ELECTRONIC BANKING

A Project Submitted To University Of Mumbai for partial completion of the degree of Bachelor Of
Management Studies

Under The Faculty Of Commerce

By

PRITIPARIMITA PRAVAKAR BEHERA

Under The Guidance Of

Dr. Sonia Pant

At Junction NH4, Sion Panvel Express Highway, Sector 1, Kamothe, Navi Mumbai - Pin: 410209.
Maharashtra, India.

April 2024
 MAHATMA GANDHI’S MISSION COLLEGE OF COMMERCE,
KAMOTHE, NAVI MUMBAI. 410209

CERTIFICATE

This is certify that Ms. PRITIPARIMITA PRAVAKAR BEHERA has worked and duly completed his
project work for the degree of Bachelor of Management Studies in the faculty of commerce and his project
is entitled “ELECTRONIC BANKING” Under my supervision. It is his own work and facts reported by his
personal findings and investigations.

Seal Of

Name & Signature of Guide Teacher

Date of Submission
 DECLARATION ON BY LEARNER

I, PRITIPARIMITA PRAVAKAR BEHERA, here by, declare that the work embodied in this project
worked title “ELECTRONIC BANKING” form my own contribution to the research work carried out
under the guidance of PROF. SONIA PANT is a result of my own research work and has not been
previously submitted to any other Degree/Diploma to this or any other University.

Where every reference has been made to previous works of other, it has bed clearly
indicated as such and included in the bibliography.

I, here by further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.

Name & Signature of learner

Certified By

Name and signature of the Guiding Teacher

Date

Place
 Acknowledge

To list who all have helped me is difficult because they are so numerous and the depth is so
enormous.
I would like to acknowledge the following as being idealistic channels and fresh dimensions in the
completion of this project.

I take this opportunity to thank the University of Mumbai for giving me a chance to do this project.

I would like to thank my Principal Chaitali Gadhekar for providing the necessary facilities required for
completion of this project.

I take this opportunity to thank our Coordinator PROF. Dr. Sonia Pant for his moral support and guidance.

I would also like to express my sincere gratitude towards my project guide of PROF.DR. SONIA PANT whose
guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference books and
magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped me in the
completion of the project, especially my parents and Peers who supported me throughout my
project.

4|Page
 1. INTRODUCTION

Information Technology has become a necessary tool in today’s organizations. Banks

today operate in a highly globalized, liberalized, privatized and a competitive environment. In
order to survive in this environment banks have to use IT. IT has introduced new business
paradigm. It is increasingly playing a significant role in improving the services in the banking
industry. Indian banking industry has witnessed a tremendous developments due to sweeping
changes that are taking place in the information technology. Electronic banking has emerged.

The world is changing at a staggering rate and technology is considered to be the key driver
for these changes around us. An analysis of technology and its uses show that it has
permeated in almost every aspect of our life. Many activities are handled electronically due to
the acceptance of information technology at home as well as at workplace. Slowly but
steadily, the Indian customer is moving towards the internet banking. The ATM and the Net
transactions are becoming popular. But the customaries clear on one thing that he wants net-
banking to be simple and the banking sector is matching its steps to the march of technology.
E-banking or Online banking is a generic term for the delivery of banking services and
products through the electronic channels such as the telephone, the internet, the cell phone
etc. The concept and scope of e-banking is still evolving. It facilitates an effective payment
and accounting system thereby enhancing the speed of delivery of banking services
considerably Several initiatives have been taken by the Government of India as well

as the RBI(Reserve Bank of India); have facilitated the development of e-banking in India.
The government of India enacted the IT Act, 2000, which provides legal recognition to
electronic transactions and other means of electronic commerce. The RBI has been preparing
to upgrade itself as regulator and supervisor of the technologically dominated financial
system. It issued guidelines on the risks and controls in computer and telecommunication
systems to all banks, advising them to evaluate the risks inherent in the systems and put in
place adequate control mechanisms to address these risks.

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 1.1 WHY THIS Search

Analysis of the differences in risk perceptions between bank customers using Internet
Banking and those not using Internet Banking was done and it showed that risk perceptions in
terms of financial, psychological and safety risks among customers not using the internet was
more meaningful then those using internet banking.

Customers not preferring to use internet banking through that they would be swindled when
using this services, therefore, are particularly careful about high risk expectation during
money transfers from and between accounts. As per the survey 19% of the people use
personal banking and 6% of the people are using E-banking out of 25 survey samples.

An analysis of the differences in risk perceptions between bank customers using Internet
Banking and those not using Internet Banking was done and it showed that risk perceptions in
terms of financial, psychological and safety risks among customer not using the internet was
more meaningful than those using internet banking.

Customers not preferring to use internet banking thought that they would be swindled when
using this service, and therefore, are particularly careful about high risk expectation during
money transfers from and between accounts. As per the survey 19% of the people use
personal banking and 6% of the people are using E-banking out of 25 survey samples.

As per IAMAI and I-cube, the number of active Internet user (i.e. ones who logon to Internet
at least once a month) is now 32 million and numbers who have used Internet at least once
stands at 46 million. Maximum of the person who are going on for internet banking lies in the
age bracket of 26-35. But the rise in the age the level of user become low. Approximately
17% of female use internet banking. This is a matter of concern for a Banks what are the
causes why this is happening.

Although many major banks have started offering i-banking services, the slow pace will
continue until the critical mass is achieved for PC, internet connections and
telephones.However, the upsurge of IT professionals with growing demands is pressuring the
Government and bureaucracy in the country to support and develop new 10 initiatives for
faster spread of i-banking. But then to there is a fear in mind of customer using Internets a
medium for the banking transaction.

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 Private and foreign banks are trying to turn more and more customer towards the usage if
internet for the banking transaction. This study is basically to know the relation of various
independent variables on the customer usage of internet for
Banking.

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 1.2 WHAT IS E-BANKING?

Electronic banking is one of the truly widespread avatars of E-commerce the world over.
Various authors define E-Banking differently but the most definition depicting the meaning
and features of E-Banking are as follows

1. Banking is a combination of two, Electronic technology and Banking..

2. Electronic Banking is a process by which a customer performs banking Transactions
electronically without visiting a brick-and-mortar institutions.
3. E-Banking denotes the provision of banking and related service through Extensive
use of information technology without direct recourse to the bank by the customer.

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 1.3 NEED FOR E-BANKING

One has to approach the branch in person, to withdraw cash or deposit a cheque or request a
statement of accounts. In true Internet banking, any inquiry or transaction is processed online
without any reference to the branch (anywhere banking) at any time .Providing Internet
banking is increasingly becoming a "need to have" than a "nice to have" service. The net
banking, thus, now is more of a norm rather than an exception in many developed countries
due to the fact that it is the cheapest way of providing banking services. Banks have
traditionally been in the forefront of harnessing technology to improve their products, services
and efficiency. They have, over a long time, been using electronic and telecommunication
networks for delivering a wide range of value-added products and services. The delivery
channels include direct dial – up connections, private networks, public networks etc and the
devices include telephone, Personal Computers including the Automated Teller Machines,
etc. With the popularity of PCs, easy access to Internet and World Wide Web (WWW),
Internet is increasingly used by banks as a channel for receiving instructions and delivering
their products and services to their customers. This form of banking is generally referred to as
Internet Banking, although the range of products and services offered by different banks vary
widely both in their content and sophistication

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 1.4 HISTORY OF E-BANKING

The precursor for the modern home online banking services were the distance banking
services over electronic media from the early '80s. The term online became popular in the late
'80s and refers 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 video text system. Because
of the commercial failure of video text these banking services never became popular except in
France where the use of video text (Minutely) was subsidized by the tel ecom provider and
the UK, where the Pestle system was used. The UK’s first home online banking services were
set up by the Nottingham Building Society (NBS) in 1983 ("History of the Nottingham"
Retrieved on 2007-12-14.). The system used was based on the UK's Pestle 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 (known as 'Home link') 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.

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 1.5 TYPES OF E-BANKING

Traditional banking
Personalized services, time-consuming, limited access
Virtual or E-banking
Nuclear charged Real time transactions, integrated platform, all time access Prestel. 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 Oct, 1994.

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 1.6 EVOLUTION OF E-BANKING

The story of technology in banking started with the use of punched card machines like
Accounting Machines or Ledger Posting Machines. The use of technology, at that time, was
limited to keeping books of the bank. It further developed with the birth of online real time
system and vast improvement in telecommunications during late1970’s and 1980’s.it resulted
in a revolution in the field of banking with “convenience banking” as a buzzword. Through
Convenience banking, the bank is carried to the doorstep of the customer. The 1990’s saw the
birth of distributed computing technologies and Relational Database Management System.
The banking industry was simply waiting for these technologies. Now with distribution
technologies, one could configure dedicated machines called front-end machines for customer
service and risk control while communication in the batch mode without hampering the
response time on the front-end machine.
Intense competition has forced banks to rethink the way they operated their business. They
had to reinvent and improve their products and services to make them more beneficial and
cost effective. Technology in the form of E-banking has made it possible to find alternate
banking practices at lower costs.
More and more people are using electronic banking products and services because large
section of the banks future customer base will be made up of computer literate customer, the
banks must be able to offer these customer products and services that allow them to do their
banking by electronic means.
If they fail to do this will, simply, not survive. New products and services are emerging that
are set to change the way we look at money and the monetary system.
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.

Informational
This is the basic level of Internet banking. Typically, the bank has marketing information
about the bank’s 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 bank’s 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 16 may be vulnerable to alteration.
Appropriate controls therefore must be in place to prevent unauthorized alterations to the
bank’s server or web site.

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 • Communicativee
The interaction maybe limited to electronic mail, account enquiry, loan applications, or static
file updates (name and address change). Because these servers may have a path to the bank’s
internal networks, the risk is higher with this configuration than with informational systems.
Appropriate controls need to be in the place to prevent, monitor, and alert management of any
unauthorized attempt to access the bank’s 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 outsourcer’s 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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 1.7 USAGE OF E-BANKING

The rise in the e-commerce and the use of internet in its facilitation along with the enhanced
online security of transactions and sensitive information has been the core reason for the
penetration of online banking in everyday life. According to the latest official figures from the
office of National Statistics ( ONS 2007) indicate that subscriptions to the internet has grown
more than 50% from 25 million in 2005 to 45million in 2007 in India. It has also been
estimated that 60% of the population in India use internet in their daily lives. The
fundamental shift towards the involvement of the customer in the financial service provision
with the help of the technology especially internet has helped to reduce the costs of financial
institutions as well as helped client to use the service at any time and from virtually anywhere
with access to an internet connection. The use of electronic banking has removed personnel
that facilitate the transactions and has placed additional responsibilities on the customers to
transact with the service. The computerization of the banking operations has made maximum
impact on: -
1) Customer service
2) Internal Accounting System
3) Diversification of System

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 1.8 INTERNET BANKING VERSUS TRADITIONAL BANKING

In spite of so many facilities that Internet banking offers us, we still seem to trust our
traditional method of banking and is reluctant to use online banking. But here are few cases
where Internet banking will turn out to be a better option in terms of saving your money.
'Stop payment' done through Internet banking will not cost any extra fees but when done
through the branch, the bank may charge you Rupees 50 per cheque plus the service tax.
Through Internet banking, you can check your transactions at any time of the day, and many
times as you want to. On the other hand, in a traditional method, you get quarterly statements
from the bank and if you request for a statement at your required time, it may turn out to be an
expensive affair. The branch may charge you Rupees 25 per page, which includes only 30
transactions. Moreover, the bank branch would take eight days to deliver it at your doorstep.
If the fund transfer has to be made outstation, where the bank does not have a branch, the
bank would demand outstation charges. Whereas with the help of online banking, it will be
absolutely free for you. As per the Internet and Mobile Association of India's report on online
banking 2006, "There are many advantages of online banking. It is convenient, it isn't bound
by operational timings, there are no geographical barriers and the services can be offered at a
miniscule cost.

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 1.9 IMPACT OF E-BANKING ON TRADITIONAL SERVICES

One of the issues currently being addressed is the impact of e-banking on traditional banking
players. After all, if there are risks inherent in going into e-banking there are other risks in not
doing so. It is too early to have a firm view on this yet. Even to practitioners the future of e-
banking and its implications are unclear. It might be convenient nevertheless to outline briefly
two views that are prevalent in the market. The view that the Internet is a revolution that will
sweep away the old order holds much sway. Arguments in favor are as follows’-banking
transactions are much cheaper than branch or even phone transactions. This could turn
yesterday’s competitive advantage - a large branch network - into a comparative
disadvantage, allowing Se-banks to undercut bricks-and-mortar banks. This is commonly
known as the "beached dinosaur" theory’s-banks are easy to set up so lots of new entrants will
arrive. ‘Old-world’ systems, cultures and structures will not encumber these new entrants.
Instead, they will be Adaptable and responsive. E-banking gives consumers much more
choice. Consumers will be less inclined to remain loyal. E-banking will lead to an erosion of
the ‘endowment effect’ currently enjoyed by the major UK banks. Deposits will go elsewhere
with the consequence that these banks will have to fight to regain and retain their customer
base. This will increase their cost of funds, possibly making their business less viable. Lost
revenue may even result in these banks taking more risks to breach the gap. Portal providers
are likely to attract the most significant share of banking profits. Indeed banks could become
glorified marriage brokers. They would simply bring two parties together – e.g. buyer and
seller, payer and payee. The products will be provided by monoclines, experts in their field.
Traditional banks may simply be left with payment and settlement business – even this could
be cast into doubt. Traditional banks will find it difficult to evolve. Not only will they be
unable to make acquisitions for cash as opposed to being able to offer shares, they will be
unable to obtain additional capital from the stock market. This is in contrast to the situation
for Internet firms for whom it seems relatively easy to attract investment. There is of course
another view which sees e-banking more as an evolution than a revolution. E-banking is just
banking offered via a new delivery channel.

It simply gives consumers another service (just as ATMs did). Like ATMs, e-banking will
impact on the nature of branches but will not remove their value. 20 Experience in
Scandinavia (arguably the most advanced e-banking area in the world) appears to confirm that
the future is ‘clicks and mortar’ banking. Customers want full service banking via a number
of delivery channels. The future is therefore ‘Martini Banking’ (any time, any place,
anywhere, anyhow).Traditional banks are starting to fight back. The start-up costs of an e-

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 bank are high. Establishing a trusted brand is very costly as it requires significant advertising
expenditure in addition to the purchase of expensive technology (as security and privacy are
key to gaining customer approval). E-banks have already found that retail banking only
becomes profitable once a large critical mass is achieved. Consequently many e-banks are
limiting themselves to providing a tailored service to the better off. Nobody really knows
which of these versions will triumph. This is something that the market will determine.
However, supervisors will need to pay close attention to the impact of e-banks on the
traditional banks, for example by surveillance of:
•strategy
•customer levels
•advertising spending
•margins •funding costs
•Merger opportunities and threats, both in the UK and abroad

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 1.10 E-BANKING PRODUCTS

Automated Teller Machine (ATM):

These are cash dispensing machine, which are frequently seen at banks and other locations
such as shopping centers and building societies. Their main purpose is to allow customer to
draw cash at any time and to provide banking services where it would not have been viable to
open another branching. on university campus. An automated teller machine or automatic
teller machine
(ATM) is computerized telecommunications device that provides a financial institution’s
customers a method of financial\ transactions in a public space without the need for a human
clerk or bank teller. On most modern ATMs, the customer identifies him or herself by
inserting a plastic ATM card with a magnetic stripe or a plastic smartcard with a chip that
contains his or her card number and some security information, such as an expiration date or
CVC (CVV). Security is provided by the customer entering a personal identification number
(PIN).Using an ATM, customers can access their bank accounts in order to make cash
withdrawals (or credit card cash advances) and check their account balances. Many ATMs
also allow people to deposit cash or checks, transfer money between their bank accounts, pay
bills, or purchase goods and services. Some of the advantages of ATM to customers are:-

•Ability to draw cash after normal banking hours

•Quicker than normal cashier service

•Complete security as only the card holder knows the PIN

• Does not just operate as a medium of obtaining cash.

•Customer can sometimes use the services of other bank ATM’s.

Tele banking or Phone Banking:

Telephone banking is relatively new Electronic Banking Product. However it is fatly
becoming one of the most popular products. Customer can perform a number of transactions
from the convenience of their own home or office; in fact from anywhere they have access to
phone. Customers can do following:-

•Check balances and statement information

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 •Transfer funds from one account to another

•Pay certain bills •Order statements or cheque books

•Demand draft request -This facility is available with the help of Voice Response System
(VRS). This system basically, accepts only TONE dialed input. Like the ATM customer has
to follow particular process, initially account number and telephone PIN are fed for the
process to start. Also the VRS system provides the users within additional facilities such as
changing existing password with the new desired, information about new products, current
interest rates etc.

Mobile Banking: Mobile banking comes in as a part of the banks initiative to offer multiple
channels banking providing convenience for its customer. A versatile multifunctional, free
service that is accessible and viewable on the monitor of mobile phone. Mobile phones are
playing great role in Indian banking- both directly and indirectly. They are being used both as
banking and other channels.

Internet Banking: The advent of the Internet and the popularity of personal computers
presented both an opportunity and a challenge for the banking industry. For years, financial
institutions have used powerful computer networks to automate millions of daily transactions;
today, often the only paper record is the customer’s receipt at the point of sale. Now that their
customers are connected to the Internet via personal computers, banks envision similar
advantages by adopting those same internal electronic processes to home use. Banks view
online banking as a powerful “value added” tool to attract and retain new customers while
helping to eliminate costly paper handling and teller interactions in an increasingly
competitive banking environment. In India first one to move into this area was ICICI Bank.
They started web based banking as early as august 1997.

Internet is a vast network of individual computers and computer networks connected to and
communicate with each other using the same communication protocol – TCP/IP
(Transmission Control Protocol / Internet Protocol). When two or more computers are
connected a network is created; connecting two or more networks create ‘inter-network’ or
Internet. The Internet, as commonly understood, is the largest example of such a system.
Internet is often and aptly described as ‘Information Superhighway’, a means to reach
innumerable potential destinations.

Internet has evolved to its present state out of a US Department of Defense project Arpanet

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 (Advanced Research Project Administration Network), developed in the late 1960s and early
1970s as an experiment in wide area networking. A major perceived advantage of Arpanet
was that the network would continue to operate even if a segment of it is lost or destroyed
since its operation did not depend on operation of any single computer. Though originally
designed as a defense network, over the years it was used predominantly in areas of scientific
research and communication. By the 1980s, it moved out of Pentagon’s control and more
independent networks from US and outside got connected to it. In 1986, the US National
Science Foundation (NSF) established a national network based on ARPA protocol using
commercial telephone lines for connectivity. The NSF Net was accessible by a much larger
scientific community, commercial networks and general users and the number of host
computers grew rapidly. Eventually, NSF Net became the framework of today’s Internet.
ARPA Net was officially decommissioned in 1990.

It has become possible for innumerable computers operating on different platforms to

communicate with each other over Internet because they adopt the same communication
protocol, viz, TCP/IP. The latter, which stands for ‘Transmission Control Protocol / Internet
Protocol’, is a set of rules which define how computers communicate with each other. In
order to access Internet one must have an account in a host computer, set up by any one of the
ISPs (Internet Service Providers).

The accounts can be SLIP (Serial Line Internet Protocol) or PPP (Point to Point Protocol)
account. These accounts allow creating temporary TCP/IP sessions with the host, thereby
allowing the computer to join the Internet and directly establish communication with any
other computer in the Internet. Through this type of connection, the client computer does not
merely act as a remote terminal of the host,
but can run whatever programs are available on the web. It can also run several programs
simultaneously, subject to limitations of speed and memory of the client computer and
modem.

TCP/IP protocol uses a unique addressing scheme through which each computer on the
network is identified. TCP / IP protocol is insecure because data packets flowing through TCP
/ IP networks are not normally encrypted. Thus, anyone who interrupts communication
between two machines will have a clear view of the data, passwords and the like. This has
been addressed through Secured Socket Layer (SSL), a Transport Layer Security (TLS)
system which involves an encrypted session between the client browser and the web server.

FTP or File Transfer Protocol is a mechanism for transferring files between computers on the

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 Internet. It is possible to transfer a file to and from a computer (ftp site) without having an
account in that machine. Any organization intending to make available to public its
documents would normally set up a ftp site from which any one can access the documents for
download. Certain ftp sites are available to validated users with an account ID and password.

E-mail: The most common and basic use of Internet is the exchange of e-mail (electronic
mail). It is an extremely powerful and revolutionary result of Internet, which has facilitated
almost instantaneous communication with people in any part of the globe. With enhancements
like attachment of documents, audio, video and voice mail, this segment of Internet is fast
expanding as the most used communication medium for the whole world. Many websites
offer e-mail as a free facility to individuals. Many corporate have interfaced their private
networks with Internet in order to make their e-mail accessible from outside their corporate
network.

World Wide Web (WWW): Internet encompasses any electronic communication between
computers using TCP/IP protocol, such as e-mail, file transfers etc. WWW is a segment of
Internet, which uses Hyper Text Markup Language (HTML) to link together files containing
text, rich text, sound, graphics, video etc. and offers a very convenient means of navigating
through the net. It uses hypertext transfer protocol (HTTP) for communication between
computers. Web documents, which are referred
to as pages, can contain links to other related documents and so on, in a tree like structure.
The person browsing one document can access any other linked page. The web documents
and the web browsers which are the application programs to access them, are designed to be
platform independent. Thus any web document can be accessed irrespective of the platform of
the computer accessing the document and that of the host computer. The programming
capabilities and platform independence of Java and Java applets have further enriched the
web. The ‘point and click’ method of browsing is extremely simple for any lay user of the net.
In fact, the introduction of web since early 1990 has made Internet an extremely popular
medium and its use in business has been enhanced dramatically.

The next in the HTML genre is the Extensible Markup Language (XML), which allows
automated two-way information flow between data stores and browser screens. An XML
document provide both the raw content of data and the data structure and is projected by its
proponents as taking the web technology beyond the limits of HTML.

Wireless Application Protocol (WAP): WAP is the latest industry standard which provides

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 wireless access to Internet through handheld devices like a cellular telephone. This is an open
standard promoted by WAP forum and has been adopted by world’s all major handset
manufacturers. WAP is supplemented by Wireless Application Environment (WAE), which
provides industry wise standard for developing applications and services for wireless
communication networks. This is based on WWW technology and provides for application
for small screens, with interactive capabilities and adequate security. Wireless Transaction
Protocol (WTP), which is the equivalent of TCP, sets the communication rules and Wireless
Transport Layer Security (WTLS) provides the required security by encrypting all the session
data. WAP is set to revolutionize the commercial use of net.

Security:
One of the biggest attractions of Internet as an electronic medium is its openness and
freedom. It is a public domain and there is no restriction on who can use it as long as one
adheres to its technical parameters. This has also given rise to concerns over the security of
data and information transfer and privacy. These concerns are common to any network
including closed user group networks. But over the Internet, the dimensions of risk are larger
while the control measures are relatively fewer. These issues are discussed in detail in
Chapter–5 and Chapter–6 of the report. It will be sufficient to say here that the key
components of such concern are, (i) authentication, viz., assurance of identity of the person in
a deal, (ii) authorization, viz., a party doing a transaction is authorized to do so, (iii) the
privacy or confidentiality of data, information relating to any deal, (iv) data integrity, viz.,
assurance that the data has not been altered and (v) non repudiation, viz., a party to the deal
cannot deny that it originated the communication or data.

E-Commerce:
Even though started as network primarily for use by researchers in defense and scientific
community, with the introduction of WWW in early 1990s, use of Internet for commerce has
grown tremendously. E-commerce involves individuals and business organizations
exchanging business information and instructions over electronic media using computers,
telephones and other telecommunication equipment. Such form of doing business has been in
existence ever since electronic mode of data / information exchange was developed, but its
scope was limited only as a medium of exchange of information between entities with a pre-
established contractual relationship. However, Internet has changed the approach to e-
commerce; it is no longer the same business with an additional channel for information
exchange, but one with new strategy and models. A business model generally focuses on
(i) where the business operates, that is, the market, the competitors and the customers, (ii)
what it sells, that is, its products and services

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 (ii) the channels of distribution, that is, the medium for sale and distribution of its products
and

(iii) the sources of revenue and expenditure and how these are affected. Internet has
influenced all the four components of business model and thus has come to influence the
business strategy in a profound way. The size of the market has grown enormously as
technically, one can access the products and services from any part of the world. So does the
potential competition. The methods of reaching out to customers, receiving the response and
offering services have a new, simpler and efficient alternative, now, that is, Internet. The cost
of advertisement, offer anddelivery of services through Internet has reduced considerably,
forcing most companies to rework their strategies to

A research note by Paul Timers of European commission had identified eleven business
models, which have been commercially implemented. These are e-shop, eprocurement, e-
auction, e-mall, Third-party market place, Virtual communities, Value chain service
providers, Value chain integrators, Collaboration platforms and Information brokers. He
classified business models along two dimensions, i.e, and degree of innovation and extent of
integration of functions. The innovation ranged from the electronic version of a traditional
way of doing business (e-shop) to more innovative ways by offering functions that did not
exist before. The second dimension, i.e, extent of integration ranges from a single function
business model (like e-shop) to fully integrated functionality (value chain integrator). In the
top end of the graph are models, which cannot be implemented in a traditional way and are
critically dependent upon information technology and creating value from information flow.
Business models, in between these two limits are a combination of both dimensions in
different degrees and have some degree of analogy in traditional firms.

There are two types of e-commerce ventures in operation: the old brick and mortar
companies, who have adopted electronic medium, particularly Internet, to enhance their
existing products and services, and / or to offer new products and services and the pure e-
ventures who have no visible physical presence. This difference has wider ramifications than
mere visibility when it comes to issues like customer’s trust, brand equity, ability to service
the customers, adopting new business culture and cost. These aspects of e-commerce will be
touched upon in the following another way of classifying the e-commerce is by the targeted
counterpart of a business, viz, whether the counterpart is a final consumer or another business
in the distribution chain.

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 Accordingly the two broad categories are: Business-to-Consumer (B2C) and Business-to-
Business (B2B).

Business-to-Consumers (B2C): In the B2C category are included single e-shops, shopping
malls, e-broking, eauction, e-banking, service providers like travel related services, financial
services etc., education, entertainment and any other form of business targeted at the
finalconsumer. Some of the features, opportunities and concerns common to this category of
business irrespective of the business segment, are the following.

Opportunities:

Internet provides an ever-growing market both in terms of number of potential customers and
geographical reach. Technological development has made access to Internet both cheaper and
faster. More and more people across the globe are accessing the net either through PCs or
other devices. The purchasing power and need for quality service of this segment of
consumers are considerable. Anybody accessing Internet is a potential customer irrespective
of his or her location. Thus, any business targeting final consumers cannot ignore the business
potential of Internet.

Internet offers a unique opportunity to register business presence in a global market. Its
effectiveness in disseminating information about one’s business at a relatively cost effective
manner is tremendous. Time sensitive information can be updated faster than any other
media. A properly designed website can convey a more accurate and focused image of a
product or service than any other media. Use of multimedia capabilities, i.e., sound, picture,
movies etc., has made Internet as an ideal medium for information dissemination. However,
help of other media is necessary to draw the potential customers to the web site.

The quality of service is a key feature of any e-commerce venture. The ability to sell one’s
product at anytime and anywhere to the satisfaction of customers is essential for e-business to
succeed. Internet offers such opportunity, since the business presence is not restricted by time
zone and geographical limitations. Replying to customers’ queries through e-mail, setting up
(Frequently Asked Questions) FAQ pages for anticipated queries, offering interactive help
line, accepting customers’ complaints online 24 hours a day and attending to the same, etc.
are some of the features of e business which enhance the quality of service to the customers.
It is of crucial importance for an e-venture to realize that just as it is easier to approach a
customer through Internet; it is equally easy to lose him. The customer has the same facility to

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 move over to another site.

Cost is an important issue in an e-venture. It is generally accepted that the cost of overhead,
servicing and distribution, etc. through Internet is less compared to the traditional way of
doing business. Although the magnitude of difference varies depending on the type of
business and the estimates made, but there is unanimity that Internet provides a substantial
cost advantage and this, in fact, is one of the major driving forces for more number of
traditional business adopting to e-commerce and pure e-commerce firms to sprout.

Cost of communication through WWW is the least compared to any other medium. Many a
time one’s presence in the web may bring in international enquiries, which the business might
not have targeted. The business should have proper plans to address such opportunities.

Concerns:

There are a number of obstacles, which an e-commerce venture needs to overcome. Trust of
customers in a web venture is an important concern. Many customers hesitate to deal with a
web venture as they are not sure of the type of products and services they will receive. This is
particularly true in a B2C venture like e-shop, e-mall or eauction site. Traditional business
with well established brands and goodwill and having a physical presence face less resistance
from customers in this regard than a pure e-venture.

Many B2C ventures have ultimately to deliver a product or service in physical form to
the customer for a deal contracted through Internet. This needs proper logistics, an efficient
distribution network, and control over quality of product or service delivered. These issues are
not technology related and any let off in this area can drive the customer away to the
competitor or from e-commerce.

The privacy of information on the customer’s preferences, credit card and bank account
details etc. and customers’ faith in a system where such privacy is stated to be ensured are
important issues to be addressed. These are mainly technological issues, but human factor is
important both at the business and at the customers’ end and also in building the trust in the
system

Security of a transaction, authenticity of a deal, identification of a customer etc. are important

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 technological and systems issues, which are major sources of concern to e commerce. Equally
important are questions of repudiation of a deal, applicability of law, jurisdiction of tax laws
etc. These are important to all forms of e-commerce, whether B2C or B2B and all segments
of business, i.e, manufacturing, services and finance and are addressed in different chapters of
this report. Accessibility to Internet by the consumers is an important issue in B2C domain.
This is particularly so in countries like India where penetration of PCs and other devices to
households for access to Internet is minimal. Also important are availability of bandwidth and
other infrastructure for faster and easier access. Considering that e commerce aims at global
market, deficiencies of these kinds in the developing world are no longer concerns confined to
these areas, but are global e-commerce concerns.

Business to Business (B2B)

As opposed to B2C e-commerce, in B2B domain, the parties to a deal are at different points
of the product supply chain. Typically, in a B2B type domain, a company, its suppliers,
dealers and bankers to all the parties are networked to finalize and settle all aspects of a deal,
online. Perhaps, only the goods in different stages of processing physically move from the
supplier to the dealer. This scenario can be extended to include the shipper, providers of
different ancillary services, IT service provider and the payment system gateway, etc.,
depending on the degree of sophistication of the available systems.

Another important feature of a B2B domain, as distinct from B2C, is that business
information / data is integrated to the back office systems of parties to a deal and the state of
straight through processing (STP) or near STP is achieved. This is a very significant aspect of
B2B model of e-commerce, which results in improved profits through lowering cost and
reducing inventories.

For example, in a B2B environment, typically, the back office system of a company controls
inventory requirement with reference to the order book position updated regularly on the basis
of orders received from dealers through Internet. At the optimum level of inventory it raises a
purchase order with the supplier, whose system in turn, processes the order and confirms
supply. Buyer company’s system issues debit instructions on its bank account for payment to
the supplier. The buyer’s bank credits seller’s bank with the cost of sale though a payment
gateway or through RTGS system. Similar series of transaction processes are also initiated
between the company and its dealers and their respective banks. Once e-commerce
relationship is established between the firms, the transactions of the type shown above can be
processed with minimal human intervention and on 24 hours a day and 7 day a week basis.

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 New business models are emerging in B2B domain. There are portals which offer a meeting
ground to buyers and sellers of different products in supply chain, more like a buyer-seller
meet in international business. This has enabled relatively smaller companies to enter the
global market. Banks in the portal offer financial services for deals settled through the portal.

Technology and networking are important constituents of a B2B type of business domain.
Earlier, only large firms could have access to such technology and they used private networks
with interface to each other for information flow and transaction processing. A major concern
used to be compatibility of EDI platforms across different B2B partners. Internet with WWW
and other standard technology have offered opportunity to relatively smaller and medium
sized firms to integrate their operations in B2B model and take advantage of the benefits it
offers. It has also led to standardization of software platforms.

Other new forms of business models in B2B domain are Application Service Providers (ASP)
and Service Integrators. ASPs offer application software online to ecommerce companies who
pay for the same according to the use without owning it. Often entire back office processing is
taken care of by ASPs and other service integrators. However, the utility of such service
providers will to a large extent depend on the business strategy of the e-venture.

The concerns of B2B e-commerce are similar to those of B2C, discussed earlier. The security
issues are more pronounced because of high value transfers taking place through the net. So
also are the issues relating to privacy of information, law, tax repudiation etc. The other issues
of importance to a B2B firm are the choice of appropriate technology, the issue of build or
outsource, maintenance and training

Several studies have attempted to assess the relative importance of B2B and B2C business
domains. There is wide difference in estimates of volume of business transacted over Internet
and its components under B2C and B2B. However, most studies agree that volume of
transactions in B2B domain far exceeds that in B2C. This is expected result. There is also a
growing opinion that the future of e-business lies in B2B domain, as compared to B2C. This
has several reasons some of which are already discussed earlier, like low penetration of PCs
to households, low bandwidth availability etc., in a large part of the world.

The success of B2C ventures depends to a large extent on the shopping habits of people in
different parts of the world. A survey sponsored jointly by Confederation of Indian Industries
and Infrastructure Leasing and Financial Services on e-commerce in India in 1999 made the

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 following observations. 62% of PC owners and 75% of PC non-owners but who have access
to Internet would not buy through the net, as they were not sure of the product offered.The
same study estimated the size of B2B business in India by the year 2001 to be varying
between Rs. 250 billion to Rs. 500 billion. In a recent study done by Arthur Anderson, it has
been estimated that 84% of total e-business revenue is generated from B2B segment and the
growth prospects in this segment are substantial. It has estimated the revenues to be anywhere
between US $ 2.7 trillion to over US $ 7 trillion within the next three years (2003).

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 1.11 The Growth of Internet Banking and common products:

Internet Banking (Fig. 1) is a product of e-commerce in the field of banking and financial
services. In what can be described as B2C domain for banking industry, Internet Banking
offers different online services like balance enquiry, requests for cheque books, recording
stop-payment instructions, balance transfer instructions account opening and other forms of
traditional banking services. Mostly, these are traditional services offered through Internet as
a new delivery channel. Banks are also offering payment services on behalf of their customers
who shop in different e-shops, e-malls etc. Further, different banks have different levels of
such services offered, starting from level-1 where only information is disseminated through
Internet to level3 where online transactions are put through. These aspects have been dealt
with in brief in the introductory chapter and again detailed products and services are
discussed in chapters 3 and 4. Hence, in the following paragraphs I-banking concerns in B2B
domain are discussed.

Considering the volume of business e-commerce, particularly in B2B domain, has been
generating, it is natural that banking would position itself in an intermediary role in settling
the transactions and offering other trade related services. This is true both in respect of B2C
and B2B domains. Besides, the traditional role of financial intermediary and settlement
agents, banks have also exploited new opportunities offered by Internet in the fields of
integrated service providers, payment gateway services, etc. However, the process is still
evolving and banks are repositioning themselves based on new emerging e-commerce
business models.

In B2B scenario, a new form of e-commerce market place is emerging where various players
in the production and distribution chain are positioning themselves and are achieving a kind
of integration in business information flow and processing (STP or near STP) leading to
efficiencies in the entire supply chain and across industries. Banks are positioning themselves
in such a market in order to be a part of the financial settlements arising out of transactions of
this market and providing wholesale financial services. This needs integration of business
information flow not only across the players in the supply chain, but with the banks as well.

With the integration of business information flow and higher degree of transparency, the
banks and other financial services institutions have lost some of the information advantage
they used to enjoy and factor in to pricing of their products. However, such institutions have
the advantage of long standing relationships, goodwill and brand, which are important sources
of assurance in a virtual market. Banks are in fact, converting this goodwill into a business

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 component in e-commerce scenario in providing settlement and other financial services.
Some banks have also moved to providing digital certificates for transactions through e-
markets.

Banks’ strategies in B2B market are responses to different business models emerging in e-
commerce. A recent study by Arthur Andersen shows that banks and financial service
institutions generally adopt one of three business models to respond to ebusiness challenges.
In the first place, they treat it as an extension of existing business without any significant
changes other than procedural and what technology demands. The second strategy takes the
same approach as the first but introduces structural changes to the underlying business. In the
third approach banks launch e-business platform as a different business from the existing core
business and as a different brand of product. There is no definite answer as to which approach
is appropriate. Perhaps it depends on the type of market the bank is operating, its existing
competencies and the legal and regulatory environment. It is, however, sure that ebanking is
evolving beyond the traditional limits of banking and many new products / services are likely
to emerge as e-commerce matures.

Transfer to the networks most of the common activities. Along with the entrance in the
Internet and in the e-business age, of the new economy, in general, certain fundamental
transformations of the social-economical structure are produced. Along with the entrance in
the Internet and in the e -business age, of the new economy, in general, certain fundamental
transformations of the social -economical structure are produced. The development of the
inter connectivity of computers in the internet, in all segments of society, has led to a more
obvious tendency of companies to use these networks in order to carry out a new type of
commerce, the electronic commerce, through the internet.

The Internet is still more present everywhere, its increasing presence changes also the way
business is done. The banking is no exception. The euphoria witnessed towards the end of last
decade surrounding the use of the Internet in service provision was based primarily on the
notion of infinite scalability (the ability to serve increasing numbers of customers at low
incremental costs). This notion justified high valuations of Internet firms from venture
capitalists. E banking within the information-based environment of financial services made
infinite scalability appear even more promising compared to other types of e -commerce. The
often unrealistically optimistic projections

Regarding Internet use, however, led to the dot.com shakeout that came with the dawn of the
new millennium. The Internet has become a part of everyday life with tens of millions online

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 every day engaging in various Internet activities, 50% of which include e-commerce. Banking
organizations have been delivering electronic services to consumers and businesses remotely
for years. Electronic funds transfer, including small payments and corporate cash
management systems, as well as publicly accessible automated machines for currency
withdrawal and retail account management, are global fixtures. However, the increased world
-wide acceptance of the Internet as a delivery channel for banking products and services
provides new business opportunities for banks as well as service benefits for their customers.

Electronic banking (e-banking) is the newest delivery channel of banking services. The
definition of e-banking varies amongst researches partially because electronic banking refers
to several types of services through which a bank’s customers can request information and
carry out most retail banking services via computer, television or mobile phone. Electronic
banking can also be defined as a variety of the following platforms: internet banking (or
online banking, telephone banking, TV-based banking, mobile phone banking, and PC
banking (or offline banking).

In new economy conditions managing financial institutions is connected with the change of
the ways of services selling, providing information to clients as well as with the change of
their function and noticing the key competence.

The standard of work in banking area has been related to the usage of solutions based on
information, knowledge and new technologies which give the clients access to financial
means collected on the bank accounts and the possibility to make different transaction there.
It has led to distinguishing great variety of e -banking channels such as: cash dispensers,
phone banking; banking based on separate network - home banking( Corporate banking), call
Centre, voice-IVR, internet banking (with the type, 38 limited to virtual sphere, virtual
banking), mobile banking (SMS banking. make possible to manage the bank account by
means of textual news SMS as well as WAP banking . allowing for interactive contact of the
client with the bank by means of mobile phone using protocol WAP.

With the development of e -economy new payment instruments were introduced on the
market. These new instruments made it possible to conduct transactions on the Internet and in
the mobile environment.

The end of the 20th century is the period of impetuous changes ongoing in the way of
functioning in Europe and in the world. This is a period of continuous challenges, economic
co-operation and implementation new ways of management.

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 1.12 IMPORTANCE OF E-BANKING:

E banking provides many advantages for banks and customer's .e-banking has made life much
easier and banking much faster for both customers and banks. Main advantages are as
follows.

• It saves time spent in banks

• It provides ways for international banking.
• It provides banking throughout the year 24/7 days from any place have internet access.
• It provides well-organized cash management for internet optimization
• It provides convenience in terms of capital, labor, time all the resources needed to make a
transaction.
• Taking advantage of integrated banking services, banks may compete in new markets can
get new customers and grow their market share.
• It provides some security and privacy to customers, by using state-of-the-art encryption and
security technologies

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 1.13 FEATURES OF E-BANKING

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.

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 1.14ADVANTAGES OF E-BANKING:-

- Unlike your corner bank, online banking sites never close; they’re available 24 hours a day,
seven days a week, and they’re 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.
•Ubiquity
- If you’re 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.
•Transaction speed
- Online bank sites generally execute and confirm transactions at or quicker than ATM
processing speeds. •Efficiency- -You can access and manage all of your bank accounts,
including IRA’s, CDs, even securities, from one secure site.
•Effectiveness-
-Many online banking sites now offer sophisticated tool including account aggregation, stock
quotes, rate alert and portfolio managing customer to access information about his or her
specific account relationship. The six primary drivers of Internet banking includes, in order of
primacy are:

•Improve customer access

•Facilitate the offering of more services
•Increase customer loyalty
•Attract new customers
•Provide services offered by competitors

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 1.15 INDIAN BANKS ON WEB

The banking industry in India is facing unprecedented competition from nontraditional

banking institutions, which now offer banking and financial services over the Internet. The
deregulation of the banking industry coupled with the emergence of new technologies, are
enabling new competitors to enter the financial services market quickly and efficiently. Indian
banks are going for the retail banking in a big way. However, much is still robe achieved.
This study that was conducted by students of IIML shows some interesting facts:
•Throughout the country, the Internet Banking is in the nascent stage of development (more
than 50 banks are offering varied kind of Internet banking services).
•In general, these Internet sites offer only the most basic services. 55% are so called 'entry
level' sites, offering little more than company information and basic marketing materials.
Only 8% offer 'advanced transactions' such as online funds transfer, transactions & cash
management services.
•Foreign & Private banks are much advanced in terms of the number of sites &their level of
development

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 1.16 EMERGINGCHALLENGES

Information technology analyst firm, the Meta Group, recently reported "financial institutions
who don't offer home banking by the year 2000 will become marginalized." By the year of
2002, a large sophisticated and highly competitive Internet Banking Market will develop
which will be driven by
•Demand side pressure due to increasing access to low cost electronic services. •Emergence
of open standards for banking functionality.
•Growing awareness customer and need of transparency.
•Global players in the fray
•Close integration of bank services with web based E-commerce or even disinter mediation of
services through direct electronic payments (E- Cash).
•More convenient international transactions due to the fact that the Internet along with general
deregulation trends eliminates geographic boundaries.
•Move from one stop shopping to 'Banking Portfolio' i.e. unbundled product purchases
.Certainly some existing brick and mortar banks will go out of business. But that's because
they fail to respond to the challenge of the Internet. The Internet and its underlying
technologies will change and transform not just banking, but also all aspects of finance and
commerce. It represents much more than a new distribution opportunity. It will enable nimble
players to leverage their brick and mortar presence to improve customer satisfaction and gain
share. It will force lethargic players who are struck with legacy cost basis, out of business-
since they are unable to bring to playing the new context.

F-BANKING: GLOBAL PERSPECTIVE

The advent of Internet has initiated an electronic revolution in the global banking sector. The
dynamic and flexible nature of this communication channel as well as its 20E-BANKING:
Benefit & Challenges Ubiquitous reach has helped in leveraging a variety of banking
activities. Net banking intermediaries offering entirely new types of banking services have
emerged As a result of innovative e-business models. The Internet has emerged as one of the
Major distribution channels of banking products and services, for the banks in US and in the
European countries.

Initially, banks promoted their core capabilities i.e., products, services and advice Through
Internet. Then, they entered the e-commerce market as providers/distributors Of their own
products and services. More recently, due to advances in Internet Security and the advent of
relevant protocols, banks have discovered that they can play their primary role as financial
intermediate’s and facilitators of complete commercial transactions via electronic networks

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 especially through the Internet. Some banks have chosen a route of establishing a direct web
presence while others have opted for either being an owner of financial services centric
electronic marketplace or being participants of a non-financial services centric electronic
marketplace.

The trend towards electronic delivery of banking products and services is occurring partly as
a result of consumer demand and partly because of the increasing competitive environment in
the global banking industry. The Internet has changed the customers' behaviors who are
demanding more customized products/services at a lower price. Moreover, new competition
from pure online banks has put the profitability of even established brick and mortar banks
under pressure. However, very few banks have been successful in developing effective
strategies for fully exploiting the opportunities offered by the Internet. For traditional banks to
define what niche markets to serve and decide what products/services to offer there is a need
for a clear and concise Internet commerce strategy.

Banking transactions had already started taking place through the Internet way back in 1995.
The Internet promised an ideal platform for commercial exchange, helping banks to achieve
new levels of efficiency in financial transactions by strengthening customer relationship,
promoting price discovery and spend aggregation and increasing the reach. Electronic finance
offered considerable opportunities for banks.

21E-BANKING: Benefits & Challenges

to expand their client base and rationalize their business while the customers received value in
the form of savings in time and money

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 1.17 E-BANKING WORLD WIDE

Since its inception, Internet banking has experienced strong and sustained growth. World
Bank report on leapfrogging in e-finance pointed out that the three countries with impressive
progress in information technology in this sense are Estonia, Republic of Korea and Brazil.
Creation of the world’s leading electronic banking systems has been done at a remarkably low
cost compared to other world-class internet banks.

In the European Union, 60 million people, representing 18 per cent of the adult population,
use online banking In France, the number of online banking accounts is recording an annual
growth rate of 75 per cent. However, Estonia is a country that has become a leader in Internet
banking (which now reaches 18 per cent of the population), not only among Eastern European
countries but in world rankings, through a combination of easy to- use software, free-of-
charge transactions and behavior changes resulting from the influence of the Nordic
countries’ IT culture on Estonia. A sector in which Latin America is seems to be performing
better than in other industries is online retail banking. Growth in this area has been driven by
traditional banks, which have used the online channel to generate customer loyalty and
improve their operating margins. Two Brazilian banks, Bradesco and Banco do Brasil; have
thus achieved more than 4 million online customers each. Mexico is another leader of Internet
banking in Latin America. It adopted legislation providing for the development of both E-
Commerce and e-finance. In Mexico, the number of online bank users more than tripled from
700,000 in 2000 to 2.4 million in 2001, and it could reach 4.5 million in 2005 (E-Marketer
2002b). One reason for the success of Latin American banks’ online ventures seems to be the
attention they have paid to providing retail customers with multiple ways to access their
accounts (Internet, telephone, wireless). However, given that the share of the total population
that actually has a bank account is relatively small, the expansion of Latin American online
banking may be facing a bottleneck. Compared with overall Internet usage estimated at 4.4
million in Australia, the major

Banks together have attracted only 1.2 million to online banking. The Internet is a global
phenomenon and so is e-finance. Its deployment is not limited to developed countries, and
indeed some developing countries – such as India and the Republic of Korea – are
experiencing particularly strong growth in E-Banking. In Asia one of the most impressive
records has been achieved by the Republic of Korea. The Republic of Korea is leading in
online brokerage and in mobile banking. In South East Asia Internet banking is also
developing rapidly in Thailand, Malaysia, and Singapore and to a lesser extent, in the
Philippines In Bangladesh there is a large gap between the computerization of foreign banks

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 and that of local commercial banks and as regards the state of their intro- and inter-branch
online networks. However, 75 per cent of local banks are planning to introduce E Banking,
which implies very dynamic improvements. Apart from North and South Africa the Sub
Saharan Africa is the region that is seriously lagging behind in Internet banking, although it is
giving to the rest of the world the good example of microfinance developments.

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 4. RESEARCH METHODOLOGY

I have collected the data through questionnaire method and I have distributed the sample size
to see whether how many people are satisfied with the E- banking. Questionnaire which was
open ended and close ended.
From this survey I found that how many percentage of people are satisfied with E banking.
I have divided this questionnaire into different age groups.
Out of 25 samples, 10% of people are satisfied between the age group of 18 – 25.
2% of people are satisfied between the age group of 26 – 35.
2% of people are satisfied between the age group of 36 – 45.
4% 0f people are satisfied between the age group of 46 – 55.
3%0f people are satisfied between the age group of 56 – 60+

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 2.1 OBJECTIVE OF THE STUDY

1 Perceptual mapping of internet banking users.

2 To know the cause why customers are not using internet banking
3 To know which age group of customers is using different e-banking facilities.
4 To understand the impact of E-banking on consumer perception.
5 To analyze the customer satisfaction.
6 To find the scope of internet banking.
7 To understand security issues related to it.

This study mainly aims to identify the bank customer’s level of awareness with regard to the
four major e-banking delivery channels such as ATMs, internet banking, mobile banking, and
credit card. The next objective is to identify how far awareness leads to the adoption of the
same. Examining the influence of demographic and perceptual factors on the adoption of
these delivery channels is the next objective.it also analyses the user’s different experiences
and their level of satisfaction in using this e-banking delivery channels.

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 2.2 MAJOR HYPOTHESES

After setting the objectives, hypothesis to be tested are listed out Major Hypotheses are; bank
customers has a reasonable degree of awareness about various technology driven banking
channels and the level of awareness is independent of type of bank which they belong to, their
age, education and income and bank customers in Kerala has a reasonable degree of adoption
of various technology driven banking channels and the level of adoption is independent of
type of bank which they belong to, their age, education and income.

Variables used for the study are ; the bank associated with , age, education income of the
informants, and furthers eleven perceptual variables such as convenience, accessibility, ease
of use, usefulness, perceived risk perceived need, personal contact, cost effectiveness,
reliability, knowledge and in formativeness.

2.3 SCOPE OF E- BANKING

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 In the present scenario major economical and technical changes are undergoing in industrial
and financial revolution through the new information-processing technology. Especially in
finance sector it has a significant role for overall development. After identifying the subject
(research area) and referring the relevant literatures, it has been found that in most of the
literature, the information technologies have a wide application area. However, in finance
sector major changes have been made.

People used information technological tools to manage and process the information
atomization process use in the financial sector for transaction system. this type of working
methodology is used in financial institute since long year.

Scope for further research: This studies study open up new areas for further research in many
related areas. Some of them are listed below;

1) Diffusion of internet banking in India

2) Effectiveness of ATMs usage-A cost benefit analysis
3) Problems and prospects of credit card usage
4) Implementation of core banking solution- major challenges
5) Mobile banking adoption-opportunities and challenges

2.4 LIMITATIONS AND RISKS ASSOCIATED WITH INTERNET BANKING

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 A major driving force behind the rapid spread of i-banking all over the world is its acceptance
as an extremely cost effective delivery channel of banking services as compared to other
existing channels. However, Internet is not an unmixed blessing to the banking sector. Along
with reduction in cost of transactions, it has also brought about a new orientation to risks and
even new forms of risks to which banks conducting i-banking expose themselves. Regulators
and supervisors all over the world are concerned that while banks should remain efficient and
cost effective, they must be conscious of different types of risks this form of banking entails
and have systems in place to manage the same. An important and distinctive feature is that
technology plays a significant part both as source and tool for control of risks. Because of
rapid changes in information technology, there is no finality either in the types of risks or
their control measures. Both evolve continuously. The thrust of regulatory action in risk
control has been to identify risks in broad terms and to ensure that banks have minimum
systems in place to address the same and that such systems are reviewed on a continuous
basis in keeping with changes in technology. In the following paragraphs a generic set of risks
are discussed as the basis for formulating general risk control guidelines, which this Group
will address.
Operational risk:
Operational risk, also referred to as transaction risk is the most common form of risk
associated with i-banking. It takes the form of inaccurate processing of transactions, non-
enforce ability of contracts, compromises in data integrity, data privacy and confidentiality,
unauthorized access / intrusion to bank’s systems and transactions etc. Such risks can arise
out of weaknesses in design, implementation and monitoring of banks’ information system.
Besides inadequacies in technology, human factors like negligence by customers and
employees, fraudulent activity of employees and crackers / hackers etc. can become potential
source of operational risk. Often there is thin line of difference between operational risk and
security risk and both terminologies are used interchangeably.
Security risk:
Internet is a public network of computers which facilitates flow of data / information and to
which there is unrestricted access. Banks using this medium for financial transactions must,
therefore, have proper technology and systems in place to build a secured environment for
such transactions.

Security risk arises on account of unauthorized access to a bank’s critical information stores
like accounting system, risk management system, portfolio management system, etc. A breach
of security could result in direct financial loss to the bank. For example, hackers operating via
the Internet, could access, retrieve and use confidential customer information and also can

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 implant virus. This may result in loss of data, theft of or tampering with customer
information, disabling of a significant portion of bank’s internal computer system thus
denying service, cost of repairing these etc. Other related risks are loss of reputation,
infringing customers’ privacy and its legal implications etc. Thus, access control is of
paramount importance. Controlling access to banks’ system has become more complex in the
Internet environment which is a public domain and attempts at unauthorized access could
emanate from any source and from anywhere in the world with or without criminal intent.
Attackers could be hackers, unscrupulous vendors, disgruntled employees or even pure thrill
seekers. Also, in a networked environment the security is limited to its weakest link. It is
therefore, necessary that banks critically assess all interrelated systems and have access
control measures in place in each of them.

In addition to external attacks banks are exposed to security risk from internal sources e.g.
employee fraud. Employees being familiar with different systems and their weaknesses
become potential security threats in a loosely controlled environment. They can manage to
acquire the authentication data in order to access the customer accounts causing losses to the
bank.

Unless specifically protected, all data / information transfer over the Internet can be
monitored or read by unauthorized persons. There are programs such as ‘sniffers’ which can
be set up at web servers or other critical locations to collect data like account numbers,
passwords, account and credit card numbers. Data privacy and confidentiality issues are
relevant even when data is not being transferred over the net.

Data residing in web servers or even banks’ internal systems are susceptible to corruption if
not properly isolated through firewalls from Internet.

The risk of data alteration, intentionally or unintentionally, but unauthorized is real in a

networked environment, both when data is being transmitted or stored. Proper access control
and technological tools to ensure data integrity is of utmost importance to banks. Another
important aspect is whether the systems are in place to quickly detect any such alteration and
set the alert.

Identity of the person making a request for a service or a transaction as a customer is crucial
to legal validity of a transaction and is a source of risk to a bank. A computer connected to
Internet is identified by its IP (Internet Protocol) address. There are methods available to
masquerade one computer as another, commonly known as ‘IP Spoofing’. Likewise user

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 identity can be misrepresented. Hence, authentication control is an essential security step in
any e-banking system.

Non-repudiation involves creating a proof of communication between two parties, say the
bank and its customer, which neither can deny later. Banks’ system must be technologically
equipped to handle these aspects which are potential sources of risk.

System architecture and design

Appropriate system architecture and control is an important factor in managing various kinds
of operational and security risks. Banks face the risk of wrong choice of technology, improper
system design and inadequate control processes. For example, if access to a system is based
on only an IP address, any user can gain access by masquerading as a legitimate user by
spoofing IP address of a genuine user. Numerous protocols are used for communication
across Internet. Each protocol is designed for specific types of data transfer. A system
allowing communication with all protocols, say HTTP (Hyper Text Transfer Protocol), FTP
(File Transfer Protocol), telnet etc. is more prone to attack than one designed to permit say,
only HTTP.
Choice of appropriate technology is a potential risk banks face. Technology which is
outdated, not scalable or not proven could land the bank in investment loss, a vulnerable
system and inefficient service with attendant operational and security risks and also risk of
loss of business.

Many banks rely on outside service providers to implement, operate and maintain their e-
banking systems. Although this may be necessary when banks do not have the requisite
expertise, it adds to the operational risk. The service provider gains access to all critical
business information and technical systems of the bank, thus making the system vulnerable.
In such a scenario, the choice of vendor, the contractual arrangement for providing the service
etc., become critical components of banks’ security. Bank should educate its own staff and
over dependencies on

Not updating bank’s system in keeping with the rapidly changing technology, increases
operational risk because it leaves holes in the security system of the bank. Also, staff may fail
to understand fully the nature of new technology employed. Further, if updating is left
entirely at customers’ end, it may not be updated as required by the bank. Thus education of
the staff as well as users plays an important role to avoid operational risk.

Approaches to reduce security related operational risk are discussed in detail. These include

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 access control, use of firewalls, cryptographic techniques, public key encryption, digital
signature etc

Reputational risk

Reputational risk is the risk of getting significant negative public opinion, which may result in
a critical loss of funding or customers. Such risks arise from actions which cause major loss
of the public confidence in the banks' ability to perform critical functions or impair bank-
customer relationship. It may be due to banks’ own action or due to third party action.

The main reasons for this risk may be system or product not working to the expectations of
the customers, significant system deficiencies, significant security breach (both due to internal
and external attack), inadequate information to customers about product use and problem
resolution procedures, significant problems with communication networks that impair
customers’ access to their funds or account information especially if there are no alternative
means of account access. Such situation may cause customer-discontinuing use of product or
the service. Directly affected customers may leave the bank and others may follow if the
problem is publicized.

Other reasons include losses to similar institution offering same type of services causing
customer to view other banks also with suspicion, targeted attacks on a bank like hacker
spreading inaccurate information about bank products, a virus disturbing bank’s system
causing system and data integrity problems etc.

Possible measures to avoid this risk are to test the system before implementation, back-up
facilities, contingency plans including plans to address customer problems during system
disruptions, deploying virus checking, deployment of ethical hackers for plugging the
loopholes and other security measures. It is significant not only for a single bank but also for
the system as a whole. Under extreme circumstances, such a situation might lead to systemic
disruptions in the banking system as a whole. Thus the role of the regulator becomes even
more important as not even a single bank can be allowed to fail.

Legal risk

1. Legal risk arises from violation of, or non-conformance with laws, rules, regulations, or
prescribed practices, or when the legal rights and obligations of parties to a transaction are not
well established.

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 Given the relatively new nature of Internet banking, rights and obligations in some cases are
uncertain and applicability of laws and rules is uncertain or ambiguous, thus causing legal
risk.

It includes legal and regulatory risks, as there may be uncertainty about legal requirements in
some countries and jurisdiction ambiguities with respect to the responsibilities of different
national authorities. Such considerations may expose banks to legal risks associated with non-
compliance of different national laws and regulations, including consumer protection laws,
record-keeping and reporting requirements, privacy rules and money laundering laws.

If a bank uses a service provider located in another country, it will be more difficult to
monitor it thus, causing operational risk. Also, the foreign-based service provider or foreign
participants in Internet banking are sources of country risk to the extent that foreign parties
become unable to fulfil their obligations due to economic, social or political factors.

Cross border transaction accentuates credit risk, since it is difficult to appraise an application
for a loan from a customer in another country compared to a customer from a familiar
customer base. Banks accepting foreign currencies in payment for electronic money may be
subjected to market risk because of movements in foreign exchange rates.

Strategic Risk
This risk is associated with the introduction of a new product or service. Degree of this risk
depends upon how well the institution has addressed the various issues related to development
of a business plan, availability of sufficient resources to support this plan, credibility of the
vendor (if outsourced) and level of the technology used in comparison to the available
technology etc.

For reducing such risk, banks need to conduct proper survey, consult experts from various
fields, establish achievable goals and monitor performance. Also they need to analyse the
availability and cost of additional resources, provision of adequate supporting staff, proper
training of staff and adequate insurance coverage. Due diligence needs to be observed in
selection of vendors, audit of their performance and establishing alternative arrangements for
possible inability of a vendor to fulfil its obligation . Besides this, periodic evaluations of new
technologies and appropriate consideration for the costs of technological upgradation are
required.

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 Other risks
Traditional banking risks such as credit risk, liquidity risk, interest rate risk and market risk
are also present in Internet banking. These risks get intensified due to the very nature of
Internet banking on account of use of electronic channels as well as absence of geographical
limits. However, their practical consequences may be of a different magnitude for banks and
supervisors than operational, reputational and legal risks. This may be particularly true for
banks that engage in a variety of banking activities, as compared to banks or bank subsidiaries
that specialize in Internet banking.
Credit risk
- is the risk that a counter party will not settle an obligation for full value, either when due or
at any time thereafter. Banks may not be able to properly evaluate the credit worthiness of the
customer while extending credit through remote banking procedures, which could enhance
the credit risk. Presently, banks generally deal with more familiar customer base. Facility of
electronic bill payment in Internet banking may cause credit risk if a third party intermediary
fails to carry out its obligations with respect to payment. Proper evaluation of the
creditworthiness of a customer and audit of lending process are a must to avoid such risk.
Another facility of Internet banking is electronic money. It brings various types of risks
associated with it. If a bank purchases e-money from an issuer in order to resell it to a
customer, it exposes itself to credit risk in the event of the issuer defaulting on its obligation
to redeem electronic money.

Liquidity Risk arises out of a bank’s inability to meet its obligations when they become due
without incurring unacceptable losses, even though the bank may ultimately be able to meet
its obligations. It is important for a bank engaged in electronic money transfer activities that it
ensures that funds are adequate to cover redemption and settlement demands at any particular
time. Failure to do so, besides exposing the bank to liquidity risk, may even give rise to legal
action and reputational risk.

Similarly banks dealing in electronic money face interest rate risk because of adverse
movements in interest rates causing decrease in the value of assets relative to outstanding
electronic money liabilities. Banks also face market risk because of losses in on-and-off
balance sheet positions arising out of movements in market prices including foreign exchange
rates. Banks accepting foreign currency in payment for electronic money are subject to this
type of risk.

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 Risk of unfair competition: Internet banking is going to intensify the competition among
various banks. The open nature of Internet may induce a few banks to use unfair practices to
take advantage over rivals. Any leaks at network connection or operating system etc., may
allow them to interfere in a rival bank’s system. Thus one can find that along with the
benefits, Internet banking carries various risks for bank itself as well as banking system as a
whole. The rapid pace of technological innovation is likely to keep changing the nature and
scope of risks banks face. These risks must be balanced against the benefits. Supervisory and
regulatory authorities are required to develop methods for identifying new risks, assessing
risks, managing risks and controlling risk exposure. But authorities need to keep in
consideration that the development and use of Internet banking are still in their early stages,
and policies that hamper useful innovation and experimentation should be avoided.

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 2.5 DATA COLLECTION:

Primary Data:

My primary data is collected through Structured Questionnaire

Secondary Data:

The secondary data is from Online Database, Journals, Surveys Companies Official Website,
Books and Journals and so on.

Sample size: My sample size is 25

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 3. Literature review

A detailed review of relevant literature for the study is undertaken by the researcher. All the
available literature in connection with the progress and development of e banking delivery
channels are reviewed, and the major findings are described. Most of the research papers
related to e-banking published in international e-journals were reviewed for this particular
study. The relevant literature regarding awareness, adoption, factors influencing the adoption
of ATMs, Internet banking, Credit card and Mobile banking are reviewed. It further deals
with the review of the available literature in connection with the user's experience and
satisfaction of e-banking delivery channels.

Literature Review in the Development of E-Banking Delivery Channels

Here, the researcher reviewed all the available literature in connection with how different e-
banking delivery channels were developed through the passage of time. It is ATMs which
were developed as the first self-service machine for conducting banking transactions outside
the bank premises followed by phone banking, PC banking, internet banking and finally
mobile banking. But it is found that the literature is not sufficient to give a complete picture
of the development of all the e banking delivery channels across the world.

Relevant Literature Related to the Awareness and Adoption of E Banking

Here, relevant literature in connection with the awareness and adoption of technology driven
bank delivery channels were reviewed. This gives a broad idea about the importance of
having good awareness with regard to different e-banking channels for its adoption and active
usage. It also discussed the common factors which affect the adoption of e-banking channels
such as convenience, ease of use, usefulness, securityaspect, perceived risk, cost factor,
personal contact with the bank employees, speed and accuracy, reliability and confidentiality
etc.

Literature Review of Factors Influencing the Adoption of ATMs

A detailed review of all the available literature describing the important demographic,
economic, psychographic and perceptual factors influencing the adoption of ATMs, internet
banking and credit card is undertaken. The key factors that has a positive influence on the
adoption of ATMs are convenience, accessibility, trialability, observability, ease of use,
usefulness, speed of operations etc whereas perceived risk, complexity, lack of knowledge
and fear of safety and confidentiality are the major factors that discourage the use of ATMs.

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 Literature Review of Factors Influencing the Adoption of Interne Banking
For adoption of internet banking, major positive factors are convenience, easiness, user-
friendly, user involvement, accuracy, time saving, 24 hour availability of service etc whereas
lack of access to computers and internet, lack of knowledge, preference to personal contact
with the bank staff, security concerns, complexity, reluctance to change etc; act as major
hindrances to the adoption of the same. Likewise, available literature in connection with the
adoption of credit card is also discussed. From this review, the implications for the present
study are drawn.

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 5. DATA INTERPRETATION

We have selected sample size of 25 number of respondent. The sample size consisted of
_______ number of persons from the age group of- and ------------- no of person. It was
observed that the usage of e banking is done by persons mostly in the age group of -------- to -
---------. My observations are summarized as follows

1. Do you use Electronic banking than normal banking?

• Yes
• No

Use of No. Of respondents

E banking
Yes 20
No 5
Total 25

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