Meaning of E-banking

Electronic banking (E-banking) is a generic term encompassing internet banking, telephone

banking, mobile banking etc. In other words, it is a process of delivery of banking services and
products through electronic channels such as telephone, internet, cell phone etc. The concept and
scope of E-banking is still evolving.
Electronic services allow a bank’s customers and other stakeholders to interact and transact
with the bank seamlessly through a variety of channels such as the internet, wireless devices,
ATMs, on-line banking, phone banking and telebanking. Other services offered under E-banking
include electronic fund transfer, electronic clearing service and electronic payment media
including the credit card, debit card and smart card. On-line banking helps consumers to
overcome the limitations of place and time as they can bank anywhere, anytime as these services
are available twenty four hours, 365 days a year without any physical limitations of space like a
specific bank branch, city or region. They also bypass the paper based aspect of traditional
banking.
Several initiatives taken by the Government of India as well as the Reserve Bank of India
(RBI) have facilitated the development of E-banking in India. As a regulator and supervisor, the
RBI has made considerable progress in consolidating the existing payment and settlement
systems, and in upgrading technology with a view to establishing an efficient, integrated and
secure system functioning in a real-time environment, which has further helped the development
of E-banking in India. The Government of India enacted the IT Act, 2000 with effect from
October 17, 2000, which provides legal recognition to electronic transactions and other means of
electronic commerce.
3.2 Automated Teller Machine
The Automated Teller Machine (ATM) is seen everywhere. This machine has brought
innovations in the Banking sector all over the world. The advent of the ATM has made the
concept of round the clock banking a reality. The ATM has been helpful to both the bankers and
the customers. The long crowd of customers in the banking hall of a branch waiting for their turn
to collect cash is disappearing. The branch business timings have lost significance to the
customers after the introduction of ATM.
The ATM is a device used by the bank customers to process account transactions. The
customer inserts into the ATM, a plastic card i.e. encoded with information on a magnetic strip.
The strip contains an identification code that is transmitted to the bank’s central computer by
modem. Every cardholder should be given a PIN (personal identification number) that he should
enter and after verifying the same with the records, ATM would allow operations.
Functions of ATM: The functions of ATM differ from bank to bank. The following features are
available in the ATM of all the banks.
· Withdrawls
· Balance Enquiry
· Mini statement of account: You get detail of last 5-10 transactions.
· Pin change:
Etc
· Cash Deposit: Varied procedures exist. Here special covers are available in the ATM wherein
the client has to fill up the challan, the denominations and key in these details. Then, a window
opens wherein the cover containing the cash has to be dropped. At the end of the day, officials of
the branch to which the ATM is attached, would open the machine, take the cover and credit the
account of the customer. If there is any cover, the decision of the bank is final.
· Transfer transactions: If you want to transfer funds with in the bank i.e. from one account to
another at same branch or at different branch, you can use this option.
The ATMs are emerging as the most useful tool to ensure, “Any-Time Banking” and “Any-
where Banking” or “Any-Time Money”. While the benefits of ATM are immense, the cost of
ATM, though has come, down, it still prohibitive. An ATM costs between Rs. 8-10 lakh. If a
bank has to install 100 ATMs it should spend at least Rs. 8-10 crs. Added to this, is the
maintenance cost. Today any electronic device attracts and annual maintaing cost of Rs.8-12 per
cent of capital cost. Besides this banks have to incur expenditure on the rent for retail outlet, its
ambience and on security personnel etc. While many public sector banks have gone on a big way
in opening ATMs there is a need for sufficient examination of their economic viability. Already
there is experience that the hits per ATM are less than 200 resulting in no big gain for either the
bank or customer. India with more population density should show a higher average hit per day
and this emerges as a critical factor in the overall ATM strategy towards making the whole
business idea profitable.
The rationale for banks introducing ATMs in 1970s, was to deliver their products more
cheaply than traditional branch networks which are loaded with expensive staff.
3.3 Internet Banking
Internet banking is the latest and the cheapest technology introduced in the banking industry. It is
acknowledged that the internet has already had a profound effect on delivery of financial services
and this likely to bring more radical changes. At the basic level, interknit banking can mean the
setting u of a web-page by a bank to give information about its products and services. At an
advance level, it involves provision of facilities such as accessing accounts, fund transfer, and
buying financial products or services online. This is called “Transactional Online Banking”.
In general Internet Banking refers to the use if internet as a delivery channel for the banking
services, including traditional services, such as opening an account or transferring funds among
 different accounts, as well as new banking services such as electronic bill presentation and
payment which allows the customers to pay and receive the bills on a bank’s website.
There are two ways to offer Internet Banking. First, an existing bank with physical offices can
establish a web-site and offer internet banking in addition to its traditional delivery channel.
Second, a bank may be established as a “branchless”, “Internet only”, or “Virtual bank”. Further
internet banking sites offer financial services products to customer in three basic formats
· Information Only: Informational only presents online information about the different banks
services and products to the customers as well as general public and may include unsecured e-
mail contract, with no customer identification or verification required.
· Information Exchange: Information Exchange Customer Information such as name, address
and account information may be collected or displayed, with possible secure e-mail and/or data
transfer, with verification of customer identification required. No financial transactions are to be
made.
· Transactional: Transactional customer account information enquiry, financial transactions
such as transfer of funds, payment of bill, application for loans and a variety of other financial
transactions, with strong customer authentication required.
When it was introduced for the first time, Internet Banking was used mainly as an information
presentation medium in which banks marketed their products and services on their web sites with
the development of asynchronous technologies; however more banks have come forward to use
internet banking both as a transactional as well as an informational medium.
A successful Internet Banking solution offers:
· Exceptional rate on savings CDs, and IRAS.
· Checking with no monthly fee, free bill payment and rebates on ATM surcharges.
· Credit card with low rates.
· Easy online applications for all accounts, including personal loans and mortgages.
· 24 hours account access.
· Quality customer service with personal attention.
Internet banking is a cost-effective delivery channel for financial institutions. All the
transactions are encrypted, using sophisticated multi-layer security architecture, including fire
walls and filters. Firewall is a protection device to shield a vulnerable area from some form of
danger. In Internet, a firewall system set up specifically, to shield a web from outside. Typically,
this allows insiders to have full access to services on the outside, while granting access into the
internal system, selectively based on log-in-name and password.
 Internet banking is somewhat different from PC banking. PC banking is transactions through
PC at one’s office or home, which is connected to the branch through a modem. PC banking is
available only when branch is open and is available only through any PC. But, internet banking
enables to do the same through any PC connected to the internet, from anywhere in the world.

Facilities Available Under Internet Banking in India:

Following facilities are made available for customers under
internet banking in India:
(i) Bill Payment Service:
Bill payment service is a utility service of internet banking. Accordingly,
each bank has tie-ups with various utility companies, service providers,
insurance companies across the country. Such tie-ups can facilitate online
payment of bills of electricity, telephone, mobile phone, credit card,
insurance premium bills etc.

In order to make online payment of bills, a simple one-time registration for

each bills has to be made and a standing instruction has to be made to
make online payment of recurring bills automatically. Most interestingly,
the bank usually does not charge customers for such online bill payment.

(ii) Fund Transfer:

Internet banking has made provision for transfer of any amount of fund
from one account to another of the same or any other bank. Accordingly,
customers can send money anywhere in India. Once a customer logs in his
account, he needs to mention the payee’s account number, his bank and the
branch. The transfer will take place in a day or so, whereas in a traditional
method it takes about three to four working days. ICICI Bank recently
reported that its online bill payment and fund transfer facility have been
most popular online services.

(iii) Credit Card Customers:

Internet banking provides the facility of credit card to its customers. With
internet banking, customers can not only pay their credit card bills online
but also gets a loan on their cards. Not just this, they can also apply for an
additional card, request a credit line increase and in case the card is lost,
one can report lost card online.
(iv) Railway Pass and Online Booking:
Through Internet banking facility to issue Railway pass is also available.
Indian Railways has tied up with ICICI bank for this purpose and one can
now make railway pass for local trains online. The pass can be delivered to
the customer at his doorstep. Initially, the facility was limited to Mumbai,
Thane, Nashik, Surat and Pune. The bank would just charge Rs 10 + 12.24
per cent of service tax. Moreover, online booking of e-tickets of Railways,
Airlines etc. can also be made with some arrangement with banks through
Internet banking.

(v) Investing through Internet Banking:

Through Internet banking, opening a fixed deposit account has become
easier. A customer can now open an FD account online through funds
transfer. Online banking can also be a great friend for lazy investors.
Moreover, investors with interlinked de-mat account and bank account can
easily trade in the stock market and the amount will be automatically
debited from their respective bank accounts and the shares will be credited
in their de-mat account.

Besides, some banks provide its customers the facility to purchase mutual
funds directly from the online banking system. Nowadays, most leading
banks offer both online banking and de-mat account facilities. However, if a
customer is having his de-mat account with independent share brokers,
then he needs to sign a special form, which will link his two accounts.

(vi) Recharging Prepaid Phone:

Through Internet banking, recharging of prepaid phone has also become
possible. It is no longer needed to rush to the vendor to recharge prepaid
phones as and when talk time runs out. Here the customer just tops-up his
prepaid mobile cards by logging in to Internet banking. By just selecting
operator’s name, entering mobile number and the amount of recharge, the
prepared phone of the customer is again back in action within few minutes.

(vii) Shopping at Fingertips:

Internet banking provides facility of shopping at fingertips. Leading banks
have tied-up with various shopping websites. With a range of all kind of
 products. One can shop online and the payment is also made conveniently
through his account. One can also buy railway and air tickets through
Internet banking.

Advantages of Internet Banking

· Anywhere and anytime banking as services are provided round the clock.
· Worldwide connectivity as it transcends geographical boundaries.
· Easy access to recent and historical data.
· Direct customer control of international movement of funds.
· Greater processing speed and accuracy.

3.4 Telephone Banking

The banks are aiming to make them more accessible by introducing telephone banking.
Telephone banking refers to dialing one telephone number using a telephone to access the
account, transfer funds, request statements or cheque book simply by following recorded
message and touching the keys on your phone. It allows the customers to check account at
convenient time and get simple things done without visiting bank premises. Telephone banking
aims at providing 24 hour service that is fast, convenient and secured for all customers. In the
modern society everyone has to access to telephone. Registering for telephone banking cost
nothing although there is a small transactions charge for making bill payment and frequent usage
charges.

3.5 Electronic Clearing Service

In 1994, RBI appointed a committee to review the mechanization in the banks and also to review
the electronic clearing service. The committee recommended in its report that electronic clearing
service-credit clearing facility should be made available to all corporate bodies/Government
institutions for making repetitive low value payment like dividend, interest, refund, salary,
pension or commission. It was also recommended by the committee Electronic Clearing Service-
Debit clearing may be introduced for pre-authorized debits for payments of utility bills,
insurance premium and installments to leasing and financing companies. RBI has been necessary
step to introduce these schemes, initially in Chennai, Mumbai, Calcutta and New Delhi.

3.6 Electronic Funds Transfer (EFT)

For making inter-city payments customer usually make payments through demand drafts, mail
transfers and telegraphic transfers. In 1996, RBI devised an electronic fund transfer (EFT)
system to facilitate fast transfer of funds electronically. The funds can be transferred between
 any two bank accounts even if the sender and the receiver are located in different cities or deal
with different banks. EFT has accelerated the movement of funds across the globe. E-cash or
cyber cash plays a predominant role in world of commerce. Such electronic funds movements
amounting to a few trillion dollars are settled on a daily basis in major international financial
centers. Society for worldwide inter-bank financial telecommunication is a classic example of
EFT among banks with its own standards for messages, which ensures speed, reliability, security
and accuracy. SWIFT, as a co-operative society was formed in May 1973 with 239 participating
banks from 15 countries with its headquarters at Brussels. It started functioning in May 1977.
Reserve Bank of India and 27 other public sector banks as well as 8 foreign banks in India have
obtained the membership of the SWIFT. SWIFT provides rapid, secure, reliable and cost
effective mode of transmitting the financial messages worldwide. At present more than 3000
banks are the members of the network. To cater to the growth in messages, SWIFT was upgrade
in the 80s and this version is called SWIFT-II. Banks in India are hooked to SWIFT-II system.
SWIFT is a method of the sophisticated message transmission of international repute. This is
highly cost effective, reliable and safe means of fund transfer.
· This network facilitate the transfer of messages relating to fixed deposit, interest payment,
debit-credit statements, foreign exchange etc.
· This service is available throughout the year, 24 hours a day.
· This system ensure against any loss of mutilation against transmission.
· It serves almost all financial institution and selected range of other users.
The objective of establishing an EFT system is to facilitate an efficient, secure, economical,
reliable and expeditious system of funds transfer and clearing in the banking sector throughout
India, and to relieve the stress on the existing paper based funds transfer and clearing system.

Advantages of EFT
· Funds can get transferred easily and conveniently without delays and paper work.
· Built-in security measures ensure safety of funds during transfer.
· Losses and frauds are minimized due to easy tracking of transactions/customers.

3.7 Credit Cards

There are various ways of making payment through the banking system. These include cheques,
direct debits, bank drafts, electronic transfer, international money orders, letters of credit, etc.
Increasing affluence combined with increasing complexity of life has led to the phenomenon of
Credit Cards. They provide convenience and safety in the purchasing process. It is generally
known as plastic money. The credit card are made of plastic is widely used by the consumers all
around the globe. The changes in consumer behavior and tastes led to the tremendous growth of
credit cards. Credit card is a card which enables the consumers to purchase products or services
without paying immediately. This credit concept is based on the principle of “Buy now pay
later”. Credit card is a document that can be used for purchase of goods and services all over the
globe.
The credit cards are made of plastic. It is widely used by the consumers all around the globe in
the digital economy. The card identifies its owner. The owner of the card is entitled to purchase
the goods without cash. It provides purchase services without money and be eligible to get credit
from a number of merchant establishments. The issuer of the card issues credit cards depending
on the credibility of the customers. The card issuer enters into a tie up with different merchant
vendors located indifferent geographical places in various fields of business activities. The card
issuer will put up a credit limit for its card holders and a ceiling limit for each vendor. The card
offers the card holder an opportunity to buy air, rail tickets and stay at hotels for payments. The
card holder need only to present the card at the cash counter and has to sign some firms. The
credit cards can be considered as a substitute for cash and cheques. The cards are not accepted by
all the merchant vendors.

Process of Credit Card Business Cycle

Credit cards facilitate its holder to make purchases at various designated merchant
establishments. The establishments like travel agencies. Star hotels, Departmental
stores will accept all valid cards in lieu of cash payments. The card holder can
avoid the risk of carrying cash. The following steps are involved in the process of a
transaction.
Step I: a card holder purchases goods and present the credit card to the designated
merchant establishment.
Step II: The retail vendor verifies the number on the card against the hot list
provided to him by the bank.
Step III: The card holder is required to sign on the voucher and the signature has to
tally with the one on the credit card.
Step IV: The Retailer has to present the sales vouchers to the bank for reimbursement for the
customers’ purchases. The bank also charges commission from the retailer.
Step V: The bank will make payment to the retailer on behalf of the card holder.
Step VI: After completion of the process. The bank sends the bill to the card holder and received
the money.
Benefits of the Credit Cards
The benefits of credit cards may be classified into two categories:
 (A) Benefits to the Card Holders: There are so many benefits to the card holders for using the
cards:
· The card holder need not to carry cash at all times.
· The card holder will be covered by free insurance.
· The card can be used as identification card in some situations.
· The issuer of card offers rewards and gifts to the card holder.
· The card holders can avail special counters for Air and Travel reservations.
· The card holder can get complimentary magazines. For example, diners club
provide “signature” magazine to card holders.
· Family members of the card holder can avail this facility.
· The card holder can enjoy free credit uto 30 to 45 days.
· If the credit card is lost/stolen the liability is limited to a maximum of one
thousand rupees.
· Some credit holders will get free services such as confirmed ticket booking and
hotel reservations.
· Some card holders will get benefit from the world wide network, for example,
Master card, Amex, Visa etc.
(B) Benefits to the Card Holders: There are also advantages to credit issuers. Such advantages
are such as:
· This business offers higher profits.
· The issuers can also improve their name and image by serving large number of credit
card holder base.
· This business is an additional activity in the banking sector to enhance their
profitability.

(c ) Additional Facilities: The credit cards besides providing credit facility, the issuer extend
some additional facilities to attract more customers. These facilities and services are presented
below
a) Incidental Expenses: The credit card holders can use their cards to pay for incidental expenses.
They have to do is to call the issuer bank and instruct it to make payment like telephone bills,
electricity bills, payment to mutual funds, public issues etc.
b) Instant cash Withdrawal: Some issuers allows their credit card holder to withdraw instant cash
up to 60 percent of his credit line from ATMs in all metros. The card holders can also draw cash
in case of medical emergencies for meeting expenses on treatment at other than their home town.
This emergency medical advance facility is available with all Indian and foreign banks.
c) 24× 7×365 Customer Service: The technology adopted by the banking sector makes
comfortable life to the customers. The revolutionary phone banking service ensures that the
banks are just a phone call away to assist the card holders around the clock. Foreign banks
provide a world class service to card holders. A credit card holder can call “Citiphone banking”
and ask for temporary credit line any time.
d) Free insurance: Some of the issuers, insures the card holder at free of cost for a particular sum.
Citibank offer a complimentary personal accident insurance. The Bank of Baroda card extends
insurance protection to card holders spouse also.
e) Buy Anything on Credit Card: The credit cards are well accepted by the public. The card can
be used for all occasions and seasons. The card is also useful for purchasing essential
commodities like groceries, fuel, auto accessories and cosmetics. The cards are useful even
passing customs duties and hospital bills. We can purchase everything, anywhere at any time
under the sum at designated locations.
f) Joint Credit card and ATM Facility: Indian banks and foreign banks have introduced a joint
card. The joint card holder can access his accounts with the bank through ATMs.
g) Hotel Discount Facility: The credit holders are entitled to get discounts at all leading hotels
and clubs. The card holders are eligible to avail the facilities as per the schemes which were
offered by the hotels, travel agencies and on air ticket. Even the consumer products are also
available in this method.
h) Fuel Facility at Petrol Pumps: The BOB, Citibank, Standard Chartered cards are accepted at
all Bharat petroleum outlets. This is very convenient foe card holders at all leading metro cities.
i) Purchase Protection: The credit card facility protects the purchases against damage or loss
due fire and theft. For compensation the card holder can claim the value of the product damaged
or lost from The New India Assurance Company. This protection is available for a limited period
from the date of purchase of the product on the credit card. Some of these facilities are exclusive
offers, airport lounges, special hospital facilities, special travel services.

Types of Credit Cards

The credit card system is becoming very popular in India and abroad. The system facilitates a
wide range of products and services. The growth of service sector depends on the pulse of the
customer. The needs of the customers are taken care off by different card issuers. The credit
cards can be classified into 4 basic types based on the issuers: Travel and entertainment card,
bank card, retail card, fuel card. There are many types of cards which are popular in India and
abroad. These cards can also be classified as follows:
a) Based on Geographical Territory: Under this category, the credit cards can be
categorised as Domestic cards and International cards. The domestic cards are generally
available from most of the banks. These cards will be valid in India and Nepal only. All
the transactions will be in rupees only. International cards will be issued to persons who
travel foreign countries frequently. These cards are subject to the rules and regulations
of the RBI. These cards will be honoured in throughout the world except in India and
Nepal.
b) Based on Franchise: The credit cards can be classified based on the tie-ups. They are
Visa card, Master card, Proprietary card and tie-up card. Visa card can be issued by any
bank which is having tie-up with VISA international USA. The card holder can avail the
facilities of Visa network for their transitions. Master card is a brand name for another
type of credit card. The issuer of the card has to obtain permission from the master card
corporation of USA. It will be honoured in the master card network Proprietary card will
be issued by the issuer bank on their own brand name. These cards will be issued by
banks in addition to their other tie-up cards. Tie-up cards are issued by banks having a
collaboration with domestic card brands.
c) Based on Status: This type of credit cards will be further classified as standard cards,
business cards and gold card. The standard card is a normal card generally issued by all
issuing banks. The card holder is offered limited privileges when compared to the other
cards. These cards are issued by some banks under the brand name of “classic” card.
Business card is meant for tax consultants, chartered accountants, small firms, solicitors
and executives etc. These cards are very useful for their business trips more and more
convenient. The business card facilitates more privileges than the standard card. Some
banks are issuing these cards in the brand name of “executive”.
d) Based on User: Under this category the credit cards are further classified as Individual
cards and corporate cards. The individual cards are issued to individual persons. All the
brands of cards will be given to individual corporate cards are issued to corporate
companies and business firms only. The corporate cards are issued on the name of the
company. The cards will be utilized by the executives and top officials the firms. The
bills will be paid by the company to the banks.
e) Based on Credit Recovery: These type of cards are again classified into two categories.
They are Revolving credit type card and charge card. The revolving credit card is
generally based on the revolving credit principle. According to this scheme, the card
holder has to pay a percentage of the outstanding credit for every month. The interest is
charged on the outstanding. The interest rate is charged on the outstanding amount. The
interest rate is more than 30 percent per annum charge card is a convenient instrument.
 The issuer gives a consolidated bill for every month to the card holder. The card holder
shall pay the bills on presentation of the consolidation bills. Therefore, there are no
interest charges on this use of cards.

Debit Card
Debit Card is the innovative instrument in the financial services sector. It is the most convenient
method of payment to the merchant establishment. It needs involvement of many banks. The
card holder will present the card on completion of his purchases at the merchant establishment
on production of a debit card. The card details are fed through a terminal at the merchant’s
establishment. The card holder is immediately debited from the card holder’s account and
transferred to the account of merchant establishment. No overdrawing is allowed in the case of
debit card. A debit card is the variant of an ATM card. It has the following features:
I. Whereas an ATM card can be used only where the ATM’s are provided by the banks, and
that too only for cash withdrawals, the debit card can be used in any merchant outlet that is
linked with the customer’s bank for making payment.
II. Credit card is issued to clients after a proper assessment of their credit standing. But for a
debit card holder there is no need to make such an assessment.
III. At the time of making payment through a debit card, the amount is instantly debited to the
customer’s account unlike payment made through the credit card where the account of the
customer is debited after a certain period.
IV. Debit card freeze the cardholder from carrying cash for his/her purchases.
V. Debit card is like a blank cheque, so it must be used carefully otherwise an unscrupulous
person can wipe the entire balance in the bank account of the holder.
VI. There are no chances of the debit card user to fall into the debt trap, since payment is
immediately debited to his account, as he can only use the money which is available in his
account.
VII. There are no transaction costs and no question of late fee payment in the use of debit card.
VIII. Bankers also avoid the risk of bad debts.

3.11 Risks in E-banking

If internet banking has facilitated the banking service processes and made the customers life a
lot easier, it has also thrown new challenges in terms of various risks which may affect the
bank’s profitability, capital and reputation as well. Let us discuss some of the risk issues related
to the online banking.
1. Operational Risk: Operational risk is the price, which attaches to internet banking arising
from error, fraud and inability to provide services to customers or deliver products as per the
expectation, which may result in current and prospective loss to earnings of the bank.
Inaccurate processing of transactions, non privacy and confidentiality, attacks or
unauthorized access to banks systems and databases, weak technology adoption or systems
design or human factors like lack of awareness on the part of employees or customers may
lead to operational risk.
2. Credit Risk: Credit risk arises when a counter-party fails to settle an obligation when due
or any time henceforth for its full value. In internet banking scenario the credit worthiness of
the customer may not be properly evaluated. So any credit facilities provided to retail or
corporate customers requires proper evaluation and constant audit of lending as well as the
repayment progress at regular intervals to avoid such a risk.
3. Liquidity Risks: The bank may face liquidity crunch in short-term time horizon in
internet banking scenario as well. In this case, the outflow of fund may be sudden and hence
the banks, which are more exposed to internet banking, should ensure for sufficient liquidity
in case of redemption or settlement demands.
4. Foreign Exchange Risk: Due to the geographical and market extension of banks and
customers in internet banking scenario forex, legal and regulatory risk may arise. In cross
border transactions there would be difficulty in correctly assessing the counter parties
credentials and hence forex transaction against electronic money may lead to forex risk.
Different international cross-border jurisdiction can expose banks to legal and compliance
risks in view of different national rules, laws and regulations.
5. Security Risk: Security risk is one of very important issue in internet banking systems. In
internet banking information is considered as an asset and so worthy of protection. Firewalls
are frequently used on internet banking systems as security measure to protect internal
systems and should be considered for any system connected to an outside network. Firewalls
are a combination of hardware and software placed between two networks through which all
traffic must pass, regardless of direction flow. They provide gateway to guard against
unauthorized individuals gaining access to the bank’s `network. Therefore, awareness
among the internet banking customers as well as adoption of security mechanism is
essential.
6. Compliance Risk: The bank may face compliance and regulatory risk if it does not
adhere or follow the guidelines given by the supervisor or the regulator. Due to lack of
awareness and transparency the bank may fail in this matter and hence more care is required
in this a.
7. Reputation Risk: A bank offering internet banking suffers reputation loss due to negative
opinion if the systems failed or discontinued for a considerable time or when the banking
products offered not found to their expectation or even the fraudulent activities by the
 internal/external people or hackers using bona fide customer’s credentials. The bank-
customer relationship may suffer due to this and this may also affect bringing prospective
customers to its fold.
8. Legal Risk: Internet banking being a relatively a new phenomenon, the legal issues or
risks are usually less crystallized or ambiguous. They may arise from the violation of, or
non-conformance with laws, rules, and regulations or prescribed practices. A bank may also
face legal actions from the customers in case of hushing attacks or any other fraudulent
activities where the terms and conditions have not been framed adequately by the bank.
9. Strategic Risk: Strategic risk may emanate from adverse business decisions due to wrong
implementation of unfavorable market conditions related to either the banking products
offered through electronic channel, or any technology or strategic decisions like outsourcing
policy, etc. Therefore, a proper market as well as technological survey is essential in this
regard before taking any final decision.
10. Money Laundering Risk: In view of the lack of personal interaction among the bank staff
and the customers in the internet banking scenario, the know your customers norms may not
be implemented effectively as fund transfer transactions of dubious nature may be done by
the offenders without much of hassles.
11. Interest Rate Risk: In case of electronic money becoming widely prevalent in the payment
system, the interest rate risk and market risk will have an impact on the value of the banks
assets against its electronic money liabilities.
3.12 Conclusion
Popularity which internet banking has won among customers, owing to its speed, convenience
and round-the-clock access they offer, is likely to increase in the future. That’s why internet
banking is a successful strategic weapon for banks to remain profitable in volatile and
competitive marketplace of today. Banks are in a position to lead consumer views, as well as to
cater to existing demands. Clearly, despites of all the threats in banking industry, there is an
enormous opportunity for farsighted banks to reap the rewards available from internet banking.
Internet banking is going to develop much faster than most people imagine. With the revolution,
a new financial system will evolve that in many ways will be far more secure than the one we
have today.
E-Baking (Internet Banking) - Meaning, Advantages and Disadvantages
Indian Banking System
E-Banking or Internet banking
Online banking also known as internet banking, e-banking, or virtual banking, is an electronic
payment system that enables customers of a bank or other financial institution to conduct a range
of financial transactions through the financial institution's website. Internet banking is a term
used to describe the process whereby a client executes banking transactions via electronic means.
This type of banking uses the internet as the chief medium of delivery by which banking
activities are executed. The activities clients are able to carry out are can be classified to as
transactional and non transactional.

Advantages of E-banking or Internet banking

1. Convenience: Banks that offer internet banking are open for business transactions anywhere a
client might be as long as there is internet connection. Apart from periods of website
maintenance, services are available 24 hours a day and 365 days round the year. In a scenario
where internet connection is unavailable, customer services are provided round the clock via
telephone.

2. Low cost banking service: E-banking helps in reducing the operational costs of banking
services. Better quality services can be ensured at low cost.

3. Higher interest rate: Lower operating cost results in higher interest rates on savings and
lower rates on mortgages and loans offers from the banks. Some banks offer high yield
certificate of deposits and don’t penalize withdrawals on certificate of deposits, opening of
accounts without minimum deposits and no minimum balance.

4. Transfer services: Online banking allows automatic funding of accounts from long
established bank accounts via electronic funds transfers.

5. Ease of monitoring: A client can monitor his/her spending via a virtual wallet through certain
banks and applications and enable payments.
6. Ease of transaction: The speed of transaction is faster relative to use of ATM’s or customary
banking.

7. Discounts: The credit cards and debit cards enables the Customers to obtain discounts from
retail outlets.

8. Quality service: E-Banking helps the bank to provide efficient, economic and quality service
to the customers. It helps the bank to create new customer and retaining the old ones
successfully.

9. Any time cash facility: The customer can obtain funds at any time from ATM machines.

Disadvantages of E-banking Internet banking

1. High start-up cost: E-banking requires high initial start up cost. It includes internet
installation cost, cost of advanced hardware and software, modem, computers and cost of
maintenance of all computers.

2. Security Concerns: One of the biggest disadvantages of doing e-banking is the question of
security. People worry that their bank accounts can be hacked and accessed without their
knowledge or that the funds they transfer may not reach the intended recipients.

3. Training and Maintenance: E-banking requires 24 hours supportive environment, support of

qualified staff. Bank has to spend a lot on training to its employees. Shortage of trained and
qualified staff is a major obstacle in e-banking activities.

4. Transaction problems: Face to face meeting is better in handling complex transactions and
problems. Banks may call for meetings and seek expert advice to solve issues.

5. Lack of personal contact between customer and banker: Customary banking allows
creation of a personal touch between a bank and its clients. A personal touch with a bank
manager can enable the manager to change terms in our account since he/she has some discretion
in case of any personal circumstantial change. It can include reversal of an undeserved service
charge.