E-Banking

Introduction
What is e-banking.???
Electronic banking or e-banking is an umbrella term for the process by which a customer may perform banking transactions electronically without visiting a brick-and-mortar institution.
The following terms all refer to one form or another of electronic banking:

personal computer (PC) banking Internet banking

virtual banking online banking home banking remote electronic banking phone banking

PC banking and Internet or online banking are the most frequently used designations. It should be noted, however, that the terms used to describe the various types of electronic banking are often used interchangeably.

PC banking is a form of online banking that enables customers to execute bank transactions from a PC via a modem. In most PC banking ventures, the bank offers the customer a proprietary financial software program that allows the customer to perform financial transactions from his or her home computer. The customer then dials into the bank with his or her modem, downloads data, and runs the programs that are resident on the customers computer. Currently, many banks offer PC banking systems that allow customers to obtain account balances and credit card statements, pay bills, and transfer funds between accounts. Internet banking, sometimes called online banking, is an outgrowth of PC banking. Internet banking uses the Internet as the delivery channel by which to conduct banking activity, for example, transferring funds, paying bills, viewing checking and savings account balances, paying mortgages, and purchasing financial instruments and certificates of deposit. An Internet banking customer accesses his or her accounts from a browser software that runs Internet banking programs resident on the banks World Wide Web server, not on the users PC. NetBanker defines a true Internet bank as one that provides account balances and some transactional capabilities to retail customers over the World Wide Web. Internet banks are also known as virtual, cyber, net, interactive, or web banks.

Although Internet banks offer many of the same services as do traditional brick-and-mortar Banks, analysts view Internet banking as a means of retaining increasingly sophisticated customers, of developing a new customer base, and of capturing a greater share of depositor assets. A typical Internet bank site specifies the types of transactions offered and provides information about account security. Because Internet banks generally have lower operational and transactional costs than do traditional brick-and-mortar banks, they are often able to offer low-cost checking and highyield Certificates of deposit. Internet banking is not limited to a physical site; some Internet banks exist without physical branches, for example, Telebank (Arlington, Virginia) and Banknet (UK). Further, in some cases, web banks are not restricted to conducting transactions within national borders and have the ability to make transactions involving large amounts of assets instantaneously. According to industry analysts, electronic banking provides a variety of attractive possibilities for remote account access, including:

 Availability of inquiry and transaction services around the clock;

Worldwide connectivity; Easy access to transaction data, both recent and historical; and Direct customer control of international movement of funds without intermediation of financial institutions in customers jurisdiction.

OPENING AN ACCOUNT
There are several ways to open and fund an electronic banking account. Customers who have existing accounts at brick-and-mortar banks and want to begin using electronic banking services may simply ask their institution for the software needed for PC banking or obtain a password for Internet banking. Either approach requires minimal paperwork. Once they have joined the system, customers have electronic access to all of their accounts at the bank. New customers can establish an account either by completing a PC banking application form and mailing it to an institution offering such a service or by accessing a banks web site and applying online for Internet banking. In either instance, the customer can fund the new online account with a check, wire transfer, or other form of remittance. No physical interface between the customer and the institution is required.

Why this evolution from traditional banking to e-banking?

Computer has eased human life. Every day new dimensions of its utility are emerging. E-Banking is one of the gifts to human beings by computer technology. Use of computers have automated banking process and thus has given birth to e-Banking. E-Banking is a fast spreading service that allows customers to use computer to access account-specific information and possibly conduct transactions from a remote location - such as at home or at the workplace. Use of internet has made everything available at your finger tip. Lot of websites are ready to serve you, just at your mouse click.

Evolution of e-banking
Electronic banking started after the Second World War with the use of proprietary software and private networks.

But the whole credit of making e-Banking big hit goes to Internet.
Internet made e-Banking trustworthy and useful. International trade has increased significantly in

post-world war period and with it monetary transactions between different countries have increased. e-Banking has facilitated trading between distant corners of the world without worrying about monetary transactions. E-commerce has grown exponentially over last 30 years. Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT) were introduced in the late 1970s, to send commercial documents like purchase orders or invoices electronically. In 1980's e-Banking got a new dimension by the use of credit cards, Automated Teller Machines (ATM) and telephone banking. This was the revolutionary period in e-Banking. Now whole Commerce seems to be shouldering on these electronic systems.

What made e-Banking so hit?

e-Banking has certain features which give it edge over traditional banking system. Features which make it so popular are -

1. Real time banking

Unlike traditional banking which suffers from time consuming procedures, e-Banking provides real time banking to the customers. You get all the relevant information about your account instantly. You can access all the details about your account sitting at home or at any distant location. E-Banking has turned whole world into a small village.

2.

24/7 banking

e-Banking has removed the time constraint from banking. Now you can withdraw cash or get any banking facility anytime. You are not required to ask bank employees for it. Electronic system will do all of this for you instantly.

3.

Banking from anywhere

Don't worry if you are sitting in Middle East country and want to check your account in New York. EBanking certainly leaves no room for blaming the distances. Smart banking is ready to serve you anywhere, anytime.

4. Safe and secure Banking

Electronically enabled banking is more immune to security and safety related problems. Password Based Encryption (PBE), Secure Socket Layer (SSL), electronic signatures and electronic tokens gives a high level of security. Any malfunctioning or any inconsistency in your account can be traced easily. This makes eBanking more reliable.

5. Easy Loans, Instant Loans

Use of smart cards, debit cards, credit cards has eased you from hatred, time consuming loaning procedures. Your banks provide you instant loans. No need to keep cash with you at all, a small chip card has replaced piles of cash. Certain web sites provide facility of online loaning. You can get instant loan there, just by filling a small form. You can use these free websites for payday loans. You may try http://www.paydaysonline.com for payday loans.

6. High Performance and flexibility

e-Banking is a high performance system satisfying its customers for their every banking related queries and desires. What makes it more interesting is its flexibility. E-Banking is using everyday advancements in technology, which makes it smart and banking system of today and tomorrow. You may login to http://www.duepayday.com to see what e-Banking can offer you. Bank customers across the world are now more willing to bank online as they are more comfortable with internet. They also want to avoid teller lines and telephone queues. Their faith in security of internet banking has encouraged banks to turn from traditional methods to advance electronic enabled banking.

E-Banking is about to replace traditional banking system completely. In near future you will have all services in your pocket embedded on a small chip. These smart cards will provide you facilities and services beyond your imagination.

The process of e-banking

E-banking is basically offered in a two tier structure: A basic tier of internet banking products includes customer account inquiry, funds transfer and electronic bill payment. A second or premium tier includes basic services plus one or more additional services like brokerage, cash-management, credit applications, credit and debit cards, customer correspondence, demat holdings, financial advice, foreign exchange trading, insurance, online trading, opening accounts, requests and intimations, tax services, e-shopping, standing instructions, investments etc.

Some facts & figures

Internet population currently is 38.5 million and expected to grow 120 million by the end of 2011

 At present 4.6 million of these use internet banking. This figure is estimated to grow 20 million by the end of 2011 Only 59% of the adult population have an access to a bank account. This implies that 41% of the adult population is still unbanked. About 40%of the transactions on net take place during non-banking hours i.e. between 6 pm and 8 am.

Why e-banking?
Differentiation of products from the others A combination of regulatory and competitive reasons Stress on branchless banking Increasing volumes of banking transactions Providing customers with cost effective services

Products & services of e-banking

Following are the carious products and services offered by e-banking

PRODUCTS
The Reserve Bank of India constituted a working group on Internet Banking. The group divided the internet banking products in India into 3 types based on the levels of access granted. They are: i) Information Only System: General purpose information like interest rates, branch location, bank products and their features, loan and deposit calculations are provided in the banks website. There exist facilities for downloading various types of application forms. The communication is normally done through e-mail. There is no interaction between the customer and bank's application system. No identification of the customer is done. In this system, there is no possibility of any unauthorized person getting into production systems of the bank through internet.

ii) Electronic Information Transfer System: The system provides customer- specific information in the form of account balances, transaction details, and statement of accounts. The information is still largely of the 'read only' format. Identification and authentication of the customer is through password. The information is fetched from the bank's application system either in batch mode or

off-line. The application systems cannot directly access through the internet.

iii) Fully Electronic Transactional System:

This system allows bi-directional capabilities. Transactions can be submitted by the customer for online update. This system requires high degree of security and control. In this environment, web server and application systems are linked over secure infrastructure. It comprises technology covering computerization, networking and security, interbank payment gateway and legal infrastructure.

Services
Bill payment service
You can facilitate payment of electricity and telephone bills, mobile phone, credit card and insurance premium bills as each bank has tie-ups with various utility companies, service providers and insurance companies, across the country. To pay your bills, all you need to do is complete a simple one-time registration for each biller. You can also set up standing instructions online to pay your recurring bills, automatically. Generally, the bank does not charge customers for online bill payment.

Fund transfer
You can transfer any amount from one account to another of the same or any another bank. Customers can send money anywhere in India. Once you login to your account, you need to mention the payees's account number, his bank and the branch. The transfer will take place in a day or so, whereas in a traditional method, it takes about three working days. ICICI Bank says that online bill payment service and fund transfer facility have been their most popular online services.

Credit card customers

With Internet banking, customers can not only pay their credit card bills online but also get a loan on their cards. If you lose your credit card, you can report lost card online.

Railway pass
This is something that would interest all the aam janta. Indian Railways has tied up with ICICI bank and you can now make your railway pass for local trains online. The pass will be delivered to you at your doorstep. But the facility is limited to Mumbai, Thane, Nashik, Surat and Pune.

Investing through Internet banking

You can now open an FD online through funds transfer.Now investors with interlinked demat account and bank account can easily trade in the stock market and the amount will be automatically debited from their respective bank accounts and the shares will be credited in their demat account. Moreover, some banks even give you the facility to purchase mutual funds directly from the online banking system. 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 phone

Now just top-up your prepaid mobile cards by logging in to Internet banking. By just selecting your operator's name, entering your mobile number and the amount for recharge, your phone is again back in action within few minutes.

Shopping
With a range of all kind of products, you can shop online and the payment is also made conveniently through your account. You can also buy railway and air tickets through Internet banking.

Tools of e-banking
Automated Teller Machine (ATM)
ATM is designed to perform the most important function of bank. It is operated by plastic card with its special features. The plastic card is replacing cheque, personal attendance of the customer, banking hours restrictions and paper based verification. There are debit cards. ATMs used as spring board for Electronic Fund Transfer. ATM itself can provide information about customers account and also receive instructions from customers - ATM cardholders. An ATM is an Electronic Fund Transfer terminal capable of handling cash deposits, transfer between accounts, balance enquiries, cash withdrawals and pay bills.

Credit Cards/Debit Cards

The Credit Card holder is empowered to spend wherever and whenever he wants with his Credit Card within the limits fixed by his bank. Credit Card is a postpaid card. Debit Card, on the other hand, is a prepaid card with some stored value. An individual has to open an account with the issuing bank which gives debit card with a Personal Identification Number (PIN). When he makes a purchase, he enters his PIN on shops PIN pad. When the card is slurped through the electronic terminal, it dials the acquiring bank system - either Master Card or VISA that validates the PIN and finds out from the issuing bank whether to accept or decline the transactions. The customer can never overspend because the system rejects any transaction which exceeds the balance in his account. The bank never faces a default because the amount spent is debited immediately from the customers account.

Smart Card
Banks are adding chips to their current magnetic stripe cards to enhance security and offer new service, called Smart Cards. Smart Cards allow thousands of times of information storable on magnetic stripe cards. In addition, these cards are highly secure, more reliable and perform multiple functions. They hold a large amount of personal information, from medical and health history to personal banking and personal preferences.

Merits of e-banking
Banking around the clock is no longer a remote possibility. But the banks don't have to keep their branches open 24 hours a day to provide this service. This is one of the biggest advantages of Internet banking. One doesn't have to go to the bank's branch to request a financial statement. You can download it from your online bank account, which shows you upto-the-minute updated figures. Another advantage of Internet banking is that it is cost-effective. Thousands of customers can be dealt with at once. There is no need to have too many clerks and cashiers. The administrative work gets reduced drastically with Internet banking. Expenditures on paper slips, forms and even bank stationery have gone down, which helps raise the profit margin of the bank by a surprisingly large number. As far as customers are concerned, their account information is available round the clock, regardless of their location. They can reschedule their future payments from their bank account while sitting thousands of miles away. They can electronically transfer money from their bank accounts or receive money in their bank accounts within seconds. You can apply for a loan without visiting the local bank branch and get one easily. You can buy or sell stocks and other securities by using your bank accounts. Even new accounts can be opened; old accounts can be closed without doing tedious paperwork. Especially with the increasing acceptability of digital signatures around the world, Internet banking has made life much easier and banking much faster and more pleasant, for customers as well as bankers.

Advantages to the bank

1. Very low set up cost

2. 3. 4. 5.

Capability to cater to a very large customer base Saves a lot of operational costs. Adds to the baseline Banks can offer a lot of personalized services to their customers Reduction of burden on branch banking

Advantages to the customer

1. 2. 3. 4. 5. It is convenient It isnt bound by operational timings There are no geographical barriers Services can be offered at a miniscule cost Check ur transactions at any time of the day, and as many times as you want to 6. Getting quarterly statements from the bank, transferring funds to outstation, and other such activities can be done free of charge through online banking.

Demerits of e-banking
The reason that not many people have started using Internet banking is because they do not trust the services of the bank through the net. Some human beings prefer to trust others like them and may have some difficulty in trusting a machine, especially in the matters of money. They may always have a doubt about whether their money is safe, while being processed through Internet banking. In addition to this, a few cases of forgery have been reported in online banking. There are some fraud or proxy websites, which can hack information (user name and password) entered by a person for some transaction, and later misuse it. In such cases, people lose their money without knowing and by the time, they get the bill, huge loses may have been incurred. Another disadvantage of Internet banking is that it may take some time, to get the Internet account started, as it requires a lot of paper work. Some people avoid using Internet banking services because they find it difficult to understand how it works. Also, the fact that a wrong click can cause monetary losses may be a deterrent. Internet banking can also pose a problem, if the network is down in one's area. This may cause difficulty, if the person has to do an important transaction. One very common disadvantage of online banking is when a person has some problem or query. In a normal bank, if one faces some problem, one can go to some employee of the bank to solve it. However, in the case of Internet banking, one will find oneself making endless calls

to the customer service department. There have been cases, where the person is put on hold or has been passed around from one person to another.

Disadvantages
1. 2. 3. 4. 5. 6. Need an account with an internet service provider Security concerns, like hackers accessing ur bank accounts E-banking promotes lack of socializing. Switching banks can be more cumbersome online than in person Must have basic computer skills and internet knowledge Must be comfortable using a computer

Risks involved in e-banking

Risk involved in internet banking is now getting its due share of publicity. It is being discussed in the media, in seminars and even in street corner gatherings. KNOW YOUR ENEMY seems to be the buzz word these days. Latest in the internet banking frauds is the website that fakes the website of a bank. let us focus on this single issue for the time being. In any deal the two parties involved should be identified uniquely. Banking is no exception. Under conventional banking the procedure is fool proof. Customer identifies the bank by its location and its familiar officers. The bank has photos, signature and the past history to identify the customer. So no problem there. Come to internet banking and think of the identifications. The customer has no land marks to go by. No building, no physical assets to show him the way. This probably is the biggest problem internet banking is facing right now. Think of the identification process at the bank. No face or signature. But yes the banker has the password and the history. So that is the crux of the matter. Banker is in a better position than the customer. So the solution in its simplest form is that the bank should take the full responsibility of identification. In conventional banking customer was equally responsible . In internet banking the bank should take over the customers share of identification responsibility. 1. To start with the bank should satisfy itself that it is dealing on line with a known customer. The easiest way is to check the history. When anyone logs in tell him that he logged in last

at so and so time and logged out at so and so time. A genuine customer can cross check and quit in case of errors. 2. A few banks and many equity trading websites are using this. This should be made compulsory for all transactions. 3. If the history is not available the bank should simply not permit transaction. Customer should not proceed to transact unless his history appears on the screen. So no one without a history can transact any business over the internet. 4. But then how does a customer get a history. Create the history when the customer is allowed internet banking facilities for the first time. Make the customer log in for the first time from the bank premises itself. Final confirmation of the internet facility should be given by the official of the branch where from the customer has logged in for the first time. 5. Of course every branch which authorises internet banking should have an internet enabled computer for the use of the customer. Private and foreign banks who deal only in virtual space can outsource this function to any earth based bank. 6. But history is not the only feature which can be used by the internet banker to identify his customer. Photo is another option. Bank can send back the photo to the customer who should click a transaction only if his photo correctly appears on the transaction screen. But this is a complex procedure and may not be affordable at the current level of technology. 7. So let us revisit the fake website, let us assume that the internet banker has now implemented the history verification precaution. A customer logs in to the website which fakes the genuine website very skilfully. But he gets back no history as he is logging into this website for the first time. so the customer should quit the website immediately. So what we have seen is that impersonation in internet net banking can be prevented almost completely by the following steps Make the customer login for the first time from a bank computer. Enable internet banking only after this. Send back the last login details during every login thereafter . Customer should do no transaction if last login details are not proper. Bank should not allow transaction if the last login details ( or photo if the photo option is implemented ) is not confirmed

Customers should never share personal information like PIN, passwords etc with anyone, including employees of the bank. It is important that documents that contain confidential information are safeguarded. PIN or password mailers should not be stored, the PIN and/or passwords should be changed immediately and memorized before destroying the mailers. Customers are advised not to provide sensitive account-related information over unsecured e-mails or over the phone. Take simple precautions like changing the ATM PIN and online login and transaction passwords on a regular basis. Also ensure that the logged in session is properly signed out.

Regulations
Internet banking services have made enormous strides over the past few years. But users need to take precautions when using these services. Millions of people and thousands of companies are now benefiting from the convenience of being able to control their finances and investment at anytime, anywhere. Simple statistics show the rapidly growing acceptance of Internet banking in Hong Kong over the past years. At the end of 2003, there were around 2.2 million personal Internet banking accounts (38% higher than at the end of 2002) and 67,000 business Internet banking accounts (116% higher than at the end of 2002). On average, about 4.8 million transactions were processed through personal Internet banking every month during 2003 (an increase of 38% compared with 2002) while 737,000 transactions were processed through business Internet banking every month last year: more than five times the figure in 2002. As a technology-based platform, Internet banking comes with certain challenges in terms of management of technology risks, as shown by a small yet disturbing number of internet banking fraud cases reported overseas. Some of those cases come in the form of fake websites seeking to lure bank customers into divulging confidential personal information. Other cases may involve Trojan software and other highly infectious computer viruses and worms. In simple terms, Trojan software is a code planted in a personal computer by a fraudster in order to access the personal information of the computer user. The code may be planted when an unsuspecting user clicks on hyperlinks embedded in e-mails or browses an infected website with pop-up advertisements. Once planted in a computer, the Trojan software may be activated when the user accesses certain websites: it can then capture keystrokes of the infected computer, which could in turn lead to leakage of sensitive personal information such as user IDs and passwords.

In fact, some people have been very observant and have reported to the HKMA suspicious websites or e-mails: this has been of great help to our monitoring of the situation. I am also glad to say that - so far - no retail Internet banking customer in Hong Kong is known to have fallen victim to Internet banking fraud. A few simple tips may help ensure that this continues to be the case. 1. Bank customers should never access their Internet banking accounts through hyperlinks embedded in e-mails, suspicious pop-up windows, or Internet search engines. 2. Customers should be wary of opening unexpected e-mails with attachments, and should think twice before visiting suspicious websites. They should instead access their bank accounts by typing the website addresses at the address bar of the browser, or by bookmarking the genuine website and using that function to access their accounts. 3. As a matter of good practice, customers should install personal firewall software and anti-virus software, and should regularly download the latest updates available. This software will help ward off attempts by fraudsters to plant harmful viruses or worms in personal computers.

Future trends in e-banking

E-banking simplified with a glimpse of future Consumers have the ability to swipe with their

hands or arms over a designated reader as they handle bank transactions with these implants. This is the new way of doing banking, as the ATM machine becomes a distant memory.
When it comes to the future of banking, there is an assortment of predictions. The majority of individuals envision consumers with imbedded chip implants. The customer simply walks into the store, swipes and views his balance instantaneously. Several individuals believe the paper dollar and coin will become extinct. Everything is expected to be electronic in a society without paper. E-banking allows bank customers to simply access banking information via the access of the Internet. Whether home or in the workplace, customers can access the banking information 24 hours a day, seven days a week. Executed between two parties, such as business to business or business to consumer, e-commerce is an electronic financial business activity. E-banking, which is bank to business or bank to consumer, has actually been around since the 1990s. The popular features of e-banking are funds transfers, automatic payment options, electronic bill pay, view account balances, account history accessibility and schedule future transfers. Virtual banking is another alternative to traditional banking. Virtual account customers do not have to endure the inconvenience of stepping foot into a building or an actual financial institution. Customers have the option of mailing their deposits or even setting up direct deposit. E-bank customers enjoy the advantages, such as 24-hour, seven days a week access to their bank accounts. The pass method of standing in line and filling out tedious paperwork seems like forever for many bank institutes. Bankers do not have to concern themselves with the thankless task of speaking on telephones to a customer service representative to find out banking history, wait for a bank statement in the mail that could easily get lost and wind up in the possession of a prying neighbor. A secure site is accessible to the online banking consumer.

As in everything in life, there are disadvantages. It can be arduous to navigate and learn online banking, although many companies try very hard to utilize navigation around their site user friendly. In addition, many consumers are also concerned about viruses and privacy issues that can cause glitches in the ebanking system, which can cause delays and mass confusion. Nevertheless, there are constant improvements in online banking, such as the bill pay option. This allows customers to set up accounts online as they schedule their bills to be paid at various times to different companies such as telephone companies, cable television, insurance and mortgage payments. The funds come directly out of the bank account and allocated to the company of choice.

The road ahead

reduction in branch banking. gradual evolution of virtual banking. people will want to process more transactions on the internet. geography will not be an inhibitor any more. the future of banking would be in terms of integration.

Conclusion
E-banking creates issues for banks and regulators alike. For our part we will continue our work, both national and international, to identify and remove any unnecessary barriers to e-banking. For their part, banks should: Have a clear and widely disseminated strategy that is driven from the top and takes into account the effects of e-banking, together with an effective process for measuring performance against it. Take into account the effect that e-provision will have upon their business risk exposures and manage these accordingly. Undertake market research, adopt systems with adequate capacity and scalability, undertake proportional advertising campaigns and ensure that they have adequate staff coverage and a suitable business continuity plan. Ensure they have adequate management information in a clear and comprehensible format. Take a strategic and proactive approach to information security, maintaining adequate staff expertise, building in best practice controls and testing and updating these as the market develops. Make active use of system based security management and monitoring tools. Ensure that crisis management processes are able to cope with Internet related incidents.