E-BANKING

TOPIC

CHAPTERS
1.

PAGE NO

Introduction to e-banking
(definition, features, functions and types )

2.

History of e-banking

3.

The growth of e-banking

4.

Key benefits of e-banking

5.

(benefits, advantages and disadvantages)

Impacts of e-banking on banking system

6.

Classification of e-banking

7.

E-banking in india

8.

(strategy, trends and errors of e-banking)

Facilities provided by e-banking

9.

(services and facilities of e-banking)

Electronic fund transfers(EFT)

10.

Security risk of e-banking

11.

(security, risk, safer tips and precautions)

Questionnaire

12.

Findings and Conclusion

13.

Bibliography

CHAPTER 1
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INTRODUCTION TO E-BANKING
E-banking is an electronic payment system that enables customers of a financial institution to
conduct financial transactions on a website operated by the institution, such as a retail bank,
virtual bank, credit union or building society..
To access a financial institution's online banking facility, a customer with Internet access would
need to register with the institution for the service, and set up some password (under various
names) for customer verification. The password for online banking is normally not the same as
for telephone banking. Financial institutions now routinely allocate customers numbers (also
under various names), whether or not customers have indicated an intention to access their online
banking facility. Customers' numbers are normally not the same as account numbers, because a
number of customer accounts can be linked to the one customer number. The customer can link
to the customer number any account which the customer controls, which may be cheque,
savings, loan, credit card and other accounts. Customer numbers will also not be the same as any
debit or credit card issued by the financial institution to the customer.
To access online banking, a customer would go to the financial institution's secured website, and
enter the online banking facility using the customer number and password previously setup.
Some financial institutions have set up additional security steps for access to online banking, but
there is no consistency to the approach adopted. E-Banking is your personal banking service on
the Internet, protected with bank identifiers. It is available anywhere, anytime. E-Banking allows
you to pay invoices to Finnish and foreign recipients easily and securely. You can also check
your account balances and transactions. You can order a new card, withdraw a loan granted to
you and make mutual fund subscriptions.
You access e-banking services by obtaining bank identifiers. E-banking as such is free of charge
but commissions and fees in accordance with the service tariff will be levied on orders and other
transactions carried out through e-banking.

It is an umbrella term for the process by which a customer may perform banking transactions
electronically without visiting a brick-and-mortar institution.
The following terms all refer to one form or another of electronic banking: personal computer
(PC) banking, Internet banking, virtual banking, online banking, home banking, remote
electronic banking, and phone banking. It should be noted, however, that the terms used to
describe the various types of electronic banking are often used interchangeably. Internet banking
uses the Internet as the delivery channel by which to conduct banking activity, for example,
transferring funds, paying bills, viewing checking and savings account balances, paying
mortgages, and purchasing financial instruments and certificates of deposit. An Internet banking
customer accesses his or her accounts from a browser - software that runs Internet banking
programs resident on the bank's World Wide Web server, not on the user's PC.
Net Banker defines a "true Internet bank" as one that provides account balances and some
transactional capabilities to retail customers over the World Wide Web. Internet banks are also
known as virtual, cyber, net, interactive, or web banks. To date, more banks have established an
advertising presence on the Internet- primarily in the form of informational or interactive web
sites-than have created transactional web sites. However, a number of Banks that do not yet offer
transactional Internet banking services have indicated on their web sites that they will offer such
banking activities in the future.
Internet banks generally have lower operational and transactional costs than do traditional brickand-mortar banks, they are often able to offer low-cost checking and high-yield Certificates of
deposit. Internet banking is not limited to a physical site; some Internet banks exist without
physical branches, for example, Tele bank (Arlington, Virginia) and Bank net (UK). Further, in
some cases, web banks are not restricted to conducting transactions within national borders and
have the ability to make transactions involving large amounts of assets instantaneously.
According to industry analysts, electronic banking provides a variety of attractive possibilities
for remote account access, including:

Availability of inquiry and transaction services around the clock;

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worldwide connectivity;

Easy access to transaction data, both recent and historical; and

(1.1) DEFINITION OF E-BANKING

Electronic banking takes several forms. Using a debit card, visiting an automated teller machine
and banking by cell phone are all types of electronic banking. If you set up an online account
with your bank, you can access your bank accounts from anywhere at any time as long as you
have Internet access. In general, electronic banking includes any banking service or feature that
is computer-based and accessible using electronic devices.

Online banking has become an accepted norm of monetary transactions for millions in India over
the past decade. The ease with which a customer can check his account, make payments online
and transfer money between accounts has made this mode of banking hugely popular among
Indians who are perpetually short of time to visit the bank physically. Online banking also
provides a host of non transactional features which are quite handy to the customer. However
along with the world of conveniences this method of banking has a few inherent pitfalls which
need to be understood in order to protect your money and avoid complications subsequently.
E-banking is defined as the automated delivery of new and traditional banking products and
services directly to customers through electronic, interactive communication channels. Ebanking includes the systems that enable financial institution customers, individuals or
businesses, to access accounts, transact business, or obtain information on financial products and
services through a public or private network, including the Internet.
Customers access e-banking services using an intelligent electronic device, such as a personal
computer (PC), personal digital assistant (PDA), automated teller machine (ATM), kiosk, or
Touch Tone telephone. While the risks and controls are similar for the various e-banking access
channels, this booklet focuses specifically on Internet-based services due to the Internet's widely
accessible public network. Accordingly, this booklet begins with a discussion of the two primary
types of Internet websites: Informational and Transactional.

(1.2) FEATURES OF E-BANKING

Online banking facilities offered by various financial institutions have many features and
capabilities in common, but also have some that are application specific.
The common features fall broadly into several categories:

A bank customer can perform non-transactional tasks through online banking, including -

o viewing account balances

o viewing recent transactions
o Downloading bank statements, for example in PDF format
o viewing images of paid cheques
o ordering cheque books
o Download periodic account statements
o Downloading applications for M-banking, E-banking etc.

Bank customers can transact banking tasks through online banking, including o Funds transfers between the customer's linked accounts
o Paying third parties, including bill payments (see, e.g., BPAY) and third party
fund transfers(see, e.g., FAST)
o Investment purchase or sale
o Loan applications and transactions, such as repayments of enrollments
o Credit card applications
o Register utility billers and make bill payments

Financial institution administration

Management of multiple users having varying levels of authority

Transaction approval process

the process of banking has become much faster

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Some financial institutions offer unique Internet banking services, for example:

Transactional:

(e.g. performing a financial transaction such as an account to account transfer, paying a

bill or applications like applying for a loan, new account, etc.)

Electronic Bill Presentment and Payment (EBPP)
Funds transfer between customers own checking and savings accounts, or to another
customers account.

Investment purchase or sale.

Loan application and transactions such as repayments.

Non-transactional:

(e.g. online statements, Check links, Chat, Co-browsing etc.)

Financial Institution Administration- features allowing financial institutions to manage

the online experience of their end users.ASP/ Hosting Administration features allowing
the hosting company to administer the solution across financial institution

( 1.3) FUNCTIONS OF E-BANKING

Pay a bill:Electronic bill payment service allows a depositor to send money from his or her online account
to a creditor or merchant, for example to a public utility or a department store. There is no need
to stand in a long line on a weekend morning to handle your transactions!
The payment is virtually instant, though some financial institutions can wait until the next
business day to send out the payment. If it is necessary, the bank can generate and mail a paper
cheque or banker's draft to a creditor who is not set up to receive electronic payments.

Schedule payments in advance:7

Most banks offer customers the ability to schedule a payment on a specified date. Once the
amount is entered and the payee is checked off, the funds are automatically deducted from your
online bank account. It is especially useful if you always forget due dates. For example, you can
schedule credit card or mortgage payments to make sure that you will not incur late fees and
damage your FICO score.

Transfer funds:Do you want to send money quickly and securely? With online banking, you can make money
transfers between your own accounts, or send money to a third party account. All you need is
recipient/payee information and enough funds in your account. Quite often, the operations are
performed in real time.

Manage all your accounts in one place:Online banking is a great time saver because it provides an opportunity to handle several bank
accounts (checking, savings, CDs, IRAs, etc.) from one site. Most new accounts you open will
be automatically added to online banking.

View images of your checks online:Do you need a copy of a paid check? With online banking, you can view and print scanned
images of the front and back of all checks you have written. It is easy and convenient.

Apply for a loan or credit card:Having an account online, you can apply for a credit card or a loan (a car loan, a student loan, a
mortgage, a home equity loan, etc.) from the same bank. If you have a good credit score and long
relationship history with your bank, your application is likely to be approved.

Purchase and manage CD accounts:8

If you have some amount of money you want to invest, you can purchase a certificate of deposit
from your bank. Online banking lets you compare all available offers and their terms, for
example APY or maturity periods. When you confirm the purchase, the funds will be
automatically deducted from your account.

Order traveler's checks:You can order American Express Traveler's Cheques online. The bank will typically charge your
online account for the amount of the cheques you bought and an express delivery fee.

Increase your overdraft:Going into the red shouldn't leave you red-faced! You can increase your overdraft online. Log in
to online banking and click on 'Overdraft' in the menu.

Order a cheque book:Save yourself at least one trip to the bank by ordering cheque book online. You will need to visit
your bank once when you get a confirmation message that your cheque book is ready for
collection.

View up-to-the-minute account statements and balance:There is no need to wait for the bank statement to arrive in the snail post to check account
balances. You can view all transactions and withdrawals every day just by logging in to your
online account. In addition, you can immediately notice errors or unauthorized transactions in the
statement.

View automatically updated spending report:All your purchases are sorted into familiar categories automatically - no receipts to save, no
expenses to enter. It is easy to see where your money goes.

Track your payment history:Online banking gives you an opportunity to search your payments by transaction type, date,
description or amount. When did you last pay Company X? When did you buy your computer?
To whom did you make your most recent payment? Your bank knows the answers.

Integrate the data with personal finance programs:Online banking lets you import electronic payment data in personal finance software such as
Quicken or Microsoft Money. You will be able to access your online accounts directly from your
personal finance program. An Internet connection and online account log in information is
required.

Change contact detail:Have you moved to a new house? Changed your telephone number? You can log in to your
online account and change contact information (e-mail address, telephone number, password,
etc.). It is more secure than to send this information by e-mail.

Utilize investment research.:You can receive real-time quotes, analytics, news and stock market information to make a more
educated decision.

Take advantage of online brokerage:Internet banking lets you invest online. You can place and confirm trades 24 hours a day, seven
days a week. Most banks provide a wide range of money market instruments from various
issuers.

Get alerts:This service allows you to receive timely e-mail messages from your bank about any critical
changes related to your Internet accounts. For example, you can get alerts when you make a

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withdrawal or change your contact information.

Verify terms and conditions:Did you forget your interest rates or payment due date? You can verify all information about your
account online.

Chat with your customer assistant department:If you need help, you can send message to your bank's customer assistant department. They will
help you solve your problem.

(1.4) TYPES OF E-BANKING:

Understanding the various types of Internet banking will help examiners assess the risks
involved. Currently, the following three basic kinds of Internet banking are being employed in
the marketplace.
The three types of internet banking are as follows:-

Informational:This is the basic level of Internet banking. Typically, the bank has marketing information about
the banks products and services on a stand-alone server. The risk is relatively low, as
informational systems typically have no path between the server and the banks internal network.
This level of Internet banking can be provided by the banks or outsourced. While the risk to a
bank is relatively low, the server or web site may be vulnerable to alteration. Appropriate
controls therefore must be in place to prevent unauthorized alterations to the banks server or
web site.

Communicative:This is a type of Internet banking systems and the customer. The interaction between the banks
system and the customer. The interaction maybe limited to electronic mail, account enquiry, loan
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applications, or static file updates (name and address change). Because these servers may have a
path to the banks internal networks, the risk is higher with this configuration than with
informational systems. Appropriate controls need to be in the place top revent, monitor, and alert
management of any unauthorized attempt to access the banks internal networks and computer
systems. Virus controls also become much more critical in this environment.

Transactional:This level of Internet banking allows customers to execute transactions. Since a path typically
exists between the server and the bank or outsourcers internal network, this is the highest risk
architecture and must have the strongest controls. Customer transactions can include accessing
accounts, paying bills, transferring funds etc.

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CHAPTER 2
HISTORY OF E-BANKING
The precursor for the modern home online banking services were the distance banking services
over electronic media from the early 1980s. The term online became popular in the late '80s and
referred to the use of a terminal, keyboard and TV (or monitor) to access the banking system
using a phone line. 'Home banking' can also refer to the use of a numeric keypad to send tones
down a phone line with instructions to the bank. Online services started in New York in 1981
when four of the city's major banks (Citibank, Chase Manhattan, Chemical and Manufacturers
Hanover) offered home banking services. Using the videotex system. Because of the commercial
failure of videotext these banking services never became popular except in France where the use
of videotext (Minitel) was subsidized by the telecom provider and the UK, where the Prestel
system was used.
When the clicks-and-bricks euphoria hit in the late 1990s, many banks began to view Web-based
banking as a strategic imperative. The attraction of banks to online banking are fairly obvious:
diminished transaction costs, easier integration of services, interactive marketing capabilities,
and other benefits that boost customer lists and profit margins. Additionally, Web banking
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services allow institutions to bundle more services into single packages, thereby luring customers
and minimizing overhead.
A mergers-and-acquisitions wave swept the financial industries in the mid-and late 1998s, greatly
expanding banks' customer bases. Following this, banks looked to the Web as a way of
maintaining their customers and building loyalty. A number of different factors are causing
bankers to shift more of their business to the virtual real.
While financial institutions took steps to implement e-banking services in the mid-1990s, many
consumers were hesitant to conduct monetary transactions over the web. It took widespread
adoption of electronic commerce, based on trailblazing companies such as America Online,

Amazon.com and eBay, to make the idea of paying for items online widespread. By 2000, 80
percent of U.S. banks offered e-banking. Customer use grew slowly. At Bank of America,

For example, it took 10 years to acquire 2 million e-banking customers. However, a significant
cultural change took place after the Y2K scare ended. In 2001, Bank of America became the first
bank to top 3 million online banking customers, more than 20 percent of its customer base. In
comparison, larger national institutions, such as Citigroup claimed 2.2 million online
relationships globally, while J.P. Morgan Chase estimated it had more than 750,000 online
banking customers. Wells Fargo had 2.5 million online banking customers, including small
businesses. Online customers proved more loyal and profitable than regular customers. In
October 2001, Bank of America customers executed a record 3.1 million electronic bill
payments, totaling more than $1 billion. In 2009, a report by Gartner Group estimated that 47
percent of U.S. adults and 30 percent in the United Kingdom bank online.
The UK's first home online banking services known as Home link was set up by Bank of
Scotland for customers of the Nottingham Building Society (NBS) in 1983. The system used was
based on the UK's Pestle view link system and used a computer, such as the BBC Micro, or
keyboard (Tan data Td1400) connected to the telephone system and television set.

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The system allowed on-line viewing of statements, bank transfers and bill payments. In order to
make bank transfers and bill payments, a written instruction giving details of the intended
recipient had to be sent to the NBS who set the details up on the Home link system. Typical
recipients were gas, electricity and telephone companies and accounts with other banks. Details
of payments to be made were input into the NBS system by the account holder via Pestle. A
cheque was then sent by NBS to the payee and an advice giving details of the payment was sent
to the account holder. BACS was later used to transfer the payment directly.
Stanford Federal Credit Union was the first financial institution to offer online internet banking
services to all of its members in October 1994.
Today, many banks are internet only banks. Unlike their predecessors, these internet only banks
do not maintain brick and mortar bank branches. Instead, they typically differentiate themselves
by offering better interest rates and more extensive online banking features.

First e-banking services in the United States:According to "Banking and Finance on the Internet," edited by Mary J. Cronin, online banking
was first introduced in the early 1980s in New York. Four major banks--Citibank, Chase
Manhattan, Chemical and Manufacturers Hanover--offered home banking services. Chemical
introduced its Pronto services for individuals and small businesses in 1983. It allowed individual
and small-business clients to maintain electronic checkbook registers, see account balances, and
transfer funds between checking and savings accounts. Pronto failed to attract enough customers
to break even and was abandoned in 1989. Other banks had a similar experience.

E-banking in the U.K:Almost simultaneously with the United States, online banking arrived in the United Kingdom. It
was the Nottingham Building Society that in 1983 introduced Britain's first electronic home
banking service through a joint venture with Pestle, a computerized information service owned
by British Telecom.
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The UK's first home online banking services known as Home link was set up by Bank of
Scotland for customers of the Nottingham Building Society (NBS) in 1983. The system used was
based on the UK's Pestle view link system and used a computer, such as the BBC Micro, or
keyboard (Tan data Td1400) connected to the telephone system and television set. The system
allowed on-line viewing of statements, bank transfers and bill payments. In order to make bank
transfers and bill payments, a written instruction giving details of the intended recipient had to be
sent to the NBS who set the details up on the Home link system. Typical recipients were gas,
electricity and telephone companies and accounts with other banks. Details of payments to be
made were input into the NBS system by the account holder via Pestle. A cheque was then sent
by NBS to the payee and an advice giving details of the payment was sent to the account holder.
BACS was later used to transfer the payment directly.

Stanford Federal Credit Union was the first financial institution to offer online internet banking
services to all of its members in October 1994.
Today, many banks are internet only banks. Unlike their predecessors, these internet only banks
do not maintain brick and mortar bank branches. Instead, they typically differentiate themselves
by offering better interest rates and more extensive online banking features.

Banks and the World Wide Web:In the 1990s, banks realized that the rising popularity of the World Wide Web gave them an
added opportunity to advertise their services. Initially, they used the Web as another brochure,
without interaction with the customer. Early sites featured pictures of the bank's officers or
buildings, and provided customers with maps of branches and ATM locations, phone numbers to
call for further information and simple listings of products.

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Interactive banking on the Web:Wells Fargo was the first U.S. bank to add account services to its website, in 1995. Other banks
quickly followed suit. That same year Presidential became the first bank in the United States to
open bank accounts over the Internet. According to research by Online Banking Report, by the
end of 1999, less than 0.4% of households in the U.S. were using online banking. At the
beginning of 2004, some 33 million U.S. households (31% of the market) were using one form
or another of online banking. Five years later, 47% of Americans were banking online, according
to a survey by Gartner Group.

CHAPTER 3
THE GROWTH OF E-BANKING
The internet may be growing fast, yet the only thing growing quicker is online and mobile
banking. Moreover, the survey reporting this information also found that this practice is not a
restriction to any certain group. It is growing across a deep and wide demographic that includes
age, income and gender.

The Demographics:Internet hardware is now in 95 million households. Of that number, online banking occurs in
approximately 72,500,000 of those households and those who are utilizing it are extremely loyal
to their bank of choice. About half of those households also use the bank's bill pay rather than
going to a website and paying what they owe.More important is the fact that the option to
participate in paperless billing has become more popular much faster than originally thought.

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These new trends became apparent over the past ten years, according to Geoff Knapp, Fiserv
vice-president of Online Banking / Consumer Insights.

Population Segmentation:The trend began with computer-knowledgeable, tech-savvy young males, which is common
when new technology hits the market. It became a household necessity when the remainder of
the population found out about it. From busy teens to the elderly and disabled, online banking is
now a normal part of our way of life. One segment of the population appears to delegate the
services that a bank offers. Generation Y are people born between 1970 and 1990. They tend to
embrace technology as fast as it comes on the market. This group is also adept at finding others
to do some technology tasks, especially direct billing services. These group members, until now,
have been making biller-direct
payments, dealing with student loans, credit cards and living daily life on campus in hand-tomouth fashion.

Looking Forward:Online Banking forecasts indicate Generation Y will drive this aspect of technology as it goes
forward. This group will become 40% of all households using online banking by 2014. Until
recently, online banking saw annual spurts of 25-27%, which slowed to 8% and it would slow
further, according to the forecasters. From 2009 until 2014, growth should be approximately 4%
per year as 66 million households enter the fold.
Consumers generally learn about these shortcuts of modern life by word-of-mouth. Online
banking became popular as the result of introductions made by the various banks in the interest
of complete disclosure of services. There is room for growth in this technological environment as
segments of the population are still under-served.

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Environmental Responsibility:The main positive outcome is environmental in nature. Generation Y will bring this to the
forefront and, possibly, be the group to enlighten others. There are very few of members of this
group who use paper and pen anymore.
They also make use of paperless billing, which deserves environmental kudos for saving the
trees. Less paper use means less trash generated, which means less use of landfills. Finally, our
carbon footprint will decrease because people are not driving to the physical building to
complete necessary bank business.

Societal Inclusion:Successful first time logins will bring more use from seniors with memory deficits. They often
make requests to online banking personnel to recover a user ID and/or passwords. This upcoming
population will work out those remaining kinks in the system so that no member of society will
be without access.

CHAPTER 4
KEY BENEFITS OF E BANKING
There are plenty of perks offered by banks to customers who adopt internet banking over the
traditional visit physically to the nearest branch office.

Convenience:This is the single most important benefits that outweigh any shortcoming of internet banking.
Making transactions and payments right from the comfort of home or office at the click of a
button without even having to step out is a facility none would like to forego. Keeping a track of
accounts through the internet is much faster and convenient as compared to going to the bank for
the same. Even non transactional facilities like ordering check books online, updating accounts,

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enquiring about interest rates of various financial products etc become much simpler on the
internet.

Better Rates:The banks stand to gain significantly by the use of internet banking as it implies lesser physical
effort from their end. The need to acquire larger spaces for offices and employ more staff to deal
with the customers is significantly reduced making it financially beneficial to the banks To
encourage internet banking most banks offer minimum or no deposit accounts for online banking
and lower penalties on early withdrawal of Fixed Deposits.

Services:Technology has made it extremely convenient for the bank as well as the customer to access to a
host of wonderful services by simply logging in. These services include financial planning
capabilities, functional budgeting and forecasting tools, loan calculators, investment analysis
tools and equity trading platforms which are available as simple applications on the bank's
website. Additionally most banks also provide the facility of online tax forms and tax
preparation.

Mobility:Internet banking has a step further in the last few years in the form of mobile internet banking
which accords unlimited mobility to the customer who can now handle financial transactions
even while on the move.
Another important benefit of the concept of internet banking is that it is good for the
environment as it cuts down the usage of paper, reduces pollution as people do not have to travel
physically and also does not add emissions.

(4.1) ADVANTAGES AND DISADVANTAGES OF E BANKING

Online banking is becoming much more common. You can pay your bills online and access a
record of your checking account transactions online. Online banking is a great feature, and most
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banks do offer it. Online banking makes everything you do with your finances a bit easier. You
can access the information anywhere that you have access to the Internet. It makes your financial
life much easier to manage. You may decide to switch your accounts you an online only bank in
the future.

(4.1.1) Pay Your Bills Online:You can use online banking to pay your bills. This will eliminate the need for stamps and protect
yourself from the check being lost in the mail. Most banks will have a section in which you set
up payees. You will need to fill out the information once, and then you can simply choose that
profile every time you pay a bill online. If your bank will not pay bills online you may consider
paying online through the company. Be careful since some of these companies may charge a
convenience fee.

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(4.1.2) View Your Transactions :Online banking allows you to access your account history and transactions from anywhere. This
is the quickest way to check and see if a transaction has cleared your account. This can help you
to find out the amount of a transaction after you have lost your receipt. It also allows you to find
out about unauthorized transactions more quickly. This can help you to resolve the issues more
quickly.

(4.1.3) Transfer Money Between Accounts:Online banking also allows you to transfer money between accounts much more quickly. It is
more convenient than using the automated phone service, and can save you a trip to the bank.
When you apply or set up your online banking, be sure that all of the accounts you have at the
bank are listed. This will make it easier to transfer money and make loan payments online.

(4.1.4) Convenience:Unlike your corner bank, online banking sites never close; theyre available 24 hours a day,
seven days a week, and theyre only a mouse click away. With pressures on time and longer
travelling periods, more and more people find it tiresome waiting in queues. People want
flexibility, and Internet banking offers just that.

(4.1.5) Ubiquity:If youre out of state or even out of the country when a money problem arises, you can log on
instantly to your online bank and take care of business, 24\7.

(4.1.6) Transaction speed:Online bank sites generally execute and confirm transactions at or quicker than ATM processing
speeds.

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(4.1.7) Efficiency:You can access and manage all of your bank accounts, including IRAs, CDs, even securities,
from one secure site.

(4.1.8) Effectiveness:Many online banking sites now offer sophisticated tools, including account aggregation, stock
quotes, rate alert and portfolio managing program to help you manage all of your assets more
effectively. Most are also compatible with money managing programs such as quicken and
Microsoft money.

(4.1.9) Cheaper alternative:With increasing competition, it seems to be the cost factor that is driving banks to offer the
facility. The Internet is still a very cheap alternative to opening a physical branch, and most of
the push seems to be coming from the supply side. The costs of a banking service through the
Internet form a fraction of costs through conventional methods.

(4.1.10) From snob value to necessity:A couple of years ago, there was a belief even among bankers that customers opening new
accounts wanted the online banking facility, just to "feel good" and very few of them actually
used the services.

Today, bankers believe that the trend from `nice to have' is changing to `need to have'. The "snob
value" of banking with an organization that could offer service on the Internet has given way to a
genuine necessity, he feels. "It all depends on how busy a person is."

(4.1.11) 24*7 access to your account:The conventional banking system will allow you to operate your personal day only on the week
days and during the banking hours. However the internet banking will give you the privilege of
the 24*7 operations and access to your account. You can perform all your banking related stuff
from your own place and at your convenient time.
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(4.1.12) Transaction made easy:Sometime you may have to make some payment on the schedule dates else you have to pay the
penalty for it. In case of the traditional banking system, you have to put a reminder for all the
future transaction and payments. However in real practice it is very difficult to memories al the
future transaction. The internet banking will give you the freedom from it. The system will
automatically remind you for all your future transaction. In addition to that if you will opt for the
standing instruction option, the system will take care of the future transaction.

(4.1.13) Settlement of transaction in no time:The internet banking has been developed with an aim to make it user friendly and the attempt
has succeeded also.
If you are making any financial transaction through the internet banking, the transaction will be
settled in no time and you will receive your transaction status immediately

(4.2) DISADVANTAGES OF E BANKING:However the current trend of exclusively using the online mode to make all kinds of transactions
has a few pitfalls which may prove costly in the long run unless guarded against from the
beginning.

(4.2.1) Legal issue:-

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All the internet banking transactions are settled by the users only as well as the authorization
also. In case of any financial disturbance, it requires an authentication from the banking staff.
In case of the internet banking the authorization cant be obtained from the banking personal and
it will invite the legal complaints.

(4.2.2) Lack of human touch:Banking is all together a service industry. A service industry always has an upper hand, when
there is a customer care with human touch. In case of the traditional banking system the banking
staff will assist you in case of any difficulties. However the internet banking lacks this option.
The user will not have a direct contact with the customer contact personal. Though there will be
an option to talk over the phone to talk to the customer care personal, you dont have the
guarantee that you are talking to the best person available there.

(4.2.3) Relationships:Online transactions take a toll on the relationship with the banker which the traditional visit to
the branch office used to foster. Personal relationship with the staff at the banks comes handy
when requesting for faster loan approval or a special service which may not be available to the
public. The manager has many discretionary powers such as waiving of penal interest or service
fees which were often taken advantage of by better acquaintance with the staff. Additionally
personal contact also meant that the banker would provide essential financial advice and insights
which are beneficial to the customer.

(4.2.4) Complex Transactions:There are many complex transactions which cannot be sorted out unless there is a face to face
discussion with the manager that is not possible through internet banking. Solving specific issues
and complaints requires physical visit to the bank and cannot be achieved through the internet.
Online communication is neither clear nor pin pointed to help resolve many complex service
issues. Certain services such as the notarization and bank signature guarantee cannot be
accomplished online.
25

(4.2.5) Security:This is the biggest pitfall of the internet banking scheme which needs to be guarded against by
the common customer. Despite the host of sophisticated encryption software is designed to
protect your account there is always a scope of hacking by smart elements in the cyber world.
Hacker attacks, phishing, malware and other unauthorized activity are not uncommon on the net.
Most banks have made it mandatory to display scanned copies of cleared checks online to
prevent identity theft. It is essential to check bank's security policies and protections while
opening an account and commencing the usage of online banking facilities.
The customer should have proper security so that no one can fraud them..

Online banking is definitely a significant move in the right direction as far as the convenience of
the customer as well as the banker are concerned but it must be applied with adequate precaution
to avoid falling prey to unscrupulous elements poaching the internet.

(4.2.6) Start-up may take time:In order to register for your banks online program, you will probably have to provide ID and
sign a form at a bank branch. If you and your spouse wish to view and manage their assets

26

together online, one of you may have to sign a durable power of attorney before the bank will
display all of your holdings together.

(4.2.7) Bank site changes:Even the largest banks periodically upgrade their online programs, adding new features in
unfamiliar places. In some cases, you may have to re-enter account information.

CHAPTER 5
IMPACT OF E-BANKING ON BANKING SYSTEM

The banking system is slowly shifting from the Traditional Banking towards relationship
banking. Traditionally the relationship between the bank and its customers has been on a one
27

tone level via the branch network. This was put into operation with clearing and decision making
responsibilities concentrated at the individual branch level. The head office had responsibility for
the overall clearing network, the size of the branch network and the training of staff in the branch
network. The bank monitored the organization's performance and set the decision making
parameters, but the information available to both branch staff and their customers was limited to
one geographical location.
Internet technology holds the potential to fundamentally change banks and the banking industry.
An extreme view speculates that t he Internet will destroy old models of how bank services are
developed and delivered. The widespread availability of Internet banking is expected to affect
the mixture of financial services produced by banks, the manner in which banks produce these
services and the resulting financial performances of these banks. Whether or not this extreme
view proves correct and whether banks take advantage of this new technology will depend on
their assessment of the profitability of such a delivery system for their services. In addition,
industry analysis outlining the potential impact of Internet banking on cost savings, revenue
growth and risk profile of the banks have also generated considerable interest and speculation
about the impact of the Internet on the banking industry
Banking through internet has emerged as a strategic resource for achieving higher efficiency,
control of operations and reduction of cost by replacing paper based and labour intensive
methods with automated processes thus leading to higher productivity and profitability.
However, to date researchers have produced little evidence regarding these potential changes.

None the less, recent empirical studies indicate that Internet banking is not having an
independent effect on banking profitability, although these findings may change as the use of the
Internet becomes more widespread.
More recently in India too, a wider array of financial products and services have become
available over the Internet, which has thus become an important distribution channel for a
number of banks. Banks boost technology investment spending strongly to address revenue, cost
and competitiveness concerns. For some activities, banks hope to see a near-term impact on
28

profitability. Other investments are motivated more by a desire to establish a competitive

position or avoid falling behind the competition. The purpose of present study is to analyze such
effects of Internet banking in India, where no rigorous attempts have been undertaken to
understand this aspect of the banking business.

The primary aim is to advance the understanding of how Internet banks are different from the
non-Internet banks in terms of profitability, cost efficiency, asset quality and other characteristics
by examining bank financial statements from year end 1998 to year end 2006. The present study
tests not only whether the Internet delivery channel affected the financial performance of the
commercial banks in our sample, but also how these changes happened. The study examines a
comprehensive set of 10 measures of financial performance that allow us to look inside the
black box of bank performance.
By developing a deeper understanding of these phenomena, we can draw more insightful
inferences about the impact of the Internet on banking business strategies, production processes
and financial performance. Increasing this type of knowledge is vital for both academic literature
and also for bank marketers who cannot count on the initial success achieved by the Internet
banking investment.

CHAPTER 6
CLASSIFICATION OF E BANKING
In the viewpoint of use and access media, E-Banking can be classified into three narrow
(sometimes broad) sections:
(6.1) Telephone Banking (The Oldest & Poorest one)
29

(6.2) Internet Banking (or Online Banking)

(6.3) Mobile Banking (Including SMS Banking)

(6.1) TELEPHONE BANKING :Telephone banking is a service provided by a financial institution, that enables customers of the
financial institution to perform financial transactions over the telephone, without the need to visit
a bank branch or automated teller machine. Telephone banking times can be longer than branch
opening times, and some financial institutions offer the service on a 24 hour basis.From the
banks point of view, telephone banking reduces the cost of handling transactions by reducing the
need for customers to visit a bank branch for non-cash withdrawal and deposit transactions.

(6.1.1) Condition & Regulation:To use or take the benefits of telephone banking the common condition & Regulation are:

Customer must first register with the institution for the service

Set up some password for customer verification

(6.1.2) Process of Servicing:30

To access telephone banking:

The customer would call the special phone number set up by the financial institution
Enter on the keypad the customer number and password.
There could be more steps for security and or automated systems to secure customer
accounts or specific question to answer pre-determined by customer.

(6.2) INTERNET BANKING:Internet banking) allows customers of a financial institution to conduct financial transactions on
a secure website operated by the institution, which can be a retail or virtual bank, credit union or
society. It may include of any transactions related to online usage

(6.2.1) Condition & Regulation:To access a financial institutions online banking facility:
o Personal Computer or Online Banking Services Compatible Handset
o Personal Internet access
o Registration with the institution for the service,
31

o Set up some password for customer verification.

(6.2.2) Process:To access online banking,

o Enter financial institutions website,
o Enter the online banking facility using the customer number and password.
o There may be additional security steps for access

(6.3) MOBILE BANKING:Mobile banking (also known as M-Banking, m banking) is a term used for performing balance
checks, account transactions, payments, credit applications and other banking transactions
through a mobile device such as a mobile phone or Personal Digital Assistant (PDA).

(6.3.1) Establishment & Development:

Introduction of GPRS technology and Personal Office Mobile Services in late 1999 and
in 2000

Introduction of mobile money (2000) and Third Generation Mobile (late 2001)
32

The earliest m-banking services were offered over SMS (called SMS Banking).

Innovation of Apples I Phone and Googles Android Operating System based

Smartphone with mobile apps for banking services brought revolution.

With advancements in JavaScript have seen more banks launching mobile web based
services to compliment native applications.

CHAPTER 7

33

E-BANKING IN INDIA
The Reserve Bank of India constituted a working group on Internet Banking. The group
divided the internet banking products in India into 3 types based on the levels of access
granted. They are:
(1) Information Only System:General purpose information like interest rates, branch location, bank products and their
features, loan and deposit calculations are provided in the banks website. There exist
facilities for downloading various types of application forms. The communication is
normally done through e-mail. There is no interaction between the customer and bank's
application system. No identification of the customer is done. In this system, there is no
possibility of any unauthorized person getting into production systems of the bank through
internet.
(2) Electronic Information Transfer System:The system provides customer- specific information in the form of account balances,
transaction details, and statement of accounts. The information is still largely of the 'read
only' format. Identification and authentication of the customer is through password. The
information is fetched from the bank's application system either in batch mode or off-line.
The application systems cannot directly access through the internet.
(3) Fully Electronic Transactional System:This system allows bi-directional capabilities. Transactions can be submitted by the customer
for online update. This system requires high degree of security and control. In this
environment, web server and application systems are linked over secure infrastructure. It
comprises technology covering computerization, networking and security, inter-bank
payment gateway and legal infrastructure.

(7.1) E-BANKING STRATEGIES:34

Though E-banking offers vast opportunities, yet even less than one in three banks have an Ebanking strategy in place. According to a study, less than 15 percent of banks with transactional
websites will realize profits directly attributable to those sites. Hence, banks must recognize the
seriousness of the challenge ahead and develop a strategy that will enable them to leverage the
opportunities presented by the Internet. No single E-banking strategy is right for every banking
company. But whether they adopt an offensive or a defensive posture, they must constantly reevaluate their strategy. In the fast-paced e-economy, banks have to keep up with the constantly
evolving business models and technology innovations of the Internet space. Early e-business
adopter like Wells Fargo not only entered the E-banking industry first but also showed flexibility
to change as the market developed. Not many banks have been as e-business-savvy. But the
pressure is now building for all banks to develop sound e-business strategies that will attract and
retain increasingly discriminating customers.
The major problem with the banks, which have already invested huge amounts in their online
initiatives, is that their online offerings remain unprofitable. Though banks have enrolled some
existing customers in their online programs, they are not getting customers in large numbers.
This has made banks wonder whether there is any value in the online channel. Just enrolling
customers for online banking may not be sufficient until and unless they use the site actively.
Banks must make efforts to increase their site usage by customers and effectively co-ordinate the
online channel with branches and call centers.
Customers have some rational reasons for staying offline. Some of these reasons include
usability features of the site, concerns about security and frequent complaints that signing up is
complicated and time-consuming. Banks can solve these problems by refocusing investment on
improving the site's basic functionality and user-friendliness, and avoiding advanced features that
most customers neither understand nor value. Developing advanced features that appeal to a
relatively small numbers of customers, creates far less value than strengthening core capabilities
and getting customers to use them. Banks must make efforts to familiarize customers with their
sites and show them how easy and efficient the online channel is to use.

35

Integrating the online channel with the rest of the bank is another important issue that banks must
focus upon. This is important because nearly all the value of the online channel is realized offline
in cross sales completed in other channels and in cost reductions. An actively used online
channel should also serve as a medium to sell banking services for the branch staff, the call
center, and the relationship manager. Integrated channels working together are far more effective
than a group of channels working without any coordination. To facilitate this integration, banks
must formulate paths that people in various customer segments are likely to take among the
channels. The interactions in each channel can then be worked around these paths.
For example, a call center representative must work out which channel the customer used before
coming to her, and which channel the customer is likely to visit next.
Each channel must have entry and exit points that must welcome customers and then send to
other channels. Hence, the overall goal of banks is to create a seamless multichannel experience.
On the other hand, those banks that are planning to build their online businesses will have to
understand several strategic issues like do they have the right business model for E-banking?
How should they price their E-banking products and services?
Bankers planning to move into E-banking have to explore different options make investments
and have to develop a variety of partnerships. They have to put their time and efforts to identify
the best opportunities. In the case of traditional banks, if they are too aggressive in using price
incentives to build their e-business, they risk the profitability of their traditional business.
However, if they do not offer sufficient price incentives for customers to bank online, their
efforts to build a sound e- banking business may not fructify.
Banks have to be creative in rethinking organizational structures and management processes.
Traditional banks that are conservative in nature may find it difficult to attract and retain online
talent. Moreover, getting people in the traditional business to help build an e-enterprise would
not be an easy task. To make all this happen, requires a major revision of incentive systems,
planning and budgeting processes, and management roles.

36

Banks can exploit the opportunities provided by the Internet if they demonstrate courage, use
their imagination, and take decisive action.
While most of the banks have started focusing on E-banking activities, a new challenge in the
form of mobile banking has emerged. M-Banking is both an additional opportunity for banks to
offer their online services and an additional channel from which to access new customers and
cross-sell to existing customers. Rapidly changing lifestyles of customers and their demand for
more speed and convenience has subdued the role of branch banking to a certain extent. With the
proliferation of new technologies, disintermediation of traditional channels is being witnessed.
Banks can go beyond their traditional role as a channel for banking/financial services and can
become providers of personalized information. They can successfully leverage m-banking to:

Provide personalized products and services to specific customers and thus increase

customer loyalty.
Exploit additional sources of revenue from subscriptions, transactions and third-party
referrals

E-Banking gives banks the opportunity to significantly expand their customer relationships
provided they position themselves effectively. To leverage these opportunities, they must form
structured alliances with service affiliates, and acquire competitive advantage in collecting,
processing and deploying customer information.

(7.2) E-BANKING TREND:Internet banking is gaining ground. Banks increasingly operate websites through which
customers are able not only to inquire about account balances and interest and exchange rates but
also to conduct a range of transactions. Unfortunately, data on Internet banking are scarce, and
differences in definitions make cross-country comparisons difficult.

37

Even so, one finds that Internet banking is particularly widespread in Austria, Korea, the
Scandinavian countries, Singapore, Spain, and Switzerland, where more than 75 percent of all
banks offer such services. The Scandinavian countries have the largest number of Internet users,
with up to one-third of bank customers in Finland and Sweden taking.

(7.3) ERRORS OF E-BANKING:You have 60 days from the date a periodic statement containing a problem or error was sent to
you to notify your financial institution. The best way to protect yourself if an error occurs is to
notify the financial institution by certified letter. Ask for a return receipt so you can prove that
the institution got your letter. Keep a copy of the letter for your records.
Under federal law, the institution has no obligation to conduct an investigation if you miss the
60-day deadline. Once you've notified the financial institution about an error on your statement,
it has 10 business days to investigate. The institution must tell you the results of its investigation
within three business days after completing it, and must correct an error within one business day
after determining that the error has occurred. An institution usually is permitted to take more
time up to 45 days to complete the investigation, but only if the money in dispute is returned to
your account and you're notified promptly of the credit.
An error also may occur in connection with a point-of-sale purchase with a debit card. For
example, an oil company might give you a debit card that lets you pay for gas directly from your
bank account. Or you may have a debit card that can be used for a various types of retail
purchases. These purchases will appear on your bank statement. In case of an error on your
account, however, you should contact the card issuer (for example, the oil company or bank) at
the address or phone number provided by the company for errors. Once you've notified the
company about the error, it has 10 business days to investigate and tell you the results. In this
situation, it may take up to 90 days to complete an investigation, if the money in dispute is
returned to your account and you're notified promptly of the credit. If no error is found at the end
of the investigation, the institution may take back the money if it sends you a written
explanation.

38

CHAPTER 8
FACILITIES PROVIDED BY E-BANKING
(8.1) THE FACILITIES OF E-BANKING:There are four types of facilities which is provided by the e-banking services, the facilities
provided by the e-banking are as follows:(8.1.1) Automated teller machine (ATM)
(8.1.2) Credit cards/debit cards
(8.1.3) Smart cards
(8.1.4) E-cheque

(8.1.1) Automated Teller Machine (ATM):ATM is designed to perform the most important function of bank. It is operated by plastic card
with its special features. The plastic card is replacing cheque, personal attendance of the
customer, banking hours restrictions and paper based verification. There are debit cards. ATMs
used as spring board for Electronic Fund Transfer. ATM itself can provide information about
customers account and also receive instructions from customers - ATM cardholders. An ATM is
an Electronic Fund Transfer terminal capable of handling cash deposits, transfer between
accounts, balance enquiries, cash withdrawals and pay bills. It may be on-line or 0ff-line. The
on-line ATN enables the customer to avail banking facilities from anywhere. In off-line the
facilities are confined to that particular ATM assigned. Any customer possessing ATM card
issued by the Shared Payment Network System can go to any ATM linked to Shared Payment
Networks and perform his transactions.

39

(8.1.2) Credit Cards/Debit Cards:The Credit Card holder is empowered to spend wherever and whenever he wants with his Credit
Card within the limits fixed by his bank. Credit Card is a post paid card. Debit Card, on the
other hand, is a prepaid card with some stored value. Every time a person uses this card, the
Internet Banking house gets money transferred to its account from the bank of the buyer. The
buyers account is debited with the exact amount of purchases. An individual has to open an
account with the issuing bank which gives debit card with a Personal Identification Number
(PIN). When he makes a purchase, he enters his PIN on shops PIN pad. When the card is slurped
through the electronic terminal, it dials the acquiring bank system - either Master Card or VISA
that validates the PIN and finds out from the issuing bank whether to accept or decline the
transactions. The customer can never overspend because the system rejects any transaction
which exceeds the balance in his account. The bank never faces a default because the amount
spent is debited immediately

40

(8.1.3) Smart Card:Banks are adding chips to their current magnetic stripe cards to enhance security and offer new
service, called Smart Cards. Smart Cards allow thousands of times of information storable on
magnetic stripe cards. In addition, these cards are highly secure, more reliable and
perform multiple functions. They hold a large amount of personal information, from medical and
health history to personal banking and personal preferences from the customers account.

(8.1.4) E-CHEQUE:41

An e-cheque is the electronic version or representation of paper cheque. The information and
legal framework on the cheque is the same as that of the paper cheques. It can now be used in
place of paper cheques to do any and all remote transactions. An e-cheque work the same way a
cheque does, the cheque writer writes the e-cheque using one of many types of electronic
device and gives the e-cheque to the payee electronically.
The payee deposits the electronic cheque receives credit, and the payees bank clears the echeque to the paying bank. The paying bank validates the e-Cheque and then "charges"
the check writer's account for the check.

(8.2) Lost or Stolen ATM or DEBIT CARDS:If your credit card is lost or stolen, you can't lose more than $50. If someone uses your ATM or
debit card without your permission, you can lose much more.
If you report an ATM or debit card missing to the institution that issues the card before someone
uses the card without your permission, you can't be responsible for any unauthorized
withdrawals. But if unauthorized use occurs before you report it, the amount you can be
responsible for depends on how quickly you report the loss to the card issuer.

If you report the loss within two business days after you realize your card is missing, you
won't be responsible for more than $50 of unauthorized use.

If you report the loss within 60 days after your statement is mailed to you, you could lose
as much as $500 because of an unauthorized transfer.

If you dont report an unauthorized use of your card within 60 days after the card issuer
mails your statement to you, you risk unlimited loss; you could lose all the money in that
account, the unused portion of your maximum line of credit established for overdrafts,
and maybe more.

42

If an extenuating circumstance, like lengthy travel or illness, keeps you from notifying the card
issuer within the time allowed, the notification period must be extended. In addition, if state law
or your contract imposes lower liability limits than the federal EFT Act, the lower limits apply.
Once you report the loss or theft of your ATM or debit card to the card issuer, you're not
responsible for additional unauthorized use. Because unauthorized transfers may appear on your
statements, though, read each statement you receive after you've reported the loss or theft. If the
statement shows transfers that you didn't make or that you need more information about, contact
the card issuer immediately, using the special procedures it provided for reporting errors.

(8.3) SERVICES THROUGH E-BANKING:(8.3.1) Bill payment service:You can facilitate payment of electricity and telephone bills, mobile phone, credit card and
insurance premium bills as each bank has tie-ups with various utility companies, service
providers and insurance companies, across the country. To pay your bills, all you need to do is
complete a simple one-time registration for each biller. You can also set up standing instructions
online to pay your recurring bills, automatically. Generally, the bank does not charge customers
for online bill payment.

(8.3.2) Fund transfer:You can transfer any amount from one account to another of the same or any another bank.
Customers can send money anywhere in India. Once you login to your account, you need to
mention the payees account number, his bank and the branch. The transfer will take place in a
day or so, whereas in a traditional method, it takes about three working days. ICICI Bank says
that online bill payment service and fund transfer facility have been their most popular online
services.

43

(8.3.3) Credit card customers:With Internet banking, customers can not only pay their credit card bills online but also get a
loan on their cards. If you lose your credit card, you can report lost card online.

(8.3.4) Railway pass:This is something that would interest all the aam janta. Indian Railways has tied up with ICICI
bank and you can now make your railway pass for local trains online. The pass will be delivered
to you at your doorstep. But the facility is limited to Mumbai, Thane, Nashik, Surat and Pune.

(8.3.5) Investing through Internet banking:You can now open an FD online through funds transfer. Now investors with interlinked demat
account and bank account can easily trade in the stock market and the amount will be
automatically debited from their respective bank accounts and the shares will be credited in their
demat account.
Nowadays, most leading banks offer both online banking and demat account. However if you
have your demat account with independent share brokers, then you need to sign a special form,
which will link your two accounts

(8.3.6) Recharging your prepaid phone:Now just top-up your prepaid mobile cards by logging in to Internet banking. By just selecting
your operator's name, entering your mobile number and the amount for recharge, your phone is
again back in action within few minutes.

(8.3.7) Shopping at your figure tip:With a range of all kind of products, you can shop online and the payment is also
made conveniently through your account. You can also buy railway and air tickets through
Internet banking.

44

CHAPTER 9
ELECTRONIC FUND TRANSFER [ETF]
Electronic banking, also known as electronic fund transfer (EFT), uses computer and electronic
technology in place of checks and other paper transactions. EFTs are initiated through devices
like cards or codes that let you, or those you authorize, access your account. Many financial
institutions use ATM or debit cards and Personal Identification Numbers (PINs) for this purpose.
Some use other types of debit cards that require your signature or a scan. For example, some use
radio frequency identification (RFID) or other forms of "contactless" technology that scan your
information without direct contact with you. The federal Electronic Fund Transfer Act (EFT Act)
covers some electronic consumer transactions.
Here are some common EFT services:

(1) ATM:ATMs are electronic terminals that let you bank almost virtually any time. To withdraw cash,
make deposits, or transfer funds between accounts, you generally insert an ATM card and enter
your PIN. Some financial institutions and ATM owners charge a fee, particularly if you don't
have accounts with them or if your transactions take place at remote locations. Generally, ATMs
must tell you they charge a fee and the amount on or at the terminal screen before you complete
the transaction. Check with your institution and at ATMs you use for more information about
these fees.

(2) Direct Deposit:Lets you authorize specific deposits like paychecks, Social Security checks, and other benefits
to your account on a regular basis. You also may pre-authorize direct withdrawals so that
recurring bills like insurance premiums, mortgages, utility bills, and gym memberships are paid
automatically. Be cautious before you pre-authorize recurring withdrawals to pay companies you
aren't familiar with; funds from your bank account could be withdrawn improperly. Monitor your
bank account to make sure direct recurring payments take place and are for the right amount.

45

(3) Pay-by-Phone Systems:Let you call your financial institution with instructions to pay certain bills or to transfer funds
between accounts. You must have an agreement with your institution to make these transfers.

(4) Personal Computer Banking:Lets you handle many banking transactions using your personal computer. For example, you may
use your computer to request transfers between accounts and pay bills electronically.

(5) Debit Card Purchase or Payment Transactions:let you make purchases or payments with a debit card, which also may be your ATM card.
Transactions can take place in-person, online, or by phone. The process is similar to using a
credit card, with some important exceptions: a debit card purchase or payment transfers money
quickly from your bank account to the company's account, so you have to have sufficient funds
in your account to cover your purchase. This means you need to keep accurate records of the
dates and amounts of your debit card purchases, payments, and ATM withdrawals. Be sure you
know the store or business before you provide your debit card information to avoid the possible
loss of funds through fraud. Your liability for unauthorized use, and your rights for dealing with
errors, may be different for a debit card than a credit card.

(6) Electronic Check Conversion:Converts a paper check into an electronic payment in a store or when a company gets your
check in the mail.
When you give your check to a cashier in a store, the check is run through an electronic system
that captures your banking information and the amount of the check. You sign a receipt and you
get a copy for your records. When your check is given back to you, it should be voided or
marked by the merchant so that it can't be used again. The merchant electronically sends
information from the check (but not the check itself) to your bank or other financial institution,
and the funds are transferred into the merchant's account.

46

When you mail a check for payment to a merchant or other company, they may electronically
send information from your check (but not the check itself) through the system; the funds are
transferred from your account into their account. For a mailed check, you still should get notice
from a company that expects to send your check information through the system electronically.
For example, the company might include the notice on your monthly statement. The notice also
should state if the company will electronically collect a fee from your account like a "bounced
check" fee if you dont have enough money to cover the transaction.
Be careful with online and telephone transactions that may involve the use of your bank account
information, rather than a check. A legitimate merchant that lets you use your bank account
information to make a purchase or pay on an account should post information about the process
on its website or explain the process on the phone. The merchant also should ask for your
permission to electronically debit your bank account for the item you're buying or paying on.
However, because online and telephone electronic debits don't occur face-to-face, be cautious
about sharing your bank account information. Don't give out this information when you have no
experience with the business, when you didnt initiate the call, or when the business seems
reluctant to discuss the process with you. Check your bank account regularly to be sure that the
right amounts were transferred.
Not all electronic fund transfers are covered by the EFT Act.
For example, some financial institutions and merchants issue cards with cash value stored
electronically on the card itself. Examples include prepaid phone cards, mass transit passes,
general purpose reloadable cards, and some gift cards. These "stored-value" cards, as well as
transactions using them, may not be covered by the EFT Act, or they may be subject to different
rules under the EFT Act. This means you may not be covered for the loss or misuse of the card.
Ask your financial institution or merchant about any protections offered for these cards.

CHAPTER 10
47

SECURITY RISK OF E-BANKING

(10.1) RISK OF E-BANKING:This changing financial landscape brings with it new challenges for bank management and
regulatory and supervisory authorities. The major ones stem from increased cross-border
transactions resulting from drastically lower transaction costs and the greater ease of banking
activities, and from the reliance on technology to provide banking services with the necessary
security.

Regulatory Risk:Because the Internet allows services to be provided from anywhere in the world, there is a
danger that banks will try to avoid regulation and supervision. What can regulators do? They can
require even banks that provide their services from a remote location through the Internet to be
licensed. Licensing would be particularly appropriate where supervision is weak and cooperation
between a virtual bank and the home supervisor is not adequate. Licensing is the norm, for
example, in the United States and most of the countries of the European Union. A virtual bank
licensed outside these jurisdictions that wishes to offer electronic banking services and take
deposits in these countries must first establish a licensed branch. Determining when a bank's
electronic services trigger the need for a license can be difficult, but indicators showing where
banking services originate and where they are provided can help.
For example, a virtual bank licensed in country X is not seen as taking deposits in country Y if
customers make their deposits by posting checks to an address in country X. If a customer makes
a deposit at an automatic teller machine in country Y, however, that transaction would most
likely be considered deposit taking in country Y. Regulators need to establish guidelines to
clarify the gray areas between these two cases.

Legal Risk:48

Electronic banking carries heightened legal risks for banks. Banks can potentially expand the
geographical scope of their services faster through electronic banking than through traditional
banks. In some cases, however, they might not be fully versed in a jurisdiction's local laws and
regulations before they begin to offer services there, either with a license or without a license if
one is not required. When a license is not required, a virtual bank lacking contact with its host
country supervisor may find it even more difficult to stay abreast of regulatory changes. As a
consequence, virtual banks could unknowingly violate customer protection laws, including
on data collection and privacy, and regulations on soliciting. In doing so, they expose
themselves to losses through lawsuits or crimes that are not prosecuted because of jurisdictional
disputes. Money laundering is an age-old criminal activity that has been greatly facilitated by
electronic banking because of the anonymity it affords.

Once a customer opens an account, it is impossible for banks to identify whether the
nominal account holder is conducting a transaction or even where the transaction is taking place.
To combat money laundering, many countries have issued specific guidelines on
identifying customers. They typically comprise recommendations for verifying an individual's
identity and address before a customer account is opened and for monitoring online transactions,
which requires great vigilance.

In a report issued in 2000, the Organization for Economic Cooperation and Development's
Financial Action Task Force raised another concern. With electronic banking crossing national
boundaries, whose regulatory authorities will investigate and pursue money laundering
violations? The answer, according to the task force, lies in coordinating legislation and regulation
internationally to avoid the creation of safe havens for criminal activities.

Operational Risk:49

The reliance on new technology to provide services makes security and system availability the
central operational risk of electronic banking. Security threats can come from inside or outside
the system, so banking regulators and supervisors must ensure that banks have appropriate
practices in place to guarantee the confidentiality of data, as well as the integrity of the system
and the data. Banks' security practices should be regularly tested and reviewed by outside experts
to analyze network vulnerabilities and recovery preparedness. Capacity planning to address
increasing transaction volumes and new technological developments should take account of the
budgetary impact of new investments, the ability to attract staff with the necessary expertise, and
potential dependence on external service providers. Managing heightened operational risks needs
to become an integral part of banks' overall management of risk, and supervisors need to include
operational risks in their safety and soundness evaluations.

Reputational Risk:Breaches of security and disruptions to the system's availability can damage a bank's reputation.
The more a bank relies on electronic delivery channels, the greater the potential for reputational
risks. If one electronic bank encounters problems that cause customers to lose confidence in
electronic delivery channels as a whole or to view bank failures as system wide supervisory
deficiencies, these problems can potentially affect other providers of electronic banking
services. In many countries where electronic banking is becoming the trend, bank supervisors
have put in place internal guidance notes for examiners, and many have released riskmanagement guide lines for banks.
Reputational risks also stem from customer misuse of security precautions or ignorance about the
need for such precautions. Security risks can be amplified and may result in a loss of confidence
in electronic delivery channels. The solution is consumer educationa process in which
regulators and supervisors can assist.

50

For example, some bank supervisors provide links on their websites allowing customers to
identify online banks with legitimate charters and deposit insurance. They also issue tips on
Internet banking, offer consumer help lines, and issue warnings about specific entities t h a t
m a y b e c o n d u c t i n g unauthorized banking operations in the country

(10.2) SECURITY OF E-BANKING

Security of a customer's financial information is very important, without which online banking
could not operate. Financial institutions have set up various security processes to reduce the risk
of unauthorized online access to a customer's records, but there is no consistency to the various
approaches adopted.
The use of a secure website has become almost universally adopted.
Though single password authentication is still in use, it by itself is not considered secure enough
for online banking in some countries. Basically there are two different security methods in use
for online banking.

Another way to provide TANs to an online banking user is to send the TAN of the current
bank transaction to the user's (GSM) mobile phone via SMS. The SMS text usually quotes
the transaction amount and details; the TAN is only valid for a short period of time.

Especially in Germany, Austria and The Netherlands, many banks have adopted
this "SMS TAN" service.

The PIN/TAN system where the PIN represents a password, used for the login and TANs
representing one-time passwords to authenticate transactions. TANs can be distributed in
different ways; the most popular one is to send a list of TANs to the online banking user by
postal letter. Another way of using TANs is to generate them by need using a security token.

These token generated TANs depend on the time and a unique secret, stored in the
security token (two-factor authentication or 2FA).

Signature based online banking where all transactions are signed and encrypted digitally.

51

The Keys for the signature generation and encryption can be stored on smartcards or any
memory medium, depending on the concrete implementation. More advanced TAN generators
(chip TAN) also include the transaction data into the TAN generation process after displaying it
on their onscreen to allow the user to discover man-in-the-middle attacks carried out
by Trojans trying to secretly manipulate the transaction data in the background of the PC.

Another way to provide TANs to an online banking user is to send the TAN of the current bank
transaction to the user's (GSM) mobile phone via SMS. The SMS text usually quotes the
transaction amount and details; the TAN is only valid for a short period of time. Especially in
Germany, Austria and The Netherlands, many banks have adopted this "SMS TAN" service.
Usually online banking with PIN/TAN is done via a web browser using SSL secured
connections, so that there is no additional encryption needed.

Signature based online banking where all transactions are signed and encrypted digitally.
The Keys for the signature generation and encryption can be stored on smartcards or any
memory medium, depending on the concrete implementation

In 2012 the European Union Agency for Network and Information Security advised all banks to
consider the PC systems of their users being infected by malware by default and therefore use
security processes where the user can cross check the transaction data against manipulations like

for example (provided the security of the mobile phone holds up) SMS TAN where the
transaction data is send along with the TAN number or standalone smartcard readers with an own
screen including the transaction data into the TAN generation process while displaying it
beforehand to the user (see chip TAN) to counter man-in-the-middle attacks

52

(10.2.1) Attacks:-

Attacks on online banking used today are based on deceiving the user to steal login data and
valid TANs. Two well known examples for those attacks are phishing and pharming. Cross-site
scripting and key logger /Trojan horses can also be used to steal login information.
A method to attack signature based online banking methods is to manipulate the used software in
a way, that correct transactions are shown on the screen and faked transactions are signed in the
background.

A 2008 U.S. Federal Deposit Insurance Corporation Technology Incident Report, compiled from
suspicious activity reports banks file quarterly, lists 536 cases of computer intrusion, with an
average loss per incident of $30,000. That adds up to a nearly $16-million loss in the second
quarter of 2007. Computer intrusions increased by 150 percent between the first quarter of 2007
and the second. In 80 percent of the cases, the source of the intrusion is unknown but it occurred
during online banking, the report states

Another kind of attack is the so-called Man in the Browser attack, where a Trojan horse permits
a remote attacker to modify the destination account number and also the amount.

As a reaction to advanced security processes allowing the user to cross check the transaction data
on a secure device there are also combined attacks using malware and social engineering to
persuade the user himself to transfer money to the fraudsters on the ground of false claims (like
the claim the bank would require a "test transfer" or the claim a company had falsely transferred

53

money to the user's account and he should "send it back"). Users should therefore never perform
bank transfers they have not initiated themselves.

(10.2.2) Countermeasures:-

There exist several countermeasures which try to avoid attacks. Digital certificates are used
against phishing and pharming, in signature based online banking variants (HBCI/FinTS) the use
of "Secoder" card readers is a measurement to uncover software side manipulations of the
transaction data. To protect their systems against Trojan horses, users should use virus
scanners and be careful with downloaded software or e-mail attachments.

In 2001, the U.S. Federal Financial Institutions Examination Council issued guidance
for multifactor authentication (MFA) and then required to be in place by the end of 2006.

In 2012 the European Union Agency for Network and Information Security advised all banks to
consider the PC systems of their users being infected by malware by default and therefore use
security processes where the user can cross check the transaction data against manipulations like
for example (provided the security of the mobile phone holds up) SMS TAN where the
transaction data is send along with the TAN number or standalone smartcard readers with an own
screen including the transaction data into the TAN generation process while displaying it
beforehand to the user (see chip TAN) to counter man-in-the-middle attacks

(10.3) TIPS FOR SAFER E-BANKING:54

Online banking is nice and convenient. But it does come with certain risks. Just as you hear of
people being robbed at ATMs, or having their cards cloned, so online accounts are also a point of
vulnerability.
Follow these 8 tips and you can minimize the risks to your finances and bank safely online:

1. Choose an account with two factor authentication:Try to get a bank account that offers some form of two factor authentication for online banking.
These days many, but not all, banks offer a small device that can be used to generate a unique
code each time you log in. This code is only valid for a very short period of time and is required
in addition to your login credentials in order to gain access to your online account.
2. Create a strong password:If your bank requires a user-generated password in order to access online accounts make sure
you choose one that is strong. The best way to achieve this is by making it long and a mix of
upper and lower case letters, numbers, and special characters.
Always avoid using any common words or phrases and never create a password that contain your
name, initials, or your date of birth. If your bank allows it, change your password every few
months.
When setting up online banking, if your bank asks you to provide answers to some standard
security questions remember that the answer you give doesn't have to be the real one. So you
don't have to answer "Thumper" to the name of your first pet - make it something else, as if it
was a password. Use a password manager if you are concerned about how to remember
everything!
3. Secure your computer and keep it up-to-date:Security software is essential these days, regardless of what you use your computer for.
As a minimum, make sure you have a firewall turned on and are running antivirus software. This
will ensure you are protected from Trojans, key loggers and other forms of malware that could be
used to gain access to your financial data.
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You'll also want to keep your operating system and other software up-to-date to ensure that there
are no security holes present.

4. Avoid clicking through emails:No financial institution worth their salt will send you an email asking you to provide any of your
login details.
If you receive an email that appears to be from your bank that asks for such details then treat it
with suspicion as it may well be a phishing attempt to trick you into handing your credentials
over.

Likewise, be aware of links in emails that appear to be from your bank this is a trick often
employed by the bad guys to get you onto a website that looks like your bank. When you log in
to 'your account' they will steal your username and password and, ultimately, your cash.
It is always safer to access your online bank account by typing the address into your browser
directly. Also, be aware of unsolicited phone calls that purport to be from your bank. While your
financial institution may require you to answer a security question, they should never ask for
passwords or PINs (they may ask for certain letters or numbers from them, but never the whole
thing).

56

If in doubt, do not be afraid to hang up and then call your bank back via a telephone number that
you have independently confirmed as being valid.

5. Access your accounts from a secure location:It's always best practice to connect to your bank using computers and networks you know and
trust. But if you need to access your bank online from remote locations you might want to set up
a VPN (Virtual Private Network) so that you can establish an encrypted connection to your home
or work network and access your bank from there.
Look for a small padlock icon somewhere on your browser and check the address bar the URL
of the site you are on should begin with 'https'. Both act as confirmation that you are accessing
your account over an encrypted connection.

6. Always log out when you are done:It is good practice to always log out of your online banking session when you have finished your
business. This will lessen the chances of falling prey to session hijacking and cross-site scripting
exploits.
You may also want to set up the extra precaution of private browsing on your computer or smart
phone, and set your browser to clear its cache at the end of each session.

7. Set up account notifications (if available):Some banks offer a facility for customers to set up text or email notifications to alert them to
certain activities on their account. For example, if a withdrawal matches or exceeds a specified
amount or the account balance dips below a certain point then a message will be sent.
Such alerts could give quick notice of suspicious activity on your account.

57

8. Monitor your accounts regularly:-

It should go without saying that monitoring the your bank statement each month is good practice
as any unauthorized transactions will be sure to appear there.
But why wait a whole month to discover a discrepancy? With online banking you have access
24/7 so take advantage of that and check your account on a regular basis. Look at every
transaction since you last logged in and, if you spot any anomalies, contact your bank
immediately.

(10.4) SECURITY PRECAUTIONS:Customers should never share personal information like PIN numbers, passwords etc with
anyone, including employees of the bank. It is important that documents that contain confidential
information are safeguarded. PIN or password mailers should not be stored, the PIN and/or
passwords should be changed immediately and memorized before destroying the mailers.
Customers are advised not to provide sensitive account-related information over unsecured emails or over the phone.

Take simple precautions like changing the ATM PIN and online login and transaction passwords
on a regular basis. Also ensure that the logged in session is properly signed out.

58

A recent study (May 2012) by Map Research suggests that over a third of banks have
mobile device detection upon visiting the banks main website.

In Bangladesh, Trust Bank is first bank who started to provide mobile banking services
in August, 2010. In May, 2011 DBBL started mobile banking services at mass level. With
most renewed BRACK BIKASH there are 9 banks who provides mobile banking
services. Eastern Bank and other 6 banks are permitted to conduct International
Remittances.

Total Registered Customer of Mobile Banking is 442, 289 and International Remittances
Service is 887. When Agents of Banks are 9,093 and 3,670 respectively. Total Value of
Transactions is 2070 million Taka. Through over 3000 ATMs banks are providing its
services.

SMS banking is a type of mobile banking, a technology-enabled service offering from

banks to its customers, permitting them to operate selected banking services over their
mobile phones using SMS messaging.

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CHAPTER 11
QUESTIONNAIRE

1) Do you know about E- Banking?

a) Well known
b) Something known
c) Nothing at all
2) What were your reasons for choosing e-banking service? Please select all that apply?
a) Convenience
b) To save time
c) 24 hour access to accounts
d) Other
3) How often do you use online services?

a)
b)
c)
d)

Daily
Weekly
Monthly
Never

4) Which online features do you use regularly? Please select all that apply.

a) Pay bills
b) Make an account inquiry
c) Transfer funds between accounts
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d) Order check books

e) Other

5) Do you use an Automated Teller Machine (ATM)?

a) Always
b) Sometimes
c) Never
6) How frequently do you use an Automated Teller Machine (ATM) per month?
a)
b)
c)
d)
e)

Less than1
1 to 3 times
3 to 8 times
8 to 12 times
Over 12 times

7) Do you think that E-Banking is convenient?

a) Yes
b) No
8) Which services do you mostly use in e-banking?
a)
b)
c)
d)

Telephone banking
Internet banking
Mobile banking
Other

9) Are the services being offered by e-banking adequate?

a) Yes
b) No
10) Do you think the security provided by e-banking is sufficient to secure your account?
a) Yes
b) No

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CHAPTER 12
FINDINGS:

Most of the people are well known about E-Banking.

As per the survey, most of the Customers choose E-Banking services as its saves time,
and also has 24 hrs access to accounts and more convenience to use.

The 60% of customers use online services Weekly and Monthly.

Apparently, customers use online services to Pay Bills and to Transfer funds between
their accounts.

The 70% of customer always use Automated Teller Machines(ATM).

The 90% of customers think that E-Banking is convenient to them.

The 80% of people use Internet Banking and Mobile Banking.

The services offered by E-Banking is at satisfactory level.

The security provided by E-Banking is sufficient to secure the accounts of the customers.

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CONCLUSION
Due to constraints of time and resources, the study is likely to suffer from certain limitations.
Some of these are mentioned here under so that the findings of the study may be understood in a
proper prospective.
The study is based on the secondary data and the limitation of using secondary data may affect
the results and also Primary data has been collected in form of questionnaire.
Here by, I Concluded my project that E-Banking services and facilities are convenient to the
customers. According to the Primary Data most of the people are aware about the E-Banking and
its services. As its is time saving and 24 hrs access to accounts.

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CHAPTER 13
BIBLIOGRAPHY
Websites:
http://en.wikipedia.org
http://in.ask.com/web
www.slideshare.com
www.google.com

Books:
Banking and insurance (sy bms) vipul publication

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