E banking: risks and responses

29 Mar 2000

Speech by Carol Sergeant Director, Banks & Buildings Societies Financial Services Authority Introduction
Financial Regulators are generally viewed as the professional party poopers at any upbeat conference like this, warning of dire consequences ahead for any who stray from the virtuous path of prudence and regulatory compliance. I will do my best to meet your possibly reasonable but miserable expectations later on. But before I do please allow me to dwell briefly on what we in the FSA consider to be the potentially very positive aspects of E Commerce for firms, consumers and even for regulators! A few examples: For Firms E Commerce brings: - different and arguably lower barriers to entry; - opportunities for significant cost reduction; - the capacity to rapidly re-engineer business processes; - greater opportunities to sell cross border. Each and all of these potential benefits provides for increased competition and the ability to wrest market leadership from established players. For consumers the potential benefits are: - more choice; - greater competition and better value for money; - more information; - better tools to manage and compare information; - faster service. And there are potential benefits even for regulators: - better, more flexible, user friendly information for consumers and others on our own web-site; - better, almost indestructible audit trails; - potential to monitor advertising and advice activity more easily; - more cost effective and efficient use of regulatory tools (for example the use of our extra net over the Y2K period).

But of course there are also risks. The risks to firms specifically banks I will cover later. For consumers the biggest risks are probably information overload and not understanding whom they are dealing with and on what terms. This can range from dealing with a perfectly respectable company from another jurisdiction, but not understanding for example the different legal environment, compensation schemes and ombudsman arrangements, through to being vulnerable to scams and frauds. For regulators one key danger is a failure to understand changing risk profiles and vulnerabilities of individual firms and also changes to market structures and interactions. Another very important risk is that our own regulatory framework could somehow inhibit desirable innovations by not adapting quickly enough. We are very conscious of this in the FSA and are trying very hard to be E-neutral (a recent example of this is the proposed Conduct of Business Sourcebook). We have also selected E-commerce as one of our regulatory themes for this year and are very active in international fora but more of that later.

Impact of e-banking on traditional services

Before talking about the issues of risks and responses to E banking, I would like to spend a little time considering the wider question of what the e-banking revolution might mean for the future. I take "E" to mean anything electronic whether it be Internet, television, telephone or all three. One of the issues currently being addressed is the impact of e-banking on traditional banking players. After all, if there are risks inherent in going into e-banking there are other risks in not doing so. It is too early to have a firm view on this yet. Even to practitioners the future of e-banking and its implications are unclear. It might be convenient nevertheless to outline briefly two views that are prevalent in the market. The view that the Internet is a revolution that will sweep away the old order holds much sway. Arguments in favour are as follows: E-banking transactions are much cheaper than branch or even phone transactions. This could turn yesterdays competitive advantage - a large branch network - into a comparative disadvantage, allowing ebanks to undercut bricks-and-mortar banks. This is commonly known as the "beached dinosaur" theory. E-banks are easy to set up so lots of new entrants will arrive. Old-world systems, cultures and structures will not encumber these new entrants. Instead, they will be adaptable and responsive. E-banking gives consumers much more choice. Consumers will be less inclined to remain loyal. E-banking will lead to an erosion of the endowment effect currently enjoyed by the major UK banks. Deposits will go elsewhere with the consequence that these banks will have to fight to regain and retain their customer base. This will increase their cost of funds, possibly making their business less viable. Lost revenue may even result in these banks taking more risks to breach the gap. Portal providers, are likely to attract the most significant share of banking profits. Indeed banks could become glorified marriage brokers. They would simply bring two parties together eg buyer and seller, payer and payee. The products will be provided by monolines, experts in their field. Traditional banks may simply be left with payment and settlement business even this could be cast into doubt.

Traditional banks will find it difficult to evolve. Not only will they be unable to make acquisitions for cash as opposed to being able to offer shares, they will be unable to obtain additional capital from the stock market. This is in contrast to the situation for Internet firms for whom it seems relatively easy to attract investment. There is of course another view which sees e-banking more as an evolution than a revolution. E-banking is just banking offered via a new delivery channel. It simply gives consumers another service (just as ATMs did). Like ATMs, e-banking will impact on the nature of branches but will not remove their value. Experience in Scandinavia (arguably the most advanced e-banking area in the world) appears to confirm that the future is clicks and mortar banking. Customers want full service banking via a number of delivery channels. The future is therefore Martini Banking (any time, any place, anywhere, anyhow). Traditional banks are starting to fight back. The start-up costs of an e-bank are high. Establishing a trusted brand is very costly as it requires significant advertising expenditure in addition to the purchase of expensive technology (as security and privacy are key to gaining customer approval). E-banks have already found that retail banking only becomes profitable once a large critical mass is achieved. Consequently many e-banks are limiting themselves to providing a tailored service to the better off. Nobody really knows which of these versions will triumph. This is something that the market will determine. However, supervisors will need to pay close attention to the impact of e-banks on the traditional banks, for example by surveillance of:

strategy customer levels earnings and costs advertising spending margins funding costs merger opportunities and threats, both in the UK and abroad.

FSA Regulation of "E-banks"

The FSA intends to be E-neutral. Our current legislation, The Banking Act and the Building Societies Act, provide us with the powers we need and our current range of supervisory tools are perfectly adequate although we may need to deploy some with different degrees of intensity. Our new legislation, The Financial Services and Markets Bill, offers a significant addition in the form of the objective which requires us to promote public understanding of the financial system. This, along with our

consumer protection objective, provides the basis for our consumer education work which will be a key tool in dealing with many of the consumer risks I mentioned earlier. So we have no special regime for e-banks and we see no reason why we should not be able to authorise any new e-banks provided they meet our minimum prudential standards. After all we have authorised insurance banks and supermarket banks, which are heavily outsourced and often telephone based. We like to see innovation in banking services because, quite simply, we think that this is good for retail consumers, industry and the economy as a whole.

Risks and Reponses

So, back to the future nobody knows what it will look like. My job is to think about the risks banks, and building societies, whether new or old, are running. And about how they should respond to these risks. Allow me to consider them under the following headings:

strategy business security reputation operations.

You will notice that none of these are in themselves new and anyone who is familiar with the risk based approach to banking supervision (RATE) will know that they are already routinely covered by supervisors, albeit that we may need to give different weight and emphasis to these factors for E-banking.

Strategic Risk
On strategic risk E-banking is relatively new and, as a result, there can be a lack of understanding among senior management about its potential and implications. People with technological, but not banking, skills can end up driving the initiatives. E-initiatives can spring up in an incoherent and piecemeal manner in firms. They can be expensive and can fail to recoup their cost. Furthermore, they are often positioned as loss leaders (to capture market share), but may not attract the types of customers that banks want or expect and may have unexpected implications on existing business lines. Banks should respond to these risks by having a clear strategy driven from the top and should ensure that this strategy takes account of the effects of e-banking, wherever relevant. Such a strategy should be clearly disseminated across the business, and supported by a clear business plan with an effective means of monitoring performance against it.

Business risks
Business risks are also significant. Given the newness of e-banking, nobody knows much about whether ebanking customers will have different characteristics from the traditional banking customers. They may well have different characteristics eg I want it all and I want it now. This could render existing score card

models inappropriate, thus resulting in either higher rejection rates or inappropriate pricing to cover the risk. Banks may not be able to assess credit quality at a distance as effectively as they do in face to face circumstances. It could be more difficult to assess the nature and quality of collateral offered at a distance, especially if it is located in an area the bank is unfamiliar with (particularly if this is overseas). Furthermore as it is difficult to predict customer volumes and the stickiness of e-deposits (things which could lead either to rapid flows in or out of the bank) it could be very difficult to manage liquidity. Of course, these are old risks with which banks and supervisors have considerable experience but they need to be watchful of old risks in new guises. In particular risk models and even processes designed for traditional banking may not be appropriate.

Operations risk
Banks face three main types of operations risk:

volume forecasts management information systems and outsourcing.

Accurate volume forecasts have proved difficult - One of the key challenges encountered by banks in the Internet environment is how to predict and manage the volume of customers that they will obtain. Many banks going on-line have significantly misjudged volumes. When a bank has inadequate systems to cope with demand it may suffer reputational and financial damage, and even compromises in security if extra systems that are inadequately configured or tested are brought on-line to deal with the capacity problems. As a way of addressing this risk, banks should:

undertake market research, adopt systems with adequate capacity and scalability, undertake proportionate advertising campaigns, and ensure that they have adequate staff coverage and develop a suitable business continuity plan.

In brief, this is a new area, nobody knows all the answers, and banks need to exercise particular caution. The second type of operations risk concerns management information systems. Again this is not unique to E-banking. I have seen many banks venture into new areas without having addressed management information issues. Banks may have difficulties in obtaining adequate management information to monitor their e-service, as it can be difficult to establish/configure new systems to ensure that sufficient, meaningful and clear information is generated. Such information is particularly important in a new field like e-banking. Banks are being encouraged by the FSA to ensure that management have all the information that they require in a format that they understand and that does not cloud the key information with superfluous details.

Finally, a significant number of banks offering e-banking services outsource related business functions, e.g. security, either for reasons of cost reduction or, as is often the case in this field, because they do not have the relevant expertise in-house. Outsourcing a significant function can create material risks by potentially reducing a banks control over that function. Outsourcing is of course neither new nor unmanageable but banks should be mindful of the FSAs guidance on outsourcing, which addresses these risks.

Security
Security issues are a major source of concern for everyone both inside and outside the banking industry. Ebanking increases security risks, potentially exposing hitherto isolated systems to open and risky environments. Both the FSA and banks need to be proactive in monitoring and managing the security threat. Security breaches essentially fall into three categories; breaches with serious criminal intent (e.g. fraud, theft of commercially sensitive or financial information), breaches by casual hackers (e.g. defacement of web sites or denial of service - causing web sites to crash), and flaws in systems design and/or set up leading to security breaches (e.g. genuine users seeing / being able to transact on other users accounts). All of these threats have potentially serious financial, legal and reputational implications. Many banks are finding that their systems are being probed for weaknesses hundreds of times a day but damage/losses arising from security breaches have so far tended to be minor. However some banks could develop more sensitive "burglar alarms", so that they are better aware of the nature and frequency of unsuccessful attempts to break into their system. The most sensitive computer systems, such as those used for high value payments or those storing highly confidential information, tend to be the most comprehensively secured. One could therefore imply that the greater the potential loss to a bank the less likely it is to occur, and in general this is the case. However, while banks tend to have reasonable perimeter security, there is sometimes insufficient segregation between internal systems and poor internal security. It may be that someone could breach the lighter security around a low value system, e.g. a banks retail web site, and gain entry to a high value system via the banks internal network. We are encouraging banks to look at the firewalls between their different systems to ensure adequate damage limitation should an external breach occur. As ever though, the greatest threat so far has been from the enemy within ie your own employees, contractors and so on. It is easy to overemphasise the security risks in e-banking. It must be remembered that the Internet could remove some errors introduced by manual processing (by increasing the degree of straight through processing from the customer through banks systems). This reduces risks to the integrity of transaction data (although the risk of customers incorrectly inputting data remains). As e-banking advances, focusing general attention on security risks, there could be large security gains. So what should banks be doing? Our view is that to deal with these emerging threats effectively, financial institutions need as a minimum to have: a strategic approach to information security, building best practice security controls into systems and networks as they are developed

a proactive approach to information security, involving active testing of system security controls (e.g. penetration testing), rapid response to new threats and vulnerabilities and regular review of market place developments sufficient staff with information security expertise active use of system based security management and monitoring tools strong business information security controls These are the issues line supervisors will be raising with their banks as part of their on-going supervision; or, for new applicants, will need to be given adequate assurances about.

Reputational risks
Finally, with regard to risks, I would mention reputational risk. This is considerably heightened for banks using the Internet. For example the Internet allows for the rapid dissemination of information which means that any incident, either good or bad, is common knowledge within a short space of time. Internet rumours can easily become self-fulfilling prophecies. The speed of the Internet considerably cuts the optimal response times for both banks and regulators to any incident. Banks must ensure their crisis management, particularly PR, processes are able to cope with Internet related incidents (whether they be real or hoaxes). Any problems encountered by one firm in this new environment may affect the business of another, as it may affect confidence in the Internet as a whole. There is therefore a risk that one rogue e-bank could cause significant problems for all banks providing services via the Internet. This is a new type of systemic risk and is causing concern to e-banking providers. Overall, the Internet puts an emphasis on reputational risks. Never before has the banks shop window (ie its site) been so important. One last reputational risk will be familiar to us all. That is whether the products being sold over the net are being marketed in such a way that the bank will be protected against future charges of mis-selling. As in the physical, so in the virtual world. Banks need to be sure that customers rights and information needs are adequately safeguarded and provided for.

International developments
So, these are some of the particular risks arising in E-banking that we have hitherto identified in the UK domestic environment though I suspect that many of my regulator colleagues outside the UK would share many of these views. I would like to move on to the international side. Supervision in todays global environment can only ever be effective if it has an international dimension. This is especially the case with e-banking because of its non-territorial nature, the ease with which customers outside the home country can access the site and the opportunity to buy several types of product. Of course, regulators have long had to deal with the regulatory problems of international banking. They had set up mechanisms for cross-border supervision; agreements over home/host responsibilities (especially within the Community), bilateral agreement for information sharing and general standards by which they expect all banks, including those offshore territories, to abide. In principle, the expectation is that this general mechanism for international supervision will be robust enough to work just as well in the ebanking as the physical environment.

Nevertheless, it will not be quite as easy as that! Inevitably the nature of e-banking raises particular issues in the application of the general approach outlined here. E-banking makes it even more necessary to develop a cohesive international approach to regulation not only in the field of prudential regulation where Basel has made much progress, but also in the areas of conduct of business for consumer protection. The Basel Committee E-Banking Group believes that Basel "should provide the international supervisory community with a broad set of advisory guidance with respect to electronic banking," thereby providing a basis for domestic regulation and supporting consumer and industry education. Globally, such guidance would assist international co-operation and act as a foundation for a coherent approach to supervising ebanking. It could facilitate international e-banking by creating consumer confidence in sound banks based in different, possibly less satisfactory, regimes and might dissuade host supervisors from imposing additional, potentially draconian, regulation on such banks. The Group identified:

Authorisation, prudential standards, transparency, privacy, money laundering, and cross border supervision

as issues on which they felt that there is need for further work, both at the analytical and policy level before any such guidance could be developed. The FSA is involved in the Basel Group and will be contributing to the work, participating in the drafting of papers and hosting both the groups next meeting and a roundtable for its members and a number of European banks and service providers. We welcome any contributions from the industry to this debate; and have indeed been actively soliciting them.

Cross-border issues
There are also significant cross-border issues. We foresee difficulties for depositors identifying the jurisdiction within which e-banks offering services in the UK are based, given the potential absence of physical presence and the ability for e-banks to move to a new jurisdiction relatively rapidly. These concerns have prompted a considerable amount of debate and analysis in the international supervisory community. Within Europe home v host state supervision is a particularly important issue. Banks may tend to seek authorisation wherever the tax, compliance and costs are lowest, as location will become less of a critical issue since services may easily be provided on a crossborder basis. E-banking is likely therefore to significantly increase the usage of the 2BCD passport (that is the Community equivalent of your passport, but for a bank), thereby making it even more crucial that all European regulators undertake supervision in a satisfactory (and harmonised) manner and that communication between regulators is adequate. A number of initiatives with implications for home and host state supervision are being discussed, for example the draft e-commerce and distance marketing directives and the Rome and Brussels conventions. The debate is far from being resolved and a considerable degree of uncertainty remains. For example

within the e-commerce Directive home and host have been replaced with home and country of origin, the implications of which are as yet unclear. The current drafting (agreed at Council) is sufficiently vague to potentially allow numerous regulators to assert jurisdiction over an Internet service, thereby nullifying the main advantage of the Directive, home state regulation. However we would expect that a suitable compromise on the point will be worked out so as to avoid this outcome. Certainly this is what we at the FSA are working towards.

Conclusion
And so in conclusion e-banking creates issues for banks and regulators alike. For our part we will continue our work, both national and international, to identify and remove any unnecessary barriers to e-banking. For their part, banks should: Have a clear and widely disseminated strategy that is driven from the top and takes into account the effects of e-banking, together with an effective process for measuring performance against it. Take into account the effect that e-provision will have upon their business risk exposures and manage these accordingly. Undertake market research, adopt systems with adequate capacity and scalability, undertake proportional advertising campaigns and ensure that they have adequate staff coverage and a suitable business continuity plan. Ensure they have adequate management information in a clear and comprehensible format. Take a strategic and proactive approach to information security, maintaining adequate staff expertise, building in best practice controls and testing and updating these as the market develops. Make active use of system based security management and monitoring tools. Ensure that crisis management processes are able to cope with Internet related incidents. I started my talk today by noting potential benefits as well as the risks in e-banking. I end in the same way. Certainly there are risks. But there are also opportunities, and significant potential benefits for consumers, banks and regulators. We see no problems in principle with mitigating and managing the risks both for new entrants and existing players. As regulators we need to ensure that our approaches are adequate to deal with the risks without getting in the way of the innovations and benefits that E-banking brings to firms and consumers. We are very mindful of this as we develop our rules and guidance but will be looking also to you in the industry to help us to achieve the right balance

Reference: http://www.fsa.gov.uk/library/communication/speeches/2000/sp46.shtml

Electronic Money and Relevant Legal and Regulatory Issues

I. Introduction

Money has existed in civilisation for thousands years, originating from both economic and non-economic causes such as tribute, trade, blood money, barter and religious rites. Primitive money took many forms, from cowrie shells to cattle and whales teeth, and later coinage. The development of money can be divided into four main groups: the first is objects-as-money group which consisting of the first generation (trade by barter) and the second generation (trade with valuable objects); the second is currency-as-money group which consisting of the third generation (coins) and fourth generation (paper notes); the third is claims-as-money group which comprising the fifth (deposit accounts), sixth (plastic money) and seventh generations (electronic payments (EPs) and electronic fund transfers (EFTs)); and the fourth is electronicimpulses-as-money group which covering the eighth generation (smart cards) and ninth generation (digital coins). The continued development of money was very much linked to the growth in world trade and commerce. With the onset of the industrial revolution, foreign and domestic trade increased greatly and monetary exchange and payment systems rapidly developed. The advent of electronic payment can be traced back to 1918, when the Federal Reserve banks of the USA first moved currency via telegraph. Electronic payment systems exist in a variety of forms which can be divided into two groups: wholesale payment systems and retail payment systems. Wholesale payment systems exist for non-consumer transactions, high-value wholesale payments flow through the three major interbank funds transfer systems: CHIPS, SWIFT and Fedwire. Retail electronic payment systems encompass those transactions involving consumers. These transactions involve the use of such payment mechanisms as credit cards, automated teller machines (ATMs), debit cards, point-of-sale (POS) terminals, home banking, and telephone bill-paying services. Payments for these mechanisms are conducted online and flow through the check truncation system and the ACH. A number of innovations are taking place in the area of retail electronic payments known as electronic money (e-money). These innovations, which are still at a relatively early stage of development, have the potential to challenge the predominant role of cash for making small-value payments and could make retail transactions easier and cheaper for consumers and merchants. It has been suggested that e-money is likely to "lead to a new concept of pocket money, give birth to a new commercial payment system for the Internet, change the way governments pay out benefits electronically, and revolutionize the movement of value over telephone lines and airwaves." The use of e-money in low-value, highvolume transactions opens up a wide variety of new services and changes the way in which old ones can be delivered. However, it seems that e-money products have not yet gained wide acceptance, the reaction to these products around the world has been lukewarm so far. It appears that e-money is ahead of customer demand, for the present time at least. This is due to some concerns about e-money, such as security, privacy and some other issues. The development of innovative e-money raises numerous legal and regulatory issues that must be addressed. These include finding acceptable methods for authentication

and protection of information, accommodating the special needs of law enforcement, and creating the requisite means of settling disputes. This article identifies some key issues raised surrounding e-money and proposes strategies for regulatory control. Part two introduces e-money and its features as well as its impacts on banks. Part three and part four discuss respectively the legal issues on issuing, using and regulating emoney. Part five concludes with some suggestions.
II. Electronic Money

1. What is money? Money is a medium that people are willing to accept for the goods, securities, and services that they sell. Money serves three purposes. First, as just mentioned, it serves as a medium of exchange. Second, as a standard of value, it serves as a measure for the value of a good or service and thus provides a standard for making comparisons between different goods and services. Finally, it functions as a store of value, thus it can be saved and used in the future. In order to realize its three functions, money possesses certain characteristics which allow it to enable transactions. First, it must be durable to function as a store of value. In other words, when money is not spent, it is retrievable. However, if it is destroyed, stolen, or otherwise lost, it is not replaceable. Second, it must be difficult for individuals to create or counterfeit money. Public trust in money's legitimacy is an essential element of its successful use as a medium of exchange. Third, it must be widely accepted. The larger the community of users who trust and accept money, the more that its value as a medium of exchange is increased. Finally, when it is exchanged, there is anonymity. 2. What is electronic money? E-banking as well as e-money are rather generic terms and we need to specify what we are talking about. It is well accepted that e-banking can be separated into two streams: one is e-money products, mainly in the form of stored value products, the other is electronic delivery channel products or access products. The latter are products that allow consumers to use electronic means of communication to access conventional payment services, for example, use of a standard personal computer and a computer network such as the Internet to make a credit card payment or to transmit instructions to make funds transfers between bank accounts. The significant novel feature of these access schemes is the communication method and so they do not raise the same concerns as e-money schemes and are not considered further in this article. As e-money is still at the early stage of development, there is still no unified definition of e-money. Different person even different bodies have described and categorized e-money products in different ways. The European Commission defined electronic money in its Draft Directive as: a. Stored electronically on an electronic device such as a chip card or a computer memory; b. Accepted as means of payment by undertakings other than the issuing institution;

c. Generated in order to be put at the disposal of users to serve as an electronic surrogate for coins and banknotes; and d. Generated for the purpose of effecting electronic transfers of limited value payments. The Consumer Advisory Board of the Federal Reserve Board of the USA described that e-money is money that moves electronically. It can be carried on the persons in the form of a smart card or stored-value cards or electronic wallets. It can be used at the point of sale or it can be used person-to-person directly without the intervention of any outside entity. It can be moved around or spent through telephone lines to banks or other provides or issuers. It can also be moved around or spent through links with interactive cable television and personal computers. From the above definition and description, we can conclude that e-money is a "storedvalue" or "prepaid" payment mechanism in which a record of the funds or "value" available to a consumer is stored on an electronic device in the consumer's possession. The electronic value is purchased by the consumer and is reduced whenever it is transferred directly to other devices, or the consumer uses the device to make purchases via point of sale terminals or over open computer networks such as the Internet. In contrast to the many existing single-purpose prepaid card schemes (such as prepaid telephone cards), e-money products are intended to be used as a general, multipurpose means of payment. It is clear that e-money includes both prepaid cards (sometimes called "smart cards" or "electronic purses") and prepaid software products that use computer networks such as the Internet (sometimes referred to as "digital cash"). The most common emoney products are card-based products, industry leaders in this sector being Mondex and VISA Cash. While the Dutch company Digicash first pioneered the software approach. There have been dozens of other e-money products and systems introduced to the public, such as CyberCash, Millicent, Proton, PayPal, eMoneyMail, BillPoint, Payme.com, PayTrust and Propay. Although each of them has some different features, they can be included in the above-said two general categories. While each of these products are efficient and innovative, however, so far, most have attracted customers only in limited consumer and business applications. So, I would like to describe below briefly how the major e-money products work. Mondex was initially invented in 1990 and based in London, it is currently under development in more than 75 countries around the world. It contains a microprocessor chip that could hold and transfer electronic value. By utilising bearer certificates, funds deposited are remotely stored on the users actual card, which is not linked to any central account. In addition, the electronic wallet that accompanied the card allows the value on the card to be transferred from person-to-person indefinitely without any central verification or clearing requirement, making it the closest in operation to real cash. It also has the additional ability to store the recent payment history. The Visa Cash is similar to Mondex. However Visa Cash payments are routed through a central facility and cannot be transferred from card to card with the same degree of ease. One major point in its favour is its appeal to banks as it allows them to

earn float income, therefore Visa Cash is more attractive from a purely commercial point of view. The Digicash Company was based in the Netherlands after being established in 1990 by David Chaum. The e-money product of the company was called "eCash". To use eCash, an account should be established at a DigiCash-licensed bank with real money. Once established, the customer can withdraw eCash that is stored on the user computer's hard drive. Using proprietary software, eCash can be spent with an Internet merchant or with anyone else whose computer is set up to deal in eCash. However all such transactions must be made through an intermediary bank. One of the cornerstones of the Digicash system is its insistence on the maintenance of privacy. The system uses "blind signatures" as the way for the issuing bank to certify each token it issues. The actual process requires the customer, not the bank, to generate the eCash token. The customer creates blank tokens and forwards them (hidden in a digital envelope) to the bank for certification. The bank stamps its signature on each token, debits the customers account and sends the token back over the Internet. So the digital tokens can be registered and verified by the issuer without revealing to whom it was originally issued. In effect, these digital cash transactions are capable of being as anonymous as cash. Because the system is software based, it is therefore relatively easy to duplicate certified eCash tokens. Therefore to guard against this, any eCash presented for payment is crosschecked with the central registrar to ensure it has not already been spent. It seems it is impractical for most merchants and customers and this has limited its application in the market. With regard to their potential use and growth, card-based products are being designed to facilitate small-value payments in face-to-face retail transactions and would therefore constitute a close substitute for banknotes and coin. While software-based schemes would be used to make remote payments over computer networks, primarily the Internet. They are likely to substitute for both cash and, to some extent, other cashless payment instruments such as cheques and funds transfers. 3. The key features of e-money In general, e-money should be characterized as a substitute for currency. As mentioned above, it is a replacement for currency as well as other payment mechanisms such as checks, credit cards, traveler's checks, and debit cards. The key features of e-money are as follows: Firstly, e-money value is stored electronically on an electronic device, although different products differ in their technical implementation. To store the prepaid value, card-based schemes involve a specialised and portable computer hardware device, typically a microprocessor chip embedded in a plastic card, while software-based schemes use specialised software installed on a standard personal computer. Secondly, e-money value is transferred electronically in different ways. Some emoney schemes allow transfers of electronic balances directly from one consumer to another without any involvement of a third party such as the issuer of the electronic value. More usually, the only payments allowed are those from consumers to merchants, and the merchants in turn have to redeem the value recorded.

Thirdly, related to transferability is the extent to which transactions are recorded. Most schemes register some details of transactions between consumers and merchants in a central database, which could then be monitored. In cases where direct consumerto-consumer transactions are allowed, these can only be recorded on consumers' own storage devices and can be monitored centrally only when the consumer contacts the e-money scheme operator. Fourthly, the number of participants and parties functionally involved in e-money transactions tends to be greater than in conventional transactions. Typically, four types of service provider will be involved in the operation of an e-money scheme: the issuers of the e-money value, the network operators, the vendors of specialised hardware and software and the clearers of e-money transactions. The issuers are the most important providers, while the network operators and vendors only supply technical services, and clearing institutions are typically banks or specialised bankowned companies that provide a service that is no different from that provided for other cashless payment instruments. Finally, technical hitches and human errors may hinder or prevent the execution of a transaction to a degree not commonly experienced in relation to paper based transactions. 4. The impacts of e-money on banks Electronic payment media are likely to figure importantly in the development of electronic commerce, and retail electronic banking services and products, including emoney, could provide significant new opportunities for banks. E-banking and emoney may allow banks to expand their markets for traditional deposit-taking and credit extension activities, and to offer new products and services or strengthen their competitive position in offering existing payment services. In addition, e-banking and e-money could reduce operating costs for banks. More broadly, the continued development of e-banking and e-money may contribute to improving the efficiency of the banking and payment system and to reducing the cost of retail transactions nationally and internationally. This could potentially result in gains in productivity and economic welfare. It is estimated that an ATM transaction costs about $0.27, a teller generated transaction in a financial institution costs about $1.07, and the average cost of swiping a credit card ranges from $0.08 to $0.15. While the cost of dipping a smart card, which requires no closed proprietary or open network to transmit its electrons from chip to chip, is less than $0.01, it is widely believed that software-based transactions will cost even less. Moreover, banks pay for their ATMs, and consumers pay for their PCs. In addition, e-banks are easy to set up so lots of new entrants will arrive. Old-world systems, cultures and structures will not encumber these new entrants. Instead, they will be adaptable and responsive. Therefore, e-banking gives consumers much more choice. Consumers and merchants may be able to increase the efficiency and enjoy greater convenience. E-money may also increase access to the financial system for consumers who have previously found access limited.

However, the development of e-banking and e-money is also a new challenge to traditional banks. As mentioned above, e-money transactions are much cheaper than ever. This could turn yesterdays competitive advantage (a large branch network) into a comparative disadvantage, allowing e-banks to undercut bricks-and-mortar banks. On the other hand, e-banking will lead to an erosion of the endowment effect currently enjoyed by the major traditional banks. Deposits will go elsewhere with the consequence that these banks will have to fight to regain and retain their customer base. This will increase their cost of funds, possibly making their business less viable. Lost revenue may even result in these banks taking more risks to breach the gap. Portal providers are likely to attract the most significant share of banking profits. Furthermore, the e-money products will be provided by monolines, experts in their field. Traditional banks may simply be left with payment and settlement business, even this could be cast into doubt. Traditional banks will find it difficult to evolve. Not only will they be unable to make acquisitions for cash as opposed to being able to offer shares, they will be unable to obtain additional capital from the stock market. This is in contrast to the situation for Internet firms for whom it seems relatively easy to attract investment.
III. Legal issues on issuing and using e-money

1. Security

Security issues are a major source of concern for everyone both inside and outside the banking industry. E-money increases security risks, potentially exposing hitherto isolated systems to open and risky environments. All retail payment systems themselves are vulnerable in some way, e-money products raise some more issues such as authentication and non-repudiation, integrity and privacy. Security breaches could occur at the level of the consumer, the merchant or the issuer, and could involve attempts to steal consumer or merchant devices, to create fraudulent devices or messages that are accepted as genuine, to alter data stored on or contained in messages transmitted between devices, or to alter the software functions of a product. Security attacks would most likely be for financial gain, but could also aim to disrupt the system. Security breaches essentially fall into three categories: breaches with serious criminal intent (e.g. fraud, theft of commercially sensitive or financial information), breaches by casual hackers (e.g. defacement of web sites or denial of service - causing web sites to crash), and flaws in systems design and/or set up leading to security breaches (e.g. genuine users seeing / being able to transact on other users accounts). All of these threats have potentially serious financial, legal and reputational implications. Therefore, it is crucial important to assess whether the institution's proposed system is sound and the service provided through the Internet will have adequate security. Surely there no absolute security exists in either the electronic or physical world of banking. However, the level of security should be "fit for purpose". The fundamental objectives that security arrangements of e-money products should try to achieve are to:

restrict access to the system to those users who are authorised; authenticate the identity and authority of the parties concerned to ensure the enforceability of transactions conducted through the internet;

maintain the secrecy of information while it is in passage over the communications network; ensure that the data has not been modified either accidentally or fraudulently while in passage over the network; and prevent unauthorised access to the bank's central computer system and database.

There are specific security features available to protect e-money products, which are perceived to lie in the use of encryption, electronic signatures and, in some cases, in certificates issued by third parties, known as Trusted Third Parties (TTPs). A key safeguard for card-based schemes is to make the microchip embedded in the card tamper-resistant. A critical safeguard for both card-based and software-based schemes is the encryption technology used to authenticate e-money devices and messages and to protect data on the devices from unauthorised alteration. Maximum limits on the amount that can be held on emoney devices and on the transaction value can play an important role in containing losses in the event of a security breach. The use of all kinds of security tools can provide security that is comparable to that offered in physical transactions. However, as with a physical transaction, the effectiveness of such measures is largely dependent on their proper implementation and the establishment of a set of comprehensive policies and procedures that are rigorously enforced. Continuing developments in security technology are required to maintain the effectiveness of security measures on an ongoing basis as new threats to existing systems arise over time. Banks should accordingly be responsible for ensuring that they keep up with such developments on a continuing basis. Unless they do this, their existing security measures may quickly become obsolete. If security breaches arise from this, it would not only expose the banks to risk of loss, but also more generally undermine the confidence of their customers. All the evidence suggests that security is very much at the forefront of customers' minds in deciding whether to use this new medium.
1. Privacy

As mentioned above, sound practice requires the ability to track and verify that the proper exchanges occur which ensuring that only authenticated parties and payment mechanisms are involved in the exchange, and that they exchange only those items for which they are authorized. However, consumers may fear that their financial, credit and spending information derived from e-money transactions or products could be used without their knowledge or permission. And these fears will be widespread and strongly held when e-banking and the use of e-money becomes more widespread. With the growth of e-money, the spread of crime is likely to accompany the vastly increased storage and transmission of customer financial information. Therefore, many parties want the option of anonymous financial transactions. However, it is difficult to be widely accepted due to security concerns and money laundering. Even so, to achieve widespread confidence, all participants in the system such as banks, other issuers, consumers and merchants, must have certain basic information about the rules governing the use of e-money products. The consumer must be guaranteed that any information exchanged will be transmitted only to properly authenticated parties and only to the extent to which they are authorized to receive the information.
2. Legal risks

Other than the above-said security and privacy concerns, there are also some legal risks surrounding e-money. Legal risk arises from violation of laws, regulations or prescribed practices, such as money laundering, customer disclosures, privacy protection, etc. Legal risk may also arise when the legal rights and obligations of parties are not well established. The contractual and legal relationships between consumers, retailers, issuers and operators might be complex. Schemes differ as to when payment is final and also as to whether the consumer or the merchant bears the credit, settlement and other risks until settlement has occurred. A major concern is whether the rights and obligations of all the parties involved are certain and transparent. For example, issues could arise regarding liability in the event of fraud, counterfeiting, accident or the default of one or more of the participants.
I. Legal issues on regulating e-money

Traditionally, central banks have four duties: they manage monetary policy, they supervise the payment system, they promulgate regulations, and, in many countries, they supervise the banking system as a whole. Each of these roles is going to be affected by the development of e-money to some extent. Main issues are related to the operation of monetary policy, seigniorage, their oversight function for payment systems and the possible financial risks borne by issuers of e-money. There are also a range of other policy issues such as consumer protection, competition, access and standards. Some of these issues are overlapped, so I would like to discuss some key concern as follows.
1. Do e-money products affect the monetary policy?

The answer is obvious. The introduction of e-money could potentially have an effect on the demand for monetary aggregates and on the formulation of monetary policy. The effects of e-money on the implementation of monetary policy will depend upon whether its primary impact is on the demand for bank reserves or on the central banks capacity to supply these reserves. The most important development in connection with e-money is a reduction in the demand for cash. As cash circulation is a lever by which central banks can control the money and credit expansion of private banks and hence provide some more monetary stability, it is conceivable that a very extensive substitution could complicate the operating procedures used by central banks to set money market interest rates. However, since e-money is expected to substitute mostly for cash rather than deposits, operating techniques need not to be adjusted significantly. On the other hand, with emoney transaction, the whole process including clearing can be carried out in a matter of seconds. Such an acceleration in the circulation rate amounts to an increase in the quantity of money, and increased money circulation could lead to increased inflation. The effect on supply would result from the impact of e-money on the size of central bank balance sheets, which will depend on the extent that e-money substitutes for cash. Since cash is a large or the largest component of central bank liabilities in many countries, a very extensive spread of e-money could shrink central bank balance sheets significantly. Since banknotes in circulation represent non-interest-bearing central bank liabilities, a substitution of e-money for cash would lead to a corresponding decline in central bank asset holdings and the interest earned on these assets that constitutes central bank seigniorage revenue. And these revenues are large

relative to central bank operating costs, as e-money developing, the revenues could be too small to cover the cost of central bank operations. In principle, central banks have several policy options to reduce the shrinkage of their balance sheets. Firstly, central banks could consider issuing e-money themselves, or issuing e-money without actually operating e-money schemes themselves thus to encourage competition and incentives to innovate. Secondly, central banks could expand the coverage of reserve requirements to cover e-money or other liabilities, and governments could grant the central banks the exclusive right to own and operate the electronic payments network. Thirdly, central banks could issue new liabilities, such as central bank bills, or pay interest on reserve balances in order to induce private banks to hold larger deposits at the central bank. Government entities might also be induced to increase their deposits at the central bank. Finally, as an alternative to these measures, central banks might rely on off-balance-sheet transactions and, in the case of large lender of last resort operations, use private banks as their agents. Furthermore, governments could levy transactions taxes on the use of e-money by charging a tax at the time of issue.
2. Who may issue and distribute e-money products?

With respect to the general regulatory approaches, an important consideration is whether e-money fits within traditional product categories and hence is covered by existing product regulations. For example, if it is decided that e-money balances are a form of deposit, any existing regulations concerning deposits are likely to apply. However, even in this case there may be a need to review the regulatory approach, for it does not necessarily follow that the existing regulations will be the most appropriate for e-money schemes. Who can be allowed (or will be allowed) to issue e-money? There are several possible types of issuer: banks (credit or deposit-taking institutions, defined differently in different countries), other regulated non-bank financial institutions and non-financial institutions. The latter two categories of institution are typically subject to less regulatory oversight than banks. Different countries adopt different opinions on this point. In the European Union, the European Commissions stated aim was on the one hand to ensure the stability and soundness of issuers of e-money, while on the other hand ensuring that the failure of one individual issuer does not materially impact on the development of such a means of payment. The proposed framework was thus tailored to the specific nature of e-money services, and to some extent designed to encourage new players to enter the market. The 1994 Report of the European Monetary Institution (EMI) on EU Payment Systems first concerned pre-paid cards such as Mondex and Visa Cash, it concluded that e-money issuance should be restricted only to credit institutions as defined by the First and Second Banking Directives with the resultant effect of precluding non-banks. Its conclusions were almost mirrored by the further opinion of the EMI Council on the issuance of e-money published in its 1997 annual report, which also concerned software-based e-money systems. In the 1997 report, it stated that: "The funds collected in exchange for electronic money are redeemable by nature, and [such] issuers should be subject to minimum requirements regardless of their status as credit institutions."

The European Commission published the Proposed Electronic Money Directive in 1998. One of the most important parts of the proposal concerns the plan to amend the definition of credit institution in the First Banking Directive to allow non-banking institutions to issue e-money. Article 4 of the proposed directive sets down limits as to what investments e-money issuers can make with the funds they hold in the "float", all of which are all highly liquid ultra low risk rated. However, the European Council Economic and Social Committee obviously took the view that it was more important to protect consumers and maintain prudential standards, than to open the market place to the largest number of participants possible. In the United States, it appears that under current state and federal laws, entities other than depository institutions may issue e-money. On May 2, 1996, the Board of Governors of the Federal Reserve published proposed amendments to modify Regulation Es requirements on stored value cards. However, Congress, in an amendment to the 1997 appropriations bill, directed the Federal Reserve to hold off regulating stored value cards under Regulation E for at least nine months, while it studies the impact regulation could have on development. And on August 2, 1996, the FDIC issued a legal opinion indicating that most stored value cards do not qualify for deposit insurance. Hong Kong is one of the jurisdictions around the world that has chosen to put in place a specific legal framework to deal with the issuance of e-money. This is contained in the Banking Ordinance. The thinking behind the legislation was that the issuance of multi-purpose stored value cards such as Mondex and Visa Cash is an activity akin to the taking of deposits or the issuance of bank notes, and should be confined to licensed banks. On the other hand, non-banks are allowed to issue limited purpose cards which would have a distinct core use, such as payment for transport services, but could also be used for a restricted range of ancillary or incidental purposes. There is provision for the issuers of such cards to be licensed as a special type of deposittaking company under the Banking Ordinance. If the range of non-core uses is very limited, it can be exempted altogether. Most of other governments do not generally allow anyone but governmental entities to create money. While private entities are able to create and distribute substitute money products such as travellers checks, generally, they are viewed as special purpose instruments and are not used in the same frequency, volume or scale as traditional money. As to the issuance of e-money, it seems that no definitive decision has been reached. It seems it is a controversial issue. It is difficult and premature to conclude that which model is more appreciate to the development of e-money. In any country, if issuance of e-money is limited to banks, the regulatory framework already in place can be extended to cover the new products but competition and innovation might be more limited. In contrast, if a greater variety of institutions can be issuers, a greater degree of competition could yield commensurate benefits but a number of regulatory issues may be left unresolved. For regulators one key danger is a failure to understand changing risk profiles and vulnerability of individual firms and also changes to market structures and interactions. Regulators must identify, assess, control and monitor the risks associated with e-money. A key issue for central banks is the degree of risk that might be acceptable. This would partly depend on the risk that it would be appropriate

for an individual institution to bear. Another consideration would be whether the failure of one participant was likely to threaten the viability of the whole scheme or whether the failure of one scheme could threaten the viability of other schemes or the reputation of electronic payment systems more generally. The speed of the Internet considerably cuts the optimal response times for both banks and regulators to any incident. Therefore, it is not very important whether issuance of e-money should be limited to banks, it is important that issuance of e-money should be regulated, and issuers must have a comprehensive risk management process which is subject to oversight by central bank. It is essential to regulate not just who can issue e-money but also the types of e-money product that can be offered. For example, restrictions might be placed on the maximum value that consumers and retailers are allowed to hold or on user-to-user transactions, or scheme operators might be required to monitor transactions.
3. Clearing and settlement as well as liquidity and stability issues

Virtually all e-money schemes under development will need inter-institution clearing and settlement arrangements. Many e-money schemes plan to use existing interbank arrangements. Those clearing agents usually require each issuer to maintain an adequate balance between e-money outstanding and the chosen reserve backing. However, if there is a sudden increase in demand for redemption of e-money, it may be a serious problem for the issuer. If public perceives liquidity problems there may be a more widespread withdrawal of deposits or redemption of e-money. Failure to meet redemption demands in a timely manner could also lead to reputation damage. Therefore, regulations and monitoring system on clearing and redemption may be necessary for smooth operation as they provide a safeguard against over-issuance. Other than reserve requirement, issuers should also be required to invest funds in liquid assets and conduct regular and comprehensive audits. Moreover, operators and overseers of interbank clearing and settlement systems need to ensure that such systems are sufficiently robust in terms of institutional and operational arrangements, risk management and settlement procedures. Because e-money allows a transaction to clear almost instantaneously, diligence is required to account for electronic cash and track redemption patterns. In addition, some schemes might offer e-money in more than one currency, which might, for example, make it more difficult for central banks to measure accurately the stock of e-money denominated in the home currency. Many e-money schemes are being developed on the basis of technology or procedures developed in foreign countries by, for example, large international payment card companies. A concern may be how the public authorities can obtain detailed and precise information about the products or schemes being promoted in their country by foreign vendors, and how they might be able to influence individual schemes in the light of their particular domestic concerns.
4. Fighting improper use of e-money

There are some improper uses of cash which likewise can be replicated by e-money. These include illicit uses, such as transactions in black markets and illegal

transactions. Thus, time, attention, and resources may need to be committed to the control and prevention of such serious threats as deception, fraud, embezzlement, and money laundering. Moreover, many of the features relevant to the security of e-money may increase its attractiveness for money laundering and other criminal activities. Its use for such purposes would depend upon the extent to which e-money balances can be transferred without interaction with the system operator, the maximum amount that can be held on an e-money device and its record-keeping capacity, and the ease with which e-money can be moved across borders. Some argue that the interest and activities of governments in fighting money laundering is directly contrary to the interest and activities of those seeking to develop anonymous digital commerce and emoney. The UN, G7, EU and a host of supra-national bodies have called for coordinated action on stamping out dirty money, and there are over 100 States that either have or are considering the criminalisation of money laundering. These include the tax havens of Europe, the Carribbean and the South Pacific. It is required that financial institutions should "know your customer" (which includes an explicit prohibition of anonymous accounts) and to report "suspicious" transactions. The European Council Economic and Social Committee felt that card-based e-money and software-based e-money should be regulated separately. This was justified principally by the greater implications for money laundering and fraud presented by the softwarebased e-money that can be used to transfer any amount, compared to the small transactions carried out using prepaid cards. The Committee proposed that much more stringent regulations be applied to software money issuers. Therefore, governments should review the basic legal concepts that define banking and their methods for preventing fraud and unlicensed banking activity. Moreover, because electronic information that is transacted on the Internet shows little respect for national borders, these issues likely will require the coordinated attention of authorities in various countries.
5. International co-operation

As mentioned above, e-money products are based on technology that by its nature is designed to extend the geographic reach of banks and customers. When e-money payments are made across borders (particularly with software-based schemes that operate over computer networks), it may be difficult to establish to what extent e-money schemes fall within the scope of particular jurisdictions. Supervision in todays global environment can only ever be effective if it has an international dimension. Of course, regulators have already had to deal with the regulatory problems of international banking for a long time. They had set up mechanisms for cross-border supervision; agreements over home/host responsibilities, bilateral agreement for information sharing and general standards by which they expect all banks, including those offshore territories, to abide. However, it is dangerous to expect that this general mechanism for international supervision will be robust enough to work just as well in the e-banking as the physical environment. They should do more. The Basel Committee E-Banking Group believes that Basel should provide the international supervisory community with a broad set of advisory guidance with respect to e-banking, thereby providing a basis for domestic regulation and supporting consumer and industry education. Globally, such guidance would assist international co-operation and act as a foundation for a coherent approach to supervising e-banking and e-money. It could facilitate international e-banking and e-money by creating consumer confidence in sound banks based

in different, possibly less satisfactory, regimes and might dissuade host supervisors from imposing additional, potentially draconian, regulation on such banks. The Group identified authorisation, prudential standards, transparency, privacy, money laundering, and cross border supervision as issues on which they felt that there is need for further work, both at the analytical and policy level before any such guidance could be developed.
I. Conclusion

Designing an appropriate regulatory framework for e-money involves balancing different objectives including the system stability and security, financial integrity of the issuers, protection of consumers and the promotion of competition and innovation. Therefore, in general, the framework should be e-neutral. However, at the early stage, without any successful experience, authorisation and supervisory regime for e-banking and e-money would be similar to that for conventional banking service and products, just as HK has adopted, and it should be adjusted and readjusted following the development of e-money. Regulatory authorities also face a choice concerning the timing of the introduction of any possible regulatory measures. On the one hand, establishing a comprehensive regulatory framework at an early stage would risk stifling innovation. Although Greenspan, the chairman of the Federal Reserve Board of the USA, recognized that in the current period of change and market uncertainty, there may be a natural temptation for the regulators and a natural desire on the part of some market participants, to have the government step in and resolve the uncertainty, through standards, regulation, or other government policies, he still stressed that as financial systems become more complex, detailed rules and standards have become both burdensome and ineffective, if not counterproductive. He argued that if we wished to foster financial innovation, we must be careful not to impose rules that inhibit it. To develop new forms of payment, the private sector will need the flexibility to experiment, without broad interference by the government. Hence, in the earlier period, industry participants may find that self-policing is in their best interest. However, on the other hand, there may be a risk that the overall cost of regulation will be significantly higher were there to be a substantial delay in implementing measures that ultimately prove necessary, and existing regulatory framework could somehow inhibit desirable innovations by not adapting quickly enough. As Mr. Padoa Schioppa, of the Bank of Italy, has said, "the road to define a new institutional model must be different from the ones adapted in the past. At the beginning of this century, an agreement on how to manage a monetary system based on currency and deposits was only reached after a financial and monetary crisis. It would be extremely dangerous to pass through a similar learning process today, not least because payment systems in the industrialised world would amplify the problems of any single market operator, diffusing its effects to the whole economy". It is true that the regulation and supervision of e-banking and e-money is still at an early stage, like the product itself, and is still evolving. However, governments should not therefore adopt a wait and see approach towards legislating for it, which is especially true if you agree with the somewhat extreme view of David Saxton who claims "Digital cash is a threat to every government on this planet who wants to manage his own currency" Reference:

1. Thomas P. Vartanian, The Future of Electronic Payments: Roadblocks and Emerging Practices, available at http://www.ffhsj.com/bancmail//bmarts/roadblck.htm 2. Thomas P. Vartanian, Key Question for Emerging Systems: Where is the Money?, Am. Banker, June 17, 1996, available in 1996 WL 5565107. 3. Thomas P. Vartanian, The Emerging Law of Cyberbanking: Dealing Effectively with the New World of Electronic Banking & Bank Card Innovations, available at http://www.ffhsj.com/bancmail/tpvcon.htm 4. Andreas Furche & Graham Wrightson, Computer Money: a Systematic Overview of Electronic Payment Systems, dpunkt, 1996 5. DICKIE, Internet and Electronic Commerce Law in the European Union, Hart Publishing, Oxford, 1999 6. Alan L Tyree, Virtual Cash Payments on the Internet, (1996) 7 Journal of Banking & Finance Law and Practice, 35, 139, 233 7. Alan L Tyree, Smart Card, (1995) 6 Journal of Banking & Finance Law and Practice, 297 8. The Federal Reserve Bank of Minneapolis, The History of Money, available at http://woodrow.mpls.frb.fed.us/econed/curric/history.html 9. Craig D Manson, Electronic Money And its Legal Implications Within The UK, available at http://www.electronic-money.co.uk/Diss2.htm 10. Olivier Hance and Suzan Dionne Balz, The New Virtual Money: Law and Practice, 423 Kluwer Law 1999 11. BIS Publications, Risk Management for Electronic Banking and Electronic Money Activities, March 1998, available at http://www.bis.org/publ/bcbs35.htm 12. Juergen Seitz and Eberhard Stickel, Internet Banking - An Overview, available at http://www.arraydev.com/commerce/JIBC/9801-8.htm 13. M Stathopoulos, Modern Techniques for Financial Transactions and their Effects on Currency: General and National Reports, Kluwer Law International (1995) 1 14. Randall W. Sifers, Regulating Electronic Money in Small-Value Payment Systems: Telecommunications Law as a Regulatory Model, available at http://www.taxil.org/emoney.htm 15. OLUJOK E AKINDEMOWO, The Fading Rustle, Chink and Jungle: Electronic Value and the Concept of Money, UNSW Law Journal, available at http://www.law.unsw.edu.au/unswlj/ecommerce/akindemowo.html 16. 2 Furash & Company, Banking's Role in Tomorrow's Payment System Overview 1, 29 (1994) 17. Carol Sergeant, E BANKING: RISKS AND RESPONSES, available at http://www.fsa.gov.uk/pubs/speeches/sp46.html 18. David Carse, The Regulatory Framework of E-banking, available at http://www.info.gov.hk/hkma/eng/speeches/speechs/david/speech_081099b.htm 19. Kelly Holland and Amy Cortese, The Future of Money, Business Week, June 1995 20. Loretta J. Mester, The Changing Nature of the Payments System: Should New Players Mean New Rules, Bus. Rev. (Fed. Res. Bank of Philadelphia), March/April 2000 21. D Stewart, The Future of Digital Cash on the Internet, J.I.B.C. available at http://www.arraydev.com/commerce/JIBC/9703-02.htm 22. HICKEY, E-commerce: Law, Business and Tax Planning, Jordans, Bristol, 2000 23. Robert Hettinga, Internet Banking and Commerce: Security, available at http://www.arraydev.com/commerce/JIBC/9601-2.htm 24. Alan Greenspan, Regulating Electronic Money, available at http://cato.org/pubs/policy_report/cpr-19n2-1.html 25. Mauro Cipparone, The Role of the Central Bank in the Growing Industry of Internet Payments, available at http://www.arraydev.com/commerce/JIBC/9605-6.htm Reference: http://lawyer.20m.com/English/articles/e-money.htm

THE IMPACT OF ELECTRONIC BANKING TO THE BANKING SECTOR ANDTHE PUBLICA PROJECT SUBMITTED BY:ADAM TEMITOPE AMINATSUBMITTED TO:THE DEPARTMENT OF ACCOUNTING, THE POLYTECHNIC, ILE-IFE, OSUNSTATEIN PARTIAL FULFILMENT FOR THE AWARD OF NATIONAL DIPLOMA INACCOUNTANCY, THE POLYTECHNIC, ILE-IFE, OSUN STATE.AUGUST 2009TABLE OF CONTENTTITLE PAGECERTIFICATIONDEDICATIONACKNOWLEDGEMENTABSTRACTCHAPTER ONE1.0 INTRODUCTION1.1 HISTORY BACKGROUND OF ELECTRONIC BANKING1.2 STATEMENT OF THE PROBLEM1.3 OBJECTIVE OF STUDY1.4 SIGNIFICANCE OF THE STUDY1.5 SCOPE OF THE STUDY1.6 LIMITATION OF THE STUDY1.7 DEFINATION OF TERMCHAPTER TWO2.0 LITERATURE REVIEW2.1 INTRODUCTION2.2 MEANING OF ELECTRONIC BANKING 2.3 POSITIVE EFFECT OF ELECTRONIC BANKING2.4 NEGATIVE EFFECT OF ELECTRONIC BANKING2.5 ELECTRONIC BANKING PRODUCT AND THEIR GLOBAL DIFFUSSION2.6 THE NIGERIA ECONOMY2.7 INTER-RELATIONSHIP BETWEEN ELECTRONIC BANKING AND THE NIGERIA ECONOMYCHAPTER THREE3.0 RESEARCH METHODOLOGY3.1 POPULATION OF THE VARIABLES3.2 SAMPLE AND SAMPLE DESIGN3.3 SOURCES OF DATA COLLECTIONCHAPTER FOUR 4.0 DATA ANALYSIS AND INTERPRETATION4.1 INTRODUCTION4.2 DATA ANALYSIS4.3 DATA PRESENTATION4.4 DATA INTERPRESENTATIONCHAPTER FIVE5.0 SUMMARY, CONCLUSION AND RECOMMENDATION5.1 SUMMARY5.2 CONCLUSION5.3 RECOMMENDATIONREFERENCECERTIFICATIONThe research project submitted by ADAM TEMITOPE AMINAT has been carefullysupervised, read, approved and accepted by the Department of Accountancy. As havingsatisfied one of the necessary requirement for the Award of National Diploma (ND) inthe school of management science. The Polytechnic, Ile-Ife, Osun State, Nigeria.----------------------------- ----------------------------MR. ALONGE DATEProject Supervisor ------------------------------ ----------------------------MR JUNAID ADEWALE DATE---------------------------------- ----------------------------ADAM TEMITOPE AMINAT DATEThe Researcher DEDICATIONThe project is especially dedicated to Almighty Allah who sustained me through mycourse of study.Also, I dedicated this project to my mummy Mrs. Fatimah Adam for her care bothfinancially, morally and even through out my academic session, May Almighty Allah bewith you (Amen). And also dedicated to my Grand parent and my brother Adam Ibrahim.May you all rest in perfect peace (Amen).ACKNOWLEDGEMENTExcept God build the house, the builder & building in vain. From the bottom of my heartI give glory, Honor and Adoration unto Almighty God, who has been my fountain of wisdom and knowledge from the beginning till end of my time of course of study.My special

thanks go to my jewel, the dearest mummy to my heart, whom through Godwith her immeasurable effort this dream has been made a reality, my dearest mother,Mrs. Fatimah Adam. I want to say I love you mummy and I will forever love you, I praythat you shall live long to eat the fruit of your labor in abundance (Amen). Mummy youare one in a billion, I cant stop saying (I LOVE YOU MUMMY) I shall not butappreciate you too DADDY Mr. ADAM IBRAHIM. I also want to thank my wonderful brother and sisters especially my aunty Mrs. AMINAT YUSUF (Amuda) for her caringsince. I will ever remain grateful to you Aunty, Also to Mrs. Hawau... Mr. BANNAIBRAHIM, IBRAHIM YAYA, ADAM ABUBAKHARI, ADAM ABDURAMAN and tomy angel Miss MARRIAM ABDULLAHI, MR. MUDASHIRU OYEWALE,BARRISTER PEJU MADUGU.I will be an ingrate if I refuse to thank MUMMY & DADDY for your encouragement &your financial supports ALHAJI G.O. OYEWALE and ALHAJA S.M. OYEWALE youare a wonderful parent. I will forever remain grateful. Not only will I thank but also give a big kudos to my project supervisor in person of MR ALONGE who created time out of his busy schedule to correct and recommenddifferent solution to this project work. May almighty God bless you and your family sir (Amen). Also to my special lecturer like: my HOD MR JUNAID ADEWALE, MR G.O.LAWAL, MR R.O. OKOBE, MR. T.O. SIYANBOLA, MR S.K. FASHOLA For their intellectual and academic support.They say a friend in need is a friend in indeed, that is why this page is incomplete shouldI fail to express my sincere gratitude to friends like MISS HALIMA OYENIKEOYEWALE, MISS AYISAT OYEWALE, MISS HALIMA ABDUSALAM (Afin) andother friend like TEWOGBADE BUKOLA, OYINLOYE MUHAMMED SAEED, NWOKO CHEELOZIE JOEL (Dozie) MISS ADEKEMI R. AMUO, MISSOMOBOLALE, VICTOR AND HIS BROTHERS and others who are toonumerous to mention. I confidently say you are all wonderful and your love will ever linger in my memory.My appreciation also goes to MR. BAMIDELE OYEKANMI; I affectionately say I loveyou and that I cherish the fact that I love you so much for your maximum financesupport. Also to MR. EBENIZER AYEOKERE (Temi) for your encouragement andsupport you will forever remain in my heart, I love you.And conclusively to all who have in one way or the other to contributed to transformingthis wish into an accomplishment, I sincerely say I love you all once again E SE PUPOABSTRACTMy interest of choosing this topic Electronic Banking and it impact to Nigeria Bankingsector and the general public is not for the simple reason that banking and the public are asensitive sector of the economy and this has taking a new dimension. It is know fact thatthe industry constitutes the string that builds every sector of the economy. The recordedrate in the industry has been put behind us with the emergence of sophistication. Thesuccessful execution of the pilot test of Electronic Bank such

as smart card, InternetATM etc, is a step they will help redirect peoples interest into the industry. What we arewitnessing is a serious revolution calculated toward remodifying the once-upon a timearm char banking.The project has package that run to five chapters. The first chapter contains introductionto the researchs topic. Being a new phenomenas in this part of the world, core was takenas illuminate comprehensively on what Electronic Banking is all about. The objective andscope of the project were critically analyze in such a way that a first time will understand.Chapter Two deal with literature review that is the meaning of Electronic Banking as wellas product of the scheme is also discuss in detail the advantage and disadvantage i.e.delimitation and limitation. Chapter Three deals with research methodology and my chapter four deals with analysisof data and Interpretation. Then a look was taken on the research design, the primary andsecondary sources of data determination of population reliability and validity.Acceptability of the scheme was also given due attention.Finally chapter Five deals with summary, conclusion and recommendation of the project.CHAPTER ONEINTRODUCTIONToday Electronic Banking System allows the customer to transact business from thecomfort of his office home or wherever he may be even whilst during traffic .He canaccess his bank account to make enquiries or to initiate a transaction.He can link up to a store or shop to order for goods ranging from a pizza to an Aircraft,Customer monitor and control his spending as much as he does card bearing systemwhich now exist to facilitate commercial transaction. It has eliminated long queen of customer before he could get service in the Banking hall or counter. This ElectronicBanking is a kind of Banking that involves Electronic form of money transaction.Banking services are fully automated such that transactions are automated in a simplifiedway. It also involves the use of computer networking in dispensing cash and transfer of fund. This innovation in the Banking industry came into existence in 1986 duringBabangida regime was introduced. When the structural Adjustment Program (SAP) thishas tremendously affected the Banking industry more than any other sector of theeconomy. It has not only changed the structure but also the content of banking business just as the number of Bank grew tremendously from the year 1925 to 1991. This increasehas equally brought a change in banking delivery the cheque and image of product in themarket. These changes have been described as revolutions while other as another Banking been comparable to what was witnessed in the fifties.True enough the volume of profit increased substantially at the early years of SAP butthis did not append by chance. This is because in the last decade, the old bank have beenchallenged by the ingenuity of the smaller ones e.g. strictly operational bank which wasthe first Bank to

adopt Electronic Banking in 1990 and other whose daily research andintroduction of new product or services, so as to meet the changing needs of their numerous customers.SAP (Structural Adjustment Program) has equally brought to a end the kind of Bankingservice rendered by the first generation of Banks which have been described as arm chair Banking. Electronic Banking is a neutral out of the international competition going on inthe market. I t was brought about by the effort of the Banks to introduce automation into banking system. This electronic Banking age has tended to replace the intensive labor operation and thishelps to reduce the waiting time of customer in the banking hall and bring to an end theera of mechanical and laborious banking.Meanwhile the introduction has played a vital role in Nigeria economy. It has place Nigerian in compliance world and brought an improvement to the technique.1.1 HISTORICAL BACKGROUND OF ELECTRONIC BANKINGElectronic Banking came into existence in the banking industry in 1986 duringBabangida regime when the SAP was introduced. This has tremendously affected theBanking industry more than any other sector of the economy. It has changed not only thestructure but also the content of the Banking business just as the number of banks grewtremendously from 40 in 1985 to 125 in 1991. This increase has equally brought changesin banking delivery techniques and image of product in the market. The changes have been described as revolution while other see them as another banking boom comparableto what was witnessed in decades.1.2 STATEMENT OF THE PROBLEMElectronic Banking is a means that describes the disciplines encompassing computer,telecommunication networks and multimedia application, It is also a kind of moneytransmission where banking services are fully automated such that the transaction areconcluded in jiffy, the process involves a lot of activities like acquiring the necessaryelectronic activities configuring an efficient computer network, installation of goodcommunication device, education of customer and member of staff of the bank, howelectronic banking is not yet generalized among the illiterate people etc. This will giveroom to question like what is electronic banking. How will it fit into operation system of the bank, what changes will it bring? What are the merit and demerit? What resources issharing and what networking?1.3 OBJECTIVE OF STUDYIf Electronic banking is to make an impact in the Nigeria market, the momentum has to be driven by banks; banks should therefore address the problem and try to overcomethem on behalf of their customers who are always seeking for a better bankingenvironment. In some instances, this may mean temporary supplying the necessaryequipment to enable their customers sample their opinion.1.4 SIGNIFICANCE OF THE STUDYElectronic Banking is a new level of study in Nigeria situation and title

research has beendone yet this really set a serious problem in finding materials needed expect via theinternet which is expensive and time consuming the study is essential in order to reducethe problem hindering banking development.1.5 SCOPE OF THE STUDY The research is basically on the paramount impact deducible on electronic banking in the Nigerian economic development and it is designed to cover various categories of employees in the bank.1.6 LIMITATION OF THE STUDYElectronic banking is limited to some certain factor in the fact that it is limited in Nigerian one but the product rendered by the electronic banking system can only be usedhere in Nigeria and not in other advance countries, this also involve asking of numerousquestion also this can easily aid fraud and other fraudulent practices.1.7 DEFINITION OF TERMELECTRONIC MAILThis is a land of Electronic whereby a customer sent his ELECTRONIC MAIL accountor address to the bank to transmit statement by electronic mail at specific period. Mostlyemployed for internal communication and it can be offered to customer through internet.IMAGE MACHINEThis is an electronic machine that is used for photographic and signatorys verificationsystem that permit the bank to automatically store the signature and photograph of anaccount holder.SMART CARDThis is a plastic device with an embedded old chip containing a processor and memorymodules which allows the card to store and process information. The smart card can beimplemented in a vanity of application including electronic purse credit and debit card.AUTOMATED TELLER MACHINE (ATM)This is a card dispense that enable a bank customer to carry out banking services withoutmeeting the cashier, the ATM customer slot in a plastic card and supplies all personalidentification in which the machine now supply the money.CHEQUE GUARANTYThis product provides additional comfort to parties receiving cheque from individual user so that a seller is guarantee payment by the issuing bank in the event of a defaultCHAPTER TWO2.0 LITERATURE REVIEW.2.1 INTRODUCTIONElectronic Banking is newly developed Banking system and it has a very great impact onthe economy situation of every nation. Electronic Banking system allows the customersto transact business from the comfort of his/her home or office and wherever he may be even while on traffic congestion. The customer can access their bank account to makeenquiries or to initiate a transaction.They can link up to a store or shop to order for goods ranging from smaller to bigger price. Also their spending rate can easily be monitor and control. This electronic bankingis a kind of banking system that involves electronic forms of money transaction. Bankingservices are fully automated such that every transaction are done with ease. This alsoinvolves the use of computer networking in dispensing cash and transfer of fund.2.2 MEANING OF ELECTRONIC BANKINGFRENZEL (1996)

defines electronic banking as the term that described the disciplineencompassing computer system, telecommunication networks and multimediaapplication. ALABA (1999) feels electronic banking is a kind of money transmission where bankingservice are fully automated such that the transaction are concluded in a jiffy. It involvesthe use of computer networking dispensing cash and transfer of funds.2.3 POSITIVE EFFECT OF ELECTRONIC BANKINGElectronic Banking has played very vital roles in the Nigerian Banking industries. Thoseroles are as follows: It enables the banks to operate for 24 hours through electronic banking. It enablesthe banks operate for 24 hours and also the customer to make withdrawal of money any time of the day. Reduction of mailing and delivery charges as those cost are transferred to thecustomer Bank branches can operate with loss personal with the introduction of electronic banking the bank are able to work with less workers (personnel) Support for branchless are universal banking electronic banking enables branchless bank to operate effectively with lesser cost. It makes it possible for the bank to keep pace with modern technology. Low business cost with the innovation of electronic banking the cost of businessis lesser than the cost of business without electronic banking also the cost of personnel employed by bank is lower.2.4 NEGATIVE EFFECT OF ELECTRONIC BANKINGHaving examined the positive impact of effect of electronic banking in the bankingindustry. It could not be considered as not posting some negative effect on the banks, thecustomer and society at large examined below are the disadvantages of electronic banking. Banks will likely loose their customers who are ignorant i.e. illiterate about theuse of mentioned product. It aids guide fraud and banking i.e. fraud can be easily operated in the newinnovation of electronic banking. Wide spread unemployment which could subsequently lead to some social vices.

2.5 ELECTRONIC BANKING PRODUCT AND THEIR GLOBAL DIFFUSSIONWhere a customer goes to the bank it is not easy to withdraw or deposit money or cash,sometimes all the need is information which include information on account balance andtransaction on account and unclear effect. Etc. with electronic banking customers servicesare rendered with in the shortest possible time below:COMPUTER BASED BANKINGAmong these innovations, we also have computer based banking which provides accessto banking services from personal computer located in customer home or office. Thecustomer establishes a dial up connection to the banks data base or connect through theinternet through a remote access server. Computer based banking also called such product as treasury and trade finance activities. The only thing that will help this systemto function is the convergence of telecommunication and computer technology.COMPUTER TELEPHONERecent developments in technology have made it possible the using of computer andtelecommunication and hence banking the time space barrier and announcing a distinctinnovation called computer telephone. This simply the integration of the computer andtelephone designed to convert test to both and vice versa. It is called telephone bankingthis service helps customer access banking service through telephone anywhere, anytimeand whatever manner they want it. All the customer requires is a telephone equipped withor without fax capability.2.6 THE NIGERIA ECONOMY Nigerian modern economy was created by Niger Royal Company of Britain which was a part of the colonial government, the nature of activities during the colonial period keptcapital for development of the hands of private sector through refusal of bank loan.Instance of being a recipient and disqualification from being a recipient. The Nigeriaeconomy is a great market for wily investor. The bank could consider what the economyis all about. The categories of people that make up an economy and how this innovationcan be of use to them. Nigeria economy consists of various sectors in which the bankingsector is one of it. The electronic banking promotes the growth experiencing by bankingthere by leading to innovation in the economy.2.7 INTER-RELATIONSHIP BETWEEN ELECTRONIC BANKING AND THE NIGERIA ECONOMYThe banking sector which is the main pivot of the real sector of the economy is attributedas the main pivot of any economy. Therefore the quality of service provided by thissector is any country will go a long way to affect the entire performance of that economyas a whole. The innovations in the banking sector will however, countrys economy in the below points: Technological development in the economy.

It will facilitate financial activities in the real sector of the economy i.e.household. It will encourage tourism from other countries that are short of funds can arrangefor fund transfer from their countries as fast as possible. It give rise to healthy competition among the banks thereby enabling theintroduction of customer oriental services.CHAPTER THREE3.0 RESEACH METHODOLOGYFocus will be on how necessary data for this research project would be collected. Methodof collection the procedures by which the data can analyze and interpretation of result for us to know the efficiency of electronic banking in Nigeria banking sector and to the public. A questionnaire would be drafted and administered and a non-random samplemethod whereby every one is not given equal opportunity of being selected would beused.3.1 POPULATION OF THE VARIABLESThe population of the variables deals with the level of hypothesis; hypothesis is aconjectural statement specifying an expected relationship between two or more variables.As a conjecture, it is only a guess of what is expected to occur under certain conditions prior to the collection of data. The population of the variable enables us to know thestatement of populate which can either by:HO: Electronic Banking has not helped to provide efficiency in the Banking sector HI: Electronic Banking has helped to provide efficiency in the Banking sector.HO: Is the case indicate the Null hypothesis which is aimed to disprove or express aboutthe researchers expected relationship between the set of variableHI: This is the alternative hypothesis; it is the research hypothesis which represents theexpectation of the researcher in the study.3.2 SAMPLE AND SAMPLE DESIGNFor us to have a representative sample to represent data collected given certain materialwould be chosen in order to minimize and curtail sample errors. Non-probability sampletechnique would be utilized such that everyone is not given equal opportunity of beingchosen but a person is given advantage over the other. More so, it is highly impossible totake a study to the whole population of the bank. Because of this it is now imperative touse a sample in order for us to achieve our aim. The sample method as easier said that weare going to use the non-probability sample method where a person is given an advantageover others.3.3 SOURCES OF DATA COLLECTIONThe source through which this data is being collected is by the secondary sources of datacollection.Secondary Data: This consists of existing information which may be useful for the purpose of a research at hand. Secondary data is an accessible form and can easily befound.For the purpose of this research work, I made use of website (Internet

browsing) andother documental research, some business journal magazine and articles are used.CHAPTER FOUR 4.1 DATA ANALYSIS AND INTERPRETATIONIn this chapter, the research analyzed all the information gathered from the questionnairegive to various department and respondents. The researcher based his finding on theresult so collected for the presentation and analysis of data a total number of twentyquestionnaires were administered to staff of Electronic Banking and also the customers of Electronic Banking.A total number of 18 staff questionnaire were returned while other were not returned todetermined whether returned questionnaire was the opinion of the majority, thecalculation and analysis below give a clear picture. Let A represent 20 questionnaire administer to the staff of Electronic Bankingsystem. Let B represent those that return which is 18 Let C represent the one that are not returned which is 2Since 90% is above average hence the generation of finding based on such percentage bring near to an accurate decision4.2 ANALYSIS AND INTERPRETATIONSECTION A: PERSONAL DATA OF THE REPONDENTS4.2-1 Table A: AgeAge Respondents Percentage %21-40 10 5241-60 6 3861- Above 2 10Total 18 100This table show that larger size of the staff is between 21- 404.2-2 Table B: SexSex Respondents Percentage %Male 8 44Female 10 56Total 18 100Table B show that there are more Female workers than the Male workers in ElectronicBanking System.4.23 Table C: Marital StatusMarital Status Respondents Percentage %Married 12 67Single 6 33Total 18 100This table C shows that married people are more than the single.4.2-4 Table D: Educational Qualification Qualification Respondents Percentage %SSCE 3 17OND/NCE 5 28HND/B.SC 6 33M.SC/other 4 22Total 18 100The Table D shows that the educational qualification of HND/B.SC is higher inElectronic Banking System.4.2-5 Table E: Year of ServiceYear Respondents Percentage %1-7 10 568-14 5 2815&above 3 17Total 18 100Table E shows that staff number who have spent 1-7 years have the largest population inElectronic Banking System.4.3-0 Section B4.3-1 Does Electronic Banking have an impact to the Banking Sector and the public?Option Frequency Percentage %Yes 16 89 No 2 11Total 18 100Out of 18 staff questionnaire return 16 agree that Electronic Banking System perform isgrowth and development in Nigeria while the other 2 staff disagreed with its performance. Since the number of staff who agreed are more than those who disagreed,we conclude that Electronic Banking of Nigeria perform their

economy growthsatisfactory.4.3-2 Are there more advantages over the disadvantages of Electronic Banking?Option Frequency Percentage %Yes 14 78 No 4 22 No Idea - -Total 18 100Out of 18 Customer questionnaire administered 14 Customer agreed that there moreadvantages over the disadvantage of Electronic Banking. And since the number of Customer who agree that electronic Banking has more advantages over the disadvantageare more than those who disagreed, we concluded that electronic banking has moreadvantage over the disadvantages. 4.3-3 Does this enhance smooth customers services Option Frequency Percentage %Yes 17 94 No 1 6 No Idea - -Total 18 100According to this table we can say Electronic Banking has enhance the customersservices.4.3-4 Do you welcome and encourage Electronic Banking?Option Frequency Percentage %Yes 16 89 No 2 11 No Idea - -Total 18 100From the table it show that Electronic Banking is highly welcome and encourage.4.3-5 Does the Nigeria Banks through this made an impact in Nigerian market?Option Frequency Percentage %Yes 16 89 No 2 11 No Idea - Total 18 100From this table 16 questionnaires believed that Electronics Banking made an impact in Nigerian market while 2 questionnaires disagreed. So we then conclude that ElectronicsBanking has made an impact in Nigeria market.4.3-6 Can this improve the welfare of the general public?Option Frequency Percentage %Yes 12 67 No 6 33 No Idea - -Total 18 100 From the table 12 agree that Electronic Banking improve the welfare of the general public while 6 disagree. From the information we can say that Electronic Banking hasimproved the welfare of the general public.4.3-7 Can this made Nigerian Bank to be competent with its counterparts?Option Frequency Percentage %Yes 16 89 No 2 11 No Idea - Total 18 100This table shows that 16 questionnaires agree that Electronic Banking made NigerianBank to be competent with its counterparts while 2 disagree from the table. We nowconclude that Electronic Banking has competent with its counterparts.4.3.8Do you think that another improvement other than Electronic Banking candevelop in Nigeria?Option Frequency Percentage %Yes 2 11 No 16 89 No Idea - -Total 18 100From the table 2 agree that there is other way than Electronic Banking while 16questionnaires disagree and say there is no other one except Electronic Banking.We conclude that there is no any another improvement other than Electronic Banking candevelop in Nigeria.CHAPTER FIVE5.0 SUMMARY, CONCLUSION AND RECOMMENDATION5.1 SUMMARYIn summary the paper is written to x-ray that the further of Nigeria Banking industry will be driven by technology. One of the most amazing trends in recent technology history has been the speed at which the internet is moving to dominate

business. It is a globalexpansion and it has a far reaching impact on people, and Nations. Electronic Banking isdeveloping internet technology and it potential to revolution usage long pattern of conducting banking transaction have not been fully acknowledged in Nigerians financialmarkets. The rest of the world is constantly on the move.5.2 CONCLUSIONToday a large majority of our banks have automated their operation leaving only a few banks to catch up with others. The fact is that most of the Bank Management considerscomputerization to be important and therefore appropriate allocations of organizationalresources to attain it argue well for the future of Nigeria Banking.One needs not to debate the fact that in Nigeria we are still decades behind the advancedcountries of the world in the employment of computer technology to solve managementand operational problems in the Banking industry with the attitude of Nigeria Bank Management to computerization the gap will soon be narrow if ideal level of automationis a mirage and attention to attain it is like catching up with ones shadow. This is becausetechnology advancement is born everyday. What we must do is to attempt to move fast than what we do presently and apply thecurrently available technology to solve our numerous operations or operational problemin the Banking industry. There are lot that computer can do to aid Banking operation. Ithelps Bankers in carrying out banking services effectively to their customers.5.3 RECOMMENDATIONI will like to put forward some recommendations to back up the point raised. I thereforerecommend that Banks should automate their operations so as to improve their servicesand individual complaints of the society with regard to the Banking industry.A giant power generating plant should be installed to avoid damages due to inadequateelectrical power supply system by the power holding company of Nigeria (PHCN) that isgrossly unreliable. Banks should also install double uninterrupted power supply (UPS) toensure that adequate back up is maintained.Banks should also have good maintenance system. Bank should try and get adequatespare part (if it amounts) to importing and even train their staff in the maintenance or premises department so that they can have experts to work on the equipment.There should also be adequate and good telecommunications system. This needs to beimproved quickly to facilitate easy data communication network for individual or groupof Banks. The electronic Teller and electronic fund transfer facilities will be possible.It has been observed that the Banks approve it own computerization individually and assuch there is lack of standardization of equipment and software and the Central Bank of Nigeria (CBN) also implemented it own computerization without due regard to interface problem between its system and those of other Banks. The effect is that most return andapplication form such as CBN

file number etc are usually sent to key in series of entriesso as to process information changes in financial regulations from CBN while alwayseffect Banks computerized system e.g. Foreign transaction etcWith CBN especially inworking out modalities or implementing a new and or revision of regulation on existingcomputer system.Banks all over the world aware of the stiff competition in their area of operation and onlyway to stay in business is to continue to seek avenue for improved Banking technologythat will make their service equal to if not better than those of their competitors. Thesituation is different in Nigeria today.Banks need to make it a must organize computer course that must be undergone by allstaff irrespective of their position in the Bank. Quarterly seminars and conferences should be organized by the management to update their staff on computer application in their operation and exporting the means and manner in which fraudsters are always operatingthrough the computer and thereby providing means and solution in curbing these problems. REFERENCE:Ayo C.K. (2001) Information Technology,Trend and Application in Science and BusinessUnilorin 2 nd editionEhaw Chew (1999) Introduction to Computer and its Application2 nd editionWole Adewumi (1980) The State of Computer Application in Nigeria Bank 1 st edition Gradan Burn Publisher UK Central Bank of Nigeria (2006: Bullion AprilJuneChartered Institute of Bankers: Computer in Banking Lagos BranchInternet Application Technology (2008)
reference: http://www.scribd.com/doc/57923485/Impact-of-Electronic-Banking