RBI Acknowledges Risks Of E-Banking In IndiaReserve Bank of India (RBI) has been playing a pro active role for securing Internetbanking and online banking transactions. Recently, RBI showed its intention to boostATM security in India. In the past, concerns have been raised from time to time forpreventing online banking frauds in India by RBI.There are many problems from which the online banking or Internet banking in India issuffering. The most important pertains to maintaining effective cyber security for bankingand financial sectors of India. Similarly, there are no effective Internet banking laws inIndia or online banking laws in India. In the absence of stringent laws in this regard,online banking risks in India are increasing. However, of all the shortcomings, nothingcan match the absence of encryption laws and standards in India. In the absence of properencryption norms in India, e-banking in India is really insecure.RBI has realised this fact and it has cautioned banks that e-banking must be used by themwith proper security and safeguards. “The use of e-banking has brought many concernsfrom different stakeholders. Everybody’s primary concern is security. As more and morepeople are exposed to the information superhighway, privacy of information and thesecurity that goes hand and hand with this information is crucial to the growth ofelectronic transactions,’’ said R Gandhi, executive director , Reserve Bank of India.Gandhi said in order to provide effective and secure banking transactions, there are fourtechnology issues that need to be resolved. “The key areas are the security, privacy andauthentication,” he said. By strengthening the privacy technology, this will ensure thesecrecy of sender’s personal information and enhance the system’s security. “Alsoencryption may help make the transactions more secure, but there is also a need toguarantee that no one alters the data at either end of the transaction,” Gandhi said.Recently, G Gopalakrishna, the executive director of RBI, said that all Banks would haveto create a position of Chief Information Officers (CIOs) as well as Steering Committeeson Information Security at the Board Level at the earliest, informs Praveen Dalal,managing partner of New Delhi based ICT law firm Perry4Law and leading techno legalspecialist of India. This step was taken to ensure proper Cyber Security Policies andStrategies at the highest Board Level of Banks, says Dalal.Although, RBI has been taking many far reaching and important steps yet e-banking inIndia still very risky. Of late, cases of phishing and banking frauds have increasedtremendously in India. Further, cyber due diligence of banks in India is still a far dream.Even the directions of RBI to appoint CIOs and steering committees on informationsecurity have not yet been implemented. The end result is that banking customers are stilllosing their hard earned money to cyber criminals. Hopefully, RBI would take someurgent steps in these directions as soon as possible, says Praveen Dalal.Cyber crimes have increased a lot in India. Cyber crimes have not left any field orcommercial activity untouched. Even the banking sector has not remained unaffected by
cyber crimes. Further, the cyber law of India has introduced its own set of due diligencerequirements for banks operating in India.Realising the gravity of the situation, the Reserve Bank of India (RBI) has recentlyreleased a report of its working group on information security, electronic banking,technology risk management, and cyber frauds. In this report, the RBI mandated cyberdue diligence for banks in India.The matter does not end here. It is clear that RBI has to meet great challenges beforeIndian banking industry can be considered reasonably safe from cyber criminals. This ismore so when we have inadequate cyber laws and other laws to effectively tackle cybercrimes pertaining to banking sector of India.Internet banking is increasingly becoming popular in India. However, Internet banking isa risky venture and India must be prepared to deal with the risks associated with it. Theincreasing cases of ATM frauds, online banking frauds, credit cards frauds, etc haveshaken the confidence of Indian consumers in Internet banking in India.However, Internet banking in India cannot succeed till a strong legal framework in this isenacted. According to Praveen Dalal, leading techno legal expert of India and a SupremeCourt lawyer, we have no dedicated Internet Banking Law in India. Although, RBI hasissued many guidelines in this regard and even our Information Technology Act, 2000contains some indirect and implied provisions for Internet Banking yet we need aseparate and dedicated law in this regard, opines Praveen Dalal.Similarly, the present banking and other technology related legal frameworks are notconducive for mobile banking in India. We do not have a well developed e-governanceinfrastructure in India. Similarly, on the front of e-commerce as well, India is not muchsuccessful.In this background, the requirements of cyber due diligence of banks in India has becomemore onerous. RBI has further made this requirement absolute through its InformationTechnology Vision Document 2011-17. According to this policy document, all banksnow would have to create a position of chief information officers (CTOs) as well assteering committees on information security at the board level at the earliest.The presence of CTO and steering committees on information security would ensure thatbanks are following cyber due diligence and other technology and non technology relateddue diligence requirements in India, says B.S.Dalal, a banking and financial law expertand senior partner of Perry4Law. Till now there was no such requirement and banks weretaking cyber law related issues lightly. RBI has taken a good step in right direction andthis would increase the confidence of bank customers of India.Internet Banking Laws In India
nternet banking is increasingly becoming popular in India. However, Internet banking is arisky venture and India must be prepared to deal with the risks associated with it. Theincreasing cases of ATM frauds, online banking frauds, credit cards frauds, etc haveshaken the confidence of Indian consumers in Internet banking in India.Similarly, mobile banking in India is also being explored. Some segments have suggestedactive use of mobile banking in India. While the idea is great yet India is still not readyfor mobile banking. In fact, mobile banking in India is a risky business.The problem of Internet banking frauds has become even more sever due to absence oflegal framework in this regard. However, the Reserve Bank of India (RBI) has recentlyrecommended use of “cyber due diligence” for banks in India. With the presentguidelines, banks can no more ignore due diligence requirements that they have beenignoring for long.Although the requirements of due diligence may arise out of many laws, but cyber duediligence is the most required one. Realising the seriousness of the situation, RBI hasrecently released a report of its working group on information security, electronicbanking, technology risk management, and cyber frauds.Previously, banks were required to manage due diligence arising out of laws alone butnow the responsibility of banks have become very wide. The banks must now managedue diligence requirements of both technical and legal nature. In other words, the duediligence requirements of banks have now become techno legal in nature.However, Internet banking in India cannot succeed till a strong legal framework in this isenacted. According to Praveen Dalal, leading techno legal expert of India and a SupremeCourt lawyer, we have no dedicated Internet Banking Law in India. Although, RBI hasissued many guidelines in this regard and even our Information Technology Act, 2000contains some indirect and implied provisions for Internet Banking yet we need aseparate and dedicated law in this regard, opines Praveen Dalal.It would be a good idea if RBI starts working in the direction of enacting a suitableInternet banking law of India. The same may also incorporate cyber due diligencerequirements and punishments for cyber crimes against banking institutions. The call isfor the RBI to take and it would definitely take it.Electronic commerceElectronic commerce, commonly known as e-commerce or eCommerce, consists of thebuying and selling of products or services over electronic systems such as the Internetand other computer networks. The amount of trade conducted electronically has grownextraordinarily with widespread Internet usage. The use of commerce is conducted in thisway, spurring and drawing on innovations in electronic funds transfer, supply chain
management, Internet marketing, online transaction processing, electronic datainterchange (EDI), inventory management systems, and automated data collectionsystems. Modern electronic commerce typically uses the World Wide Web at least atsome point in the transactions lifecycle, although it can encompass a wider range oftechnologies such as e-mail, mobile devices and telephones as well.A large percentage of electronic commerce is conducted entirely electronically for virtualitems such as access to premium content on a website, but most electronic commerceinvolves the transportation of physical items in some way. Online retailers are sometimesknown as e-tailers and online retail is sometimes known as e-tail. Almost all big retailershave electronic commerce presence on the World Wide Web.Electronic commerce that is conducted between businesses is referred to as business-to-business or B2B. B2B can be open to all interested parties (e.g. commodity exchange) orlimited to specific, pre-qualified participants (private electronic market). Electroniccommerce that is conducted 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 Amazon.com. Online shopping is a form of electroniccommerce where the buyer is directly online to the sellers computer usually via theinternet. There is no intermediary service. The sale and purchase transaction is completedelectronically and interactively in real-time such as Amazon.com for new books. If anintermediary is present, then the sale and purchase transaction is called electroniccommerce such as eBay.com.Electronic commerce is generally considered to be the sales aspect of e-business. It alsoconsists of the exchange of data to facilitate the financing and payment aspects of thebusiness transactions.Ecommerce in IndiaIndia has an internet user base of over 50 million  users. The penetration of e-commerceis low compared to markets like the US and the UK but is growing  at a much faster ratewith a large number of new entrants . The industry consensus is that growth is at aninflection point  with key drivers being: • Increasing broadband Internet (growing at 20%  MoM) and 3G penetration . • Increasing standards of living and a burgeoning, upwardly mobile middle class with high disposable incomes • Availability of much wider product range (including long tail and Direct Imports) compared to what is available at brick and mortar retailers • Busy lifestyles, urban traffic congestion and lack of time for offline shopping • Lower prices compared to brick and mortar retail driven by disintermediation and reduced inventory and real estate costs
Market Size & GrowthIndia’s e-commerce market was worth about $2.5 billion in 2009. About 75% of this istravel related (airline tickets, railway tickets, hotel bookings etc.). Online Retailingcomprises about 12.5% ($300 Millionas of 2009). India has close to 10 million onlineshoppers and is growing at an estimated 30%  CAGR vis-à-vis a global growth rate of8-10%. Electronics and Apparel are the biggest categories in terms of sales. Unique to IndiaSome of the aspects of Indian e-commerce that are unique to India (and potentially toother develping countries) are: • Cash on Delivery as a preferred payment method. India has a vibrant cash economy as a result of which 80% of Indian e-Commerce tends to be Cash On Delivery (COD). • Direct Imports constitue a large component of online sales. Demand for international consumer products (including long-tail) is growing much faster than in-country supply from authorized distributors and E-commerce offerings like eBay Global Easy Buy , Amazon Global  and 20North.com  use sophisticated E-commerce and Logistics technology to create a cross-border supply chain that allows consumers to shop online for international products that are delivered duty paid to their doorstep.Risk Management for Internet Bankinghe past few years have been characterized by rapid changes in technology and theintroduction of corporate and retail banking services through the Internet. Theunprecedented speed with which new technologies are being adopted, the ubiquitous andglobal nature of electronic networks, the integration of e-banking platforms with legacysystems and the increasing dependence of banks on third party information serviceproviders, all dramatically amplify the magnitude of risks to which banks are exposed.Many banks have assumed that Internet banking primarily increases information securityrisks and have not sufficiently focused on the effect on other banking-specific risks. Riskmanagement disciplines have not evolved at the same speed and many institutions,especially the smaller ones, have not been able to incorporate Internet banking riskcontrols within their existing risk management structures. This article provides anoverview of the various risks which are heightened with Internet banking, and a holisticapproach to managing these risks.
Types of Internet BankingFinancial institution Internet offerings can be broadly classified into three groups withdistinct risk profiles:1 • Informational—Offers information about the banks products and services ("brochureware") and is low risk • Communicative—Offers account-related information and possibly offers updates to static data (such as addresses). Since access is permitted to the banks main systems, the risk is material. • Transactional—Allows customers to execute financial transactions and carries the highest risk. Some transactional models carry higher risks, for example, if the customer has never visited a branch throughout his entire relationship and prefers to carry out all his transactions remotely (this commonly happens with some online share trading sites).Internet Banking RisksInternet banking does not open up new risk categories, but rather accentuates the risksthat any financial institution faces. The board and senior management must be cognizantof these risks and deal with them appropriately. These risks, which often overlap, arebriefly described below: • Strategic risk—This is the current and prospective risk to earnings and capital arising from adverse business decisions or improper implementation of business decisions. Many senior managers do not fully understand the strategic and technical aspects of Internet banking. Spurred by competitive and peer pressures, banks may seek to introduce or expand Internet banking without an adequate cost- benefit analysis. The organization structure and resources may not have the skills to manage Internet banking. • Transaction risk—This is the current and prospective risk to earnings and capital arising from fraud, error, negligence and the inability to maintain expected service levels. A high level of transaction risk may exist with Internet banking products, because of the need to have sophisticated internal controls and constant availability. Most Internet banking platforms are based on new platforms which use complex interfaces to link with legacy systems, thereby increasing risk of transaction errors. There is also a need to ensure data integrity and nonrepudiation of transactions. Third-party providers also increase transaction risks, since the organization does not have full control over a third party. Without seamless process and system connections between the bank and the third party, there is a higher risk of transaction errors. • Compliance risk—This is the risk to earnings or capital arising from violations of, or nonconformance with, laws, regulations and ethical standards. Compliance risk may lead to diminished reputation, actual monetary losses and reduced business opportunities. Banks need to carefully understand and interpret existing laws as they apply to Internet banking and ensure consistency with other channels such as
branch banking. This risk is amplified when the customer, the bank and the transaction are in more than one country. Conflicting laws, tax procedures and reporting requirements across different jurisdictions add to the risk. The need to keep customer data private and seek customers consent before sharing the data also adds to compliance risk. Customers are very concerned about the privacy of their data and banks need to be seen as reliable guardians of such data. Finally, the need to consummate transactions immediately (straight-through processing) may lead to banks relaxing traditional controls, which aim to reduce compliance risk.• Reputation risk—This is the current and prospective risk to earnings and capital arising from negative public opinion. A banks reputation can be damaged by Internet banking services that are poorly executed (e.g., limited availability, buggy software, poor response). Customers are less forgiving of any problems and thus there are more stringent performance expectations from the Internet channel. Hypertext links could link a banks site to other sites and may reflect an implicit endorsement of the other sites.• Information security risk—This is the risk to earnings and capital arising out of lax information security processes, thus exposing the institution to malicious hacker or insider attacks, viruses, denial-of-service attacks, data theft, data destruction and fraud. The speed of change of technology and the fact that the Internet channel is accessible universally makes this risk especially critical.• Credit risk—This is the risk to earnings or capital from a customers failure to meet his financial obligations. Internet banking enables customers to apply for credit from anywhere in the world. Banks will find it extremely difficult to verify the identity of the customer, if they intend to offer instant credit through the Internet. Verifying collateral and perfecting security agreements are also difficult. Finally, there could be questions of which countrys (or states) jurisdiction applies to the transaction.• Interest rate risk—This is the risk to earnings or capital arising from movements in interest rates (e.g., interest rate differentials between assets and liabilities and how these are impacted by interest rate changes). Internet banking can attract loans and deposits from a larger pool of customers. Also, given that it is easy to compare rates across banks, pressure on interest rates is higher, accentuating the need to react quickly to changing interest rates in the market.• Liquidity risk—This is the risk to earnings or capital arising from a banks inability to meet its obligations. Internet banking can increase deposit and asset volatility, especially from customers who maintain accounts solely because they are getting a better rate. These customers tend to pull out of the relationship if they get a slightly better rate elsewhere.• Price risk—This is the risk to earnings or capital arising from changes in the value of traded portfolios or financial instruments. Banks may be exposed to price risk, if they create or expand deposit brokering, loan sales or securitization programs as a result of Internet banking activities.• Foreign exchange risk—This arises when assets in one currency are funded by liabilities in another. Internet banking may encourage residents of other countries to transact in their domestic currencies. Due to the ease and lower cost of
transacting, it may also lead customers to take speculative positions in various currencies. Higher holdings and transactions in nondomestic currencies increase foreign exchange risk.Online banking Online banking (or Internet banking) allows customers to conduct financial transactions on a secure website operated by their retail or virtual bank, credit union or building society.FeaturesOnline banking solutions have many features and capabilities in common, buttraditionally also have some that are application specific.The common features fall broadly into several categories • Transactional (e.g., performing a financial transaction such as an account to account transfer, paying a bill, wire transfer, apply for a loan, new account, etc.) o Payments to third parties, including bill payments and telegraphic/wire transfers o Funds transfers between a customers own transactional account and savings accounts o Investment purchase or sale o Loan applications and transactions, such as repayments of enrollments • Non-transactional (e.g., online statements, cheque links, cobrowsing, chat) o Viewing recent transactions o Downloading bank statements, for example in PDF format o Viewing images of paid cheques • Financial Institution Administration • Management of multiple users having varying levels of authority • Transaction approval processFeatures commonly unique to Internet banking include • Personal financial management support, such as importing data into personal accounting software. Some online banking platforms support account aggregation to allow the customers to monitor all of their accounts in one place whether they are with their main bank or with other institutions. HistoryThe precursor for the modern home online banking services were the distance bankingservices over electronic media from the early 1980s. The term online became popular in
the late 80s and referred to the use of a terminal, keyboard and TV (or monitor) to accessthe banking system using a phone line. ‘Home banking’ can also refer to the use of anumeric keypad to send tones down a phone line with instructions to the bank. Onlineservices started in New York in 1981 when four of the city’s major banks (Citibank,Chase Manhattan, Chemical and Manufacturers Hanover) offered home bankingservices using the videotex system. Because of the commercial failure of videotex thesebanking services never became popular except in France where the use of videotex(Minitel) was subsidised by the telecom provider and the UK, where the Prestel systemwas used.The UKs first home online banking services was set up by Bank of Scotland forcustomers of the Nottingham Building Society (NBS) in 1983. The system used wasbased on the UKs Prestel system and used a computer, such as the BBC Micro, orkeyboard (Tandata Td1400) connected to the telephone system and television set. Thesystem (known as Homelink) allowed on-line viewing of statements, bank transfers andbill payments. In order to make bank transfers and bill payments, a written instructiongiving details of the intended recipient had to be sent to the NBS who set the details upon the Homelink system. Typical recipients were gas, electricity and telephonecompanies and accounts with other banks. Details of payments to be made were inputinto the NBS system by the account holder via Prestel. A cheque was then sent by NBS tothe payee and an advice giving details of the payment was sent to the account holder.BACS was later used to transfer the payment directly.Stanford Federal Credit Union was the first financial institution to offer online internetbanking services to all of its members in October 1994.Today, many banks are internet only banks. Unlike their predecessors, these internet onlybanks do not maintain brick and mortar bank branches. Instead, they typicallydifferentiate themselves by offering better interest rates and online banking features. SecurityProtection through single password authentication, as is the case in most secure Internetshopping sites, is not considered secure enough for personal online banking applicationsin some countries. Basically there exist two different security methods for onlinebanking. • The PIN/TAN system where the PIN represents a password, used for the login and TANs representing one-time passwords to authenticate transactions. TANs can be distributed in different ways, the most popular one is to send a list of TANs to the online banking user by postal letter. The most secure way of using TANs is to generate them by need using a security token. These token generated TANs depend on the time and a unique secret, stored in the security token (this is called two-factor authentication or 2FA). Usually online banking with PIN/TAN is done via a web browser using SSL secured connections, so that there is no additional encryption needed.
Another way to provide TANs to an online banking user, is to send the TAN of thecurrent bank transaction to the users (GSM) mobile phone via SMS. The SMS textusually quotes the transaction amount and details, the TAN is only valid for a shortperiod of time. Especially in Germany and Austria, many banks have adapted this "SMSTAN" service as it is considered as very secure. • Signature based online banking where all transactions are signed and encrypted digitally. The Keys for the signature generation and encryption can be stored on smartcards or any memory medium, depending on the concrete implementation.AttacksMost of the attacks on online banking used today are based on deceiving the user to steallogin data and valid TANs. Two well known examples for those attacks are phishing andpharming. Cross-site scripting and keylogger/Trojan horses can also be used to steal logininformation.A method to attack signature based online banking methods is to manipulate the usedsoftware in a way, that correct transactions are shown on the screen and fakedtransactions are signed in the background.A recent FDIC Technology Incident Report, compiled from suspicious activity reportsbanks file quarterly, lists 536 cases of computer intrusion, with an average loss perincident of $30,000. That adds up to a nearly $16-million loss in the second quarter of2007. Computer intrusions increased by 150 percent between the first quarter of 2007 andthe second. In 80 percent of the cases, the source of the intrusion is unknown but itoccurred during online banking, the report states.The most recent kind of attack is the so-called Man in the Browser attack, where a Trojanhorses permits a remote attacker to modify the destination account number and also theamount.CountermeasuresThere exist several countermeasures which try to avoid attacks. Digital certificates areused against phishing and pharming, the use of class-3 card readers is a measure to avoidmanipulation of transactions by the software in signature based online banking variants.To protect their systems against Trojan horses, users should use virus scanners and becareful with downloaded software or e-mail attachments.In 2001 the FFIEC issued guidance for multifactor authentication (MFA) and thenrequired to be in place by the end of 2006.[E-banking in India - Challenges and OpportunitiesE-banking is a generic term for delivery of banking services and products throughelectronic channels, such as the telephone, the internet, the cell phone, etc. The concept
and scope of E-banking is still evolving. It facilitates an effective payment andaccounting system thereby enhancing the speed of delivery of banking servicesconsiderably. While E-banking has improved efficiency and convenience, it has alsoposed several challenges to the regulators and supervisors. Several initiatives taken by thegovernment of India, as well as the Reserve Bank of India (RBI), have facilitated thedevelopment of E-banking in India. The government of India enacted the IT Act, 2000,which provides legal recognition to electronic transactions and other means of electroniccommerce. The RBI has been preparing to upgrade itself as a regulator and supervisor ofthe technologically dominated financial system. It issued guidelines on risks and controlin computer and telecommunication system to all banks, advising them to evaluate therisks inherent in the systems and put in place adequate control mechanisms to addressthese risks. The existing regulatory framework over banks has also been extended to E-banking. It covers various issues that fall within the framework of technology, securitystandards, and legal and regulatory issues. This book — containing 12 scholarly articles— will benefit those interested in the technological developments of E-banking in India.How e-banking can ease your lifePenalty due to non-payment of bill is not new to anyone of us. And quite obviously, wholikes the long procedure of writing a cheque, standing in a long queue and then ensuringthat the particular amount is available in your bank account? Similarly, Mr Sharma, whois on business tour for at least 25 days a month, finds it difficult to clear his dues on timebecause of his busy schedule.He, like many of us, was possibly not aware of the online services, banks are offeringthese days. With just a click, all his dues would have been cleared long back. However,its never too late to mend.Indian banks are trying to make your life easier. Not just bill payment, you can makeinvestments, shop or buy tickets and plan a holiday at your fingertips. In fact, sourcesfrom ICICI Bank [ Get Quote ] tell us, "Our Internet banking base has been growing at anexponential pace over the last few years. Currently around 78 per cent of the bankscustomer base is registered for Internet banking."To get started, all you need is a computer with a modem or other dial-up device, achecking account with a bank that offers online service and the patience to completeabout a one-page application--which can usually be done online. You can avail thefollowing services.Bill payment serviceEach bank has tie-ups with various utility companies, service providers and insurancecompanies, across the country. You can facilitate payment of electricity and telephonebills, mobile phone, credit card and insurance premium bills.
To pay your bills, all you need to do is complete a simple one-time registration for eachbiller. You can also set up standing instructions online to pay your recurring bills,automatically. One-time standing instruction will ensure that you dont miss out on yourbill payments due to lack of time. Most interestingly, the bank does not charge customersfor online bill payment.Fund transferYou can transfer any amount from one account to another of the same or any anotherbank. Customers can send money anywhere in India [ Images ]. Once you login to youraccount, you need to mention the payeess account number, his bank and the branch. Thetransfer will take place in a day or so, whereas in a traditional method, it takes about threeworking days. ICICI Bank says that online bill payment service and fund transfer facilityhave been their most popular online services.Credit card customersCredit card users have a lot in store. With Internet banking, customers can not only paytheir credit card bills online but also get a loan on their cards. Not just this, they can alsoapply for an additional card, request a credit line increase and God forbid if you lose yourcredit card, you can report lost card online.Railway passThis is something that would interest all the aam janta. Indian Railways has tied up withICICI bank and you can now make your railway pass for local trains online. The pass willbe delivered to you at your doorstep. But the facility is limited to Mumbai [ Images ],Thane, Nashik, Surat [ Images ] and Pune. The bank would just charge Rs 10 + 12.24 percent of service tax.Investing through Internet bankingOpening a fixed deposit account cannot get easier than this. You can now open an FDonline through funds transfer. Online banking can also be a great friend for lazyinvestors.Now investors with interlinked demat account and bank account can easily trade in thestock market and the amount will be automatically debited from their respective bankaccounts and the shares will be credited in their demat account.Moreover, some banks even give you the facility to purchase mutual funds directly fromthe online banking system.So you need not worry about filling those big forms for mutual funds, they will now bejust a few clicks away. Nowadays, most leading banks offer both online banking and
demat account. However if you have your demat account with independent share brokers,then you need to sign a special form, which will link your two accounts.Recharging your prepaid phoneNow you no longer need to rush to the vendor to recharge your prepaid phone, every timeyour talk time runs out. Just top-up your prepaid mobile cards by logging in to Internetbanking. By just selecting your operators name, entering your mobile number and theamount for recharge, your phone is again back in action within few minutes.Shopping at your fingertipsLeading banks have tie ups with various shopping websites. With a range of all kind ofproducts, you can shop online and the payment is also made conveniently through youraccount. You can also buy railway and air tickets through Internet banking.Internet banking versus traditional methodInspite of so many facilities that Internet banking offers us, we still seem to trust ourtraditional method of banking and is reluctant to use online banking. But here are fewcases where Internet banking will turn out to be a better option in terms of saving yourmoney.Stop payment done through Internet banking will not cost any extra fees but when donethrough the branch, the bank may charge you Rs 50 per cheque plus the service tax.Through Internet banking, you can check your transactions at any time of the day, and asmany times as you want to.On the other hand, in a traditional method, you get quarterly statements from the bankand if you request for a statement at your required time, it may turn out to be anexpensive affair. The branch may charge you Rs 25 per page, which includes only 30transactions. Moreover, the bank branch would take eight days to deliver it at yourdoorstep.If the fund transfer has to be made outstation, where the bank does not have a branch, thebank would demand outstation charges. Whereas with the help of online banking, it willbe absolutely free for you.As per the Internet and Mobile Association of Indias report on online banking 2006,"There are many advantages of online banking. It is convenient, it isnt bound byoperational timings, there are no geographical barriers and the services can be offered at aminiscule cost."Security Precautions
Customers should never share personal information like PIN numbers, passwords etcwith anyone, including employees of the bank. It is important that documents that containconfidential information are safeguarded. PIN or password mailers should not be stored,the PIN and/or passwords should be changed immediately and memorised beforedestroying the mailers.Customers are advised not to provide sensitive account-related information overunsecured e-mails or over the phone. Take simple precautions like changing the ATMPIN and online login and transaction passwords on a regular basis. Also ensure that thelogged in session is properly signed out.E-BANKING STRATEGIES: E-banking offers vast opportunities, yet even less than one in threebankshave an E-banking strategy in place. According to a study,less than 15 percentof banks with transactional websites will realizeprofits directly attributable to those sites.Hence, banks mustr e c o g n i z e t h e s e r i o u s n e s s o f t h e c h a l l e n g e a h e a d a n dd e v e l o p a strategy that will enable them to leverage the opportunities presentedby theInternet.No single E-banking strategy is right for every banking company.Butwhether they adopt an offensive or a defensive posture, theym u s t c o n s t a n t l yre-evaluate their strategy. In the fast-paced e-e c o n o m y , b a n k sh a v e t o k e e p u p w i t h t h e c o n s t a n t l y e v o l v i n g business models andtechnology innovations of the Internet space.Early e-business adopter likeWells Fargo not only entered the E-banking industry first but also showedflexibility to change as themarket developed. Not many banks have been as e-business-savvy.But the pressure is now building for all banks to developsound e-business strategies that will attract and retain increasinglydiscriminatingcustomers.T h e m a j o r p r o b l e m w i t h t h e b a n k s , w h i c h h a v e a l r e a d yi n v e s t e d huge amounts in their online initiatives, is that their online offeringsr e m a i nu n p r o f i t a b l e . T h o u g h b a n k s h a v e e n r o l l e d s o m e e x i s t i n g customers intheir online programs, they are not getting customers inlarge numbers. This has madebanks wonder whether there is anyv a l u e i n t h e o n l i n e c h a n n e l . J u s tenrolling customers for onlinebanking may not be sufficient untila n d u n l e s s t h e y u s e t h e s i t e actively. Banks must make efforts to increasetheir site usage bycustomers and effectively co-ordinate the online channelwithb r a n c h e s a n d c a l l c e n t e r s . T h e n o n l y t h e y w i l l b e a b l e t od e r i v e maximum value that includes cost reduction, cross-sellingopportunities, andhigher customer retention.Customers have some rational reasons for staying offline.Some of these reasons include usability features of the site, concerns aboutsecurity andfrequent complaints that signing up is complicated andtime-consuming. Banks can solvethese problems by refocusinginvestment on improving the sites basic functionality anduser-friendliness, and avoiding advanced features that most customersneither understandnor value. Developing advanced features thatappeal to a relatively small numbers ofcustomers, creates far lessvalue than strengthening core capabilities and gettingcustomers touse them. Banks must make efforts to familiarize customers withtheir sites
and show them how easy and efficient the online channelis to use.Integrating the onlinechannel with the rest of the bank is another important issue that banks must focus upon.This is importantbecause nearly all the value of the online channel is realized offline_ incross sales completed in other channels and in cost reductions.An actively used onlinechannel should also serve as a medium tosell banking services for the branch staff, thecall center, and therelationship manager. Integrated channels working together arefar more effective than a group of channels working without anycoordination.Tofacilitate this integration, banks must formulate paths that peoplein various customersegments are likely to take among the channels.The interactions in each channel can thenbe worked around thesepaths. For example, a call center representative must work outwhichchannel(s) the customer used before coming to her, and whichchannel(s) thecustomer is likely to visit next. Each channel musthave entry and exit points that mustwelcome customers and then31send to other channels. Hence, the overall goal of banks is to createa seamlessmultichannel experience.On the other hand, those banks that are planning to build theironlinebusinesses will have to understand several strategic issues like dothey have theright business model for E-banking? How should theyprice their E-banking products andservices? Bankers planning tomove into E-banking have to explore different options,makeinvestments and have to develop a variety of partnerships. Theyhave to put theirtime and efforts to identify the best opportunities.In the case of traditional banks, if theyare too aggressive in usingprice incentives to build their e-business, they risk theprofitabilityof their traditional business. However, if they do not offer sufficientpriceincentives for customers to bank online, their efforts to build asound e- banking businessmay not fructify.Banks have to be creative in rethinking organizational structuresandmanagement processes. Traditional banks that are conservative innature may find itdifficult to attract and retain online talent.Moreover, getting people in the traditionalbusiness to help build ane-enterprise would not be an easy task. To make all thishappen,requires a major revision of incentive systems, planning andbudgeting processes,and management roles. Banks can exploit theopportunities provided by the Internet ifthey demonstrate courage,use their imagination, and take decisive action.While most ofthe banks have started focusing on E-bankingactivities, a new challenge in the form ofmobile banking hasemerged. M-Banking is both an additional opportunity for bankstooffer their online services and an additional channel from which toaccess newcustomers and cross-sell to existing customers. Rapidlychanging lifestyles of customersand their demand for more speedand convenience has subdued the role of branch bankingto a certainextent. With the proliferation of new technologies, disintermediation32of traditional channels is being witnessed. Banks can go beyondtheir traditional role as achannel for banking/financial services andcan become providers of personalizedinformation. They cansuccessfully leverage m-banking to:•Provide personalized products and services to specificcustomers and thus increasecustomer loyalty.
•Exploit additional sources of revenue from subscriptions,transactions and third-partyreferrals.M-Banking gives banks the opportunity to significantly expand their customerrelationships provided they position themselveseffectively. To leverage theseopportunities, they must formstructured alliances with service affiliates, and acquirecompetitiveadvantage in collecting, processing and deploying customer information.INTERNET BANKING STRATEGIESInternet banking strategy can be generally very challenging, but more challenging in aneconomic environment infested with high degree of corruption, insecurity, badgovernance, poverty, and financial system instability. Due to its global nature, Internetbanking, under such situation, is threatened by the easiness at which off-line crimes aretransmitted into online businesses, and the difficulty in building trusts and confidence inonline business relationships. Using the Nigerian case, this chapter aims at establishingsome theoretical link between offline country image and Internet banking reputation. Thechapter summarizes the structural and regulatory challenges in the Nigerian bankingsystem. It represents and relates the country’s socioeconomic conditions with its Internetbusiness reputation; and lays down past regulatory and global efforts to control themenace of the Nigerian version of Internet frauds. The last two sections of the chapter,respectively, suggest some future research direction and conclude the chapter.