1,81,686 54.48% 156.7 73,646 5.93%

2011-12 122 1,83800 165 83400

1.2 13.3
EFT service enables customers to transfer his
funds from one account of any bank branch
to any other EFT facilitated bank branch. EFT
enables the transfer of funds within one day
from the receipt of request for such transfer.
It is an inter-bank oriented system.
In November 2005, EFT system was replaced
by National Electronic Fund Transfer (NEFT),
which is an electronic message based system.
NEFT uses Public Key Infrastructure
technology to ensure security and uses
INFINET to get connectivity of different
branches.
 The system converts T+10 days cycle to
usually T+1.
 It enables customers to remit funds to the
beneficiary irrespective of his bank affiliation.
 It reduces the transaction cost.
 It doesn’t call for any additional
organisational infrastructure with the
participating banks also.
Year Volume Value Growth Rate

(Million) (Crores)

2006-07 4.8 77,446 26.36%

2007-08 13.3 1,40,326 81.19%

2008-09 32.1 2,51,956 79.55%

2009-10 66.3 4,09,507 62.53%

2010-11 132.3 9,39,149 129.34%

Card based payments include payment made
by credit card as well as debit cards. Credit
card offers free credit to its user and is very
popular. But it bears risk and thus it is an
expensive payment mode. Debit card is
another alternative to cash. This mode of
payment offers no credit to its user (as one
can use only his own money) but it carries no
or minimal risk. That is the reason why, it has
become user’s choice.
Year Credit Card Debit Card

Volume Value Growth Volume Value Growth

Rate Rate

2006-07 169.5 41,361 22.06% 60.2 8,172 38.58%

2007-08 228.2 57,985 40.19% 88.3 12,521 53.22%

2008-09 259.6 65,356 12.71% 127.7 18,547 48.13%

2009-10 234.2 61,824 -5.40% 170.2 26,418 42.44%

2010-11 265.1 75,516 22.15% 237.1 35,705 35.15%

2011-12 328 53400

 Magnetic Ink Character Recognition system
 Optic Character Recognition (OCR) System
Under MICR cheques are printed on a specific
type of paper and carry 6 digital cheque
numbers, 9 digital centre codes, 2 digital
transaction codes and 13 digital amount of
transaction. The first three codes are usually
self-printed and customer is required to fill
only amount.
To implement MICR technology, banks are
required to install encoder and cheque
reader-cum-sorter. The technique aims at
providing speedier cheque clearance. MICR
automates the clearing house operations.
In this context a new technique has also been
introduced which is known as Optic Character
Recognition (OCR) System. OCR is more
advanced than MICR. It automatically picks-
up the images from cheque and hence
eliminates the manual process of encoding
cheques. The use of MICR clearing system
has shown a good response from its users.
In February 2001, Institute for Development and
Research in Banking Technology (IDRBT) and
Tata Consultancy Services (TCS) deployed a
Secured Multi-tiered Financial Messaging
Solution for the Indian Banking and Financial
Sector to send financial and non-financial
messages across the Indian Financial Network
(INFINET) in a secure environment. In November
2001, SFMS system was being introduced by RBI
to facilitate more security in electronic
transactions.
SFMS is an electronic data interchange system to
exchange structured messages in strict
confidence. It uses X.509 digital signature for
access control and authentication. It has wide
range of applications such as simple messaging,
EFT, RTGS, ECS, Electronic Debit, online trading
in Government securities etc. SFMS is an
effective tool to generate SWIFT messages at
remote branches and relay the same to SWIFT
Gateway of bank for onward transmission.
An electronic communication network (ECN)
is a financial term for a type of computer
system that facilitates trading of financial
products outside of stock exchanges. The
primary products that are traded on ECNs
are stocks and currencies. The first
ECN, Instinet, was created in 1969.
ECNs increase competition among trading
firms by lowering transaction costs, giving
clients full access to their order books, and
offering order matching outside of traditional
exchange hours. ECNs are sometimes also
referred to as Alternative Trading Systems or
Alternative Trading Networks.
 Electronic Communications Networks, or
ECNs, are electronic trading systems that
automatically match buy and sell orders at
specified prices. ECNs register with the SEC
as broker-dealers.
 Those who subscribe to ECNs – institutional
investors, broker-dealers, and market-makers –
can place trades directly with an ECN. Individual
investors must currently have an account with a
broker-dealer subscriber before their orders can
be routed to an ECN for execution. When
seeking to buy or sell securities, ECN subscribers
typically use limit orders. ECNs post orders on
their systems for other subscribers to view. The
ECN will then automatically match orders for
execution.
 If a subscriber wants to buy a stock through
an ECN, but there are no sell orders to match
the buy order, the order can't be executed
until a matching sell order comes in. If an
ECN has no sell order to match with the
subscriber's buy order, it may send the order
to another market centre for execution.
 Likewise, a subscriber seeking to sell a stock
through an ECN may have its order matched
with a buy order that comes into the ECN, or
the ECN may route the sell order to another
market centre for execution.