chapter 7 : electronic banking


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chapter 7 : electronic banking

  2. 2. By end of this chapter, students will be able to: • Define electronic banking and electronic funds transfer (EFT). • Describe EFT as a means of payment • Identify categories of electronic banking systems • Differentiate the following non-consumer activated electronic banking systems. • Understand consumer-activated electronic banking systems • Discuss the issues involving e-commerce banking
  3. 3. Introduction • Electronic revolution in the Malaysian banking sector started since 1970s.  The actualization of the electronic revolution happened during the introduction of Automated Teller Machine (ATM) in 1981.  The introduction of telephone banking service in 1990s became the next technological leap in Malaysian banking industry (Suganthi et al, 2001).  In June 2000, the Bank Negara Malaysia allowed commercial banks to offer Internet banking services to their customers.  i.e. CIMB, Maybank and RHB Bank Berhad collectively had an estimated 917,000 Internet banking users as of end of 2006.
  4. 4. Content 1 • Basic of electronic banking • Electronic Funds Transfer (EFT) 2 • Non-Customer Activated Electronic Banking Systems • Customer Activated Electronic Banking Systems 3 • Issues involving e-commerce banking • Security & Secrecy
  5. 5. ELECTRONIC BANKING For many consumers, electronic banking means 24-hour access to cash through an automated teller machine (ATM) or Direct Deposit of paychecks into checking or savings accounts. But electronic banking now involves many different types of transactions.
  6. 6. ELECTRONIC BANKING  “Electronic Banking is the use of a computer to retrieve and process banking data and to initiate transactions directly with a bank via a telecommunications network” Lipis et al,1986. “Electronic Banking is actually a repackaging, delivery and processing of traditional banking financial services such as cash withdrawals, fund transfers, placement of deposits through an electronic on-line medium as compared to customary paper based, off-line system” Tan Min Ching , 1993.
  7. 7. ELECTRONIC BANKING Electronic banking, also known as electronic funds transfer (EFT), is simply the use of electronic means to transfer funds directly from one account to another, rather than by check or cash. You can use electronic funds transfer to: • have your paycheck deposited directly into your bank or credit union checking account; • withdraw money from your checking account from an ATM machine;
  8. 8. More Facts • transfer funds from your checking account to your mutual fund account; • have your government social security benefits check or your tax refund deposited directly into your checking account; • instruct your bank or credit union to automatically pay certain monthly bills from your account; • make purchases using a check card rather than cash;
  9. 9. More Facts • use a smart card with a prepaid amount of money embedded in it instead of cash; • use your computer and personal finance software to coordinate your total personal financial management.
  10. 10. 1 • Basic of electronic banking • Electronic Funds Transfer (EFT) Definitions e-banking is defined as: • …the automated delivery of new and traditional banking products and services directly to customers through electronic, interactive communication channels.
  11. 11. Question: What is electronic funds transfer (EFT)?
  12. 12. Answer: Withdrawals, deposits, and bill payments.
  13. 13. ELECTRONIC FUND TRANSFERS  Electronic Funds Transfer (EFT) is a system of transferring money from one bank account directly to another without any paper money changing hands.  EFT is safe, secure, efficient, and less expensive than paper check payments and collections.  EFT offers several services that consumers may find practical to be as a means of payment.
  14. 14. ELECTRONIC FUND TRANSFERS • Cardholder-initiated transactions, where a cardholder makes use of a payment card • Direct deposit payroll payments for a business to its employees • Direct debit payments, sometimes called electronic checks, for which a business debits the consumer's bank accounts for payment for goods or services • Electronic bill payment in online banking
  15. 15. 2 • Non-Customer Activated Electronic Banking Systems • Customer Activated Electronic Banking Systems • Non-Customer Activated Electronic Banking Systems NCAEBS CAEBS E-Banking System
  16. 16. Non-consumer-activated EFT System  Exist for non-consumer-transactions-banks selects and activates the system.  Some corporate or institutional customers may be given direct access to these systems, but the bank’s consumer customers, that is personal account holders, do not have similar direct access to this system.  They include transactions initiated among and between banks, corporations, governments, and other service firms.  It consists of:  Electronic Credit and Debit Transfer  Nature of Credit and Debit Transfer  International Electronic Transfer
  17. 17. Non-consumer-activated EFT System • An example of the non-consumer-activated system is the international electronic funds transfer system SWIFT operated by the Society for Worldwide Interbank Financial Telecommunication.
  18. 18. SWIFT • Society for Worldwide Interbank Financial Telecommunication ("SWIFT") • a co-operative society, founded in 1974 by seven international banks, which operate a global network to facilitate the transfer of financial messages. – transports financial messages in a highly secure way – banks can exchange data for funds transfer between financial institutions – Can do money transfer, currency exchange, loan, deposit etc – Improve the productivity and avoid error
  19. 19. 2 • Non-Customer Activated Electronic Banking Systems • Customer Activated Electronic Banking Systems • Customer Activated Electronic Banking Systems NCAEBS CAEBS E-Banking System
  20. 20. Consumer-activated System  The consumer-activated system is a system in which consumer /customer selects and activates the EFT system used in transaction.  Consumer activated or retail electronic systems encompass transactions involving personal account holders as opposed to corporate account holders.  It consists of      ATMs EFTPOS Credit Cards Home and Office Banking Internet Banking
  21. 21. • Customer Activated Electronic Banking Systems Cash Dispenser/ATM Electronic Funds Transfer at Point of Sales (EFTPOS) Credit Cards Home & Office banking Internet banking
  22. 22. • Customer Activated Electronic Banking Systems Cash Dispenser/ATM Withdrawal Others ATM Remittance/ Payment Deposit
  23. 23. Automated Teller Machines (ATMs) • The common functions of ATM machines are: (a) Account balances inquiries; (b) Cash withdrawals; (c) Statement of accounts requests; (d) Cash and cheque deposits. • Some of the other functions of ATMs include Touch & Go topup, air-ticket purchasing (Malaysia Airline System Electronic) and many more.
  24. 24. Automated Teller Machines (ATMs) Automated Teller Machines or 24-hour Tellers are electronic terminals that let you bank almost any time. Most ATM are members of Malaysian Electronic Payment System (MEPS) Sdn Bhd.  can have access to their accounts via any ATM belonging to the MEPS network. Some financial institutions and ATM owners charge a fee, particularly to consumers who don’t have accounts with them or on transactions at remote locations. Can be used for balance enquiry, cash withdrawal, transfer of funds between checking, savings and credit card accounts, bill payments, making payments to application for initial public offerings in the Kuala Lumpur Stock Exchange and for making cash and check deposits
  25. 25. • Customer Activated Electronic Banking Systems Electronic Funds Transfer at Point of Sales (EFTPOS)
  26. 26. Electronic Fund Transfer Point of Sales  A number of merchants permit customers using a debit card to withdraw cash as part of the EFTPOS transaction.  Allows customers to obtain the funds directly debited (taken) from his bank account. EFTPOS basically means that there is a funds transfer Electronically at the point of sale.
  27. 27. Credit Cards • Customer Activated Electronic Banking Systems
  28. 28. Smart Cards • Debit cards – Debit cards are particularly designed for customers who like to pay using plastic cards but do not want credit. • Credit cards – allows users to make purchases of variable sizes but limited to the credit limit imposed by the company. • Charge cards – Credit must be settled in full amount of every month
  29. 29. CONTINUE…
  30. 30. • Customer Activated Electronic Banking Systems Home & Office banking
  31. 31. Home and Office Banking Technology for consumers to effect their banking transaction right in the comfort of their homes. • facilities available; – Checking balances, transfer of fund, bill payment • Enables a bank client to handle his accounts without leaving their home. • Can make payment, transfer money, request statement almost 24hours.
  32. 32. SMS Banking • SMS banking uses short text messages sent through the client’s mobile phone. • Kept updated on important information when it concerns your business matters by SMS alert • A client can automatically receive information about his account balance: an SMS is sent to the client immediately after a certain operation is performed, or on request: a client sends the bank a correctly formatted message which processes it and answers the client’s request by SMS. – Check balance – Account Transfer
  33. 33. • Customer Activated Electronic Banking Systems SMS banking
  34. 34. Internet Banking • Customers can use their personal computers at home, office or everywhere to access their accounts for transactions by subscribing to and dialing into the banks’ Intranet proprietary software system by use of password. • More common among corporate customers compared to individual customers. • Reducing cost, increasing speed and improved flexibility of business transactions. – Account balance, request transfers between accounts, and pay bills electronically.
  35. 35. • Customer Activated Electronic Banking Systems Internet banking
  36. 36. 3 • Issues involving e-commerce banking • Security & Secrecy • Bank depend on IT service providers • Leaking of Customers information Outsourcing Others • Froud Privacy Technology • Rapid changes in ICT
  37. 37. 3 • Issues involving e-commerce banking • Security & Secrecy Security Secrecy • Internet is accessible from anywhere in the world by unknown parties – <Risk> • Significant challenges on security control, customer authentication techniques, data protection etc. • Customer Privacy • Financial data/info. available only to the right parties
  38. 38. SECURITY Security • Regardless of what type of security is in place for on line banking sites or ATMs, people are able to obtain customer information. – Phishing: where someone tries to trick a customer into revealing sensitive information – Pharming: where malicious code is introduced into a computer, customers can become victims to identity theft. • These issues are often beyond the bank’s control, as criminals try many tactics to obtain customer information. • At ATMs, thieves can also hack the system, so your personal identification number (commonly called a PIN number) and card number are stolen after you use them.
  39. 39. SECURITY • Nowadays, most of us use the internet. We like to e-mail, chat and have fun online as well as use it to buy and sell things and do our banking. • Unfortunately, it also provides opportunities for criminals to: – – – – Infect your computer with spyware and steal your identity Mess up your computer with pop-ups and viruses Send you spam and scam e-mails Trick you into visiting fake websites and handing over personal information – Hack into your wireless network
  40. 40. PROBLEMS Fraud • Fraud is a common concern with electronic banking because the security features, such as a password or PIN number can be stolen and used without identification. • There are few ways to verify who is making a transaction until it is too late. • People can steal a PIN and card number and use it on line without the owner’s permission. • Money transfers can also occur through online banking sites by an outside party.
  41. 41. PROBLEMS Customer Service • Electronic banking also lacks the one thing most bank institutes thrive on customer service. • Electronic banking is conducted by the customer instead of a bank teller, so there is no face-to-face interaction. • The customer must seek any additional services or help on by pro-actively contacting the bank. • Some customers refuse to use these services because they feel they are entitled to in-person customer service
  42. 42. SECRECY • Bank secrecy (or bank privacy) is a legal principle under which banks are allowed to protect personal information about their customers, through the use of numbered bank accounts or otherwise. • Data protection and privacy policies • Every institution already describe their terms and conditions for their services offered.
  43. 43. STEPS TAKEN TO BE SECURED 1. Choose the right browser and make sure your PC has installed any antivirus, spyware or firewall to prevent any hackers or stolen data. 2. Update your information from time to time, renew your password. 3. Save all your transaction statement as a proof if any matters arising later. 4. Save all your PIN and personal information and don’t reveal to anyone even your spouse. 5. Always check your account balance. MORE….
  44. 44. E-Banking Risks Data breaches Identities exposed Fig. 4 Data breaches that could lead to identity theft by sector and identity exposure by sector Source: Based on data provided by OSF Dataloss DB.
  45. 45. FINISH…..
  46. 46. TUTORIAL Additional slide