xxxi

Chapter I

INTRODUCTION

1.1. HISTORY OF BANKING IN INDIA

The banking system of India should not only be hassle free but also be able to
meet new challenges posed by technology and any other external and internal
factors. Without a sound banking system, India cannot have a healthy economy.
During the past three decades Indian banking system had several outstanding
achievements to its credit, the most striking being its extensive reach. It is no longer
confined to metropolitans or cosmopolitans in India. In fact, it has reached even the
remote corners of the country. This is one of the main reasons for the growth of
Indian economy.
The Narasimham Committee report suggested wide ranging reforms for the
banking sector in 1992 to introduce internationally accepted banking practices under
Basel norms. The amendment of Banking Regulation Act in 1993 saw the entry of
new private sector banks. Current banking system in India works under the umbrella
of RBI, which acts as a regulatory central body. The major participants in the
financial system are the commercial banks, the financial institutions (FI's),
non-banking financial companies (NBFCs) and other market intermediaries such as
stockbrokers and moneylenders. Further commercial banks are divided into public
sector commercial banks like State Bank of India, Punjab National Bank, Private
sector banks like HDFC, ICICI and Co-operative banks.1
Financial Sector Reforms has introduced many more products and facilities
in the banking sector in its reforms measure. In 1991, under the chairmanship of
M. Narasimham, a committee was set up by his name which worked for the
liberalization of banking practices. The country is flooded with foreign banks and
1

http://banknetindia.com.

xxxii
their ATM stations. Efforts are being put to give a satisfactory service to customers.
Phone banking and net banking have also been introduced. The entire system has
become more convenient and swift. Time is given more importance than money.
India woke up to the call of global financial reforms a decade ago. Narasimham
Committee-I gives its first recommendation to improve the efficiency of the Indian
financial sector. The approach was to ensure that the financial service industry
operates on the basis of operational flexibility and functional autonomy with a view
to enhancing efficiency, productivity and profitability.2
Narasimham Committee-II gives recommendations focusing on strengthening
the structure of banking system and bringing about structural improvement. In 1996,
full foreign investment was allowed. In 1997, the Tarapore Committee report on
capital account convertibility launched a new mandate to support the full
convertibility of the rupee by the turn of 2000. These developments were supported
by the growing levels of expertise in information technology, venture capitalism and
increasing amounts of foreign investments.3
Government has taken bold steps since 1991 to give banking a whole new
shape. Reserve Bank of India (RBI) set up a 'Working Group on Internet Banking' to
examine the different aspects of E-banking. It focused on three major areas of
Internet banking that is (i) technology and security issues, (ii) legal issues and (iii)
regulatory and supervisory issues. It provides legal recognition to electronic
transaction and other means of E-Commerce.
1.2. MODERN TECHNOLOGY IN BANKING4

1.2.1. Computerization in bank

Rakesh Mohan. "Valedictory address." Bangalore India: The Bank Economist Conference held on
29th December 2002.
Y.V. Reddy. "Capital Inflows and Self Reliance Redefined." Twenty Seventh Frank Moraes
Lecturer, July 17th 2000 (Accessed on 7th January 2007).
N.S. Toor (2008). Computer and Banking, Handbook of Banking Information. 27th edn. New
Delhi: Skylark Publication, Chapter 07, pp.7.1-7.25.

xxxiii

The process of computerization in Indian banks started in early 80s

when the first committee on computerization i.e. Rangarajan Committee gave
its recommendations in the year 1984. The 2nd report of Rangarajan
Committee in the year 1989 gave the much needed pace to expedite the
computerization. The Saraf Committee (1994) recommendations for
remittance facility for customers called EFT and suitable legislation on the
pattern of EFT Act 1978 of us and introduction of ECS for electronic payment
of dividend, interest payment in bulk, cheque truncation system. The Shere
Committee (1994) recommendations for introduction of a country-wide intrabank fund transfer system and introduction of more EFTs by banks and the
Vasudevan Committee (1998) recommended that the communication
infrastructure and use of INFINET, standardization and security, out sourcing
of technology and services, computerization of government transaction. The
major objective of computerization, can be improved customer service,
quicker decision making and increased profits and productivity.

1.2.2. Banking through technology

A combination of computers and communication technologies is at
present enabling international banks and financial institutions to expand their
reach and offer technology based products to a wide spectrum of clientele
which was unthinkable in olden days. Banks being essentially the processors
of information in large quantities, use the information technology (IT).

Indian banks have started entering recently in the areas such as:
(i) Collection, storage and processing of information in administrative offices;
(ii) Toning up book-keeping efficiency at branches by computerizing back
office operations; (iii) Full branch computerization; (iv) Setting up automated
teller machines (ATMs).

xxxiv

New private sector banks adopted the IT in a big way in order to

capture corporate business. They use IT as a tool for designing and marketing
aggressively a wide variety of retail banking products to capture the business
of well-to-do customers in urban/metro centres. The customers in these
centres expect faster remittance facilities, automated teller machines and
anywhere banking facilities, telephone banking, home banking, credit card
facility, personal loans.
1.2.2.1. Branch automation
Total branch automation is the real time online banking where the
transaction is entered through terminal, transaction is recorded, verified,
authenticated and then all corresponding updations are done instantly.

1.2.2.2. Core Banking Solutions (CBS)

Core Banking Solutions or Centralised Banking Solutions is the
process which is completed in a centralized environment that is under which
the information relating to the customers account (that is financial dealings,
profession, income and family members) is stored in the Central Server of the
bank (that is available to all the networked branches) instead of the branch
server. CBS with a view to build relationship with the customer based on the
information with the customer based on the information captured and offering
to the customer, the customized financial products according to their need.
The CBS process is advantageous both to the customers and the banks.

1.2.2.3. Magnetic Ink Character Recognition (MICR)

The MICR technology is very popular world wide and in this system,
the instruments such as cheque, draft, payorder, gift cheques and traveler
cheques can be read directly without the need for transcribing the data on
punched cards or paper tapes. The information is printed on the instrument

xxxv

with a special type of ink which is made up of magnetic material. On insertion

of the instrument in the machine, the printed information is magnetized and
read by the machine.

1.2.2.4. Computer security

The computer security should focus on important aspects such as
proper integration, accessibility, control and auditability. The banks can
provide guards, video surveillance, biometric methods, locking up machines
and terminals. The security can also be ensured by using logical methods such
as user ID and password, use of smart cards, cryptography i.e. data encryption.
1.2.3. Different kinds of networks in banking
1.2.3.1. SWIFT

The Society for Worldwide Inter-bank Financial Telecommunications

(SWIFT) was formed during 1973 with its headquarters at Brussels and started
functioning in May 1977. RBI, 27 Public Sector Banks and a number of other
banks obtained its membership. It provides rapid, secure, reliable and costeffective mode of transmitting the financial message worldwide to more than
125000 offices of SWIFT members. It is taken care of through use of key
authentication mechanism, encryption and checksum. It is the responsibility of
the Regional Processor (in India at Mumbai).
1.2.3.2. Indian Financial Network (INFINET)

It is the satellite based VSAT network developed by Institute for

Development and Research in Banking Technology (IDRBT-Hyderabad, an
RBI sponsored organization) is fast and secures intra-bank and inter-bank
communication system.
1.2.3.3. Internet

xxxvi

Internet is global network of networks enabling computers of all kinds

to directly and transparently communicate and share services throughout the
world. The World Wide Web (WWW) is an imaginary space of information.
1.3. ELECTRONIC BANKING (E-BANKING)
With the advancement of technology, banking sector has become
more easy, fast, accurate and also time saving. ATMs, Mobile Banking, SMS
Banking and Net Banking are only the tip of an ice-berg. Finland was the first
country in the world to have taken a lead in e-banking. In India, it was ICICI Bank
which

initiated

E-banking as early as 1997 under the brand name infinity. E-banking is a genetic
term encompassing internet banking, telephone banking, and mobile banking. In
other words, it is a process of delivery of e-banking services and products through
electronic channels such as telephone, internet, cell phone. 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.5

Delivery of banks

services to a customer at his office or home by using electronic technology is called

E-banking. The quality, range and price of these electronic services decide a banks
competitive position in the industry. E-banking is defined as the automated delivery
of new and traditional banking products and services directly to customers through
electronic, interactive communication channels. E-banking is a convenient and
secure way to access customer account 24 hours a day, 7 days a week, through the
Internet.
E-banking products and services mainly include two types of products. First
wholesale products for corporate customers second retail and fiduciary for consumer.
Some examples of wholesale products and services include: cash management, wire
transfer, and bill presentment and payment. Examples of retail products and services
include: Balance inquiry, funds transfer, downloading, transaction information, bill
presentment and payment through cards, loan applications, investment activity, and
other values.
5

http://www.bankersonline.com/technology/gurus_tech081803d.html.

xxxvii

In olden days accepting of deposits and sanctioning loans and advances to

customers were the main functions of banks but to-day banks perform many new
functions such as agency function, financing of foreign trade, credit creation. For
performing all these functions efficiently many new e-banking products such as
credit card, debit card, ATM are used by banks.6 To-day, in view of global business,
the individual is not the icing. This will take the customer and banks are edging their
way towards cyberspace with innovative services taken to retain these customers.
1.3.1. Concept of e-banking
The concept and scope of e-banking is still evolving. E-banking facilitates an
effective payment and accounting system thereby enhancing the speed of delivery of
banking services considerably. While e-banking has improved efficiency and
convenience, it has also posed several challenges to the regulators and supervisors.
Several initiatives taken by the Government of India as well as the Reserve Bank of
India (RBI) have facilitated the development of e-banking in India.7 Daniel defines
electronic banking as the delivery of banks' information and services to customers
via different delivery platforms that can be used with different terminal devices such
as a personal computer and a mobile phone with browser or desktop software,
telephone or digital television.8 According to Karjaluoto, electronic banking is a
construct that consists of several distribution channels.

It should be noted that

e-banking is a larger concept than banking via the Internet.9

The Internet is a main delivery channel for electronic banking and its value to
customers and banks is continuously increasing.10 The face of the banking sector has

7
8

10

V. Gupta (2007). E-banking: Animator from Udaipur: An Evaluation from Marketing Perspective.
http://animatorfromudaipurindia. blogspot.com/2007/10/e-banking.html
Reserve Bank of India (2001). Available at www.rbi.org.in.
E. Daniel. Provision of electronic banking in the UK and the Republic of Ireland. International
Journal of Bank Marketing, Vol.17, no.2 (1999), pp.72-82.
H. Karjaluoto. Electronic Banking in Finland: Consumer Beliefs, Attitudes, Intentions, and
Behaviours. Unpublished Doctoral Dissertation, Finland: University of Jyvaskyla, (2002), pp.195.
M. Mattila. Essay on customers in the dawn of interactive banking. Unpublished Doctoral
Dissertation, Studies in Business and Economics, Finland: University of Jyvaskyla (2001),
pp.154.

xxxviii
changed rather considerably in recent years. One of the major contributors to this
changing face has been the increasing use of the internet and other electronic
channels for effecting banking and financial transactions. To-day, banks offer
services like internet banking, mobile-banking, payment of bills on

credit

cards, ATM withdrawals which have had a major impact on the economic growth
especially because they have led to the reduction of transaction time or increased the
reach of banking and financial sector to sections of people previously unexposed to
banking and financial services. All these new range of services are offered under the
umbrella of e-banking.
1.3.2. Impact and role of ebanking
Impact has become quite clear that the advent and proliferation of E-banking
has played a sizeable and significant role in promoting economic growth and
development in India. One of the major and visible benefits of the increased use of
electronic banking is that of assisting in financial inclusion. It has been seen that the
use of electronic banking has widened the reach of banks to the people previously
excluded from the banking system thereby improving the quality of living of such
people by providing access to banking and financial services. New products such as
payroll cards are being offered today which would help bring poor people within the
banking system. It has become well recognized that the use of e-banking helps in
increasing the transparency of the banking system. This has become especially
important due to the latest international initiatives in relation to anti-money
laundering. The movement from paper based payment systems to electronic means
of payment that the funds being transferred are easily trackable. This also adds to the
accountability of funds in an economy.
In a developing economy like India, e-banking has helped in modernizing the
financial systems, creating economic transparency and contributing to greater
predictability, liquidity and stability. But what has been the most important
advantage and the main reason for migration to electronic banking from traditional
paper based banking is that of the improved operational efficiency brought about by
its use. Reduction in transaction times and transaction costs has helped companies,

xxxix
governments and other end users of e-banking products to improve their operational
efficiencies to a great extent. VISA has estimated that electronic payment networks,
by increasing the efficiency and velocity of payments has the potential to create cost
savings of at least 1 percent of the GDP annually over paper based systems in any
given economy.11
E-banking will have two-fold effect, first, it will reach the remote consumer
and second it will create the awareness among consumer about benefits of
investment in different financial products. Investment in a turn or boost the financial
markets and economy. A research shows that a large urban population uses Internet
for gathering information about different financial products like personal loan, credit
card, insurance etc., thus reducing cost of printing, promotion and distribution.

1.4. E-BANKING PRODUCTS

To-day many types of e-banking products use by different banks for
providing better and quick services to their consumers. The important are described
below
1.4.1. Automated Teller Machine (ATM)12
These are the cash dispensing machines, which are frequently seen at banks
and other locations such as shopping centers, petrol bunks and building societies.
Their main purpose is to allow customers to draw cash any time and provide banking
services where it is not possible to open another branch of the bank. Because this
system allows customers to withdraw money any time from the bank it is popularly
known as Any Time Money

1.4.2. Debit card

A debit card is mainly used for two purposes - first for making cash purchase
and second for cash withdrawal. The debit cardholder should have an account with
the bank and the limit of the cardholder is determined by the amount standing in their
bank account.

When the holder makes a purchase, the merchant establishment

swipes the card on the electronic data capture machine which then debits the account
11
12

http://www.corporate.visa.com.
E-banking (2007). op. cit.

xl
of the holder. It is different from credit card, where the holder is charged much after
the purchase (20 to 50 days). Presently, banks are issuing ATM-cum-Debit card in
India.

xli
1.4.3. Mobile banking
Mobile banking (also known as M-banking, SMS banking) is a term used for
performing balance checks, account transactions, payments, etc. via a mobile device
such as a mobile phone. Mobile banking today (2007) is most often performed via
SMS or the mobile internet but can also use special programs called clients
downloaded to the mobile device. Mobile banking is defined as, Mobile Banking
refers to provision and availment of banking and financial services with the help of
mobile telecommunication devices. The scope of offered services may include
facilities to conduct bank and stock market transactions, to administer accounts and
to access customized information.13

1.4.4. Tele banking service

This facility is started for attracting customers who have no time to visit
banks. From this facility a customer can get information such as Account balance,
due balance and total balance, date of issue cheque, bill payment, and slip payment.
Any branch of commercial bank, which is computerized, can provide this facility
with the help of suitable software. Mainly this facility is provided with the help of a
Voice Response System (VRS). This system basically, accepts only TONE dialed
input (i.e. from callers phone instruments for dialing necessary numbers) and
suitable voice response messages /information to the caller (i.e. Account holder to
acquire the desired account details).
1.4.5. Smart card
This technique has been adopted for the last 25 years. Ronals Monero, a
French Journalist invented this so the French use it for performing their day-to-day
work is just like an electronic purse in which funds are collected in the form of
electronic wallets. Smart cards are being offered to consumers for small purchases. It
is very portable, quick and easy way for using our money. The smart card transaction
is normally lesser value. A cup of coffee, a newspaper, lunch or bus fare is typical
smart-card transactions. When we make purchase with smart card at that moment,

13

N.S. Toor (2008). op. cit.

xlii
the money is transferred from our card to the merchant. There is no delay waiting for
an authorization or signing a receipt.14
1.4.6. Electronic Clearing Service (ECS)
Two types of services are mainly included in the ECS
1.4.6.1. Electronic credit clearing
Under this system, companies who have to make bulk payments to a large
number of beneficiaries prepare the credit instructions on the magnetic media and
submit the same to Reserve Bank of India through their bankers. RBI processes the
data, arrives at inter-bank settlement and provides bank and branch wise reports
containing the details of payments to facilitate fast payment to the beneficiaries.
1.4.6.2. Electronic debit clearing
In fact, a branch prepare a floppy file through a table top MICR reader of all
such transfer advices and this floppy is received by the service branch which
consolidates for onward submission to the clearing house. Then the RBI debits the
individual bank and credits the sponsor bank of the utility company. Now-a-days this
scheme exists in seventy four locations in India including the four Metropolitan
cities of Mumbai, Delhi, Chennai, and Kolkata.15
1.4.7. Electronic Fund Transfer (EFT)
RBIs, EFT system is result of the Shere Committee recommendations. EFT
came into force from 2nd Feb. 1996. It was introduced by Reserve Bank of India to
help banks offering their customers, money transfer service from one account of a
bank branch to another account of any banks. EFT system is an improvement over
the existing system of demand draft mail transfer as funds are transferred in a day or
Two. With the help of EFT individuals and corporate can transfer funds without
leaving their premises.
1.4.8. Electronic cheques (E-cheque)
E-cheque technology is software and hardware developed by FSTC member
to (i) Minimize start up expenses (ii) Apply universal industry standards. It is mainly
based on the following technologies: The financial service mark up language, Strong
14
15

E-banking (2007). op. cit.

RBI Report on 2008-09.

xliii
digital signatures using any available algorithm, secure hardware tokens such as
smart cards, Digital certificates, and banking and business practices. It is valid u/s 6
of the Negotiable Instrument Act (as per 2002 amendment to NI Act).16

1.4.9 Electronic cash (E-cash)

The electronic cash is also referred as E-cash, net cash or digital cash. It
provides the means to transfer money between parties over a network such as the
Internet. It was started in August 1994. Its main aim is to work with financial
institution and merchant to provide an accessible and acceptable payment system on
Internet.17

1.4.10. Anywhere banking

Anywhere banking is the new system of banking adopted and made popular
by a few foreign banks. It is now adopted by many banks in India. This facility is a
technology based customer friendly service. Under this system, a customer having an
account with any select branch can operate it from other designated branches of the
bank throughout the country. The facility includes cash withdrawal, cash deposit,
transfer of fund, collections of local cheques, intra-city and intercity transactions.
Now distance is no hindrance and banking has become more convenient for
customers.
1.4.11. Real Time Gross Settlement System (RTGS)
RBI has launched the RTGS system to offer secure online fund transfers. It
helps the transmission and settlement of funds as per the customers instructions on a
constant basis. The system has various security levels such as 128 bit cryptography,
access security technology, and firewall technology. The RTGS has been operation
since March 26, 2004 and its implementation places India at par with the best
practices in the world in terms of payment systems.18

16
17
18

N.S.Toor (2008). op. cit.

E-banking (2007) op. cit.
N.S.Toor (2008). Computer and Banking Chapter 7, Hand Book of Banking information,
Skylark Publication, New Delhi, pp.7.1 7.25.

xliv
1.4.12. Cheque Truncation
Cheque Truncation solution is a big milestone in the Indian banking industry.
It enables cheque clearing on the same day, reducing floating time available for
funds. 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, there by bringing efficiency into the entire banking
system. India is doing something very unique because it has a very large cheque
volume. It processes about 1.2 billion instruments annually. The National Capital
Region alone processes 6,00,000 cheques in a day. Countries such as Singapore have
4,00,000 instruments daily. Cheque truncation will benefit both customers and
banks, and help to reduce frauds.19
1.4.13. Internet banking
With the popularity of PCs and easy access to Internet and World Wide Web
(www) is mainly used by banks as a channel for receiving instructions and delivering
their products and services to their customers. This form of banking is generally
referred as Internet banking/OnLine banking. Vinton Cerf, the father of the Internet,
envisioned an online environment populated by billions. The Internet, which was
born in 1969, would certainly catch fire, according to Cerf. estimated that three
billion users would be online by 2010, and the number of devices online could be
anywhere from six billion to 30 billion by 2020. Cerf. prophesied that by 2030, we
will be speaking to our computers and other appliances and they will respond. 20

1.4.14. Credit card

Credit cards have got wide spread acceptance in the metros and big cities.
They are gaining popularity for online payments. Credit card is also known as
Plastic Money. It is simply a piece of plastic which enables the holder to purchase
any goods and services, settle hotel bills, hospital bills, railways and railway
19
20

http://www.rediff.com/money/2008/feb/21inter.htm.
V. Perumal and B. Shanmugam. Internet Banking: Boon or Bane? Journal of Internet Banking
and Commerce. vol.9, no.3 (2004). http://www.arraydev.com/commerce/jibc/2004-12/perumal
/htm. (Accessed on 26.06.2005).

xlv
traveling tickets on credit. Credit Card holder pays the amount of the bank after a
specified period (20-50 days). The bank charges a fixed amount of interest for
overdue. The credit limit to card holder is fixed by taking into account the status of
the applicant. When the cardholder purchases the goods by using his credit card the
merchant puts the customers credit card on the card reader machine and collects all
the information related to the customer in his computer. On the basis of that to the
merchant receives his payment from the bank. After this the merchant presents his
claim in bank and the banks pay the prices of goods to him. Then the bank sends
bills to the customer for paying the prices of purchased goods. After receiving the
statement, the cardholder pays to the bank. In future when the customer makes
another credit purchase this process is run in the same direction.21

Banks issue credit cards. In this operation, when the payment is made, the
card has to be tendered to the PoS. It is processed at the network and if everything is
in order, the authorization slip is printed. We are then expected to sign the same, our
signature should be similar to the one on the Credit Card itself. We make payment
when the statement arrives. In credit card transaction the purchaser gets credit but the
seller gets his payment from the card issuer upon submission of counter-signed slips.
It is also a kind of EFT.

The development of the credit card is one of the most significant phenomena
of the modern financial services scene. Basically, the use of credit card enables one
to take advantage of the two essential aspects of the financial services function the
transmission of payments and the granting of credit. The development of the credit
card allowed, for the first time, the use of these two functions together. A credit card
is a monetary instrument that enables the cardholder to obtain goods and service
without actual payment at the time of purchase. It is also popularly known as plastic
money. The value of purchases made by the cardholder using the card is recovered at
the end of the specified period, usually a month, called the billing cycle. It can be

21

E-banking (2007). op. cit.

xlvi
said that a credit card is basically Buy Now Pay Later card that is provided to a
customer.

Need for promotion of credit card

The huge amount of cash in circulation leads to the following drawbacks. The
cost of printing and maintaining the currency is very expensive especially, in low
denomination notes. A high demand for currency results in shortage of currency for
circulation. The high incidence of cash transactions has an undesirable effect of
(a) inability to track transactions (b) leading to loss of revenue in the form of tax
evasion. All these factors point to the immediate need of promoting electronic
payments that is through cards.22

A credit card is a mode of cash-less transaction that allows the user to pay for
goods or services with the actual payment being made in instalments, over a period
of time. Most of the credit cards in the market belong to either Master Card or Visa.
For principal services to the industry they are typically paid 0.025 per cent of the
transaction by the issuing bank. The credit card market in India is about 25 million
with a value turnover of around Rs.2,500 crores. The market is expected to grow by
30 per cent p.a. This would still be a very low penetration of a potential market of 60
million cardholders. The credit card business is a low-margin, high volume business.
Thus, given the low income per card and the high initial investments by the bank,
large volumes in terms of cards issued and the transactions financed are required to
make the operations profitable.23

1.5. EVOLUTION AND GROWTH OF E-BANKING PRODUCTS IN INDIA

India is still in the early stages of e-banking growth and development.
Competition, changes in technology and lifestyle in the last five years have changed
the face of banking. The changes that have taken place impose on banks tough
standards of competition and compliance. The issue here is 'Where does India
22

23

N. Premavathy (2007). Financial Services and Stock Exchanges. Chennai: Sri Vishnu
Publications, p.5.7.
S. Gurusamy (2007). Merchant Banking and Financial Services. Chennai: Vijay Nicole Imprints
Private Limited, p.344

xlvii
stand in the scheme of e-banking.' E-banking is likely to bring a host of opportunities
as well as unprecedented risks to the fundamental nature of banking in India. The
impact of e-banking in India is not yet apparent. Many global research companies
believe that e-banking adoption in India in the near future would be slow compared
to other major Asian countries. 24
The Government of India enacted the Information Technology Act, 2000,
generally known as IT Act, 2000, with effect from the 17th October 2000 to provide
legal recognition to electronic transactions and other means of electronic commerce.
Considerable progress has been made in consolidating the existing payment systems
and in upgrading technology with a view to establishing an efficient, integrated and
secure system functioning in a real-time environment. Major projects under
implementation are electronic clearing, centralized funds management, structured
financial messaging solutions and the Indian Financial Network (INFINET).
Facilities under electronic funds transfer (EFT) have been upgraded and their spatial
reach expanded with multiple settlements in a day. Foreign exchange clearing has
been initiated through the Clearing Corporation of India Limited (CCIL). Adequate
security features are being incorporated into the EFT.25

In India, approximately one percent of high and middle-income group

banking customers conducted banking on the Internet in 2000 compared to 5 to 6
percent in Singapore and South Korea. In 2001, a Reserve Bank of India survey
revealed that more than 20 major banks were either offering e-banking services at
various levels or planned to do so in the near future. Some of the private and foreign
banks included ICICI Bank, HDFC Bank, IndusInd Bank, IDBI Bank, Citibank,
Global Trust Bank, Bank of Punjab and UTI Bank. In the same year, out of an

24

25

M. Vij (2001). E-banking: An Emerging Perspective of the Regulation and Taxation Issues. Delhi,
India: University of Delhi, p.1482.
Reserve Bank of India (2001). Report on Internet Banking available at www.rbi.org.in. June 22,
2001.

xlviii
estimated 0.9 million Internet user base, approximately 17 per cent were reported to
be banking on the Internet.26

According to Nasscom's Internet Survey in 2004 on the Internet usage trends,

the number of active Internet subscribers in India is increased to over 4.4 million and
the user base to over 32 million. In the year 2005 internet user base to over 53
million banking and finance market have got the largest share that is 21 per cent
among the other sectors of economy in using information technology. Thus there is a
lot of scope for banking institutions to expand their Internet banking or e-banking
services to have a more sophisticated customer base. It also found that more than 200
cities and towns in India have Internet connectivity. Thus efficiency, growth and the
need to satisfy a growing tech-survey consumer base are the three clear rationales for
implementing E-banking in India.27

Private and foreign banks have been the early adopters of e-banking while the
Public sector banks are also beginning to hold on to the competition. ICICI Bank and
HDFC Bank have taken a lead in introducing e-banking in India. ICICI Bank is the
first one to have introduced Internet banking for a limited range of services such as
access to account information, correspondence for the first time in 1996 and recently,
funds transfer between its branches.28

ICICI is also getting into e-trading, thus

offering a broader range of integrated services to the customer. Other banks also
followed suit. The Indian banking has exhibited above statistics reveals that India
does have a high growth potential for e-banking.
1.5.1. Growth of value/volume of e-banking transactions in India an analysis
26

27

28

V. Gupta (2004). E-Banking Global Perspective, Banking Series. Hyderabad: The ICFAI
University Press, pp.214. ISBN 8178810646 (Accessed on 22nd January 2007).
M. Vij. (2001). E-banking: An emerging perspective of the regulatory and taxation issues. India:
University of Delhi, p.1487 (Accessed online on 25th June 2007).
D. Rajneesh and C. Padmanabhan (2002). Internet opens new Vistas for Indian
Banks.
available
at
http://www.expresscomputeronline.com/20020916/indtrendl.shtml,
September 16 (Accessed as on August 22, 2003).

xlix
As a result of the technological development, the proportions of electronic
transactions both the terms of volume and value have increased sharply.
It is indeed heartening to note that electronic payment in India has seen a huge
growth and that augurs well for the companies and the economy. The following
tables capture the through put of various electronic payment channels in India during
2003-04 to 2008-09 both in terms of value and volume.

TABLE 1.1 Value of transaction through electronic and paper based payment
methods from 2003-04 to 2008-09
(Rs. in crore)
Year

EFT/
NEFT

ECS
(Credit)

ECS
(Debit)

Credit
cards

Debit
cards

Cheques/
DD*

2003-04

17,125

10,228

2,254

17,663

4,874

1,15,95,960

52,143

2004-05

54,601

20,180

2,921

25,686

5,361

1,04,58,895

1,08,750

2005-06

61,288

32,324

12,987 33,886

5,897

1,13,29,134

1,46,383

2006-07

77,446

83,273

25,440 41,361

8,172

1,20,42,426

2,35,693

EP
(Total)

2007-08

1,40,326 7,82,222 48,937 57,959 12,521 1,33,96,066 10,41,992

2008-09

2,51,956

97,487

66,976 65,356 18,547 1,24,61,202

Growth
(%)
2007-08

81.19

839.35

92.36

40.13

53.22

11.24

342.10

Growth
(%)
2008-09

79.55

-87.54

36.86

12.76

48.13

-06.99

-51.98

Source: RBI, Money and Banking, Monthly Bulletin (May 2009).

5,00,322

TABLE 1.2 Volume of transaction through electronic and paper based payment
methods from 2003-04 to 2008-09
(Rs in lakh)

Year

EFT/
NEFT

ECS
(Credit)

ECS
(Debit)

Credit
cards

Debit
cards

Cheques/
DD*

EP
(Total)

2003-04

08.19

203.00

79.00

1,001.79

377.57

10,228

1,670

2004-05

25.49

400.51

153.00

1,294.72

415.32

11,669

2,289

2005-06

30.67

442.16

359.58

1,560.86

456.86

12,868

2,850

2006-07

47.76

690.19

752.02

1,695.36

601.77

13,673

3,787

2007-08

133.15

783.65

1,271.20

2,282.03

883.06

14,606

5,353

2008-09

321.61

883.94

1,600.55

2,595.61

1,276.54

13,959

6,678

Growth(%)
178.78
2007-08

13.57

69.04

34.60

46.74

06.82

41.35

Growth(%)
141.61
2008-09

12.80

25.91

13.74

44.56

-04.43

24.75

Source: RBI, Money and Banking - Monthly Bulletin (May 2009).

*

More than 80 per cent of the cheques by volume got cleared in Magnetic Ink Character
Recognition
(MICR) - Automated Cheque Processing Centres.
EP-Electronic
Payments, ECS-Electronic Clearing Service, EFT-Electronic Fund Transfer.

This data clearly indicates that all the EPs are growing at phenomenal rate
in India by volume and value of transaction. During the year ending 2008-09,
Electronic

Clearing

Service

(ECS)

debit

by

an

incredible

36.86

per cent by value and 25.91 per cent by volume. ECS credit down to -87.54 per cent
by value and grew up 12.80 per cent by volume of transactions. The EFT/NEFT
grew by 79.55 per cent by value and 141.61 per cent by volume, debit cards grew by
48.13 per cent by value and 44.56 per cent by volume, and Credit cards grew by

li
12.76 per cent by value and about 13.74 per cent by volume of transactions. The
paper-based transaction did not grow up alternatively these have negatively grown
up in India for -04.43 per cent by volume and -06.99 per cent by value of transaction.

In recent years, the use of electronic payments has witnessed manifold

increase, partly reflecting increased adoption of technology. The growth volume of
transaction directed through electronic payment method. However decelerated from
41.35 to 24.75 per cent by volume and 342.10 to -51.98 per cent by value in
2008-09.
More strikingly, the value of transactions directed through electronic
payment method declined sharply during 2008-09. The entire decline is due to 87.54
per cent fall in value of transaction in respect of ECS credit. It is noteworthy in
this regard that the sharp rise in ECS credit value during 2007-08 was mainly due to
the refund of the oversubscription amount of IPOs floated by companies using
electronic mode as mandated by the Stock Exchange (cf: RBI Report 2008-09).
Therefore, the decline in value in ECS credit transactions during 2008-09 may be
interpreted more as returning to normal trend rather than a matter of concern. The
volume of ECS credit and more significantly ECS debit continued to show an
increasing trend during 2008-09 in line with the trend witnessed during past few
years. The Indian banking system has been exhibited resilence against the backdrop
of global financial turmoil and slowdown of the Indias economy.

In total during the financial year from 2003-04 to 2008-09, the paper based
transaction did not grow much but electronic banking transaction has grown up
around 9 times (860%) in value three times (300%) in volume. It is concluded that
customers prefers electronic mode of transaction than paper based instruments which
is healthy environment for Indian economic growth.
Further, these are clear indications that corporate India is aware of these
options and are beginning to use them. The banks in India are also aggressive in
promoting these payments options as part of their cash management options as they

lii
also benefit from the migration of paper based payments instruments (that are
inherently costly) to EP options which are more cost effective. The EP options also
allow the companies to track the receipts in a more transparent manner and manage
payments and liquidity more efficiently.
Recently, the RBI working group on e-payments has suggested a number of
measures to accelerate the adoption of e-payments in India. These include providing
incentives to electronic transactions by either not having any charges (RBI has
implemented this from April 1, 2009, customers were allowed to use their ATM
cards free of charge to withdraw cash from Automated Teller Machine of any
commercial banks across the country) or keeping them lower than the charges for
paper based instruments and expanding NEFT enabled branches. Therefore, Indian
firms are well advised to quickly adopt electronic payments options to ensure that
their financial transactions costs do not increase. Moving customers to ECS would
provide the firms cost benefit in terms of collecting these payments quicker, give
them regularity in payment and provide the much needed visibility to payments. All
these help in better cash management by the organization.
1.5.2. Growth of Automated Teller Machine (ATM)
The first Automated Teller Machine (ATM) was introduced in the year 1967
by Barclays Bank in Enfield Town, North London. ATM usage is rising among
Indians, and more people are now moving towards it for their banking needs.
According to a 2006 survey by Banknet India, 95 per cent people now prefer this
modern channel to traditional mode of banking. Almost 60 per cent people use an
ATM at least once a week. The number of ATMs installed in the country grew by
almost 19 per cent, from 17,642 in March 2005, to more than 21,000 in March 2006.
Further grew by almost 29 per cent, from 21,000 in March 2006, to more than 27,000
by March 2007. As at the end of March 2009, ATMs of scheduled commercial banks
were increased to 43,651 from 34,789 by March 2008. It represents the growth of
24.47 per cent with number of ATMs of SBI registering a sharp growth of 34.50 per
cent. While, the ATMs installed by new private sector banks and foreign banks were
more than 3 times of their respective branches, the ATMs to branch in the country at
end march 2009, the new private sector banks had the largest share in off-site ATMs,

liii
while nationalized banks had the largest share in onsite ATMs in India.29 Further it
reveals that in four years in between 2005 to 2009, the growth of ATM at the rate of
127 per cent. Wide acceptance of ATMs by consumers, introduction of biometric
ATMs, and increasing scope of value-added ATM services will maintain further
growth in the banking industry.
Migration of routine bank transactions like cash withdrawals and balance
enquiries from teller counters to ATMs significantly raises the potential for savings
in employee costs. The cost per transaction at an ATM reduces to Rs.18 from Rs.
40+ at a branch. Now ATMs were not only used to cash withdrawal and balance
enquiry but also Cash /Cheque deposit, Bill payments, Sale of paper based products.
Money Transfers, Recharge Mobiles, Donations to Temples and Advertising.
1.6. E-BANKING GLOBAL SCENARIO
The banking industry is expected to be a leading player in e-business. While
the banks in developed countries are working primarily via Internet as non-branch
banks, banks in the developing countries use the Internet as an information delivery
tool to improve relationship with customers.

In early 2001, approximately 60 per cent of e-business in the UK was

concentrated in the financial services sector, and with the expected ten-fold increase
of the British e-business Market by 2004, the share of the financial services will
further increase. Around one fifth of Finish and Swedish bank customers are banking
online, while in the US, according to UNCTAD, online banking is growing at an
annual rate of 60 per cent and the number of online accounts has reached 15 million
by 2003. 30

In Asia, the major factor restricting growth of e-banking is security, in spite

of several countries being well connected via Internet. Access to high-quality
29
30

RBI Report 2008-09.

V. Gupta (2004). E-banking global perspectives. Institute of Chartered Financial Analysts of India
(ICFAI), Hyderabad: University Press. Available online at http://www.flipkart.com.

liv
e-banking products is an issue as well. Majority of banks in Asia are just offering
basic services compared with those of developed countries. Still, e-banking seems to
have a future in Asia. According to McKinsey Survey, e-banking will succeed if the
basic features, especially bill payment, are handled well. Bill payment was the most
popular feature cited by 40 per cent of respondents of the survey. However,
providing this service would be difficult for banks in Asia because it requires a high
level of security and involves arranging transactions with a variety of players.

The market for Electronic Bill Presentment and Payment (EBPP) is growing.
According to a study, 56.0 million households in the US pay their bills online by
2008 compared to 29.6 million households in 2003, online household increased by
85 per cent of payer from 50 per cent in the year 2003. Growth of e-commerce is
dependent on e-money which is a new concept. The payment system in US
comfortability with regards to various payment methods, was reported that electronic
cards payment 50 per cent ($3.14 trillion ) in the year 2005.31 As more number of bill
payers is getting online, several banks are making efforts to find ways to meet the
growing needs of EBPP.
1.7. E-BANKING - REDUCED TRANSACTION COSTS
E-banking has been repeatedly shown that as a delivery or distribution
channel, the Internet could bring a substantial advantage for banks. The frequently
quoted Booz-Allen and Hamilton study showed that the cost of a customer walking
into the branch and using a teller is USD1.01, whereas the cost of conducting the
same transaction on the Internet is only USD 0.1 one-tenth of the cost. No doubt the
ATM is 0.27 USD considerably cheaper than a teller, but even so, the Internet is
nearly more than 3 times cheaper than the ATM usage. In short, replacing a teller
with an Internet channel should in theory, show a ten-fold increase in the distribution
revenue for the bank. This reason alone should be sufficient for banks to encourage
this form of distribution channel.

31

www.epaynews.com.

lv
A cost comparison study done by IBM global services consulting group
clearly shows the advantage of using Internet as a medium for banking services over
the other traditional media. As per the recent survey, traditional banks spend 60 per
cent of the revenue generated to run a branch. Whereas the cost of providing same
services via Internet comes out to be only 15 per cent. This is a huge savings for
banks and consumers. Definitely the consumer is the principal beneficiary of the
Internet Banking. They will be access the same services with more efficiency at low
cost. Thus, there is lot of scope for banking institution to expand their internet
banking or e-banking services to have a more sophisticated customer base.
1.8. E-BANKING ISSUES AND CHALLENGES
E-banking utilizes technology to allow a bank's customers and other
stakeholders to interact and transact with the bank seamlessly through a variety of
channels such as the Internet, wireless devices, ATMs and physical branches.
Internet banking is one component of a comprehensive e-banking offering.
E-banking has exploded into the web and the Internet is a powerful and cost effective
medium for business to interact with and service their customers. The number of
online banking services to customers continues to grow and the Internet offers
enormous opportunities for banks, and other financial services to fundamentally
reshape their organizations (US web corporation). Banks can generate revenue
through increased account, access fees and benefit from promotional opportunity to
cross-sell products such as credit cards and loans.

Competition and changes in technology and life styles have changed the face
of banking and banks in the present environment are seeking alternative ways to
provide and differentiate their services. For enabling either information access or
transactions, banks have to put up a website. There is data to suggest that most
hacking activity that happens is targeted at breaking into web-site security.32

32

http://www.infosys.com/finacle/solutions/solutions_ebanking.asp_october_11/2008.

lvi
Banks as well as consumers view the security threat as perhaps the most
serious threat. Denny33 observes that the security of Internet access to client account
is the biggest challenge facing banks. For success in the increasingly competitive
financial services market, banks are finding that a comprehensive online banking
strategy is essential which also provides the essential security requirements. Security
policy should include management commitment, technological support and effective
disseminations of the policy and the security awareness of all users.
Crocin34 observes that the implementation of SET, the standard for secure
electronic transactions on the Internet and its widespread adoption including security
measures like encryption, digital authentication, and verification of on-line identity
increase consumer confidence. To compete in a market transformed by globalization
and technological revolution, banks have been forced to seek alliance and establish
joint ventures to maintain their competitiveness and efficiency. 35

E-banking will offer a transparent environment to compare the cost and

quality of services offered by a variety of financial institutions. As a result the focus
is going to shift from generic banking service to customized banking services.

1.9. REGULATION AND CYBERSPACE

Carse36 observes that the development of regulation and supervision of
e-banking is still at an early stage and is evolving. As institutions have become more
global and complex, two issues have become important in risk management and
regulatory framework for e-banking. The important question in this context is
whether a global regulating body is essential for e-banking. The point to take into

33

34

35

36

S. Denny. The electronic commerce challenge. Journal of Internet Banking and Commerce,
vol.3, no.3 (2000). Available online:www.arraydev.com/commerce /JIBC/article/htm (Accessed
on 7th January 2001).
Mary J. Crocin (1998). Defining net impact: The realignment of banking and finance on the
web. In Banking and Finance on the Internet. New York: John Wiley and Sons.Chap.1.
S. Denny. The electronic commerce challenge. Journal of Internet Banking and Commerce,
vol.3, no.3 (2000), p.3.
D. Carse (1999). Keynote speech on The regulatory framework of E-banking. Symposium on
Applied R & D enhancing global competitiveness in the next Millennium held on October 2, 1999.
Available online at www.info.gov.hk/hkma/eng/speechs/david/ speech_ 081099b.htm.

lvii
account here is that regulations based on national boundaries are of little value for
business trading globally on the Internet. The Internet affects too many interests and
raises too many social questions and business need to be aware of regulations in
other countries and how these might apply to them. As cyberspace is inherently
international there are some aspects that will be globally regulated but the primary
part of regulations will be country specific.37

1.10. TAXATION AND E-BUSINESS

An increasing number of countries are now realizing the problems posed by
taxation and e-business transactions. Tax laws of most countries have not kept pace
with the increasing trade in digital products. The problem here is that the tax systems
of most countries were developed when international trade and capital movements
were limited and are thus ill suited for an integrated world economy. Thus, the aim
should be to develop a taxation system for cyberspace that ensures that the full
potential of electronic networks is realized. This will require tax authorities from
around the globe to fluently develop globally accepted principles of taxation.
Industry will also play an important role in developing technically feasible solutions
to tax electronic transactions.

37

H. Engler and J. Essinger (2000). The Future of Banking: London, Reuters Ltd., Pearson
Education, accessible online www.igi_global.com.

lviii
1.11. REVIEW OF LITERATURE
A review has been primarily to identify appropriate methodologies and
a subset of the articles/reports which has been reviewed. A few available literatures
on e-banking products such as Internet banking, Mobile banking, ATMs, Debit cards
and Credit card in India and internationally reflect the current status of e-banking.
There are numerous research and papers that study the evolution and growth of
electronic banking and credit card in India and the world. A review of some of them
are given below, the description has been organized under the following heads:
1.11.1. E-banking
Lustsik38 based on the survey of experts of e-banking in Estonian banks found
that Estonia has achieved significant success in implementation of e-banking and
also on the top of the list in emerging countries. All the major banks are developing
e-business as one of the core strategies for future development.
Al-Jadeed39 in his thesis looks at the emergence and evolution of e-banking
in Saudi Arabia. The methodological approach makes use of the case study strategy
as research strategy, a multiple-case embedded design, as research design strategy.
He suggests that the Saudi Arabian e-banking constituency- building process shows
distinctive processes of socio- technical alignment by each one of the specific Saudi
banks e-banking constituencies in the study.
Goi40 in his article states E-banking has to be a delivery channel that
replicates and replaces many of the physical functions a bank currently performs.
Hence, the e-banking now becomes a virtual banking counter for the individual and
corporate customer to carry out a regular activity.

38

39

40

O. Lustsik (2003). E-Banking in Estonia: Reasons and benefits of rapid growth. Kroon and
Economy, vol.3, no.23, pp.27. Lymperopoudos.c_and_Loanis,Portal.acm.org/cititation/cfm?
id=1552229. Available at:SSRN_http//:ssrh.com.
M.N. Al-Jadeed. A strategic perspective on the emergence and evolution of
e-banking in Saudi Arabia. Unpublished Doctoral Thesis, UK: University of Edinburgh, (2007),
Chapter Summary pp.14.
C.L. Goi E-banking in Malaysia: opportunity and challenges. Journal of Internet Banking and
Commerce, vol.10, no.3(2005) pp.8.<http://www.arragdev.com/commerce/JIBC/200602/goi.htm>

lix

Unnithan and Swatman41 in their working paper state that the drivers for
change in the evolution of the banking sector, and the move towards electronic
banking by focusing on two economies Australia and India. The paper found that
Australia is a country with Internet ready infrastructure as far as telecommunication,
secure protocols, PC penetration and consumers literacy is concerned. India, by
comparison, is overwhelmed by weak infrastructure, low PC penetration, developing
security protocols and consumer reluctance in rural sector.
Agarwal et al.,42 explored the role of e-banking in e-democracy. With the
development of asynchronous technologies and secured electronic transaction
technologies, more banks and departments were using Internet for transactional and
information medium. Initiatives such as E-SEVA and FSCs are the milestones
towards achieving comprehensive e-governance.
Yibin43 in his paper, states that e-banking not only improves the access to
finance, particularly for SMEs, but also allows access to finance with better and
more competitive rates, and use online banking as a new delivery tool to improve
access to finance and alleviate financial constraints. As a regulatory authority, it
focuses on core principles and Basle capital Accord.
Sadiq Sohail and Shanmugham44 in their article on an empirical research that
was carried out in Malaysia to study the customers preference for electronic banking
and the factors, which they considered influenced the adoption of electronic banking

41

42

43

44

C.R. Unnithan and P. Swatman. E-banking adaptation and dot.com viability: A comparison of
Australian and Indian experiences in the banking sector. Working paper, School of Management
Information Systems, Deakin University, no.14 (2001).
N. Agarwal et al. E-banking for comprehensive/E-democracy: An Indian discernment. Journal
of Internet Banking and Commerce, vol.8, no.1, (2003) pp.1-8. (Accessed on 2/07/20007.
www.arraydev.com/commerce/Jibc/0306.05.htm)
M.U. Yibin. E-banking: Status, trends, challenges and policy Issues. The World Bank paper
presented at CBRC Seminar on The Development and Supervision of E-banking, Shanghai held
on November 24-26, 2003. <papers.ssrs.com/5013/available at SSRN_SSRN. ID485343_ Code
:361708.pdf>
M. Sadiq Sohail and B. Shanmugham. E-banking and customer preferences in Malaysia.
Information Sciences, vol.150, no.3-4 (2003), pp.207-217.

lx
give results based on the analysis of data relating to 300 respondents indicate that
while there is no significant differences between the age and educational
qualifications of the electronic and conventional banking users, some differences
exists on other demographic variables. Analysis further reveals that accessibility of
Internet, awareness of e-banking, and customers reluctance to change are the factors
that significantly affected the usage of e-banking in Malaysia.
Guru et al.,45 in their article examined the various electronic channels utilized
by the local Malaysian banks and also accessed the consumers reactions to these
delivery channels. It was found that Internet banking was nearly absent in Malaysian
banks due to lack of adequate legal framework and security concerns. However over
60 percent of the respondents were having Internet access at home and thus
represented a positive indication for PC based and Internet banking in future.
Siam46 in his study aims at examining the effects of electronic banking on
banks profitability in Jordan. This study investigates the reasons behinds providing
electronic banking services through internet, their impact on banking services in
general and banks profitability in particular. The findings of the study are the impact
of electronic banking on banks profitability will be feature of the short run due to the
capital investment by the banks on infrastructure and training but will be positive on
the long run.
Subramanian and Swaminathan47 concluded that customers preferred
electronic mode of transaction than paper based instruments, which is healthy
environment for Indian economic growth. Further, these are clear indications that
corporate India is aware of these options and are beginning to use them. The banks in
India are also aggressive in promoting these payments options as part of their cash
45

46

47

B. Guru et al., Electronic banking in Malaysia: A note on evolution of services and consumers
reactions. Journal of Internet Banking and Commerce, vol.5, no.1, (2000).pp.1-12,
ISSN:12045357.
A.Z. Siam. Role of the electronic banking services on the profits of Jordanian banks. American
Journal of Applied Sciences. vol.3, no.9 (2004), pp.1999-2004.
S. Subramanian and M. Swaminathan (2009). A Study on Evolution of E-Banking in India.
Impact of Economic Crisis in Global Business Scenario. Chennai: Anuragam, pp.229-239.

lxi
management options as they also benefit from the migration of paper based
payments instruments (that are inherently costly) to EP options which are more cost
effective. The EP options also allow the companies to track the receipts in a more
transparent manner and manage payments and liquidity more efficiently.
Kassim48 in his study investigates that on the discrepancy between customer's
expectation and perception towards the e-banking services.
Casal et al.,49 in their article looks at customer loyalty and positive word-ofmouth (WOM) have been traditionally two main goals aimed at by managers. The
purpose of this paper is to characterize both concepts in the e-banking context. The
influence of satisfaction and website usability in developing customer loyalty and
positive WOM in the e-banking business were measured. Their research findings
showed that satisfaction with previous interactions with the bank website had a
positive effect on both customer loyalty and positive WOM.
Yousafzai et al.,50 in their study examine the future growth of
e-banking issues of security and privacy must be removed. In an experimental
setting, this study examines the effectiveness of potential trust-building strategies for
e-banking and their impact on on-line customers' perceptions of trustworthiness of
the bank, by specifically focusing on the information clues presented on the bank's
Web site.
Deutsche Banks Research, E-banking snapshot, retail banking via internet,
banking online boosts and curbs customer loyalty, their projection more than
25 million Germans will uses online banking by 2008. Further online research,
online bank customers are more loyal, the number of contacts with the bank
48

49

50

N.M. Kassim, Qatar E-banking service quality: Gaps in the Qatari banking industry. Journal of
Internet Banking and Commerce, vol.10, no.2 (2005), pp.5. Available online:
www.arraydev.com/commerce/jibc/2005-08/kassim_try.asp_ISSN:12045357.
L.V. Casal et al. Developing customer loyalty and positive word-of-mouth in the e-banking
services. International Journal of Bank Marketing, vol.26, no.6, (2008),
pp.399-417
<http://www.emeraldinsight.com.october_11_2008.IST:15.00hrs>
S.Y. Yousafzai et al. Strategies for building and communicating trust in electronic banking: A
field experiment. Psychology and Marketing, vol.22, no.2 (2005), pp.181-201.

lxii
increases with online banking. Internet experience and infrastructure are important
drivers of oneline banking. Many consumers consider flashing a golden, platinum, or
black credit card at the point of sale as an uplifting experience.51
Nair52 observes that Indian e-banking is still nascent, although it is fast
becoming a strategic necessity for most commercial banks, as competition increases
from private banks and non banking financial institution

A recent study from Javelin Strategy and Research, a firm based in

Pleasanton, CA, suggests on-line banking, bill payment and electronic bill
presentment can reduce the risk of identity fraud at banks and for consumers by more
than 10 per cent, with a potential savings to banks and other businesses of about $4.8
billion annually. According to the Federal Trade Commission, identity theft has
affected about 27 million people in the U.S. over the last five years and has cost
banks and other businesses about $47 billion annually. Consumers lost $4.9 billion to
identity theft in 2002 alone. 53
According to Visa Internationals latest data, an average Indian cardholder
uses their card 9.3 times, spending about Rs.14,700 per year. A number of card
owners do not use their cards and almost 20 - 30 per cent cards are inactive
(less than one usage every quarter). An important fact that should be observed is that
it is only in the past few years that the Indian customer is beginning to accept
Credit. The Indian culture doesnt promote credit, and it is this outlook change
which is the most important development for the credit card industry. ABN Amro,
for instance, backed up their launch of the Freedom Card with research showed that
the Indian middle class views the credit card as a potential debt.54

51

52

53
54

Deutsche Bank Research (2006), Banking online boosts and curbs customer loyalty. Available
online at:www.drresearch.de/prod.
A. Nair. Indian Internet Banking still nascent. Asia Internet News (May 12, 1999) <http:
//www.asia.internet.com/asianews/print>.
Business Line, Chennai (April 18, 2008).
Our Bureau. Credit card holder behaviour. Business Line, Chennai (April 20, 2008).

lxiii
The Indian Banker55 the article on e-payments as the currency of the future,
payment cards, electronic bill presentment and payment (EBPP), internet banking,
mobile banking payment are the some of the other electronic payment mechanisms
that are likely to replace paper based payments in future.
Balakrishnan56 in his article published the adoption of new age electronic
payments systems and use of new practices in inventory and production management
help the companies achieve long-term reduction in working capital management
requirement. It was further stated that moving customers to electronic clearing
service (ECS) would provide the firms cost benefit in terms of collecting these
payments quicker, give them regularity in payment and provide the much needed
visibility to payments.
Devaprakash57 states that branchless banking is the way forward in Indian
context. The future of banks holds much promise, if banking is not class, geography,
and access neutral. It is not only affordable financial services, but well accessible
policy options with efficient outreach mechanisms, scalable financial products and
sustainable institutional process that hold the key to more inclusive banking which
alone can make the financial markets work for the frontier population in the long run.
It is important that the outreach processes, delivery channels, and business models
demonstrate appropriate and relevant solution including leveraging IT based
solutions.
Furst et al.,58 in their U.S. based study found out a significant shift by
consumers and businesses to electronic payments. The gains from technological
advancements in banking and payments are likely to be substantial both from the
55

56

57

58

Cover Story. E-payments as currency of future. The Indian Banker, Monthly Journal, vol.2, no.6
(2007), pp.14-16.
M. Balakrishnan. Working capital management Impact of emerging electronic payment options
in India. The Indian Banker, vol.2, no.6 (2007), pp.18-26.
R. Devaprakash. Branchless banking way forward in India context. The Indian Banker, vol.3,
no.8 (2008), pp.24-29.
K. Furst, Lang, W.W. and Nolle E. Daniel Technological innovation in banking and payments,
industry trends and implication for banks, Office of the Controller of the Currency, Quarterly
Journal, vol.17, no.3, September, 1998.

lxiv
point of view of individual financial institutions and economy. In this environment,
banks should review and, if necessary, adjust their risk management practices in
tandem with upgrading their technology activities.

1.11.2. Internet banking

Booz-Allen and Hamilton, Inc., in their World Wide Survey59 revealed that a
huge perception gap between Japanese and American/European banks regarding
internet banking.
Egland et al.,60 in their study find out that estimated the number of U.S.
banks offering Internet banking and analyzed the structure and performance
characteristics of these banks who have found no evidence of major differences in
the performance of the group of banks offering Internet banking activities compared
to those that who do not offer such services.
Kurtas61 in his study of investment opportunities in direct and internet
banking and he found that American banks use their web sites not only to provide
classical operations such as fund transfer or account details, but also to provide stock
trading in the world markets, financial calculators, investment advice, and bill
payments. This objective can be generalized to banks in developing economies that
can no longer ignore the internet as a strategic weapon and distribution channel for
their services.

59

60

61

Booz-Allen and Hamilton, Inc. A huge perception gap between Japanese and
American/European banks regarding internet banking. Worldwide Survey (April 22, 1997).
Available online: http://www.bah.com/press/ebankstudy.html.
K.L. Egland et al., Banking over the internet. Quarterly Journal, Office of the Comptroller of
the the Currency USA, vol.17, no.4 (1998), pp.25-30. Available online:www.springerlink.com/
index/8105631176171148_pdf.
A. Kurtas. Analytical study of investment opportunities in direct and internet banking
(Translated). Arab Banks Union Magazine. (June 2000), pp.35.

lxv
Sullivan62 in his study found that Internet banks in Tenth Federal Reserve
District incurred higher expenses but also generated higher fee income and
concluded that the measures of profitability for Internet banks are similar to those of
the non-Internet banks.
De Young63 in his paper investigated that the performance of Internet-only
banks and thrifts in the U.S. The study suggested that the Internet-only banking
model may be feasible when executed efficiently.
In the same year64 who has find out that the average one year old Internetonly bank earned significantly lower profits than the average one year old branching
bank, due to low business volumes and high non-interest expenses. It supports the
proposition regarding the Internet-only banks, a fast growth but low (or) no profits.
Jasimudin65 in his article found that the banks in Saudi Arabia viewed the
Internet as a key alternative delivery channel.
Diniz66 in his research survey on websites of banks in USA, we can see
American banks using the web to reach opportunities into three different categories
to market information, to deliver banking products and services and to improve
customer relationship.

62

63

64

65

66

R.J. Sullivan. How has the adoption of internet banking affected performance and risk at banks?
A look at Internet banking in the Tenth Federal Reserve District, Finance Industry Perspectives,
Federal Reserve Bank of Kansas City (December 2000). pp.1-16 . Available online: www.
kansascity_fed.org.
R. De Young. Learning-by-doing, scale efficiencies and financial performance at Internet only
banks. Working Papers 2001-06. Federal Reserve Bank of Chicago (2001a)
R. De Young . The financial performance of pure play Internet banks. Economic Perspectives,
vol.25, no.1 (2001b), pp.60-75.
S.M. Jasimuddin. Saudi Arabian banks on the web. Journal of Internet Banking and Commerce.
pp.4. Available online: www.arraydev.com/commerce/jibc/0103_02.html.
E. Diniz (1998). Web banking in U.S.A. Journal of Internet Banking and Commerce.
<http://www.arraydev.com/commerce/jibc/9806_06/htm.>

lxvi
Suganthi et al.,67 in their article review Malaysian banking sites. It revealed
that all domestic banks were having a web presence. There are various psychological
and behavioural issues as trust, security of Internet transactions, reluctance to change
and preference for human interface which appear to impede the growth of Internet
banking
Furst et al.,68 in their comparative study of Internet and non-Internet banks in
U.S. and found that institutions with Internet banking out performed than nonInternet banks in profitability.
Koedrabruen and Raviwongse69 in their study investigated, designed and
developed an Internet based retail banking prototype that meets the requirements of
the Thai customers. The survey from the executives of four Thai banks revealed that
there was a potential growth for retail Internet banking in Thailand.
Corrocher70 investigated that the determinants of the adoption of Internet
technology for the provision of banking services in the Italy. The results of the
empirical analysis, banks seem to perceive Internet banking as a substitute for the
existing branching structure.
Hasan71 in his working paper states that Do Internet activities add value.
the Italian bank experience found that online home banking has emerged as a
significant strategy for banks to attract customers.

67

68

69

70

71

Suganthi et al. Internet banking patronage: An empirical investigation of Malaysia. Journal of

Internet Banking and Commerce, vol.6, no.1 (2001), pp.8.
K. Furst et al. Internet banking: Developments and prospects. Working Paper. US: Center for
Information Policy Research, Harvard University (April 2002).
P. Koedrabruen and R. Raviwongse. A prototype of a retail Internet banking for Thai customers.
International Journal of Retail and Distribution Management, vol.31, no.4 (2002), pp.190-202.
N. Corrocher. Does Internet banking substitute traditional banking? Empirical evidence from
Italy. Working Paper, CESPRI, no.134 (November. 2002), pp.32.
I. Hassan (2002). Do Internet activities add value? The Italian bank experience. Working Paper.
New York University: Federal Reserve Bank of Atlanta. Berkley Research Centre, pp.25.

lxvii
Janice et al.,72 conducted a case study in Hong Kong banks view the Internet
as being a supplementary distribution channel for their products and services in
addition to other forms of distribution channels. Basic transactions and securities
trading are the most popular types of operations that customers carry out in Internet
banking.
Awamleh et al.,73 found that banks in Jordan are not fully utilizing concepts
and applications of web banking. The study revealed that Jordanian banks have been
successful in the introductory phase of web banking. However Jordanian banks are
required to move towards web banking usage with a view to conducting real
financial transactions and improving electronic customer relations.
Jarrah74 in his paper presented that the descriptive statistics provides a good
overview of Internet usage in the Arab world. It is estimated that the total number of
users in thirteen Arab countries was close to one million in April 1999. The papers
observe that Internet banking has revolutionized the banking industry and is under
pressure to offer new products and services. However, to succeed in to-day
electronic markets a strategic and focused approach is required.
Rao and Prathima75 in their article provided a theoretical analysis of Internet
banking in India and found that as compared to banks abroad, Indian banks offering
online services still have a long way to go. For online banking to reach a critical
mass, there has to be sufficient number of users and the sufficient infrastructure in
place.

72

73

74

75

D. Janice et al. (2002). Click and mortar of retail banking: A case study in Hong Kong.
Nanyang Business School, Singapore: Nanyang Technological University. <http://hdl.handle.
net_10356/7172>
R. Awamleh et al. Internet banking in emergency markets the case of Jordon A note. Journal
of Internet Banking and Commerce, vol.8, no.1 (2003), pp.1-34 www.arraydev.com/
commers/jibc/articles.htm (Accessed on February 24, 2004).
F. Jarrah (1999). Internet shoppers in the Arab world spend US$ 95 million.
<www.dit.net/itnews/newsjune99/newsjune22.html>
G.R. Rao and K. Prathima. Internet banking in India. Journal of Mondaq Business Briefing,
(April 11, 2003). <http://dspace.ntrkl.ac.k/8080/d.space/bitstream/2080/746/1/sssm.pdf.>

lxviii
Mookerji76 in his article found that Internet banking is fast becoming popular
in India. The purpose of this paper is to describe the current state of Internet banking
in India and identify key differences between Internet banks and non-Internet banks
with special reference to commercial banks operating in India.
Ravi Nath et al.,77 in his study examines bankers' views on providing banking
services to customers using the web. Data collected from 75 banks show that most
banks do not yet offer full-fledged Internet banking. However, most have plans to do
so. Furthermore, bankers see Internet banking as a strategic opportunity that can
reduce transaction costs, enhance customer service, increase the customer base and
improve cross-selling opportunities.
Singh and Pooja Malhotra78 in their article fill the significant gaps in
knowledge about the Internet banking landscape in India. The paper presents data,
drawn from a survey of commercial banks websites, on the number of commercial
banks that offer Internet banking and on the products and services they offer. It
investigates the profile of commercial banks that offer Internet banking, using
univariate statistical analysis with respect to profitability, cost efficiency, and other
characteristics. It was found that the profitability and offering of Internet banking
does not have any significant correlation.
Shrivastva et al.79 in their article explains the concept of marketing has not
changed in essence as a result of using the Internet as a new marketing channel but
Internet offers an unlimited opportunity for business.

76

77

78

79

N. Mookerji (1998). Internet banking still in evolutionary stage.<www.financialexpress.com/

fe/daily/19980714/19555264.html>
Ravi Nath. Bankers perspective on internet banking. E-Service Journal, vol.1, no.1 (2001),
pp.21-36. <http://www.jhu.edu/journal/e-service/vol1/1.1nath.html.>
Singh, B. and Pooja Malhotra. Adoption of Internet Banking an empirical investigation of
Indian banking. Journal of Internet Banking and Commerce, vol.9, no.2 (2004). pp.1-7.
D. Shrivastva et al., Problems and prospects of internet marketing. Journal of Internet Banking
and Commerce, vol.9, no.1 (2004). Available online: www.arraydev.com/commerce/jibc/ 0402.
02/htm.ic_code:1888

lxix
Perumal and Bala Shanmugam80 in their article state that there is little doubt
that the Internet has revolutionized the entire communication system. Having
observed the astronomical growth rate and acknowledging the potential banks often
adapt the Internet to suit their functions and roles. As any new venture there are set
backs in terms of issue of security and associated costs. As a consequence banks are
working towards remedying these shortcomings so as to take full advantage of the
digital revolution.
Sakkthivel81 in his study made an attempt to identify the significance of
demographics variables in influencing the consumption of different categories of
services over internet. The study revealed age and occupation have significant
impact on consuming different categories of services online. It has shown the
significance of demographic influence online consumption of services in the growing
Indian market. The corporate world may take care from the study for devising better
strategies to face their face.
Jeevan82 observes that the Internet enables banks to offer low cost, high value
added financial services. US web-corporation argues that finally banks are finding
that a comprehensive online banking strategy is essential for success in the
increasingly competitive financial services market.
1.11.3. Mobile banking
Mattila83 in his research paper focuses on defining the factors influencing
mobile banking adoption and aims at forming a model describing consumer
behaviour patterns. Thus it also evaluates the applicability to Rogers (1995) model

80

81

82

83

V. Perumal and Bala Shanmugam. Internet banking: Boon or Bane. Journal of Internet Banking
and Commerce, vol.9, no.3 (2004). Available online: www.arraydev.com/comm/jibc/2004-12/
perumal.htm.IDCode1887.
A.M. Sakkthivel. Impact of demographics on the consumption of different services online in
India. Journal of Internet Banking and Commerce, vol.11, no.3 (2006), pp.1-7.
<http://www.arraydov.com/commerce/jibc>.
M.T. Jeevan (2000). Only banks No bricks, voice and data. http://www.voicedata.
com/content/ convergence/trends/100111102.asp (accessed on November 11, 2000).
M. Mattila. Factors affecting the adoption of mobile banking services. Journal of Internet
Banking and Commerce. vol.8, no.1 (2004) pp.12. <http://www.arraydev.com/ commerce/jibc>.

lxx
in this context. In consequence, we are able to state that what are the drivers and
inhibitors of using banking services via wireless delivery channel. A quantitative
survey sheds more light on this researched issue. The data was collected in Finland
during May-July 2002 and includes 1253 survey responses.
Laforet and Li84 in their article state that the aim of this study is to investigate
the market status for online/mobile banking in China. The demographic, attitudinal
and behavioural characteristics of online and mobile bank users were examined.
Respondents from six major Chinese cities participated in the consumer survey. The
results showed Chinese online and mobile bank users were predominantly males, not
necessarily young and highly educated, in contrast with the electronic bank users in
the West. The issue of security was found to be the most important factor that
motivated Chinese consumer adoption of online banking. Main barriers to online
banking were the perception of risks, computer and technological skills and Chinese
traditional cash-carry banking culture.

1.11.4. Credit card

Teopaco85 in his Ph.D thesis on four case studies of companies in four
consumer services industries, fast foods, credit cards, health care and full service
hotels. The finding supports the relevance of the dominant market function as an
organizational dimension, but does not support the customer relationship hypothesis.
The research result also show that equally important to organizational design are
non-structural elements such as corporate culture, rewards, training and service
quality measurement system, employee empowerment, and recruitment policies that
are all oriented towards customer satisfaction.

84

85

S. Laforet and X. Li.. Consumers attitudes towards online and mobile banking in China.
International Journal of Bank Marketing, vol.23, no.5 (2005), pp.362-380.
J.L. Teopaco (1993). Organising for marketing orientation in consumer service firms.
Unpublished Ph.D. Thesis, US: Harvard University, pp.526.

lxxi
Haq and Tania 86 in their article attempt to critically examine the customer
satisfaction of the credit card users in Bangladesh to guide the companies to find out
their lacking and ensure satisfaction among its consumers. The study gives detail
about the difficulties faced by the credit card users. Their findings are based on the
formal interview and data collected through questionnaire. This has addressed
around the importance of measuring customer satisfaction of credit card. It is far less
costly to keep existing customers than new ones.
Mathews and Slocum87 in their two studies found out a number of interesting
and useful relationship between social class, income and usage of bank credit cards.
They found that members of the lower social classes tend to use their card for
instalment purposes, upper classes for convenience. Further, their results indicated
that all users had a favourable general attitude towards credit, however, instalment
users tended to use their card more frequently. This study also indicated that the
upper classes are generally favourable towards using credit card to purchase luxury
goods, and the lower class users tended to use their card for durable and necessary
goods.
Yeo88 in his Ph.D. thesis looks at identifying household credit card choice
and usage behaviour of cardholders. It was found that several factors were significant
in determining the choice between the bank and retail credit cards in USA. These
were the level of family income, the household age, the number of bank card
holdings, the number of store card holding the related interest rate, the relative
membership fees and the card preference.
Punjavat89 in his Ph.D. thesis examines Graduate International Students
knowledge, attitude, experience, practices and satisfaction relating to credit card.
86

87

88

89

M.Z. Haq and I.J. Tania. Measurement of consumer satisfaction of credit card users in
Bangladesh. Stamford Journal of Business Studies, vol.1, no.1 (2005), pp.1-6.
H. Lee Mathews and John W. Slocum Jr. Social class and commercial bank credit card usage.
Journal of Marketing, vol.33 (January 1969), pp.71-78 and social class and income as indicator
of consumer credit behaviour. Journal of Marketing, vol.34 (April 1970), pp.69-74.
J. Yeo. Household credit card choice and usage. Unpublished Ph.D. Thesis. US: Cornell
University (1990), pp.135.
T. Punjavat. Credit card: Understanding international graduate students. Unpublished Ph.D.
Thesis. Corvallis, USA: Oregon State University (August 1993), pp.441.

lxxii
This study was conducted on 261 students. Finding showed that the respondents
credit card knowledge was low, attitudes were favourable and Pre U.S experience is
limited. Since living in the U.S respondents had become regular user with a mean of
3.3 cards and a majority charging more than $200 per month.

They followed

commonly recommended practices and eight of ten were satisfied with their credit
card use, several statistically significant relationship were found among the credit
card variables and between this variables and socio-demographic characteristics such
as country of origin and length of U.S. pre-developed and evaluated.
Business Line90 conducted a survey by Master Card International has found,
only 14 per cent of Indians currently own a credit card. This is in sharp contrast to
countries such as the United Arab Emirates and Kuwait where 63 per cent and 50 per
cent of respondents, respectively, own a credit card. The results indicate the high
growth potential for the payment card industry in India. In the survey, majority of the
cardholders use their card most often for supermarket/grocery shopping. In terms of
the single most important factor influencing choice of credit card, 30 per cent of
Indians say they are influenced by the credit card brand, closely followed by 23 per
cent who choose a credit card depending on the credit limit. Interestingly, 8 per cent
of cardholders say they are influenced by the card design, while only 5 per cent and
2 per cent cardholders say that they are influenced by the interest rate and the bank
staff recommendations respectively.
Parimala91 in her Ph.D. thesis highlighted the marketing environment of
credit cards in Trichirappalli. Her major findings are not sufficient merchant
establishment to honouring credit cards, cardholders were not aware of all services
offered by the issuers, lack of sufficient advertisement and publicity. Her suggestions
to overcome these and reduce charges for penalty, interest, annual charges are a
much scope for growth and expansions of credit cards market.

90

91

Credit card usage in India still low. Survey-Business Line, New Delhi (December 27, 2004), p.1
<http://www.blonet.com/2004/12/28/stories/2004/2280257030.htm.>
B.J. Parimala (2001). A study of bank services with special reference to the credit cards in
Trichirappalli, Tamilnadu. Unpublished Ph.D. Thesis, Tiruchirappalli, India: Bharathidasan
University, pp.214.

lxxiii
Swarnalatha92 in her Ph.D. thesis analyses and the results of the credit cards
services. The study based on the perception of selected credit cardholders of various
issuing banks in Chennai city. This research finding and conclusion based on the
hypothesis that single cardholders are less satisfied than multiple cardholders.
Further the results also stated that there are cardholders holding cards both in Indian
and foreign banks are more aware of the services and experienced their greater
satisfaction.
Murugesan93 in his Ph.D. thesis entitled A study on bank credit card culture
in Chennai city analyses that the credit card gives ample scope for the expansion
and growth of business. More innovative and user-friendly schemes should be
introduced to make more number of people to have credit cards. To reduce the
burden of existing cardholders, reduction should be given in the collection of penal
interest and other charges, incentive scheme should be introduced to the account
holders of the bank willing to get credit card.
Banknet India94 in their report that the findings of the bank customer survey
on payment systems. According to the survey findings, Debit cards have become
very popular in India. But, as of date, ATM/Debit cards have still their primary usage
for cash withdrawal from the ATM machines, while credit cards are more popular in
making payments online. Interestingly, many customers have been unable to use
internet banking due to the non availability of site or connectivity problems. As far
as mobile banking is concerned, its popularity is limited mainly due to the charges
for sending SMS's are not justified.

92

93

94

N. Swarnalatha. Credit cards services: A study based on the perception of selected credit
cardholders of various issuing banks in Chennai city. Unpublished Ph.D. Thesis, Chennai:
University of Madras, India (2002), pp.282.
S. Murugesan. A study of bank credit card culture in Chennai city. Unpublished Ph.D. Thesis.
Tiruchirappalli: Bharathidasan University, India (2007), pp.259.
Banknet India. Bank Customer Survey Research Report on Payment Systems was released at
Banknets Fourth International Conference on Payment Systems held on January 16, 2008 at
Mumbai: Taj Lands End <http://www.banknetindia.com/books/pssurvey.html.>

lxxiv
Subramanian and Swaminathan95 have analysed with the secondary
information collected from different sources, the consumers have now preferred the
use of payment cards for these are safer to carry and provide credit facilities. The
growth trend, to some extent, will be impacted by the current financial turmoil and
credit squeeze. Bankers will also become a little more conscious while doing risk
evaluation of credit card applicants. But the overall trend will remain positive over
the past period. The report provides a comprehensive research and prudent analysis
on the emerging credit card market in India. This extensive research will help the
clients to identify the market trends and evaluate the leading-edge opportunities
critical to the success of the payment card markets. This study gives an overview on
the various factors driving the market, together with the forces that are blocking the
growth of the industry.
1.11.5. General banking service
Singh and Tripathi96 have studied on Indian private sector banks has an
attempt to measure the gap in the service quality perception of both the providers and
customers. They suggested that the quality perception gap has great impact on the
satisfaction level of the customers. The article highlights the various quality
parameters and tests their relative significance in the customers and services
providers quality perception.
Sharma and Dhanda97 in their article state that the competitive times, the only
viable means of survival and growth is by delivering value to the customers, who
need personalized attention and aspire for a value offering. The paper finds out the
underlying determinants of customer value in order to assist the marketers in
delivering higher value to their customers. The methodology and questionnaire

95

96

97

S. Subramanian and M. Swaminathan. A Critical Analysis of Indian Payment card market With
special reference to Credit Card. Impact of Economic Crisis in Global Business Scenario.
Third International Conference held on September 24-25, 2009 at Sri Sai Ram Institute of
Management Studies, Chennai, India (in press).
A.K. Singh and S.K. Tripathi. Perceptual difference of quality in banking services: A study on
Indian private sector banks. Journal of Indian Management Studies, vol.2 (April 2007), pp.1-14.
T. Sharma and S. Dhanda. Perception of customer value: An empirical study. Journal of Indian
Management Studies, vol.2 (April 2007), pp.15-48.

lxxv
design to survey of 320 respondents, comprising of equal proportion of the rural and
urban customers.
Bansal and Sharma98 in their article stated that the sheds light on the
achievements of Indian banking service and at the same time highlights that there are
many challenges ahead for the Indian banking service. It is important for the banking
services to cope with these challenges in order to march ahead.
Radha and Gulati99 in their article, state that the prevention is basically a
cycle of monitor, analyses, detect, act and protect. In this paper they discuss the
technology based opportunities that thieves take advantage and its prevention and
how to build future technology based banking services that can limit the frauds.
Uppal and Rosy Chawla100 in their article, the widening gap between
customers expectations and availability of services is becoming a major cause of
satisfactions in the banking industry. Bridging gap is one of the solutions to ensure
customers delight. The survey concludes that desirability regarding all the
parameters is very high as compared to availability of banking services and on the
basis of this empirical survey, some measures are recommended to bridge this gap
between the demand and availability of service quality parameter in the banking
sector in the emerging competition.
Mahadevan101 in his Ph.D. thesis highlighted the important factor for
management commitment, employee commitment and customer perceived service
quality in Indian banking sector. It is concluded that the banks in India should
provide the level of important variables identified in this study pertaining to
98

I. Bansal and R. Sharma. Indian banking services: Achievements and challenges. The ICFAI
University Journal of Services Marketing, vol.6, no.2 (2008), pp.22-33.
99
V. Radha and V.P. Gulati (2008). Preventing technology based bank frauds. Hyderabad: Institute
for Development and Research in Banking Technology (IDRBT),
100
R.K. Uppal and Rosy Chawla (2008). Customer service in banks meeting customer
expectations. The Indian Banker, Monthly Journal of Indian Banks Association, vol.111, no.11
(2008), pp.34-39.
101
S. Mahadevan. Commitment of service quality and customer satisfaction in Indian banking
sector. Unpublished Ph.D. Thesis. Chennai: University of Madras (2002), pp.197.

lxxvi
management commitment, Employee commitment and customer perceived services
quality so as to improve the overall level of the service quality in the banking sector.

1.12. STATEMENT OF THE PROBLEM

In the liberalized, privatized and globalized banking environment, electronic
banking is the only solution for banks and other financial service providers to gain
competitive edge, operational efficiencies and direct marketing opportunities. We
have observed a major change from metal and paper money to plastic cards like debit
and credit cards, to charge card, to smart cards, to online payments and fund
transfers.

In this context, the researcher identifies the fast growing e-banking product,
credit card, is significant for the study. Credit card has started gaining momentum
due to wide publicity. This study on marketing of e-banking products with reference
to credit card in Thanjavur is focused on the main marketing concept namely
customer satisfaction. The concept of credit card and its usage is new to the Indian.
Even though it has been introduced in India way back in 1960, it gained momentum
only in the 90s. The banks that are issuing card generally do not sell cards directly
to the potential cardholders. It is through the intermediaries like other banks and
private agencies that issue card for the customers on behalf of the banks for which
the intermediaries, selling the cards, are given incentives by the banks. These
associates in order to boost their card sales provided only some basic information
about the card to the potential cardholders. It is not only the intermediaries but also
the issuing banks who fail in this respect. Eventhough issuing banks and
intermediaries claim providing a lot of services to card users. It is not known whether
the users of cards are fully aware of these services or they are satisfied with the
services.

Many studies have been conducted abroad with respect to card services and
characteristics of card holders but in India, only limited studies have been made so
far. Due to lack of research on the perceptional and attitudinal level and lack of
credit card popularity in Thanjavur, it was felt necessary and important to conduct a

lxxvii
study to know the perceptions and satisfaction level of users on various services
offered on card. For the purpose of this study, the technological new products like
credit cards is necessary to compare and test whether the cardholders aware of the
product and services offered by the banks. The study also brings out whether they are
satisfied, how far they are satisfied and to what extent or level of satisfaction. The
researcher has proposed to assess the problems of cardholders and their level of
satisfaction and dissatisfaction, if any while availing the services of various issuing
banks. The study also analyses the shifting options given by the respondents between
the banks, and it will help the banks can adopt the right marketing strategy to retain
them.

1.13. SCOPE OF THE STUDY

E-banking usage gained importance only in 1999. After ICICI, Citibank,
IndusInd Bank and HDFC Bank were the early ones to adopt the technology in 1999.
This is confined to the study of e-banking products and services offered by private,
public and foreign banks operating in India. Further, it will depict the present status
and profile of banks offering electronic banking in India. This study has within its
scope the task of identifying the level of awareness and satisfaction among
cardholders towards the various cards service offered by issuing banks as well as
problems faced by the cardholders in general. It is a specific research on the
perceptions and experiences of the cardholders and their expectations regarding the
utility of the various services offered by the issuing banks. The study included in its
preview of three categories of card issuing banks, whose cards are in wide range in
and around 15 kms of Thanjavur town.

For sampling of the respondents only

Thanjavur is chosen, since most of the card issuing banks have not yet widely
introduced their card in other areas and towns in the district of Thanjavur.

1.14. OBJECTIVES OF THE STUDY

The following are the important objectives of the study.
1.

To assess the evolution and growth of e-banking products.

2.

To find out the socio-economic profiles of the cardholders in different banks.

lxxviii
3.

To compare the awareness and satisfaction level of cardholders among the

banks.

4.

To bring out the problems of the cardholders in availing card services.

5.

To predict shifting options of cardholders between banks.

6.

To offer suggestions and recommendations of cardholders opinion and

expectations.

1.15. HYPOTHESES
On the basis of the respondents responses, the following important statistical
null hypotheses are formulated and tested in the appropriate places.
1.

There is no association between monthly income and percentage of expenditure

spent through card.

2.

There is no association between types of cardholders and percentage of monthly

expenditure on card.

3.

There is no association between various banks cardholders and percentage of

expenditure on card.

4.

There is no association between respondents socio-economic profiles (monthly

income and age group) and duration of card possession.

5.

There is no association between various issuing banks cardholders and duration

of card possession.

6.

There is no association between overall awareness and satisfaction among

banks.

7.

There is no association between type of cardholders and level of satisfaction in

banks.

8.

There is no significant difference between respondents demographics profiles

(male and female and age group) with respect to various dimension of card
services for satisfaction in banks.

9.

There is no significant difference between mean ranks towards satisfaction of

various dimensions of card services in banks.

10. There is no significant difference between mean ranks towards rating order of
satisfaction of cardholders in various banks.

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11. There is no significant difference between respondents democratic profiles
(male and female and age group) and various dimensions of problems of
cardholders in banks.
12. There is no association between overall awareness of the problems of
cardholders and overall card problems in banks.
13. There is no association between satisfaction of various banks cardholders
problems and overall problems of card in banks.
14. There is no significant difference between mean ranks towards various
dimensions of problem of cardholders in banks.
15. There is no association between cardholders and dissatisfaction in banks.

16. There is no association between level of dissatisfaction and shifting of card.

17. There is no association between types of cardholder and shifting of card.
18. There is no association between types of cardholder and level of satisfaction.
19. There is no association between types of cardholder and shifting option in
future.
20. There is no association between socio-economic profiles of the respondents and
shifting of card.
21. There is no association between socio-economic profiles of the respondents and
level of satisfaction.
22. There is no association between socio-economic profile of the respondents and
shifting options in future.

1.16. METHODOLOGY
A study on marketing of e-banking products with reference to credit card in
Thanjavur was conducted among the cross section of the cardholders, who were
selected on the basis of deliberate or convenience sampling. The study is based on
primary and secondary data. The empirical part of the study is based on the primary
data collected through the questionnaire to the sample of cardholders in this area.
Descriptive and inferential analytical methodology has been adopted in the study. In
order to evolve a suitable method for the collection of comprehensive data and
incorporation of as many essential questions as possible in the questionnaire, a pilot

lxxx
study was found to be imperative. Hence a pilot study was conducted with a sample
of 60 (10% of total sample) cardholders. Before analyzing the responses to the pilot
study, the reliability of the questionnaire was tested, using Cronbach alpha
coefficient. The results of the test showed that the questionnaire was highly reliable
as the reliability coefficient was 80 per cent. The improved questionnaire is given in
the Appendix-1.

1.16.1. The Sample

Based on the pilot study, 90 per cent of the cardholders were identified
belonging to State Bank of India and ICICI Bank. Other than these two banks, no
other bank was popular in issuing credit cards in Thanjavur which they are only
10 per cent of the total samples collected in the pilot study. The researcher has
decided to classify the samples selected for the main study into three, first belongs to
SBI cardholders, second to ICICI cardholders and also considered other than these
two banks cardholders under third category of Other Bank.

As per the banks records in the study area, the total credit cards issued was
around 12,000 (up to March, 2007) which belong to SBI cardholders 7,300 ICICI
cardholders 3,500 and third category of Other Bank cardholders of 1,200. The
sampling unit distributed sparsely, many of the respondents refused and some of the
respondents did not cooperate in filling the questionnaires. So, the researcher had to
select 600 samples (5% of total 12000) for the study, under deliberate or
convenience sampling method which involves purposive or deliberate selection of
particular unit. The questionnaire was distributed to 600 respondents, the area
covered 15 kms in and around Thanjavur town. The respondents to complete a fivepoint Likert scale were adopted. Due care was taken to see that the sample included
in the cardholders belonging to various sections of the society with varied
educational qualification, income, profession, marital status, sex and age. The
questionnaires were distributed to single card holders as well as multiple card

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holders holding cards in private sector, public sector banks and both were included in
the sample.

The researcher has not included samples of the foreign banks as there were
no branches in the study area. After the follow-up, of the 600 distributed
questionnaires, 494 responses of which 426 usable were received. The usable
response rate accounted for 86 per cent, which it was really satisfactory. Thus, only
426 questionnaires were taken into consideration for the study.
1.16.2. Sources of Information
Primary and secondary sources of information were used for the study. The
secondary data was collected from Newspapers, Journals, Banking and other
Magazines, Research publications, Organizations reports, Books, and relevant
website. For which the researcher approached various banking and other financial
institutions and university libraries and research institutes in different parts of the
country.
Questionnaires with stamped envelops, personal interviews and observation
technique have been used to collect the primary data. The responses of the
respondents in shopping centers, government and private offices, colleges and
universities, commercial banks and merchant establishments during working hours,
various banks ATM centers were also used to collect the primary sources of
information in the study area.

1.16.3. Statistical tools used

According to the chosen methodological research approach, the quantitative
data was analyzed by using statistical methods such as Chi-square test, Students
t-test, One-way ANOVA followed by Duncan Multiple Range Test (DMRT),
Friedman test, Pearsons correlation co-efficient and Multiple Regression analysis by
SPSS have been used.

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1.17. PERIOD OF THE STUDY

During the study period of 2004-2008, Primary data was collected in the
financial year 2007-2008 in which four quarterly months of June, September,
December, and March were taken for the purpose of collecting variety of the
responses from the respondents in the year. Due to tremendous growth of electronic
products and services in the financial market, the need to generalize the present data
in banking through the secondary sources was used upto March 31, 2009.
1.18. LIMITATIONS OF THE STUDY
The present study is restricted to Thanjavur areas which cover only fifteen
kilometer, rural-folks are excluded on the assumption that they may not be well
informed and educated. Sample size and the sample area only to Thanjavur, due to
constraint of the credit card used in rural areas without the popularity of the growing
business.
There are some limitations to overcome the validity, reliability and threats,
which are clearly related. The instrument used the study are developed specifically
for this research purposes. Every care has been taken to ensure the validity and
reliability of the instruments. However, the threats of reliability, which has close
relation with the time of data collection, can not rule out. Researchers, who are
interested to use this instrument for this purpose, can conduct a fresh reliability
analysis, which may help in overcoming these problems.

Due to lack of product awareness and popularity among the customers and
the data was not available for studying other e-banking products such as Internet
banking, Mobile banking, Phone banking. The study has also not included the
services provided by the foreign banks due to non-availability of their services in this
area. The cross cultural differences across countries can be studied for selecting
banks from other countries. This may be throwing light on improving
competitiveness globally. Since the researcher could not be able to consider for the
present study.

lxxxiii
External validity which represents the ability to generalize a particular
finding across different measures and populations is another limitation. The study
concentrated on Thanjavur based banks and generalized the results. This is another
limitation of this study.
Finally, due to the period of study (2004-2008), the researcher unable to
study present status of the cardholders is another limitation for the study.

1.19. CHAPTERISATION
The present study consists of seven chapters. They are as follows
Chapter I: Introduction
It outlines the framework of the study which reviews of literature on the
various research works done in the related area both in India and abroad, with focus
on the statement of the problem, scope of the study, objectives of the study,
formulated hypotheses, methodology adopted, sample taken up for the study,
limitations and chapterisation.
Chapter II: Credit Card A Theoretical Framework
An attempt is made in this chapter provide theoretical framework in a
nutshell the historical development, evolution and growth, classification and types of
card, operating cycle, players in the market, services offered by the issuing banks
with different dimensions, mode of marketing of card, frauds in cards, and
preventive measures to avoid frauds and RBI guidelines, warning or loss reduction
steps taken by the various issuing banks.
Chapter III: Socio-Economic Profile of the Cardholders
This chapter analysis the cardholders socio- economic variables such as age,
sex, educational qualification, occupation, area, marital status, income, and it
including other factors like preference and reasons for preferred e-banking product,
purpose of choosing card, motivational factors influencing to select credit card,
purpose of using it, percentage of expenditure spent on card and number of years
possessed by the respondents has been analyzed and tested.

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Chapter IV: Awareness and Satisfaction of the Cardholders

This chapter deals with the analysis of the data pertaining to the awareness
and satisfaction of services offered to the respondents. Services are classified into
seven categories namely member establishment services, insurance services,
convenience services, value added services, benefit services, global assistance
services and other innovative general services. Based on the seven categories of the
services on card were analyzed to find out the level of awareness and satisfaction
among the cardholders.
Chapter V: Problems perceived by the Cardholders
In this chapter analyses the cardholders perception on the various problems
and views on problems have been evaluated. The problems are classified into six
dimensions such as Problems of Bank Charges, Bank transactions, ATM services,
Frauds in use, Bill Payments and Merchant establishments services. All the six major
classifications of problems have been analyzed by using a five point Likert
summated rating scale to evaluate the cardholders problems perception.
Chapter VI: Shifting Options of the Respondents
The sixth chapter analyses and tested the shifting options of cardholders. An
analysis was conducted to find out the respondents bank-wise shifting of card for
the five years of the study and options to shift in future among the card issuing
banks. This chapter was also finding out if there is any association between
unsolicited cardholders and dissatisfaction, dissatisfaction and shifting, socioeconomic variables and shifting and socio-economic variables and options to shift in
future.

Chapter VII: Findings, Suggestions and Conclusion

Finally, the seventh chapter is a summary, findings and conclusions are
outlined briefly based on the analyses of the study. It includes the scope for the
further research.