Table of Content

Abstract
Acknowledgement ..
Introduction ..
Definition of E-Banking.
Background.
Services provided by Commercial Banks through E-Bamking.
E-Banking.
E-Banking services in Pakistan.
Awareness of E-banking..
Measure to Enhance E-banking.
Pros. and Cons.
Various Risks associated with e-banking.
Conclusion ..
Recommendation ..
References.

Abstract

My this research report is based on the E-banking technology and its use , in which customers
can access more accurate, quicker and rapid banking services from the computerized banking
system. This system has also been adopted by the international banks asa well as by the local
banks in Pakistan to give efficient services to their elite customers.
The purpose of our research work is carried out to unlock the significance that Pakistani banks
are connected with this type of e-banking technology that is being implemented by the banks for
providing the electronic services to the customers and in what extent this technology is relevant
to customers. This research will also help to determine whether the e-banking services are more
efficient, accurate and rapid banking services.

ACKNOWLEDGEMENT

I want to present my acknowledgment to all the solicitous intellects that assisted me, visualized
my idea and carryout into corporeal certainty. First of all, I pray and bow head in gratitude to
Almighty Allah, the lord of Universe who is either of all knowledge and wisdom to mankind,
who blessed me the Power, Vision, Proficiency and Strength Persistence with the capability to
complete this endeavor and realize our research objective.
Other than to my parents whose institution elevated me to the statures i attain today. I deem it my
most please duty to express my deep sense of gratitude to my Coordinator, Mr.Shahab-ud-din
(OG-2) and friends and I would like to acknowledge this research report to my kind Supervisor
Miss Tamkeen Ali who alleviated me all over the report, because without her i would not be able
to complete this.

Fahim Ullah Khan

INTRODUCTION AND BACKGROUND

INTRODUCTION
When Internet has entered into our daily life, the most dimensions of our lives such as education,
communication, business, etc, were overshadowed by this novel phenomenon. One of these
dimensions is to handle banking affairs through the Internet (Shirley & Shahreza, 2007).
According to (Richard Nyangosi & Arora, Sumanjeet Singh, 2009) banking through electronic
channels has gained much popularity in recent years.
This system, popularly known as 'e-banking', provides faster delivery of banking services to a
wide range of customers. Information technology is becoming an important factor in the future
development of financial services industry, and especially in banking industry (Nami. M. R,
2009).
In current business environments, customers using the services products of the banks want better
choice. (Avkiran, 1999) stressed the importance of the human touch in the customer services.
The capability of banking staff can be expected to directly affect the customers satisfaction.
However, e-banking technologies can help in better understanding customers needs and
customizing the services/ products according to their needs.
In the new era there is a need of bank customers to get improved electronic banking services and
also better relations with the bankers. It is also the need of time to provide efficient
services/products to the customers. In Pakistan however, such kind of electronic banking has
started recently.
Online banking system present to their consumers a set of information-related benefits that
favors to adopt e-banking, including the facility for the customers to control their bank accounts
at any time and any place, and to access information content for making investment and
financing decisions (Howcroft B, 2002).

Due to the competition among the banks in Pakistan, the banks want to provide the services
which are more efficient, rapid and enhanced the banking system. Therefore, the objective of ebanking is to create such working environment where customers can easily find about the
information they require for performing financial transactions.

Definition of E-Banking
Electronic banking, also known as Electronic Funds Transfer (EFT), online banking or internet
banking. It is basically the use of electronic methods or means to transfer money electronically
directly from one account to another account, from one person to another, rather than cash or
cheque.
We can use electronic funds transfer for:

Withdraw money by an ATM machine with a personal identification number (PIN), for

our convenience, day or night.

We can guide our bank or credit union to pay automatically monthly utility bills from our

account, or our auto loan even our mortgage payment.

Buy food, fuel for our personal transport, and other goods at the purchasing point, using a

credit card rather than cash.

Use a prepaid smart card embedded for our daily purchasing like pay phone, toll
expenses, daily college expense or any bookstores.

BACKGROUND
The increasingly change in worldwide competitiveness in commercial behaviors has improved
the volume of bank in the world. It has produced additional banking knowledge and also
improved customer demand of services given by banks.
This revolution has set a motion in the banking sector for the provision of a payment system that
is compatible with the demands of the electronic market (Balachandher, 2001). On the behalf of
increased competition, many banks and organization did not only reduce their costs but they have
also increased their products. Technology has changed the preconditions for service delivery,
dramatically in recent years (Frederickson, 2003).
The banks are the financial institutions to provide consumers savings services, money
transmission services and credit services (Sinkey, 1990). In other terms, banks are concerned
with safe transaction and collection of management functions. In this regard the main object of
the banks is to making profits and giving best services to their customers. Customers are eager to
a bank behavior because the customers are the most significant cause of a banks deposit and
revenue creation. These customers may either be a single person or group of a person or
organization. According to (Chaudhury &Kuilboer, 2002) the potential of providing innovative
services over the Web is limited only by ones imagination.
Online services, especially banking services, are becoming more attractive and alternative to
visiting service outlets or phone call centers for increasing their customers (HR- Focus, 2000).
Therefore it become easy for the customers to prefer online services (Szymanski & Hise, 2000),
feel more in control of the service process (Bateson, 2000) to avoid from human contact with
time saving (Meuter M.L. 2000).

In Pakistan however, banking organizations have been focused on censure for not given to their
customers with original and suitable banking services. Therefore, the outcome that some
customers, find it suitable to keep their money or reserves at home than the banks. Studies will
carry out by two famous banks working in Pakistan, which have researched and applied
computerized technology for the delivery of banking services. Most of the bank branches have
their own network across the country (Safo, 1990).
Although, banking administration has delayed to execute computer technology in banking
exercises. A number of studies have concluded that IT has positive effects on bank services
delivery to customers, bank productivity, cashiers work, banking transaction and banking
investment. So, these have positive effects on the growth of banking system (Balachandher,
2001).
In addition, delivery the high quality services is a way for the banking to improve their
relationships with their customers. By the Delivering high quality services, banks can achieve
customer satisfaction and through customer satisfaction banks can gain loyal customers
(Grnroos, 2000). Because of the highly undifferentiated services and products, financial
organizations specifically banks become main tool for competing in this marketplace (Kim J.K,
Han, Choi & Kim S.H. 1998).
Much research has been done about the quality of services and customer requirements in the
traditional banking environment, where personal interaction between the customers and the bank
employees takes place (Oppewal & Vriens, 2000). Therefore, this is very important for the online
banking services providers to become more capable about the customers perceptions of the
online banking services quality. On the other hand the customers also have more expectations
and demand when they are using e-banking services either the services are satisfactory or not.
Because it is quite easier for customers to evaluate and compare the benefits of competing
services (Santos, 2003).

Services provided by commercial banks through E-banking

The Basic Level Service is the banks web site which disseminates information on different
products and services offered to customers and members of public in general. It may receive
and reply to customers queries through email.

In the next level are Simple transactional Web sites which allow customers to submit their
instructions, applications for different services, queries in their account balances, etc. but do not
permit any fund-based transactions on their accounts;
The third level of Internet banking services are offered by Fully Transactional Web sites which
allow the customers to operate their accounts for transfer of funds, payment of different bills,
subscribing to other products of the bank and to transact purchase and sale of securities, etc.
The above forms of Internet banking service to the customer by new banks are delivered through
Internet or other electronic delivery channels as value added services. Some of these banks are
known as Virtual banks or Internet only banks and may not have physical presence in a
country despite offering different banking services.
Internet Banking enables you to manage your accounts and investments more easily. It also gives
you greater control over balances, transfers and fixed deposits. The following services are
available for customers:

Account Info and Other Services

o
o
o
o
o
o
o
o
o
o
o

Balance Inquiry
Account Statement
Cheques Book Request
Fixed and Call Deposit
Cheques in Clearing
Change Password
Address Change Request
Funds Transfer
Bill Payment (Electricity, telephone bills etc)
Remittance Request
Account Usage

Credit Card Services

The credit card enables the cardholders to purchase any item like clothes, jewelry,
railway/air tickets, etc., pay bills for dining in a restaurant or boarding and lodging in hotel, avail

of any service like car rental, etc. on credit and the customer has to pay total expenses on
purchasing to the bank after a particular period.
o
o
o
o
o

Balance Inquiry
Transaction details
Credit Card Payment
Change Password
Account Usage

Debit Card services

A debit card is issued on payment of a specified amount to the bank.The customer will
use it anywhere to carry out the purchasing, amount for which will be debited from his account
by a bank.
Thus it is like an electronic purse, which can be read and debited by the required amount. It may
be noted that while through a credit card the customer first makes a purchase or avails service
and pays later on, through the debit card a customer has to first pay the due amount and then
make a purchase or avail the service.
o Making purchases using your debit card
o Withdrawals at any time through ATM
o Secure mobilization of money

Cell phone Internet Services

This system allows you to access the banks cell phone banking service via the Internet
using your cell phone. The following transactions can be conducted:

o
o
o
o
o

Get balance enquiries

Make account payments
Make inter-account transfers
Get mini-statements of the last five transactions
Recharge MTN and Vodacom prepaid airtime

o Increase or decrease your overdraft limit

Telephone Banking Services

Your telephone gives you access to your bank accounts 24 hours a day, seven days a
week. You can do your banking from your home or office, from your car, and even at the
riverside

Smart Cards:
Smart Cards have a built-in microcomputer chip, which can be used for storing and
processing information. For example, a person can have a smart card from a bank with the
specified amount stored electronically on it. As he goes on making transactions with the help of
the card the balance keeps on reducing electronically. When the specified amount is utilized by
the customer, he can approach the bank to get his card validated for a further specified amount.
Such cards are used for paying small amounts like telephone calls, petrol bills, etc.

ATM Cards:
The card contains a PIN (Personal Identification Number) which is selected by the
customer or conveyed to the customer and enables him to withdraw cash up to the transaction
limit for the day. He can also deposit cash or cheque.

E-banking Growth in Pakistan (State bank of Pakistan)

Electronic banking (e-banking) and branchless banking transactions continued to show growth
momentum as both the volume and value of these transactions displayed a rising trend in the
country during the last quarter of the fiscal year (2008-2009).
1. According to the Fourth Quarterly Report on Branchless Banking/ Electronic Banking, the
volume and value of e-banking/ branchless banking transactions in the country reached at 44.5
million and Rs 3.9 trillion respectively showing an increase of 11.1 percent in number and 7.8
percent in value as compared to 6.5 percent increase in number and 11.4 percent increase in
value in the previous quarter of FY09 (Jan-March 2009).
2. During the fourth quarter (April-June) of FY09, the volume and value of online banking
transactions in the country reached at 13.7 million and Rs 3.7 trillion respectively showing a
growth of 10.8 percent in numbers and

7.4 percent increase in value as compared to 14.8

percent increase in numbers and 11.7 percent increase in value in the previous quarter.
3. According to the report, during the fourth quarter, the volume and value of ATM transactions
in the country reached at 25.2 million and Rs 189.0 billion respectively showing a growth of 12
percent in numbers and 12.2 percent increase in value as compared to 5.2 percent increase in
numbers and 10.2 percent increase in value in the third quarter.

4. During the period under review, the volume and value of internet transactions in the country
recorded at 0.6 million and Rs 22.2 billion respectively, showing an increase of 15.4 percent in
numbers and 35.7 percent increase in value as compared to 2.8 percent decline in numbers and
2.1 percent increase in value in the previous quarter. Whereas, the volume and value of mobile
transactions in the country recorded at 21,733 and Rs 4.9 million respectively showing an
increase of 40.6 percent in numbers and 48.2 percent increase in value as compared to 12.1
percent decline in numbers and 15.4 percent decline in value in the previous quarter.
5. According to the report, the total quantity of ATM machines during April-June, 2009 period
reached at 3,999 registering a growth of 5.7 percent as compared to 7.4 percent increase in the
previous quarter. The volume of Real Time Online Branches (RTOB) during the quarter reached
at 6,040 and recorded a growth of 1.3 percent as compared to 1.8 percent increase recorded in the
previous quarter. The total quantity of POS terminal reached at 49,715 showing an increase of
2.7 percent in number as compared to 1.1 percent decline in previous quarter.
6. It said that total quantity of cards (debit / credit /ATM only) in circulation during fourth
quarter of FY09 reached at 8.9 million which shows an increase of 6.6 percent as compared to
3.1 percent decline in the previous quarter. The quantity of credit cards has decreased by 0.6
percent as compared to 6.2 percent decrease in the previous quarter. The quantity of debit cards
has increased by 9.6 percent as compared to 2.5 percent decline in previous quarter and stood at
6.4 million, it added.
7. The report pointed out that paper-based instrument during the fourth quarter of FY09
witnessed a growth of 4.8 percent to 85.6 million in numbers compared with 1.4 percent decline
in the previous quarter (81.7 million). The value of transactions decreased by 6.1 percent to Rs
33.1 trillion as against 1.6 percent increase or Rs 35.3 trillion recorded during third quarter of
FY09.
It said that during the last six quarters the transition from manual (paper-based) banking to ebanking has been gradual, yet consistent, in terms of both volume and value of transactions. The
composition (in percentage) of electronic transactions increased to 34.2 percent of the total
number of transactions as compared to 32.9 percent recorded last quarter. In terms of value, the
same increased by 10.5 percent as compared to 9.3 percent rise recorded last quarter.

E-Payment Grow To Rs. 4.1trillion FY 2010

The electronic payments continued to show a rising trend as both the number and value of such
transactions increased in the second quarter (Oct-December) of the current 2009-10 fiscal year
(FY10).
As per State Banks Second Quarterly Report on Retail E-Payments and Paper Based
Instruments released on Friday, the volume and value of E-Payments transactions in the country
during the second quarter of FY10 reached 46.4 million and Rs 4.1 trillion respectively showing
an increase of 0.2 percent in number and 6.1 percent increase in value as compared to 4.0 percent
increase in number and 0.3 percent increase in value in the previous quarter.
According to the Report, total number of Automated Teller Machines during the second quarter
reached to 4,217 registering a growth of 4.0 percent as compared to 1.4 percent increase in the
previous quarter. The volume of Real Time Online Branches (RTOB) during second quarter
reached at 6,587 and recorded a growth of 7.6 percent as compared to 1.3 percent increase
recorded in the previous quarter.
The total quantity of POS terminal reached 50,920 showing a decrease of 1.5 percent in number
as compared to 4.0 percent increase in previous quarter. The volume and value of debit cards
transactions were reported at 29.98 million and Rs. 235.25 billion respectively showing an
increase of 3.7 percent in numbers and 9.7 percent increase in value as compared to 3.0 percent
increase in numbers and 2.2 percent increase in value in the previous quarter.
Similarly, during the second quarter of FY10 the volume and value of credit cards transactions
were reported to be 3.8 million and Rs. 17.0 billion respectively showing a decrease of 10.0
percent in numbers and 8.7 percent decrease in value as compared to 6.9pc decrease in numbers
and 2.6pc decrease in value in the previous quarter. In addition, the total number of cards (debit /
credit /ATM only) in circulation during the second quarter reached to 9.95 million which shows
an increase of 6.8 percent compared to 4.3 percent increase in the previous quarter.

E-Banking Transactions Rose To Rs. 12 Trillion In Fiscal Year 2011 (Jan-July

2011)

The value of e-banking transactions aggregated to Rs 12 trillion during the second half of FY11,
showing an increase of 19.0 percent as compared to the first half of the year, according to State
Bank of Pakistan's Payment Systems Half Yearly Review.
The volume of such transactions during the period under review reached 125.9 million, depicting
an increase of 15.5 percent as compared to the first half of FY11, the Review said, adding that
payment system infrastructure in Pakistan had maintained overall growth trend for the second
half of FY11. The Automated Teller Machines (ATMs), which are the largest channel of ebanking transactions, showed 16.5 percent increase in number of transactions, and 19.0 percent
increase in value, raising the share of ATM transactions in total e-banking transactions to 58.8
percent and 5.4 percent respectively,
the Review said, adding that the number of Real-Time Online Branches (RTOB) transactions
grew by 14.7 percent and the value of transactions increased by 18.8 percent as compared to first
half of FY11. "These transactions contributed 31.6 percent in total volume of e-banking, and
93.2 percent in the value of such transactions respectively," the Review observed.
According to the Review, 466 more Automated Teller Machines were added in the system,
bringing total ATMs in the country to 5,200, while 380 more bank branches were converted into
Real Time Online Branches (RTOBs).
"A total of 7,416 bank branches (78 percent) are now offering real time online banking out of
total 9,541 branches in the country.

The number of plastic cards at 14 million also registered an increase of 6.2 percent during the
period under review as compared to the numbers during the preceding half year," the Review
added. It said that total number of POS terminals at 37,232 depicted a decline of 16 percent as
compared to 44,383 terminals in the first half of FY11."
This decline in the number of POS terminals is due to business considerations in terms of which
investment in ATMs was considered a more viable strategic option. The volume of POS
transactions in the country during the second half of FY11, however, reached 7.2 million
showing an increase of 2.8 percent. The value of POS transactions at Rs 33.9 billion registered a
4.4 percent decrease as compared to the first half of FY11," the Review said.

The overall increasing trend in payment system infrastructure was also witnessed in the large
value payments settled through Pakistan Real-time Interbank Settlement Mechanism (PRISM),
which increased by 14.8 percent in volume and 21.9 percent in terms of value as compared to the
first half of FY11, it said and added that the major portion of PRISM transactions, in terms of
value was of settlements against securities which accounted for 46 percent of the total
transactions followed by Interbank Funds Transfers at 37 percent and settlement of retail cheques
through multilateral clearing at 15 percent.
The Review said that the volume and value of paper-based retail payments during the second half
of FY11 were recorded as 177.3 million and Rs 84.6 trillion respectively indicating an increase
of 3.5 percent in the volume of transactions."The value of transactions has increased by 13.3
percent as compared to the first half of Year 2011. The contribution of paper-based payments in
total retail payment transactions was 58.5 percent in terms of volume and 87.5 percent in terms
of value," it added.
July to September (2011)
Banking institutions are showing tremendous growth day by day. Significant positive changes
shown in statistics table: 2 below during the 3rd quarter of year 2011

Awareness of E-banking in Pakistan:

In order to know whether the public is aware about E-banking and the various services it is
offering and also to check the level of acceptance or the utilization of E-banking, a questionnaire
was prepared to get the idea.
Following results were achieved:

Table 1 shows the different questions and their association with gender. First question is about
Awareness of electronic banking. Total respondents who answered this question were 396 in
which 196 were male respondents and 200 were female respondents. Its result shows that

awareness of electronic banking is dependent on gender. Next question was answered by 385
total respondents from which the amount of male and female were 190 and 195 respectively.
Its results Show that providing e-banking services by banks were highly dependent on gender.
Third one is about awareness of SMS banking which was answered by 196 male and 195 female
respondents. Its result shows that awareness of SMS banking is also dependent on gender. Now
the next question is about Internet banking awareness which was answered by 189 male
respondents and 198 female respondents and its result shows that awareness of internet banking
is dependent on gender. Next question is about awareness of ATM card usage. Total 391
respondents answered that question from which the amount of male and female were 193 and
198 respectively. It results shows that awareness of ATM card usage is not dependent on gender.
Now there is a question about Phone banking awareness so total 392 respondents answered that
question from which 193 were male and 199 were female and its result shows that phone
banking awareness is not dependent on gender.
The seventh question was asked by respondents about their satisfaction about e-banking services
providing by their banks and total 390 answered that question and its result shows that
satisfaction about e-banking services providing by banks is depends on gender. Now there is
second last question which was answered by 191 male and 195 female respondents and its result
shows that satisfaction about security of e-banking providing by banks is not depends on gender.
Last question is about the using e-banking service in future and its results are highly dependent
on gender.

Now there is a table no.2 which shows the description of the question, Aware of electronic

Banking. It shows the amount of respondents from strongly disagree to strongly agree. The
highest figures of people are agreed about awareness of e-banking. In male respondents 64 were
agree which is 33% of total male respondents. Likewise, in female respondents 57
were agreeing about it which is 29% of total females.

Now there is a simple bar chart of the table no.2 which shows clearly that very less amount of
people are strongly disagree or disagree, mostly are agree and strongly agree that they know well
about e-banking. Now there is a table no. 3 which shows the association of education level with
different research questions

In table no. 3 there is a demographic of education whose relationship with research questions is
given in above table. First there is a question about awareness of electronic banking. Total
respondents were 384 from which the education of 8 respondents were primary, 7 people had just
completed high school, 10 respondents complete their secondary education,195 were graduate
and 164 were post graduate. Its result shows that awareness of electronic banking is highly
dependent on education. Secondly there is a question about use of debit or credit cards for online
transactions. Total respondents were 376 from which respondents were from different education
level which are given on above table. Next question is about awareness of ATM card usage,
which is responded by 381 people and its result shows that it depends on education. Next
question is about Phone banking awareness, which is answered by 380 people and it result shows
that it is not dependent on education. Fifth question is about feeling of risk for hacking of
passwords, 378 people responds that and its result tells that it is also not dependent on education
and next there question are also not dependent on education

In this table results shows that mostly people are graduate whose percentage is 51% percentage
of total respondents in which highest percentage of people have neutral point of view about that.
Following is the table no. 5 which shows the association of age with different research questions:

Above table shows the relationship of research questions with age. In first question it is asked
about command on computer. This question was answered by total 391 respondents from which
from which 91 respondents had age less than 19. The respondents from age group 20-29 were
241 which is highest amount, 30 respondents were from age group 30-39.
Respondents who had age 40-49 were 16, 10 respondents age was lied in 50-59 and only
respondents were above 60. Its result shows that having full command on computer is dependent
on age. Next question is about involvement in banking transaction which was answered by total
391 respondents and the amount of responses by different age groups are shown in table. Its
result shows that involvement in banking transaction is highly dependent on age.
Third question is about awareness of usefulness of e-banking which is answered by total 392
respondents and its results shows that it depends on age. Next question is about
Providing of online technical assistance or 24 hr. helpline which responds by 391 respondents
and its results tells that it is also dependent on age. Moreover, there is question about using of
debit or credit cards for online transactions which responds by 390 people, which shows the
result that it depends on age.
Next questions are about awareness of internet banking and Phone banking whose result shows
they are not dependent on age. Further there is a question about its easy way of monitoring an
account which responds by 396 people and its result shows that it depends on age. Further there
is a question about feeling of risk about hacking of passwords, 392 people respond it and result
shows that it is independent to age.
Now there is a question about easy access to ATM machine whose result shows that it is highly
dependent on age. Satisfaction of e-banking services provided by banks is independent on age.
However, Satisfaction of security providing for e-banking by banks is dependent on age. Last
question is about trust on bank employees more than e-banking whose result shows that it is also
Dependent on age.

The table above describes about awareness of Phone banking with respect to age. In
this table greatest amount of respondents are agree that they are familiar with phone banking.
From age group ranges from 20 to 29 has greatest figure of 72 about knowing of phone banking
which is 30% of the age group who had age 20-29.
Measures to Enhance public awareness
Internet banking is gaining ground. Banks increasingly operate websites through which
customers are able not only to inquire about account balances and interest and exchange rates but
also to conduct a range of transactions.
Unfortunately, data on Internet banking are scarce, and differences in definitions make cross
country comparisons difficult. Even so, one finds that Internet banking is particularly widespread
in Austria, Korea, the Scandinavian countries, Singapore, Spain, and Switzerland, where more
than 75 percent of all banks offer such services.
The Scandinavian countries have the largest number of Internet users, with up to one-third of
bank customers in Finland and Sweden taking advantage of e-banking.

As we know that the world is developing and attaining new technologies day by day in order to
facilitate maximum people with maximum services within no time. Therefore there is a need of,
to increase the public awareness about E-banking.
The most commonly practiced tools for public awareness are the:

ELECTONIC MEDIA:
It means to keep the public aware about E-banking through Electronic media i.e.
Television, radio, internet and any other source of electronic media with a proper advertisement.

PRINT MEDIA:
In includes the Newspapers, pamphlets any other paper media through which people gain
information about various things.
So these two are the basic tools in order to promote E-banking. Besides this, the various account
holders in each banks, can also be told about E-banking, their services and Benefits which the
customers will get.

Promotional Measures Used by Banks to Promote e-Banking

The banks can promote e-banking viz. print, internet, SMS, outdoor advertisement,
television and radio.
a. Choice of Promotional Media:
There are different sources used by banks to promote e-banking like
print media, internet, SMS on mobile, outdoor advertisements and television and
radio. Majority of the bankers are in a view that print media is used by the banks to a large extent
for the purpose. Regarding internet, highest percentage of the bankers said that internet is used
very little.
Regarding the use of SMS about most of the bankers in a survey reported that it is not at all
used. Outdoor advertisements are also used to some extent.
In the opinion of 37.50 percent bankers, television and radio are also used by the banks to some
extent. It signifies that banks mostly rely on print media to promote e-banking services.
b. Banks Providing Knowledge to Customers for Using E-banking Services
The extent to which banks are providing knowledge to customers for using e-banking,
many of respondents said that banks do provide knowledge but only to some extent, followed by
an average, who believed that sufficient guidance is supplied by the banks in this field, that the

banks extend a little or very little knowledge is expressed by a small percentage of the
respondents.
So it is concluded the banking personals should focus on introducing the E-banking and their
services and benefits to the customers so that they should be aware of that.
Only in such case there will be improvement in use of E-banking if public has awareness.

Pros & Cons of E-banking

Advantages:
Convenience:
This is the single most important benefits that outweigh any shortcoming of internet
banking. Making transactions and payments right from the comfort of home or office at the click
of a button without even having to step out is a facility none would like to forego. Keeping a
track of accounts through the internet is much faster and convenient as compared to going to the
bank for the same. Even non transactional facilities like ordering check books online, updating
accounts, enquiring about interest rates of various financial products etc become much simpler
on the internet.
Secure:
It is generally secure. But make sure that the website you're using has a valid security
certificate. This let's you know that the site is protected from cyber-thieves looking to steal your
personal and financial information.
Access:
You have twenty-four-hour access. When your neighborhood bank closes, you can still
access your account and make transactions online. It's a very convenient alternative for those that
can't get to the bank during normal hours because of their work schedule, health or any other
reason.
Mobilization:
You can access your account from virtually anywhere. If you're on a business trip or
vacationing away from home, you can still keep a watchful on your money and financial
transactions - regardless of your location.
Rapid transactions:

Conducting business online is generally faster than going to the bank. Long teller lines
can be time-consuming, especially on a Pay Day. But online, there are no lines to contend with.
You can access your account instantly and at your leisure.
Home Online facilities:
Many features and services are typically available online. For example, with just a few
clicks you can apply for loans, check the progress of your investments, review interest rates and
gather other important information that may be spread out over several different brochures in the
local bank.
Shop and payment:
Through E-banking, one can shop and make the payment safely by sitting at home, office or
anywhere.
E-mails and statements:
Most banks also send statements and Notices via E-mails which save paper and notify you
immediately if there is any funny business with your account.
Cheaper services:
Online banking is often cheaper as compared to manual/traditional banking.in addition to
being able to offer competitive rates, many online banks dont charge hefty fee and you dont
have to pay for the gas to get there and you save money on postage if you are paying bills
electronically.

Safe Money:
It is due to |E-banking that nowadays one can take money as much he want without
keeping it in shape of cash.i.e ATM cards etc.

Disadvantages of E-Banking:
The world has come from far and we are every day digging into the unknown, what was
unthinkable then, is now a practice. Today, you can bank right from the comfort of your home
and multitudes of benefits come with it. However, though internet banking is such a good and
desirable innocent, it has some disadvantages as listed;
Setting up an account may take time:
In order to register for your bank's online program, you will probably have to
provide ID and sign a form at a bank branch. Some banks even ask for photos
Legal issues:
If you and your spouse wish to view and manage your assets together online,
one of you may have to sign a durable power of attorney before the bank will display all of your
holdings together.
Learning difficulties:
Banking sites can be difficult to navigate at first. Getting acquitted with the banking
sites software may require some time to read the tutorials in order to become comfortable in your
virtual lobby.
Site changes and upgrades:
Even the largest banks periodically upgrade their online programs, adding new
features in unfamiliar places. In some cases, you may have to re-enter account information.
Customer service:
There is no personal contact with any of the staff, and if talk to any staff through
the telephone, you have guarantee you are talking to the best person available
Internet account:
You need to get an account with an Internet Service Provider (ISP) which may
be another hectic experience
Security concern:
Even though online banking sites are heavily encrypted, with the developing
technology, its hard to rule out the "hackers" who may access your bank accounts
Switching banks:

This can be more cumbersome online than in person

Money usage:
You cant spend your money from the online bank account as you wish, in the end;
you will need to go to an ATM to withdraw money for usage.
Technical breakdowns:
As with all technologies, online banking websites sometimes go down. If this happen
when you closed your local bank or credit card accounts, you will definitely go penniless.
However, even though online banking has some disadvantages, the advantages with no doubt
outweigh. It is there for important for everyone to prepare for the unknown with an online bank
account.
Identity Confirmation:
Federal regulations require that financial institutions confirm each customer's
identity. This may present a logistical issue, as copying and faxing documents is sometimes
necessary.
Security Concerns:
With hacking and identity theft on the rise, Internet banking customers have to
place a certain amount of trust in the bank that their account information and personal
information are safe.
Skills required:
As we know that the literacy rate in Pakistan is low so there are many peoples who
find it impossible to utilize the E-banking services as it is skill and education required work.
Many people thus prefer more the Manual banking system.
Various Risks Associated with E-banking

A major driving force behind the rapid spread of i-banking all over the world is its acceptance as
an extremely cost effective delivery channel of banking services as compared to other existing
channels.
However, Internet is not an unmixed blessing to the banking sector. Along with reduction in cost
of transactions, it has also brought about a new orientation to risks and even new forms of risks

to which banks conducting i-banking expose themselves. Regulators and supervisors all over the
world are concerned that while banks should remain efficient and cost effective, they must be
conscious of different types of risks this form of banking entails and have systems in
place to manage the same.
An important and distinctive feature is that technology plays a significant part both as source and
tool for control of risks. Because of rapid changes in information technology, there is no finality
either in the types of risks or their control measures. Both evolve continuously. The thrust of
regulatory action in risk control has been to identify risks in broad terms and to ensure that banks
have minimum systems in place to address the same and that such systems are reviewed on a
continuous basis in keeping with changes in technology. In the following paragraphs a generic
set of risks are discussed as the basis for formulating general risk control guidelines, which this
Group will address:

Operational risk:
Operational risk, also referred to as transactional risk is the most common form of risk
associated with i-banking. It takes the form of inaccurate processing of transactions, non
enforceability of contracts, compromises in data integrity, data privacy and confidentiality,
unauthorized access / intrusion to banks systems and transactions etc. Such risks can arise out of
weaknesses in design, implementation and monitoring of banks information system. Besides
inadequacies in technology, human factors like negligence by customers and employees,
fraudulent activity of employees and crackers / hackers etc. can become potential source of
operational risk. Often there is thin line of difference between operational risk and security risk
and both terminologies are used interchangeably.
Security risk:
1. Internet is a public network of computers which facilitates flow of data / information and to
which there is unrestricted access. Banks using this medium for financial transactions must,

therefore, have proper technology and systems in place to build a secured environment for such
transactions.
2. Security risk arises on account of unauthorized access to a banks critical information stores
like accounting system, risk management system, portfolio management system, etc. A breach of
security could result in direct financial loss to the bank.
For example, hackers operating via the Internet, could access, retrieve and use confidential
customer information and also can implant virus. This may result in loss of data, theft of or
Tampering with customer information, disabling of a significant portion of banks internal
computer system thus denying service, cost of repairing these etc. Other related risks are loss of
reputation, infringing customers privacy and its legal implications etc.
Thus, access control is of paramount importance. Controlling access to banks system has
become more complex in the Internet environment which is a public domain and attempts at
unauthorized access could emanate from any source and from anywhere in the world with or
without criminal intent. Attackers could be hackers, unscrupulous vendors, disgruntled
employees or even pure thrill seekers. Also, in a network environment the security is limited to
its weakest link. It is therefore, necessary that banks critically assess all interrelated systems and
have access control measures in place in each of them.
3. In addition to external attacks banks are exposed to security risk from internal sources e.g.
employee fraud. Employees being familiar with different systems and their weaknesses become
potential security threats in a loosely controlled environment. They can manage to acquire the
authentication data in order to access the customer accounts causing losses to the bank.
4. Unless specifically protected, all data / information transfer over the Internet can be monitored
or read by unauthorized persons. There are programs such as sniffers which can be set up at
web servers or other critical locations to collect data like account numbers, passwords, account
and credit card numbers. Data privacy and confidentiality issues are relevant even when data is

not being transferred over the net. Data residing in web servers or even banks internal systems
are susceptible to corruption if not properly isolated through firewalls from Internet.
5. The risk of data alteration, intentionally or unintentionally, but unauthorized is real in a
Networked environment, both when data is being transmitted or stored. Proper access control
and technological tools to ensure data integrity is of utmost importance to banks. Another
important aspect is whether the systems are in place to quickly detect any such alteration and set
the alert.

6. Identity of the person making a request for a service or a transaction as a customer is crucial to
legal validity of a transaction and is a source of risk to a bank. A computer connected to Internet
is identified by its IP (Internet Protocol) address. There are methods available to masquerade one
computer as another, commonly known as IP Spoofing. Likewise user identity can be
misrepresented. Hence, authentication control is an essential security step in any e-banking
system.
7. Non-repudiation involves creating a proof of communication between two parties, say the
bank and its customer, which neither can deny later. Banks system must be technologically
equipped to handle these aspects which are potential sources of risk.
System architecture and design
1. Appropriate system architecture and control is an important factor in managing various kinds
of operational and security risks. Banks face the risk of wrong choice of technology, improper
system design and inadequate control processes. For example, if access to a system is based on
only an IP address, any user can gain access by masquerading as a legitimate user by spoofing IP
address of a genuine user. Numerous protocols are used for communication across Internet. Each
protocol is designed for specific types of data transfer. A system allowing communication with
all protocols, say HTTP (Hyper Text Transfer Protocol), FTP (File Transfer Protocol), telnet etc.
is more prone to attack than one designed to permit say, only HTTP.
2. Choice of appropriate technology is a potential risk banks face. Technology which is outdated,
not scalable or not proven could land the bank in investment loss, a vulnerable system and
inefficient service with attendant operational and security risks and also risk of loss of business.
3. Many banks rely on outside service providers to implement, operate and maintain their
banking systems. Although this may be necessary when banks do not have the requisite
expertise, it adds to the operational risk. The service provider gains access to all critical business
information and technical systems of the bank.Thus making the system vulnerable. In such a
scenario, the choice of vendor, the contractual arrangement for providing the service etc.,

become critical components of banks security. Bank should educate its own staff and over
dependencies on these vendors should be avoided as far as possible.
4. Not updating banks system in keeping with the rapidly changing technology, increases
operational risk because it leaves holes in the security system of the bank. Also, staff may fail to
understand fully the nature of new technology employed. Further, if updating is left entirely at
customers end, it may not be updated as required by the bank. Thus education of the staff as well
as users plays an important role to avoid operational risk.
Reputational risk
1. Reputational risk is the risk of getting significant negative public opinion, which may result in
a critical loss of funding or customers. Such risks arise from actions which cause major loss of
the public confidence in the banks' ability to perform critical functions or impair bank-customer
relationship. It may be due to banks own action or due to third party action.
2. The main reasons for this risk may be system or product not working to the expectations of the
customers, significant system deficiencies, significant security breach (both due to internal and
external attack), inadequate information to customers about product use and problem resolution
procedures, significant problems with communication networks that impair customers access to
their funds or account information especially if there are no alternative means of account access.
Such situation may cause customer-discontinuing use of product or the service. Directly
Affected customers may leave the bank and others may follow if the problem is publicized.
3. Other reasons include losses to similar institution offering same type of services causing
customer to view other banks also with suspicion, targeted attacks on a bank like hacker
spreading inaccurate information about bank products, a virus disturbing banks system causing
system and data integrity problems etc.
4. Possible measures to avoid this risk are to test the system before implementation, backup
facilities, contingency plans including plans to address customer problems during system
disruptions, deploying virus checking, deployment of ethical hackers for plugging the loopholes
and other security measures.

5. It is significant not only for a single bank but also for the system as a whole. Under extreme
circumstances, such a situation might lead to systemic disruptions in the banking system as a
whole. Thus the role of the regulator becomes even more important as not even a single bank can
be allowed to fail.
Legal risk
1. Legal risk arises from violation of, or non-conformance with laws, rules, regulations, or
prescribed practices, or when the legal rights and obligations of parties to a transaction are not
well established.
2. Given the relatively new nature of Internet banking, rights and obligations in some cases are
uncertain and applicability of laws and rules is uncertain or ambiguous, thus causing legal risk.
3. Other reasons for legal risks are uncertainty about the validity of some agreements formed via
electronic media and law regarding customer disclosures and privacy protection. A customer,
inadequately informed about his rights and obligations, may not take proper precautions in using
Internet banking products or services, leading to disputed transactions, unwanted suits against the
bank or other regulatory sanctions.
4. In the enthusiasm of enhancing customer service, bank may link their Internet site to other
sites also. This may cause legal risk. Further, a hacker may use the linked site to defraud a bank
customer.
5. If banks are allowed to play a role in authentication of systems such as acting as certification
Authority, it will bring additional risks. A digital certificate is intended to ensure that a given
signature is, in fact, generated by a given signer. Because of this, the certifying bank may
become liable for the financial losses incurred by the party relying on the digital certificate.

Money laundering risk

1. As Internet banking transactions are conducted remotely banks may find it difficult to apply
traditional method for detecting and preventing undesirable criminal activities. Application of
money laundering rules may also be inappropriate for some forms of Electronic payments. Thus

banks expose themselves to the money laundering risk. This may result in legal sanctions for
non-compliance with know your customer laws.
2. To avoid this, banks need to design proper customer identification and screening techniques,
develop audit trails, conduct periodic compliance reviews, frame policies and procedures to spot
and report suspicious activities in Internet transactions.
Cross border risks
1. Internet banking is based on technology that, by its very nature, is designed to extend the
geographic reach of banks and customers. Such market expansion can extend beyond national
borders. This causes various risks.
2. It includes legal and regulatory risks, as there may be uncertainty about legal requirements in
some countries and jurisdiction ambiguities with respect to the responsibilities of different
national authorities. Such considerations may expose banks to legal risks associated with noncompliance of different national laws and regulations, including consumer protection laws,
record-keeping and reporting requirements, privacy rules and money laundering laws.
3. If a bank uses a service provider located in another country, it will be more difficult to monitor
it thus, causing operational risk. Also, the foreign-based service provider or foreign participants
in Internet banking are sources of country risk to the extent that foreign parties become unable to
fulfil their obligations due to economic, social or political factors.
4. Cross border transaction accentuates credit risk, since it is difficult to appraise an application
for a loan from a customer in another country compared to a customer from a familiar customer
base. Banks accepting foreign currencies in payment for electronic money may be subjected to
market risk because of movements in foreign exchange rates.
Strategic Risk

1. This risk is associated with the introduction of a new product or service. Degree of this risk
depends upon how well the institution has addressed the various issues related to development of
a business plan, availability of sufficient resources to support this plan, credibility of the vendor
(if outsourced) and level of the technology used in comparison to the available technology etc.
2. For reducing such risk, banks need to conduct proper survey, consult experts from various
fields, establish achievable goals and monitor performance. Also they need to analyze the
availability and cost of additional resources, provision of adequate supporting staff, proper
training of staff and adequate insurance coverage. Due diligence needs to be observed in
selection of vendors, audit of their performance and establishing alternative arrangements for
possible inability of a vendor to fulfill its obligation . Besides this, periodic evaluations of new
technologies and appropriate consideration for the costs of technological up gradation are
required.
Other risks
1. Traditional banking risks such as credit risk, liquidity risk, interest rate risk and market risk are
also present in Internet banking. These risks get intensified due to the very nature of Internet
banking on account of use of electronic channels as well as absence of geographical limits.
However, their practical consequences may be of a different magnitude for banks and supervisors
than operational, reputational and legal risks. This may be particularly true for banks that engage
in a variety of banking activities, as compared to banks or bank subsidiaries that specialize in
Internet banking.
2. Credit risk:
Credit risk is the risk that a counter party will not settle an obligation for full value, either when
due or at any time thereafter. Banks may not be able to properly evaluate the credit worthiness of
the customer while extending credit through remote banking procedures, which could enhance
the credit risk. Presently, banks generally deal with more familiar customer base. Facility of
electronic bill payment in Internet banking may cause credit risk if a third party intermediary

fails to carry out its obligations with respect to payment. Proper evaluation of the
creditworthiness of a customer and audit of lending process are a must to avoid such risk.
3. Another facility of Internet banking is electronic money. It brings various types of risks
associated with it. If a bank purchases e-money from an issuer in order to resell it to a customer,
it exposes itself to credit risk in the event of the issuer defaulting on its obligation to redeem
electronic money,.
4. Liquidity Risk:
Such type of risk arises out of a banks inability to meet its obligations when they
become due without incurring unacceptable losses, even though the bank may ultimately be able
to meet its obligations. It is important for a bank engaged in electronic money transfer activities
that it ensures that funds are adequate to cover redemption and settlement demands at any
particular time. Failure to do so, besides exposing the bank to liquidity risk, may even give rise
to legal action and reputational risk.
5.Interest risk:
Similarly banks dealing in electronic money face interest rate risk because of adverse
movements in interest rates causing decrease in the value of assets relative to outstanding
electronic money liabilities. Banks also face market risk because of losses in on-and-off balance
sheet positions arising out of movements in market prices including foreign exchange rates.
Banks accepting foreign currency in payment for electronic money are subject to this type of
risk.
.
6. Risk of unfair competition:
Internet banking is going to intensify the competition among various banks. The open
nature of Internet may induce a few banks to use unfair practices to take advantage over rivals.
Any leaks at network connection or operating system etc., may allow them to interfere in a rival
banks system

Thus one can find that along with the benefits, Internet banking carries various risks for bank
itself as well as banking system as a whole. The rapid pace of technological innovation is likely
to keep changing the nature and scope of risks banks face. These risks must be balanced against
the benefits.
Supervisory and regulatory authorities are required to develop methods for identifying new risks,
assessing risks, managing risks and controlling risk exposure. But authorities need to keep in
consideration that the development and use of Internet banking are still in their early stages, and
policies that hamper useful innovation and experimentation should be avoided.
Thus authorities need to encourage banks to develop a risk management process rigorous and
comprehensive enough to deal with known risks and flexible enough to accommodate changes in
the type and intensity of the risks.

CONCLUSION
With the interpretation of study and data gathered from the customers, we can conclude that the
commercial banks such as MCB although has been providing even e-services, also with using
manual banking system. They have not been fulfilling the requirements well in terms of how rapidly

these services are been providing to their customers. Almost certainly, it is because of the fact that
the bank has offered a primary computerization network plan initially from the head office to its
different

branches

to

boost

the

standard

level

of

the

bank

and

consequently meet competition and customers desires.

Those banks such as working on automation banking system either computerized banking or
electronic

banking

(ATM),

provided

enhanced,

efficient

and

rapid

services to their customers. Perhaps due to this advantage, banks expand over its branches in the
banking line for service providing facilities and also try to get more and more accounts, businesses
and customers in the market.
The accuracy of working transaction by an automated system is more accurate than
a manual banking system. Bank performance does not depend on whether the bank
uses a manual system or automated banking system. The problem is that the
manual banking system takes more time than an automated banking system with
accuracy. Therefore customers like and choose to stay at home than to go at bank
and

avoid

consuming

their

time

and

waiting

for

their

credits

or

money

requirements.

RECOMMENDATION
According to the executions of literature study and analysis, there are some dilemmas were noticed
and we can expect that the subsequent recommendations may reduce or solve these problems
concerned with banks and customers. In our research study, it has been exposed how electronic-

banking system can appeal customers to save time or make transaction with their banks. Automated
banking systems, function through computerized networks or electronic systems which require
massive investment of money.
I recommend that to support the banks and to give them confidence to execute
these systems, the government should endow with important tax assistance for
importers
equipments

of

computerized,

which

will

automatic

make

them

or

electronic

available

banking

without

apparatus

problems

in

and
future.

Government should be in association with the State Bank of Pakistan that could
endorse a law which would make sure that banks can earn good net profits at the end of their
financial year and can also save some money from their profits for the persistence of automating
operations.
In addition, for the banks to apply or purchase victorious and efficient automation
banking system and there should be well developed countrys telecommunication
network system and unbreakable electricity supply for the automated system of
banks. I should therefore, recommend that the government remain to supply and
execute a much rapid and enhanced telecommunication and electricity plans with a
good deal of apparent and advanced association with the classified sector.

REFERENCES

En.wikipedia.org

 www.investopedia.com
www.finance.gov.pk
www.growpk.com
www.tribune.com.pk
www.pakistanbanks.org

. The End