On

“E- BANKING : NEW ERA OF BANKING”

UNDER THE GUIDANCE OF

MR. MAHESH KUMAR

(Assistant Professor)
ABS , LUCKNOW

SUBMITTED BY :

RAGHAVENDRA MISHRA

MBA (IB) –IV SEM

ENROLLMENT NO – A7002009O26

In Partial Fulfillment of Award of Master of Business Administration

AMITY BUSINESS SCHOOL

AMITY UNIVERSITY UTTAR PRADESH
1
 STUDENT’S CERTIFICATE

Certified that this report is prepared based on the Dissertation project undertaken by
me under the able guidance of MR. Mahesh Kumar in partial fulfillment of the
requirement for award of degree of Master of Business Administration (MBA-IB)
from Amity University, Uttar Pradesh.

Date.______________

Signature Signature Signature

Raghavendra Mishra Mr. Mahesh Kumar Professor R P Singh
Student Faculty Guide Director (ABS)

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 Certificate from Dissertation Guide

This is to certify that Raghavendra Mishra, student of Masters of Business Administration, (IB)
has completed her dissertation under the guidance of Mr. Mahesh Kumar (Asst. Prof.), Amity
Business School, Amity University, Lucknow as partial fulfillment of the completion of her two
year of full time Masters in Business Administration (IB)

During his research work he showed dedication, hard work and the want to learn. This
dissertation has been done under my guidance and supervision. This dissertation report has not
been submitted to any other institution or organization for any kind of assessment or
consideration to the best of my knowledge.

Mr. Mahesh Kumar

Asst. Professor

ABS

Lucknow

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 Acknowledgement

“Raghavendra mishra”, owe enormous intellectual debt towards faculty guide Mr. Mahesh
Kumar(Asst. Prof.), who has augmented my knowledge in the field of “E-BANKING ::NEW
ERA OF BANKING”, helping me learn about the process and giving me valuable insight into the
subject.

I am obliged to him for being extremely patient, giving me sufficient time for discussions
and guidance at all stages through the course of this research. My increased spectrum of
knowledge in this field is the result of his constant supervision and direction that has helped me
to absorb relevant and high quality information.

I would like to thank him for his guidance and enriching my thoughts in this field from
different perspectives.

Last but not the least, I feel indebted to all those persons and organizations which have
provided information and helped me directly or indirectly in successful completion of this study.

Date: Raghavendra mishra

A7002009052

MBA (IB) 2011

AMITY BUSINESS SCHOOL

4
 Executive Summary

“E-banking”- The execution of financial services via internet, reducing cost and increase in
convenience for the customer to access the transaction. e- banking is an umbrella term for
the process by which a customer may perform banking transactions electronically without
visiting a brick-and-mortar institution. The following terms all refer to one form or another
of electronic banking: personal computer (PC) banking, Internet banking, virtual banking,
online banking, home banking, remote electronic banking, and phone banking. PC banking
and Internet or online banking are the most frequently used designations..

The internet is revolutionizing the way the financial industry conducts business
online, has created new players who offer personalize services through the web portals. This
increases to find new ways and increase customer loyalty to add the value to this product
and services.

Banks also enables customers lifestyle needs by changing and increasing preference for
speed and convenience are eroding the traditional affinity between customer and branch
offices as a new technology disintermediates traditional channels, delivering the value
proposition hinges on owing or earning the customer interface and bringing the customer a
complete solution which satisfies their needs. Smart card is a new trend which provides the
opportunity to build an incremental revenue stream by providing an ideal platform for
extended application and services. Banks are well positioned to play central role unit in
future M-commerce market. Banks have strong relationships with corporate and business
customers and a wide experience in providing them with corporate banking services. Bank
provides a multimedia of small and large retailers with acquiring functionality in credit card

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transactions. Customers have trusted relationships with banks and a lower propensity to
switch banking providers.

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Contents

Chapter 1: Introduction.
 Banking overview 8
 Historical perspective 10
 Functions of bank 11
 Products of bank 12

Chapter 2: Research methodology

 Need of study 16
 Objectives of the study. 17
 Limitations of the study. 19

Chapter 3: overview of IT in banking

 Pre-e banking scenario in India 21
 On IT adoption 21
 World scenario 23
 Indian perspective 26
 Initiatives from RBI 30

Chapter 4: E-banking
 What is e-banking 36
 Services of e-banking 37
 Banking software 37
 Various forms of e-banking 40
 Online security issues 56
 Benefits of e-banking 61
 Disadvantages of e-banking 64
 Challenges to e-banks 65

Chapter 5: suggestions & recommendations

 Strategy for Indian banks 71
 Winning online strategy 72

Chapter 6: Findings and Conclusion 77

Chapter 7: Bibliography. 79

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 CHAPTER- 1
INTRODUCTIO
N

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 Introduction

With cybercafés and kiosks springing up in different cities access to the Net is going to be easy.

Internet banking (also referred as e banking) is the latest in this series of technological wonders in

the recent past involving use of Internet for delivery of banking products & services. Even the

Morgan Stanley Dean Witter Internet research emphasized that Web is more important for retail

financial services than for many other industries.

Information technology is changing the banking industry and is having the major effects on

banking relationships. Banking is now no longer confined to the branches were one has to

approach the branch in person, to withdraw cash or deposit a cheque or request a statement of

accounts. In true Internet banking, any inquiry or transaction is processed online without any

reference to the branch (anywhere banking) at any time. Providing Internet banking is increasingly

becoming a "need to have" than a "nice to have" service. The net banking, thus, now is more of a

norm rather than an exception in many developed countries due to the fact that it is the cheapest

way of providing banking services.

BANKING OVERVIEW

Banking is "accepting, for the purpose of lending or investment of deposits of money from the
public, repayable on demand or otherwise and withdraw able by cheques, draft, order or
otherwise."

Bank is defined as a person who carries on the business of banking. Banks also perform certain
activities which are ancillary to this business of accepting deposits and lending. Since Banking
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involves dealing directly with money, governments in most countries regulate this sector rather
stringently.

Banks' activities can be divided into retail banking, dealing directly with individuals; business
banking, providing services to mid-size business; corporate banking dealing with large business
entities; private banking, providing wealth management services to High Net Worth Individuals;
and investment banking, relates to helping customers raise funds in the Capital Markets and
advising on mergers and acquisitions. Banks are now moving towards Universal Banking, which
is a combination of commercial banking, investment banking and various other activities
including insurance.

Banks are among the main participants of the financial system in India. This section of the
provides comprehensive and updated information, guidance and assistance on all areas of
banking in India.

The commercial banking structure in India consists of: Scheduled Commercial Banks &
Unscheduled Banks. Banking Regulation Act of India, 1949 defines Banking as "accepting, for
the purpose of lending or investment of deposits of money from the public, repayable on demand
or otherwise and withdraw able by cheques, draft, order or otherwise."

The Software Packages for Banking Applications in India had their beginnings in the middle of
80s, when the Banks. spurred on by RBI and the Rangarajan Committee Report, started
computerizing the branches in a limited manner.

The arrival of foreign and private banks with their superior state-of-the-art technology-based
services pushed Indian Banks also to follow suit by going in for the latest technologies so as to
meet the threat of competition and retain customer base.

The evolution of IT services outsourcing in the Indian banks has presently moved on to the level
of Facilities Management (FM). Banks now looking at business process management (BPM) to
increase returns on investment, improve customer relationship management (CRM) and

10
employee productivity.

For, these entities sustaining long-term customer relationship management (CRM) has become a
challenge with almost everyone in the market with similar products.

Historical perspective

Bank of Hindustan, set up in 1870, was the earliest Indian Bank . Banking in India on modern
lines started with the establishment of three presidency banks under Presidency Bank's act
1876 i.e. Bank of Calcutta, Bank of Bombay and Bank of Madras. In 1921, all presidency
banks were amalgamated to form the Imperial Bank of India. Imperial bank carried out
limited central banking functions also prior to establishment of RBI. It engaged in all types of
commercial banking business except dealing in foreign exchange.

Reserve Bank of India Act was passed in 1934 & Reserve Bank of India (RBI) was
constituted as an apex bank without major government ownership. Banking Regulations Act
was passed in 1949. This regulation brought Reserve Bank of India under government
control. Under the act, RBI got wide ranging powers for supervision & control of banks. The
Act also vested licensing powers & the authority to conduct inspections in RBI.

In 1955, RBI acquired control of the Imperial Bank of India, which was renamed as State
Bank of India. In 1959, SBI took over control of eight private banks floated in the
erstwhile princely states, making them as its 100% subsidiaries.

RBI was empowered in 1960, to force compulsory merger of weak banks with the strong
ones. The total number of banks was thus reduced from 566 in 1951 to 85 in 1969. In July
1969, government nationalized 14 banks having deposits of Rs.50 crores & above. In
1980, government acquired 6 more banks with deposits of more than Rs.200 crores.
Nationalization of banks was to make them play the role of catalytic agents for economic
growth. The Narsimham Committee report suggested wide ranging reforms for the

11
banking sector in 1992 to introduce internationally accepted banking practices.

The amendment of Banking Regulation Act in 1993 saw the entry of new private sector
banks.Banking Segment in India functions under the umbrella of Reserve Bank of India -
the regulatory, central bank. This segment broadly consists of:

1. Commercial Banks
2. Co-operative Banks

Functions of a Bank

Banking Regulation Act of India, 1949 defines Banking as "accepting, for the purpose
of lending or investment of deposits of money from the public, repayable on demand or
otherwise and withdraw able by cheques, draft, order or otherwise."

Most of the activities a Bank performs are derived from the above definition. In
addition, Banks are allowed to perform certain activities which are ancillary to this
business of accepting deposits and lending. A bank's relationship with the public,
therefore, revolves around accepting deposits and lending money. Another activity
which is assuming increasing importance is transfer of money - both domestic and
foreign - from one place to another. This activity is generally known as "remittance
business" in banking parlance. The so called forex (foreign exchange) business is
largely a part of remittance albeit it involves buying and selling of foreign currencies.

The law governing Banking Activities in India is called "Negotiable Instruments Act
1881". The banking activities can be classified as :

Accepting Deposits from public/others (Deposits)

Lending money to public (Loans)
Transferring money from one place to another (Remittances)

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 Acting as trustees
Acting as intermediaries
Keeping valuables in safe custody
Collection Business
Government business
Bank Account
A Bank Account is the record of financial relationship a customer has with the Bank. It
contains details of all the moneys deposited with the Bank and withdrawn from it. There
are many Bank accounts, but basically there are two types:
(i) DEPOSITS (ii) LOANS

These activities can also be described as back office banking.

Banks are organised in a linear structure to performed these activities at the base of which
lies a Branch. The corporate office of a bank is normally called Head Office

Products of banks

Banks in India have traditionally offered mass banking products. Most common deposit
products being Savings Bank, Current Account, Term deposit Account and lending
products being Cash Credit and Term Loans. Due to Reserve Bank of India guidelines,
Banks have had little to do besides accepting deposits at rates fixed by Reserve Bank of
India and lend amount arrived by the formula stipulated by Reserve Bank of India at rates
prescribed by the latter. PLR (Prime lending rate) was the benchmark for interest on the
lending products. But PLR itself was, more often than not, dictated by RBI. Further,
remittance products were limited to issuance of Drafts, Telegraphic Transfers,
Bankers Cheque and Internal Transfer of funds.

A few foreign & private sector banks have already introduced customised banking
products like Investment Advisory Services, SGL II accounts, Photo-credit cards,
Cash Management services, Investment products and Tax Advisory services. A few
banks have gone in to market mutual fund schemes. Eventually, the Banks plan to market
bonds and debentures, when allowed. Insurance peddling by Banks will be a reality soon.

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 The recent Credit Policy of RBI announced on 27.4.2000 has further facilitated the entry
of banks in this sector. Banks also offer advisory services termed as 'private banking' - to
"high relationship - value" clients.

The bank of the future has to be essentially a marketing organization that also sells banking
products. New distribution channels are being used; more & more banks are outsourcing services
like disbursement and servicing of consumer loans, Credit card business. Direct Selling
Agents (DSAs) of various Banks go out and sell their products. They make house calls to get the
application form filled in properly and also take your passport-sized photo. Home banking has
already become common, where you can order a draft or cash over phone/internet and have it
delivered home. ICICI bank was the first among the new private banks to launch its net banking
service, called Infinity. It allows the user to access account information over a secure line,
request cheque books and stop payment, and even transfer funds between ICICI Bank accounts.
Citibank has been offering net banking to its Suvidha program to customers.

Products like debit cards, flexi deposits, ATM cards, personal loans including consumer loans,
housing loans and vehicle loans have been introduced by a number of banks.

Corporate are also deriving benefit from the increased variety of products and competition
among the banks. Certificates of deposit, Commercial papers, Non-convertible Debentures
(NCDs) that can be traded in the secondary market are gaining popularity. Recently, market has
also seen major developments in treasury advisory services. With the introduction of Rupee
floating rates for deposits as well as advances, products like interest rate swaps and forward rate
agreements for foreign exchange, risk management products like forward contract, option
contract, currency swap are offered by almost every authorized dealer bank in the market. The
list is growing.

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 CHAPTER- 2
RESEARCH
METHODOLOGY

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 Research methodology and data source

Introduction to research:-

Research refers to a search for knowledge. Research is scientific investigation.

ACCORDING TO REDMAN AND MORY:

A market research can’t draw decision, but it helps in the task of decision making. “Research is a
systematic effort to gain new knowledge.” ACCORDING TO LERNER’S DICTIONARY OF
CURRENT ENGLISH, Research is careful investigation or inquiry especially through search for
new facts in any branch of knowledge.

NEED FOR THIS STUDY

Since the 80s, there has been turbulence in the banking and finance industry worldwide as the
pace of changes continues to accelerate. Changes are being driven, above all by competition,
technology and customer demand. The Internet – both an opportunity and threat for banks - will
intensify these effects.

The globalization process and the opening up of the Indian economy; have given reason for the
banking sector to rethink its existing strategies. The penetration of computers and growth in
Internet usage is making the customers crave for more – more services, more convenience!
People want to put their PC to as many uses as possible. E-Banking is one such use; and a very
important one at that.

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These reasons and more have given rise to the need for such a project. Although many researches
and projects have been conducted on this topic before, this project is not redundant because e-
banking is a very dynamic subject in today’s scenario and hence it needs to be constantly updated
and studied.

Due to the vastness of this subject, it is impossible to include every single detail,
hence wherever necessary, annexure have been attached.

OBJECTIVE OF RESEARCH:

Objectives of a project tell us why project has been taken under study. It helps us to know more
about the topic that is being undertaken and helps us to explore future prospects of the topic.
Basically it tells what all have been studied while making the
project.

The various research objectives of the study are:

1. To study the facilities offered through internet banking by the banks to their customers

2. To study acceptability of internet banking by the customers.

3. To gain insight into the functioning of internet banking.

4. To explore the future prospects and challenges to internet banking.

5. To study the benefits entailing from internet banking

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 RESEARCH PROCESS-
Identify the problem

Set the objectives

Develop the Research Plan

Data collection

Analysis of Data

Finding (results)

All these steps are done systematically as one by one to find out the results. The first step in the
research process is to identify the problem and set objective carefully and agree on the research
objective.

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The second step to research process is to develop the most efficient research plan for gathering
the needed information. Designing the research plan call for gathering the primary data,
secondary data, or both, research instruments, sampling plan & contacts methods

The next step in the research process is data collection. It is most expensive and most prone to
error. Data collection methods are rapidly improving, thanks to modern computer and tele
communication.

The forth step in research process is to analyze the collected data. In this step researcher tabulate
the data and develop the frequency distribution.

The last step in the research process is that the researchers present their findings to the relevant
parties. The researcher should present the major findings that are pertinent to major marketing
decision facing management.

Collection of data:

Collection of data is one of the important aspects of research methodology. This consists of
gathering the data from various sources.

Types of data:

Data is important to collect the necessary information. Data may be of two types: primary and
secondary data.

Secondary data is one of the parts of research methodology through which information about the
project can be collected. For this research data is collected through Websites of Rbi, banknetindia
and various books.

1 The study will be based on the secondary data.

2 Review of literature, books and other papers relevant to the topic for obtaining
secondary data and for preparing theoretical parts.

3 The collected data will be systematically arranged , tabulated and appropriate analysis
will be drawn.

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Limitations of the study:

1. The data is collected on secondary basis.

2. The time was short to cover the whole information.
3. Technical aspects are not be clearly depicted.

CHAPTER- 3
OVERVIEW OF IT IN
BANKING

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PRE E-BANKING SCENARIO IN INDIA

Traditional Banking
Traditionally the relationship between the bank and its customers has been on a one-to-one level
via the branch network. This was put into operation with clearing and decision-making
responsibilities concentrated at the individual branch level. The head office had responsibility
for the overall clearing network, the size of the branch network and the training of staff in the
branch network. The bank monitored the organization’s performance and set the decision-making
parameters, but the information available to both branch staff and their customers
was limited to one geographical location.

On IT Adoption

What is the need of Core Banking Solutions?

The need for such a solution does not arise just because of one reason or the other but it requires
a combination of driving forces to come into existence. Some of these forces being-

· To meet the intense competition and changing market dynamics in an over

banked environment.
· To meet the regulations and compliance requirements (example in order to meet
the Basel ll norms banks must enhance there IT infrastructure).
· To meet the demands of customers who are better informed, more demanding and
less loyal than ever.
· To enhance efficiency and effectiveness.
· Increasing customer satisfaction and convenience
· Freeing up time for branch staff to focus on sales and marketing
· Simplifying process for employees
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· Enhancing bank’s competitiveness in the market
· Improved process efficiency

An Overview of: IT in Banking

Indian banking industry, today is in the midst of an IT revolution. A combination of regulatory

and competitive reasons has led to increasing importance of total banking automation in the
Indian Banking Industry.

Information Technology has basically been used under two different avenues in Banking. One is
Communication and Connectivity and other is Business Process Reengineering. Information
technology enables sophisticated product development, better market infrastructure,
implementation of reliable techniques for control of risks and helps the financial intermediaries
to reach geographically distant and diversified markets

In the five decades since independence, banking in India has evolved through four distinct
phases. During Fourth phase, also called as Reform Phase, Recommendations of the
Narasimham Committee (1991) paved the way for the reform phase in the banking. Important
initiatives with regard to the reform of the banking system were taken in this phase. Important
among these have been introduction of new accounting and prudential norms relating to income
recognition, provisioning and capital adequacy, deregulation of interest rates & easing of norms
for entry in the field of banking.

Entry of new banks resulted in a paradigm shift in the ways of banking in India. The growing
competition, growing expectations led to increased awareness amongst banks on the role and

22
importance of technology in banking. The arrival of foreign and private banks with their superior
state-of-the-art technology-based services pushed Indian Banks also to follow suit by going in
for the latest technologies so as to meet the threat of competition and retain their customer base.

In view of this, technology has changed the contours of three major functions performed by
banks, i.e., access to liquidity, transformation of assets and monitoring of risks. Further,
Information technology and the communication networking systems have a crucial bearing on
the efficiency of money, capital and foreign exchange markets.

The Software Packages for Banking Applications in India had their beginnings in the middle of
80s, when the Banks started computerizing the branches in a limited manner. The early 90s saw
the plummeting hardware prices and advent of cheap and inexpensive but high-powered PCs and
servers and banks went in for what was called Total Branch Automation (TBA) Packages. The
middle and late 90s witnessed the tornado of financial reforms, deregulation, globalization etc
coupled with rapid revolution in communication technologies and evolution of novel concept of
'convergence' of computer and communication technologies, like Internet, mobile / cell phones
etc.

WORLD SCENARIO

So the online revolution is upon us. It seems that everyone is taking to the Internet. According to
research done by Cyber Dialogue, there were 53.5 million cybercitizens in 1999. Approximately
6.3 million of these people were banking online in 1999, as well. This was up from 6 million
using online banking services in 1998. The sources I found predicting the number of online
banking users in the next several disagreed slightly. Cyber Dialogue says that 24.2 million people
will be using the virtual bank by 2002. The International Data Corp’s research showed
that 32 million users would be using the Web to visit their bank by 2003. In any scenario, a great
majority of current users are aware of online banking, and a large number of those people plan to
begin using online banking in the next 12 months. A global survey by Cap Gemini Ernst and
Young states that-

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United States Of America
In the USA, the number of financial institutions and commercial banks with transactional web
sites is 1275 or 12% of all banks and thrifts. Approximately 78% of all commercial banks with
more than $5 billion in assets, 43% of banks with $500 million to $5 billion in assets, and 10%
of banks under $500 million in assets have transactional web-sites. Of the 1275-
shrifts/commercial banks offering transactional Internet banking, 7 could be considered ‘virtual
banks’. 10 traditional banks have established Internet branches or divisions that operate
under a unique brand name. Internet transactions are expected to increase from 3% currently to
12% by 2003.

United Kingdom
Most banks in U.K. are offering transactional services through a wider range of channels
including Wireless Application Protocol (WAP), mobile phone and T.V. A number of nonbanks
have approached the Financial Services Authority (FSA) about charters for virtual banks or
‘clicks and mortar’ operations. There is a move towards banks establishing portals.

Sweden & Finland

Swedish and Finnish markets lead the world in terms of Internet penetration and the range and
quality of their online services. Merita Nordbanken (MRB) leads in “log-ins per month” with 1.2
million Internet customers, and its penetration rate in Finland (around 45%) is among the highest
in the world for a bank of ‘brick and mortar’ origin. Standinaviska Easkilda Banken (SEB) was
Sweden’s first Internet bank, having gone on-line in December 1996. It has 1,000 corporate
clients for its Trading Station – an Internet based trading mechanism for forex dealing, stock-
index futures and Swedish treasury bills and government bonds. Swedbank is another large-sized
Internet bank. Almost all of the approximately 150 banks operating in Norway had established
“net banks”.

Australia
Internet Banking in Australia is offered in two forms: web-based and through the provision of
proprietary software. Initial web-based products have focused on personal banking whereas the
provision of proprietary software has been targeted at the business/corporate sector. Most

24
Australian-owned banks and some foreign subsidiaries of banks have transactional or interactive
web sites. Online banking services range from Financial Institutions’ websites providing
information on financial products to enabling account management and financial transactions.
Customer service offered online includes account monitoring (electronic statements, real-time
account balances), account management (bill payments, funds transfers, applying for products
on-line) and financial transactions (securities trading, foreign currency transactions). Electronic
Bill Presentment and Payment (EBPP) are at an early stage. Generally, there are no ‘virtual’
banks licensed to operate.

New Zealand
Major banks in New Zealand offer Internet banking service to customers; operate as a division of
the bank rather than as a separate legal entity. Reserve Bank of New Zealand applies the same
approach to the regulation of both Internet banking activities and traditional banking activities.
There are however, banking supervision regulations that apply only to Internet banking.
Supervision is based on public disclosure of information rather than application of detailed
prudential rules. These disclosure rules apply to Internet banking activity also.

Singapore
The Monetary Authority of Singapore (MAS) has reviewed its current framework for licensing,
and for prudential regulation and supervision of banks, to ensure its relevance in the light of
developments in Internet banking, either as an additional channel or in the form of a specialized
division, or as stand-alone entities (Internet Only Banks), owned either by existing banks or by
new players entering the banking industry. The existing policy of MAS already allows all banks
licensed in Singapore to use the Internet to provide banking services. MAS is subjecting Internet
banking, including IOBs, to the same prudential standards as traditional banking.

Hong Kong
There has been a spate of activity in Internet banking in Hong Kong. Two virtual banks are being
planned. It is estimated that almost 15% of transactions are processed on the Internet. During the
first quarter of 2000, seven banks have begun Internet services. Banks are participating in

25
strategic alliances for ecommerce ventures and are forming alliances for Internet banking
services delivered through Jetco (a bank consortium operating an ATM network in Hong
Kong). A few banks have launched transactional mobile phone banking earlier for retail
customers.

Japan
Banks in Japan are increasingly focusing on e-banking transactions with customers. Internet
banking is an important part of their strategy. While some banks provide services such as
inquiry, settlement, purchase of financial products and loan application, others are looking at
setting up finance portals with non-finance business corporations. Most banks use outside
vendors in addition to in-house services.

THE INDIAN PERSPECTIVE

The experiences of the west are the clear indicators that Internet Banking is not far off for India.
The Internet usage, combined with aggressive moves by new Internet players in this highly
fragmented industry will have profound effects on financial services.

But are the Indian banks ready for this sudden change? Where do we stand as of today? Would
future be as diverse as today or would traditional banks painfully lose incremental revenue
growth opportunities to a host of aggressive players that may rapidly consolidate the new
revenue opportunities in the business. And what exactly do the banks need to do to meet the
challenges of “Banking Business without Barriers.” Lets try and find out.

Internet Banking Scenario

The lead in Internet banking in India has been taken by the new private sector banks and foreign
banks, and the four banks which offer Internet banking facilities in a significant way are ICICI
Bank, HDFC Bank, Citibank and Global Trust Bank. Banks like UTI Bank, IndusInd, SBI
also offer net banking facilities in a limited way.

The current base of online banking customers has been estimated at 4.2 Lakhs, which is 8.7% of
the overall Internet user base. The user base as of December 2002 has been estimated under

26
alternative scenarios: The conservative scenario puts the user base as of 31st December, 2002 at
41.0 Lakhs (14.7% of the Internet user base), while the more optimistic forecast puts the user
base at 73.0 Lakhs with an overall penetration of 26.2%. ICICI, HDFC and Citibank have
emerged as the early leaders in online banking, with ICICI being the clear leader. Research
revealed that close to 40% of adult Internet users have accounts with one of the four major
Internet banks offline. However, only 10.8% of adult Internet users are banking online.
In terms of activities, there is still a reluctance to actually conduct financial transfers online, and
the bulk of online banking activity is restricted to checking balances and statements online.
Barely 30% of online bankers have paid bill online or transferred funds online.

Specific aspects of the Indian banking scenario which are pertinent to note are:
 The low ATM penetration
 A regulatory framework which is not conducive to net only banks
 The relative lack of inter branch networking and e-readiness of major public sector banks,
which control a bulk of the deposit and branch network base
 The relative nascence of the Internet itself
 The entry of many new players
 The recent IT Act which accepts the legal validity of digital signatures
 Plans of Indian public sector banks to provide e banking services by 2002
 The rapid growth of the Internet
The last 4 points – from entry of new players to rapid growth are factors, which
should enable the growth of online banking in India.

The Indian banking sector woke up to the world of technology in early 1990s. The banking
sector in India has been dominated by the public sector banks, who hold between them more than
80% of the total asset base. New private sector banks and foreign banks have tended to
concentrate their efforts more on the top 23 centres, which house the cream of the country's
urban customers. These banks have taken the lead in technology adoption and have succeeded in
building up a substantial base of technology savvy, high-end customers.

27
Though in the beginning the employees resisted computerisation (especially in nationalised
banks), the management finally succeeded in convincing its employees about the benefits and
need for adoption of technology. Says P. Seshadri Rao, a financial consultant based in
Hyderabad, "The basic reason for getting the need for computerisation was the competition from
private banks. Once the gates were opened to the private sector to operate banks, they started
with a bang, thereby forcing nationalised banks to reconsider their way of doing
business.".

Computerization of all branches, especially in semi-urban and rural areas, is still a far cry for
public sector banks. "This calls for huge investments and retraining of staff. I think these factors
are inhibiting most of the banks to take technology to rural areas. But since IT is becoming an
integral and inevitable part of the banking system, rural banks' computerization should also
happen very soon," comments a senior official with Andhra Bank. Explains P.K. Seshadrinathan,
CTO of SSI Technologies: "The key obstacles to introduction of IT are nonintegration.or non-
networking of branches, and a lack of corporate network. Computerization has been introduced
but each branch acts as an island. And, of course, cultural/social issues continue to pose
problems. Overcoming these obstacles, therefore, would be the biggest challenge by itself."

However, the nationalized banks have taken to computerization in the right earnest. Today most
of them have their own in-house IT department which not only takes care of deployment and
implementation issues but is also into developing specific and customized applications for the
bank. From SBI to Canara Bank, everyone is expanding its IT division and making huge
investments to develop the division as a profit centre by itself. According to an SBI official,
"It makes more sense to have our own division which understands our needs and comes out with
a solution. It is not just cost-effective but also useful for a bank to have a separate division that
takes care of IT in totality."

MILESTONES

In India, banks as well as other financial entities entered the world of information technology and
with Indian Financial Net (INFINET). INFINET, a wide area satellite based network (WAN)

28
using VSAT (Very Small Aperture Terminals) technology, was jointly set up by the Reserve Bank
and Institute for Development and Research in Banking Technology (IDRBT) in June 1999.

The Indian Financial Network (INFINET) which initially comprised only the public sector banks
was opened up for participation by other categories of members.

The first set of applications that could benefit greatly from the use of technological advances in
the computer and communications area relate to the Payment systems which form the lifeline of
any banking activity. The process of reforms in payment and settlement systems has gained
momentum with the implementation of projects such as NDS ((Negotiated Dealing System),
CFMS (Centralised Funds Management System) for better funds management by banks and
SFMS (Structured Financial Messaging Solution) for secure message transfer. This would result
in funds transfers and funds-related message transfer to be routed electronically across banks
using the medium of the INFINET. Negotiated dealing system (NDS), which has become
operational since February 2002 and RTGS (Real Time Gross Settlement system) scheduled
towards the end of 2003 are other major developments in the area.

Internet has significantly influenced delivery channels of the banks. Internet has emerged as an
important medium for delivery of banking products & services. Detailed guidelines of RBI for
Internet Banking has prepared the necessary ground for growth of Internet Banking in India.

The Information Technology Act, 2000 has given legal recognition to creation, trans-mission and
retention of an electronic (or magnetic) data to be treated as valid proof in a court of law, except
in those areas, which continue to be governed by the provisions of the Negotiable Instruments
Act, 1881.

As stated in RBI's Annual Monetary and Credit Policy 2002-2003: "To reap the full benefits of
such electronic message transfers, it is necessary that banks bestow sufficient attention on the
computerisation and networking of the branches situated at commercially important centres on a
time-bound basis. Intra-city and intra-bank networking would facilitate in addressing the "last
mile" problem which would in turn result in quick and efficient funds transfers across the

29
country".

Initiatives of: Reserve Bank of India

RBI's Monetary and Credit Policy 2003-04, provides an insight into the current developments &
future of technology up gradation in the Indian Financial sector, including banks.

Committees

Rangarajan Committee ( I )
In the early 80s, a high level committee was formed under the chairmanship of Dr. C Rangarajan,
then Governor of the Reserve Bank of India, to draw up a phased plan for computerisation and
mechanisation in the Banking Industry over a five year time frame of 1985-89. The focus by this
time (justifiably) was on customer service and two models of branch automation were developed
and implemented
 front office mechanisation where front desk operations were computerised while back office
work was done manually and
 back office automation covering mechanisation of General Ledger and back office
operations while the front office work was done manually;

Both the models provided the customer with error-free accounting, regular
statements of accounts etc. Considering the contemporary level of
computerisation, these were major achievements but did not go far enough and
30
the pace of their implementation was tardy, to say the least, with not a little
opposition from trade unions.

Rangarajan Committee ( II )

Having gained experience in the earlier mode of computerisation, the second Rangarajan
Committee constituted in 1988 drew up a detailed perspective planfor computerisation of in
Banks and for extension of automation to other areas like funds transfer, electronic mail,
BANKNET, SWIFT, ATMs etc.

 Around 2000 to 2500 large branches located at high activity (urban and
metropolitan) centres to be fully computerised
 Regional Offices / Zonal Offices/Head Offices
 Inter- and intra bank transactions using the BANKNET set up by the RBI;
 Installation of a network of cash dispensers / ATMs at strategic locations such as
airports/railway stations etc., on a shared basis by banks.

The Committee also made studied recommendations on the 'Single Window

Concept; 'all bank credit cards', credit clearing/GIRO system, office automation,
etc. In fact this report was the most comprehensive road map for Bank
Automation considering the state of the technology at that time.

Vasudevan Committee
To further upgrade the existing technology in the banking sector and also to
suggest measures for implementation, the Reserve Bank appointed a "Committee
on Technology Upgradation in the Banking Sector". The Committee in its
Report, submitted in July 1999, recommended a new legislation on Electronicfunds- transfer
system to facilitate multiple payment systems to be set up by banks and financial institutions.

31
Implementation of Centralised Funds Management System

The centralised funds management system (CFMS) provides for a centralised viewing of balance
positions of the account holders across different accounts maintained at various locations of RBI.
While the first phase of the system covering the centralized funds enquiry system (CFES) has
been made available to the users, the second phase comprising the centralized funds transfer
system (CFTS) would be made available by the middle of 2003. So far, 54 banks have
implemented the system at their treasuries/funds management branches

Certification and Digital Signatures

The mid-term Review of October 2002 indicated the need for information security on the
network and the use of public key infrastructure (PKI) by banks. The Controller of Certifying
Authorities, Government of India, have approved the Institute for Development and Research in
Banking Technology (IDRBT) as a Certification Authority (CA) for digital signatures.
Consequently, the process of setting up of registration authorities (RA) under the CA has
commenced at various banks. In addition to the negotiated dealing system (NDS), the electronic
clearing service (ECS) and electronic funds transfer (EFT) are also being enhanced in terms of
security by means of implementation of PKI and digital signatures using the facilities offered by
the CA.

Committee on Payment Systems

In order to examine the entire gamut of the process of reforms in payment and settlement
systems which would be culminating with the real time gross settlement (RTGS) system, a
Committee on Payment Systems (Chairman: Dr. R.H. Patil) was set up in 2002. The Committee,
after examining the various aspects relating to payment and settlement systems, submitted its
report in September 2002 along with a draft Payment Systems Bill. The draft Bill provides, inter
alia, a legal basis for netting, apart from empowering RBI to have regulatory and oversight

32
powers over payment and settlement systems of the country. The report of the Committee was
put on the RBI website for wider dissemination. The draft Bill has been forwarded to the
Government.

Multi-application Smart Cards

Recognising the need for technology based payment products and the growing importance of
smart card based payment flows, a pilot project for multi-application smart cards in conjunction
with a few banks and vendors, under the aegis of the Ministry of Communications and
Information Technology, Government of India, has been initiated. The project is aimed at the
formulation of standards for multi-application smart cards on the basis of inter-operable systems
and technological components of the entire system.

Special Electronic Funds Transfer

As indicated in the mid-term Review of October 2002, national EFT (NEFT) is being introduced
using the backbone of the structured financial messaging system (SFMS) of the IDRBT. NEFT
would provide for movement of electronic transfer of funds in a safe, secure and quick manner
across branches of any bank to any other bank through a central gateway of each bank, with the
inter-bank settlement being effected in the books of account of banks maintained at RBI. Since
this scheme requires connectivity across a large number of branches at many cities, a special
EFT (SEFT) was introduced in April 2003 covering about 3000 branches in 500 cities. This has
facilitated same day transfer of funds across accounts of constituents at all these branches.

National Settlement System (NSS)

The clearing and settlement activities are dispersed through 1,047 clearing houses managed by
RBI, the State Bank of India and its associates, public sector banks and other institutions. In
order to facilitate banks to have better control over their funds, it is proposed to introduce
national settlement system (NSS) in a phased manner.

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Real Time Gross Settlement System (RTGS)

As indicated in the mid-term Review of October 2002, development of the various software
modules for the RTGS system is in progress. The initial set of modules is expected to be
delivered by June 2003 for members to conduct tests and familiarisation exercises. The live run
of RTGS is scheduled towards the end of 2003.

Reporting of Call/Notice Money Market Transactions on NDS Platform

Negotiated dealing system (NDS), which has become operational since February 2002, enables
on-line dealing and dissemination of trade information relating to instruments in money,
government securities and foreign exchange markets. Membership in NDS is open to all
institutions which are members of INFINET and are maintaining subsidiary general ledger
(SGL) Account with RBI. These include banks, financial institutions (FIs), primary dealers
(PDs), insurance companies, mutual funds and any other institution as admitted by RBI. At
present, all deals in government securities, call/notice/term money, CDs and CP executed among
NDS members have to be reported automatically through NDS, if the deal is done on NDS and
within 15 minutes of concluding the deal, if done outside NDS. However, it has been observed
that a very sizeable proportion of daily call/notice money market deals is not reported by
members on NDS as stipulated. With a view to improving transparency and strengthening
efficiency in the market, it is proposed that:

1. From the fortnight beginning May 3, 2003, it would be mandatory for all NDS members to
report all their call/notice money market deals on NDS. Deals done outside NDS should be
reported within 15 minutes on NDS, irrespective of the size of the deal or whether the
counterparty is a member of the NDS or not.

2. Full compliance with the reporting requirement to NDS will be reviewed in September 2003.
In case there is repeated non-reporting of deals by an NDS member, it will be considered
whether non-reported deals by that member should be treated as invalid with effect from a future

34
date.

CHAPTER- 4
E-BANKING

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WHAT IS E-BANKING?

A non-resident Indian (NRI) in Paris has an easy way to access money in this fashion capital of
the world. His Citibank account in India can be accessed through an ATM in Paris, which in turn
transmits information to Citibank’s central hub in the US. The Indian rupees are converted to US
dollars, which are in turn converted into French Francs at the current exchange rate, the Indian
account is debited and the Francs made available to the NRI. Welcome to the era of technology
banking!

Traditionally, banks have used branch networks and distributed PC software as their delivery
channels to reach business customers. However, in the recent past,a combination of distinctive
factors require that banks rethink their strategy. These factors include demands on time as a
limited resource, rising real estate expense, changing human resource and information
technology infrastructure and, most of all, fierce competition. All of these factors are forcing
banks to provide services to their business customers anytime, anywhere, anyhow in what
is termed as “boundary-less banking."

There is no denying the fact that in the past two decades information technology has been the
most rapidly changing industry in the world. But more than the rate of change, what is
emarkable is the way IT has changed the paradigms of business in other industries. One industry
that has really felt the impact of IT has been the banking sector.

What is E-banking? Electronic Banking in simple terms means, it does not involve any physical
exchange of money, but it’s all done electronically, from one account to another, using the
Internet. Internet banking is just like normal banking, with one big exception. You don't have to
go to the bank for transactions. Instead, you can access your account any time and from any part
36
of the world, and do so when you have the time, and not when the bank is open. For busy
executives, students, and homemakers, e-banking is a virtual blessing. No more taking precious
time off from work to get a demand draft made or a Chequebook issued. Banks offer Internet
banking in two main ways. An existing bank with physical offices can establish a Web site and
offer Internet banking to its customers in addition to its traditional delivery channels.
A second alternative is to establish a ‘‘virtual,’’‘‘branchless,’’ or ‘‘Internet-only’’ bank. The
computer server that lies at the heart of a virtual bank may be housed in an office that serves as
the legal address of such a bank, or at some other location. Virtual banks may offer their
customers the ability to make deposits and withdraw funds via automated teller machines
(ATMs) or other remote delivery channels owned by other institutions.

Online systems allow customers to plug into a host of banking services from a personal
computer by connecting with the bank's computers over telephone wires. The convenience can
be compelling. Not only is travel time reduced, but ATM machines, telephone banking or
banking by mail are often unnecessary. And, technology continues to make online banking, once
attempted only by computer enthusiasts, easier for the average consumer.

Banks use a variety of names for online banking services, such as PC banking, home banking,
electronic banking or Internet banking.Can one imagine life without paper cash? Money has
always been part of human emotions. And although it is difficult to imagine that all those years
of savings at the bank is now just a whole bunch of bits and bytes, it is becoming a reality and
the sooner people adjust to it, the better it is.

IT IMPLEMENTATION IN BANKS OR SERVICES OF E-BANKS

Banking Software

The Software Packages for Banking Applications in India had their beginnings in the
middle of 80s, when the Banks. spurred on by RBI and the Rangarajan Committee Report,
started computerising the branches in a limited manner. The approach was to empanel a
37
few hardware vendors who will also develop the software as per Bank's specifications and
also help to install at the branches. This was a multi-vendor approach to foster competition
and to assess the relative vendor capabilities. These packages were written usually in fox-
pro or C and were dos-based - and rarely Unix-based.

The early 90s saw the plummeting hardware prices and advent of cheap and inexpensive
but high-powered PCs and servers and Banks went in for what was called Total Branch
Automation (TBA) Packages. Architecturally, some were centralised solutions with a
powerful central server maintaining the database, with multiple terminals; others went in
for distributed processing with multiple PCs as nodes linked on a LAN. The Platforms
used ranged from simple UNIX-C to powerful RDBMS like Oracle etc.

The middle and late 90s witnessed the tornado of financial reforms, deregulation,
globalisation etc coupled with rapid revolution in communication technologies and
evolution of novel concept of 'convergence' of computer and communication technologies,
like Internet, mobile / cell phones etc. The arrival of foreign and private banks with their
superior state-of-the-art technology-based services pushed Indian Banks also to follow
suit by going in for the latest technologies so as to meet the threat of competition and
retain customer base. This also brought in revolutionary products and services to which,
we are proud to say, the Indian Software Industry has significantly contributed.

Categories of Packages

The IT Packages and services available in India can be broadly classified into the
following 6 types:

(I) Stand-alone branch-level packages-

(ii) Multi-branch solutions -

(iii) Foreign Packages -

(iv) Packages for specialized niche areas -

38
(v) Service Branch / high-volume transaction processing packages -

(vi) IT Services -

(I) Stand-alone branch-level packages-

These are usually written in FoxPro, C or Dbase and handle specific functions at
branches; these are sometimes networked on a LAN to simulate a TBA environment. But
there are also high-end packages with a central Server (which can be a Pentium PC or NT
or a MINI or even a Main Frame, supported by multiple (dumb or intelligent) terminals.
Some of them use sophisticated RDBMS like ORACLE as back-end and provide user-
friendly front-end with Windows GUI.

(ii) Multi-branch solutions -

These are used to network a cluster of branches in a city (or spread over several
cities); the account maintenance can be central (where facilities like Anywhere
Banking are required) or can be distributed, networking being achieved through
Wide Area Network (WAN) on terrestrial lines / high speed lines/ satellite networks
- and now even wireless.

(iii) Foreign Packages -

Examples are Bank Master, Kappiti, Sanchez etc. These need to be extensively
customised to suit Indian requirements - but their strength lie in their proven
capabilities in developing and offering modern / global banking products / services
that India is just ushering in.

39
(iv) Packages for specialized niche areas -

Like Asset Liability Management (ALM), Treasury Management, Trading / Dealing

Room activities, Custodial Services/ Depository Participant etc. These are high-end
packages with sophisticated analytical and decision tools.

(v) Service Branch / high-volume transaction processing packages -

These include, clearing, drafts issue/ payments / reconciliation (Remittances), Bills

(payments/ collection/ purchases), Dividend Warrant Processing, inter-branch
reconciliation etc. These are often developed and implemented by service providers
to whom the work is outsourced.

(vi) IT Services -

These are not Packages in the sense, these are developed to handle specific
problems like disaster recovery, virus protection, security handling, linking /
networking multiple legacy systems between themselves or to new platforms or to
new delivery channels like ATMs, etc.

Some of the standard software tools that many banks are using these days are

 Intellect Suite from POLARIS

 Flexcube from iFlex Solutions
 Finacle from Infosys
 B@ncs from TATA Consultancy Services

VARIOUS FORMS OF E-BANKING:

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Core Banking Solution: INTERNET BANKING

Core Banking Solutions is new jargon frequently used in banking circles. The advancement in
technology especially internet and information technology has led to new way of doing business
in banking. The technologies have cut down time, working simultaneously on different issues
and increased efficiency. The platform where communication technology and information
technology are merged to suit core needs of banking is known as Core Banking Solutions. Here
computer software is developed to perform core operations of banking like recording of
transactions, passbook maintenance, interest calculations on loans and deposits,
customer records, balance of payments and withdrawal are done. This software is installed at
different branches of bank and then interconnected by means of communication lines like
telephones, satellite, internet etc. It allows the user (customers) to operate accounts from any
branch if it has installed core banking solutions. This new platform has changed the way banks
are working. Now many advanced features like regulatory requirements and other specialized
services like share (stock) trading are being provided. Core banking solutions are very helpful to
SME industries.

Core Banking Solution (CBS) is networking of branches, which enables customers to operate
their accounts, and avail banking services from any branch of the Bank on CBS network,
regardless of where he maintains his account. The customer is no more the customer of a Branch.
He becomes the Bank’s Customer. Thus CBS is a step towards enhancing customer convenience
through Anywhere and Anytime Banking.

The advancement in technology especially internet and information technology has led to new
way of doing business in banking. The technologies have cut down time, working simultaneously
on different issues and increased efficiency. The platform where communication technology and
information technology are merged to suit core needs of banking is known as Core Banking
Solutions. Here computer software is developed to perform core operations of banking like
recording of transactions, passbook maintenance, interest calculations on loans and deposits,
customer records, balance of payments and withdrawal are done. This software is installed at

41
different branches of bank and then interconnected by means of communication lines like
telephones, satellite, internet etc. It allows the user (customers) to operate accounts from any
branch if it has installed core banking solutions. This new platform has changed the way banks
are working.

System Architecture of Core Banking Solution

In the CBS with centralized database the entire database and banking application software has to
be kept at centrally built infrastructure called 'Data Center'. CBS no risk of hampering all branch
services at a time. Branch can work offline at connectivity or data center failure.
Local transaction will be in continuation although when connectivity fails. The difference data
will get updated to data center first & then normal CBS communication with data center will
start.
Build the data center & connect the branches to it by making them online one-by-one is the way
of implementation of CBS. But Make the branches online first & then build the data center is the
wise decision. Data center can be build at any time.

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E-Banker CBS is a fully automated 3-tier web enabled banking software solution for complete
banking business processes. The software supports all functional areas of the banking and
capable of handling all the activities in bank. The complete system is the integration of three
modules .

Main Modules
Branch Module
Head Office Module
Data Center Module

What is 3-tire Architecture?

E-Banker CBS’ is 3-tier architecture web-based software.In 3-tier system, 3 layers i.e.
Presentation Layer, Business Logic Layer & Data Layer are maintain separately on separate or
combination of servers.
Presentation Layer

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This layer contain static content and basic page information .User hits on Presentation Layer.
Presentation Layer access Business Logic Layer & Business Logic Layer in tern access Data
Layer.
Business Logic Layer
This is the middle tier that contains all of the business logic of an application.
Data Layer
All of your database applications and data storage repositories exist in this layer. This system
denies direct access of Database and Business Logic to users. Hence percentage of hacking and
damaging in global network of web minimizes up to 0%

Product Functionality
E-Banker is easy in operation. Any user can handle it efficiently after few days training. Also
user can customized his/her own reports if required with out any technical support. Software
stores all the masters for various heads, subheads, all types of loans, deposits with their schemes,
etc. It maintains all records and transaction history of various accounts and other details for the
respective customers. This software provides various data entry screen and various reports for
cashbook, daybook, profit and loss statement and trial balance along with balance sheet, etc. It
also provides special security features and automatic backup facilities and also provides various
rights to users according to their level.

Security Aspects
The security aspects of the software are strong. Though the software is web-based, works in the
global environment & can be access any where you want through internet, access of the software
is possible only on authorized and designated networks and systems with the proper validations
of user codes, systems identification like network ID, M/C Id, MAC ID etc. It means only
authenticated network, m/cs or users can access the system and no unwanted user can enter in to
system.

AUTOMATED TELLER MACHINES (ATM):

44
An unattended electronic machine in a public place, connected to a data system and related
equipment and activated by a bank customer to obtain cash withdrawals and other banking
services. Also called automatic teller machine, cash machine; Also called money machine.
An automated teller machine or automatic teller machine (ATM) is an electronic
computerized telecommunications device that allows a financial institution's customers to
directly use a secure method of communication to access their bank accounts, order or make cash
withdrawals (or cash advances using a credit card) and check their account balances without the
need for a human bank teller (or cashier in the UK). Many ATMs also allow people to deposit
cash or cheques, transfer money between their bank accounts, top up their mobile phones' pre
-paid accounts or even buy postage stamps. On most modern ATMs, the customer identifies him
or herself by inserting a plastic card with a magnetic stripe or a plastic smartcard with a chip, that
contains his or her account number. The customer then verifies their identity by entering a
passcode, often referred to as a PIN (Personal Identification Number) of four or more digits.
Upon successful entry of the PIN, the customer may perform a transaction. If the number is
entered incorrectly several times in a row (usually three attempts per card insertion), some ATMs
will attempt retain the card as a security precaution to prevent an unauthorised user from
discovering the PIN by guesswork. Captured cards are often destroyed if the ATM owner is not
the card issuing bank, as non-customer's identities cannot be reliably confirmed. The Indian
market today has approximately more than 17,000 ATM’s.

TELE BANKING:

Undertaking a host of banking related services including financial transactions from the
convenience of customers chosen place anywhere across the GLOBE and any time of date and
night has now been made possible by introducing on-line Telebanking services. By dialing the
given Telebanking number through a landline or a mobile from anywhere, the customer can
access his account and by following the user-friendly menu, entire banking can be done through
Interactive Voice Response (IVR) system. With sufficient numbers of hunting lines made
available, customer call will hardly fail. The system is bilingual and has following facilities
offered
• Automatic balance voice out for the default account.

45
• Balance inquiry and transaction inquiry in all
• Inquiry of all term deposit account
• Statement of account by Fax, e-mail or ordinary mail.
• Cheque book request
• Stop payment which is on-line and instantaneous
• Transfer of funds with CBS which is automatic and instantaneous
• Utility Bill Payments
• Renewal of term deposit which is automatic and instantaneous
• Voice out of last five transactions.

SMART CARD:

A smart card usually contains an embedded 8-bit microprocessor (a kind of computer chip). The
microprocessor is under a contact pad on one side of the card. Think of the microprocessor as
replacing the usual magnetic stripe present on a credit card or debit card. The microprocessor on
the smart card is there for security. The host computer and card reader actually "talk" to the
microprocessor. The microprocessor enforces access to the data on the card. The chips in these
cards are capable of many kinds of transactions. For example, a person could make purchases
from their credit account, debit account or from a stored account value that's reload able. The
enhanced memory and processing capacity of the smart card is many times that of traditional
magnetic-stripe cards and can accommodate several different applications on a single card. It can
also hold identification information, which means no more shuffling through cards in the wallet
to
find the right one -- the Smart Card will be the only one needed. Smart cards can also be used
with a smart card reader attachment to a personal computer
to authenticate a user. Smart cards are much more popular in Europe than in the U.S. In Europe
the health insurance and banking industries use smart cards extensively. Every German citizen
has a smart card for health insurance. Even though smart cards have been around in their modern
form for at least a decade, they are just starting to take off in the U.S.

DEBIT CARD:

46
Debit cards are also known as check cards. Debit cards look like credit cards or ATM (automated
teller machine) cards, but operate like cash or a personal check. Debit cards are different from
credit cards. While a credit card is a way to "pay later," a debit card is a way to "pay now." When
you use a debit card, your money is quickly deducted from your checking or savings account.
Debit cards are accepted at many locations, including grocery stores, retail stores, gasoline
stations, and restaurants. You can use your card anywhere merchants display
your card's brand name or logo. They offer an alternative to carrying a checkbook or cash.

E-CHEQUE:

• An e-Cheque is the electronic version or representation of paper cheque.

• The Information and Legal Framework on the E-Cheque is the same as that of the
paper cheque’s.
• It can now be used in place of paper cheques to do any and all remote
transactions.
• An E-cheque work the same way a cheque does, the cheque writer "writes" the e-
Cheque using one of many types of electronic devices and "gives" the e-Cheque to the payee
electronically. The payee "deposits" the Electronic Cheque receives credit, and the payee's bank
"clears" the e-Cheque to the paying bank. The paying bank validates the e- Cheque and then
"charges" the check writer's account for the check.

OTHER FORMS OF ELECTRONIC BANKING

Internet banks offer a variety of features and perks, rushing to lure online customers. The race is
on to increase market share and create customer loyalty with features that make online banking
friendlier, more useful, and less expensive. E-Banking lures customers with ‘convenience’.

The three broad facilities that e-banking offers are:

Convenience - Complete your banking at your convenience, in the

47
comfort of your home or at any place you can access the Net.
No more Qs - There are no queues at an online bank.
24/7 service - Bank online 24 hours a day, 7 days a week and 52 weeks a year.

Below is a detailed review of features found in Internet banking around the

world.

Online applications
Consumers can begin their banking relationship with an online application. No need to waste
time driving to a local branch to begin a banking relationship. Consumers can fill out and submit
electronically all necessary information needed to open a checking, savings account or even a
fixed deposit. When the application is submitted, the bank will mail you a signature card for its
records and request you to mail or wire your initial funds. Some firms like American Express and
CompuBank enable customers applying for an account to fund their new account electronically
via a credit card or cheque from another banking institution. There are some firms such as
Wingspan and USA BancShares.com that enable customers to digitally sign their applications.

Account Access
Internet banking customers now have the ability to view their accounts online, including
checking, savings, loans and credit cards. No need to wait for your monthly statements or wait in
queue for the next available customer service representative. Account access enables customers
to view most recent activity on accounts, including cleared checks, deposits, ATM transactions
and balances as of previous days activities. Customers no longer have to hold on to the cleared
checks, since their bank will store them for them online.

Account transfers
Internet banking customers have the ability to transfer funds to and from their accounts online.
With a simple online form, customers can move money from a checking account to a savings
account and vice versa within the safety and convenience of their home –- without having to visit
the ATM. Funds transferred online are updated in less than three hours. In addition, customers
can set up recurring transfers to accounts. A recurring transfer will take place on the customer
specified date, with a specified amount.

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Bill Payment
Online bill payment enables customers to pay anyone, friends or family, as well as a pay their
bills electronically. As an add on feature to Internet banking, bill payment enables customers to
send paper checks to anyone or an electronic check to any institution that accepts electronic bill
payments. To use bill payment, customers are required to set up their payees online. Customers
then have the ability to set up recurring, automatic payments to a specific biller on a specified
day or just a one-time payment. Arrange payments three to five days, before the due date, to
ensure timely delivery. It is important to note that not all banks provide bill payment as a free
feature.

Benefits at participating online merchants

The banks partner with online merchants to offer discounts when a purchase is made with the
card.

24/7 customer service

Although it is easy to yield to the temptation of allowing the Internet to replace expensive
branch personnel and overhead, many banks have found that an customer service staff ready at
any hour is well worth the expense. This can be especially true as customers transition to online
banking and need help learning the features. Offering telephone and email contacts is a basic
level of service. Offering live chat assistance is the exceptional level.

Access to old transactions

Choices made in designing the Internet interface may include how much history will be available
online. Some banks have chosen to show only 30-45 days, while others offer a history of six
months or a year.

Categorize transactions and produce reports

Functionality is king as online banking customers using these features enjoy a Web interface that
delivers the utility of a money management software application.

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Export your banking data
Most banks offering the management interface also allow easy downloading of financial
information into files that can be imported into Microsoft Money and Intuit's Quicken.

Interactive guides & tools to help selection of proper product

Although online, interactive guides through a bank's products, adds complexity to the
programming it also serves the bank by assisting potential customers in choosing new products
or services. Interactive Tools to design a savings plan, choose a mortgage, obtain online
insurance quotes all tied to applications These tools help remove some of the mystery involved in
so many account options and costs.

Loan status and credit card account information

Bank customers are familiar with reviewing their checking account information, but many banks
are adding the ability to look at one'sloan status and credit card information as well. Access to as
many accounts held at the bank seems to be the goal.
View digital copies of checks
This, again, is removing a down side to online banking. It makes images of checks available as
replacement for sending out cancelled checks or sheets of printed check images.

Online forms for ordering checks, stop payment, etc.

Convenience is popular and if a customer visits his or her online account frequently it only
makes sense to allow the ability to reorder checks or perform certain other commands through
the same interface. These features and many others help customers save time, simplify their lives
and provide greater value than conventional banking.

ONLINE PAYMENT SYSTEMS

What is a Payment System?

Payment means the transfer of money. In its simplest form, a payment system is an agreed upon
way to transfer value between a buyer and a seller in a transaction. When coupled with rules and
procedures, the payment system provides an infrastructure for transferring money from one

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entity in the economy to another. Payment systems can be distinguished by the mechanisms used
to transfer value in an exchange of goods or services.

Electronic Payment Systems

Electronic payment systems exist in a variety of forms, which can be divided into two groups:
wholesale payment systems and retail payment systems. Wholesale payment systems exist for
non-consumer transactions--transactions initiated among and between banks, corporations,
governments, and other financial service firms.
Retail electronic payment systems encompass those transactions involving consumers. These
transactions involve the use of such payment mechanisms as credit cards, automated teller
machines (ATMs), debit cards, point-of-sale (POS) terminals, home banking, and telephone bill-
paying services.

Wholesale Payment Systems

Wholesale payment systems are also called Large Value Payment Systems. Large value funds
transfer systems are usually distinguished from retail funds transfer systems that handle a large
volume of payments of relatively low value. The average size of transfers through large value
funds transfer systems is substantial and the transfers are typically more time critical. There are
two types of wholesale payment systems – net settlement systems and gross settlement systems.
Large Value funds transfer systems can also be classified according to the timing (and frequency)
of settlement. Systems can in principle be grouped into two types - designated time (or deferred)
settlement systems and real-time (or continuous) settlement systems, depending on whether they
settle at pre specified points in time or on a continuous basis.

Net Settlement Systems

In a net settlement system, the settlement of funds transfers occurs on a net basis according to the
rules and procedures of the system. A participating bank's net position is calculated, on either a
bilateral or a multilateral basis, as the sum of the value of all the transfers it has received up to a
particular point in time minus the sum of the value of all the transfers it has sent. The net position

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at the settlement time, which can be a net credit or debit position, is called the net settlement
position.

Gross Settlement System

In a gross settlement system, on the other hand, the settlement of funds occurs on a transaction
by transaction basis, that is, without netting debits against credits.

Designated Time Settlements

Designated time (or deferred) settlement system is one in which final settlement occurs at one or
more discrete, pre specified settlement times during the processing day. Designated time
settlement systems in which final settlement takes place only once, at the end of the processing
day, are called end of day settlement systems. Currently, net settlement systems for large value
transfers are typically end of day net settlement systems that settle the net settlement positions by
means of transfers of central bank money from net debtors to net creditors. In some countries,
there are systems in which the final settlement of transfers occurs at the end of the processing
day without netting the credit and debit positions - on a transaction by transaction basis or on the
basis of the aggregate credit and aggregate debit position of each bank. Such systems are often
called end of day gross settlement systems.

Real time Settlement Systems

A real time (or continuous) settlement system is defined as a system that can effect final
settlement on a continuous basis during the processing day. RTGS i.e. Real Time Gross
Settlement systems, as defined below, fall into this category.

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Retail Payment Systems
Retail payment systems are also called small value payment systems. An important emerging
mechanism for enabling small-value payment systems is electronic money. Electronic money is a
payment mechanism that is a direct substitute for traditional cash; value is transferred
electronically to pay for goods and services at vending machines, retail establishments, over
networks, or through direct person-to-person exchanges.
Electronic money offers some features that make it an attractive alternative over other payment
mechanisms. Electronic money does not have to be designed to faithfully emulate all the
properties of paper cash. It can be implemented to preclude some features of paper cash, such as
complete anonymity, while including other desirable attributes of paper cash, such as full
divisibility, assignment of limits and constraints, and links to the current owner. The following
are some types of electronic money available over the net worldwide.

First Virtual

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The account is set up by phone using a traditional credit card number and a First Virtual account
number is issued. Clients provide their credit card numbers to First Virtual over the phone or
other non-Internet method, and are issued a personal account number to make purchases over the
Internet. This payment mechanism allows the user to order goods online and then charges the
user's credit card company on behalf of the online merchant. The merchant reports the
transaction amount with the First Virtual account number. First Virtual then confirms the
purchase with the customer via email. No special software is required for either purchaser or
merchant.

DigiCash

David Chaum, a mathematician and privacy expert, founded DigiCash. This provider creates e-
cash, proprietary electronic cash tokens, which are marketed as being the equivalent of cash. An
account isestablished at a DigiCash-licensed bank with real money. Once established, the
customer can withdraw e-cash that is stored on the user computer's hard drive. Using proprietary
software, e-cash can be spent with an Internet merchant or with anyone else whose computer is
set up to deal in e-cash. Using public-key cryptography, the digital tokens are said to be secure
and can be registered and verified by the issuer without revealing to whom it was originally
issued. In effect, these digital cash transactions are capable of being as anonymous as cash. No
transaction confirmations are necessary, meaning the merchant can immediately ship the product.

CyberCash

This payment mechanism consists of a downloadable software package using public-key

encryption that is designed to assure the security of credit card transactions over the Internet. The
system protects the customer's authentication data. An account is set up and acts as an Internet
front end to any existing credit card that is designated. When a purchase is made, proprietary
software is used that sends the purchase and account information in encrypted form to the
account provider. The provider in turn sends the information to the appropriate financial
organization for processing.

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NetCash

This concept is similar to e-cash, except that it does not require any special software to use.
NetCash is transmitted across the Internet using an encryption scheme known as PGP (pretty
good privacy). To get NetCash, a party must send a check or money order to the company's
headquarters. The company returns electronic coupons via e-mail.

NetChex

This payment mechanism is similar to CyberCash for checking accounts.

Millicent

The Millicent method is developed by Digital Equipment Corporation (DEC) to manage small
and smallest payments (e.g. payment for getting information from the Internet about news and
stock quotations or payment for small programs like Java-applets) The customer buys a broker
scrip with a defined value by using his credit card or by debiting a suitable bank or broker
account. Such scrip is like a telephone card. At the time of purchase the customer exchanges
parts of the scrip into a dealer's scrip. This scrip is then send to the dealer. The dealer collects all
scrips and exchanges them into "real" money.

Electronic Checking Accounts

Several organizations and coalitions of organizations have been trying to create ways of using
existing checking accounts over the Internet. In most of those efforts, the consumer uses his or
her checking account with a bank or service and then draws down those funds using special
electronic checks and digital signatures. Generally, those pr ograms are not as close to a major
commercial introduction as are those based on credit cards or electronic scrip. Many
observers feel that electronic checks, despite a slow start, could become a widely used method
for making payments.

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Credit Cards

The credit card is usually a four-party card which involves two banks in each transaction, the
cardholder's bank (the issuer of the card) and the retailer's bank. The retailer hands over the
credit card slips to its own bank for payment, less a discount, typically about 2-3%. The retailer's
bank then passes the slips on to a clearing system. The clearing system presents each slip
for payment to the bank that issued the card on which it was written. The issuing bank collects
from the cardholder. All of these exchanges are now done by wire.
Debit Cards

With a debit card, the payment comes right out of your checking account. The card is issued by
the entity that holds your money on deposit, probably a bank, but possibly a money market fund.
When you present your card, money is transferred from your account to the merchants account
that day.

Stored Value Card Scheme or Smart Cards

Smart card technology represents a real change in how and where information is processed. The
smart card is a credit card-sized payment mechanism with an integrated circuit chip embedded
within the card. The embedded chip enables the card to contain significant amounts of data
including prepaid stored value. The embedded chip can also hold programs that interact with data
either contained on the chip or external to the chip. These programs can be permanent and
unchangeable or can be modified when the card is connected to a network. Data can be stored,
updated, and retrieved both when the card is issued and throughout its life. However, because of
the embedded chip, the smart card operates as a stand alone payment mechanism--in effect, a
direct substitute for cash—without requiring online network connections. This stored value can
be accessed and altered by terminals at a merchant's establishment or at remote locations. A
consumer with a smart card can go to a bank or ATM and have the card loaded with a certain
amount of value. The consumer can then proceed to make purchases, up to the amount of stored
value, in the same manner as if currency were being used. At each terminal, the device reads the

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smart card to determine that there is sufficient value available and deducts the amount of the
transaction. When the card's value has been exhausted, the consumer can return to the bank or
ATM to replenish the value. The strength of this scheme is that it avoids the need to identify the
user and access the user's bank account or credit card in order to verify funds availability because
the only funds available are those that are on the card. This eliminates the problem of retailers
who are reluctant to accept payment by check due toconcerns about funds availability.

Mondex

Mondex is owned by Master Card and National Westminster Bank of London and is being tested
in several countries. Mondex uses a smart card to store electronic cash that can be used to pay for
goods and services in the same way as cash but with some key benefits over traditional cash.

ONLINE SECURITY SYSTEMS

Most services suffer from disadvantages, and on-line banking is no exception. Recently, there
have been a number of technical incidents, where customer information was disclosed to other
users. Banks have been quick to react, and have either reverted back to the previous system or
have solved the problem immediately.

The main disadvantages are those related to fear of the unknown. The main fear is that
transferring money electronically will somehow cause it to disappear into the electronic abyss.
Banks are aware of this concern and do assure account holders that such an event should not
occur. There is some speculation, currently, that Internet-only banks will not be able to sustain
their high interest rates.

Other drawbacks to using Internet-only banks include:

 Penalties for phone transactions;
 Access to cash (ensure that there is sufficient access to ATMs).

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We may perceive this method of banking to be instantaneous. For example, when a bill is paid,
the expectation is that the transaction is completed with immediate effect. However, this is not
the case, as the systems are still connected to the UK clearing system, which takes three working
days to clear payments., it appears that in many cases basic risk principles have been ignored in
the rush. Banks could lose the whole e-trust business if they are unable to rise to the challenge of
meeting customers' ever-rising demands in a secure trading environment. Use Dangers in E-
banking to reduce the level of risks to a minimal level whilst ensuring that your business is not
justify behind in the race to retain and win new electronic customers

The concern of security remains the largest barrier to the growth of online banking. Most people
seem to believe that it is a hacker jungle out there, and stay very wary of trying to simplify their
lives by using cyberspace. Most institutions providing online banking services are very security
conscious.After all, they wouldn’t want to open their computers to a stampeding public,
would they? The security measures that organizations take over the Web are simply invincible,
unlike the surveillance cameras and lobby guards posted in many banks. If the general public is
not aware of, or does not understand, the many features put into place to guard their finances,
then people remain skeptical. Depending on how online accounts are accessed, security can be
guaranteed in a variety of ways. Moreover, when a bank offers online service, it is not opening
its mainframe computers to the world. Usually, the bank installs a group of separate computers
that stand between the mainframe computer and the network that will deliver data to your PC. At
several points along the way, protection is built in. Some of the most common security features
are firewalls, data encryption, and passwords/personal identification numbers.

Firewalls

A firewall is a computer or software that protects the bank’s computers and data from being
accessed by any outsider. This firewall is located at the point where the bank’s world connects
with the rest of the world. This firewall is basically agatekeeper, checking each attempt at
delivery of data with a list of strict specifications; any criteria not met; does not make it past the
firewall.

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Public Key Infrastructure

Public key infrastructure can be defined as a solution to ensure secure electronic business
communication incorporating signatures and encryption technology. Every user in a PKI
transaction owns a pair of keys: A public key known to everybody and a private key known only
to the owner. The keys have 2 maincharacteristics. One, they are complimentary sets of
passwords. This means that a document encrypted by a public key can only be decrypted by a
private key and vice-versa. Two, the keys are a unique pair. Lets now see how PKI compares
with existing security technologies. Anti-virus is merely for integrity, Firewalls give
authentications and confidentiality, Access is similar to firewalls; encryption ensures
confidentiality. Thus PKI emerges as the only solution that guarantees all the four pillars of
security and trust viz. authentication, non-repudiation, integrity and confidentiality.

Encryption

Encryption is the process of converting information into a more secure format for transmission.
In other words the plain text is converted to scrambled code while being transmitted, and then
decrypted back to plain text at the receiving end of the transmission. It is comparable to writing a
letter, converting it to code, putting it in an envelope and mailing it with the recipient
descrambling the code.
Currently, there are 2 levels of encryption generally available in web browsers: 40-bit
encryption, and 128-bit encryption. Most commonly available browsers use 40-bit encryption.
However, the 128-bit browser offers the highest level of encryption and provides the best
protection when transmitting confidential data over the Internet. The difference between these
two types of encryption is one of capability. 128-bit encryption is exponentially more powerful
than 40-bit encryption.

Digital Signatures

Digital signatures essentially use encryption to scramble information in a way that only the party
who issued the certificate (usually the online store or a trusted third party) can decrypt and read.

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By using digital signatures, consumers are reassured that any sensitive information they send
across the Web, such as postal addresses and credit card details, is protected from interception
along the way. Meanwhile, online merchants can be more confident that the customer placing
the purchasing order is indeed entitled to use the payment card in question. Security experts
believe that digital signatures will encourage more consumers to purchase goods online.

Access Codes
The access codes used to identify you to the online banking system are called passwords, and are
further protected by using PINs (Personal Identification Numbers).

PAYING SAFE

When you bank online, make sure your transactions are secure, your personal information is
protected, and your fraud sensors are sharpened. Although you can't control fraud or deception
on the Internet, you can take steps to recognize it, avoid it, and report it. Here's how:

 Use a secure browser - software that encrypts or scrambles the purchase information you send
over the Internet - to guard the security of your online transactions. Most computers come with a
secure browser already installed. You also can download some browsers for free over the
Internet.
 Keep records of your online transactions. Read your e-mail – merchant may send you
important information about your purchases.
 Be prompt about reviewing your monthly bank and credit card statements for any billing
errors or unauthorized purchases. Notify your credit card issuer or bank immediately if your
credit card or checkbook is lost or stolen.
 Read the policies of Web sites you visit - especially the disclosures about a Web site's security,
its refund and return policies, and its privacy policy on collecting and using your personal
information. Some Web sites' disclosures are easier to find than others are - look at the bottom of
the home page, on order forms, or in the "About" or "FAQs" section of a site.
If you can't find a privacy policy, consider shopping elsewhere.

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 Keep your personal information private. Don't disclose your personal information - your
address, telephone number, Social Security number, or e-mail address - unless you know who's
collecting the information, why they're collecting it, and how they'll use it.
 Give payment information only to businesses you know and trust, and only in appropriate
places like order forms.
 Never give your password to anyone online, even your Internet serviceprovider.
 Evaluate The Site - Make sure the online banking site you are considering has depth (many
pages), and is well designed. Unless you know a bank is legitimate, don't accept a poorly
designed site with broken images. If you are unsure as to whether a online bank is legitimate
look for a different bank.
 Go to the bank, don't let the bank come to you - Don't accept unsolicited email
recommendations for online banks. You should search for the bank; don't let a bank search for
you. In this way you won't be the victim of a web site masquerading as a bank when they are not.
In the past few years hackers have gotten email addresses of customers of some financial
service companies and sent email to them inviting them to fraudulent sites in o rder to try to get
personal information from them. PayPal experienced this problem, when con-artists sent a email
asking consumer to go to the web site to review a large payment in their account. They gave the
url of PayPa1.com instead of the correct url PayPal.com (They substituted a 1 for the L). Know
your banks online address and go directly to it.
 Don't choose an obvious password or username - Don't use variations of any obvious people,
numbers, or things related to your life. Do use a combination of random numbers and letters.
Many banks will provide a random password and/or user name for you; use these. If possible
change the password to one only you know, and change it online over a secure connection into
the bank's official web site.

BENEFITS OF E-BANKING

For Customers:

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Bill Pay: Bill Pay is a service offered through Internet banking that allows the customer to set up
bill payments to just about anyone. Customer can select the person or company whom he wants
to make a payment and Bill Pay will withdraw the money from his account and send the payee a
paper check or an electronic payment Other Important Facilities: E- banking gives customer the
control over nearly every aspect of managing his bank accounts. Besides the Customers can, Buy
and Sell Securities, Check Stock Market Information, Check Currency Rates, Check Balances,
See which checks are cleared, Transfer Money, View Transaction History and avoid going to an
actual bank. The best benefit is that Internet banking is free. At many banks the customer doesn't
have to maintain a required minimum balance. The second big benefit is better interest rates for
the customer.
The following are a few advantages that e-banking gives to customers:
- Consumers can use their computers and a telephone modem to dial in from home or any site
where they have access to a computer.
- The services are available seven days a week, 24 hours a day.
- Transactions are executed and confirmed quickly, although not instantaneously. Processing time
is comparable to that of an ATM transaction.
- In general, the customer will find lower fees and higher interest rates for deposits due to the
reduced cost of operating online and not needing numerous physical bank branches.
- And the range of transactions available is fairly broad. Customers can do everything from
simply checking on an account balance to applying for a mortgage.
- The interface is very user-friendly and often intuitive. Additionally,business customers will
most likely use the Internet for more than cash management, and they will be accustomed to a
similar "look and feel" among all applications that they use.

BENEFITS TO THE BANK

Why should a bank ‘bank online’? Advantages previously held by large financial institutions
have shrunk considerably. The Internet has leveled the playing field and affor ded open access to
customers in the global marketplace. Internet banking is a cost-effective delivery channel for
financial institutions. The bank has an opportunity to generate revenue, decrease operational and
transactional costs, increase productivity, and attract new customers.

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Price- In the long run a bank can save on money by not paying for tellers or for managing
branches. Plus, it's cheaper to make transactions over the Internet.

Customer Base- The Internet allows banks to reach a whole new market- and a well off one too,
because there are no geographic boundaries with the Internet. The Internet also provides a level
playing field for small banks who want to add to their customer base.
Efficiency- Banks can become more efficient than they already are by providing Internet access
for their customers. The Internet provides the bank with an almost paper less system.

Customer Service and Satisfaction- Banking on the Internet not only allow the customer to
have a full range of services available to them but it also allows them some services not offered
at any of the branches. The person does not have to go to a branch where that service may or may
not be offer. A person can print of information, forms, and applications via the Internet and be
able to search for information efficiently instead of waiting in line and asking a teller. With more
better and faster options a bank will surly be able to create better customer relations and
satisfaction.

Image- A bank seems more state of the art to a customer if they offer Internet access. A person
may not want to use Internet banking but having the service available gives a person the feeling
that their bank is on the cutting image.

Ability to increase Revenue

Financially, the bank can benefit a great deal from providing their customers with an online
banking service. The bank has the ability to increase revenue by generating user and transaction
fees for the use of a bill payment product and has the option of charging an account access fee for
the use of the online system. Online banking provides an excellent promotional opportunity to
generate revenue by helping the bank to cross-sell products such as credit cards, loans, certificate
of deposits, and other financial services.

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Save Money
In addition to making money, the bank can save money with an Internet banking system. Online
banking can actually decrease operating costs by reducing the daily reproduction and
distribution of paper-drawn transactions and delivering and processing statements for accounts,
credit cards, and bills. Performing transactions via the Internet also provides cost savings, as
indicated by a study done by Booz, Allen & Hamilton that shows a transaction over the phone
costs $.54, at an ATM it costs $.27 and via the Internet the cost is $.01. Using the Internet to
perform transactions greatly reduces the cost to the bank.

Improves Productivity

Internet banking improves productivity as well. Bank representatives are able to process data
more quickly and efficiently; track account activity with automated reports, help customers
achieve daily tasks via the Internet, and reduce time spent handling service problems. There can
be a dramatic reduction in the number of customer service calls, as some banks that are
providing this service has proven.

Marketing & Competitive Tool

Internet banking also offers the bank an exceptional marketing and competitive tool. Large
banks such as Nations Bank and Wells Fargo, in the United States, have already capitalized on
the Internet as a mechanism to attract new customers. The majority of people using the Internet
are middle to high income and polls indicate that 50% of the people online are either in
professional or managerial positions. These people are also the ones who want to have the
convenience of online banking for home or business use. This is an excellent opportunity for the
community bank to keep their hometown customers from looking to national institutions for an
online product.

Innumerable services are available via the Internet today. Internet banking provides a higher
level of convenience that both commercial and retail customers desire to have. With this service,

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the bank not only has the opportunity to manage their business better, but can also help their
customers achieve a much more efficient process of managing their finances.

DISADVANTAGES OF E-BANKING

The most obvious disadvantage is: Technophobes need not apply i.e. if you are still not
comfortable using a computer, e-banking is not for you. The other disadvantages are:

 Investment of time upfront can be formidable. The data entry is necessary before the numbers
can be massaged and money managed successfully. Online bill payment is an example of an
effort that requires setting up which leads to ultimate convenience.

 Switching software or banks can mean re-entry of data, although Internetbased systems are
less impacted by this. But competition seems to be minimizing this problem. The personal
finance management software Microsoft Money enables users of competing software to import
data easily.

 Like anything that deals with the transfer of large amounts of money, security is a major factor
of Online Banking. It is taken very seriously during Online Banking procedures.

 With a system as complex as Online Banking, some errors are inevitable. i.e.: An interrupted
online session; late arrival of payments etc. A mistake made by either the user or the bank in
question, can affect both, causing problems. For Example: An 'Infinity' (ICICI’s Online Banking
Brand name) customer from Bangalore (who did not want to be named) paid his cell phone bill
through the bank, only to receive another bill the following month, with late fees. The amount
had been debited from his account but not passed on to the cellular operator.

 When dealing with computers, there is always the concern of the system crashing, viruses
entering the system or a power cut. These are larger problems and are not as easily solved. In all
three cases, many people would be affected, information may be lost and a back-up plan would

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have to be initiated.

 Need an account with an Internet Service Provider (ISP).

CHALLENGES FOR INDIAN E-BANKS

Computerisation is expensive and needs huge investment in hardware and software

andsubsequent maintenance. The National Stock Exchange, India's No.1 user in
computerised service has spent Rs.180 Crores to enable investors and brokers across thecountry
to trade securities online. The rate of obsolescence in respect of both hardware and software is
considerable. New and better products are emerging in the market, whose use would enable a
rival organization to throw a challenge.
Computer crimes are committed widely in the West. India is no less potentially exposed to this
risk, when turnover under Internet banking increases. It is easier to enforce security of
information and accountability of performers in a manual system. But it needs elaborate steps to
incorporate these features in the electronic system. The structure of legal system is so far based
on manual record keeping. It has to provide for electronic data to be accepted legally as evidence
and in contracts. Indian banking has accepted computerisation since 1993, more out of sheer
compulsion and necessity to cope up increasing overload and incompatibility of the manual
system to sustain further growth. The following pages you are presented a series of articles
discussing the various facets of this momentous event and its far-reaching effects anticipated to
unfold in the coming decade.

The challenges that Indian banks are facing are:

1. How to manage multiple distribution channels?

Internet banking is bound to become the most important channel in next few years. Even the
traditional banking would move towards Internet technology with open standards and low cost.
Although all traditional channels would not die down in a day and success would depend on how

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the banks generate synergy in these two vastly different channels. The services provided in all
types of distribution channels must be in tandem with each other and must be in synergy.

2. How to address the issue of internationalization i.e. how to take in and make
e-banking an integral part of one's attitudes or beliefs?
The real challenge for Internet banking is to penetrate the customer base of banks. According to
IDBI Bank’s head (e-commerce and new product initiatives) J Venkataramanan, the maximum
usage of Internet banking is for accessing account balances and making bill payments. For most
customers, there's nothing more reassuring than watching their cheques getting credit on a paper
ledger. Then, there is the question of how real is real time. For instance, while you can
requisition for, say, a new set of cheques any time of the day, the request will get processed only
during the banking hours.

Perhaps, the biggest of all concerns for e-banking customers is the security issue. People still
aren't comfortable having information about their life's hard-earned money saved on a server
they don't know about. A physical pass-book is still preferred. While ebankers use multiple
firewalls, filtering routers, 128-bit encryption and digital certification for safe and confidential
transactions, there are still chances of a snafu.

Another problem is that an on-line service that merely mimics an off-line one does n't give
customers an adequate inducement to move a significant portion of their banking on-line. As a
result, most customers tend to treat on-line banking as no more than an extra channel to check
their balances and transaction histories, and they continue to do the rest of their business at the
ATM or the teller window. A vicious cycle ensues.

Also, there is no more security and customer loyalty. With Internet, the gateway to low cost
international expansion around, tackling the virtual competition would be a key. Competition is
just a ‘click’ away. Customers would be loyal as long as the rates offered are competitive.
At the same time, banks would have to manage different product portfolios, at different yet
competitive prices to different corporates across the world. The issue of offering services in

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multiple geographies / customers – due to increased global access andcompetition may ask for
new virtual alliances between small local banks and the global players.

3. How to address the emergence of value-focused specialist competitors that are

competing for specific value components currently dominated by banks and now
are increasingly gaining access to the bank’s customers?
The real trouble is that Internet Bank doesn’t really need to be a bank. It can even be a group of
innovative persons with no bank branch at all, just working through alliances and leading the
field because of their superior capabilities through focus and innovation advantage. The entry of
multiple non financial institutions and other non-traditional players would just fasten this whole
process. E.g. Times Bank and IDBI Bank.

THE MACROECONOMIC CHALLENGES

But the challenges are not limited to regulators. As the advent of E-banking quickly changes the
financial landscape and increases the potential for quick cross-border capital movements,
macroeconomic policymakers face several difficult questions.

• If electronic banking does make national boundaries irrelevant by facilitating

capital movements, what does this imply for macroeconomic management?

• How is monetary policy affected when, for example, the use of electronic means makes it easier
for banks to avoid reserve requirements, or when business can be conducted in foreign currencies
as easily as in domestic currency?

• When offshore banking and capital flight are potentially only a few mouse clicks away, does a
government have any leeway for independent monetary or fiscal policy?

• How will the choice of the exchange rate regime be affected, and how will Ebanking influence
the targeted level of international reserves of a central bank?

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• Can a government afford to make any mistakes? Will the spread of electronic banking impose
harsh market discipline on governments as well as on businesses?

The answers to these questions fall into two emerging strands of thought. First, the
technological revolution—particularly the expansion of electronic money but also, more broadly,
electronic advances in banking practices—could result in a decoupling of households' and firms'
decisions from the purely financial operations of the central bank.Thus, the ability of monetary
policy to influence inflation and economic activity would be threatened.

Second, as electronic banking expands, financial transaction costs can decline

significantly. The result would be tantamount to a reduction in the "sand in the wheels" of the
financial sector machinery, making capital flows even easier to effect, with a potential erosion of
the effectiveness of domestic monetary policy. In this regard, proponents of the Tobin tax—
which would tax short-term capital flows to increase their cost and,thereby, the sand in the
wheels—would feel that electronic banking makes an even more compelling case for introducing
such a tax.
While electronic banking can provide a number of benefits for customers and new
business opportunities for banks, it exacerbates traditional banking risks. Even though
considerable work has been done in some countries in adapting banking and supervision
regulations, continuous vigilance and revisions will be essential as the scope of Ebanking
increases. In particular, there is still a need to establish greater harmonization and coordination at
the international level. Moreover, the ease with which capital can potentially be moved between
banks and across borders in an electronic environment creates a greater sensitivity to economic
policy management. To understand the impact of E-banking on the conduct of economic policy,
policymakers need a solid analytical foundation. Without one, the markets will provide the
answer, possibly at a high economic cost. Further research on policy-related issues in the period
ahead is therefore
critical.

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 CHAPTER- 5
SUGGESTIONS &
70
RECOMMENDATION
S
 Suggestions and recommendations

STRATEGY FOR INDIAN BANKS

Internet banking would drive us into an age of creative destruction due to nonphysical exchange,
complete transparency giving rise to perfectly electronic market place and customer supremacy.
The question to be asked right now is "What the Indian Banks should do"?

Customer Relationship

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Banks and other financial institutions cannot go completely virtual - they need physical branches
after all. This is probably one area where Internet banking in India scores over the 'stand alone'
Internet banks of the West. Several Internet banks like E-trade have acquired ATM networks like
Card Capture Services to offer consumers a way to deposit and access their money through
ATMs. Physical branches help forge a 'relationship' with the customer that a virtual bank
cannot. Although most online consumers utilise account tracking, bill pay and eshopping, they
would prefer direct, personal contact with their banker when shopping for financial products.

Personalisation

Banking solutions become truly personalised when they are able to respond to the changing
customer needs, and this is possible using strong data mining and target marketing capabilities.
For example, software that might tell you which credit card balance to pay off first, or alert you
in advance when your cheque will bounce. This level of personalisation is still lacking in the
banking solutions offered by Indian banks.

Integration
Another important aspect is integrating customer service interfaces and channels, so that the
customer deals with a single channel that caters to diverse needs such as kiosks, ATMs, Web TV,
mobile phones, pagers, and branch counters. Banks have to get their acts together. If the
SmartCards, and the Online Banking, and the ATM's, and the Branches don't work together,
there's no real benefit in having the electronic tools. Customers shouldn't have to go to one site to
just pay their utility bill and phone bill and then have to go offline to pay their cable and credit
card bills.
Innovation

Today's value-added product could easily be tomorrow's commodity. That is why banks would
need to depend more on product innovation, expanding the range of their products and service
offerings. Apart from just online accounts, e-banks would need to tailor specific products for the
Internet, like online bill presentment or credit cards wi th instant online approval. Many Internet

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banks like Egg have taken the lead in offering innovative products like Egg card - a credit card
that features an introductory zero-percent interest rate.

Migrate old customers and go after new ones

In building an on-line business, a bank's off-line customer base is a huge asset, for it will be
harder for competitors to pick off the bank's current customers than for the banks to get them
online. But to do so, banks must make one-time offers and then constantly provide incentives
such as free services (for example, bill payment and on-line trades) for increased balances.

WINNING ONLINE STRATEGY

Perhaps most banks have already launched online banking, but customers aren't exactly bringing
down their Web server with a heavy demand for the service. How do you successfully sell
Internet banking to your customers, and why might it be in your bank's best interest to do so?
Here are four guiding principles that can help any bank construct a winning online strategy:

Know thy customers (and what they want and need)

Before you construct your online offering, carefully assess your customer base and its needs to
determine whether
a) They want Internet banking;
b) They expect Internet banking; and
c) They would use Internet banking.

Analyze key factors about your customers:

 Are they mobile, such as students or frequent travelers? Is the ability to

engage in distance-banking important to them?

 Do they frequently use debit cards? Could they benefit from online
tracking of debit card transactions?

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 Do they have hectic schedules that would preclude visits to the bank's
offices?

 Are they computer-savvy?

 Are a significant number of them using money management software

already, such as Microsoft Money or Intuit's Quicken?

 Do they like to have control?

 To what extent does your target market consist of business customers?

Large business or small businesses?

Choose your Internet banking solution provider(s) carefully.

 Is it intuitive?

 Does it do what the user wants and expects it to do?

 Do the pages load quickly enough?

 Is it "forgiving"? In other words, does it allow the user to recover from
mistakes?

 Is it reassuring, in terms of conveying a sense of security?

What is the frustration factor? How many times do the testers think they
should take a particular path to accomplish something, only to discover
that's not the correct choice?

 Is the overall experience of the user a positive one?

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Think long and hard about the features your customers want (that you're willing
to pay for!) Test the waters. You can move slowly, if that's your style. For
example, first offer online banking without bill payment. Then add online bill
payment when you feel more comfortable with it.Be sure you choose a vendor who can supply
the features that are important to you. Do your homework! Internet banking is an area that will
constantly be evolving. You'll want a solutions provider who values careful innovation.

Once you have it, PROMOTE it!

You've made a major investment -- both in time and money. Make the investment
count -- promote it heavily. Pull out all the stops. Increase awareness of your new
Internet banking product in every way possible.

 Have buttons made up for your employees to wear, touting your new
Internet banking product.

 Post eye-catching signs in all your banking offices.

 Put banner ads on your Web site, particularly if you already have Web
traffic.

 Seek out opportunities for employees with public speaking skills to speak about banking on
the Net.Get all your employees online first, so that they are knowledgeable about how it works
and what the benefits are. Encourage the employees to become Net Nerds! Consider offering a
low interest/no interest loan to employees to help them buy computers for their homes.

Some other suggestions

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  Banks must first determine what kind of web to target. Customer webs focus on

maximizing a bank’s share of wallet of a target customer segment while Market webs

seek to aggregate a critical mass of buyers and sellers within one transaction category.

 Awareness programmes about using internet should be promoted in branch offices.

 Various seminars and fairs should be encouraged to promote online banking.

 Demo fairs like atm vans should be organised for usage of services i.e customer

relationships should be there.

 Special privileges to online customers has to be given like in loans , credit cards

,shopping etc.

 Advertise a lot about safe and secure online services by banks.

 By merely putting existing service online won’t help the banks in holding their customer

close. Instead, banks must learn to capitalize their customer’s different online financials

ervices relationships.

CHAPTER- 6
FINDINGS AND
CONCLUSION 76
 Findings

1. In the ratio internet users, 65% of customers are using the internet banking services.

2. More banks are connecting to the any software co. for running the E- banking services. In
these services the SBI banks is top in service of E-banking.

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3. The services that are mostly used by maximum customers are online
Transactions , online trading, bill payment, atms etc.

4 various banks has enhanced their online security systems.

5. Different banks different charge for online service.

6. customers are attracted to e-banking services and are satisfied.

CONCLUSION

From all of this, we can conclude following points :

 Information technology has empowered customers and businesses with information

needed to make better investment decisions.
 Technology is allowing banks to offer new products, operate more efficiently, raise
productivity, expand geographically and compete globally.

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  Banking industry is providing services of greater quality and value.
 Electronic banking provides enormous benefits to consumers in terms of the ease and
cost of transactions. Electronic banking has been around for some time in the form of
automatic teller machines and telephone transactions. In today’s world it has been
transformed by the Internet.
 Access is fast, convenient, and available around the clock, whatever the customer's
location. Plus, banks can provide services more efficiently and at substantially lower
costs.
 Internet has created plenty of opportunities for players in the banking sector.

BIBLIOGRAHY

1. E-banking: the global perspective –Gupta Vivek

2. E-Commerce in Indian banking – Bhasin
3. Banking and Finance – C.M.Chaudhary
4. Banking in The New Millennium – Rajshekhar N.
5. Internet Banking in India-Part I- Dr A. K. Mishra
7. · E-finance by Vasant C Joshi,

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8. Excerpt from "Developments in Banking & Banking Technology" an article by Anurag
Khanna, MD & CEO, Banknet India.

9. Compiled from RBI's Credit Policy & other notifications by Research Division, Banknet
India. Banknet India is an IT focused banking research company.

webiblography
· State bank of India- www.onlinesbi.com
. Bank netindia
http://www.banknetindia.com/banking/ibkgintro.htm
· Ez articles:-
http://ezinearticles.com/?A-Brief-History-of- Internet- Banking&id=353450
· Express computers:
http://www.expresscomputeronline.com/20020916/indtrend1.shtml
-www.ibm.com
- www.rbi.co.in
-www.icici.com
-www.onlinebankingsite.com

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