This document provides an overview of electronic banking in Bangladesh. It begins by defining electronic banking as a modern computerized system that allows banks to provide services more quickly, correctly, and conveniently using technologies. It then discusses the different types of electronic banking services available, including ATMs, debit cards, credit cards, online banking, and more. The document also outlines the advantages of electronic banking for customers and banks. It notes that while electronic banking is still developing in Bangladesh, some private banks have implemented more services than public banks. The document concludes by discussing challenges to electronic banking implementation in Bangladesh and providing suggestions to improve electronic banking.

1. Tanzina Hossain, M.B.A(D.U), Lecturer, Daffodil International University
ELECTRONIC BANKING
Topics Covered in this chapter
 OPENING WORDS
 MEANING OF ELECTRONIC BANKING
 E- BANKING TREND
 DIFFERENT TYPES OF ELECTRONIC BANKING SERVICES
 WHY DOES SOME ONE CHOOSE E- BANKING? / ADVANTAGES OF E-BANKS
 PRESENT POSITION OF ELECTRONIC BANKING IN BANGLADESH
 PROBLEMS OF ELECTRONIC BANKING
 CONCLUSION

2.  OPENING WORDS
Banking is a changing industry. They do not produce goods but services. The modernBanking is a changing industry. They do not produce goods but services. The modern
civilization is owed largely to the banking system. In the passage of time, the bankingcivilization is owed largely to the banking system. In the passage of time, the banking
system has also been changed. Most of the banks in the developed countries are using ultra-system has also been changed. Most of the banks in the developed countries are using ultra-
modern electronic banking systems. These are yet a long way to be fully practiced in themodern electronic banking systems. These are yet a long way to be fully practiced in the
developing countries like Bangladesh and other third world countries. Electronic bankingdeveloping countries like Bangladesh and other third world countries. Electronic banking
becomes a necessary instrument for the many banks now-a-days.becomes a necessary instrument for the many banks now-a-days.
 MEANING OF ELECTRONIC BANKING
Electronic Banking is a modern computerized system of providing banking services by the
banks to their customers. By using the ultra modern technologies, banks have become able
to provide services more quickly, more correctly and more conveniently. It has made
revolution in the banking industry.
Using these electronic banking systems, banks usually provide the following services:
 Self depositing and withdrawal facilities,
 Inter and intra bank fund transfer more swiftly by the Electronic Fund Transfer systems
(EFTs),
 Payment of bills, salary, opening of Letter of Credit (L/c), and other utility services,
 Computerized inter banking system, etc.
According to e-banking expert Ellen H. Lipis, “Electronic banking systems are electronic
systems that transfer money and record data relating to these transfers.”
Renowned Banking theorist in the Indian subcontinent Dr. A.R. Khan thinks, “electronic
banking is a technology or satellite based computerized systems of banking where the banks
become able to provide more quicker, more correct and convenient banking services to the
customers and maintain inter-relationship among them.”
 E- BANKING TREND
In the 1961, the First National City Bank of New York introduced successfully the
certificate of Deposit under electronic system for the first time. The primary stages of
the e- banking are the Electronic Fund Transfer System (EFT). The main element of the
EFTs is the Automated Teller Machine (ATM), Point of Sale (POS) Terminals and the
Automated Clearing House (ACHs).
Tanzina Hossain, M.B.A(D.U), Lecturer, Daffodil International University 2

3. The E-banking trends are like the followings:
Figure: Development stages of bank services
 DIFFERENT TYPES OF ELECTRONIC BANKING SERVICES
To most people, electronic banking means 24 hours access to cash through an automated
teller machine (ATM) or paychecks deposited directly into checking or savings accounts.
Electronic banking, also known as electronic fund transfer (EFT), uses computer and
electronic technology as a substitute for checks and other paper transactions. EFTS is
initiated through devices such as cards or codes that the user uses to gain access to
his/her account. Many financial institutions use an automated teller machine (ATM) card and
a personal identification number (PIN) for this purpose.
E-banks provides the following types of services-
i) Automated Teller Machine (ATM)
ii) Debit card
iii) Credit card
iv) Point- of- sale service (POS)
v) Direct Deposit
vi) Home banking Telephone banking/pay by phone banking.
vii) Internet Banking.
i) Automated Teller Machine (ATM):
Tanzina Hossain, M.B.A(D.U), Lecturer, Daffodil International University 3
TraditionalTraditional
BankingBanking
ModernModern
BankingBanking
ElectronicElectronic
BankingBanking
VirtualVirtual
BankingBanking

4. Automated teller machine or 24 hour tellers are electronic terminals that let the user bank
almost any time. To withdraw cash, make deposits, or transfer funds between accounts,
people generally insert an ATM card enter his/her personal identification number (PIN)
Parts of the Machine:
An ATM has two input devices:
 Card reader: The card reader captures the account information stored on the magnetic
stripe on the back of an ATM/debit or credit card. The host processor uses this
information to route the transaction to the cardholder's bank.
 Keypad: The keypad lets the cardholder tell the bank what kind of transaction is required
(cash withdrawal, balance inquiry, etc.) and for what amount. Also, the bank requires the
cardholder's personal identification number (PIN) for verification. Federal law requires
that the PIN block be sent to the host processor in encrypted form.
Figure: Automated Teller Machine (ATM)
And an ATM has four output devices:
• Speaker: The speaker provides the cardholder with auditory feedback when a key is
pressed.
• Display screen: The display screen prompts the cardholder through each step of the
transaction process. Leased-line machines commonly use a monochrome or color CRT
(cathode ray tube) display. Dial-up machines commonly use a monochrome or color LCD.
• Receipt printer : The receipt printer provides the cardholder with a paper receipt of the
transaction.
• Cash dispenser: The heart of an ATM is the safe and cash-dispensing mechanism. The
entire bottom portion of most small ATMs is a safe that contains the cash.
Tanzina Hossain, M.B.A(D.U), Lecturer, Daffodil International University 4

5. ii) Debit card:
Debit card is a system of electronic fund transfer. It is called plastic card or asset card
that holds magnetic sign number issued by bank and other financial institutions to
depositors. Transaction is possible determining magnetic based numbers by machine. Money
can be withdrawn from deposit account and capital can be transfer in electronic way easily
by this card.
User of debit card: Generally debit card is used as a mass-market product, because clients
use this card as an alternative of cash, check and credit card. The following peoples use this
debit card:
O Those who use more banking services
O Those who transact more by check.
O Those people whose average income is more.
O Young people use more than adult
O People who keep less than average balance in their checking account.
O People who are interested to get card for travel expense
O People who have more financial assets.
iii) Credit card:
Credit card is a popular process in retail electronic banking. Generally, bank supplies this
card to credit worthiness clients or the depositors having enough money. Client’s loan
account balance is debit. This card is used for making the payment of the value of products
and services for particular institutions as it is used for withdrawal of cash money.
At Present, Visa, Master Card, American Express, Gold Card etc. are the most popular
credit card.
Mechanism of using credit card: Banks and other financial institutions issue credit card for
identifying their valuable and responsible customers. Purchasing of products or services and
others bill payment is possible by using this card in a particular place. By this card, anyone
can withdraw advance money from financial institutions. A card issuing bank gives 15 days
time period for the payment of used money to bank account. When a cardholder buys
something but do not make payment within this time then bank charges interest on that
amount. When a cardholder buys something in exchange of credit card, the businessman at
first will be confirmed about the credit card and cardholder by knowing from bank. After
being confirmed he gives goods and services to client and keeps the card owner’s name,
name of Card Company and card number and making a bill and take a sign on the bill from
cardholder. Afterwards he sends it to bank and take money from bank. Bank then collects
money from cardholder.
Tanzina Hossain, M.B.A(D.U), Lecturer, Daffodil International University 5

6. iv) Point- of- sale service (POS):
Financial institutions provide services to their clients in a particular advantageous place by
pos. In this case, service providers and takers accounts become debit and credit. Point of
sale transfers allows the user to pay for retail purchases with an EFT (or “debit”) card. In
some instances, this card also may be his/her ATM card. This is similar to using a credit
card, but with one important exception; the money for the purchase-is transferred
immediately- or very shortly-from his/her bank account to the store’s account. An
increasing number of merchants are accepting this type of payment.
v) Direct Deposit
Direct Deposit lets the user authorize specific deposits, such as paychecks and social
security checks, to his/her account on a regular basis. The user also may pre-authorize
direct withdrawals so that recurring bills, such as insurance premiums, mortgages, and
utility bills, are paid automatically.
vi) Telephone Banking
Pay-by-Phone systems let the user telephone his/her financial institution with instructions
to pay certain bills or to transfer funds between accounts. The user must have an
agreement in advance with the institution to make such transfers. Personal computer
Banking allows the user to conduct many banking transactions electronically via user’s
personal computer. For instance, the user may use his/her computer to view his/her account
balance, request transfers between accounts, and pay bills electronically.
vii) Internet Banking
Internet has become very useful both for the clients and the organizations. It is very
popular in the banking service industry. Auditing, payments of bills, investments, stock
exchange activities and many other activities can be done using these Internet banking
systems.
Now a banks use a variety of names for online banking services, such as home banking, PC
banking, electronic banking or internet banking.
The following services are applicable to online banking.
• Check account balances
• Transfer funds among accounts
• Pay bills electronically
And,
• apply for loans
• Download information about accounts
• Trade stocks or mutual funds and have related information
• View images of checks and deposit
Tanzina Hossain, M.B.A(D.U), Lecturer, Daffodil International University 6

7. Internet banking systems offer certain advantages over traditional banking methods.
Consumers can use their computers and a telephone modem to dial from home or any site
where they have access to a computer. The service is available seven days a week; 24 hours
a day. Transaction is executed and confirmed quickly, although not instantaneously.
Processing time is comparable to that of an ATM transaction. And the range of transactions
available is fairly broad. Customers can do everything by simply checking an account balance
to apply for a mortgage.
 WHY DOES SOME ONE CHOOSE E- BANKING? / ADVANTAGES OF E-BANKS
Most electronic banks offer basic services such as the ability to check savings & checking
about balances & transfer money between accounts. The draw is that customers can do
these things without waiting in line or listening to Yanni while on hold waiting for telephone
customer service. If the bank has a brokerage arm/their clients may be able to buy & sell
stocks through their checking account & check the current value. If the bank issued their
credit card, they can check their account balance & transaction status. And should it hold
their mortgage, they can see where they are in their payment cycle. Some banks will even e-
mail their clients a note when their account balance drops below a certain amount. It’s the
extras that are inviting more and more people to use electronic teller services.
Here are some of the features a person may like about moving money online:
• Convenience: Anyone who runs a small business realizes convenience is not optional. With
online banking, a busy businessman can check balances, pay bills & move money from his
home or office any time-no waiting required.
• Reduced fees: Moving money electronically is cheaper for the bank because once the
system is in place; it requires less involvement from bank employees.
As an incentive to use online services, many banks often offer, free or low-fee services for
paying bills electronically & checking.
• Higher interest rates for deposits: Banks pay some of the highest rates for savings &
money-market accounts with a big online presence. Computers, it seems, cost less than
marble counters & mahogany paneling.
• Lower rates for loans: Lower capital & personal costs also translate into lower loan rates.
Internet-based mortgage banks try to give best rate for loans, sometimes below prime, the
rate banks give their best customers.
Tanzina Hossain, M.B.A(D.U), Lecturer, Daffodil International University 7

8. • Better security: With real dollars at risk, security is a primary concern. People feel more
confident in secure Internet transactions than they do-putting a check in the mailbox or
any other means of remote banking.
• Better money management: Some people are big on paying bills on time. Some may also
like to earn interest. With online banking, any one can keep money in high-yielding money
market accounts then later he can transfer it electronically to his checking account-a
better money management.
 PRESENT POSITION OF ELECTRONIC BANKING IN BANGLADESH
Bangladesh is a fertile land for banking. At present the banks in Bangladesh are using the
limited electronic banking services. In this country, banks can be profitable if they use
electronic banking in their service industry. The foreign commercial banks operating in
Bangladesh like Standard Chartered Bank (SCB) and the HSBC are the pioneers to introduce
the electronic banking facilities. At present SCB has more than 400000 Credit Card holders
covering the 67% of the total market share. They provide ATM, Debit Card, Credit Card,
Home Banking, Internet Banking, Phone Banking, On – Line Banking etc. services. On the
31st of December 2005, they have introduced the Travel Card, which is very recent in
nature of electronic banking.
Among the indigenous banks, the Private banks are ahead of the public banks. Prime bank,
Dhaka bank, BRAC bank, Dutch-Bangla bank, Eastern and Mercantile bank are marching
towards the electronic banking. Among the 4 Nationalized Commercial Banks (NCBs), Janata
bank has some access to the electronic banking facilities.
Bangladesh Bank, the Central Bank of Bangladesh, is also trying to formulate the wide
structure of electronic banking facilities.
 PROBLEMS OF ELECTRONIC BANKING
The problems of electronic banking can be classified in 2 ways like-
a) Problem of application in general Worldwide Phenomenon:
These problems are:
1. Customer Location: If the most of the countrymen are poor, illiterate and located in the
difficult regions like hills, forests, etc region, then it is very much difficult to introduce
electronic banking.
Tanzina Hossain, M.B.A(D.U), Lecturer, Daffodil International University 8

9. 2. Market size and nature of the services: Some banks are very much large and they have
very big market size. They enjoy the economies of scale benefit. So, small banks cannot
provide the same service at the market price.
3. Security: Piracy and Fraudulent are the main security threats to the electronic banking.
Secured Electronic Transaction (SET) Protocol has been introduced for the security of e –
banking. At present banks in America and Europe are using the 120 bit encryption for the
more reliable security in the e – banking services.
4. Unemployment: Countries that have the curse of unemployment are behind to introduce
electronic banking.
5. Conservativeness of the clients and Secrecy: These two variables are also the barriers to
introduce the electronic banking in a smooth manner.
b) Problems of Introducing E- banking in Bangladesh:
The main problems of introducing electronic banking in Bangladesh are in the followings:
1. In efficiency and lack of adequate knowledge of the bank management about the e–
banking.
2. Lack of proper Strategic plan to gain and retain market share of the indigenous banks.
3. Lack of international standard communication channel.
4. Lack of attractive remuneration to the employees.
5. Inadequate back and front office management.
6. Lack of integrated plan among the banks and the Central Bank authority.
7. Inefficient Clearing House Facilities.
8. Inadequate software.
9. Legal barriers of the Government like bar on fund transferring etc.
Suggestions for introducing Electronic Banking in Bangladesh:
In our country, the electronic banking systems are yet in the preliminary stage. To improve
the condition we have the following suggestions for the banks in Bangladesh.
1. Government should create a congenial environment for this sector.
2. Provide adequate training and technological support to develop the manpower.
3. Developing the national as well as the international communication standard.
4. Banks should have their own Strategic plans.
Tanzina Hossain, M.B.A(D.U), Lecturer, Daffodil International University 9

10. 5. Developing of integrated e – banking software.
6. The Clearing House operation in Bangladesh should be fully automated system.
7. Standard carrier design for the experts in this sector.
8. Banks should have adequate research and technological background in this regard.
9. Creating awareness and consciousness among the clients of the banks.
10. Bank can charge normal profit to enlarge the market size on the electronic banking
products.
 CONCLUSION
The word has now become a village for the blessing of technology. In the prevailing free
trade world, the multinational giant corporations are operating businesses worldwide. For
their own shake, they are introducing modern and ultra modern technological instruments
for cost reduction, strategic position etc. strategies.
So, Bangladesh should wake up. They also should give importance in the technological
development. In this regard both public and private sector integrated participation is very
much necessary.
SOURCES:
1. BANKINHG LAW & PRACTICES
-P.N. VARSHNEY
2. COURSE MATERIALS FROM BIBM
Tanzina Hossain, M.B.A(D.U), Lecturer, Daffodil International University 10

11. 3. INTERNET
Tanzina Hossain, M.B.A(D.U), Lecturer, Daffodil International University 11