Introduction Eectronic 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 is the most frequently used designations. It should be noted, however, thatthe terms used to describe the various types of electronic banking are often usedinterchangeably.Electronic banking is an activity that is not new to banks or their customers. Bankshaving been providing their services to customers electronically for years throughsoftware programs. These software programs allowed the users personal computer todial up the bank directly. In the past however, banks have been very reluctant to providetheir customers with banking via the Internet due to security concerns.Today, banks seem to be jumping on the bandwagon of Internet banking. Why is there asudden increase of bank interests in the Internet? The first major reason is because of theimproved security and encryption methods developed on the Internet. The second reasonis that banks did not want to lose a potential market share to banks that were quick tooffer their services on the Internet.Many of the banks like ICICI, HDFC, IndusInd, IDBI, Citibank,Global Trust Bank (GTB), Bank of Punjab and UTI were offering E-banking services. Based on the abovestatistics and the analysts comments that India had a high growth potential for e-bankingthe players focused on increasing and improving their E-banking services. As a part of this, the banks began to collaborate with functions online. Why is there a sudden increase of bank interests in the Internet? The first major reason is because of the improved security and encryption methods developed on the Internet. Thesecond reason is that banks did not want to lose a potential market share to banks thatwere quick to offer their services on the Internet. E-banking is defined as the automated delivery of new and traditional banking productsand services directly to customers through electronic, interactive communicationchannels. E-banking includes the systems that enable financial institution customers.Individuals or businesses, to access accounts, transact business, or obtain information onfinancial products and services through a public or private network including the Internet,Customers access e-banking services using an intelligent electronic device.The E-banking was firstly introduced in India by the ICICI around 1996. There after many other banks like HDFC, IndusInd bank, IDBI, Citibank Trust Banks, UTI, etc.followed the service. As today private and foreign bank had started capturing the marketthrough e-banking hence the competition is heating up and the lack of technology canmake a bank loose a customer so now the public banks are breaking the shackles of traditional set-up and gearing up to face the competition posed by the private sector counterparts.

The Global E-Banking Scenario The banking industry is expected to be a leading player in e-business. While the banks indeveloped countries are working primarily via Internet as non-branch banks, banks in thedeveloping countries use the Internet as an information delivery tool to improverelationship with customers.In early 2001, approximately 60 percent of e-business in the UK was concentrated in thefinancial services sector, and with the expected 10-fold increase of the British e-businessmarket by 2004, the share of the financial services will further increase. Around one fifthof Finish and Swedish bank customers are banking online, while in the US, according toUNCTAD, online banking is growing at an annual rate of 60 percent and the numbers of online accounts are expected to reach 15 million by 2003.Banks have established an Internet presence with various objectives. Most of them areusing the Internet as a new distribution channel. Financial services, with the use of Internet, may be offered in an equivalent quantity with lower costs to the more potentialcustomers. There may be contacts from each corner of the world at any time of day or night. This means that banks may enlarge their market without opening new branches.The banks in the

US are using the Web to reach opportunities in three differentcategories: to market information, to deliver banking products and services, and toimprove customer relationship. In Asia , the major factor restricting growth of e-banking is security, in spite of severalcountries being well connected via Internet. Access to high-quality e-banking products isan issue as well. Majority of banks in Asia are just offering basic services compared withthose of developed countries. Still, e-banking seems to have a future in Asia. Accordingto McKinsey survey, e-banking will succeed if the basic features, especially bill payment,are handled well. Bill payment was the most popular feature, cited by 40 percent of respondents of the survey. However, providing this service would be difficult for banksin Asia because it requires a high level of security and involves arranging transactionswith a variety of players In India , approximately one percent of high and middle-income group bankingcustomers conducted banking on the Internet in 2000 compared to 5 to 6 percent inSingapore and South Korea. In 2001, a Reserve Bank of India survey revealed that morethan 20 major banks were either offering e-banking services at various levels or plannedto do so in the near future. Some of the private banks included ICICI Bank, HDFC Bank,IndusInd Bank, IDBI Bank, Citibank, Global Trust Bank, Bank of Punjab and UTI Bank.In the same year, out of an estimated 0.9 million Internet user base, approximately 17 percent were reported to be banking on the Internet. The above statistics reveal that Indiadoes have a high growth potential for ebanking. The banks have already started focusingon increasing and improving their e-banking services. As a part of this, the banks have begun to collaborate with various utility companies to enable the customers to performvarious functions online.In 2001, over 50 percent of the banks in the US were offering e-banking services.However, large banks appeared to have a clear advantage over small banks in the rangeof services they offered. Some banks in the US were targeting their Internet strategiestowards business customers. Apart from affecting the way customers received bankingservices; e-banking was expected to influence the banking industry structure. Theeconomics of e-banking was expected to favor large banks because of economies of scaleand scope, and the ability to advertise heavily. Moreover, ebanking offered entry andexpansion opportunities that small banks traditionally lacked. In Europe , the Internet is accelerating the reconfiguration of the banking industry intothree separate businesses: production, distribution and advice. This reconfiguration is being further driven by the Internet, due to the combined impact of: The emergence of new, more focused business models. New technological capabilities that reduces banking relationship and transactioncosts. High degree of uncertainty over the impact that new entrants will have on current business models Though e-banking in the Europe is still in the evolutionary stage, it is very clear that it ishaving a significant impact on traditional banking activities. Unlike in the US, thoughlarge banks in the Europe have a competitive edge due to their ability to invest heavily innew technologies, they are still not ready to embrace e-banking. Hence, medium-sized banks and start-ups have an important role to play on the ebanking front if they can takeconcrete measures quickly and effectively. The E-Banking Trends Convergence is one of the clear visible trends in the banking industry. Here, convergencedoes not mean offering banking, broking and insurance services under one corporatename through the Internet. It covers different dimensions, including channel delivery,sales culture, back-office processes, and the knowledge management infrastructure all being integrated via Internet. Few banks take these different dimensions

intoconsideration. Instead, they view convergence purely as a product-centric developmentthat will enable them to cross-sell products. A strategy that does not go beyond productconvergence is bound to have some limitations. For example, imagine a situation wherecustomer service personnel in a so called `converged' bank is required to answer banking, brokerage, and insurance questions coming through multiple channels including theInternet, branches, call centers, or ATMs. This bank is unlikely to succeed since, thoughit has expanded the product line, it has not made any efforts to broaden the skill sets of the personnel who support these channels.Effective knowledge management is the key to the e-business success of converged banking institutions. However, this requires high level of crossorganizationalcooperation and information sharing. An effective knowledge management system willvastly improve the institution's ability to know its customers. Robust customer information management systems at the front-end, coupled with efficient fulfillment processes, can enable banks to shorten the delivery time of their products and services.

Successful convergence will help them in the development of a seamless supply chainthat will be transparent to the customers.Another trend in e-banking is a shift of focus of banks from being productcentric tocustomer-centric. Access to the Internet has put wealth management decisions anddemand-side technology in customers' hands, and they can dictate the types of productsand services they require. While the Internet has enabled banks to deliver desired products/services more quickly and inexpensively, the challenge for them is to enhancecustomer touch using e-channels, which is very important for client retention.To succeed on the Internet, banks must continually differentiate from their competitors, broaden their market and provide value through their products and services. For example,Wells Fargo had shifted 1.4 million of its traditional banking customers online within fiveyears of the development of its transactional website. However, the company hadmaintained its Internet strategy as a complement to existing channels and had found thatits e-banking customers were more than 50 percent less likely to leave the bank than non-Internet customers. The bank continued to enter new alliances and expanded its webofferings to maintain its dominant position.Finally, developing just a me-too website would not work for banks. Several banks arecreating electronic financial communities in which customers assemble to present and pay bills while satisfying other financial and informational needs. By bringing consumersand vendors together at one site, financial institutions can leverage the trust, clients havein them, and act as the intermediary to ensure billers get paid and consumers getsatisfactory services. Last but not the least, banks may conduct periodical surveys andtake customer views on the simplicity and ease of operation of their websites and other e- banking initiatives. Indian E-banking Scenario As per the international report the banking transactions on a brick and mortar bankingcosts around $ 1.1. While through ATM it costs around $ 0.27 and just 1 percent of over the counter banking in case of Internet banking. Statistics such as these have woken theIndian Banking Industry. Thus, the Indian banking system is seeing a fabulous change inthe quality of service provided by them. Technology is the root of this change, which isimplemented by the banks to win more business from customers.Almost all the private sector banks are moving towards e-enabling their existing products. HDFC Bank and ICICI Bank have taken a lead in introducing e-banking inIndia.Internet banking starts from migrating existing products to the net. This started initiallywith simple functions such as getting information about interest rates, checking account balances and computing loan eligibility. Then the services were extended to online bill payment, transfer of funds between accounts and cash management services for corporates. Recently, banks started setting up payment gateways for B2B and B2Ctransactions. This is to facilitate payment for e-commerce transactions by directlydebiting bank accounts or through credit cards. Banks can earn a commission basedincome, on the transaction or sale value resulting in higher other income. This could bemore than the revenues they can generate from credit card transactions.Private sector banks have leveraged the Internet effectively in taking away the customersfrom public sector banks and significantly increased their revenue potential. Internet banking is just one manifestation of these banks

technological capabilities. They have acomplete automation, an electronic customer database, real time transaction processingcapabilities and the latest technological platforms. Management of these banks is veryfocused in using technology as a key competitive tool. The capability of the managementis also visible in terms of their profitability. Among the private sector banks HDFC Bank and ICICI Bank have excellent returns on equity compared to their peers in the industry. These banks commenced operations few years and have negligible excess in terms of branches and employees. Therefore unlike most other banks around the world, e-bankingis not an added cost for them. In fact it is expected to contribute significantly to their revenues and profits in years to come. The distribution of banking business in India is highly skewed both geographically and interms of customer segment. Geographically the top 100 centres account for around 70 percent of the loans disbursed. This are expected to account for mostly early Internetusers. In terms of customer segment, key focus on the asset side is the corporate sector.This segment accounts for a high share of profits of banks and is likely to be an earlyadapter to the Internet. On the liability side Internet banking is expected to boostcustomer acquisition and profitability significantly in the top corporate segment and inthe urban high/middle income retail segments.Apart from e-banking, future prospects of e-commerce is also strong as it is set for explosive growth rates. According to the NASSCOMs survey, e-business transactions inIndia are expected to reach to Rs 12 billion by 2000-01 from Rs 4.5 billion in the previous year. For ecommerce to take off there is a need for real time financialintermediation and there are very few banks offering this in India. The right combinationof customer relationship and technological competency is required to dominate thefinancial intermediation of e-commerce. Who else than private sector banks can providesuch services? They are all set to lead the segment with a marginal competition from foreign banks. Going forward, as the share of e-commerce in the economy increases,these banks should be able to move up their market share apart from generating higher fee based income. Who offers what? Citibank See up-to-date account information View transaction details View account statement for up to 12 months Order demand drafts to couriered free to over 200 locations Order a cheque book stop payments Request a deposit Pay utility bills E-mail queries ICICI Bank Account information summary of account and transactions

Bills payment Funds Transfer including third-party transfers Requests for cheque books, stop payment, account opening, Reporting loss of ATMs card Online e-shopping payments Communication with Account Manager Personalized viewing of content updates personal finance, select articles one-commerce, HDFC Bank Real-time account information incl. transactions

Transfer money between accounts Bill payment facility

Third party funds transfer within HDFC bank

Request for De, and Draft/Bankers Cheque

Stop payment requests

Opening fixed-deposit accounts

Sending messages to the bank via e-mail Mediums of E-banking Various products and services Electronic banking, also known electronic fund transfer (EFT), uses computer andelectronic technology as a substitute for checks and other paper transactions. EFTsare initiated through devices like cards or codes that let you, or those you authorize,access your account. Many financial institutions use ATM or debit cards and PersonalIdentification Numbers (PINs) for this purpose. Some use other forms of debit cardsand personal Identification Numbers (PINs) for this purpose. Some use other forms of debit cards such as those that require, at the most, your signature or a scan. Thefederal Electronic Fund Transfer Act (EFT Act) covers some electronic consumer transactions.Following are the electronic medium by which services are generally provided by the banks as a part of e-banking services. 1) Internet Banking

2) ATM (Automatic Teller Machine) 3) Phone Banking 4) Mobile Banking 5) Payment Cards (Debits/Credit Card) All the above mediums provide services, which can be, also know as any time anywhere banking. This facilitates the customer of the bank to operate their account fromany corner of the world, without visiting local or any subsidiary branch of their banks.Efforts are made by the bank not only to provide the facility to the customer, but also toreduce the operational cost of the bank by providing e-banking services. So with this Internet Banking Net banking is a web-based service that enables the banks authorized customers to accesstheir account information. It allows the customers to log on to the banks website with thehelp of banks issued identification and personal identification number (PIN). The banking system verifies the user and provides access to the requested services, the rage of products and service offered by each bank on the internet differs widely in there content.Most banks offer net banking as a value-added service. Net banking has also led to theemergent of new banks, which operate only through the internet and do not exists physically, Such banks are called virtual banks or Internet Only banks.A couple of years ago, there was a belief even among bankers that customers openingnew accounts wanted the online banking facility, just to feel good and very few of themactually used that services. Today, bankers believe that the trend from nice to have ischanging to need to have .after all it depends on how busy a person is.Services provided through Internet Banking1) account information2) Echeques (Online Fund Transfer)3) Bill Payment Service4) Requests And Intimations5) Demat Account sh are trading Account information Provides summary of all bank accounts. Allow transaction tracking which enables retrieval of transaction details based on chequenumber, transaction amount, and date. Provide account statement and transaction reportsused on user-defined criteria. Customers can even download and print the statement of accounts. E-Cheques ( Online Fund Transfer) Customer can transfer funds:Transfer funds between accounts, even if they are in different branches cities Customer can also transfer funds to any person having an account with the same bank anytime,anywhere, using third party funds transfer option. Bill Payment Service Banks Bill Pa is the easiest way to manage bills. A/c holder can pay their regular monthly bills i.e. telephone, electricity, mobile phone, insurance etc. at anytime, anywhere for free.Saves time and effort. Make bill payments at customers convenience form their home or office.Lets a/c holders check their hill amount before it is debited form their account. No debitsto account without their knowledge. No more missed deadlines, no more loss of interest a/c holder can schedule their bills inadvance, avoid missing the bill deadlines as well as earn extra interest on their money.Track payment history all payments to a biller are stored automatically for futurereference. No queuing up at collection centers or writing cheque any more! Just a few clicks andcustomers account will be debited for the exact amount they ask. Requests And Intimations Can electronically submit a request for:

Cheque-book Stop payment instructionsOpening a fixed depositOpening a recurring depositIntimate for the loss of ATM cardRegister online for phone and mobile bankingCheque statusOnline application for debit cardIssue a DD or a Bankers cheque form account at special rates. Just select the account to be debited form and give details of the amount, location and beneficiary. The demanddraft will be couriered to a/c holder at their mailing address.Customers can get their applications for issuance of Letters of Credit and Bank Guarantees processed onlineBook your Railways Ticket Online Demat Account and Share TradingDemat Account Demat is commonly used abbreviation of Dematerialisation, which is a process where by securities like share, debentures are converted from the material (paper documents)unto electronic data and stored in the computer of an electronic Depository.A depository is a security banks, where dematerialized physical securities are held incustody, and form where they can be traded. This facilitates faster, risk-free and low costsettlement.

Share Trading In share trading a customer can buy and sell securities online without stepping into a brokers office. Once the share are dematerialized then the trading can be done from home or office. As demat a/c are directly linked to the customers bank a/c, so there is noneed to write cheque for the payments or to fill up the slips to deposit the cheque.Amount for the purchase and sale of securities is automatically debited or credited totheir bank a/c. it also brings the same convenience while investing in Mutual funds alsoHassle free and Paperless

ATMs Automated Teller Machines or 24-hour Tellers are electronic terminals that let you bank almost anytime. To withdraw cash, make deposits, or transfer funds between accounts,you generally insert an ATM card and enter your PIN. Some financial institution andATM owners charge a fee, particularly to consumers who dont have accounts with themor on transactions at remote locations. Generally, ATMs must tell you they charge a feeand its amount on or at the terminal screen before you complete the transaction. Check the rules of our institution and ATMs you use to find out when or whether a fee ischarged.It wont be just if I start explaining what an ATM is. ATMs and cash dispensers are byfar the largest investment ever made in electronic self-service by financial institutions.Over US$ 40 billion has been invested in simply buying these machines and many timesthat in running them. There are now over 1.1 million machines operating in over 140countries worldwide.The banks are losing the cashiers checks, check cashing and even cash dispensing to thec-stores and grocery stores. They are asleep at the switch and watching more transactionswalk away to convenience stores and supermarkets that provide 24 hour access andintegrated transactions.ATMs do provide a larger set of functions, such as check cashing, ticket sales or moneyorders. We already know that cash dispensing as a dedicated function is a sustainableapplications, the question is whether that application can be incorporated successfullyinto a more complex consumer product that offers multiple applications. It is worth noting that, due to market saturation, overall ATM usage is increasing whiletransaction volume on a per-ATM basis is now in decline. Cash withdrawal

: Withdraw upto Rs.15,000/- per day from your account. Fast cashoptions provides the facility of withdrawing prefixed amounts. Ultra Fast Cash opetionallows you to withdraw Rs.3000/- in one shot. Balance Enquiry: Know your ledger balance and available balance Mini Statement: Get a printout of your last 8 transactions and your current balance. Deposit Cash / Cheques : available at all full function ATMs. Customers can deposit both cash and cheques. / Cash deposited in ATMs will be credited to the account on thesame day (provided cash is deposited before the clearing) and cheques are sent for clearing on the next working day. Funds Transfer: Transfer funds from one account to another linked account in the same branch. PIN Changes : Change the Personal Identification Number (PIN) of ATM or Debit card. Payments : The latest feature of our ATMs, this functionality can be used for payment of bills, making donations to temples / trusts, buying internet packs, airtime recharges for prepaid mobile phones and much more Others : Request for a checkbook from our ATMs and our concerned branch willdispatch it such that it reaches you within 10 working days. ATM Advantages 24-hour access to cash You can withdraw up to Rs. 10,000/- per day on your ATM Card. The fast cash option saves your time by providing the cash in denominations of Rs. 500/Balance inquiry Your updated balance will appear on the screen and will also be printed on thetransaction slip. Mini-statement request Get details of the last 9 transactions on your account with the mini-statement, alongwith your balance. Cheque book request Send us a request for a cheque book or account statement it will arrive at your doorstep. Funds transfer Transfer money from one of your accounts to another. Its easy, select the acoountfrom which you want to transfer, then indicate the amount and the accont to whichyour want it transferred. Both accounts must be linked to your ATM card andcustomer ID. A maximum of 5 saving and 5 Current accounts can be linked. PIN change

Your can conveniently charge your (PIN) given at the time of opening your account)whenever you wish. Stay totally in control and ensure complete security for your ATM Card. Bill Pay Pay your cellular, telephone and electricity bills using your ATM Card Your cash or cheques can be deposited into your account and the ATM willimmediately print a receipt for the same.

Credit card market in India The card industry, which is growing at the rate of 20% per annum, is flooded withcards ranging from gold, silver, global, smart to secure>>> the list is endless. From just two players in early 80s, the industry now houses over 10 major players vying for a major chunk of the card pie.Currently four major bishops are ruling the card empire Citibank, StandardChartered Bank. HSBC and State Bank of India (SBI). The industry, which is cateringto over 3.8 million card users, is expected to double by the fiscal 2003. Accordinglyto a study conducted by State bank of India, Citibank is the dominant player, havingissued 1.5 million cards so far. Stanch art follows way behind with 0.67 million,while Hong Kong Bank has 0.3 million credit card customers. Among thenationalized banks, SBI tops the list with 0.28 million cards, followed by Blanks of Baroda at 0.22 million.The credit card market in India, which started out in 1981, is on the verge of anunprecedented boom. Between 1987 and 2000, the market has virtually grown to over 3.8 million cards with almost 25-30% growth in new cardholders.The latest innovation in credit cards is the introduction of a magnetic slip in the cardfor use in withdrawing cash at the automatic teller machine (ATM), of which abut60000 are already in existence in the world. In India also ATMs have made lateappearance, but now spreading very rapidly. As per statistics published by RBI thereare 895 ATMs in India as at the end of the year 2001 but it is also regularlyincreasing. Advantages of Credit Card

The following are the advantages of credit cards:1. The credit card holders need not to carry either travelers cheques or cash withthem and they are free from the security of cash.2. Traveling facilities are available in hotels, restaurants and airways to the cardholders.3. Each card holder gets insurance facility which is up to one lakh on ordinaryinsurance.4. It has become a status symbol. Railway tickets are available on special windows.Extra charges are made by the railway and the cancellation of tickets is alsoallowed and the amount is directly credited in the bank account of the card holder.5. The business of the card holder individuals or institution has been because the businessmen are assured for the payment as the transactions have been finalizedon the basis of credit cards.6. Credit cards enhance the credit of banks and the credit of new customers andconsumers is enhanced.7. Deposits in saving and current accounts increase.8. Service charges on credit card increase the profitability of banks. Disadvantages of Credit CardCredit cards its own Disadvantages as discussed below: 1. Credit card is a contact in advance and if the card holder does not make payment,the recovery by bank becomes difficult . 2. Card holders spend in excess of their incomes and it poses the problem of recovery form them. 3. Banks profitability is adversely affected due to increase in overdraft of cardholders and difficulties in repayment by them.

Future of Credit Cards

In India this facility has increased the business activities; middle and upper middleclasses are availing this facility. It has become popular and status symbol in our country hence the prospects of credit cards are bright. Smart Cards A smartcard resembles a credit card except that it has a microchip embedded withinit, which allows the smartcard to store information and sometimes to even performsimple calculations. Common smartcard chips typically holds about 8,000 bytes(characters) of information, which enables the smartcard to perform a variety of functions such as identification , storing bank account information an holding digitalcash.A number of smartcards are on the market today, and these are used in a wide rangeof applications. Mondex has received a lot of recognition in the financial press, andseveral banks have already conducted trials with its smartcard. Wells Fargo & Co., amajor California bank based in San Franscisco, will issue Mondex smartcards to all of its online banking customers in 2998, a number which could reach into the hundredsof thousands. Because MasterCard International holds a 51% stake in Mondex, itcould become the defacto international standard for bank-issued smartcards. Smart Cards The new Innovation A smart card is a miniaturized personal computer (PC), which can be used for adazzling array of applications, and also as digital cash. It contains a microprocessor,memory and tailored software. The software security system used for these cards isalmost as foolproof as those used by nuclear establishments and leading international banks! Smart cards can manage security procedures using passwords and state-of-the-art encryption techniques. Further, identity traits such as digitized photos, signaturesand fingerprints being placed on the card make it fraud-proof.

E-money E-money may be broadly defined as an electronic store of monetary value on atechnical device used for making payments to undertakings other than the issuer on atechnical device used for making payments to undertakings other than the issuer on atechnical device used for making payments to undertakings other than the issuer without necessarily involving bank accounts in the transaction, but acting as a prepaid bearer instrument (Eropean Central Bank, 1998)These products could be classifiedin to two broad categories viz.,A) Pre-paid stored value card (sometimes called electronic purse) andB) Pre-paid software based product that used computer networks such as internet(sometimes referred to as digital cash or network money)The stored value card scheme typically uses a microprocessor chip embedded in a plastic card while software based scheme typically specialized software installed in a personal computer. The stored value card could be of three types single-purpose card,closed-system or limitedpurpose card could be of three types single-purpose card,closed-system or limited-purpose card and general-purpose or multi-purpose card.The single-purpose card generally with a magnetic chip recording the amount of fundtherein is designed to facilitate only one type of transaction e.g telephone calls, publictransportation, laundry, parking facilities etc. Here, the distinguishing point is that theissuer and the service provider (acceptor ) are identical for the cards. These cards areexpected to substitute coins and currency notes. It is important to note that theEuropean Central Bank (ECB) has exempted these singlepurpose pre-paid cardsfrom the purview of their policy initiatives on e-money because of their smaller denominations as well as limited risk exposure for customers and the financial systemas a

whole.The closed-system or the limited-purpose cards are generally used in a small number of wellidentified points of sale within a well-identified location such as corporate/university campus. EVB has recommended that these cards be subject tolighter regulations and be issued by credit institutions.The multipurpose card on the other hand can perform variety of functions withseveral vendors viz., credit card, debit card, stored value card, identifications card,repository of these cards with respect to regulatory oversight, restrictions on issuersand their implications or monetary policy. These cards may reduce demand for current accounts in the bank for likely reduction in transaction costs, and prudent portfolio management. Phone Banking Now your bank account is now just a phone call away. Through Phone Banking youcan: Check your account balance. Check the last 5 transactions in your account. Enquire on the cheque status. Have a mini statement faxed across to you. Request for a cheque book / Account statement. Enquire on your Fixed deposits / TDS. Open a fixed deposit Request for Demand Draft / Managers Cheques. Transfer funds amongst your linked accounts Pay utility and HDFC Bank Credit Card bills. Do a stop cheque payments. Report loss of your ATM /Debit Card. Product information. Enquire on the interest / Exchange rates.Phone banking facility is available round the clock, everyday, in Mumbai, Delhi,Chennai, Kolkata, Banglore, Hyderabad, Ahmedabad, Chandigarh and Pune.

E-Banking Transactions Informational website Informational websites provide customers access to general information about thefinancial institution and its products or services. Risk issues examiners should consider when reviewing informational websites include .. Potential liability and consumer violations for inaccurate or incompleteinformation about products, services, and pricing presented on the

.. Potential access to confidential financial institution or customer information if the website is not properly isolated from the financial institutions internalnetwork; .. Potential liability for spreading viruses and other malicious code to computerscommunicating with the institutions website; and .. Negative public perception if the institutions on-line services are disrupted or if its website is defaced or otherwise presents inappropriate or offensive material. Translational Website Transactional websites provide customers with the ability to conduct transactions throughthe financial institutions website by initiating banking transactions or buying productsand services. Banking transactions can range from something as basic as a retail account balance inquiry to a large business-tobusiness funds transfer. E-banking services, likethose delivered through other delivery channels, are typically classified based on the typeof customer they support.. Since transactional websites typically enable the electronic exchange of confidentialcustomer information and the transfer of funds, services provided through these websitesexpose a financial institution to higher risk than basic informational websites. Wholesalee-banking systems typically expose financial institutions to the highest risk per transaction, since commercial transactions usually involve larger dollar amounts. Inaddition to the risk issues associated with informational websites, examiners reviewingtransactional e-banking services should consider the following issues: .. Security controls for safeguarding customer information; .. Authentication processes necessary to initially verify the identity of newcustomers and authenticate existing customers who access e-banking services; .. Liability for unauthorized transactions; .. Losses from fraud if the institution fails to verify the identity of individuals or businesses applying for new accounts or credit on-line; .. Possible violations of laws or regulations pertaining to consumer privacy, anti-money laundering, antiterrorism, or the content, timing, or delivery of requiredconsumer disclosures; and .. Negative public perception, customer dissatisfaction, and potential liabilityresulting from failure to process third-party payments as directed or withinspecified time frames, lack of availability of online services, or unauthorizedaccess to confidential customer information during transmission or storage. E-Banking components E-banking systems can vary significantly in their configuration depending on a number of factors. Organisations should choose their e-banking system configuration, includingoutsourcing relationships, based on four factors: .. Strategic objectives for e-banking; .. Scope, scale, and complexity of equipment, systems, and activities

.. Technology expertise; and

.. Security and internal control requirements.Organisations may choose to support their e-banking services internally. Alternatively,Banks can outsource any aspect of their e-banking systems to third parties. Thefollowing entities could provide or host (i.e., allow applications to reside on their servers) e banking-related services for Organisations: .. Another financial institution, .. Internet service provider, .. Internet banking software vendor or processor, .. Core banking vendor or processor, .. Managed security service provider, .. Bill payment provider, .. Credit bureau, and .. Credit scoring company.E-banking systems rely on a number of common components or processes. Thefollowing list includes many of the potential components and processes seen in a typicalOrganisations: .. Website design and hosting, .. Firewall configuration and management, .. Intrusion detection system or IDS (network and host-based), .. Network administration, .. Security management, .. Internet banking server, .. E-commerce applications (e.g., bill payment, lending, brokerage), .. Internal network servers, .. Core processing system, .. Programming support, and .. Automated decision support systems These components work together to deliver e-banking services. Each componentrepresents a control point to consider. hrough a combination of internal and outsourced solutions, management has manyalternatives when determining the overall system configuration for the variouscomponents of an e-banking system. However, for the sake of simplicity, this booklet presents only two basic variations. First, one or more technology service providers canhost the e-banking application and numerous network components as

illustrated in thefollowing diagram. In this configuration, the institutions service provider hosts theinstitutions website, Internet banking server, firewall, and intrusion detection system.While the institution does not have to manage the daily administration of thesecomponent systems, its management and board remain responsible for the content,Second, the organisation can host all or a large portion of its e-banking systemsinternally. A typical configuration for in-house hosted, e-banking services is illustrated below. In this case, a provider is not between the Internet access and the organisations

core processing system. Thus, the oranisation has day-to-day responsibility for systemadministration. E-Banking Support Services In addition to traditional banking products and services, organizations can provide avariety of services that have been designed or adapted to support e-commerce.Management should understand these services and the risks they pose to the organization.This section discusses some of the most common support services: web linking, accountaggregation, electronic authentication, website hosting, payments for ecommerce, andwireless banking activities. Web linkings A large number of Organisations maintain sites on the World Wide Web. Some websitesare strictly informational, while others also offer customers the ability to performfinancial transactions, such as paying bills or transferring funds between accounts.

Technology in Banking The introduction of new technologies has radically transformed banking transactions. Inthe past, customers had to come physically into the bank branch to do bankingtransactions including transfers, deposits and withdrawals. Banks had to employ severaltellers to physically make all those transactions. Automatic Teller Machines (ATMs)were then introduced which allowed people to do their banking on their own, practicallyanytime and anywhere. This helped the banks cut down on the number of tellers andfocus on managing money. The Internet then brought another venue with whichcustomers could do banking, reducing the need for ATMs. Online banking allowedcustomers to do financial transactions from their PCs at home via Internet. Now, with theemergence of Wireless Application Protocol (WAP) technology, banks can use theinfrastructure and applications developed for the Internet and move it to mobile phones. Now people no longer have to be tied to a desktop PC to do their banking. The WAPinterface is much faster and convenient than the Internet, allowing customers to seeaccount details, transaction details, make bill payments, and even check credit card balance. The cost of the average payment transaction on the Internet is minimum. Several studiesfound that the estimated transaction cost through mobile phone is16 cents, a fullycomputerized bank using its own software is 26 cents, a telephone bank is 54 cents, a bank branch, $1.27, an ATM, 27 cents, and on the Internet it costs just 13 cents. As aresult, the use of the Internet for commercial transactions started to gain momentum in1995. More than 2,000 banks in the world now have transactional websites and thegrowth of online lending solutions is making them more cost efficient. Recentdevelopments are now encouraging banks to target small businesses as a separate lendingcategory online. Banks are increasingly building payment infrastructure with various security mechanisms(SSL, SET) because there is tremendous potential for profit, as more and more paymentswill pass through the Internet. However, the challenge for banks is to offer a payments back-bone system that will be open enough to support multiple payment instruments

(credit cards, debit cards, direct debit to accounts, e-checks, digital money etc.) andscalable enough to allow for a stable service regardless of the workload. The market for Electronic Bill Presentment and Payment (EBPP) is growing. Accordingto a study, 18 million households in the US are expected to pay their bills online by 2003compared to 2 million households in 2001. As more number of bill payers are gettingonline, several banks are making efforts to find ways to meet the growing needs of EBPP.Established banks can emerge as key online integrators of customer bills and cancapitalize on this high potential market. Growing with the popularity of EBPP is also the paying of multiple bills at a single site known as bill aggregation. Offering online bill payment and aggregation will increase the competitiveness and attractiveness of e- banking services and will allow banks to generate service-fee income from the billers. In the B2B segment, the customer value proposition for online bill payment is morecompelling. B2B ecommerce is expected to grow from $406 bn in 2000 to $2.7 tn by2004, and more than half of all transactions will be routed through online B2Bmarketplaces. There is a need for automated payment systems to reduce cost and humanerror, and enhance cash-flow management. To meet this need, a group of banks and non-financial institutions led by Citibank and Wells Fargo have formed a company calledFinancialSettlementsMatrix (FSMx). It provides business buyers and sellers with accessto secure payment processing, invoicing and other services that participating financialservices firms offer. A B2B marketplace would provide minimum value to its customers if it just matches buyers and sellers, leaving the financial aspects of transactions to be handled throughtraditional non-Internet channels. Hence, the marketplace must be capable of providingthe payments processing, treasury management services, payables/receivables data flows,and credit solutions to complete the full cycle of a commercial transaction on the Internet.The web-based B2B e-commerce offers tremendous opportunities for banks, paymenttechnology vendors and e-commerce companies to form strategic alliances. This newform of collaboration between partners with complementary core competencies may prove to be an effective business model for e-business.

Technology in Banking We have been witnessing since about the early Eighties the phenomenon of widespreaduse of computers and communication technology in the industrial, as well as emergingmarket economies. This has resulted in faster funds movement across nations and borders. Globalisation of economies and financial liberalisation within the economieshave opened new opportunities of growth for techno-savvy institutions, while for theothers these have resulted in shrinkage of revenues. The use of IT in the banking industryin our country has however been somewhat limited and has, as a result, restricted our presence in international operations. Even in critical spheres such as those involvingfunds transfer, and MIS based decision making, there has been little evidence of proactive movement towards wholesale computerisation upnto the middle of the NinetiesHowver Indian Banks have come to start this process after a decade or so. It is only withthe growing recognition of the need for having in place financial reforms, has the interestin IT application in the banking sector in India increased. But though the process startedlate, computerising the vast net work of branches of several banks is planned and beingexecuted methodically and the benefit is expected to be fully perceived by the year 2010.The RBI Report on Banking published on 15.11.2001 starts with the opening narration-"In recent years, the banking industry has been undergoing rapid changes, reflecting anumber of underlying developments. The most significant has been advances incommunication and information technology, which have accelerated and broadened thedissemination of financial information while lowering the costs of many financialactivities. A second key impetus for change has been the increasing competition among a broad range of domestic and foreign institutions in providing banking and relatedfinancial services. Third, financial activity has become larger

relative to overall economicactivity in most economies. This has meant that any disruption of the financial markets or financial infrastructure has broader economic ramifications than might have been the case previously". The report gives a brief summary of the progress made in the usage of informationtechnology and networking of different branches and different banks. The contents of thereport are reproduced in this First Page dealing with advent of e-banking in India.Detailed information about each area or field of in the usage of IT is discussed insubsequent pages. (please refer the column to the left for a subject-wise Table of Contents on "Computerisation").The text of the report dealing with Technology in Banking is reproduced as underPayment and Settlement Systems As part of restructuring of the banking sector, special emphasis has been accorded toimprovements in payment and settlement systems. Prominent among the measuresinitiated in these areas include introduction of Electronic Funds Transfer (EFT), RealTime Gross Settlement System (RTGS), Centralised Funds Management System(CFMS), the NDS and the Structured Financial Messaging Solution (SFMS). The SFMSwould be the backbone for all message-based communication over the Indian Financial Network (INFINET) Electronic Funds Transfer (EFT) The EFT scheme enables transfer of funds within and across cities and between branchesof a bank and across banks. The scheme, which is operated by the Reserve Bank isavailable for funds transfer across thirteen major cities in the country, as on September 30, 2001. The facility is being extended to two more centres. The scheme was originallyintended for small value transactions. However, with effect from October 1, 2001, evenlarge value transactions (as high as Rs. 2 crore) have also been permitted. Real Time Gross Settlement System (RTGS) The work on operationalisation of RTGS system continued during the year. The major project components completed during the year included the finalisation of the design for RTGS system, issue of the tender for the development of the software, evaluation of the technical components of the bids received, site visits and evaluation of the commercial proposals. The implementation of RTGS is targeted to be accomplished within 12 to 15months of award of the contract for software development and implementation. Centralised Funds Management System (CFMS) The CFMS would enable the funds and treasury managers of commercial banks to obtainthe consolidated account-wise, centre-wise position of their balances with all the 17Deposit Accounts Departments (DAD) of the Reserve Bank. The system has been tested prior to installation and phase-wise implementation commenced from November 2001.The CFMS would enable better funds management by constituent current account holdersof the Reserve Bank Structured Financial Messaging Solution (SFMS) At the base of all inter-bank message transfers using the INFINET is the SFMS. SFMSwould serve as a safe, secure communication carrier built with templates for transmissionof intra and inter-bank messages in fixed message formats, which would facilitate"Straight Through Processing". SFMS comprises the central server in the form of a hublocated at the Institute for Development and Research in Banking Technology (IDRBT),Hyderabad and individual bank gateways to which the branches of the banks would beconnected with a provision for banks to have multiple bank level gateways. The SFMSwould provide for all inter-bank transactions to be stored and switched at the central hub,while intra-bank messages will be switched and stored by the bank gateway. Adequatesecurity in the form of smart card authentication

apart from the Public Key Infrastructure(PKI) would be an integral part of the SFMS. All these would result in the security levelsmatching those of international standards. Working Group on Improvements in Monitoring Clearing Systems Following the recent developments in the banking sector, a Working Group on'Improvements in Monitoring of Clearing Systems' was constituted by the Reserve Bank to examine the major issues pertaining to management and operation of the Clearing Houses and make necessary recommendations. The Group submitted the Report in May2001. The recommendations of the Group were discussed with a select group of bankersand regulators. Based on these discussions, a roadmap has been drawn for implementation of these recommendations which fall under the following Major areas of control / monitoring viz.a. monitoring presentations by banks; b. monitoring returns by banks;c. accounting of the clearing sett lements;d. formation of an Internal Group at each Regional Office of the Reserve Bank toreview the trends reported by the clearing house and plan follow up action asdeemed necessary;e. formation of a central monitoring cell to monitor the trends on a national basisand provide warning signals wherever necessary; andf. implementation of MIS to serve as early warning signals for better surveillanceover the activities of the clearing member banks.The recommendations which could be implemented immediately are being taken up withthe four major metropolitan clearing houses managed by the Reserve Bank. Action onimplementing these at the clearing houses managed by State Bank of India / other bankswould also be taken up concurrently. Imaging of Instruments A process of capturing the images of the instruments as they are being processed wasintroduced during the year at the four metropolitan National Clearing Cells managed bythe Reserve Bank. Imaging facilitates in quicker balancing during the cheque-processingcycle and also in reducing clearing reconciliation differences. Electronic Clearing Services Emphasis on widespread usage of Electronic Clearing Service (ECS) is being prescribed by the Reserve Bank to encourage non-paper based funds movement. The prime thrustareas forming part of this vital activity include the extension of ECS to more centres,inclusion of more customers under the ambit of the scheme and provision of a centralisedfacility for affording payments. Indian Financial Network (INFINET) The INFINET has been operational for almost two years. Started as a closed user groupcommunication network for the banking sector in India, the members of this network arethe public sector banks. During the year 2000-01, the membership was opened up for other banks and financial institutions that need to communicate with one another. Computerisation in Public Sector Banks The progress in implementation of the directive of the Central Vigilance Commission(CVC) on the need to computerise 70 per cent of the banking business by public sector banks before January 1, 2001 revealed that as on December 31, 2000, 13 banks hadachieved the desired level. Figures as at end of March 2001, indicated that 23 banks haveachieved the target, while two banks have computerisation levels ranging between 60 per cent and 70 per cent and two others were at a level below 60 per cent. Cheque Clearing

Magnetic Ink Character Recognition (MICR) based cheque-clearing accounts for about65 per cent of the value of cheques processed in the country. In addition, Magnetic MediaBased Clearing Systems account for about 10 per cent of the remaining value whileclaim-based processes cover the rest of clearing. It may be pertinent to note that growthin cheque volumes has decelerated to 10 per cent in 2000-01 from 12 per cent during the previous year. This is reflective of general trends the world over, indicating the migrationtowards electronic funds transfer mechanisms. The E-Banking Strategies Though e-banking offers vast opportunities, yet even less than one in three banks have ane-banking strategy in place. According to a study, less than 15 percent of banks withtransactional websites will realize profits directly attributable to those sites. Hence, banksmust recognize the seriousness of the challenge ahead and develop a strategy that willenable them to leverage the opportunities presented by the Internet. No single e-banking strategy is right for every banking company. But whether they adoptan offensive or a defensive posture, they must constantly re-evaluate their strategy. In thefast-paced eeconomy, banks have to keep up with the constantly evolving businessmodels and technology innovations of the Internet space. Early e-business adopter likeWells Fargo not only entered the e-banking industry first but also showed flexibility tochange as the market developed. Not many banks have been as ebusiness-savvy. But the pressure is now building for all banks to develop sound e-business strategies that willattract and retain increasingly discriminating customers.The major problem with the banks, which have already invested huge amounts in their online initiatives, is that their online offerings remain unprofitable. Though banks haveenrolled some existing customers in their online programs, they are not getting customersin large numbers. This has made banks wonder whether there is any value in the onlinechannel. Just enrolling customers for online banking may not be sufficient until andunless they use the site actively. Banks must make efforts to increase their site usage bycustomers and effectively coordinate the online channel with branches and call centers.Then only they will be able to derive maximum value that includes cost reduction, cross-selling opportunities, and higher customer retention.Customers have some rational reasons for staying offline. Some of these reasons includeusability features of the site, concerns about security and frequent complaints that signingup is complicated and time-consuming. Banks can solve these problems by refocusing investment on improving the site's basic functionality and user-friendliness, and avoidingadvanced features that most customers neither understand nor value. Developingadvanced features that appeal to a relatively small numbers of customers, creates far lessvalue than strengthening core capabilities and getting customers to use them. Banks mustmake efforts to familiarize customers with their sites and show them how easy andefficient the online channel is to use.Integrating the online channel with the rest of the bank is another important issue that banks must focus upon. This is important because nearly all the value of the onlinechannel is realized offline _ in cross sales completed in other channels and in costreductions. An actively used online channel should also serve as a medium to sell banking services for the branch staff, the call center, and the relationship manager.Integrated channels working together are far more effective than a group of channelsworking without any coordination.To facilitate this integration, banks must formulate paths that people in various customer segments are likely to take among the channels. The interactions in each channel can then be worked around these paths. For example, a call center representative must work outwhich channel(s) the customer used before coming to her, and which channel(s) thecustomer is likely to visit next. Each channel must have entry and exit points that mustwelcome customers and then send to other channels. Hence, the overall goal of banks isto create a seamless multichannel experience.On the other hand, those banks that are planning to build their online businesses will haveto understand several strategic issues like do they have the right business model for ebanking? How should they price their e-banking products and services? Bankers planningto move into ebanking have to explore different options, make investments and have todevelop a variety of partnerships. They have to put their time and efforts to identify the best opportunities. In the case of traditional banks, if they are too aggressive in using price incentives to build their e-business, they risk the profitability of

their traditional business. However, if they do not offer sufficient price incentives for customers to bank online, their efforts to build a sound e-banking business may not fructify.

Banks have to be creative in rethinking organizational structures and management processes. Traditional banks that are conservative in nature may find it difficult to attractand retain online talent. Moreover, getting people in the traditional business to help buildan e-enterprise would not be an easy task. To make all this happen, requires a major revision of incentive systems, planning and budgeting processes, and management roles.Banks can exploit the opportunities provided by the Internet if they demonstrate courage,use their imagination, and take decisive action.While most of the banks have started focusing on e-banking activities, a new challenge inthe form of mobile banking has emerged. M-Banking is both an additional opportunityfor banks to offer their online services and an additional channel from which to accessnew customers and cross-sell to existing customers. Rapidly changing lifestyles of customers and their demand for more speed and convenience has subdued the role of branch banking to a certain extent. With the proliferation of new technologies,disintermediation of traditional channels is being witnessed. Banks can go beyond their traditional role as a channel for banking/financial services and can become providers of personalized information. They can successfully leverage m-banking to: Provide personalized products and services to specific customers and thusincrease customer loyalty. Exploit additional sources of revenue from subscriptions, transactions and third- party referrals.MBanking gives banks the opportunity to significantly expand their customer relationships provided they position themselves effectively. To leverage theseopportunities, they must form structured alliances with service affiliates, and acquirecompetitive advantage in collecting, processing and deploying customer information

E-BANKING RISKS Transactional/Operational Risk Transaction/Operations risk arises from fraud, processing errors, system disruptions, or other unanticipated events resulting in the institutions inability to deliver products or services. This risk exists in each product and service offered. The level of transaction risk is affected by the structure of the institutions processing environment, including thetypes of services offered and the complexity of the processes and supporting technology.In most instances, e-banking activities will increase the complexity of the institutionsactivities and the quantity of its transaction/operations risk, especially if the institution isoffering innovative services that have not been standardized. Since customers expectebanking services to be available 24 hours a day, 7 days a week, financial institutionsshould ensure their e-banking infrastructures contain sufficient capacity and redundancyto ensure reliable service availability. Even institutions that do not consider e-banking acritical financial service due to the availability of alternate processing channels, shouldcarefully consider customer expectations and the potential impact of service disruptionson customer satisfaction and loyalty.The key to controlling transaction risk lies in adapting effective polices, procedures, andcontrols to meet the new risk exposures introduced by e-banking. Basic internal controlsincluding segregation of duties, dual controls, and reconcilements remain important.Information security controls, in particular, become more significant requiring additional processes, tools, expertise, and testing. Institutions should determine the appropriatelevel of security controls based on their assessment of the sensitivity of the information tothe customer and to the institution and on the institutions established risk tolerance level.

Credit Risk

Generally, a financial institutions credit risk is not increased by the mere fact that a loan is originated through an e-banking channel. However, management should consider additional precautions when originating and approving loans electronically, includingassuring management information systems effectively track the performance of portfoliosoriginated through e-banking channels. The following aspects of on-line loan originationand approval tend to make risk management of the lending process more challenging. If not properly managed, these aspects can significantly increase credit risk. .. Verifying the customers identity for on-line credit applications andexecuting an enforceable contract; .. Monitoring and controlling the growth, pricing, underwriting standards, andongoing credit quality of loans originated through e-banking channels; .. Monitoring and oversight of third-parties doing business as agents or on behalf of the financial institution (for example, an Internet loan originationsite or electronic payments processor); .. Valuing collateral and perfecting liens over a potentially wider geographicarea; .. Collecting loans from individuals over a potentially wider geographic area;and .. Monitoring any increased volume of, and possible concentration in, out- of-area lending.

Liquidity, Interest rate, Price/Market share Risk Funding and investment-related risks could increase with an institutions e-banking

initiatives depending on the volatility and pricing of the acquired deposits. The Internet provides institutions with the ability to market their products and services globally.Internet-based advertising programs can effectively match yield-focused investors with potentially high-yielding deposits. But Internet-originated deposits have the potential toattract customers who focus exclusively on rates and may provide a funding source withrisk characteristics similar to brokered deposits. An institution can control this potentialvolatility and expanded geographic reach through its deposit contract and accountopening practices, which might involve face-to-face meetings or the exchange of paper correspondence. The institution should modify its policies as necessary to address thefollowing e-banking funding issues: .. Potential increase in dependence on brokered funds or other highlyratesensitive deposits; .. Potential acquisition of funds from markets where the institution is notlicensed to engage in banking, particularly if the institution does not establish,disclose, and enforce geographic restrictions; .. Potential impact of loan or deposit growth from an expanded Internetmarket, including the impact of such growth on capital ratios; and .. Potential increase in volatility of funds should e-banking security problemsnegatively impact customer confidence or the markets perception of theinstitution. Complience/Legal Risk

Compliance and legal issues arise out of the rapid growth in usage of e-banking and thedifferences between electronic and paper-based processes. E-banking is a new deliverychannel where the laws and rules governing the electronic delivery of certain financialinstitution products or services may be ambiguous or still evolving. Specific regulatoryand legal challenges include

.. Uncertainty over legal jurisdictions and which states or countrys laws governa specific e-banking transaction, .. Delivery of credit and deposit-related disclosures/notices as required by law or regulation, .. Retention of required compliance documentation for on-line advertising,applications, statements, disclosures and notices; and .. Establishment of legally binding electronic agreements.Laws and regulations governing consumer transactions require specific types of disclosures, notices, or record keeping requirements. These requirements also apply toebanking, and federal banking agencies continue to update consumer laws andregulations to reflect the impact of e-banking and on-line customer relationships. Some of the legal requirements and regulatory guidance that frequently apply to e-banking products and services include .. Solicitation, collection and reporting of government monitoring information onapplications and loans, as required by Equal Credit Opportunity Act (RegulationB) and Home Mortgage Disclosure Act (Regulation C) regulations; .. Advertising requirements, customer disclosures, or notices required by the RealEstate Settlement Procedures Act (RESPA), Truth in Lending (Regulation Z),and Truth In Savings (Regulation DD) and Fair Housing regulations; .. Proper and conspicuous display of FDIC or NCUA insurance notices;

.. Conspicuous webpage disclosures indicating that certain types of investment, brokerage, and insurance products offered have certain associated risks, includingnot being insured by federal deposit insurance (FDIC or NCUA); .. Customer identification programs and procedures, as well as record retentionand customer notification requirements, required by the Bank Secrecy Act; .. Customer identification processes to determine whether transactions are prohibited by the Office of Foreign Asset Control (OFAC) and, when necessary,whether customers appear on any list of known or suspected terrorists or terroristorganization provided by any government agency; .. Delivery of privacy and opt-out notices by hand, by mail, or with customer acknowledgement of electronic receipt; .. Verification of customer identification, reporting, and record keepingrequirements of the Bank Secrecy Act (BSA), including requirements for filing asuspicious activity report (SAR); and .. Record retention requirements of the Equal Credit Opportunity Act (RegulationB) and Fair Credit Reporting Act regulations.Institutions that offer e-banking services, both informational and transactional,

assume ahigher level of compliance risk because of the changing nature of the technology, thespeed at which errors can be replicated, and the frequency of regulatory changes toaddress e-banking issues. The potential for violations is further heightened by the need toensure consistency between paper and electronic advertisements, disclosures, and notices.Additional information on compliance requirements for e-banking can be found on theagencies. Stratagic Risk

A financial institutions board and management should understand the risks associatedwith e-banking services and evaluate the resulting risk management costs against the potential return on investment prior to offering e-banking services. Poor e-banking planning and investment decisions can increase a financial institutions strategic risk.Early adopters of new e-banking services can establish themselves as innovators whoanticipate the needs of their customers, but may do so by incurring higher costs andincreased complexity in their operations. Conversely, late adopters may be able to avoidthe higher expense and added complexity, but do so at the risk of not meeting customer demand for additional products and services. In managing the strategic risk associatedwith e-banking services, financial institutions should develop clearly defined e-bankingobjectives by which the institution can evaluate the success of its e-banking strategy. In particular, financial institutions should pay attention to the following: .. Adequacy of management information systems (MIS) to track e-banking usageand profitability; .. Costs involved in monitoring e-banking activities or costs involved inoverseeing e-banking vendors and technology service providers; .. Design, delivery, and pricing of services adequate to generate sufficientcustomer demand; .. Retention of electronic loan agreements and other electronic contracts in aformat that will be admissible and enforceable in litigation; .. Costs and availability of staff to provide technical support for interchangesinvolving multiple operating systems, web browsers, and communicationdevices; .. Competition from other e-banking providers

Reputation Risk An institutions decision to offer e-banking services, especially the more complextransactional services, significantly increases its level of reputation risk. Some of theways in which e-banking can influence an institutions reputation include .. Loss of trust due to unauthorized activity on customer accounts, .. Disclosure or theft of confidential customer information to unauthorized parties(e.g., hackers), .. Failure to deliver on marketing claims, .. Failure to provide reliable service due to the frequency or duration of servicedisruptions, .. Customer complaints about the difficulty in using e-banking services and theinability of the institutions help desk to resolve problems, and

.. Confusion between services provided by the financial institution and services provided by other businesses linked from the website.

1.Start early with simple, user-friendly, robust andhighly scalable services. 2.Use the same secure, mobile password in all devicesand channels (including contact centers), for bothidentification and transaction confirmation. 3.Include all services in the same portal to gaineconomies of scope and repetition. Introduce newservices gradually to keep up user interest. 4.Make eBanking a part of branch banking in order tomotivate the local personnel to sell the service. 5.Provide the same services and user logic to both private and corporate customers to gain not only thereuse advantages of technology and branding, butalso the economy of repetition. 6.Let your corporate and private users meet each other in the Internet bank via such thins as mall-like link collection (available to merchants using the bank'sservices). 7.Use both real-life situations and interest based personalisation and customisation to provide userswith targeted offers