Chapter- 07

ELECTRONIC
BANKING
 * Definition of electronic banking
Electronic banking is a modern technology or
satelite based computerized system of banking
by which banks become able to provide
quicker, more accurate and convenient banking
service to the customers and maintain inter-
relationship among them.
Bank usually provide the following services:
Self deposit and withdrawal facilities
Quick transfer of fund
Payment of bills, salaries and opening L/C
*Objectives of the electronic banking
From bankers point of view From clients point of view

1. Provide retail services at reduced cost

through branch network.
2. Reduction of administrative expenses
by reducing the number of workers with
the help of electronic banking.
3. Reduction of the volume of the paper
work with the help of electronic banking.
4. Increase of income through different
types of fees like debit card fee, credit
card fee.
5. Strengthening the position of in the
competitive environment.
6. Expanding the services in the remote
areas
1. Receiving timely and instant
information
2. Ability to deposit and withdraw of
money flawlessly within short-time
and at lower cost.
3. Advantageously making payment for
the goods and services
4. Staying at home or outside availing
the facility like opening L/Cs, making
investment, obtaining loan facility
*Structure of electronic banking;
electronic banking can structured into two ways;
a) Back office electronic banking
b) In front services counter of electronic banking
Back office electronic banking In front services counter of
electronic banking
1. Primitive stage of 1. Ledger Cash disbursement strategy
e-banking 2. Cash management
3. Head office - MIS
2. Intermediate 1. Off-line transaction processing; 1. Payment of telephone bills.
recording of credit or debit card transactions 2. Point of sales
stage of 3. Cheque verification
the receipt and storage of order and credit or
e-banking debit card information through a computer 4. ATM
network or point-of-sale terminal for OLTP- It is also a class of program that
helps to manage or facilitate transaction
subsequent authorization and processing
oriented applications such as data entry
2. Automated clearing house and retrieval transactions in a number
3. Generating information for filing of industries, including banking, airlines,
4. Fund transfer mail order, supermarkets, and
manufacturers.
3. Modern stage of 1. On-line transaction processing-OLTP 1. Automatically on line fund transfer
e-banking 2. Central processing at the country level 2. Home banking
3. Internet banking 3. Dishonored cheque truncation
4. Processing intra-bank transactions 4. Storing used cheque truncation
5. Electronic direct deposit
 What It Is:
An offline transaction, also known as a signature debit transaction, is a payment method that uses a debit card to
transfer funds from a checking account to a merchant across a digital credit card network.
How It Works/Example:
When you pay for goods or services with your debit card, you have the option to process your payment in one of two
ways: 1) as an offline transaction via a credit card processing network, or 2) as an online transaction via an electronic
funds transfer (EFT) system.

Offline transactions are processed much like credit card transactions. They are sent over one of the major credit card
networks -- Visa, MasterCard, Discover, etc -- depending on which credit card network your bank is associated with as
a member bank. The cost of the transaction, called an "interchange fee," is typically 2-3% of the total purchase. The
interchange fee is charged to the vendor/merchant, not the bank.
Why It Matters:
$20.5 billion in interchange fees were charged to merchants in 2010. Now they are at the center of debate among
lawmakers, banks and merchant unions in the U.S. On one side of the argument are the banks, which claim the
interchange fees are necessary to cover the costs of processing transactions and providing fraud protection. On the
other side are the merchants and vendors, who claim the rising interchange fees are increasingly cutting into their
profits, forcing them to raise the prices of their goods and services.

In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed by Congress, and included
in the Act was an amendment to address interchange fee reform (the Durbin Amendment). Under this amendment the
Federal Reserve is now authorized to review and reform debit card transaction fees. One such proposal will cap
interchange fees at $0.12 per transaction, a 73% reduction from the average charge of $0.44 per transaction. As a
consequence, consumers can expect a loss of financial perks like free checking accounts, the end of rewards programs
for debit cards and an increase in fees for ATM withdrawals from out-of-network banks.

If interchange fee reform is not passed, the cost of the fees will be borne by the consumer, as merchants continue to
increase the prices on their goods and services to make up for profits lost to fees
 Types of electronic banking
1 Retail e-banking 2 Wholesale e-banking

ATM
--

--Debit card --Cash

--Credit card management
--Point of sales --Wire transfer
--Cheque truncation --Corporate
--home banking automated
--Retail automated clearing house
clearing house
 *Retail e-banking
1. ATM ; Electronic fund transfer services. Client can
fund withdraw and deposit at any time of 24
hours a day.
objectives;
-Reduce internal operational expenses and increase
profit
-Create market in the domestic and foreign countries
-provide highly efficient services
*Component of ATM;
Card reader
Keypad
Speaker
Display screen
Receipt printer
Cash dispenser
*Debit card;
It is called cash card or asset card.
Objectives;
Revenue generation
Expenditure reduction
Client service
 Credit card;
Point of sale service; place advantage, check
verification guarantee, credit card
authorization, debit card services under POS
system.
Check truncation; Instead of manually moving the cheque
from one bank to another for payment, we would now use
images. This will bring down the time required for processing.
Earlier, it would take two to three days. Cheques would now
be cleared on the same day or the next day, thereby bringing
efficiency into the entire banking system.
 Home banking (video home banking); TBP

Retail automated clearing house services;

Govt. payment for any person or institutions,
direct deposit of payroll, payment of insurance
premium approved earlier, payment of
telephone bill, rent, loan installments

Wholesale e-banking;
 Problems of electronic banking
Suggesstions for introducing e- banking in
Bangladesh
Risk in e- banking

Book reference- Bank Management