1 PROJECT REPORT On “E-BANKING IN INDIA” BACHELOR OF COMMERCE BANKING & INSURACE V- SEMESTER 2012-2013 SUBMITTED BY SHIVANI CHANDA UNDER GUIDANCE OF PROF. SUBHASHINIGURU NANAK COLLEGE OF ARTS, SCIENCE & COMMERCE MUMBAI -37.
2 CERTIFICATE This is to certify that of T.Y.B.COM(BANKING AND INSURANCE) SEM Vhas successfully completed the project of in banks.PROJECT GUIDE. CO-ORDINATOR.PRINCIPLE. EXTERNAL EXAMINER. DECLARATION
3 I am SHIVANI CHANDA the student of T. Y. B.COM (BANKING ANDINSURANCE) SEM V.hereby declared that I have completed the project on E-BANKING IN INDIA. The information submitted is true and original to the best of myknowledge. SIGNATURE OF STUDENT NAME : - SHIVANI CHANDA ROLL NO : - 40
4 ACKNOWLEDGEMENT We would like to acknowledge the following being as an idealistic& fresh dimensions in the completion of this project. First & forecast, we would like to thank to our prof. Sudha whoseinvaluable support and guidance helped me in every aspect of thisproject.Secondly, we would like to express my deep sense of gratitudetowards our PRINCIPAL and our Banking & Insurance coordinatorfor their valuable guidance & support without which this projectwould not have been possible
5 INDEXSR NO TOPIC 1 INTRODUCION TO BANKING 2 INTRODUCTION TO E-BANKING 3 TYPES OF E-BANKING 4 ADVANTAGES AND DISADVANTAGES OF E-BANKING 5 RISK MEASURERING 6 E-BANKING IN REALITY 7 CONCLUSION
6 CHAPTER-1 INTRODUCTION TO BANKINGA System of trading in money which involved safeguarding deposits andmaking funds available for borrowers. In general terms , the business activityof accepting and safeguarding money owned by individuals and entities , andthen lending out this money in order to earn a profit.History of banking in IndiaWithout a sound and effective banking system in India it cannot have ahealthy economy. The banking system of India should not only be hasslefree but it should be able to meet new challenges posed by the technologyand other external and internal factors.For the past three decades India’s banking system has several outstandingachievements to its credit. The most striking is its extensive reach. It is nolonger confined to only metropolitans or cosmopolitans in India. In fact,Indian banking system has reached even to the remote corners of thecountry. This is one of the main reasons of India’s growth process.The government’s regular policy for Indian bank since 1969 has paid richdividends with the nationalization of 14 major private banks of India.Not long ago, an account holder had to wait for hours at the bank countersfor getting a draft or for withdrawing his own money. Today , he has achoice. Go ne are days when the most efficient bank transferred money
7from one branch to other in two days. Now it is simple as instantmessaging or dials a pizza. Money has become the order of the day.The first bank in India, though conservative, was established in 1786. From1786 till today, the journey of Indian banking system can be segregated intothree distinct phases.They are mentioned below: Early phase from 1786 to 1969 of Indian banks Nationalization of Indian Banks and up to 1991 prior Indian banking sector Reforms. New phase of Indian banking system with the advent of Indian Financial & Banking sector Reforms after 1991.To make this write-up more explanatory, I prefix the scenario as phase I,phase II and phase III.Phase IThe general Bank of India was set up in the year 1786. Next come bank ofHindustan and Bengal bank. The East India Company established Bank ofBengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) and Bankof Madras (1843) as independent units and called it presidency Bank. Thesethree banks were amalgamated in 1920 and Imperial Bank of India wasestablished which started as private shareholders banks, mostly Europeansshareholders.In 1809 Allahabad banks was established and first time exclusively byIndians, Punjab National Bank Ltd. was set up in 1894 with headquarters at
8Lahore. Between 1906 and 1913, central Bank of India, Bank of Baroda,Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bankof India came in 1935.During the first phase the growth was very slow and banks also experiencedperiodic failures between 1913 and 1948. There were approximately 1100banks, mostly small. To streamline the functioning and activities ofcommercial banks, the Government of India came up with The BankingCompanies Act, 1949 which was later changed to Banking Regulation Act1949 as per amending Act of 1965. Reserve Bank of India was vested withextensive powers for the supervision of banking in India as the CentralBanking Authority.Phase IIGovernment took major steps in this Indian Banking Sector Reform afterindependence. In 1955, it nationalized Imperial Bank of India with extensivebanking facilities on a large scale especially in rural and semi-urban areas. Itformed State Bank of India to act as the principal agent of RBI and tohandle banking transaction of the Union and State Government all over thecountry.Seven banks forming subsidiary of State Bank of India was nationalized in1960 on 19th July, 1969, major process of the Prime Minister ofnationalization was carried out. It was the effort of Prime Minister of India,Mrs . Indira Gandhi. 14 major commercial banks in the country werenationalized.Second phase of nationalization Indian Banking Sector Reform was carriedout in 1980 with seven more banks. This step brought 80% of the bankingsegment in India under Government ownership.
9The following are the steps taken by the government of India to RegulateBanking Institutions in the Country :1945 : Enactment of Banking Regulation Act.1955 : Nationalization of State Bank of India.1959 : Nationalization of SBI subsidiaries.1961 : Insurance cover extended to deposits.1969 : Nationalization of 14 major banks.1971 : Creation of credit guarantee corporation.1975 : Creation of regional rural banks.1980 : Nationalization of seven banks with deposits over 200 cores.After the nationalization of banks, the branches of the public sector bankIndia rose to approximately 800% in deposits and advances took a hugejump by 11,00o%.Banking in the sunshine of government ownership gave the public implic itfaith and immense confidence about the subtainability of these institutions.Phase III This phase has introduced many more products and facilities in the bankingsector in its reforms measure. In 1991, under the chairmanship of MNarasimham, a committee was set up by his name which worked for theliberalization of banking practices.The country is flooded with foreign banks and their ATM stations. Effortsare being put to give a satisfactory service to customers. Phone banking and
10net banking is introduced. The entire system become more convenient andswift. Time is given more importance than money.The financial system of India has shown a great deal of resilience. It issheltered from any crisis triggered by any external macroeconomics shock asother East Asian Countries suffered. This is all due to a flexible exchangerate regime, the foreign reserves are high, the capital account is not yetfully convertible, and banks and their customers have limited foreignreserves are high, the capital account is not yet fully convertible, and banksand their customers have limited foreign exchange exposure.
11 CHAPTER 2 INTRODUCTION TO E-BANKINGE-BANKING Electronic banking in simple terms means, it does not involve any physicalexchange of money, but it’s all done electronically, from one account toanother, using the Internet. Internet banking is just like normal banking,with one big exception. You don’t have to go to the bank for transactions.Instead, you can access your account any time and from any time and fromany part of the world, and do so when you have the time, and not whenthe bank is open. For busy executives, students, and homemarkers,e-banking is virtual blessing. No more talking precious time off from work toget a demand draft made or a cheque book issued.Banks offer Internet banking in tow main ways. An existing bank withphysical offices can establish a Web site and offer Internet banking to itscustomers in addition to its traditional delivery channels.A second alternative is to establish a “virtual,” “branchless,” or “Internet-only” bank. The computer server that lies at the heart of a virtual bankmay be housed in an office that serves as the legal address of such a bank,or at some other location.Virtual banks may offer their customers the ability to make deposits andwithdraw fund via automated teller machines (ATMs) or other remotedelivery channels owned by other institutions.Online system allow customers to plug into a host of banking services froma personal computer by connecting with the bank’s computers overtelephone wires the convenience can be compelling. Not only is travel time
12reduced, but ATM machines, telephone banking or banking by mail are oftenunnecessary. And, technology continues to make online banking onceattempted only by computer enthusiasts, easier for the average consumer.Banks use a variety of names for online banking services, such as PCbanking, home banking electronic banking or Internet banking.Can one imagine life without paper cash? Money has always been part ofhuman emotions. And although it is difficult to imagine that all those yearsof savings at the bank is now just a whole bunch of bits and bytes, it isbecoming a reality and the sooner people adjust to it, the better it is.EVOLUTION OF E-BANKING:The story of technology in banking started with the use of punched cardmachines like accounting machines or ledger posting machines. The use oftechnology, at that time, was limited to keeping books of the bank. Iffurther developed with the birth of online real time system and vastimprovement in telecommunications during late 1970’s and 1980’s it aresulted in a revolution in the field of banking with “convenience banking”as a buzzword. Through convenience banking, the bank is carried to thedoorstep of the customer. The 1990’s saw the birth of distributed computingtechnologies and Relational Data Base Management System. The bankingindustry was simply waiting for these technologies. Now with distributiontechnologies, one could configure dedicated machines called front-endmachines for customer service and risk control while communication in thebatch mode without hampering the response time on the front- endmachine.
13HISTORY OF E – BANKINGThe precursor for the modern home online banking services were thedistance banking services over electronic media from the early 80s. the termonline become popular in the late 80s and refers to the use of a terminal,keyboard and TV (or monitor) to access the banking system using a phoneline. “Home Banking” can also refer the use of numeric keypad to sendtones down a phone line with instructions to the bank. Online servicesstarted in New York in 1981 when four of the city’s major banks (Citibank,chase Manhattan, chemical and manufacturers honover) offer home bankingservices using the videotext these banking services never become popularexcept in France where the use of videotext (Minitel) was subsidized by thetelecom provider and the UK, where the pestle system was used. The UK’sfirst home online banking services were set up by the Nottingham BuildingSociety (NBS) in 1983. The system used was based on the UK’s pestlesystem and used a computer, such as the BBC Micro, or keyboardconnected to the telephone system and television set. The system (known as‘Home link’) allowed on-line viewing of statement, bank transfers and billpayment. In order to make bank transfers and bill payment, a writteninstruction giving details of the intended recipient had to be sent to theNBS who set the details up on the Home link system. Typical recipient weregas, electricity and telephone companies and accounts with other bank.Details of payments to be made were input into the NBS system by theaccount holder via pestle. A cheque was then send by NBS to the payeeand an advice giving details of the payment was send to the accountholder. BACS was later used to transfer the payment directly. Stanfordfederal credit Union was the first financial institution to offer online internetbanking services to all of its members in Oct, 1994.
14PRE E-BANKING SCENARIO IN INDIATraditional BankingTraditionally the relationship between the bank and its customer has beenon a one-to-one level via the branch network. This was put into operationwith clearing and decision-making responsibility for the overall clearingnetwork, the size of the branch network and the training of staff in thebranch network. The bank monitored the organization’s performance and setthe decision-making parameters, but the information available to bothbranch staff and their customers was limited to one geographical location. Traditional Banking structureOn IT AdoptionThe Indian banking sector woke up to the world of technology in early1990’s. The banking sector in India has been dominated by public sectorbanks, who hold between them more than 80% of total asset base. New
15private sector banks and foreign banks have tended to concentrate theirefforts more on the top 23 centers which house the cream of the country’surban customers. These banks have taken the which house the cream of thecountry’s urban customers. These banks have taken the lead in technologyadoption and have succeeded in building up a substantial base of technologysavvy, high-end customerMaking and observation about the adoption of technology by the bank, P.C.Narayan, vice-president (IT and retail banking) of Global Trust Bank Ltd, says.“The rate of adoption of IT by foreign and private sector banks in countryhas been significant over the Internet phenomenon worldwide. A number ofbanks in the public sector have also accelerated the pace of IT deploymentlargely because of the competitive pressure brought upon them by privatesector banks and foreign banks’’.Though in the beginning the employees resisted computerization (especiallyin nationalized banks), the management finally succeeded in convincing itsemployees about the benefit and need for adoption of technology. Says P.Seshadri Rao, a financial consultant based in Hyderabad, “The basic reasonfor getting the nod for computerization was the competition from privatebanks. Once the gates were opened to the private sector to operate banks,they started with a bang, thereby forcing nationalized banks to reconsidertheir way of doing business.A SBI official in Delhi echoes the same sentiments: “Needless to say,competition from foreign banks was one of the motivation factors for us toswitch to computers. But housekeeping scored over everything else.Maintaining books and regular tasks like computing interest at the end ofthe calendar year yeas tedious. The quantum of database was so huge thatcomputerization was the only way out.“Banks would have certainly started downing their shutters had bankingsoftware not taken over the reins.”
16In sharp contrast, most of the private banks like GTB, HDFC, and ICICIstarted their operations with the use of technology. And with these newbanks wooing the customers by offering what was till then an unknownphenomenon-customer service-the nationalized banks were forced to takeremedial steps. “The compulsion for private banks to adopt a very high levelof IT was driven by their desire to contain their operating cost at thelowest levels and at the same time be able to offer a wide variety ofproduct and services in quickset possible time.” Observes Narayan.Commenting on the reasons for public sector banks being laggards in theadoption of technology, State Bank of Mysore managing director sitaramaMurty says: “The private banks started with a clean slate. They hiredtechnology savvy people. On the other hand, public sector banks didn’t havethose advantages. We need to follow the public sector bank’s rules andregulation while hiring people. We can’t appoint computer professional inthe top management directly.” Computerization of the branches, especially in semi-urban and rural areas,is still a far cry for public sector banks. “This calls for huge investments andretraining of staff. I think these factor are inhibiting most of the banks totake technology to rural areas. But since IT is becoming an integral andinevitable part of the banking system, rural banks’ computerization shouldalso happen very soon,” comment a senior official with Andhra Bank.Explains P.K. Seshadrinathan, CTO of SSI Technology: “The key obstacles tointroduction of IT are non-integration or non-networking of branches, and alack of corporate network. Computerization has been introduced but eachbranch acts as an island. And, of course, cultural/social issues continue topose problem. Overcoming these obstacles, therefore, would be the biggestchallenge by itself”.However, the nationalized banks have taken to computerization in rightearnest.
17Today most of them have their own in-house IT department which not onlytakes care of deployment and implementation issues but is also intodeveloping specific and customized application for the bank. From SBI tocanara bank, everyone is expanding its IT division and making hugeinvestment to develop the division as a profit centre by itself. According toan SBI official, “It makes more sense to have our own division whichunderstand our needs and comes out with a solution. It is not just cost-effective but also useful for a bank to have a separate division that takescare of IT in totality.”Faced with deregulation, privatization and globalization , the Indian banks areslowly looking at various options to stay ahead in the rat race. This hasresulted in the following recent trends:Phone bankingThis means carrying out of banking transaction through the telephone. Acustomer can call up the banks help line or phone baking number toconduct transaction like transfer of funds, making payments, checking ofaccount balance, ordering cheques, etc,. This also eliminate the customer ofthe need to visit the bank’s branch.ATM(Automatic Teller Machine)An ATM is basically a machine that can deliver cash to customers ondemand after authentication. An ATM does the basic function of a bank’sbranch, i.e., delivering money on demand. Hence setting of branches is notrequired thereby significantly lowering infrastructure costs. These machinesalso hold the keys to future operational efficiency.
18 CHAPTER 3 TYPES OF E-BANKINGE-BANKING IS DIVIDED IN FOLLOWING TYPES:Types of E-Banking:- ATM (Automatic teller machine) Tele banking/Phone banking. Mobile banking. PC banking. Internet banking. Wireless/ PDA banking.
19 AUTOMETED TELLER MACHINE (ATM)Automated teller machine is seen everywhere. These machines broughtinnovation in the banking sector all over the world. The advent of the ATMhas made the concept of the clock banking a reality. The ATM has beenhelpful to both the bankers and customers. The load crowd of customers inthe banking hall of a branch waiting for their turn to collect cash isdippearing.The ATM is the device use by the bank customers to process accounttransaction. This system is known as “anytime money” because with servicesthe person having the ATM card can withdraw cash any time he want. Sincethe ATM machine can be build anywhere like near markets and railwaystations etc, so one can easily with draw money from it.Advantages of ATM:To banks Less space required Capital expenditure is lower as compare to branch Bank’s staff gets more time to do marketing Lower transaction cost One more means for advertising bank’s productsTo customer Convenience of shopping no need to carry cash No need to visit bank for transaction Banking anytime, anywhere, anyhow Fast and efficient service Good currency notes
20Disadvantages of ATM: Flexible to efficiency’s expense, at present, for any one application it is usually possible to find a more optimized technology. Cost, although it will decrease with time. New customer premises hardware and software are required competition from other technologies - 100 Mbps Ethernet and fast Ethernet. Presently the application that can benefit from ATM such as multimedia are rare.The wait, with all the promise of ATM’s capabilities many details are still inthe standards process.Tele banking or Phone banking:The customer interacts with the bank for various services over phone. Therewill no charge for dialing to the toll free number provided by banks Tele-banking, also know as “voice over phone” is consider under anywherebanking. The customer indentifies himself to the system by entering his pinnumber and is guided by a voice response for each banking services namely: Balance in the account Transaction status, e.g. whether cheque deposited is cleared or not Request for issue of cheque book is registered Request for issue of bank statement is registeredIn normal course all above activities would have involved customer visit to abranch and this Tele-banking has improved banking services and enabledremote banking.
21Advantages of Tele-banking: 1. You may not have time to visit your bank every week and if our business is located out of town, getting to a branch can be time consuming and expensive. With telephone banking, your bank is on the other end of the line whenever you need it. 2. You can manage your business account at any time, which is idial if you are busy during the day with running your business. 3. As well as the basics of running your business account – paying a bill, transferring money, setting up a direct debit and so on – you may also be able to appointment with your bank manager. 4. Making payment by phone can simplify your banking – you don’t need to confirm the payments in writing, and you can check all your transactions against your statement when it arrives.The disadvantages of Tele-banking:The most common one would have to be the fact that not all banks andbuilding societies offer 24 hour telephone banking. They may if is simply acase of checking your balance or recent transaction but for anything moreinvolved in that it can cause a problem. Also telephone banking is notactive usually over bank holidays such as Christmas day or New year day.Mobile bankingMobile banking comes in as a part of the bank initiative to offer multiplechannels banking providing convenience for its customer. A versatile multifunctional, free service that is accessible and viewable an the monitor of
22mobile phone. Mobile phones are playing great role in banking and otherchannels.Mobile banking can be divided into two broad categories of facilities: Alert facility:Mobile banking alert facility keeps you informed about the significanttransaction in your account. It keeps you update where ever u go. Request facility:Mobile banking request facility enables you to enables you to query for youraccount balance.Advantages of Mobile bankingMobile banking through cell phone offers many advantages for customers aswell as banks. Some of them are as follows:- 1) Mobile banking has an edge over internet banking. In case of online banking you must have an internet connection and computer. This is a problem in developing countries. However, with mobile banking, connectivity is not a problem. You can find connectivity in the remotest of places also where having an internet connection is a problem. 2) You can make transaction or pay bills anytime. It saves a lot of time. Mobile banking thorough cell phone is user friendly. The interface is also very simple. You just need to follows the instructions to make the transaction. It also saves the record of any transaction made. 3) Cell phone banking is cost effective. Various banks provide the facility at a lower cost as compared to banking by self. 4) Banking through mobile reduces the risk of fraud. You will get an SMS whenever there is an activity in your account. This includes deposits, cash withdrawals, funds transfer etc. You will get a notice as soon as any amount is deducted or deposited in your account.
235) Banking thought cell phone benefits the banks too. It cuts down an the cost of Tele-banking and is more economical.6) Mobile banking through cell phone is very advantageous to the banks as it severs as guide in order to help the banks improve their customer care service.7) Banks can be in tough with their clients with mobile banking.8) Banks can also promote and sell their products and services like Credit cards , loans etc to a specific group of customers.9) Various banking services like Account Balance Enquiry, Credit/Debit Alerts, Bill payment Alerts, Transaction History, Fund Transfer Facilities, and Minimum Balance Alerts etc can be accessed from your mobile.10) You can transfer money instantly to another account in the same bank using mobile banking.PC banking:PC banking allows the customer to access the information regarding totheir bank accounts through a dial up connection. They can alsodownload the information and process it in their own manners. It isdifferent from the internet banking in the sense that internet banking isdone over a highly accessible public networks, where as PC banking isaccessible just to bank’s customers. PC banking makes things easierYou can access your account just from your home PC, 24 hours per day,7 days per week. All you need is a computer with an internet connection,and a card reader, which can be obtained at your four Fortis Bank. Thecard reader gives you unique codes based on your bank card and pinnumber, so your account stays safe.
24 PC banking goes fasterBecause you don’t need to go all the way to your local bank office, yousave a lot of time that you don’t want to be wasting in traffic. A lot ofinformation and reports can be obtained with a few clicks, andtransactions can be done without signing papers. Most of your time willbe spend on time going to the website and logging in, so it is advisableto do all you’re banking at a certain time. For example, Every Mondayyou log in and do your transaction and administration. Now you just login once and process all transfers and reports at once. Advantages of PC banking: PC Banking enables you round-the-clock access. You usually do not think to stand an queue as a way to perform important banking transaction. The PC banking enables you to do just that suitable from the ultimate comfort and privacy of your homes. In comparison towards the Online banking program, the PC banking provide you increased security. Since the level of security is very much greater in PC banking, you can access very much more services that what you by way of online banking. What’s more, even the speed of the banking transaction is very much faster that online banking. In case you are using individual economic management computer software and want the inputs from your checking, savings and cash marketplace accounts, PC banking makes it probable for you to download the related information suitable into the computer software program.
25 You could also check your balances and love the conversation and power of electronic fund transfer. Disadvantages: There is no personal interaction between yourself and the bank (employee/advisor). You can access your account from the PC that you originally installed the software. You cannot deposit physical cash using internet banking i.e. cheques, cash in hand. This would require a personal visit to the bank.Internet banking:Internet banking let you handle many baking transaction via your personalcomputer. For instance, you may use your computer to view your accountbalance, request between accounts, and pay bills electronically. Internetbanking system and method in which a personal computer is connected bya network service provider directly to a host computer system of a banksuch that customer service requests can be processed automatically.The advent of the Internet and the popularity of personal computerpresented both an opportunity and a challenge for the banking industry. Foryears, financial institutions have used powerful computer network toautomate million of daily transaction ; today, often the only paper record isthe customer’s receipt at the point of sale. Now that their customers areconnected to the internet via personal computers are connected to theInternet via personal computers, banks envision similar advantages byadopting those same same internet electronic processes to home use. Bank
26view online banking as a powerful “vale added” tool to attract and retainnew customers while helping to competitive banking environment.It generally implies a service that allows customers to use some form ofcomputer to access account-specific information and possibly conducttransaction from a remote location - such as at home or the workplace. Theobvious advantage to the consumer is convince—one bank recently used theadvertising motto “bank naked’ to emphasize the customer’s freedom toconduct routine banking transaction from the comfort and security of his/herhome 24X7.Type of Internet Banking:There are three basic type of internet banking that is being employed in the marketplace: INFORMATION. COMMUNICATION. TRANSACTION. Information:This is most basic level of internet banking. The bank has marketinginformation about its product and services on a stand-alone server. Thislevel of internet banking services can be provided by the bank it self or bysourcing it out. Since the server and website may be vulnerable toalteration, control must therefore be in place to prevent unauthorizedalterations to data the server or web site.
27 Communication:This type of internet banking allows the interaction between the bank’ssystem and customer. It may be limited to electronic mail, account inquiry,loan application, or static file update. This risk is higher with thisconfiguration that with the earlier system and therefore appropriate controlneed to be in place to prevent, monitor, and alert management of anyunauthorized attempt to access bank’s internal network and computersystem. Under this system the client makes a request to which the banksubsequent responds. Transaction:Under this system of internet banking customers are allowed to executetransaction. Relative the information and communication type of internetbanking, this system processes the highest level of risk architecture andmust have the strongest control. Customer transaction can include accessingaccounts, paying bills, transferring funds, etc. this possibilities demand verystringent security. Advantages of Internet banking: An internet banking account is simple to open and use. You just enter a few answers to question in a form while sitting comfortably in your own home or office . to access your account, you establish security measures such as usernames and passwords. To complete the set up of your account, you just print, sign and v send in a form.
28 Internet banking cost less. Because there are fewer building to maintain, and less involvement by salaried employees, there is a much lower overhead while with online banking. These saving allow them to offer higher interest rates on saving accounts and lower lending rates and service charges. Even traditional brick and mortar banks offer better deals such as free bill paying services to encourage their customers to do their banking online. Comparing internet banking to get the best deal is easy. In a short time, you can visit several online banks to compare what they offer resaving and checking account deals as well as their interest rates. Other things you can easily research are what credits cards are available, credit card interest rates, loan term and the banks own rating with the FDIC. Bouncing a check (accidentally) should be a thing of the past because you can monitor your account online any time, day or night. You can track your balance daily, seen what checks have cleared andknow when automatic deposit and payment are made this is all possibleby simply going online to the banks website and logging into youraccount. You can keep your account balance using your computer and your monthly statement. Your bank account information can be downloaded into software program such as Microsoft money or quicken; making is easy to reconcile your account with just a few mouse clicks. The convenience of the data capture online makes it much easier to budget and track where your money goes. Your internet bank account even allows you to view copies of the checks you have written each month.
29 With the ability to view your account at anytime, it is easier to catch fraudulent activity in your account before much damage is done. As soon as you log into your account, you will quickly see whether there is anything amiss when you check on your deposits and debits. If anyone writes a check or withdraws fund from your account and you know it wasn’t you, you will see it right away. This lets you get started on correcting the problem immediately rather that having to wait a month to even have a clue it is happening as would be the case with a traditional bank. Internet banking offers a great deal more convenience that you could get from a conventional bank. You aren’t bound by ‘banker’s hours and you don’t have to go there physically in your car. Time is not wasted when you have work to do because you can do your office’s banking without leaving the office. No matter where you are or what time it is, you can easily mnage your money. There are sound reasons why internet banking is growing. The economic advantages have encourage banks to provide an increasing rang of easy to use services via the internet.Customers have found doing business online simple and speedy andbecome have very have become very comfortable with the arrangement.Internet banking gives people more control over their money in convenientway that they find enjoyable and reassuring.Disadvantages of internet banking: Identity conformation
30 Federal regulations require that financial institutions confirm each customer’s identity. This may present a logistical issue, as copying and faxing documents is sometimes necessary. Security concernsWith hacking and identity theft on the rise, internet banking customerhave to place a certain amount of trust in the bank that their accountinformation and personal information are safe. Customer serviceIf you bank or a traditional bank, you can go to the bank and speck tosomeone face to face about your problem but, with an internet bank,you will likely spend a lot of time on the phone being passed aroundand placed on hold. AccessibilityIf the internet goes down in your area or the area of the bankingoffice, you will be unable to access your accounts. This includes beingunable to withdraw money from ATM’s or to use your debit card. FeesMany internet banks don’t have ATMs, which means you will have topay ATM fees. This can cost you more money that paying the regularmonthly fees at a brick and mortar bank.Growth in Internet bankingNumerous factors including competitive cost, customer service, anddemographic considerations are motivating banks to evaluate theirtechnology and assess their electronic commerce and internet banking
31strategies. Many researchers expect rapid growth in customers usingonline banking products and services. The challenge for national banks isto make sure the savings from internet banking technology more thatoffset the costs and risks associated with conducting business incyberspace. Some of the market factors that may drive a bank’s strategyinclude the following: CompetitionStudies show that competitive pressure is chief driving force behindincreasing use of internet banking technology, ranking ahead of costreduction and revenue enhancement, in second and third placerespectively. Banks see internet banking as a way to keep existingcustomer and attract new ones to the bank. Cost Efficiencies:National banks can deliver banking services on the Internet at transactioncosts far lower that traditional brick-and-mortar branches. The actual costto execute a transaction will vary depending on the delivery channelused. For example, according to Booz, Allen & Hamilton, as of mid-1999,the cost to deliver manual transactions at branch was typically more thata dollar, ATM and call center. Transaction cost about 25 cents, andInternet transactions cost about a penny. These costs are expected tocontinue to decline. Geographical Reach:Internet banking allows expanded customer contact through increasedgeographical reach and lower cost delivery channels. In fact some banksdoing the Internet they do not have traditional banking offices and onlyreach their customers online. Other financial institutions are using theInternet as an alternative delivery channel to reach existing customersand attract new customer.
32 Branding:Relationship building is a strategic priority for many national bans.Internet banking technology and products can provide a means fornational banks to develop and maintain an ongoing relationship withtheir customers by offering easy access to a broad array of products andservices. By capitalizing brand identification and by providing broad arrayof financial services, banks hope to build customer loyalty.Wireless or PDA (Personal digital assistant) banking:With a phone number and a special PIN number a customer can accessto his account balance balance from his cellular device. Allows user to pay bills, transfer funds between accounts and check accounts from anywhere. Offers wireless banking. Security is important issue in Wireless Banking. Newsbytes reports that wireless banking users will number over 7 million in the US by 2005.ONLINE SECURITY SYSTEMSThe concern of security remains the largest barrier to growth of onlinebanking. Most people seem to believe that it is a hacker jungle outthere, and stay very wary of trying to simplify their lives by usingcyberspace.Most institutions providing online banking services are very securityconscious. After all, they wouldn’t want to open their computers to astampeding public, would they? The security measures that organizations
33take over the web are simply invincible, unlike the surveillance camerasand lobby guards posted in many banks. If the general public is awareof, or understand, the many features put into a place to guard theirfinances, and then people remain skeptical.Depending on how online accounts are accessed, security can beguaranteed in a variety of ways. Moreover, when a service, it is notopening its mainframes computer to the world. Usually, the bank installsa group of separate computers that stand between the mainframecomputer and the network that will deliver data to your PC. At severalpoints along the way, protection is build in.Some of the most common security features are firewalls, dataencryption, and password/personal identification number.FirewallsA firewall is a computer or software that protects the bank’s computersand data from being accessed by any outsider. This firewall is located atthe point where the bank’s world connects with the rest of the world.This firewall is basically a gatekeeper, checking each attempt at deliveryof data with a list of strict specifications; any criteria not met; does notmake it past the firewall.Public Key InfrastructurePublic key infrastructure can be defined as solution to ensure secureelectronic business communication incorporating signatures and encryptiontechnology.Every user in PKI transaction owns a pair of keys: A public key known toeverybody and a private key known only to the owner. The keys have 2main characteristics. Once, they are complimentary sets of passwords.
34This means that a document encrypted by a public key can only bedecrypted by a private key and vice-versa. Two, the keys are unique pair.Let’s now see how PKI compares with existing security technologies. Anti-virus is merely for integrity, firewall give authentication andconfidentiality, Access is similar to firewall; encryption ensuresconfidentiality. Thus PIK emerges as the only solution that guarantees allthe four pillars of security and trust via authentication, non-repudiation,integrity and confidentiality.EncryptionEncryption is the process of converting information into a more secureformat for transaction. In other words the plain text is converted toscrambled code while being transmitted, and then plain text at thereceiving end of the transmission. It is comparable to writing a letter,converting it to code, putting it in an envelope and mailing it with therecipient descrambling the code.Currently, there are 2 levels of encryption generally available in webbrowsers: 40-bit encryption, and 128-bit encryption. Most commonlyavailable browsers use 40-bit encryption. However the 128-bit offer thehighest level of encryption and provides the best protection whentransmitting confidential data over the Internet. The different betweenthese two types of encryption is one of capability. 128-bit encryption isexponentially more powerful than 40-bit encryption.Digital Signatures:Digital signature essentially use encryption to scramble information inway that only the party who issued the certificate (usually the onlinestore or a trusted third party) can decrypt and read.
35By using digital signatures, consumers are reassured that any sensitiveinformation the send across the web, such as postal addresses and creditcard details, is protected from interception along the way. Meanwhile ,online merchants can be more confident that the customer placing thepurchasing order is indeed entitled to use the payment card in question.Security experts believe that digital signatures will encourage moreconsumer to purchase goods online.Access CodesThe access codes used to indentify you to the online banking system arecalled passwords, and are further protected by using PINs (personalidentification number).
36 CHAPTER 4 ADVANTAGES AND DISADVANTAGES OF E-BANKINGBENEFITS OF E-BANINGConsumers are embracing the many benefits of Internet banking.Benefits to customers: Consumers can use their computers and telephone modem to dial in from home or any sit where they have access to computer. The services are available seven days a week, 24 hours a day Transactions are executed and confirmed quickly, although not instantaneously. Processing time is comparable to that of an ATM transaction. In general, the customer will find lower fees and higher interest rates for deposits due to the reduced cost of operating online and not needing numerous physical bank branches. And the range of transaction available is fairly broad. Customers can do everything from simply checking on an account balance to applying from a mortgage. The interface is very user-friendly and often intuitive. Additionally, business customer will most likely use the Internet for more that cash management, and they will be accustomed to similar “look and feel” among all applications that the use.
37Benefits to the bank:Why should a bank ‘bank online’? Advantages Previously held by largefinancial institutes have shrunk considerably. The Internet has leveled theplaying field and afforded opened access to customers in the globalmarketplace. Internet banking is a cost-effective delivery channel forfinancial institutions.The bank has an opportunity to generate revenue, decrease operationaland transactional costs, increase productivity, and attract new customers.Ability to increase RevenueFinancially, the bank can benefit a great deal from providing theircustomers with an online banking service. The ban has the ability toincrease revenue by generating user and transaction fees for the use ofa bill payment product and has the option of charging an account accessfee for the use of the online system. Online banking provides anexcellent promotional opportunity to generate revenue by helping thebank to cross-sell products such as credit cards, loans, certificate ofdeposits, and other financial services.Save moneyIn addition to making money, the bank can save money with an Internetbanking system. Online banking can actually decrease operating costs byreducing the daily reproduction and distribution of paper-drawntransaction and delivering and processing statements for accounts, creditcards, and bills. Performing transactions via the Internet also providescost savings, as indicated by a study done by Booz, Allen & Hamilton thatshows a transaction over the phone cost $.54, at an ATM it cost $.27and via the Internet the cost is $.0.1. using the Internet to performtransactions greatly reduces the cost to the bank.
38Improves productivityInternet banking improves productivity as well. Bank representatives areable to process data more quickly and efficiently; track account activitywith automated reports, help customers achieve daily tasks via theInternet and reduce time spent handling service problems. There can bea dramatic reduction reduction in the number of customer service calls,as some banks that are providing this service has proven.Marketing & Competitive ToolsInternet banking also offers the bank an exceptional marketing andcompetitive tool. Large banking such as Nations Banks and Wells Fargo,in the Unites States, have already capitalized on the Internet as amechanism to attract new customers. The majority of people using theInternet are middle to high income and polls indicate that 50% of thepeople are also the ones who want to have the convenience of onlinebanking for home or business use. This is an excellent opportunity forthe community bank to keep their hometown customers from looking tonational institutions for an online product.Innumerable services are available via the Internet today. Internetbanking provides a higher level of convenience that both commercial andretail customers desire to have. With this service, the bank not only hasthe opportunity to manage their business better, but can also help theircustomer achieve a much more efficient process of managing theirfinances.
39DISADVANTAGE OF E-BANINGThe most obvious disadvantage is: technophobes need not apply i.e. ifyou are still not comfortable using a computer,e-banking is not for you. Investment of time upfront can be formidable. The data entry is necessary before the numbers can be massaged and money managed successfully. Online bill payment is an example of an effort that requires setting up which leads to ultimate convenience. Switching software or bank re-entry of data, although internet based system are less impacts by this. But competition seems t be minimizing this problem. The personal finance management software Microsoft money enables users of competing software to import data easily. Like anything that deals with the transfer of large amount of money, security is a major factor of online banking. It is taken very serious during online banking procedures. With a system as complex as Online Banking, some errors are inevitable. i.e. : An interrupted online session; late arrival of payments etc. a mistake made by either the user or the banks in question, can affect both, causing problems. For example: An ‘Infinity’ (ICICI’s Online Banking Brand name) customer from Bangalore (who did not want to be named) paid his cell phone bill thought the bank, only to receive another bill the following month, with late fees. The amount had been debited from his account but not passed on to cellular operator. When dealing with computers, there is always concern of the system crashing, viruses entering the system or power cut. There are large problems and are not easily solved. In all this case, many people would be affected, information may be lost and a back –up plan would have to be initiated.
41E-banking using internet as an added delivery channel may shift bank riskprofiles to some degree and create new risk control challenges for banks.Accordingly, supervisors need to consider the implication of a bank’s use ofe-banking delivery channels on its strategic risk, operational risk, reputationalrisk, legal risk, market risk, and foreign exchange risk. Strategic risk and business risk:Strategic risk is one of the most significant risk that e-banking activitypresents for banking organization. Strategic risk differs for other riskcategories in that it is more general and board in nature. Strategic decisionto be given by bank’s board of directors and executive management willhave implicative for all other risk categories.Some of the strategic risk involve with e-banking are directly linked withtiming issues. There can be significant strategic risk associated withmanagement decision to be a technology pioneer, particularly if theinstitution becomes burdened with system made redundant by rapidtechnological charges. Operational risk:Because of reliance of the technology for all facets of banking operationalrisk is one of the most significant risks. To limit operational risk, bankingorganization may want to consider implementing an integrated enterprise-wide architecture and technology infrastructure that can facilitateinteroperability, ensure the security, integrity and availability of data andsupport the management of relationship with third party services provider. Technological infrastructure:E-banking has brought the issue of technological system and applicationintegrated to the forefront. Many large banks now faced with the task of
42integrating system for e-banking activities with their existing legacy systemand with system of multiple service providers and partners.These banks are exposed to significant operational risk from errors intransaction processing if the systems for e-banking are not properlyintegrated. Security: The majority of the bankers surveyed by EBS (electronic banking group) members indentified security risk as a primary concern relating to E- banking external threats such as “hacking”, “sniffing”, “and denial of services” attacks expose banks to new security risk. Open electronic delivery channels cerate new security issues for banks with respect to confidentiality and integrity of information, non repudiation of transaction, authentication of users and access control. Data integrity: Data integrity is an important component of system security. Banking organization must improve interoperability with in and across enterprise to effectively manage relationship with customer, other banks and external services provider. System availability: In additional to ensuring secure internal networks for their e-banking activities, effectively capacity planning is critical to ensuring the ongoing availability of e-banking product and services. Competitive pressures and increased reliance on having services available 24 hours a day and 7 days a week (24*7) have raised customer expectation considerably and in torn reduce the tolerance for tolerance for error. To complete effectively and avoid potentially significant reputation risk that could arise from system outage, banks offering e-banking services may sliver the right mix of
43product and services securely , accurately and consistently. Moreovertrends in outsourcing make it necessary for bankers to ensure that similarplans are in place at their external services providers and are periodicallytested for effectiveness. Internal control/audit:The ability to correct and detect errors is critical internal controlcomponent of any banking operation. Much of efficiency and reduction ine-banking services stem from banks ability to implement “straight-throughprocessing”. While the benefit of straight-through processing are many,the reality is that e-banking modifies how internal controls, propersegregation of duties and clear audit trails are applied over broad accesschannels. Reputational risk:The banks reputation can be impacted by any adverse development thatprecludes the availability of their e-banking delivery channels. Bank haslong based their business on a reputation of trust. The ability to providea trusted network to support e-banking if critical, and bank’s reputationcan be damage by internet banking services that are properly executed orotherwise alienate customer and the public. Banks reputation can suffer ifit fails to deliver secure, accurate and timely e-banking services on aconsistent basis. A bank’s reputation can also be adversely impacted if itfails to respond to inquiries posted via email, does not provide properdisclosure, or violates customer privacy. Legal risk:Legal risk arising from e-banking activates represents another ares ofincreased concern. Currently supervision in every jurisdiction and
44 examining how existing legal and regulatory frameworks originally design to address issues affecting the “physical” world of banking interact with the developing e-banking delivery channels as well as examining potential ambiguities. A bank that develop relationships via the internet with customer in other jurisdictions may be unfamiliar with the banking and customer protection laws and regulation specific to those countries and may consequently incur heightened legal risk. Other traditional banking risk: The e-banking delivery channels also has implication for other traditional banking risks such as credit risk., Liquidity risk, interest rate risk and market risk. Credit risk:The credit risk of banking institution can be affected by e banking activitiesin a number of ways. The use of internal delivery channel may allow banks,especially small institution, to expand very rappidly, which could lead toheightened asset quality and internal control risks. The use of the internalalso allows bank to expand their geographical reach out of their traditionalarea, which increase the challenge of understanding local market dynamicsand risks, verifying collateral and perfecting security lions with out-of-areaborrowers. In addition, the internal also makes it more difficult toauthenticate the identity and creditworthiness of potential customers, whichare essential element to sound credit decision. b) Liquidity risk:The speed with which the information and mis informatin moves over theinternet can have implication for liquidity risk profile of banks. Adverseinformation about a bank, whether it is true or not, can be easily
45disseminated over the internal through bulletin boards and news groups.This couuld cause depositors to withdraw their funds in mass at any time ofthe day, any day of the week. Accordingy, increased monitoring of liquidityand changes in deposits and loan may be warranted depending on thevolume of activity created through e banking. Market risk:The impact of recent growth in securities issuance and tradind over theinternet on banks market risk is complex. From a market standpoint, theincrease volume of securities, which are traded over the internet volatility,but on the other hand, it can lead to increased liquidity. From an individualbanks standpoint, banks may be exposed to increase market risk if theycreate or expand deposits brokering, loan sales, or securitization programmeras a result of internet banking activities. As with liquidity risk, the effect theincreased E banking activities on market volatility need to be monitered bybanks and supervisors. Foreign exchange risk:A bank may be exposed risk if it is accepts deposits from foreign customersor create accounts denominated in currencies other than their local currency.Since the internet allow banks the opportunity to expand their geographicrange, even internationally, some bank may take a greater foreign exchangerisk through e banking activities then the have through their traditionaldelivery channels. Supervision should ensure that a bank initiating cross-border e banking activities through the internet has the appropriate riskmanagement systems and expertise to manage these risks properly.RBI GUIDELINES FOR E-BANKINGThe Reserve Bank of India on Friday released its final operativr guidelines
46for e-banking. The central bank has decided to keep the limit on the ticket-size for e-banking at Rs 2,500 per transaction, and Rs 5,000 per day. Bankshave also been allowed to put in place a monthly transaction limit,depending on the banks risk perception of the customer. While theguidelines will enable lenders such as State Bank of India and Axis Bank togo ahead with their launch of mobile banking services, the central bank hasdecided to restrict the services only to holders of debit and credit cards.The card user base in the country is 80 million, with 55 million debit cardusers and 25 million credit card users. Only Indian rupee-based domesticservices shall be provided on the mobile- payment platform, and the use ofmobile-banking for cross-border transactions have been strictly prohibited.Banks which are based, licensed and supervised in India will be allowed tooffer such services. Further, only banks which have implemented the corebanking platform will be allowed to offer e-banking. At the same time, theRBI has recommended that all e-banking transactions are validated through atwo-factor authentication system, thereby complying with the latest securityand encryption standards.CHALLENGES FOR INDIAN E-BANKSThe challenges that Indian banks are facing:1.How to manage multiple distribution channels?Internet banking is bound to become the most important channel in nextfew years. Even the traditional banking would move towards internettechnology with open standards and low cost. Although all traditionalchannels would not die down in a day and success would depend on howthe banks generate synergy in these two vastly different channels. Theservices provided in all types of distribution channel must be in tandem witheach other and must be in synergy.
472.How to address the issue of internationalization i.e. how to takein and make e-banking an integral part of ones attitudes or beliefs?The real challenges for Internet banking is to penetrate the customer baseof banks. According to IDBI Banks head (e-commerce and new productinitiatives) J Venkataramanan, the maximum usage of Internet banking is foraccessing account balances and making bill payments. For most customers,theres nothing more reassuring than watching their cheques getting crediton a paper ledger. Then, there is the question of how real is real time.For instance, while you can requisition for, say, a new set of cheques anytime of the day, the request will get processed only during the bankinghours.Perhaps, the biggest of all concerns for e-banking customers is the securityissue. People still arent comfortable having information about their lifeshard-earned money saved on a server they dont know about. A physicalpass-book is still preferred. While e-bankers use multiple firewalls, filteringrouters, 128-bit. Encryption and digital certification for safe and confidentialtransactions, there are still chances of a snafu.Another problem is that an on-line service that merely mimics an off-lineone doesnt give customers an adequate inducement to move a significantportion of their banking on-line. As a result, most customers tend to treaton-line banking as no more than an extra channel to check their balancesand transactions histories, and they continue to do the rest of theirbusiness at the ATM or the teller window. A vicious cycle ensues.Also, there is no more security and customer loyalty. With Internet, thegateway to low cost international expansion around, tackling the virtualcompetition would be a key. Competition is just a click away. Customerswould be loyal as long as the rates offered are competitive.
48At the same time, banks would have to manage different product portfolios,at different yet competitive prices to different corporate accross the world.The issue of offering services in multiple geographics/customers - due toincreased global access and competition may ask for new virtual alliancesbetween small local banks and the global players.3.How to address the emergences of value-focused specialistcompetitors that are competing for specific value componentscurrently dominated by banks and now are increasingly gainingaccess to the banks customers?The real trouble is that Internet Bank doesnt really need to be a bank. Itcan even be a group of innovative persons with no bank branch at all, justworking through alliances and leading the field because of their superiorcapabilities through focus and innovation advantage.The entry of multiple non financial institution and other non-traditionalplayers would just fasten this whole process. E.g. Times Bank and IDBIBank.
49 CHAPTER 6 E -BANKING IN REALITYThe experiences of the west are the clear indicator that Internet Banking isnot far off for India. The Internet usage, combined with aggressive moves bynew Internet players in this highly fragmented industry will have profoundeffects on financial services.But are the Indians banks ready for the sudden change? where do we standas of today? would future be as diverse as today or would traditional bankspainfully lose incremental revenue growth opportunities to a host ofaggeressive players that may rapidly consolidate the news revenueopportunities in the business. And what exactly do the banks need to do tomeet the challenges of Banking Business without barriers.Internet Banking ScenarioThe lead in Internet banking in India has been taken by the new privatesector banks and foreign banks, and the four banks which offer Internetbanking facilities in a significant way are ICICI Bank, HDFC Bank, Citibank andGlobal Trust Bank. Banks like UTI Banks, IndusInd, and SBI also offer netbanking facilities in a lesser time.The current base of online banking customers has been estimated at 4.2Lakhs, which is 8.7% of the overall Internet user base. The user base as ofDecember 2002 has been estimated under alternative scenarios: Theconservative scenario puts the user base as of 31st december; 2002 at 41.0lakhs (14.7% of the internet user base), while the more optimisic forecastputs the user base at 73.0 lakhs with an of overall penetration of 26.2 %.ICICI, HDFC and CITIBANK have emerged as the early leaders in online
50banking, with ICICI being the clear leader.Research revealed that close to 40% of adult Internet users have accountswith one of the four major Internet banks offline. However, only 10.8% ofadult Internet users are banking online.In terms of activities, there is still a reluctance to actually conduct financialtransfers online, and the bulk of online banking activity is restricted tochecking balances and statments online. Barely 30% of online bankers havepaid bills online or transferred funds online.Specific aspects of the Indian banking scenario which are pertinent to noteare: The low ATM penetration A regulatory framework which is not conducive to net only bnaks The Relative lack of inter branch networking and e-readiness of major public sector banks, which control a bulks of the deposit and branchs network base The Relative nascence of the Internet itself The entry of many new players The recents IT Act which accepts the legal validity of the digital signatures Plans of Indian public sector banks to provide e-banking services by 2002 The rapid growth of the InternetThe last 4 points - from entry of new players to rapid growth are factors,which should enable the growth of online banking in India.
51STRATEGY FOR INDIAN BANKSInernet banking would drive us into age of creative destruction due to non-phsyical exchange, complete transparency giving rise to perfectly electronicmarket place and customer supremacy. The question to be asked right nowis "what the Indian Banks should do"?Most banks today are pursuing what be described as a fortress strategy,defending themselves against new entrants while waiting for more clarity inthe online world. The fortress strategy has the benefit of relying ontraditional sources of advantage; it plays to the strengths of current legacybanks. The risk, of course, is that these sources of advantage may not beenough to keep out new entrants that rely on a totally different businessmodel.Banks must today at least hedge by experimenting with the web businessmodel. But it calls forprofound organizational changes if it to be executed successfully.It needs the banks to fundamentally re-assess their opportunities for addingvalue and hence re-define their roles in the new paradigm.Banks must first determine what kind of web to target. Customer websfocus on maximizing a banks share of wallet of a target customer segmentwhile Market webs seek to aggregate a critical mass of buyers and sellerswithin one transaction category.Within any web that it might target, there are a number of possible roles abanks could play. web shapers are the one or two companies that own ashaping platform, take initiative to mobilize other companies around it, anddefine a set of standard practices or policies to coordinate participantsactivities. Banks that choose not be Web shaper would be adapters andwould need to define a clear niche that will help them differentiatethemselves from other participants. Some adapters may becomes influencers,
52working closely with ensure the overall succcess of their web.Indian Banks still have a few important lesssons in customer services thatthey would do well to pay heed to. Customer RelationshipBanks and other financial institutions cannot go completely virtual - theyneed physical branches after all. This is probably one area where Internetbanking in India scores over the stand alone Internet banks of the West.Several Internet banks like E-trade have acquired ATM networks like CardCapture Services to offer consumers a way to deposit and access theirmoney through ATMs. Physical branches help forge arelatonship with customer that a virtual banks cannot. most onlineconsumers utilize account tracking, bill pay and e-shopping, they wouldprefer direct, personal contact with their banker when shopping for financialproducts. PersonalizationBanking solution become truly personalized when they are able to respondto the changing customer needs, and this possible using strong data miningand target marketing capabilities.For example , software that migth tell you which credit balances to pay offfirst, or alert you in advance when your cheque will boune. This level ofpersonalization is still lacking in the banking solutions offered by Indianbanks. Integration Another important aspect is integrating customer service interfaces and channels, so that the customer deals with a single channel that cater to diverse needs such as Kiosks, ATMs, Web TV, mobile phones, pagers, and branches counters. Banks have to get their acts together. If the , and the
53 online Banking, and the ATMs, and the Branches dont work together, theres no real benefits in havings the electronic tools. Customer shouldnt have to go to one site to just pay their utility bill and phone bill and then have to go offline to pay their cable and credit card bills. They should be able to check the value of their investment portfolio, updated daily, in their personal balance sheet, include all their other assets and other personal finance. Banks must learn to aggregate their customers different on - line financial-service relationships. The Purpose of aggregation is not to engage in blatant cross-selling or to achieve "100 percent share of wallet" but rather to develop a picture of the consumers entire balance sheet. Any institution that gains such a view can provide superior convenience and advice. Banks need to be One-stop shops for an entire range of personal finance products from loans and insurance to mutual funds and even tax saving instruments. This is being done by account aggregators such as Yodlee, Corillian, eBalance and Vertical One that let you log in to one web site, enter your username and password, and track information as diverse as bank and cedit - card balances, value of investments, and fequent-flier miles from several sites, each of which has its own username and password. InnovationTodays value-added product could easily be tomorrows commodity. That iswhy banks would need to depend more on product innovation, expendingthe range of their products and service offerings. Apart from just onlineaccounts, e-banks would need to tailor specific products for the Internet,llike online bill presentment or credit cards with instant online approval.Many Internet banks like Egg have taken the lead in offering innovative
54products like Egg card- a credit card that features an introductory zero-percent interest rate. Migrate old customers and go after new ones In building an on-line business, a banks off line customer base is a huge asset. for it will be harder for competitors to pick off the banks current customers than for the banks to get them on-line. But to do so, banks must make one-time offers and then constantly provide incentives such as free services (for example, bill payment and online trade) for increase balance. Banks must also move swiftly to acquire new on -line customers. Most of the early attempts to do so, carried out in partnership with Internet portals, have flopped largerly because the banks failed to offer any differentiation in pricing or any other very compelling lure. Yet here, too, banks have an advantage. Despite significant increases in revenue from on- line relationships, credits card companies and brokerage firms have spent so much money building their on-line customer base that some would questions whether they will ever profit from these efforts. Most banks already have a powerful retail distribution network that should allow them both to migrate their customers and to accquire new ones at much lower cost. WHERE IS E-BANKING IN INDIA HEADED? There will be a large-scale shift to online bankiing in the next decade as banks go the extra mile in technology development to keep up with competition. It is believed the low transaction cost will make banking on the Net irresistible, but also that this will require institution to carefully consider and plan customer relations programs. It is believed that everything will be determined by content and context, and where execution will be key. From a customer and service provider perspective,
55this is where the world is moving - it is going to be real-time, on-line,personalization for both marketing and the services experience. If existingbanks dont want to disappear, it is this challenge that they need toembrace in order to win and survive. Internet usuage is expected togrow with cheaper bandwidth cost. The department oftelecommunication (DoT) is moving fast to make available additionalbandwidth, with the result that Internet access will become much faster inthe future. This is expected to give a fillip to Internet banking in India.This setting up of a Credit Iformation Bureau for collecting and sharingcredit information on borrowers of lending institutions online would give afillip to electronic banking. Therecommendations of theVasudevaCommittee on Technological Up gradation of Banks in India havealso been circulated to banks for implemantation. In this background,banks are moving in for technological up gradation on a large scale.Internet banking is expected to get a boost from such developments.Other major developments will be: Inter Bank Fund Transfer Today, e-banking operations mainly consists of providing information viz.requesting cheque books, statements, fund transfer, even online share trading (with reference to a particular branch) but the next two or three years are likely to see a huge change in the entire banking value chain. It would be possible to process any inquiry or transaction online without any reference to the branch at any time rather like anywhere banking - a service already being offered by HDFC, ICICI and Citibank. Interbank fund transfer between different banks are a feature that is not a offered by any of the e-banking services in India. "At present, we have no plans to offer third-party transfer outside the bank. Globally, this is not allowed due to security reason. Also, the other banks also
56 have to allow transfer/ debit of funds into/out of their Net banking system. According to HDFC, the RBI needs to set up a clearinghouse to route these transfer, and thus enable such transactions. M-BankingToday, with mobile being the in-thing, banks are not far behind toposition themselves for this new medium to ring in customers andconvenience. Most of them are talking about helping people accessinformation of their accounts and even do transactions while on themove-calling this M-banking (mobile banking). Almost all major banks haveSMS-enable mobile banking. The use of WAP-based applications forInternet banking is an increasing trend especially in the Asia pacific region,though it doesnt seem likely that it will catch on in India given theminiscule populace of WAP-enabled phone users."We have plans to offer WAP-enabled Fed Net soon" says Nair of FederalBank."WAP-enabled banking will become popular and affordable to a largernumber of users if the cost of the devices drops and airtime tariff comedown." Account AggregationA new wave called Account Aggregation is slowly sweeping through theonline banking/brokerage industry. Account aggregation -- or accountconsolidation -- provides consumers with the ability to access theinformation about all of their financial transactions sourced from differentweb sites, at a single web site.Now you can obtain updates of all of your investments (from banks,mutual funds, online brokers), and liabilities (car lones, credit card lones,bank lones) at a single point. That way you dont need to remember
57multiple login IIs, and passwords, and also dont need to consolidate thisinformation yourself. Further, at the same site you shall be able to getpayment due reminders, online payment services and even query yourtransactions to find, say how much you spent on entertainment last year.They could also provide you with e-mail; book your airline tickets andmore. True Relationship Banking The future will provide the bank with the ability to allow account access and control privileges at the customer level. This means that all accounts in a relationship will be accessible via the Internet while only a subset of these accounts will be viewable and accessible for a third party (such as son or daughter who is away at school). It allows your tax consultant to view accounts in your relationship pertient to performing their services. And, business customers will see their entire commercial relationship bank. IntegrationServices provides will integrate and market their offerings across differentchannels. The strategic and battles of the future are going to be foughtfor channel Integration.The beauty of integration is that one channel does not display another.They feed on each other to create incremental value for the customer, aswell as the institution. The incremental value comes from two distinctsources. Finally, you reduce inefficiencies. you dont send people junk mailbecause you know that they are not likely to buy a particular product orservice today. The result in net saving for economy. Secondly, youpersuade people at the right time (the right time from the consumersperspective, not from the service providers perspective) to opt for a tailormade offering. This too increases value. Actually, this has to do with the
58Internet itself, and more to with the underlying technologies of theInternet which allow incremental efficiency, and empowers the customersto make more enlightened and timely choices. While the novelty of theservice will attract customers to bank online, right now only customerservices will determine whether Net banks get the thumbs up.Banks in India that avail Internet BankingOnline banking in INDIA now days has been growing a lot and people allover India are getting into the tech heat. In previous day, for depositingamount into your account or friends account is all done manually going tothe bank. But with the latest internet technology all of the major banks inINDIA are providing online access to all its customers and it is dead easyto carry on any transaction, say it transferring money from your accountto your other account or your children account or any third party orpaying bills online or speaking to bank for any assistance. Thanks to thelatest technology.You have advantage of viewing your bank account details, transactionsreports, detailed updates and statements, check clearances or activatemobile banking or shop online, all through the convergence of the internettechnology. Now that there is no need to rush into a bank and finish oftransactions in a hurry. Expect for the cash transactions, everything can bedone with your laptop or desktop with a little modern attached to it forinternet.Now days, all the major banks in India provide online banking. It is offeredfreely to all its customers and doesnt require any additional deposits tobe done.List of Indian banks providing Online Internet BankingICICI Bank
59Karur Vysya bankState Bank of IndiaState Bank of HyderabadHDFCHSBCIDBIING VysyaAxis BankAndhra BankBank of BarodaBank of IndiaCiti bankIndian BankSouth Indian BankPunjab National Bank (PNB)There are many banks that avail internet banking to the customers, butthe list of the above banks is the famous banks in INDIA. Online internetbanking is something that you need to have. Its easy, fat, secure andconvenient.Services of e-banking offered by banks in India: Citibank
60See up-to-date account informationView transactions detailsView account statements for up to 12 monthsOrder demand draft to couriered free to over 200 locationsOrder a cheque bookStop paymentsRequest a deposit slipPay utility billsEmail queriesICICI BankAccount information - Summary of accounts and transactionsBill paymentFunds Transfer including third-party transferRequest for cheque book, stop payment, account opening,Reporting loss of ATM cardOnline e-shopping paymentsCommunication with the account Manager personal finance, select articles on e-commerce, informationtechnology, lifestyles,, travel and news.HDFC BankReal-time account information including transactions
61Transfer money between accountsBill payments facilityThird party funds transfer - within HDFC bankRequest for Demand Draft/Bankers ChequeStop payment requestsOpening fixed-deposit accountssending message to bank via email PUNJAB NATIONAL BANK:Account information and transaction detailsDepositary accountfund transfer between branchesRequest for Demand Draft/Bankers Cheque, team deposite accountopening, and change the address.Bill payment facility
62 CHAPTER 7 CONCLUSION:E-banking has its own advantages and disadvantages. The mainadvantege of implementing E-Banking is an increase in customersatisfaction. This is because customers do not have to go the branchesin order to access their accounts, make withdrawals and deposits. Theycan also check it anytime of the day, a feature that physical branchesdo not offer thus creating a good relationship with the bank and thecustomer. E-Banking is also advantageous not only for customer butalso for the bank because it reduces costs in setting up a branch andthe resources to process transactiions. All these benefits are the reasonswhy many banks are already investing in E-Banking.The main disadvantage of E-Banking is the security problems thatsurround it. Its a fact that making transactions online poses a muchbigger risk compared to making transactionns in a physical branch. Thisis due to the hacking problems and identity theft. Addititon to theserisks, technical diffculities could also arise. Sometimes the bankswebsite goes down, and if this happens it will be a hassle for thecustomer because he/she has to go to a branch or make phone calls-which are usually busy due to other customers also making a call.Another case that has happened was an unpredicted rise in customerthat the servers of the bank were not able to cope with. A customermay also run into a bad service. Sometimes you might wait a while foryour checks to clear and you certaintly cant do anything about it if itis online. Even though all this disadvantages the banks the banks haveto make its E-Banking more fast and effective so that they cab able tosurvey in the stiff competition in the market. It is fact that E-Bankinghas increase a better relationship with the customer, because customer
63can transacted with the bank with the bank with visiting it on sitting inthe home. BIBLIOGRAPHYBOOKS Indian Banking In Electronic EraBy-S.S.kaptan E-Banking in India: challenges and opportunitiesBy-Rimpi Jatana, R.K UppalWebsite:http://www.indianmba.comhttp://www.worldjute.com