Internet Banking

Dr Kavita Srivastava Dr. Kavita Srivastava

Department of Management
ITS Gh b d ITS, Ghaziabad
E Banking
E-banking is a generic term for delivery of banking services E-banking is a generic term for delivery of banking services
and products through electronic channels, such as the
telephone, the internet, the cell phone, etc. te ep o e, t e te et, t e ce p o e, etc.
The concept and scope of E-banking is still evolving.
It facilitates an effective payment and accounting system It facilitates an effective payment and accounting system
thereby enhancing the speed of delivery of banking services
considerably. considerably.
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While E-banking has improved efficiency and convenience, it
has also posed several challenges to the regulators and has also posed several challenges to the regulators and
supervisors.
Several initiatives taken by the government of India as well as Several initiatives taken by the government of India, as well as
the Reserve Bank of India (RBI), have facilitated the
development of E-banking in India development of E banking in India.
The government of India enacted the IT Act, 2000, which
provides legal recognition to electronic transactions and provides legal recognition to electronic transactions and
other means of electronic commerce.
The RBI issued guidelines on risks and control in computer The RBI issued guidelines on risks and control in computer
and telecommunication system to all banks, advising them to
evaluate the risks inherent in the systems and put in place evaluate the risks inherent in the systems and put in place
adequate control mechanisms to address these risks.
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Features of Internet Banking
Internet banking involves use of Internet for delivery of Internet banking involves use of Internet for delivery of
banking products & services.
A successful Internet banking solution offers: g
Exceptional rates on Savings
Checking with no monthly fee, free bill payment and rebates g y , p y
on ATM surcharges
Credit cards with low rates
Easy online applications for all accounts, including personal
loans and mortgages
24 hour account access
Quality customer service with personal attention
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The Internet has levelled the playing field and afforded open The Internet has levelled the playing field and afforded open
access to customers in the global marketplace.
Internet banking is a cost effective delivery channel for Internet banking is a cost-effective delivery channel for
financial institutions.
Consumers are embracing many benefits of Internet banking Consumers are embracing many benefits of Internet banking.
Access to one's accounts at anytime and from any location via
the World Wide Web is a convenience unknown a short time the World Wide Web is a convenience unknown a short time
ago.
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Drivers of Internet Banking
The six primary drivers of Internet banking includes in The six primary drivers of Internet banking includes, in
order of primacy are:
Improves customer access Improves customer access
Facilitates the offering of more services
I l l Increases customer loyalty
Attract new customers
Provide services offered by competitors
Reduces customer attrition
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Indian Banks on WEB
The banking industry in India is facing unprecedented The banking industry in India is facing unprecedented
competition from banking institutions, which now offer
banking and financial services over the Internet. a g a a c a se v ces ove t e te et.
The deregulation of the banking industry coupled with the
emergence of new technologies, are enabling new emergence of new technologies, are enabling new
competitors to enter the financial services market quickly
and efficiently. y
Indian banks are going for the retail banking in a big way.
However, much is still to be achieved. ,
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Throughout the country the Internet Banking is in the Throughout the country, the Internet Banking is in the
nascent stage of development (only 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
h i f i d b i k i more than company information and basic marketing
materials. Only 8% offer 'advanced transactions' such as
online funds transfer transactions & cash management online funds transfer, transactions & cash management
services.
Foreign & Private banks are much advanced in terms of the g
number of sites & their level of development.
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Emerging Challenges
Information technology analyst firm, the Meta Group, recently
reported that "financial institutions who don't offer Internet
b ki b h 2000 ill b i li d " banking by the year 2000 will become marginalized."
By the year of 2002, a large sophisticated and highly competitive
I t t B ki M k t ill d l hi h ill b d i b Internet Banking Market will develop which will be driven by
Demand side pressure due to increasing access to low cost
electronic services electronic services.
Growing customer awareness and need of transparency.
Global players Global players
Close integration of bank services with web based E-commerce
M i t i t ti l t ti d t th f t th t th More convenient international transactions due to the fact that the
Internet along with general deregulation trends, eliminate
geographic boundaries. g g p
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Certainly some existing brick and mortar banks will go out of y g g
business.
But that's because they fail to respond to the challenge of the
Internet Internet.
The Internet and it's underlying technologies will change and
transform not just banking, but 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 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
b i f b i i h bl b i l i h basis, out of business-since they are unable to bring to play in the
new context.
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Main Concerns in Internet Banking
In a survey conducted by the Online Banking Association, member y y g ,
institutions rated security as the most important issue of online banking.
There is a dual requirement to protect customers' privacy and protect
against fraud. g
Some basic information on the transmission of confidential data is
presented in Security and Encryption on the Web.
PC Magazine Online also offers a primer on How Encryption Works PC Magazine Online also offers a primer on How Encryption Works.
A multi-layered security architecture comprising firewalls, filtering
routers, encryption and digital certification ensures that your account
i f ti i t t d f th i d information is protected from unauthorised access
Firewalls and filtering routers ensure that only the legitimate Internet
users are allowed to access the system.
Digital certification procedures provide the assurance that the data you
receive is from the Infinity system.
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ATM ATM
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Automated Teller Machine (ATM)
An Automated Teller Machine (ATM) or Automatic An Automated Teller Machine (ATM) or Automatic
Banking Machine (ABM) is a computerised
telecommunications device that provides the clients of a
financial institution with access to financial transactions in a
public space without the need for a cashier, human clerk or
bank teller bank teller.
On most modern ATMs, the customer is identified by
inserting a plastic ATM card with a magnetic stripe that inserting a plastic ATM card with a magnetic stripe, that
contains a unique card number and some security
information such as an expiration date or CVV.
Authentication is provided by the customer entering a
personal identification number (PIN).
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Using an ATM customers can access their bank accounts in Using an ATM, customers can access their bank accounts in
order to make cash withdrawals and check their account
balances a a ces
If the currency being withdrawn from the ATM is different
from that which the bank account is denominated in (e.g.: from that which the bank account is denominated in (e.g.:
Withdrawing Japanese Yen from a bank account containing
US Dollars), the money will be converted at a wholesale ), y
exchange rate. Thus, ATMs often provide the best possible
exchange rate for foreign travellers and are heavily used for
this purpose as well.
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ATMs are known by various other names including Automated ATMs are known by various other names including Automated
Transaction Machine.
Automated Banking Machine Automated Banking Machine
Cash Point (in Britain)
M M h Money Machine
Bank Machine
Cash Machine
Any Time Money (in India).
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Financial Networks
Most ATMs are connected to interbank networks, enabling
people to withdraw and deposit money from machines not p p p y
belonging to the bank where they have their account or in the
country where their accounts are held (enabling cash
i hd l i l l ) S l f i b k withdrawals in local currency). Some examples of interbank
networks include PULSE, PLUS, Cirrus, Interac, Inter
switch STAR and LINK switch, STAR, and LINK.
ATMs rely on authorization of a financial transaction by the
card issuer or other authorizing institution via the g
communications network. This is often performed through an
ISO 8583 messaging system.
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Man banks charge ATM usage fees In some cases these fees are Many banks charge ATM usage fees. In some cases, these fees are
charged solely to users who are not customers of the bank where
the ATM is installed; in other cases, they apply to all users. Where
machines make a charge some people will not use them, but go to
a system without fees.
I d t ll di f d i t tt h t th i In order to allow a more diverse range of devices to attach to their
networks, some interbank networks have passed rules expanding
the definition of an ATM to be a terminal that either has the vault
within its footprint or utilizes the vault or cash drawer within the
merchant establishment, which allows for the use of a scrip cash
dispenser dispenser.
ATMs typically connect directly to their host or ATM Controller
via either ADSL or dial-up modem over a telephone line or p p
directly via a leased line.
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Other services at ATMs
ATMs are now seen more than the cash dispensing machine ATMs are now seen more than the cash dispensing machine
Customers recharge there mobile phone pre paid
connections connections
Pay there utility bills
T f f h h h Transfer of money through cheques
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Credit Cards
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An example of the front in a typical credit card: Issuing bank logo
EMV chip on "smart cards"
Hologram g
Credit card number
Card brand logo
Expiration Date
Card Holder Name
contact less chip
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An example of the reverse side of a typical credit card: Magnetic
Stripe
Signature Strip g
Card Security Code
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Credit Card is part of a system of payments named after the Credit Card is part of a system of payments named after the
small plastic card issued to users of the system.
It is a card entitling its holder to buy goods and services It is a card entitling its holder to buy goods and services
based on the holder's promise to pay for these goods and
services. services.
The issuer of the card grants a line of credit to the consumer
(or the user) from which the user can borrow money for (or the user) from which the user can borrow money for
payment to a merchant or as a cash advance to the user.
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A credit card is different from a charge card where a charge A credit card is different from a charge card, where a charge
card requires the balance to be paid in full each month.
In contrast credit cards allow the consumers to 'revolve' In contrast, credit cards allow the consumers to revolve
their balance, at the cost of having interest charged.
Most credit cards are issued by local banks or credit unions Most credit cards are issued by local banks or credit unions,
and are the shape and size specified by the ISO/IEC 7810
standard as ID-1. This is defined as 85.60 53.98 mm in standard as ID 1. This is defined as 85.60 53.98 mm in
size.
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Credit cards are issued after an account has been approved by the Credit cards are issued after an account has been approved by the
credit provider, after which cardholders can use it to make
purchases at merchants accepting that card. g
When a purchase is made, the credit card user agrees to pay the
card issuer.
The cardholder indicates consent to pay by signing a receipt with a
record of the card details and indicating the amount to be paid or
b l d f b by entering a personal identification number (PIN).
Also, many merchants now accept verbal authorizations via
t l h d l t i th i ti i th I t t k telephone and electronic authorization using the Internet, known
as a 'Card/Cardholder Not Present' (CNP) transaction.
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Each month, the credit card user is sent a statement indicating the
purchases undertaken with the card, any outstanding fees, and the
total amount owed.
After receiving the statement, the cardholder may dispute any
charges that he or she thinks are incorrect
O h h dh ld d f d Otherwise, the cardholder must pay a defined minimum
proportion of the bill by a due date, or may choose to pay a higher
amount up to the entire amount owed amount up to the entire amount owed.
The credit issuer charges interest on the amount owed if the
balance is not paid in full (typically at a much higher rate than a a ce s ot pa u (typ ca y at a uc g e ate t a
most other forms of debt).
Some financial institutions can arrange for automatic payments to g p y
be deducted from the user's bank accounts, thus avoiding late
payment altogether as long as the cardholder has sufficient funds.
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Benefits to Customers
The main benefit to each customer is convenience.
Compared to debit cards and cheques, a credit card allows small
h l b i kl d h d short-term loans to be quickly made to a customer who need not
calculate a balance remaining before every transaction, provided
the total charges do not exceed the maximum credit line for the
d card.
Many credit cards offer rewards and benefits packages, such as
offering enhanced product warranties at no cost, free loss/damage g p , g
coverage on new purchases, and points which may be redeemed
for cash, products, or airline tickets.
Additionally carrying a credit card may be a convenience to some Additionally, carrying a credit card may be a convenience to some
customers as it eliminates the need to carry any cash for most
purposes.
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Detriments to Customers
Credit cards with low introductory rates are limited to a
fixed term usually between 6 and 12 months after which a fixed term, usually between 6 and 12 months after which a
higher rate is charged.
Credit cards will often stipulate a default rate of 20 to 30 Credit cards will often stipulate a default rate of 20 to 30
percent in the event a payment is missed. That is, if a
consumer misses a payment, the rate will automatically consumer misses a payment, the rate will automatically
increase to a very burdensome level.
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Benefits to the Merchants
For merchants a credit card transaction is often more secure For merchants, a credit card transaction is often more secure
than other forms of payment, such as cheques,
As the issuing bank commits to pay the merchant the As the issuing bank commits to pay the merchant the
moment the transaction is authorized, regardless of whether
the consumer defaults on the credit card payment the consumer defaults on the credit card payment
In most cases, cards are even more secure than cash, because
they discourage theft by the merchant's employees and they discourage theft by the merchant s employees and
reduce the amount of cash on the premises.
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Precautions
If transaction is denied in one ATM try another ATM nearby If transaction is denied in one ATM try another ATM nearby
instead of trying again and again. Sometimes swindlers offer
to help you and filch your card and give you some others to e p you a c you ca a g ve you so e ot e s
stolen or dead card. They vanish before you realize that you
have been cheated.
Stand between the door and the ATM machine so that
nobody can watch you punching your pin.
keep track of your transactions and withdrawals regularly,
(note down in a book with details of purchases, date and
amount),. which enables you to bring to the notice of the
Bank if your card details have been misused.
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while using a credit card go to the counter where the machine is while using a credit card, go to the counter where the machine is
kept and watch . Sometimes the card is swiped twice when you
dont watch and double billing takes place though you are give g g y g
only one slip.
check after taking back your card after billing. Sometimes the
cards are exchanged with expired cards and you are swindled of a
lot of money before you realize and inform the Bank
d d d d l f Put your credit card or ATM card immediately after use.
keep the previous withdrawal slip to keep track of your balance.
Keep checking your Bank statements and credit card statements
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Tips Tips
Use your credit card only for purchases of higher denomination
Takeout your ATM or credit card only at the time of billing Takeout your ATM or credit card only at the time of billing
Act fast and inform your Bank if your card has been exchanged or
lost or you have been billed twice for the same transaction. lost or you have been billed twice for the same transaction.
It is a better idea to keep changing your pin numbers if your
memory cooperates. y p
Memorize your pin (if your No. is 6522 your year of birth +
your age when you graduated ) y g y g
Take a relative or friend if you are going to withdraw heavy
amounts
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Caution
Do not ask strangers for help if you have a problem while Do not ask strangers for help if you have a problem while
withdrawing cash from ATM
Do not write your pin on the ATM card cover or feed into your
cell phone.
Exchange of credit cards(by mistake) or deliberate switching of
cards with dead cards is common during transactions A minutes cards with dead cards is common, during transactions. A minute s
checking on your side would save the day.
Swindlers install small gadgets called Skimmers in the ATM g g
machines or card swiping machines collect data of the card holders
account and pin no and prepare new cards. Sometimes a person
posing as card holder waiting for his turn can use a lighter like posing as card holder waiting for his turn can use a lighter like
gadget to collect data of your card.
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Electronic Fund Transfer
Electronic funds transfer or EFT refers to the computer-based p
systems used to perform financial transactions electronically.
The term is used for a number of different concepts:
C dh ld i i i d i h dh ld k Cardholder-initiated transactions, where a cardholder makes use
of a payment card
Direct deposit payroll payments for a business to its employees, p p y p y p y ,
possibly via a payroll services company
Direct debit payments from customer to business, where the
transaction is initiated by the business with customer permission transaction is initiated by the business with customer permission
Electronic bill payment in online banking, which may be delivered
by EFT or paper check
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