E-banking Introduction

Before the advent of internet, Electronic banking has existed for around two
decades, but it was limited to direct dial services. The increase in ecommerce has speeded up this process in recent years due to a rise in the use
of internet. Most of the banks are now offering electronic banking services
with increasing competition from Internet-enabled, or online, banks and
other financial organizations
Banking in India has passed through several phases since formal banking
activity has commenced. Of all the current phase is the most interesting one
where technology is playing a predominant role in deciding the acceptability
or otherwise of a particular bank to the customer. Human life-style, having
influenced by electronics, the banking sector could not remain an exception.
Banking today has become more complex with different products and
services which stems from reliance on automation and technological change
and which has shaped it from a manual intensive industry into a highly
automated and technology dependent entity. Technology in the form of
electronic banking has made it possible to find alternate banking practices
comparatively, at lower costs. More and more people are using internet
banking or electronic banking products or services. As a large section of the
banks future customer base will be made of computer literate customers, the
banks must be able to offer these customers, products and services that allow
them to do their banking by electronic means.
Today electronic data and money are capable of moving around the
world within seconds very swiftly even without swift. Efficiency in
electronic payments brings about substantial benefits to the economy.

Adoption of modern, global and efficient payment systems will benefit

everyone retail and wholesalers, the banking system, the Government and
the overall economy itself. Implementation of a good payment and
settlement system can improve a countrys credit-rating as it happened in the
case of India with the implementation of Real Time Gross Settlement
(RTGS)system for wholesale payments. Therefore the development of
electronic payment systems and the growth of the economy are interlinked
and they build on each other to help the nations economic growth.

Procedure to access the E-Banking

E-banking is a web-based service that enables the banks authorized
customers to access their account information. It allows the customers to log
on the banks website with the help of a bank-issued identification number
(PIN).The banking system verifies the user and provides access to the
requested services. The range of products and services offered by each bank
on the Internet differs widely in their content. Most banks offer e-banking as
a value-added service. E-banking has also led to emergence of new banks,
which operate only through the Internet and do not exist physically. Such
banks are called Virtual banks or Internet only banks.
In a typical e-banking transaction, customers requests for online
banking. Information is passed on from Web server to the banks e-banking
server through the WWW interface. These requests pass through a firewall
before they reach the e-banking server.
The customer information database is stored on a banks server, which is
protected by the use of various security tools in addition to the firewall

technology. The WWW interface is the only media of communication with

the e-banking server and e-banking server is the only media of
communication with the customer database, thus ensuring the safety of
operation and customer data.
According to study conducted by consultants Booz-Allen & Hamilton
the cost of an average transaction on the Internet is as low as 13 percents
compared to $1.07 through the branch,54 percent through the telephone and
27 percents through the ATM. The study also stated that e-banking helped
banks to reduce the branch load and attract future customers. In India the
cost of one banking transaction through the Internet amounted to 10 paise to
the bank as compared to Re.1 through a branch, 45 paise through an ATM,
35 paise through phone banking and 20 paise through debt cards.
TRADITIONAL BANKING VS E- BANKING
In traditional banking, the customer has to visit the branch of the bank in
person to perform the basic banking operations viz. Account enquiry, funds
transfer, cash withdrawals etc. The brick and mortar structure of a bank is
essential to perform the banking functions.
On the other hand, e-banking enables the customers to perform the basic
banking transactions by sitting at their office or at homes through PC or
LAPTOP. The customers can access the banks website for viewing their
account details and perform the transaction on account as per their
requirement. With e-banking the brick and mortar structure of the traditional
banking gets converted into a click and portal model, thereby giving a
concept of virtual banking a real shape. Thus todays banking is no longer
confined to branches. Customers are being provided with additional delivery

channels which are more convenient to customers and are cost effective to
the banks. These delivery channels include ATM, tele banking, internet
banking, mobile banking, home banking etc. Thus e-banking facilitates
banking transactions by customers round the clock globally.
Conventional banking is an art. But E-banking is more of a science than art.
E-banking is knowledge based and mostly scientific in using the electronic
devices of the computer revolution. When most corporate tend to become
internet working organization, banking has to be e-banking in the new
century.
FACETS OF E-BANKING
As said earlier e-banking means the conduct of banking electronically. It
calls for elimination of paper based transaction and radical change in the
banking operations. E-banking will operate through internet, extranet and
intranet. E-banking is therefore banking on the information superhighways
on the frontier of the internet.
E-banking must have at least the following dimension:
Customer-to-bank E-banking(EB)
Bank-to-bank-E-banking
Electronic Central Banking
Intranet procurement

 Customer to bank E-banking

E-banking is basically internet based. Banking products and services
such as deposits, remittances, credit cards etc. as well as all important
banking information can be made available with easy access to customers on
internet. Customers can be made use of these services with no restricted
office hours, no queues, no tellers and no waiting. Several network
innovations for e-banking can be visualized such as smart cards, electronic
data interchange etc. of course, and the banking operations have to be
guarded against unauthorized access by intruders.
Bank to bank E banking
This form of electronic banking is for inter-bank transactions such as
money at call etc. This type of e-banking is driving extranets, which is
restricted to banks only hence it is well secured and unauthorized access is
less.

Working Group Recommended By RBI

The Reserve Bank of India constituted a working group on Internet Banking.
The group divided the internet banking products in India into 3 types based
on the levels of access granted. They are:

i) Information Only System:

General purpose information like interest rates, branch location, bank

products and their features, loan and deposit calculations are provided in the
banks website. There exist facilities for downloading various types of
application forms. The communication is normally done through e-mail.
There is no interaction between the customer and bank's application system.
No identification of the customer is done. In this system, there is no
possibility of any unauthorized person getting into production systems of the
bank through internet.

ii)

Electronic Information Transfer System: The system provides

customer- specific information in the form of account balances, transaction

details, and statement of accounts. The information is still largely of the
'read only' format. Identification and authentication of the customer is
through password. The information is fetched from the bank's application
system either in batch mode or off-line. The application systems cannot
directly access through the internet.
iii) Fully Electronic Transactional System: This system allows bidirectional capabilities. Transactions can be submitted by the customer for
online update. This system requires high degree of security and control. In
this environment, web server and application systems are linked over secure
infrastructure. It comprises technology covering computerization,
networking and security, inter-bank payment gateway and legal
infrastructure.
ADVANTAGES OF E-BANKING

E-banking has the following advantages:

Round the clock banking:
E-banking facilitates performing of basic banking transaction
by customers round the clock globally. World-Wide 24 hours and 7 days a
week banking services are made possible. In fact there are no restricted
office hours for E-banking.
Convenient banking:
E-banking increases the customers convenience. No personal
visit to the branch is required. Customers can perform basic banking
transaction by simply sitting at their office or at home through PC or
LAPTOP. Customers can get drafts at their door steps through e-mail call.
Thus, E-banking facilitates E-banking.
Low Cost banking(services):
The operational costs have come down due to technology
adoption. The cost of transactions through internet banking is much less than
any other traditional mode.
Profitable banking:
The increased speed of response to customer requirements
can enhance customer satisfaction and consequently can lead to higher
profits as a result of handling more number of customer accounts.
Low cost banking:

The operational cost has come down due to technology

adoption. The cost of transactions through internet banking is much less than
any other traditional mode. There is also much saving on the cost of
infrastructure as the banks can have access to a greater number of potential
customers without the commitment costs of physically opening branches.
Moreover requirements of staff at the banks get reduced to a greater extent.
Quality banking:
Internet banking allows the possibility of improved quality
and an enlarged range of services being made available to customers.
Speed banking:
The increased speed of response to customer requirements
will lead to greater customer satisfaction and handling a large number of
transactions at a lesser time. Thus, it increases the customers convenience to
a greater extent and facilitates better customer retention.
Service banking
Banks can also offer many such management products.
Instant credit, one day credit, immediate payment of utility bills,
instant transfer of funds etc. is possible under e-banking.
DISADVANTAGES OF E-BANKING
Start up cost
The initial start-up cost for venturing into Internet banking is on
the higher side and it includes the following:

 Connection cost to the Internet or any other mode of

electronic communication
Cost of sophisticated hardware software and other related
components

like

modem,

router,

bridges,

network

management system etc.

Cost of maintenance of all equipment, web sites, skill level

of employees.

Cost of setting up organizational activities.

Training and maintenance:
The introduction of internet banking involves 24 hours support
environment, quality service to end users and other partners which
would necessitate a well qualified and robust group of skilled people to
meet external and internal commitments. Hence the bank has to spend a
lot on training.
Lack of skilled personnel:
It is a well known fact that there is an acute scarcity of web
developers, content providers and knowledgeable professionals to route
banking transactions through Internet.

Security:
In paperless banking transactions many problems of security are
involved. A security threat is defined as a circumstansive decision or
event with potential to cause economic hardship to data or network

resources in the form of destruction, disclosure, modification of data,

denial of services, fraud waste and abuse. There re chances that the
documents such as cheque, passbook etc. can be modified without
leaving any visible trace. Distortions of information are also possible.
Providing appropriate security may require major initial investments in
the form of application encryption techniques, implementation of
firewalls etc. In spite of implementation of several security measures
the possibility of a security breach cannot be ruled out.
Legal issue
Legal framework for recognizing the validity of banking
transactions conducted through the net is still being put in place.
Though initial framework has been devised for e-banking activities it
is uncertain as to what possible legal issues may pop up in future as
banking on Internet processes.
Restricted clientele and technical problems:
The user of e-banking needs a computer and time to log on to the
site, which means that the target clientele is restricted to those who have
a home PC or can access the Net through the office or cybercaf.
Moreover technical constraints due to telephone connectivity, modem
connections etc. may cause constraints.

Security Measures
Most of the problems mentioned above are in the nature of teething
problems and hence they can be eliminated over a period of time.

However for venturing into E-banking the following major controls can
be ensured.
Authenticity controls: To verify identity to individuals like
password, pin etc.
Accuracy control: To ensure the correctness of the data, flowing
across the network.
Completeness control: To make sure that no data is missing
Redundancy control: To see that data is traveled and processed
only once and there is no repetitive sending of data.
Privacy controls: To protect the data from inadvertent or
unauthorized access.
Audit trial controls: To ensure keeping chronological role of
events that is occurred in the system.
Existence controls: To make sure that on going availability of all
the system resources with the same throughout.
Efficiency: To ensure that the system uses minimum resources to
achieve the desired goal.
Firewall controls: To prevent unauthorized users accessing
private network which are connected to Internet.

Encryption controls: To enable only those who possess secret

key to decrypt the cyber text.

E-Banking Scenario

The banking industry is expected to be a leading player in e-business. While

the banks in developed countries are working primarily via Internet as nonbranch banks, banks in the developing countries use the Internet as an
information delivery tool to improve relationship with customers.
Banks have established an Internet presence with various objectives. Most
of them are using the internet as a new distribution channel. Financial
services with the use of Internet may be offered in an equivalent quantity
with lower costs to the more potential customers. There may be contacts
from each corner of the world at any time of day or night. This means that
banks may enlarge their market without opening new branches. The banks in
the US are using the Web to reach opportunities in three different categories:
to market information to deliver banking products and services, and to
improve customer relationship.
In India, approximately one percent of high and middle-income group
banking customers conducted banking on the Internet. However large banks
appeared to have a clear advantage over small banks in the range of services
they offered. In 2001 a Reserve Bank of India survey revealed that more
than 20 major banks were either offering e-banking services at various levels
or planned to do in the near future. Some of the private banks included ICICI
Bank, HDFC Bank, IndusInd Bank, IDBI Bank, Citibank, Global Trust
Bank, Bank of Punjab and UTI Bank. The banks have already started
focusing on increasing and improving their e-banking services. The banks
have also begun to collaborate with various utility companies to enable the
customers to perform various functions online.
Both computer and telephone banking cover the term electronic banking.
Using computer banking a customers computer either dials directly into his
banks computer or gains access to the banks computer over the internet.

Using telephone banking the customer can control his bank accounts by
giving the bank instructions over the telephone. Both computer and
telephone banking involve the use of passwords, which give access to the
customers accounts.
Banking transactions can be carried out 24 hours a day using these
methods .For instance a customer can view recent transactions, get print out
of statements of account and transfer funds between accounts and make
payments and transfer funds using computer banking. Many banks have
provided the facility to set-up amend or cancel standing orders.
E-Banking Strategies
Though e-banking offers vast opportunities yet even less than one in three
banks have an e-banking strategy in place. According to a study, less than 15
percent of banks with transactional websites will realize profits directly
attributable to those sites. Hence banks must realize the seriousness of the
challenge ahead and develop a strategy that will enable them to leverage the
opportunities presented by the Internet.
No single e-banking strategy is right for every banking company. But
whether they adopt an offensive or a defensive posture, they must constantly
revaluate their strategy. Just enrolling customers for online banking may not
be sufficient until and unless they use the site actively. Banks must make
efforts to increase their site usage by customers and effectively co-ordinate
the online channel with branches and call centres.Then only they will be able
to derive maximum value that includes cost reduction , cross-selling,
opportunities ,and higher customer retention.

Customers have some rational reasons for staying offline. Some of these
reasons include usability features of the site, concerns about security and
frequent complaints that signing up is complicated and time-consuming.
Banks can solve these problems by refocusing investment on improving the
sites basic functionality and user-friendliness, and avoiding advanced
features that most customers neither understand nor value. Developing
advanced features that appeal to a relatively small numbers of customers,
creates far less value than strengthening core capabilities and getting
customers to use them. Banks must make efforts to familiarize customers
with their sites and show them how easy and efficient the on-line channel is
to use.
Banks have to be creative in rethinking organizational structures and
management process. While most of the banks have started focusing on ebanking activities, a new challenge in the form of mobile banking has
emerged. Mobile banking is both an additional opportunity for banks to offer
their online services and an additional opportunity for banks to offer their
online services and an additional channel from which to access new
customers and cross-selling to existing customers.
Mobile banking gives the opportunity to significantly expand their
customer relationships provided they position themselves effectively.

E- Banking Transactions
The following are some of the basic functions in Internet banking

 Account enquiry
Fund transfer
Payment of electricity, water and telephone bills.
Online payment for transactions actually performed through internet
Request for issuance of cheque books, demand drafts etc.
Statement of accounts
Access to latest schemes
Access to rate of interest and other service charges.
Services availed through E-banking
Bill payment service
You can facilitate payment of electricity and telephone bills, mobile
phone, credit card and insurance premium bills as each bank has tie-ups with
various utility companies, service providers and insurance companies, across
the country. To pay your bills, all you need to do is complete a simple onetime registration for each biller. You can also set up standing instructions
online to pay your recurring bills, automatically. Generally, the bank does
not charge customers for online payment.
Fund transfer
You can transfer any amount from one account to another of the same or
any another bank. Customers can send money anywhere in India. Once you
login to your account, you need to mention the payees account number, his

bank and the branch. The transfer will take place in a day or so, whereas in a
traditional method, it takes about three working days. ICICI Bank says that
online bill payment service and fund transfer facility have been their most
popular online services.
Credit card customers
With Internet banking, customers can not only pay their credit card bills
online but also get a loan on their cards. If you lose your credit card, you can
report lost card online
Railway pass
This is something that would interest all the aam janta. Indian Railways has
tied up with ICICI bank and you can now make your railway pass for local
trains online. The pass will be delivered to you at your doorstep. But the
facility is limited to Mumbai, Thane, Nashik, Surat and Pune.
Investing through internet banking
You can now open an FD online through funds transfer. Now investors with
interlinked demat account and bank account can easily trade in the stock
market and the amount will be automatically debited from their respective
bank accounts and the shares will be credited in their demat account.
Moreover, some banks even give you the facility to purchase mutual funds
directly from the online banking system

Nowadays, most leading banks offer both online banking and demat
account. However if you have your demat account with independent share
brokers, then you need to sign a special form, which will link your two
accounts.
Recharging the prepaid phone
Now just top-up your prepaid mobile cards by logging in to Internet
banking. By just selecting your operator's name, entering your mobile
number and the amount for recharge, your phone is again back in action
within few minutes.
Shopping
With a range of all kind of products, you can shop online and the payment is
also made conveniently through your account. You can also buy railway and
air ticket through e-banking.

Security

Security token devices

Protection through single password authentication, as is the case in most
secure Internet shopping sites, is not considered secure enough for personal
online banking applications in some countries. Basically there exist two
different security methods for online banking.

The PIN/TAN system where the PIN represents a password, used for
the login and TANs representing one-time passwords to authenticate
transactions. TANs can be distributed in different ways; the most
popular one is to send a list of TANs to the online banking user by
postal letter. The most secure way of using TANs is to generate them
by need using a security token. These token generated TANs depend
on the time and a unique secret, stored in the security token (this is
called two-factor authentication or 2FA). Usually online banking with
PIN/TAN is done via a web browser using SSL secured connections,
so that there is no additional encryption needed.

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

PRODUCTS OF E-BANKING
Communication channel can be of three types-bit serial, byte serial and
parallel. Data compressions techniques are used for faster communication.
Advancements in information technology have had far reaching effects on
Indian banking which can be identified mainly in the following areas.
i.

. Customer service-this has been enhanced considerably in the

following ways:
o Introducing new banking channels such as ATMs, internet banking,
and tele-banking
o Enhancing customer convenience through initiatives such as any
where and any time banking 24*7 days banking, home banking.
o Making routine banking transactions speedier, safe and secure.
o Achieving integrated banking service through interconnectivity of
branches.
o Making banker-customer communications e.g. Payment of
electricity/telephone/gas bill, Insurance premium and receipt of
pension/interest dividends etc.

ii.

Integrated internal accounting system : Banks book-keeping has been

made automated, fast and accurate, which saves considerable time.
Staff time thus can now be invested in marketing and such other work
after the banking hours.

iii.

Management information systems meant for the middle and top

management have improved due to data classification and retrieval,

integrated accounting system, communication and conferencing

system and inter-connectivity of branches.
iv.

Cross selling of various financial products has been made easy due to
data mining and electronic marketing channels.

AUTOMATED TELLER MACHINES (ATMs)

The trend in banking has evolved from a cash economy to cheque
economy and there on to the plastic card economy. One of the
channels of banking service delivery is the ATM or the Automated
Teller Machines whose traditional primary use is to dispense cash
upon insertion of a plastic card and its unique PIN or personal
identification number. ATM is designed to perform the most important
function of bank. The plastic card is replacing cheque, personal
attendance of the customer, banking hours restrictions and paper
based verification. There are debit cards. This helps a bank customer
to withdraw money from his account without having gone to the bank.
ATM is a user friendly, computer driven system which operates 24
hours and 7 days a week. A totally menu driven system, it displays
easy to follow, step-to-step instructions for the customer. ATM can be
accessed by a customer by using an ATM card that gives entry into the
ATM room. ATMs can be installed on the banks premises (on-site
ATMs) for which no license is required from the RBI. However, for
ATMs to be erected at public places (off-site ATMs), banks have to
obtain a license post-facto ATMs used as spring board for Electronic
Fund Transfer. ATM itself can provide information about customers

account and also receive instructions from customers - ATM

cardholders. An ATM is an Electronic Fund Transfer terminal capable
of handling cash deposits, transfer between accounts, balance
enquiries, cash withdrawals and pay bills. It may be on-line or 0ffline. The on-line ATM enables the customer to avail banking
facilities from anywhere. In off-line the facilities are confined to that
particular ATM assigned. Any customer possessing ATM card issued
by the Shared Payment Network System can go to any ATM linked to
Shared Payment Networks and perform his transactions. ATM is well
equipped to perform the following functions however only a few of
these are being provided by ATMs of most of the banks in India.
Cash dispensing
Generating statement of account
Account balance enquiry
Request for cheque book
Deposit of cash/ cheque etc.
Issue of gift cheque/ travelers cheque
Utility payment like telephone bills, electricity bills.
Advantages of ATM
a. ATMs can be accessed round the clock
b. No employee interface is necessary

c. It offers a cost effective solution alternative to labour costs

d. Scope for frauds, robberies and misappropriation is reduced
considerably if the PIN is maintained.
e. Response is uniform and fixed for all customers as per the
programmer set, thus leaving no scope for discourteous or subjective
behaviors as may happen with human interaction at banks counters.
Limitations of ATMs
Cash withdrawals are restricted to certain amounts as fixed by banks
and as notified to ATM cardholders.
Cash dispensation is restricted to certain denomination of currency
notes usually RS. 50/100/500.
ATM can perform only particular functions. For other functions the
customer has to visit the branch or direct ones enquiries to the
concerned call centre.
INTERNET BANKING
Internet banking involves consumers using the internet to access their
bank account and to undertake banking transactions. At the basic level
Internet banking can mean the setting up of a web page by a bank to
give information about its product and services. At an advance level it
involves provision of facilities such as accessing accounts, funds
transfer, and buying financial products or services online. This is
called transactional online banking. Internet banking has been

introduced by most commercial banks which have fully computerized

their operations. Just as the bank staff accesses the accounts of a
customer on-line, the customer can also access his/her account online
via internet.

There are two ways to offer Internet banking. :

a. An existing bank with physical offices can establish a website
and offer internet banking in addition to its traditional delivery
channels.
b. A bank may be established as a branchless, internet only or
virtual bank without any physical branch.
For accruing internet a customer requires.
i.

A personal computer

ii.

A telephone link

iii.

A modem

iv.

An arrangement with one of the internet service providers

e.g. VSNL, Satyam etc.

TELE BANKING
Tele banking requires

RISKS OF E-BANKING IN INDIA

Operational risk
Operational risk also referred to as transactional risk is the most common
form of risk associated with e-banking. It takes the form off inaccurate
processing of transactions, non-enforceability of contracts, compromises in
data integrity, data privacy and confidentiality, unauthorized access/
intrusion to banks 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 employees and hackers etc.
can become potential source of operational risk.
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 banks 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 e.g. hackers operating via the Internet could
access, retrieve and use confidential customer information and also can
implant virus. This may result in loss of data, theft or tampering with
customer information, disabling of a significant portion of banks internal
computer thus denying service, cost of repairing etc. Other related risks are
loss of reputation, infringing customers privacy and legal implications etc.
In addition to external attacks banks are exposed to security risk from
internal sources e.g. employees fraud. Employees being familiar with
different systems and their weaknesses become potential security threats in a
loosely controlled environment.
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 risk arises
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 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.

Legal risk
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.
Given the relatively new nature of e-banking, rights and obligations in some
cases are uncertain and applicability of laws and rules in uncertain or
ambiguous, thus causing legal risk.
Other reasons for legal risks are uncertainty about the validity of some
agreement formed via electronic media and law regarding customer
disclosures and privacy protection. A customer inadequately informed about
his rights and obligations, may not take proper precautions in using ebanking products or services, leading to disputed transactions, unwanted
units against the bank or other regulatory sanctions.
Money laundering Risk
As e-banking transactions are conducted remotely banks may find it difficult
to apply traditional method for detecting and preventing undesirable criminal

activities. Application of money laundering rules may also be inappropriate

for some forms of electronic payments. To avoid these banks need to design
proper customer identification and screening techniques, develop audit trails,
conduct periodic compliance reviews, frame policies and procedures to spot
and report suspicious activities in internet connection.
Cross Border Risk
E-Banking is based on technology that by its very nature is designed to
extend the geographic reach of banks and customers. Such market expansion
can extend beyond national borders. This causes various risks.
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. If a banks uses a service
provider located in another country it will be more difficult to monitor it thus
causing operational risk.
Cross boarder 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
Strategic 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 analyze the availability and cost of
additional resources, provision of adequate supporting staff, proper training
of staff and adequate insurance coverage.
Credit Risk
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 e-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.
Liquidity Risk
Liquidity risk arises out of banks 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.
Risk of Unfair competition
E-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 banks system.
Thus one can find that e-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. Supervisory and regulatory authorities are required to
develop methods for identifying new risks, assessing risks, managing risks
and controlling risk exposure.
THE REGULATORY FRAMEWORK
In early 2001, RBI issued guidelines for e-banking. These guidelines
covered various issues that fall within the framework of technology,
security standards and legal and regulatory issues. As per the
guidelines the existing banking regulatory framework also applied to
e-banking and covers any entity involved in providing online ebanking products and services to the residents of India. According to
the RBI notification, banks should acquire prior approval to offer ebanking services and the banks that were already providing such
services were required to acquire to acquire RBIs post facto approval.

RBI stipulated that virtual banks are not permitted to offer e-banking
services in India and stated that only banks licensed under the
Banking Regulation Act and having a physical presence in India were
allowed to offer such services. RBI clearly stated that e-banking
should include only Indian currency and in case of cross-border
transactions the restriction would continue to apply unless permitted
by FEMA (Foreign Exchange Management Act).

Electronic banking has existed for decades, starting with automatic teller machines
(ATM) in the late 1960s. Over time, more and more concerns are associated with
electronic banking, as the industry branched out to phone and on line banking. Regardless
of what type of electronic banking you choose to use, there are issues with security,
accuracy and customer service.

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1. Security
o

One of the biggest problems with electronic banking is security.

Regardless of what type of security is in place for on line banking sites or
ATMs, people are able to obtain customer information. Through so-called
phishing, where someone tries to trick a customer into revealing sensitive
information, or pharming, where malicious code is introduced into a
computer, customers can become victims to identity theft. These issues are
often beyond the bank’s control, as criminals try many tactics to
obtain customer information. At ATMs, thieves can also hack the system,

so your personal identification number (commonly called a PIN number)

and card number are stolen after you use them.

Fraud
o

Fraud is a common concern with electronic banking because the security

features, such as a password or PIN number can be stolen and used
without identification. There are few ways to verify who is making a
transaction until it is too late. People can steal a PIN and card number and
use it on line without the owner’s permission. Money transfers can
also occur through on line banking sites by an outside party.

Customer Service
o

Electronic banking also lacks the one thing most bank institutes thrive on:
customer service. Electronic banking is conducted by the customer instead
of a bank teller, so there is no face-to-face interaction. The customer must
seek any additional services or help on by pro-actively contacting the
bank. Some customers refuse to use these services because they feel they
are entitled to in-person customer service.

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Internet Banking Problems

The popularity of Internet banking is growing rapidly as the transactions are becoming faster and
more convenient. However, there are some serious problems associated with this service.
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Internet banking is the latest development that has added a new dimension to banking
transactions by making it more convenient, which has eliminated the long wearisome waitinglines. But, there are some serious problems that you may encounter while banking through the
Internet, due to which many still prefer to go directly to the banks instead of availing this facility.
Internet Banking Issues
For carrying out Internet banking properly, a basic knowledge of computers and the Internet is
required, which limits the number of people willing to avail this facility. Many people who are
not comfortable with computers and the Internet, often find it difficult to use this service.
Therefore, for beginners, it is really time-consuming. In addition to this, people also find a
difficulty in trusting a completely mechanized system like Internet banking, in case of financial
matters. In many instances, a simple mistake, like clicking a wrong button, may create a big
problem. And so, many individuals often keep wondering if they have properly executed the
transaction. However, this uneasiness can be avoided by printing the transaction receipt and
keeping it with oneself, until the bank statement is received.
While banking through the Internet, you have to be careful about the security of your Internet
bank account. The security of your Internet bank account depends to a great extent on the security
of your computer, password and pin number. Any leakage of information regarding your
password or pin number and banking transactions can allow computer hackers to gain access to
your bank account, which is the most common online banking problem. This can lead to
unauthorized and criminal transactions being conducted without your knowledge. By the time
you get your bank statement and detect such transactions, it may be too late.
In this, you have to make sure that the banking session is secure, as in many instances you may
encounter proxy websites. These proxy websites can easily access your bank account, if they can
crack your user name, password or pin number.
Sometimes, it can be time-consuming and tedious, as many websites take quite a long time to get

started. Besides this, your Internet bank account may also take considerable time to get started.
You may also encounter technical difficulties and connectivity problems while conducting
banking transactions. Of course, there is a customer care department in almost every bank to look
into such matters, but often you may not be able to get the necessary assistance due to the
congestion in the computer and telephone network. On the other hand, in normal banking, you
can simply converse with the bank officials to sort out any problem.
However, with the advances in technology, many banks have taken the adequate measures to
ward off any problems related to the security of Internet banking. Customers can also follow
some simple precautionary measures, like not disclosing the password and pin number to anyone,
changing the password at regular intervals and installing antivirus software to ensure security and
safety of their banking transactions. Online banking tutorials are also provided by many banks to
help familiarize people with this service. So, you can effectively, for making your day-to-day
financial transaction avail this facility to use Internet

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