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Online banking -_challenges__amp__opportunities

  1. 1. ONLINE BANKING – Challenges and Opportunities RESEARCH PROJECT REPORTSubmitted to Punjab Technical University in partial fulfillment of the requirements for the degree Of MASTER OF BUSINESS ADMINISTRATION (Specialization: Finance) SUBMITTED BY: VIPUL SHARMA (104512248289)Gian Jyoti Institute of Management & Technology Mohali (2010-2012)
  2. 2. “ONLINE BANKING – Challenges and Opportunities” RESEARCH PROJECT REPORTSubmitted to Punjab Technical University in partial fulfillment of the requirements for the degree Of MASTER OF BUSINESS ADMINISTRATION SUBMITTED BY: VIPUL SHARMA (104512248289)Gian Jyoti Institute of Management & Technology Mohali (2010-2012)
  3. 3. ACKNOWLEDGEMENT “Expression of Gratitude is the least one Can do in response to the favours received.”I take this opportunity to express my deep sense of gratitude to all those who havecontributed significantly by sharing their knowledge and experience in the completion ofthis project work.At the outset I wish to express my sincere gratitude to Dr. Vimal K. Aggarwal(Director, GJIMT) for encouraging me to take initiative in a totally new field andcontinuously guiding me throughout the project.I would also like to express my indebtedness to my revered and learned faculty AdvisorProf. Pawan who helped me through the completion of the project and were a constantsource of reference for me and showed full interest at each and every step of myproject.Finally, I would also like to thank all my dear friends for their kind cooperation, adviceand encouragement during the long and arduous task of preparing this report andcarrying out the project.At last but not the least, who are always at the top of my heart, my dear family memberswhose blessings, inspiration and encouragement have resulted in the successfulcompletion of the project.VIPUL SHARMA
  4. 4. CERTIFICATE-IThis is to certify that the thesis entitled “ONLINE BANKING – Challenges andOpportunities” submitted for the degree of MBA in the subject of Finance (Minor-Marketing) for the Punjab Technical University, Jalandhar, is a bonafide researchwork carried out by VIPUL SHARMA under my supervision and that no part of thisthesis have been submitted for any other degree.This assistance and help received during the course of investigation have been fullyacknowledged. Advisor Prof. Pawan
  5. 5. CERTIFICATE IIThis is to certify that the thesis entitled “ONLINE BANKING – Challenges andOpportunities” submitted by Vipul Sharma to the Punjab Technical University,Jalandhar in partial fulfillment of the requirements of the degree of MBA in a subject ofFinance (Minor-Marketing) has been approved by the student‘s Advisory Committeeafter an oral examination on the same, in collaboration with an External Examiner.(Prof. Pawan) External Examiner Advisor
  6. 6. DECLARATIONI, "Vipul Sharma”, hereby declare that the work presented herein is genuine work doneby me and has not been published or submitted elsewhere for the requirement of adegree programme. I have not submitted this project for the award of any other degree,diploma, fellowship or any other similar title or prize.I undertake responsibility for the contents of this report.Vipul Sharma
  7. 7. EXECUTIVE SUMMARYTechnological developments have been growing at an alarming speed in theinternational arena. Internet is proudly one of the best in those. So, the banking sector isalso making the best utilization of it. In this study based on ONLINE BANKING, it hasbeen observed that the development of online banking has increased by leaps andbounds during the past few years. Concentrating on the Indian economy, the use ofonline banking is still in the developing stage.Today in India the scope of online banking is growing by a good decent rise in its usage.The rise in the usage of the Internet is the main criteria for development of onlinebanking.This project helps us understand the how the online banking came into existence and itsneed in the modern world. It shows us the insights of the online banking in India. It helpsus understand the opportunities and the challenges associated with the online bankingin India.
  8. 8. Title of thesis: “ONLINE BANKING – Challenges and Opportunities‖Name of Student: Vipul SharmaRoll No 104512248289Major Subject: FinanceMinor Subject: MarketingName of Major advisor Prof. PawanDegree to be awarded: MBAYear of award of Degree: 2010-2012Total pages in thesis: 65
  9. 9. TABLE OF CONTENTSChapter Topics Page No. 1. 1.1 Introduction to Online Banking 1.1.1 Online Banking - an overview 1-5 1.1.2 What is online banking? 6-12 1.1.3 How does online banking work and its structure 13-14 1.1.4 Opportunities in Online Banking 15-20 1.1.5 Challenges in Online Banking 21-31 1.1.6 Solutions 32-35 1.1.7 Case Studies 36-37 1.1.8 ICICI Bank 38 2. 2.1 Review of literature 39-47 3. 3.1 Objectives, Limits and Research Methodology 48 3.1.1 Objectives and limits of Study 49 3.1.2 Research Methodology 50 4. 4.1 Data Analysis 51-57 5. 5.1 Findings & Conclusion 58-59 6. 6.1 Recommendations &Suggestions 60-61 7. 7.1 Annexure 62 7.1.1 Questionnaire 63-64 7.1.2 Bibliography 65
  11. 11. 1.1.1 ONLINE BANKING- AN OVERVIEWOnline banking is a process that has evolved because of the development of technologyover the years. So before going into detail on the online we should have a overview of itbirth. INFORMATION TECHNOLOGYInformation technology (IT) is the acquisition, processing, storage and dissemination ofvocal, pictorial, textual and numerical information by a microelectronics - basedcombination of computing and telecommunications. IT (information technology) is aterm that encompasses all forms of technology used to create, store, exchange, anduse information in its various forms (business data, voice conversations, still images,motion pictures, multimedia presentations, and other forms, including those not yetconceived). Its a convenient term for including both telephony and computer technologyin the same word. It is the technology that is driving what has often been called "theinformation revolution."IT is the area of managing technology and spans wide variety of areas that include butare not limited to things such as processes, computer software, informationsystems, computer hardware, programming languages, and data constructs. In short,anything that renders data, information or perceived knowledge in any visual formatwhatsoever, via any multimedia distribution mechanism, is considered part of thedomain space known as Information Technology (IT). IT provides businesses with foursets of core services to help execute the business strategy. These four core servicesare broken into business process automation, providing information, connecting withcustomers, and productivity tools.IT professionals perform a variety of functions (IT Disciplines/Competencies) thatranges from installing applications to designing complex computer networks andinformation databases. A few of the duties that IT professionals perform mayinclude data management, networking, engineering computer hardware, database andsoftware design, as well as management and administration of entire systems.Information technology is starting to spread further than the conventional personal 1
  12. 12. computer and network technologies, and more into integrations of other technologiessuch as the use of cell phones, televisions, automobiles, and more, which is increasingthe demand for such jobs. TECHNOLOGY in BankingMany of the largest and most successful banks in the world emerged from the technicalchanges that they are able to recognize at an early stage. India‘s banking sector has along way to go before it can compete globally. Situation is especially maintained in thelate introduction of ICT in India banks. Our information technology is designed tocompete with information technology in the world, and when we are in the area veryquickly, it can be difficult for us to benefit from liberalization.Bank with the right technology to provide timely information to increase productivity andthus see a competitive advantage. Compete in the economy, which has been opened, itis certainly the Indian banks to comply with the latest technology and adapt to itssurroundings. Except that the banks need much improved use of technology tocustomer-friendly, efficient and competitive in the current authorities and businesses,they also need the technology to newer products and newer forms of service and theincreasingly dynamic global environment to offer. Information technology allows banksto build new systems, which bite the needs of many customers that cannot beconsidered today.On-line banking, for example, promises customers to conduct banking transactions in adirect access to the core of the bank customer account works. Customers to verify allinformation, all so far, all the checks, all credit card information.In the future, the banks freed from the constraints of a delivery channel. They cancreate, package, market and product niches, and because the tumbling price of thetechnology, they can do so cost-effectively.Technology gives banks the opportunity to be closer to customers, to a broader range ofservices at lower costs, streamline the March belang systems so that all information inone place where it can be used for the trends that can quickly lead into new products. 2
  13. 13. Electronic banking data can be gathered and analyzed. Interactivity allows theconsumer to save the settings, directing the development of truly new products.The development of I.T has helped the boom of E – Commerce. So it is also importantto know the concept of E – Commerce. E-COMMERCEElectronic commerce, commonly known as e-commerce, eCommerce or e-commerce,refers to the buying and selling of products or services over electronic systems such asthe Internet and other computer networks. However, the term may refer to more thanjust buying and selling products online. It also includes the entire online process ofdeveloping, marketing, selling, delivering, servicing and paying for products andservices. The amount of trade conducted electronically has grown extraordinarily withwidespread Internet usage. The use of commerce is conducted in this way, spurring anddrawing on innovations in electronic funds transfer, supply chain management, Internetmarketing, online transaction processing, electronic data interchange (EDI), inventorymanagement systems, and automated data collection systems. Modern electroniccommerce typically uses the World Wide Web at least at one point in the transactionslife-cycle, although it may encompass a wider range of technologies such as e-mail,mobile devices and telephones as well.A large percentage of electronic commerce is conducted entirely in electronic formfor virtual items such as access to premium content on a website, but mostly electroniccommerce involves the transportation of physical items in some way. Online retailersare sometimes known as e-tailers and online retail is sometimes known as e-tail. Almostall big retailers are now electronically present on the World Wide Web.Electronic commerce that takes place between businesses is referred to as business-to-business or B2B. B2B can be open to all interested parties (e.g. commodity exchange)or limited to specific, pre-qualified participants (private electronic market). Electroniccommerce that takes place between businesses and consumers, on the other hand, isreferred to as business-to-consumer or B2C. This is the type of electronic commerceconducted by companies such as Online shopping is a form of electronic 3
  14. 14. commerce where the buyer is directly online to the sellers computer usually via theinternet. There is no intermediary service involved. The sale or purchase transaction iscompleted electronically and interactively in real-time such as in for newbooks. However in some cases, an intermediary may be present in a sale or purchasetransaction such as the transactions on commerce is generally considered to be the sales aspect of e-business. Italso consists of the exchange of data to facilitate the financing and payment aspects ofbusiness transactions.Business applications of ecommerceSome common applications related to electronic commerce are the following: Email Enterprise content management Instant messaging Newsgroups Online shopping and order tracking Online banking Online office suites Domestic and international payment systems Shopping cart software Teleconferencing Electronic tickets E-COMMERCE APPLICATION IN BANKING INDUSTRYNew information technologies and emerging business forces have triggered a new waveof financial innovation – electronic banking (e-banking). The banking and financialindustry is transforming itself in unpredictable ways (Crane and Bodie 1996), powered inan important way by advances in information technology (Holland and Westwood 2001).Since the 1980s, commercial banking has continuously innovated through technology-enhanced products and services, such as multi-function ATM, tele-banking, electronictransfers and electronic cash cards. Over the past decade, the Internet has clearlyplayed a critical role in providing online services and giving rise to a completely new 4
  15. 15. channel. In the internet age, the extension of commercial banking to the cyberspace isan inevitable development (Liao and Cheung 2003).E-banking creates unprecedented opportunities for the banks in the ways they organizefinancial product development, delivery and marketing via the internet. While it offersnew opportunities to banks, it also poses many challenges such as the innovation of ITapplications, the blurring of market boundaries, the breaching of industrial barriers, theentrance of new competitors and the emergence of new business models (Saatcioglu etal. 2001, Liao and Cheung 2003). Now the speed and scale of the challenge are rapidlyincreasing with the pervasiveness of the internet and the extension of informationeconomy (Holland and Westwood 2001).Globally, e-commerce growth has been led by the popularity of online shopping portalslike and but in India that has not been the case. It is mainlydriven by the online travel industry and banking sector. For instance, 29% of IndianInternet users book airline tickets online and the figure is expected to touch 46% nextyear. Online rail ticket booking stands at 39% of the total bookings. As far as banking isconcerned, there are 4.6 million online banking users in India. This figure is expected togo up to over 16 million by 2007-08 that will include both internet and mobile bankingusers. According to the Internet and Mobile Association of India (IAMAI), the e-commerce industry in India is expected to grow to a size of Rs. 2,300 crore by 2007against the Rs.1,200 crore. The total number of internet users which right now is 38.5million is expected to reach 100 million by 2008. 5
  16. 16. 1.1.2 WHAT IS ONLINE BANKING?If youre like most people, youve heard a lot about online banking but probably haventtried it yourself. You still pay your bills by mail and deposit checks at your bank branch,much the way your parents did. You might shop online for a loan, life insurance or ahome mortgage, but when it comes time to commit, you feel more comfortable workingwith your banker or an agent you know and trust.Online banking isnt out to change your money habits. Instead, it uses todays computertechnology to give you the option of bypassing the time-consuming, paper-basedaspects of traditional banking in order to manage your finances more quickly andefficiently. Origin of online bankingThe advent of the Internet and the popularity of personal computers presented both anopportunity and a challenge for the banking industry.For years, financial institutions have used powerful computer networks to automatemillions of daily transactions; today, often the only paper record is the customers receiptat the point of sale. Now that its customers are connected to the Internet via personalcomputers, banks envision similar economic advantages by adapting those sameinternal electronic processes to home use.Banks view online banking as a powerful "value added" tool to attract and retain newcustomers while helping to eliminate costly paper handling and teller interactions in anincreasingly competitive banking environment. Brick-to-click banksToday, most large national banks, many regional banks and even smaller banks andcredit unions offer some form of online banking, variously known as PC banking, homebanking, electronic banking or Internet banking. Those that do are sometimes referred 6
  17. 17. to as "brick-to-click" banks, both to distinguish them from brick-and-mortar banks thathave yet to offer online banking, as well as from online or "virtual" banks that have nophysical branches or tellers whatsoever.The challenge for the banking industry has been to design this new service channel insuch a way that its customers will readily learn to use and trust it. After all, banks havespent generations earning our trust; they arent about to risk that on a Web site that isfrustrating, confusing or less than secure.Most of the large banks now offer fully secure, fully functional online banking for free orfor a small fee. Some smaller banks offer limited access or functionality; for instance,you may be able to view your account balance and history but not initiate transactionsonline. As more banks succeed online and more customers use their sites, fullyfunctional online banking likely will become as commonplace as automated tellermachines. Understanding Online Banking ServicesOnline banking is a great convenience for many people. Whether people use it tomanage traditional accounts or switch all of their banking to an online-only firm, it is awonderful improvement over the days when everything had to be done face-to-face.No matter what kind of banking is done online, it starts with a secure web site. Usually,the bank will have certain requirements to ensure password strength as well. This andother security measures ensure that online accounts are safe from tampering. Fromthere, all of the necessary services can be accessed.Online banking is quite simple once the basics are understood. Depositing money issimple, and can be done in a number of ways. The most popular method is likely directdeposit. Many employers offer direct deposit of paychecks, and by providing them withyour online bank account number, your checks will go right into that account. Otherways of depositing money include bank and wire transfers. Some accounts even allowcustomers to mail their checks in. 7
  18. 18. Paper checks are typically provided with online checking accounts. This, however, is notlikely to be the most common way a customer will access funds. Online bill paymentallows users to pay their bills without mailing checks, and those who use web-basedaccounts typically prefer this and other electronic payment methods. Most types of billscan be paid via a debit card or electronic checks, as well. This makes it easy toeliminate the need for paper checks entirely. Still, many find it useful to have a fewchecks on hand for those few companies that haven‘t quite reached the modern age.The management of traditional accounts is another common use for online banking.Most banks offer online access to accounts, and all customers need to do to make useof the service is sign up through their bank‘s site. Once this is done, checking yourbalance, seeing which payments have cleared, and other common banking operationscan be done from the computer. This eliminates the need to call or visit the bank forsimple account maintenance needs.Every online banking interface is slightly different, but all banks try to make things easyand intuitive for users. It won‘t take long for a new user to figure out exactly howeverything works. Sign up for an online bank account or online access to your currentone, and soon you‘ll wonder how you could have lived without it. FEATURES OF ONLINE BANKINGWe need to be able to manage our finances from anywhere in the world. Rich onlinebanking services are much more important than a physical location. Since I have beendoing all of my banking online with quite a few different online banks as I looked for thebest solution, I‘ve had a chance to really experiment with what works and what doesn‘twork for us.Here is a checklist of things to look for in an online bank. Some items you may befamiliar with. Others might be new to you if it isn‘t something your current bank offers. 8
  19. 19. 1. Bill Pay Service - One of the biggest reasons for going with an online bank is to getreally good bill payment services. Different banks handle bill payment different ways.Here are some things to think about:A. How many bills are you allowed to pay per month?B. What are the fees for going over the limit?C. Can the bill payment send physical checks to merchants who aren‘t set up to takeelectronic payments?D. Do checks come from your account or from a third party service? For privacyreasons, it might be better to be able to pay someone without giving them your bankaccount number on the check. On the other hand, if the checks actually come from youraccount, the money doesn‘t get taken out until the check is cashed.E. Can you set up reoccurring payments?2. Electronic Bill Notification – With electronic bills, your merchant (Credit CardCompany, gas company, electric company, etc.) sends an electronic bill to your bank.You can set it up to pay automatically or notify you for approval. This can be particularlygood for people who are on the road because it reduces the amount of physical mail youhave to somehow get read or forwarded to you.3. Online Check Images – Most banks will show you an image of the check, whichmakes it really easy to balance your account if you can‘t remember what a particularpayment was for. (Ideally, you should minimize the number of physical checks you writeto reduce fraud.)4. Online Deposit Slip Images – Most banks just record the total with no image. It willlet you see an image of each deposit slip. Having the images available can be veryhelpful if you ever have to prove something for tax purposes or need to remember wherethat $2581 deposit came from. 9
  20. 20. 5. Reporting Tools – Most banks offer basic reporting tools that will let you see howmuch you have spent in each category you‘ve created. This may not be an issue if youuse desktop money management software, but it still can be handy if you are travelingand want to see how much you‘ve paid on your mortgage over the past 12 months.6. Linked Accounts – Can you link your bank account with a brokerage account? Canyou add your minor children as custodial accounts and manage them all centrally? If youand your spouse both set them up IRAs, is it easy to view them both along side the restof your finances, or do you have to have a separate login for each IRA to keep them onseparate SSNs? These are small things that many banks don‘t support, but it startsgetting really complicated when you have to manage a bunch of accounts instead ofhaving a single place to manage all of your money.7. Convenient Deposit Methods - Since you may not be anywhere near the physicallocation of your bank, make sure you understand how to deposit money. Payroll can beset up on direct deposit, but there will be times when you need to deposit checks. Doesthe bank provide postage paid envelopes and deposit slips? Some banks work withFedEx or UPS stores to allow you to send in a deposit overnight for free.8. Low ATM Fees and Convenient Locations – If you need to get cash, will the bankrefund the ATM fees? Are there only certain ATMs that are free, and if so, are theylocated near places you normally go? Are the ATMs available nationwide so you can usethem on vacation? What are the fees for using the ATM internationally and how is theexchange rate handled?9. Integration with Desktop Software – If you use Microsoft Money, Quicken orsomething similar, you‘ll want to make sure your bank supports it. Make sure youunderstand if downloading transactions require you to login and manually download afile, or if your money management software can directly connect and download new 10
  21. 21. transactions. If you are using Quicken on a Mac, make sure the bank is paying Quickensextortion fee so the files will work with Mac users.10. Many Account Types – Some banks only offer basic checking and savingsaccounts. Ideally you want a bank that makes it easy to open money market accounts,IRAs, health savings accounts, etc. If you have to go to another institution to open adifferent type of account, it is more difficult to manage–especially if you are on the road.You want to be able to easily open a CD to take advantage of a higher interest rate,easily open an IRA to help reduce your tax liability, etc.11. Free Money Transfers – Be sure to consider how easy it is to move money in andout of the account. You should be able to set up links with your accounts from otherinstitutions to transfer money back and forth as necessary. Make sure you understandwhat types of fees are associated with these transfers. Good banks should allow acertain number of transfers per month with no fee.12. Security Balanced with Convenience - Some banks spend so much effort trying tokeep things secure that you‘ll find yourself automatically logged out of their website whileyou try to balance your account. You want security but you don‘t want it to get in the wayof you doing your banking. Also check into what type of additional security features areavailable. For example, some banks will offer you an RSA keychain with a number thatchanges every 60 seconds. In addition to your password, you will need the number fromthat key in order to get access to your account.13. Ease of Use – This is something that most banks seem to struggle with. Right now Ihave my personal account with one online bank and my business accounts with another.I dread using the business accounts and I absolutely love using my personal account. Atfirst I thought I was just more familiar with the bank where my personal accounts are, butI finally realize that it comes down to the ease of use. One is ok and the other is superb,but it makes a big difference. 11
  22. 22.  Advantages of online banking: Convenience: Unlike your corner bank, online banking sites never close; theyre available 24 hours a day, seven days a week and theyre only a mouse click away. Ubiquity: If youre out of state or even out of the country when a money problem arises, you can log on instantly to your online bank and take care of business, 24/7. Transaction speed: Online bank sites generally execute and confirm transactions at or quicker than ATM processing speeds. Efficiency: You can access and manage all of your bank accounts, including IRAs, CDs, even securities, from one secure site. Effectiveness: Many online banking sites now offer sophisticated tools, including account aggregation, stock quotes, rate alerts and portfolio managing programs to help you manage all of your assets more effectively. Most are also compatible with money managing programs such as Quicken and Microsoft Money. Disadvantages of online banking: Start-up may take time: In order to register for your banks online program, you will probably have to provide ID and sign a form at a bank branch. If you and your spouse wish to view and manage your assets together online, one of you may have to sign a durable power of attorney before the bank will display all of your holdings together. Learning curve: Banking sites can be difficult to navigate at first. Plan to invest some time and/or read the tutorials in order to become comfortable in your virtual lobby. Bank site changes: Even the largest banks periodically upgrade their online programs, adding new features in unfamiliar places. In some cases, you may have to re-enter account information. The trust thing: For many people, the biggest hurdle to online banking is learning to trust it. Did my transaction go through? Did I push the transfer button once or twice? Best bet: always print the transaction receipt and keep it with your bank records until it shows up on your personal site and/or your bank statement. 12
  23. 23. 1.1.3 How Does Online Banking Work?Online banking provides many identical services that a traditional bank does with thebiggest difference is in teller availability: Human tellers leave; electronic tellers—thewebsites—are available virtually all day, everyday—weekends and holidays, included.Online Banking Structure:Online banking mirrors traditional banking procedures in many instances, and in some,actually improves security and reduces both banks‘ and customer‘s costs.In electronic form, online banking still allows:1. Deposits to the account, whether via payroll deposits or funds transfers.2. Bill payments via automatic payment schedules or individually ordered payments.Most bill pay users opt for the bank-generated checks, but payments can be ordered ina one off situation or scheduled regularly.3. Statement formats can be electronic or paper; most who prefer online bankingchoose the electronic statements for convenience and reduced paper use.4. Wire transfers to accounts within and without the bank‘s structure, though somebanks charge additional transaction fees for wire transfers.5. Differing services depending on the individual financial institute.Online ActionsAll online banking transactions are initiated by creating an online account identity.Account login name and password creation is followed by choosing and answeringsecurity questions. It‘s not recommended that security questions and answers becommon or known by others; they should have unique answers, whether historicallytrue or not. 13
  24. 24. For example, if a user chooses a security question, ―What is the name your firstelementary school,‖ choose an answer that is not the actual name or the actualelementary school. Use instead the name of another school or anything else that iseasily remembered.Provide an email address that is not tied to an Internet Service Provider. If the userchanges ISPs, that email address will be lost. Instead, use a free email address that canlast for as long as the user chooses.Once the security aspects are in place and verified, look around the bank‘s website andnote important areas, such as: 1. Account activity 2. Statement delivery change areas 3. Customer Service options 4. Bill pay procedures, if any 5. And any other area provided on the website.Online banking often reduces funds availability delays and hastens resolution todisputes and inquiries. While some complaints and problems do require humanintervention, Customer Service Agents are available for longer during a calendar daythan local branch personnel are.Online banking differs from traditional banking when physical checks or cash isdeposited; human interaction via a drive thru lane or at the counter is required. Cashierchecks, traveler checks, and money orders cannot be purchased from the institution viaonline banking, but because all transactions allowed are electronic, tracking andaccountability are easily provided. 14
  25. 25. 1.1.4 OPPORTUNITIES IN ONLINE BANKING Is There a Future in Online Banking?By this point, no one can dismiss online banking as a fad. However, it is worthconsidering whether the trend towards online financial transactions is going to slow orreverse in the years to come. There will continue to be people who resist online bankingin favor of offline transactions just as there are people who prefer to keep their money inmattresses instead of putting it in banks. Whether these people will exert seriousinfluence on the movement towards online banking can be examined by looking at theneeds of modern consumers, and the interests of the banks themselves. The Move to Online BusinessThe global connectivity provided by the internet, combined with the fallout from theglobal financial crisis has encouraged a growing number of entrepreneurs to start theirown businesses online. As an increasing number of people look to save themselvesfrom unemployment or augment otherwise insufficient salaries by finding new ways tomake money online, they will require new ways to send, receive, and invest their onlinefunds. The Rise of Mobile BankingAs handheld mobile devices become more sophisticated, users are experimenting withmore sophisticated transactions. Moving beyond ringtone downloads; consumers cannow shop online and purchase software upgrades and augmentations through appstores. In addition to this buying and selling, anyone with a web browser on their phonecan access their bank‘s online banking site to move and manage their money in morelocations than ever before. Staffing SolutionsAs banks consolidate and grow larger, they are looking for more ways to cut costs, andreducing the number of full-time employees on their payroll is an attractive option.Encouraging customers to do their banking online allows banks to close smaller 15
  26. 26. branches in outlying locations and use economies of scale to develop customerassistance centers in locations where the labor market is more favorable. Physical FootprintsOnline banking is also more attractive to banks because a reduced physical footprintmeans reduced costs in other areas. In addition to saving the money that wouldnormally be associated with operating and maintaining physical branches, no longerhaving to print and mail paper statements to customers would be a huge savings forbanks. As an added bonus, banks have been able to take advantage of current pro-environment sentiment by marketing online banking as a ―green‖ alternative.By appealing to more mobile customers and more cost-conscious financial serviceproviders alike, online banking continues to be an attractive option for everyoneinvolved. However, when discussing the internet it is dangerous to assume thateverything is going to be moved online; there will always be individuals, industries, andtransactions that are grounded in the real world with no desire to change the way theydo business. Growth of InternetThe increase in the growth of internet usage will definitely help the cause of growth ofonline banking in India. The following chart shows the growth of internet in India duringthe past decade or so:YEAR Users Population % Penetration2000 1,400,000 1,094,870,677 0.1 %2001 2,800,000 1,094,870,677 0.3 %2002 5,500,000 1,094,870,677 0.5 %2003 7,000,000 1,094,870,677 0.7 %2004 16,500,000 1,094,870,677 1.6 %2005 22,500,000 1,094,870,677 2.1 %2006 39,200,000 1,094,870,677 3.6 %2007 50,600,000 1,112,225,812 4.5 %2008 40,000,000 1,112,225,812 3.6 % 16
  27. 27. 2009 42,000,000 1,129,667,528 3.7 %2010 81,000,000 1,156,897,766 7.0 %2011 100,000,000 1,173,108,018 8.5 %Why Banks Encourage Online Banking? OVERVIEWOnline banking has enjoyed increased popularity, and some banks actually require it.From standard, brick-and-mortar institutions to cloud managed institutions, onlinebanking offers flexibility and convenience for all involved. BANK ADVANTAGES: Each visit to a bank costs the institution money, whether in bank teller wages and benefits to security costs to maintenance costs. Online banking reduces those costs and increases the bank‘s profit margin. Online banking reduces the need for the number of physical locations and services offered within each. Because Customer Service Departments are united into fewer locations, asset sharing within those locations further reduce bank costs. CUSTOMER ADVANTAGES: Online security of financial data has evolved tremendously since the early days of online banking, and often transactions can be even more secure than those conducted in a drive thru lane. Online banking transactions require not only a secure login but also require secured password entry. In-person transactions are based on account information and a photo ID, both of which can be obtained ―under the radar.‖Online banking transactions also track the Internet Protocol (IP) address of the computer used in the transaction. The IP can be traced to the method or mode of Internet access, often through an Internet Service Provider who always 17
  28. 28. notes activity, computer, and actions performed under that IP address assigned to the ISP account holder. Whether a dynamic or changing IP address or a static or unchanging IP address is used, the ISP always records what IP address is assigned to what ISP account at any time. Comprehensive Help sections on banks‘ websites often reduce on-location inquiries, further reducing overhead costs for banking institutions. Additional service enrollment or dis-enrollment, address updates, and account status and verification are all time saving activities for both the bank and the banking customer. Online Bill Pay processes reduce stolen or counterfeit checks which cost banks billions of dollars every month. Each online bill pay transaction allows for a grace period from the payment order date to the actual check delivery date, which also allows the account holder additional time to preview activity and account status. DEVELOPMENT:Increasingly, more and more people are switching to electronic platforms for executingfinancial transactions. The wider usage of cell phone and internet certainly seems to beplaying a role in blurring physical boundaries, and unlocking a whole new world ofopportunities for banks in tapping newer customer segments and in recording greatervolume of transactions.If latest RBI data on retail electronic payment systems is anything to go by, electronicbanking is set to become the catalyst for change in the way money moves. Provisionaldata show that in FY09 to January, a total of 5,587.85 lakh transactions were executedthrough the electronic channel, a rise of 234.76 lakh transactions over the previousfiscal.This growth was facilitated by the introduction of real-time gross transfer (RTGS) andnational electronic funds transfer (NEFT), which enabled fund transfers among accountholders of the same bank as well as inter-bank transfers. 18
  29. 29. The growth has also been aided by banks efforts to offer innovative services andtighten security measures, and the increase in awareness of services available. RBIoutlining guidelines on mobile banking, setting up of the National Payments Corporationof India and passage of the Payments and Settlement Act too have given a positivethrust to the growth in electronic payments. The impact of all these measures is likely tobe felt in the current fiscal, which may well mean FY10 could become a watershed yearfor e-banking. While opinions of industry players differ on whether FY10 will indeedprove to be a tipping point, there seems to be consensus that the year would mark acritical phase in the evolution of the payments and settlement systems in India. "FY10will certainly herald an important phase for electronic banking in India and an upsurge ininternet and ATM transactions," says Ashvin Parekh, partner and national industryleader, financial services, Ernst & Young. "At the same time, traditional fund transfer willcontinue to hold its own. We are going to witness a co-existence of these two systems.In the regulatory space, there will be huge changes. As and when India Pay, which willeventually settle credit card and ATM transactions, comes into the picture, we couldwitness a gradual shift away from Visa and MasterCard." The implementation of corebanking solutions by all public sector banks has not only helped banks rationalise theircosts, but has also allowed them to explore new ways of optimally utilising theirresources. Core banking, which facilitates linking up of a banks branches across thecountry, has enabled banks to improve their efficiency."Now, decisions can be taken remotely and the activities too can be undertaken in acentralised location. This means that branches need not spend time on processingtransactions and other back office operations, and rather utilise the time and resourcesto function as selling outlets. Centralised operations benefit from economies of scaleand help in reducing bank costs," explains Janmejaya Sinha, managing director of Indiaoperations, Boston Consulting Group. 19
  30. 30.  Opportunities in e-banking: ARE WE READY?It has always been a chicken-and-egg dilemma in business. Either firm waits for themarket to mature until customers are ready for the products and services. Or, firms cango ahead and offer the products and services, hoping that their customers will catch onsoon.The same is true for new products and services that have emerged and continue toemerge in the world of electronic banking (e-banking). Banking executives interviewedby BusinessWorld Online have different ways of resolving the issue. Some would goahead with new ideas, wanting to take the first-mover advantage. Others would wait inthe sidelines, but armed nevertheless just in the case the market takes up suddenlyincreases.Whether first-movers or latecomers, there is one partner in the e-banking game that isnot waiting for the chicken to lay the egg, or wait for the egg to hatch into a chick.Technology providers are always up on their toes, like chicken ready to catch the earlyworm. 20
  31. 31. 1.1.5 Challenges in Online BankingInformation technology analyst firm, the Meta Group, recently reported that "financialinstitutions who dont offer home banking by the year 2000 will become marginalized."By the year of 2002, a large sophisticated and highly competitive Internet BankingMarket will develop which will be driven by Demand side pressure due to increasing access to low cost electronic services. Emergence of open standards for banking functionality. Growing customer awareness and need of transparency. Global players in the fray Close integration of bank services with web based E-commerce or even disintermediation of services through direct electronic payments (E- Cash). More convenient international transactions due to the fact that the Internet along with general deregulation trends, eliminate geographic boundaries. Move from one stop shopping to Banking Portfolio i.e. unbundled product purchases.Certainly some existing brick and mortar banks will go out of business. But thatsbecause they fail to respond to the challenge of the Internet. The Internet and itsunderlying technologies will change and transform not just banking, but all aspects offinance and commerce. It represents much more than a new distribution opportunity. Itwill enable nimble players to leverage their brick and mortar presence to improvecustomer satisfaction and gain share. It will force lethargic players who are struck withlegacy cost basis, out of business-since they are unable to bring to play in the newcontext. MAIN CONCERNS IN INTERNET BANKING:In a survey conducted by the Online Banking Association, member institutions ratedsecurity as the most important issue of online banking. There is a dual requirement toprotect customers privacy and protect against fraud. Banking Securely: Online Banking 21
  32. 32. via the World Wide Web provides an overview of Internet commerce and how onecompany handles secure banking for its financial institution clients and their customers.Some basic information on the transmission of confidential data is presented in Securityand Encryption on the Web. PC Magazine Online also offers a primer: How EncryptionWorks. A multi-layered security architecture comprising firewalls, filtering routers,encryption and digital certification ensures that your account information is protectedfrom unauthorised access: Firewalls and filtering routers ensure that only the legitimate Internet users are allowed to access the system. Encryption techniques used by the bank (including the sophisticated public key encryption) would ensure that privacy of data flowing between the browser and the Infinity system is protected. Digital certification procedures provide the assurance that the data you receive is from the Infinity system.Security concerns:Security fears have served as deterrents to online growth. Of particular concern arethreats of pharming and phishing. Phishing is an internet fraud, through which innocentpeople are enticed to divulge their personal information like user ID and passwords,which are later on used by scammers in unauthorized ways.The most common method of phishing is sending emails claiming to be from your bankor other financial institutions which are dealing that already has your personalinformation and you will be asked to confirm the details by clicking a particular link(URL) provided in this fake email. This URL will take you to a fake website which will besimilar to your genuine website, and the information provided by the customer in theforms provided in the fake website will be gathered and used for committing fraud intheir accounts or withdraw funds unauthorizedly from these accounts.Pharming is another internet fraud, whereby as many as users as possible areredirected before they reach the legitimate online banking websites they intend to visit 22
  33. 33. and they are lead to malicious ones. The bogus sites to which victims are redirectedwithout their knowledge or consent, will likely looks the same as genuine site. But whenusers enter their login name or password, the information is captured by criminals.FURTHER PROBLEMS RELATING TO NET BANKING IN INDIAGiven that India is the IT and tech services outsourcing hotspot of the world, itssurprising that Internet banking has not really taken off. Despite the advent of a verytech-savvy and vast consumer class in recent years, a mix of industry issues andunique challenges continue to thwart the expansion of net banking in India. Technologychallenges, IT practices, certain cultural issues, industry lethargy, and workplaceconstraints have affected widespread acceptance of Internet banking. Low Broadband Internet PenetrationIndia has one of the lowest broadband connectivity penetration rates in Asia ascompared to Japan, Taiwan, Korea and Singapore. While the bigger cities such asMumbai, Delhi, Chennai, and Bangalore have relatively better broadband penetrationrates, PC users in smaller cities and towns still use dial-up options to connect to theInternet. Slow connectivity speeds often dampen the online banking experience formany customers eager to use such services. Banks Ambivalent Commitment LevelsInternet banking did take off in India at the turn of the millennium but soon faltered dueto lack of takers. In the middle of this decade, multinational and domestic private banksstarted offering net banking services as a competitive differentiator. Only recently, state-owned and public sector banks have started doing likewise. However, banksambivalent commitment levels and their reluctance to allocate huge budgets for netbanking branding initiatives, as well as a lack of industry advocacy efforts, have resultedin poor acceptance levels of Internet banking by customers. Customers Preference for Traditional BranchesThere are thousands of highly active traditional bank branches in Indias crowded citiesand major towns. Office workers take longer lunch breaks to finish banking activities 23
  34. 34. and transactions at these branches rather than conduct them online. Most customersprefer the personal touch and customized service offered by staff in brick-and-mortarbank branches. Many Indians are also averse to calling call centers and bankscustomer contact lines to address issues related to online bank accounts. Fear of Online Threats/ScamsUbiquitous and prevalent online threats about hackers, identity theft, stolen passwords,viruses, worms and spyware tend to make customers wary just like in any other country.Conservative Indian bank customers used to years of saving in an erstwhile mixed-socialist economy are always fearful of losing hard-earned savings in online scams.These customers are also not sure about the efficacy of banks websites and theircommitment to allocate funds for reliable encryption mechanisms and robust back-endtechnologies and systems. Other ProblemsWorkplace constraints and corporate policies about using external websites or pursingpersonal activities such as online banking have affected its expected fast-pacedacceptance among the growing affluent class in India. Cultural issues, such as parentsgiving priority use of the home PC to their children rather than using it themselves, stiflethe potential growth of home access to Internet banking services. Public sector bankswith vast customer bases also dont tend to invest money in training personnel for e-banking initiatives, resulting in poor customer service levels. Internet Banking in India – GuidelinesReserve Bank of India had set up a ‗Working Group on Internet Banking‘ to examinedifferent aspects of Internet Banking (I-banking). The Group had focused on three majorareas of I-banking, i.e. (i) technology and security issues, (ii) legal issues and (iii)regulatory and supervisory issues. RBI has accepted the recommendations of theGroup to be implemented in a phased manner. Accordingly, the following guidelines areissued for implementation by banks. Banks are also advised that they may be guided bythe original report, for a detailed guidance on different issues. 24
  35. 35. I. Technology and Security Standards: a. Banks should designate a network and database administrator with clearly defined roles as indicated in the Group‘s report. b. Banks should have a security policy duly approved by the Board of Directors. There should be a segregation of duty of Security Officer / Group dealing exclusively with information systems security and Information Technology Division which actually implements the computer systems. Further, Information Systems Auditor will audit the information systems. c. Banks should introduce logical access controls to data, systems, application software, utilities, telecommunication lines, libraries, system software, etc. Logical access control techniques may include user-ids, passwords, smart cards or other biometric technologies. d. At the minimum, banks should use the proxy server type of firewall so that there is no direct connection between the Internet and the bank‘s system. It facilitates a high level of control and in-depth monitoring using logging and auditing tools. For sensitive systems, a state full inspection firewall is recommended which thoroughly inspects all packets of information, and past and present transactions are compared. These generally include a real time security alert. e. All the systems supporting dial up services through modem on the same LAN as the application server should be isolated to prevent intrusions into the network as this may bypass the proxy server. f. PKI (Public Key Infrastructure) is the most favoured technology for secure Internet banking services. However, as it is not yet commonly available, banks should use the following alternative system during the transition, until the PKI is put in place: 1. Usage of SSL (Secured Socket Layer), which ensures server authentication and use of client side certificates issued by the banks themselves using a Certificate Server. 25
  36. 36. 2. The use of at least 128-bit SSL for securing browser to web server communications and, in addition, encryption of sensitive data like passwords in transit within the enterprise itself. (Para 6.4.5)g. It is also recommended that all unnecessary services on the application server such as FTP (File Transfer Protocol), telnet should be disabled. The application server should be isolated from the e-mail server. (Para 6.4.6)h. All computer accesses, including messages received, should be logged. Security violations (suspected or attempted) should be reported and follow up action taken should be kept in mind while framing future policy. Banks should acquire tools for monitoring systems and the networks against intrusions and attacks. These tools should be used regularly to avoid security breaches. The banks should review their security infrastructure and security policies regularly and optimize them in the light of their own experiences and changing technologies. They should educate their security personnel and also the end-users on a continuous basis.i. The information security officer and the information system auditor should undertake periodic penetration tests of the system, which should include: 1. Attempting to guess passwords using password-cracking tools. 2. Search for back door traps in the programs. 3. Attempt to overload the system using DDoS (Distributed Denial of Service) & DoS (Denial of Service) attacks. 4. Check if commonly known holes in the software, especially the browser and the e-mail software exist.j. The penetration testing may also be carried out by engaging outside experts (often called ‗Ethical Hackers‘).k. Physical access controls should be strictly enforced. Physical security should cover all the information systems and sites where they are housed, both against internal and external threats.l. Banks should have proper infrastructure and schedules for backing up data. The backed-up data should be periodically tested to ensure recovery without loss of transactions in a time frame as given out in the bank‘s security policy. Business 26
  37. 37. continuity should be ensured by setting up disaster recovery sites. These facilities should also be tested periodically. m. All applications of banks should have proper record keeping facilities for legal purposes. It may be necessary to keep all received and sent messages both in encrypted and decrypted form. n. Security infrastructure should be properly tested before using the systems and applications for normal operations. Banks should upgrade the systems by installing patches released by developers to remove bugs and loopholes, and upgrade to newer versions which give better security and control.II. Legal Issues a. Considering the legal position prevalent, there is an obligation on the part of banks not only to establish the identity but also to make enquiries about integrity and reputation of the prospective customer. Therefore, even though request for opening account can be accepted over Internet, accounts should be opened only after proper introduction and physical verification of the identity of the customer. b. From a legal perspective, security procedure adopted by banks for authenticating users needs to be recognized by law as a substitute for signature. In India, the Information Technology Act, 2000, in Section 3(2) provides for a particular technology (viz., the asymmetric crypto system and hash function) as a means of authenticating electronic record. Any other method used by banks for authentication should be recognized as a source of legal risk. c. Under the present regime there is an obligation on banks to maintain secrecy and confidentiality of customers‗ accounts. In the Internet banking scenario, the risk of banks not meeting the above obligation is high on account of several factors. Despite all reasonable precautions, banks may be exposed to enhanced risk of liability to customers on account of breach of secrecy, denial of service etc., because of hacking/ other technological failures. The banks should, therefore, institute adequate risk control measures to manage such risks. d. In Internet banking scenario there is very little scope for the banks to act on stop- payment instructions from the customers. Hence, banks should clearly notify to 27
  38. 38. the customers the timeframe and the circumstances in which any stop-payment instructions could be accepted. e. The Consumer Protection Act, 1986 defines the rights of consumers in India and is applicable to banking services as well. Currently, the rights and liabilities of customers availing of Internet banking services are being determined by bilateral agreements between the banks and customers. Considering the banking practice and rights enjoyed by customers in traditional banking, banks‘ liability to the customers on account of unauthorized transfer through hacking, denial of service on account of technological failure etc. needs to be assessed and banks providing Internet banking should insure themselves against such risks.III. Regulatory and Supervisory Issues:As recommended by the Group, the existing regulatory framework over banks will beextended to Internet banking also. In this regard, it is advised that: 1. Only such banks which are licensed and supervised in India and have a physical presence in India will be permitted to offer Internet banking products to residents of India. Thus, both banks and virtual banks incorporated outside the country and having no physical presence in India will not, for the present, be permitted to offer Internet banking services to Indian residents. 2. The products should be restricted to account holders only and should not be offered in other jurisdictions. 3. The services should only include local currency products. 4. The ‗in-out‘ scenario where customers in cross border jurisdictions are offered banking services by Indian banks (or branches of foreign banks in India) and the ‗out-in‘ scenario where Indian residents are offered banking services by banks operating in cross-border jurisdictions are generally not permitted and this approach will apply to Internet banking also. The existing exceptions for limited purposes under FEMA i.e. where resident Indians have been permitted to continue to maintain their accounts with overseas banks etc. will, however, be permitted. 28
  39. 39. 5. Overseas branches of Indian banks will be permitted to offer Internet banking services to their overseas customers subject to their satisfying, in addition to the host supervisor, the home supervisor.Given the regulatory approach as above, banks are advised to follow the followinginstructions: a. All banks, who propose to offer transactional services on the Internet should obtain prior approval from RBI. Bank‘s application for such permission should indicate its business plan, analysis of cost and benefit, operational arrangements like technology adopted, business partners, third party service providers and systems and control procedures the bank proposes to adopt for managing risks. The bank should also submit a security policy covering recommendations made in this circular and a certificate from an independent auditor that the minimum requirements prescribed have been met. After the initial approval the banks will be obliged to inform RBI any material changes in the services / products offered by them. b. Banks will report to RBI every breach or failure of security systems and procedure and the latter, at its discretion, may decide to commission special audit / inspection of such banks. c. The guidelines issued by RBI on ‗Risks and Controls in Computers and Telecommunications‘ vide circular DBS.CO.ITC.BC. 10/ 31.09.001/ 97-98 dated 4th February 1998 will equally apply to Internet banking. The RBI as supervisor will cover the entire risks associated with electronic banking as a part of its regular inspections of banks. d. Banks should develop outsourcing guidelines to manage risks arising out of third party service providers, such as, disruption in service, defective services and personnel of service providers gaining intimate knowledge of banks‘ systems and misutilizing the same, etc., effectively. e. With the increasing popularity of e-commerce, it has become necessary to set up ‗Inter-bank Payment Gateways‘ for settlement of such transactions. The protocol for transactions between the customer, the bank and the portal and the 29
  40. 40. framework for setting up of payment gateways as recommended by the Group should be adopted.f. Only institutions who are members of the cheque clearing system in the country will be permitted to participate in Inter-bank payment gateways for Internet payment. Each gateway must nominate a bank as the clearing bank to settle all transactions. Payments effected using credit cards, payments arising out of cross border e-commerce transactions and all intra-bank payments (i.e., transactions involving only one bank) should be excluded for settlement through an inter-bank payment gateway.g. Inter-bank payment gateways must have capabilities for both net and gross settlement. All settlement should be intra-day and as far as possible, in real time.h. Connectivity between the gateway and the computer system of the member bank should be achieved using a leased line network (not through Internet) with appropriate data encryption standard. All transactions must be authenticated. Once, the regulatory framework is in place, the transactions should be digitally certified by any licensed certifying agency. SSL / 128 bit encryption must be used as minimum level of security. Reserve Bank may get the security of the entire infrastructure both at the payment gateway‘s end and the participating institutions‘ end certified prior to making the facility available for customers use.i. Bilateral contracts between the payee and payee‘s bank, the participating banks and service provider and the banks themselves will form the legal basis for such transactions. The rights and obligations of each party must be clearly defined and should be valid in a court of law.j. Banks must make mandatory disclosures of risks, responsibilities and liabilities of the customers in doing business through Internet through a disclosure template. The banks should also provide their latest published financial results over the net.k. Hyperlinks from banks‘ websites, often raise the issue of reputational risk. Such links should not mislead the customers into believing that banks sponsor any particular product or any business unrelated to banking. Hyperlinks from a banks‘ websites should be confined to only those portals with which they have a 30
  41. 41. payment arrangement or sites of their subsidiaries or principals. Hyperlinks to banks‘ websites from other portals are normally meant for passing on information relating to purchases made by banks‘ customers in the portal. Banks must follow the minimum recommended security precautions while dealing with request received from other websites, relating to customers‘ purchases.2. The Reserve Bank of India have decided that the Group‘s recommendations asdetailed in this circulars should be adopted by all banks offering Internet bankingservices, with immediate effect. Even though the recommendations have been made inthe context of Internet banking, these are applicable, in general, to all forms ofelectronic banking and banks offering any form of electronic banking should adopt thesame to the extent relevant.3. All banks offering Internet banking are advised to make a review of their systems inthe light of this circular and report to Reserve Bank the types of services offered, extentof their compliance with the recommendations, deviations and their proposal indicatinga time frame for compliance. The first such report must reach us within one month fromthe date of this circular. Banks not offering any kind of I-banking may submit a ‗nil‘report.4. Banks who are already offering any kind of transactional service are advised toreport, in addition to those mentioned in paragraph above, their business models withprojections of cost / benefits etc. and seek our post-facto approval. 31
  42. 42. 1.1.6 SolutionsHere are some simple tips to prevent you from falling into the trap of cyber criminals.Remember, a simple ignorance or oversight can make a huge dent in your hard- earnedsavings.  Securing your account: Avoid online banking on unsecured wifi systems and operate only from PCs at home. Never reveal password to anyone. Do not even write it on a piece of paper on diary. Just memorise it. It should be alphanumeric and change it frequently.Never reply to queries from bank online about account or personal details. The personalinformation should not be kept in a public computer or in emails.  Phishing: A persons personal details are obtained by fraudsters posing as bankers, who float a site similar to that of the persons bank. They are asked to provide all personal information about themselves and their account to the bank on the pretext of database upgradation. The number and password are then used to carry out transactions on their behalf without their knowledge.Phishing involves using a form of spam to fraudulently gain access to peoples onlinebanking details. As well as targeting online banking customers, phishing emails maytarget online auction sites or other online payment facilities. Typically, a phishing emailwill ask an online banking customer to follow a link in order to update personal bankaccount details. If the link is followed, the victim downloads a program which captureshis or her banking login details and sends them to a third party.  Spam: Spam is an electronic junk mail or unwanted messages sent to your email account or mobile phone. These messages vary, but are essentially commercial and often annoying in their sheer volume. They may try to persuade you to buy a product or service, or visit a website where you can make purchases; or they may attempt to trick you into divulging your bank account or credit card details. 32
  43. 43.  Nigerian Scam: Nigerian or Frauds 409 or 419 are basically the lottery scam in which some overseas persons are involved to cheat innocent persons or organizations by promising to give a good amount of money at nominal fee charges. Their intention is to steal money in the form of fee against the lottery prize.  Spyware: Spyware such as Trojan horse is generally considered to be software that is secretly installed on a computer and takes things from it without the permission or knowledge of the user. Spyware may take personal information, business information, bandwidth; or processing capacity and secretly gives it to someone else."Trojan Horse" scheme unfolds when malicious software (malware) embeds to aconsumers computer without the consumer being aware of it. Trojans often come inlinks or as attachments from unknown email senders. After installation the softwaredetects when a person accesses online banking sites and records the username andpassword to transmit to the offender. People using public computers, in places likeInternet cafes, are often susceptible to Trojans like malware or spyware.  Check sites URL: Always check the URL of your banks web site. Fraudsters can lure you to enter your user ID and password at a fake website that resembles your bank. If you see anything other than the banks genuine URL, it has to be fake.Never enter your user ID or password or such sensitive information without ascertainingthat you are on the right website. Always type the Web address of your bank into thebrowser address space. Never click on the link in the email.  Fool-proof password: Change your online banking password at regular intervals. Also, avoid easy-to-guess passwords, like first names, birthdays, kids or spouses name and telephone numbers. Try to have an alpha-numeric password, one that combines alphabets and numbers. 33
  44. 44. If you have several bank accounts, never use the same online banking password for all.Never select the option on browser that stores or retains user name and password. As itcan easily be cracked by cyber criminals. Also, never paste your password, always typeit in. This little amount of `finger exercise will go a long way in safety.  Always check last logged: Most banks have a last logged in panel on their websites. If your bank has it, check the panel whenever you log in. If you notice irregularities (like you are logging in after two days, but the panel says you logged in that morning!), report the matter immediately to your bank and change your password right away.Always log out when you exit the online banking portal. Close the browser to ensurethat your secure session is terminated. Never exit simply by closing the browser.  Keep your system up to date: Regularly check for security updates for your computer operating system. Most security updates are aimed at reducing risks to your computer, these may be data-related or otherwise. Make sure that your operating system and browser have the latest security patches installed. And, always install these only from trusted websites.Install a personal firewall to prevent hackers from gaining unauthorised access to yourcomputer, especially if you connect to the Internet through a cable or a DSL modem.  Public access can be injurious: Dont leave the PC unattended after keying in information while transacting on the website. Avoid accessing your bank online at cyber cafes or on a share or public computer. Also, avoid locations that offer online connections through wireless networks (Wi-Fi), where privacy and security are minimal.  Follow Bank instructions: Banks say that appropriate upgradations are carried out from time to time by their IT departments for risk mitigation. They issue instructions to the customers to manage their accounts through virtual keyboards by way of which the characters typed by them are not identified by hackers. SMS 34
  45. 45. alerts are also an important tool since any transaction carried out on account is reported to the account holder through an SMS. Protection: Learn the ways to protect yourself from online banking fraud schemes. Detect Trojans that appear on your PC in the form of viruses, spyware or malware through Antivirus Software, anti Spyware, and Adware. Also, learn to keep your cards, documents and passwords safe, and monitor your accounts to safeguard yourself from bank fraud committed through identity theft. 35
  46. 46. 1.1.7 Case Studies1. Email password Hacking-One day a lady came to cyber cell office and reported that she and her brothers e-mailID‘S had been hacked by someone she suspected him to be her husband. The lady hadalready lodged a case against him for dowry and was pending for trial in Bhopal court.The suspect had hacked lady‘s and her brother e-mail ID account and copied all theinformation to his e-mail and produced selected e-mails to claim that . she was happywith him and case of dowry is a false one .To malign the image of her brother the suspect sent a copy of FIR lodged against him atpolice station Habibganj. This indicated that the husband of the lady was behind thewhole affair but police had not any evidence against him.Cyber cell started enquiry by an order of IGP and obtained the login logs from rediff.comThe logs indicated that the email IDs password were changed and anonymous emailswere sent from the house of lady‘s husband and sent from his.Cyber cell registered a case under section 66 IT act and submitted Challan has beenfiled against the suspect and trial is over.Court has hold the conviction against the suspect Sabrish Pillai but found that thematter came before the court as Sabrish was having family dispute with his wife andthe, act of hacking was not against the society at large, Hence let him free afterwarning.2. Internet Lottery Fraud :MP Cyber police has investigated several case of cheating through Internet lottery offerwhich is commonly known as Nigerian 419 scam. In this kind of cheating the culpritsused to send bulk emails, bulk SMS to millions of users using software, stating that thereceiver has won lottery worth thousands of pounds or dollars which comes out to becrores of Indian rupees, in a lucky draw. They used to create fake lottery winningcertificate using logo and text from original website, which seems to be original at aglance. This kind of sending bulk emails or SMS is an act of commonly known as 36
  47. 47. Phishing attack. Those who are lured by such offer often tempted to contact them. Theculprits then ask the target to fill a form and thus receive all the personal information ofthe target and ask him to deposit token money in various names to earn the lotteryprize. The target who is hoping to earn huge amount of money finds these charges tobe minimal. The culprit asks the target to deposit money in the name yellow tag, customclearance UN anti terrorism certificate, RBI charges or any other name they feel it tosuitable to convince the target. The culprits ask the target to deposit in various bankaccounts and once the money is deposited by the target it is withdrawn same day by thesuspect.After losing lakhs of amount people come to know that they are being cheated. In thiskind of cheating the contact number are usually taken in the fake names or in the otherIndian guys name, account are being opened in the fake names or acquired on thebasis of commission by fooling the account holders.Mp cyber police has investigated the case of Internet lottery fraud and arrested Nigeriannational Gods power from Meharauli Delhi with the suspected mobile used forcommunication, one laptop, printer and box used for black dollar scam.Mp cyber police has investigated the case of Internet lottery fraud Crime no 07/09420,468,34 IPC and crime no 05/10 420,468,34 AIPC and arrested Nigerian nationalIdiiogbe Joseph from Mumbai with the suspected mobile used for communication,laptop, fake Income tax certificate and seals.Apart from the above MPCP is investigating two more such cases in which suspectsare being monitored and efforts are being made to arrest them. 37
  48. 48. 1.1.8 ICICI BANKICICI bank (formerly known as Industrial Credit and Investment Corporation of India) isthe largest private sector bank in India. ICICI is the first bank to introduce Internetbanking in India.ICICI bank offers various online banking services to its customers under the name ICICINet Banking. The ICICI net banking system allows you to access your bank accountany time of the day from the privacy of your home or office. Moreover, you can transferfunds to any bank account across India instantly using ICICI net banking facility. 38
  50. 50. 2.1 REVIEW OF LITERATUREMalhotra, Pooja & Singh, B. (2010) this study is an attempt to present the presentStatus of online banking in India and the extent of online banking services offered bybanks. In addition, it seeks to examine the factors affecting the extent of online bankingservices. The data for this study are based on a survey of bank websites exploredduring July 2008. The sample consists of 82 banks operating in India at 31 March 2007.Multiple regression technique is employed to explore the determinants of the extent ofOnline banking services. The results show that the private and foreign online bankshave performed well in offering a wider range and more advanced services of onlinebanking in comparison with public sector banks. Among the determinants affecting theextent of Online banking services, size of the bank, experience of the bank in offeringOnline banking, financing pattern and ownership of the bank are found to be significant.The primary limitation of the study is the scope and size of its sample as well as othervariables (e.g. market, environmental, regulatory etc) which may have an effect on thedecision of the banks to offer a wide range of Online banking services. The purpose ofthe study is to help fill significant gaps in knowledge about the Online bankinglandscape in India. The findings are expected to be of great use to the government,regulators, commercial banks, and other financial institutions, e.g. co-operative banksplanning to offer Online banking, bank customers and researchers. The bankers as wellas society at large will come to know where the banks lag in terms of adoption of onlinebanking and in providing different products and services. An understanding of thefactors affecting the extent of Online banking services is essential both for economistsstudying the determinants of growth and for the creators and producers of suchtechnologies. Moreover, this paper contributes to the empirical literature on diffusion offinancial innovations, particularly online banking, in a developing country, i.e. India.Polaris Software Lab (2010) In this study Polaris Software Lab Limited (POLS.BO), aleading Financial Technology Company, launched Intellect(TM) PRIVACY based onstate-of-the-art technology and four patents filed by the Indian Institute of TechnologyMadras. IndusInd Bank has become the first bank in India to implement Intellect(TM)PRIVACY, an online and Online banking security card, for its Online banking customers.The technology will protect customers and banks from practically all kinds of phishingattacks, viz. deceptive e-mail, key/screen logger, brute force/dictionary attacks andTrojans, etc. Intellect PRIVACY uses multi factor, dynamic authentication technologyproviding for authorizing online banking transactions, in a completely secure platform.Commenting on the innovation, Professor L S Ganesh, Coordinator of the programmer,said, "At IIT Madras, the Department of Computer Science and Engineering and theDepartment of Management Studies got particularly interested in designing an onlinesecurity technology that is cost efficient and easy to use in a rapidly growing e-commerce scenario, and transferring it commercially. We chose the Cost-Usability- 40
  51. 51. Security (CUS) approach to arrive at a solution and Polaris Software created aneminently usable application for the banking industry. IndusInd Bank, which was lookingfor providing greater security for web based transactions, became the first organizationto adopt it." Intellect PRIVACY is a simple plastic card that customers can use togenerate a one-time password (OTP) for carrying out any kind of online bankingtransaction including the sign on. Banks can issue booklets containing a desirednumber of cards that would last many transactions. The card has no pilferage value byitself and customers can easily manage its life cycle, including making a request for anew booklet and reporting loss of cards through online banking.Azouzi, D. (2009) this paper aims to check if the current and prompt technologicalrevolution altering the whole world has crucial impacts on the Tunisian banking sector.Particularly, this study seeks some clues on which we can rely in order to understandthe customers behavior regarding the adoption of online banking. To achieve thispurpose, an empirical research is carried out in Tunisia and it reveals that panoply offactors is affecting the customers-attitude toward online banking. For instance; age,gender and educational qualifications seem to be important and they split up the groupinto electronic banking adopters and traditional banking defenders and so, they havesignificant influence on the customers adoption of online banking. Furthermore, thisstudy shows that despite the presidential incentives and in spite of being fully aware ofthe online bankings benefits, numerous respondents are still using the conventionalbanking. It is worthy to mention that the fear of loss because of transactions errors orhackers plays a significant role in alienating Tunisian customers from online banking.B. Dizon, J.A. (2009) In this study they have founded that while big banks still conductthe bulk of their business in brick and mortar bank branches, the finance sector hasbeen increasingly investing on Online banking facilities to offer 24-hour, queue freeservices to their regular clients, whether through ATM machines, mobile phones."Online Bankings appeal is primarily its convenience. Clients nowadays want instantresults; they dont want to wait anymore," said Francisco M. Caparros, Jr., senior vice-president of Asia United Bank and president of Banc Net. Its also turned out to be amore efficient way to process transactions, as online banking does away with most ofthe paperwork that clients have to accomplish. "A lot of people dont like filling forms,"Mr. Caparros added. "Online banking, in particular, relies on user names andpasswords which need to be protected," said Ferdinand G. La Chica, first vice-president and marketing group head for Sterling Bank of Asia. These anti- theft barriersare at times supplemented by transaction passwords and "tokens", often a keychain-likedevice that is issued to the client and generates random, one-time passwords to enablehim to log into his account online. Last year, the Rural Bank Association of thePhilippines announced that its members are looking to appoint local merchants like sari-sari stores as third party agents where consumers can open new accounts and make 41
  52. 52. large payments. Such informal outlets will enable banks to reach out to small-incomebusinesses and individuals, particularly those in the agrarian sector, most of who arebased outside the city center.Uppal, R.K. & Chawla, R. (2009) this study highlights customer perceptions regardingonline banking services. A survey of 1,200 respondents was conducted in October 2008in Ludhiana district, Punjab. The respondents were equally divided among three bankgroups namely, public sector, private sector and foreign banks. The present studyinvestigates the perceptions of the bank customers regarding necessity of Onlinebanking services, quality of online banking services, bank frauds, future of onlinebanking, preference of bank customers regarding banks, comparative study of bankingservices in various bank groups, preferences regarding use of online channels andproblems faced by online bank customers. The major finding of this study is thatcustomers of all bank groups are interested in online banking services, but at the sametime are facing problems like, inadequate knowledge, poor network, lack ofinfrastructure, unsuitable location, misuse of ATM cards and difficulty to open anaccount. Keeping in mind these problems faced by bank customers, this paper framessome strategies like customer education, seminars/meetings, proper network andinfrastructure facilities, online shopping facilities, proper working and installation of ATMmachines, etc., to enhance Online banking services. Majority of professionals andbusiness class customers as well as highly educated and less educated customers alsofeel that online banking has improved the quality of customer services in banks.Reeti, Sanjay, and Malhotra, A. (2009) Stated about the Customer‘s perspectivesregarding online banking in an emerging economy. So that, the author determiningvarious factors affecting customer perception and attitude towards and satisfaction withonline banking is an essential part of a banks strategy formulation process in anemerging economy like India. To gain this understanding in respect of Indian customers,the study was conducted on respondents taken from the northern part of India. Themajor findings depict that customers are influenced in their usage of online bankingservices by the kind of account they hold, their age and profession, attach highestdegree of usefulness to balance enquiry service among Online banking services,consider security & trust most important in affecting their satisfaction level and find slowtransaction speed the most frequently faced problem while using online banking.Hsun, K.S. (2008) this study considers the coherence of the financial service sector andadopts different observational variables to identify innovation capital (training and R&Ddensity) and process capital (IT system sufficiency). The results show that humancapital has a direct impact on both innovation capital and process capital, which in turnaffect customer capital; while finally, customer capital affects business performance. Inaddition, there is a negative relationship between process capital and customer capitalin the financial service sector. It suggests that in the financial service sector, customer 42
  53. 53. satisfaction relies on a sufficient degree of training and R&D density. Intemperateinvestment on the support of online banking operation systems may not be a goodanswer.Laukkanen, P., Sinkkonen, S. & Laukkanen, T. (2008) The purpose of this paper is tofurther the understanding of innovation resistance by dividing online banking non-adopters into three groups based on their intentions to use the innovation. Thereafter,the aim is to identify how the resistance differs in these customer groups. This studyidentifies three groups of Online banking non-adopters, namely postponers, opponentsand rejectors. The data were collected by conducting an extensive postal survey amongthe retail banking customers in Finland who had not adopted online banking. Themeasurement development was based on consumer resistance theory and the earlierliterature on online banking. Principal component analysis was used to classify theresistance items into five adoption barriers derived from the earlier literature. Thereafter,analysis of variance was used to analyze the statistical differences in resistance toonline banking between the three groups. Significant differences were identifiedbetween the groups explored. The resistance of the rejectors is much more intense anddiverse than that of the opponents, while the postponers show only slight resistance.The results also indicate that psychological barriers are even higher determinants ofresistance than usage and value, which are constructs related to ease-of-use andusefulness determining acceptance in the traditional technology acceptance model.Moreover, the findings highlight the role of self-efficacy in bank customers riskperceptions to online banking. This study provides further understanding of what inhibitsonline banking adoption by comparing three non-adopter groups with respect to theirresistance to online banking. It also has implications for management in overcomingnon-adopters resistance to the innovation.Routray (2008) the study describes that Mobile and Wireless communication devicesare becoming enablers for organizations to conduct business more effectively andefficiently. One of the most effective applications is mobile banking (m-banking). For anyapplication to gain recognition technological advancements play a vital role. To make m-banking application a success bandwidth management is an important issue. Theincreased flexibility and mobility feature of wireless ATM and its bandwidth on demandfunction is motivating a large number of carriers towards deployment of the WATMnetworks. But there are certain issues which are required to be addressed in WATM.The issues are cost effective planning of network, location management and handovermanagement. In this paper we have suggested and evaluated a technologicalframework for the m-banking application using wireless ATM which optimizes thebandwidth usage and provides an effective handover management. Simulation resultsshow that the resultant framework is very effective in handling the bandwidth and thehandover issue in wireless ATM and provides an effective WATM framework model. 43