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E-banking in India - Challenges and Opportunities

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. 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. While E-banking has improved efficiency
and convenience, it has also posed several challenges to the
regulators and supervisors. 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. 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 a regulator and supervisor of the technologically
dominated financial system. It 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 adequate control mechanisms to address these risks.
The existing regulatory framework over banks has also been
extended to E-banking. It covers various issues that fall within
the framework of technology, security standards, and legal and
regulatory issues. This book — containing 12 scholarly articles —
will benefit those interested in the technological developments of
E-banking in India

Electronic banking is the wave of the future. It provides

enormous benefits to consumers in terms of the ease and cost of
transactions. But it also poses new challenges for country
authorities in regulating and supervising the financial system
and in designing and implementing macroeconomic policy.
ELECTRONIC banking has been around for some time in the
form of automatic teller machines and telephone transactions.
More recently, it has been transformed by the Internet, a new
delivery channel for banking services that benefits both
customers and banks. Access is fast, convenient, and available
around the clock, whatever the customer's location (see
illustration above). Plus, banks can provide services more
efficiently and at substantially lower costs. For example, a typical
customer transaction costing about $1 in a traditional "brick and
mortar" bank branch or $0.60 through a phone call costs only
about $0.02 online.
Electronic banking also makes it easier for customers to
compare banks' services and products, can increase competition
among banks, and allows banks to penetrate new markets and
thus expand their geographical reach. Some even see electronic
banking as an opportunity for countries with underdeveloped
financial systems to leapfrog developmental stages. Customers
in such countries can access services more easily from banks
abroad and through wireless communication systems, which are
developing more rapidly than traditional "wired"
communication networks.
The flip side of this technological boom is that electronic banking
is not only susceptible to, but may exacerbate, some of the same
risks-particularly governance, Legal, operational, and
reputational-inherent in traditional banking. In addition, it
poses new challenges. In response, many national regulators
have already modified their regulations to achieve their main
objectives: ensuring the safety and soundness of the domestic
banking system, promoting market discipline, and protecting
customer rights and the public trust in the banking system.
Policymakers are also becoming increasingly aware of the
greater potential impact of macroeconomic policy on capital
movements.
Trends in electronic banking
Internet banking is gaining ground. Banks increasingly operate
websites through which customers are able not only to inquire
about account balances and interest and exchange rates but also
to conduct a range of transactions. Unfortunately, data on
Internet banking are scarce, and differences in definitions make
cross-country comparisons difficult. Even so, one finds that
Internet banking is particularly widespread in Austria, Korea,
the Scandinavian countries, Singapore, Spain, and Switzerland,
where more than 75 percent of all banks offer such services (see
chart). The Scandinavian countries have the largest number of
Internet users, with up to one-third of bank customers in
Finland and Sweden taking advantage of e-banking.
In the United States, Internet banking is still concentrated in the
largest banks. In mid-2001, 44 percent of national banks
maintained transactional websites, almost double the number in
the third quarter of 1999. These banks account for over 90
percent of national banking system assets. The larger banks tend
to offer a wider array of electronic banking services, including
loan applications and brokerage services. While most U.S.
consumers have accounts with banks that offer Internet services,
only about 6 percent of them use these services.
To date, most banks have combined the new electronic delivery
channels with traditional brick and mortar branches ("brick and
click" banks), but a small number have emerged that offer their
products and services predominantly, or only, through
electronic distribution channels. These "virtual" or Internet-only
banks do not have a branch network but might have a physical
presence, for example, an administrative office or nonbranch
facilities like kiosks or automatic teller machines. The United
States has about 30 virtual banks; Asia has 2, launched in 2000
and 2001; and the European Union has several-either as
separately licensed entities or as subsidiaries or branches of
brick and mortar banks
New challenges for regulators
This changing financial landscape brings with it new challenges
for bank management and regulatory and supervisory
authorities. The major ones stem from increased cross-border
transactions resulting from drastically lower transaction costs
and the greater ease of banking activities, and from the reliance
on technology to provide banking services with the necessary
security.
Regulatory risk. Because the Internet allows services to be
provided from anywhere in the world, there is a danger that
banks will try to avoid regulation and supervision. What can
regulators do? They can require even banks that provide their
services from a remote location through the Internet to be
licensed. Licensing would be particularly appropriate where
supervision is weak and cooperation between a virtual bank and
the home supervisor is not adequate. Licensing is the norm, for
example, in the United States and most of the countries of the
European Union. A virtual bank licensed outside these
jurisdictions that wishes to offer electronic banking services and
take deposits in these countries must first establish a licensed
branch.
Determining when a bank's electronic services trigger the need
for a license can be difficult, but indicators showing where
banking services originate and where they are provided can help.
For example, a virtual bank licensed in country X is not seen as
taking deposits in country Y if customers make their deposits by
posting checks to an address in country X. If a customer makes a
deposit at an automatic teller machine in country Y, however,
that transaction would most likely be considered deposit taking
in country. Regulators need to establish guidelines to clarify the
gray areas between these two cases.
Legal risk. Electronic banking carries heightened legal risks for
banks. Banks can potentially expand the geographical scope of
their services faster through electronic banking than through
traditional banks. In some cases, however, they might not be
fully versed in a jurisdiction's local laws and regulations before
they begin to offer services there, either with a license or without
a license if one is not required. When a license is not required, a
virtual bank--lacking contact with its host country supervisor--
may find it even more difficult to stay abreast of regulatory
changes. As a consequence, virtual banks could unknowingly
violate customer protection laws, including on data collection
and privacy, and regulations on soliciting. In doing so, they
expose themselves to losses through lawsuits or crimes that are
not prosecuted because of jurisdictional disputes.
Money laundering is an age-old criminal activity that has been
greatly facilitated by electronic banking because of the
anonymity it affords. Once a customer opens an account, it is
impossible for banks to identify whether the nominal account
holder is conducting a transaction or even where the transaction
is taking place. To combat money laundering, many countries
have issued specific guidelines on identifying customers. They
typically comprise recommendations for verifying an
individual's identity and address before a customer account is
opened and for monitoring online transactions, which requires
great vigilance.
In a report issued in 2000, the Organization for Economic
Cooperation and Development's Financial Action Task Force
raised another concern. With electronic banking crossing
national boundaries, whose regulatory authorities will
investigate and pursue money laundering violations? The
answer, according to the task force, lies in coordinating
legislation and regulation internationally to avoid the creation of
safe havens for criminal activities.
Operational risk. The reliance on new technology to provide
services makes security and system availability the central
operational risk of electronic banking. Security threats can come
from inside or outside the system, so banking regulators and
supervisors must ensure that banks have appropriate practices
in place to guarantee the confidentiality of data, as well as the
integrity of the system and the data. Banks' security practices
should be regularly tested and reviewed by outside experts to
analyze network vulnerabilities and recovery preparedness.
Capacity planning to address increasing transaction volumes
and new technological developments should take account of the
budgetary impact of new investments, the ability to attract staff
with the necessary expertise, and potential dependence on
external service providers. Managing heightened operational
risks needs to become an integral part of banks' overall
management of risk, and supervisors need to include
operational risks in their safety and soundness evaluations.
Reputational risk. Breaches of security and disruptions to the
system's availability can damage a bank's reputation. The more a
bank relies on electronic delivery channels, the greater the
potential for reputational risks. If one electronic bank
encounters problems that cause customers to lose confidence in
electronic delivery channels as a whole or to view bank failures
as system wide supervisory deficiencies, these problems can
potentially affect other providers of electronic banking services.
In many countries where electronic banking is becoming the
trend, bank supervisors have put in place internal guidance
notes for examiners, and many have released risk-management
guidelines for banks.
Money laundering is an age-old criminal activity that has been
greatly facilitated by electronic banking because of the
anonymity it affords. Once a customer opens an account, it is
impossible for banks to identify whether the nominal account
holder is conducting a transaction or even where the transaction
is taking place. To combat money laundering, many countries
have issued specific guidelines on identifying customers. They
typically comprise recommendations for verifying an
individual's identity and address before a customer account is
opened and for monitoring online transactions, which requires
great vigilance.
In a report issued in 2000, the Organization for Economic
Cooperation and Development's Financial Action Task Force
raised another concern. With electronic banking crossing
national boundaries, whose regulatory authorities will
investigate and pursue money laundering violations? The
answer, according to the task force, lies in coordinating
legislation and regulation internationally to avoid the creation of
safe havens for criminal activities.
Operational risk. The reliance on new technology to provide
services makes security and system availability the central
operational risk of electronic banking. Security threats can come
from inside or outside the system, so banking regulators and
supervisors must ensure that banks have appropriate practices
in place to guarantee the confidentiality of data, as well as the
integrity of the system and the data. Banks' security practices
should be regularly tested and reviewed by outside experts to
analyze network vulnerabilities and recovery preparedness.
Capacity planning to address increasing transaction volumes
and new technological developments should take account of the
budgetary impact of new investments, the ability to attract staff
with the necessary expertise, and potential dependence on
external service providers. Managing heightened operational
risks needs to become an integral part of banks' overall
management of risk, and supervisors need to include
operational risks in their safety and soundness evaluations.
Reputational risk. Breaches of security and disruptions to the
system's availability can damage a bank's reputation. The more a
bank relies on electronic delivery channels, the greater the
potential for reputational risks. If one electronic bank
encounters problems that cause customers to lose confidence in
electronic delivery channels as a whole or to view bank failures
as systemwide supervisory deficiencies, these problems can
potentially affect other providers of electronic banking services.
In many countries where electronic banking is becoming the
trend, bank supervisors have put in place internal guidance
notes for examiners, and many have released risk-management
guidelines for banks.
Reputational risks also stem from customer misuse of security
precautions or ignorance about the need for such precautions.
Security risks can be amplified and may result in a loss of
confidence in electronic delivery channels. The solution is
consumer education--a process in which regulators and
supervisors can assist. For example, some bank supervisors
provide links on their websites allowing customers to identify
online banks with legitimate charters and deposit insurance.
They also issue tips on Internet banking, offer consumer help
lines, and issue warnings about specific entities that may be
conducting unauthorized banking operations in the country.
Regulatory tools
There are four key tools that regulators need to focus on to
address the new challenges posed by the arrival of e-banking.
Adaptation. In light of how rapidly technology is changing and
what the changes mean for banking activities, keeping
regulations up to date has been, and continues to be, a far-
reaching, time-consuming, and complex task. In May 2001, the
Bank for International Settlements issued its "Risk Management
Principles for Electronic Banking," which discusses how to
extend, adapt, and tailor the existing risk-management
framework to the electronic banking setting. For example, it
recommends that a bank's board of directors and senior
management review and approve the key aspects of the security
control process, which should include measures to authenticate
the identity and authorization of customers, promote
nonrepudiation of transactions, protect data integrity, and
ensure segregation of duties within e-banking systems,
databases, and applications. Regulators and supervisors must
also ensure that their staffs have the relevant technological
expertise to assess potential changes in risks, which may require
significan t investment in training and in hardware and
software.
Legalization. New methods for conducting transactions, new
instruments, and new service providers will require legal
definition, recognition, and permission. For example, it will be
essential to define an electronic signature and give it the same
legal status as the handwritten signature. Existing legal
definitions and permissions--such as the legal definition of a
bank and the concept of a national border--will also need to be
rethought.
Harmonization. International harmonization of electronic
banking regulation must be a top priority. This means
intensifying cross-border cooperation between supervisors and
coordinating laws and regulatory practices internationally and
domestically across different regulatory agencies. The problem
of jurisdiction that arises from "borderless" transactions is, as of
this writing, in limbo. For now, each country must decide who
has jurisdiction over electronic banking involving its citizens.
The task of international harmonization and cooperation can be
viewed as the most daunting in addressing the challenges of
electronic banking.
Integration. This is the process of including information
technology issues and their accompanying operational risks in
bank supervisors' safety and soundness evaluations. In addition
to the issues of privacy and security, for example, bank
examiners will want to know how well the bank's management
has elaborated its business plan for electronic banking. A special
challenge for regulators will be supervising the functions that
are outsourced to third-party vendors.
The macroeconomic challenges
But the challenges are not limited to regulators. As the advent of
e-banking quickly changes the financial landscape and increases
the potential for quick ross-border capital movements,
macroeconomic policymakers face several cdifficult questions.
* If electronic banking does make national boundaries irrelevant
by facilitating capital movements, what does this imply for
macroeconomic management?
* How is monetary policy affected when, for example, the use of
electronic means makes it easier for banks to avoid reserve
requirements, or when business can be conducted in foreign
currencies as easily as in domestic currency?
* When offshore banking and capital flight are potentially only a
few mouse clicks away, does a government have any leeway for
independent monetary or fiscal policy?
* How will the choice of the exchange rate regime be affected,
and how will e-banking influence the targeted level of
international reserves of a central bank
Can a government afford to make any mistakes? Will the spread
of electronic banking impose harsh market discipline on
governments as well as on businesses?
The answers to these questions fall into two emerging strands of
thought. First, the technological revolution-- particularly the
expansion of electronic money but also, more broadly, electronic
advances in banking practices-- could result in a decoupling of
households' and firms' decisions from the purely financial
operations of the central bank. Thus, the ability of monetary
policy to influence inflation and economic activity would be
threatened.
Second, as electronic banking expands, financial transaction
costs can decline significantly. The result would be tantamount
to a reduction in the "sand in the wheels" of the financial sector
machinery, making capital flows even easier to effect, with a
potential erosion of the effectiveness of domestic monetary
policy. In this regard, proponents of the Tobin tax--which would
tax short-term capital flows to increase their cost and, thereby,
the sand in the wheels-- would feel that electronic banking
makes an even more compelling case for introducing such a tax.
Conclusion
While electronic banking can provide a number of benefits for
customers and new business opportunities for banks, it
exacerbates traditional banking risks. Even though considerable
work has been done in some countries in adapting banking and
supervision regulations, continuous vigilance and revisions will
be essential as the scope of e-banking increases. In particular,
there is still a need to establish greater harmonization and
coordination at the international level. Moreover, the ease with
which capital can potentially be moved between banks and
across borders in an electronic environment creates a greater
sensitivity to economic policy management. To understand the
impact of e-banking on the conduct of economic policy,
policymakers need a solid analytical foundation. Without one,
the markets will provide the answer, possibly at a high economic
cost. Further research on policy-related issues in the period
ahead is therefore critical
Introduction
In order for customers to use their banks online services they
need to have a personal computer and Internet connection.
Their personal computer becomes their virtual banker who will
assist them in their banking errands. Examples of e-banking
services that customers can get online are:
Attaining information about accounts and loans, Conducting
transfers amongst different accounts, even between external
banks, Paying bills, Buying and selling stocks and bonds by
depot, Buying and selling fund shares39 These services that are
offered by e-banking are changing and being improved because
of the intense competition between the banks online. Banking
industry must adapt to the electronics age, which in its turn is
changing all the time. EFT transactions require authorization
and a method to authenticate the card and the card holder.
Whereas a merchant may manually verify the card holder's
signature, EFT transactions require the card holder's PIN to be
sent online in an encrypted form for validation by the card
issuer. Other information may be included in the transaction,
some of which is not visible to the card holder (for instance
magnetic stripe data), and some of which may be requested from
the card holder (for instance the card holder's address or the
CVV2 security value printed on the card). EFT transactions are
activated during e-banking procedures. Various methods of e-
banking include: Telephone banking Online banking Short
Message Service (SMS) banking Mobile banking Interactive-TV
banking. Independent of location or time, you can execute your
payments and stock market orders and you get detailed
information on your accounts and custody accounts.

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:
E-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 e-banks to undercut bricks-and-mortar
banks. This is commonly known as the "beached dinosaur"
theory.
E-banks are easy to set up so lots of new entrants will arrive.
‘Old-world’ systems, cultures and structures will not encumber
these new entrants. Instead, they will be adaptable and
responsive. E-banking gives consumers much more choice.
Consumers will be less inclined to remain loyal.
E-banking will lead to an erosion of the ‘endowment effect’
currently enjoyed by the major UK banks.
Deposits will go elsewhere with the consequence that these
banks will have to fight to regain and retain their customer base.
This will increase their cost of funds, possibly making their
business less viable. Lost revenue may even result in these banks
taking more risks to breach the gap. Portal providers, are likely
to attract the most significant share of banking profits. Indeed
banks could become glorified marriage brokers. They would
simply bring two parties together – eg buyer and seller, payer
and payee. The products will be provided by monolines, experts
in their field. Traditional banks may simply be left with payment
and settlement business – even this could be cast into doubt.
Traditional banks will find it difficult to evolve. Not only will they
be unable to make acquisitions for cash as opposed to being able
to offer shares, they will be unable to obtain additional capital
from the stock market. This is in contrast to the situation for
Internet firms for whom it seems relatively easy to attract
investment.
There is of course another view which sees e-banking more as an
evolution than a revolution. E-banking is just banking offered via
a new delivery channel. It simply gives consumers another
service (just as ATMs did).
Like ATMs, e-banking will impact on the nature of branches but
will not remove their value. Traditional banks are starting to
fight back.
The start-up costs of an e-bank are high. Establishing a trusted
brand is very costly as it requires significant advertising
expenditure in addition to the purchase of expensive technology
(as security and privacy are key to gaining customer approval).
E-banks have already found that retail banking only becomes
profitable once a large critical mass is achieved. Consequently
many e-banks are limiting themselves to providing a tailored
service to the better off.
Nobody really knows which of these versions will triumph. This
is something that the market will determine. However,
supervisors will need to pay close attention to the impact of e-
banks on the traditional banks, for example by surveillance of:
strategy
customer levels
earnings and costs
advertising spending
margins
funding costs
merger opportunities and threats.

Risks
Strategic Risk - A financial institution’s board and management
should understand the risks associated with e-banking services
and evaluate the resulting risk management costs against the
potential return on investment prior to offering e-banking
services. Poor e-banking planning and investment decisions can
increase a financial institution’s strategic risk. On strategic risk
E-banking is relatively new and, as a result, there can be a lack of
understanding among senior management about its potential
and implications. People with technological, but not banking,
skills can end up driving the initiatives. E-initiatives can spring
up in an incoherent and piecemeal manner in firms. They can be
expensive and can fail to recoup their cost.
Furthermore, they are often positioned as loss leaders (to
capture market share), but may not attract the types of
customers that banks want or expect and may have unexpected
implications on existing business lines.
Banks should respond to these risks by having a clear strategy
driven from the top and should ensure that this strategy takes
account of the effects of e-banking, wherever relevant. Such a
strategy should be clearly disseminated across the business, and
supported by a clear business plan with an effective means of
monitoring performance against it.
Business risks - Business risks are also significant. Given the
newness of e-banking, nobody knows much about whether e-
banking customers will have different characteristics from the
traditional banking customers. They may well have different
characteristics. This could render existing score card models
inappropriate, this resulting in either higher rejection rates or
inappropriate pricing to cover the risk. Banks may not be able to
assess credit quality at a distance as effectively as they do in face
to face circumstances.
It could be more difficult to assess the nature and quality of
collateral offered at a distance, especially if it is located in an
area the bank is unfamiliar with (particularly if this is overseas).
Furthermore as it is difficult to predict customer volumes and
the stickiness of e-deposits (things which could lead either to
rapid flows in or out of the bank) it could be very difficult to
manage liquidity.
Of course, these are old risks with which banks and supervisors
have considerable experience but they need to be watchful of old
risks in new guises. In particular risk models and even processes
designed for traditional banking may not be appropriate.
Transaction/operations risk - Transaction/Operations risk
arises from fraud, processing errors, system disruptions, or
other unanticipated events resulting in the institution’s inability
to deliver products or services. This risk exists in each product
and service offered. The level of transaction risk is affected by
the structure of the institution’s processing environment,
including the types of services offered and the complexity of the
processes and supporting technology.
In most instances, e-banking activities will increase the
complexity of the institution’s activities and the quantity of its
transaction/operations risk, especially if the institution is
offering innovative services that have not been standardized.
Since customers expect e-banking services to be available 24
hours a day, 7 days a week, financial institutions should ensure
their e-banking infrastructures contain sufficient capacity and
redundancy to ensure reliable service availability. Even
institutions that do not consider e-banking a critical financial
service due to the availability of alternate processing channels,
should carefully consider customer expectations and the
potential impact of service disruptions on customer satisfaction
and loyalty.
The key to controlling transaction risk lies in adapting effective
polices, procedures, and controls to meet the new risk exposures
introduced by e-banking. Basic internal controls including
segregation of duties, dual controls, and reconcilements remain
important. Information security controls, in particular, become
more significant requiring additional processes, tools, expertise,
and testing. Institutions should determine the appropriate level
of security controls based on their assessment of the sensitivity
of the information to the customer and to the institution and on
the institution’s established risk tolerance level.
Credit risk - Generally, a financial institution’s credit risk is not
increased by the mere fact that a loan is originated through an e-
banking channel. However, management should consider
additional precautions when originating and approving loans
electronically, including assuring management information
systems effectively track the performance of portfolios
originated through e-banking channels. The following aspects of
on-line loan origination and approval tend to make risk
management of the lending process more challenging. If not
properly managed, these aspects can significantly increase credit
risk.

Verifying the customer’s identity for on-line credit applications

and executing an enforceable contract;
Monitoring and controlling the growth, pricing, underwriting
standards, and ongoing credit quality of
loans originated through e-banking channels;
Monitoring and oversight of third-parties doing business as
agents or on behalf of the financial institution (for example, an
Internet loan origination site or electronic payments processor);
Valuing collateral and perfecting liens over a potentially wider
geographic area;
Collecting loans from individuals over a potentially wider
geographic area;
Monitoring any increased volume of, and possible concentration
in, out-of-area lending.
Liquidity, interest rate, price/market risks - Funding and
investment-related risks could increase with an institution’s e-
banking initiatives depending on the volatility and pricing of the
acquired deposits. The
Internet provides institutions with the ability to market their
products and services globally. Internet-based advertising
programs can effectively match yield-focused investors with
potentially high-yielding deposits.
But Internet-originated deposits have the potential to attract
customers who focus exclusively on rates and may provide a
funding source with risk characteristics similar to brokered
deposits. An institution can control this potential volatility and
expanded geographic reach through its deposit contract and
account opening practices, which might involve face-to-face
meetings or the exchange of paper correspondence. The
institution should modify its policies as necessary to address the
following e-banking funding issues:
Potential increase in dependence on brokered funds or other
highly rate-sensitive deposits;
Potential acquisition of funds from markets where the
institution is not licensed to engage in banking, particularly if
the institution does not establish, disclose, and enforce
geographic restrictions;
Potential impact of loan or deposit growth from an expanded
Internet market, including the impact of such growth on capital
ratios;
Potential increase in volatility of funds should e-banking security
problems negatively impact customer confidence or the market’s
perception of the institution.
Reputational risks - This is considerably heightened for banks
using the Internet. For example the Internet allows for the rapid
dissemination of information which means that any incident,
either good or bad, is common knowledge within a short space of
time. The speed of the Internet considerably cuts the optimal
response times for both banks and regulators to any incident.
Any problems encountered by one firm in this new environment
may affect the business of another, as it may affect confidence in
the Internet as a whole. There is therefore a risk that one rogue
e-bank could cause significant problems for all banks providing
services via the Internet. This is a new type of systemic risk and
is causing concern to e-banking providers. Overall, the Internet
puts an emphasis on reputational risks. Banks need to be sure
that customers’ rights and information needs are adequately
safeguarded and provided for.
Security
Security is one of the most discussed issues around e-banking.
E-banking increases security risks, potentially exposing hitherto
isolated systems to open and risky environments.
Security breaches essentially fall into three categories; breaches
with serious criminal intent (fraud, theft of commercially
sensitive or financial information), breaches by ‘casual hackers’
(defacement of web sites or ‘denial of service’ - causing web sites
to crash), and flaws in systems design and/or set up leading to
security breaches (genuine users seeing / being able to transact
on other users’ accounts). All of these threats have potentially
serious financial, legal and reputational implications.
Many banks are finding that their systems are being probed for
weaknesses hundreds of times a day but damage/losses arising
from security breaches have so far tended to be minor. However
some banks could develop more sensitive "burglar alarms", so
that they are better aware of the nature and frequency of
unsuccessful attempts to break into their system.
The most sensitive computer systems, such as those used for
high value payments or those storing highly confidential
information, tend to be the most comprehensively secured. One
could therefore imply that the greater the potential loss to a bank
the less likely it is to occur, and in general this is the case.
However, while banks tend to have reasonable perimeter
security, there is sometimes insufficient segregation between
internal systems and poor internal security. It may be that
someone could breach the lighter security around a low value
system. It is easy to overemphasize the security risks in e-
banking. It must be remembered that the Internet could remove
some errors introduced by manual processing (by increasing the
degree of straight through processing from the customer
through banks’ systems). This reduces risks to the integrity of
transaction data (although the risk of customers incorrectly
inputting data remains). As e-banking advances, focusing
general attention on security risks, there could be large security
gains. Financial institutions need as a minimum to have:
- a strategic approach to information security, building best
practice security controls into systems and networks as they are
developed
- a proactive approach to information security, involving active
testing of system security controls (e.g. penetration testing),
rapid response to new threats and vulnerabilities and regular
review of market place developments
- sufficient staff with information security expertise
- active use of system based security management and
monitoring tools
- strong business information security controls.
These are the issues line supervisors will be raising with their
banks as part of their on-going supervision.
Conclusion
In conclusion e-banking creates issues for banks and regulators
alike. For their part, banks should: Have a clear and widely
disseminated strategy that is driven from the top and takes into
account the effects of e-banking, together with an effective
process for measuring performance against it.
Take into account the effect that e-provision will have upon their
business risk exposures and manage these accordingly.
Undertake market research, adopt systems with adequate
capacity and scalability, undertake proportional advertising
campaigns and ensure that they have adequate staff coverage
and a suitable business continuity plan. Ensure they have
adequate management information in a clear and
comprehensible format. Take a strategic and proactive approach
to information security, maintaining adequate staff expertise,
building in best practice controls and testing and updating these
as the market develops. Make active use of system based security
management and monitoring tools. Ensure that crisis
management processes are able to cope with Internet related
incidents. One of the benefits that banks experience when using
e-banking is increased customer satisfaction. This due to that
customers may access their accounts whenever, from anywhere,
and they get involved more, this creating relationships with
banks. Banks should provide their customers with convenience,
meaning offering service through several distribution channels
(ATM, Internet, physical branches) and have more functions
available online. Other benefits are expanded product offerings
and extended geographic reach. This means that banks can offer
a wider range and newer services online to even more customers
than possible before. The benefit which is driving most of the
banks toward e-banking is the reduction of overall costs. With e-
banking banks can reduce their overall costs in two ways: cost of
processing transactions is minimized and the numbers of
branches that are required to service an equivalent number of
customers are reduced. With all these benefits banks can obtain
success on the financial market. But e-banking is a difficult
business and banks face a lot of challenges.

Introduction
Financial Regulators are generally viewed as the professional
party poopers at any upbeat conference like this, warning of dire
consequences ahead for any who stray from the virtuous path of
prudence and regulatory compliance. I will do my best to meet
your possibly reasonable but miserable expectations later on.
But before I do please allow me to dwell briefly on what we in the
FSA consider to be the potentially very positive aspects of E
Commerce for firms, consumers – and even for regulators!
A few examples:
For Firms E Commerce brings:
- different and arguably lower barriers to entry;
- opportunities for significant cost reduction;
- the capacity to rapidly re-engineer business processes;
- greater opportunities to sell cross border.
Each and all of these potential benefits provides for increased
competition and the ability to wrest market leadership from
established players.
For consumers the potential benefits are:
- more choice;
- greater competition and better value for money;
- more information;
- better tools to manage and compare information;
- faster service.
And there are potential benefits even for regulators:
- better, more flexible, user friendly information for consumers
and others on our own web-site;
- better, almost indestructible audit trails;
- potential to monitor advertising and advice activity more
easily;
- more cost effective and efficient use of regulatory tools (for
example the use of our extra net over the Y2K period).
But of course there are also risks. The risks to firms –
specifically banks I will cover later.
For consumers the biggest risks are probably information
overload and not understanding whom they are dealing with and
on what terms. This can range from dealing with a perfectly
respectable company from another jurisdiction, but not
understanding for example the different legal environment,
compensation schemes and ombudsman arrangements, through
to being vulnerable to scams and frauds.
For regulators one key danger is a failure to understand
changing risk profiles and vulnerabilities of individual firms and
also changes to market structures and interactions. Another very
important risk is that our own regulatory framework could
somehow inhibit desirable innovations by not adapting quickly
enough.
We are very conscious of this in the FSA and are trying very hard
to be E-neutral (a recent example of this is the proposed Conduct
of Business Sourcebook). We have also selected E-commerce as
one of our regulatory themes for this year and are very active in
international fora – but more of that later.

Impact of e-banking on traditional services

Before talking about the issues of risks and responses to E
banking, I would like to spend a little time considering the wider
question of what the e-banking revolution might mean for the
future. I take "E" to mean anything electronic whether it be
Internet, television, telephone or all three.
One of the issues currently being addressed is the impact of e-
banking on traditional banking players. After all, if there are
risks inherent in going into e-banking there are other risks in not
doing so. It is too early to have a firm view on this yet. Even to
practitioners the future of e-banking and its implications are
unclear. It might be convenient nevertheless to outline briefly
two views that are prevalent in the market.
The view that the Internet is a revolution that will sweep away
the old order holds much sway. Arguments in favour are as
follows:
E-banking transactions are much cheaper than branch or even
phone transactions. This could turn yesterday’s competitive
advantage - a large branch network - into a comparative
disadvantage, allowing e-banks to undercut bricks-and-mortar
banks. This is commonly known as the "beached dinosaur"
theory.
E-banks are easy to set up so lots of new entrants will arrive.
‘Old-world’ systems, cultures and structures will not encumber
these new entrants. Instead, they will be adaptable and
responsive. E-banking gives consumers much more choice.
Consumers will be less inclined to remain loyal.
E-banking will lead to an erosion of the ‘endowment effect’
currently enjoyed by the major UK banks. Deposits will go
elsewhere with the consequence that these banks will have to
fight to regain and retain their customer base. This will increase
their cost of funds, possibly making their business less viable.
Lost revenue may even result in these banks taking more risks to
breach the gap.
Portal providers, are likely to attract the most significant share
of banking profits. Indeed banks could become glorified
marriage brokers. They would simply bring two parties together
– eg buyer and seller, payer and payee.
The products will be provided by monolines, experts in their
field. Traditional banks may simply be left with payment and
settlement business – even this could be cast into doubt.
Traditional banks will find it difficult to evolve. Not only will they
be unable to make acquisitions for cash as opposed to being able
to offer shares, they will be unable to obtain additional capital
from the stock market. This is in contrast to the situation for
Internet firms for whom it seems relatively easy to attract
investment.
There is of course another view which sees e-banking more as an
evolution than a revolution.
E-banking is just banking offered via a new delivery channel. It
simply gives consumers another service (just as ATMs did).
Like ATMs, e-banking will impact on the nature of branches but
will not remove their value.
Experience in Scandinavia (arguably the most advanced e-
banking area in the world) appears to confirm that the future is
‘clicks and mortar’ banking. Customers want full service banking
via a number of delivery channels. The future is therefore
‘Martini Banking’ (any time, any place, anywhere, anyhow).
Traditional banks are starting to fight back.
The start-up costs of an e-bank are high. Establishing a trusted
brand is very costly as it requires significant advertising
expenditure in addition to the purchase of expensive technology
(as security and privacy are key to gaining customer approval).
E-banks have already found that retail banking only becomes
profitable once a large critical mass is achieved. Consequently
many e-banks are limiting themselves to providing a tailored
service to the better off.
Nobody really knows which of these versions will triumph. This
is something that the market will determine. However,
supervisors will need to pay close attention to the impact of e-
banks on the traditional banks, for example by surveillance of:
 • strategy
• customer levels
• earnings and costs
• advertising spending
• margins
• funding costs
• merger opportunities and threats, both in the UK and
abroad.
FSA Regulation of "E-banks"
The FSA intends to be E-neutral. Our current legislation, The Banking Act
and the Building Societies Act, provide us with the powers we need and our
current range of supervisory tools are perfectly adequate although we may
need to deploy some with different degrees of intensity.
Our new legislation, The Financial Services and Markets Bill, offers a
significant addition in the form of the objective which requires us to
promote public understanding of the financial system. This, along with our
consumer protection objective, provides the basis for our consumer
education work which will be a key tool in dealing with many of the
consumer risks I mentioned earlier.
So – we have no special regime for e-banks and we see no reason why we
should not be able to authorise any new e-banks provided they meet our
minimum prudential standards. After all we have authorised insurance
banks and supermarket banks, which are heavily outsourced and often
telephone based.
We like to see innovation in banking services because, quite simply, we
think that this is good for retail consumers, industry and the economy as a
whole.
Risks and Reponses
So, back to the future – nobody knows what it will look like.
My job is to think about the risks banks, and building societies, whether
new or old, are running. And about how they should respond to these risks.
Allow me to consider them under the following headings:
• strategy
• business
• security
 • reputation
• operations.
You will notice that none of these are in themselves new and anyone who is
familiar with the risk based approach to banking supervision (RATE) will
know that they are already routinely covered by supervisors, albeit that we
may need to give different weight and emphasis to these factors for E-
banking.
Strategic Risk
On strategic risk E-banking is relatively new and, as a result,
there can be a lack of understanding among senior management
about its potential and implications. People with technological,
but not banking, skills can end up driving the initiatives. E-
initiatives can spring up in an incoherent and piecemeal manner
in firms. They can be expensive and can fail to recoup their cost.
Furthermore, they are often positioned as loss leaders (to
capture market share), but may not attract the types of
customers that banks want or expect and may have unexpected
implications on existing business lines.
Banks should respond to these risks by having a clear strategy
driven from the top and should ensure that this strategy takes
account of the effects of e-banking, wherever relevant. Such a
strategy should be clearly disseminated across the business, and
supported by a clear business plan with an effective means of
monitoring performance against it.
Business risks
Business risks are also significant. Given the newness of e-
banking, nobody knows much about whether e-banking
customers will have different characteristics from the traditional
banking customers. They may well have different characteristics
– eg I want it all and I want it now. This could render existing
score card models inappropriate, thus resulting in either higher
rejection rates or inappropriate pricing to cover the risk. Banks
may not be able to assess credit quality at a distance as
effectively as they do in face to face circumstances. It could be
more difficult to assess the nature and quality of collateral
offered at a distance, especially if it is located in an area the bank
is unfamiliar with (particularly if this is overseas). Furthermore
as it is difficult to predict customer volumes and the stickiness of
e-deposits (things which could lead either to rapid flows in or out
of the bank) it could be very difficult to manage liquidity.
Of course, these are old risks with which banks and supervisors
have considerable experience but they need to be watchful of old
risks in new guises. In particular risk models and even processes
designed for traditional banking may not be appropriate.
Operations risk
Banks face three main types of operations risk:
• volume forecasts
• management information systems and
• outsourcing.
Accurate volume forecasts have proved difficult - One of the key
challenges encountered by banks in the Internet environment is
how to predict and manage the volume of customers that they
will obtain. Many banks going on-line have significantly
misjudged volumes. When a bank has inadequate systems to
cope with demand it may suffer reputational and financial
damage, and even compromises in security if extra systems that
are inadequately configured or tested are brought on-line to deal
with the capacity problems.
As a way of addressing this risk, banks should:
• undertake market research,
• adopt systems with adequate capacity and scalability,
• undertake proportionate advertising campaigns, and
• ensure that they have adequate staff coverage and
develop a suitable business continuity plan.
In brief, this is a new area, nobody knows all the answers, and
banks need to exercise particular caution.
The second type of operations risk concerns management
information systems. Again this is not unique to E-banking. I
have seen many banks venture into new areas without having
addressed management information issues. Banks may have
difficulties in obtaining adequate management information to
monitor their e-service, as it can be difficult to
establish/configure new systems to ensure that sufficient,
meaningful and clear information is generated. Such
information is particularly important in a new field like e-
banking. Banks are being encouraged by the FSA to ensure that
management have all the information that they require in a
format that they understand and that does not cloud the key
information with superfluous details.
Finally, a significant number of banks offering e-banking
services outsource related business functions, e.g. security,
either for reasons of cost reduction or, as is often the case in this
field, because they do not have the relevant expertise in-house.
Outsourcing a significant function can create material risks by
potentially reducing a bank’s control over that function.
Outsourcing is of course neither new nor unmanageable but
banks should be mindful of the FSA’s guidance on outsourcing,
which addresses these risks.
Security
Security issues are a major source of concern for everyone both
inside and outside the banking industry. E-banking increases
security risks, potentially exposing hitherto isolated systems to
open and risky environments. Both the FSA and banks need to be
proactive in monitoring and managing the security threat.
Security breaches essentially fall into three categories; breaches
with serious criminal intent (e.g. fraud, theft of commercially
sensitive or financial information), breaches by ‘casual hackers’
(e.g. defacement of web sites or ‘denial of service’ - causing web
sites to crash), and flaws in systems design and/or set up leading
to security breaches (e.g. genuine users seeing / being able to
transact on other users’ accounts). All of these threats have
potentially serious financial, legal and reputational implications.
Many banks are finding that their systems are being probed for
weaknesses hundreds of times a day but damage/losses arising
from security breaches have so far tended to be minor. However
some banks could develop more sensitive "burglar alarms", so
that they are better aware of the nature and frequency of
unsuccessful attempts to break into their system.
The most sensitive computer systems, such as those used for
high value payments or those storing highly confidential
information, tend to be the most comprehensively secured. One
could therefore imply that the greater the potential loss to a bank
the less likely it is to occur, and in general this is the case.
However, while banks tend to have reasonable perimeter
security, there is sometimes insufficient segregation between
internal systems and poor internal security. It may be that
someone could breach the lighter security around a low value
system, e.g. a bank’s retail web site, and gain entry to a high
value system via the bank’s internal network. We are
encouraging banks to look at the firewalls between their
different systems to ensure adequate damage limitation should
an external breach occur. As ever though, the greatest threat so
far has been from the enemy within – ie your own employees,
contractors and so on.
It is easy to overemphasise the security risks in e-banking. It
must be remembered that the Internet could remove some
errors introduced by manual processing (by increasing the
degree of straight through processing from the customer
through banks’ systems). This reduces risks to the integrity of
transaction data (although the risk of customers incorrectly
inputting data remains). As e-banking advances, focusing
general attention on security risks, there could be large security
gains.
So what should banks be doing? Our view is that to deal with
these emerging threats effectively, financial institutions need as
a minimum to have:
a strategic approach to information security, building best
practice security controls into systems and networks as they are
developed
a proactive approach to information security, involving active
testing of system security controls (e.g. penetration testing),
rapid response to new threats and vulnerabilities and regular
review of market place developments
sufficient staff with information security expertise
active use of system based security management and monitoring
tools
strong business information security controls
These are the issues line supervisors will be raising with their
banks as part of their on-going supervision; or, for new
applicants, will need to be given adequate assurances about.
Reputational risks
Finally, with regard to risks, I would mention reputational risk.
This is considerably heightened for banks using the Internet. For
example the Internet allows for the rapid dissemination of
information which means that any incident, either good or bad,
is common knowledge within a short space of time. Internet
rumours can easily become self-fulfilling prophecies. The speed
of the Internet considerably cuts the optimal response times for
both banks and regulators to any incident. Banks must ensure
their crisis management, particularly PR, processes are able to
cope with Internet related incidents (whether they be real or
hoaxes).
Any problems encountered by one firm in this new environment
may affect the business of another, as it may affect confidence in
the Internet as a whole. There is therefore a risk that one rogue
e-bank could cause significant problems for all banks providing
services via the Internet. This is a new type of systemic risk and
is causing concern to e-banking providers. Overall, the Internet
puts an emphasis on reputational risks. Never before has the
bank’s shop window (ie its site) been so important.
One last reputational risk will be familiar to us all. That is
whether the products being sold over the net are being marketed
in such a way that the bank will be protected against future
charges of mis-selling. As in the physical, so in the virtual world.
Banks need to be sure that customers’ rights and information
needs are adequately safeguarded and provided for.
International developments
So, these are some of the particular risks arising in E-banking
that we have hitherto identified in the UK domestic environment
– though I suspect that many of my regulator colleagues outside
the UK would share many of these views. I would like to move on
to the international side.
Supervision in today’s global environment can only ever be
effective if it has an international dimension. This is especially
the case with e-banking because of its non-territorial nature, the
ease with which customers outside the home country can access
the site and the opportunity to buy several types of product. Of
course, regulators have long had to deal with the regulatory
problems of international banking. They had set up mechanisms
for cross-border supervision; agreements over home/host
responsibilities (especially within the Community), bilateral
agreement for information sharing and general standards by
which they expect all banks, including those offshore territories,
to abide. In principle, the expectation is that this general
mechanism for international supervision will be robust enough
to work just as well in the e-banking as the physical
environment.
Nevertheless, it will not be quite as easy as that! Inevitably the
nature of e-banking raises particular issues in the application of
the general approach outlined here. E-banking makes it even
more necessary to develop a cohesive international approach to
regulation – not only in the field of prudential regulation where
Basel has made much progress, but also in the areas of conduct
of business for consumer protection.
The Basel Committee E-Banking Group believes that Basel
"should provide the international supervisory community with a
broad set of advisory guidance with respect to electronic
banking," thereby providing a basis for domestic regulation and
supporting consumer and industry education. Globally, such
guidance would assist international co-operation and act as a
foundation for a coherent approach to supervising e-banking. It
could facilitate international e-banking by creating consumer
confidence in sound banks based in different, possibly less
satisfactory, regimes and might dissuade host supervisors from
imposing additional, potentially draconian, regulation on such
banks. The Group identified:
• Authorisation,
• prudential standards,
• transparency,
• privacy,
• money laundering, and
• cross border supervision
as issues on which they felt that there is need for further work,
both at the analytical and policy level before any such guidance
could be developed. The FSA is involved in the Basel Group and
will be contributing to the work, participating in the drafting of
papers and hosting both the group’s next meeting and a
roundtable for its members and a number of European banks
and service providers. We welcome any contributions from the
industry to this debate; and have indeed been actively soliciting
them.
Cross-border issues
There are also significant cross-border issues.
We foresee difficulties for depositors identifying the jurisdiction
within which e-banks offering services in the UK are based, given
the potential absence of physical presence and the ability for e-
banks to move to a new jurisdiction relatively rapidly. These
concerns have prompted a considerable amount of debate and
analysis in the international supervisory community. Within
Europe home v host state supervision is a particularly important
issue. Banks may tend to seek authorisation wherever the tax,
compliance and costs are lowest, as location will become less of a
critical issue since services may easily be provided on a cross-
border basis. E-banking is likely therefore to significantly
increase the usage of the 2BCD passport (that is the Community
equivalent of your passport, but for a bank), thereby making it
even more crucial that all European regulators undertake
supervision in a satisfactory (and harmonised) manner and that
communication between regulators is adequate.
A number of initiatives with implications for home and host
state supervision are being discussed, for example the draft e-
commerce and distance marketing directives and the Rome and
Brussels conventions. The debate is far from being resolved and
a considerable degree of uncertainty remains. For example
within the e-commerce Directive ‘home’ and ‘host’ have been
replaced with ‘home’ and ‘country of origin’, the implications of
which are as yet unclear. The current drafting (agreed at
Council) is sufficiently vague to potentially allow numerous
regulators to assert jurisdiction over an Internet service, thereby
nullifying the main advantage of the Directive, home state
regulation. However we would expect that a suitable
compromise on the point will be worked out so as to avoid this
outcome. Certainly this is what we at the FSA are working
towards.
Conclusion
And so in conclusion e-banking creates issues for banks and
regulators alike. For our part we will continue our work, both
national and international, to identify and remove any
unnecessary barriers to e-banking. For their part, banks should:
Have a clear and widely disseminated strategy that is driven
from the top and takes into account the effects of e-banking,
together with an effective process for measuring performance
against it.
Take into account the effect that e-provision will have upon their
business risk exposures and manage these accordingly.
Undertake market research, adopt systems with adequate
capacity and scalability, undertake proportional advertising
campaigns and ensure that they have adequate staff coverage
and a suitable business continuity plan.
Ensure they have adequate management information in a clear
and comprehensible format.
Take a strategic and proactive approach to information security,
maintaining adequate staff expertise, building in best practice
controls and testing and updating these as the market develops.
Make active use of system based security management and
monitoring tools.
Ensure that crisis management processes are able to cope with
Internet related incidents.
I started my talk today by noting potential benefits as well as the
risks in e-banking. I end in the same way. Certainly there are
risks. But there are also opportunities, and significant potential
benefits for consumers, banks and regulators.
We see no problems in principle with mitigating and managing
the risks both for new entrants and existing players. As
regulators we need to ensure that our approaches are adequate
to deal with the risks without getting in the way of the
innovations and benefits that E-banking brings to firms and
consumers. We are very mindful of this as we develop our rules
and guidance but will be looking also to you in the industry to
help us to achieve the right balance
 ABSTRACT

Internet banking has become the latest delivery channel for

banking services due to the backlash from globalization and
liberalization of financial services. This study revealed that the banks
have achieved considerable success as far as awareness is concerned
as a vast majority of the respondents reported that they were aware
of Internet banking. Although awareness is moderate, unavailability is
high, this has not translated into actual use as only 24.4% have had
some Internet banking experience. Using the discriminates analysis it
was found that Internet banking users had more prior Internet
experience, had positive views on ease of use, were more aware of
the Internet banking services and benefits and also had less security
concerns as compared to the non-users of Internet banking.

INTRODUCTION
History of Computer:
 A computer is a machine that manipulates data according to a list of instructions. The
first devices that resemble modern computers date to the mid-20th century (around 1940 - 1945),
although the computer concept and various machines similar to computers existed earlier. Early
electronic computers were the size of a large room, consuming as much power as several
hundred modern personal computers. Modern computers are based on tiny integrated circuits and
are millions to billions of times more capable while occupying a fraction of the space.

Today, simple computers may be made small enough to fit into a wristwatch and be powered
from a watch battery. Personal computers in various forms are icons of the Information Age and
are what most people think of as "a computer"; however, the most common form of computer in
use today is the embedded computer. Embedded computers are small, simple devices that are
used to control other devices — for example; they may be found in machines ranging from
fighter aircraft to industrial robots, digital cameras, and children's toys.

Introduction to Internet:

The Internet is a worldwide, publicly accessible series of interconnected computer

networks that transmit data by packet switching using the standard Internet Protocol (IP). It is a
"network of networks" that consists of millions of smaller domestic, academic, business, and
government networks, which together carry various information and services, such as electronic
mail, online chat, file transfer, and the interlinked web pages and other resources of the World
Wide Web (WWW).

Internet access:
Common methods of home access include dial-up, landline broadband (over coaxial cable, fiber
optic or copper wires), and satellite and 3G technology cell phones.

Public places to use the Internet include libraries and Internet cafes, where computers with
Internet connections are available. There are also Internet access points in many public places
such as airport halls and coffee shops, in some cases just for brief use while standing. Various
terms are used, such as "public Internet kiosk", "public access terminal", and "Web
payphone". Many hotels now also have public terminals, though these are usually fee-based.
These terminals are widely accessed for various usages like ticket booking, bank deposit, online
payment etc. Wi-Fi provides wireless access to computer networks, and therefore can do so to
the Internet itself. Hotspots providing such access include Wi-Fi cafes, where would-be users
need to bring their own wireless-enabled devices such as a laptop or PDA. These services may
be free to all, free to customers only, or fee-based. A hotspot need not be limited to a confined
location. A whole campus or park, or even an entire city can be enabled. Grassroots efforts have
led to wireless community networks.

High-end mobile phones such as smart phones generally come with Internet access through the
phone network. Web browsers such as Opera are available on these advanced handsets, which
can also run a wide variety of other Internet software. More mobile phones have Internet access
than PCs, though this is not as widely used. An Internet access provider and protocol matrix
differentiates the methods used to get online.

Internet Service Providers (ISP):

Here is list of some Internet service providers:

• Ak Net
• http://www.ak.net.pk
• Apollo Online
• http://www.apollo.net.pk
• Asia Online
• http://www.aol.net.pk
• Aster Net
• http://www.aster.com.pk
• Best Net
• http://www.best.net.pk
• Brain Net
• http://www.brain.net.pk
• Breeze Net
• http://www.breeze.net.pk
• CompuNet Online
• http://www.compol.com
• COMSATS
• http://www.comsats.net.pk
• CubeXS
• http://www.cubexs.net.pk
• CyberAccess
• http://www.cyberaccess.com.pk
• CyberNet
• http://www.cyber.net.pk
• Digicom
• http://www.digicom.net.pk
• Fascom
• http://www.fascom.com
• Gerry's Net
• http://www.gerrys.net
• GlobalNet
• http://www.global.net.pk
• IBM
• http://www.ibm.net
• ICNS
• http://www.icns.com.pk
• Info Net
• http://www.inet.com.pk
• Infolink
• http://www.infolink.net.pk
• MegaNet
• http://www.mega.net.pk
• MS Net
• http://www.ms.net.pk
• Net 21
• http://www.net21pk.com
• NetAccess
• http://www.netxs.com.pk
• NetAsia
• http://www.netasia.com.pk
• Nexlinx
• http://www.nexlinx.net.pk
• Nigsun Online
• http://www.compcare.com.pk
• Pak Net
• http://www.paknet.ptc.pk
• Pakistan Online
• http://www.pol.com.pk
• Pienet Global
• http://www.pienet.net
 • RoboNet Int'L
• http://www.robonets.com
• SAT COM
• http://www.sat.com.pk
• SHOA
• http://www.shoa.net
• Sky Net
• http://www.netcard.net.pk
• Space Net
• http://www.space.net.pk
• SPARCOM
• http://www.sparcom.net.pk
• Super Net
• http://www.super.net.pk
• The Flash Net
• http://www.theflash.net
• Top Net
• http://www.top.net.pk
• World Online
• http://www.wol.net.pk
• WorldTel Internet
• http://www.wtmeca.net
• Zoooom Net
• http://www.zoooom.net
ISP in Multan:

In Multan

• Super Net

• Cyber Net

• Pak Net

• Wol Net

• Dancom

• Comsats

are available.
Electronic Banking:

Pros and cons of e-banking:

The biggest plus to banking online is the price. Because Internet-only banks
don't have the expense of maintaining hundreds of local branches, their overall cost
of doing business is lower than it is for their traditional counterparts. They pass the
savings on to consumers in two main ways: higher interest and lower fees.

Another big advantage is that you'll have 24-hour access to your account, for free

Deposits:

Although you may regularly visit your bank branch to make deposits, that's
not an option with Internet-only banks. If your employer doesn't offer direct deposit
-- electronically wiring your paycheck to your bank -- you'll have to use snail mail
(the regular old U.S. Postal Service) to get money into your account.

If you live paycheck to paycheck, this might be tough for you. You'll have to wait
about five business days for your check to get to your account and then another few
days for the check to clear. So if you don't have extra money in your account as a
cushion, you'll have to factor in the extra time it will take before new deposits are
available. And if your check ever gets lost in the mail, you could be out of luck.

ATM availability:

Check the ATM availability offered by the Internet-only bank you're

considering. As you've probably experienced, many banks charge fees to no
customers who use their ATMs. Because Internet-only banks don't have their own
ATM network, you'll be charged no customer fees by the banks who’s ATMs you use.

Internet-only banks are trying to offset this negative by reimbursing account holders
for up to four ATM no customer fees per month. That means that even though you'll
be charged the no customer fee, the Internet-only bank will give you your money
back. Internet-only banks understand these problems, and many are taking steps to
overcome them. For example, they're negotiating with large ATM networks to let
Internet-only customers make deposits at local ATMs and have those deposits
treated just as if they were made at a local bank. Ask the Internet-only bank you're
interested in what they're doing to fix the issues you're most concerned about. You
may find you like the answers you're given.

To research which Internet bank best suits your banking style, visit Bankrate.com.
Don't let your bank get the best of you and your wallet. Instead, flip on your
computer and treat yourself to a little more cash

The SMS Banking channel also acts as the bank’s means of alerting its
customers, especially in an emergency situation; e.g. when there is an ATM fraud
happening in the region, the bank can push a mass alert (although not subscribed
by all customers) or automatically alert on an individual basis when a predefined
‘abnormal’ transaction happens on a customer’s account using the ATM or credit
card. This capability mitigates the risk of fraud going unnoticed for a long time and
increases customer confidence in the bank’s information systems.

The benefits of electronic transacting have an increasingly important role

to play in assisting the small to medium businesses (SMB) sector to run its
operations more effectively as well as at a lower cost than traditional financial
management mechanisms - many of which still revolve around the company
chequebook. Addressing this requirement, most banks have introduced systems
that are specifically tailored to the needs of the SMB.

Perhaps oddly, electronic banking systems have enjoyed particularly good

acceptance at what can be considered to be opposite ends of the market - large
corporations and private individuals. Large corporations are familiar with the use of
electronic payment systems such as magtape and electronic data interchange (EDI),
while most individuals are familiar with the Internet and satisfied that the security
protecting online banking systems is sufficient to protect their funds.

But the SMB environment tends to lag somewhat in the adoption of

Internet banking solutions.
 Most large corporations have invested in software applications such as
Enterprise Resource Planning systems, Supply Chain Management systems,
Customer Relationship Management systems and more to achieve the benefits
associated with process automation. They are also familiar with the benefits of
vendor collaboration to identify solutions that help contain costs, enhance process
efficiencies and improve productivity. This was done by granting mutual access to
business systems, through interfacing with supplier - such as the ERP system
'talking to' the bank's electronic banking system - to automation aspects of cash
management and treasury.

However, many SMBs are under the impression that such software
applications are too complex and costly for their business requirements, or are not
sufficiently confident in the security of online systems.

The history of electronic banking systems provided by banks saw these

traditionally focused at the money management needs of large corporate. As such,
many SMB owners perceive that Internet banking facilities are directed
predominantly at larger companies. However, most banking institutions have
introduced systems that are specifically directed at the requirements of the SMB,
both in terms of functionality and pricing. SMBs that are used to performing simple
banking activities, for example viewing account balances and transferring funds
between accounts via ATM or phone-banking, can use a multi-user Internet banking
platform to perform these banking activities and more via the Internet.

At the click of a mouse, SMBs can have easy access to their most updated
and detailed financial information anywhere in the world, at anytime. Using such
systems also allows the SMB to improve the costs of managing finances - having
immediate real-time access to exact available cash positions in their bank accounts
supports planning and decision-making, thus resulting in better control over their
cash flow.

Additionally, human resources is another significant cost centre for most

SMBs. With the use of Internet banking, SMBs can cut down on manual processes
and deploy staff to do more value-added work. Internet banking allows the SMB to
make local or overseas payments to third parties, apply for letters of credit,
contract foreign exchange rates and more, improving productivity and saving time
by obviating the need to make a trip to the bank branch, stand in a queue and wait
for transactions to be processed. It also introduces automation to the payment
process - once a beneficiary is created on the system, it is a matter of 'point and
click' to effect payment.

Contrast these benefits to a cheque-based system, which requires writing

the cheque, then delivery or deposit by a driver, or collection by the supplier - an
expensive, cumbersome, time- consuming process.

The benefits of using Internet banking systems become even more apparent when it comes to
processing urgent and time critical transactions - employees no longer need to rush documents to
the bank only to find out that they have missed the cut-off time.

The evolution of the services offered by most banks means SMBs should see the bank
as far more than just a provider of finance and money handling services. Most leading banks
have become a centre from which businesses can source a variety of service offerings and
options that can help improve business management. And banks are usually forerunners in
technology adoption, such as the implementation of e-business strategies and solutions that help
customers improve their financial position. They are also keen to assist their customers to move
into Internet-based financial activities. SMBs should therefore make their bankers their financial
and business partners in accessing appropriate online banking solutions that can provide better
financial management while also offering a lower cost of banking.

Types of e-banking:
Following are the types of e-banking
• Internet banking
• Mobile banking
• ATM
• Telephone banking

Internet Banking:
Internet banking refers to the use of the Internet as a remote delivery channel for
banking services. Such services include traditional ones, such as opening a deposit account
or transferring funds, among different accounts, and new banking services, such as
electronic bill payment, allowing customers to receive and pay bills via a bank’s website.
Banks offer Internet banking in two main ways. An established bank with physical offices
can establish a website and offer Internet banking to its customers in addition to its
traditional delivery channels. A second alternative is to establish a “virtual,” “branchless,”
or “Internet-only” bank. The computer server that lies at the heart of a virtual bank may
be located in an office that serves as the legal address of such a bank, or at some other
location. Virtual banks may offer their customers the ability to make deposits and
withdraw funds via ATMs or other remote delivery channels owned by other institutions.
Features:
Internet banking has following features

Time and Space:

By eliminating the limitations of time and distance, electronic financial

transactions can make cross-border transactions easier and thus make it possible to
provide services to customers on a global scale. In effect, online finance may
eventually lead to complete globalization of financial services, making the national
borders irrelevant.
Electronic financial transactions:
Electronic financial transactions have helped create new services such as the
“virtual financial site” that includes services crossing the traditional borders between
financial services as well as “aggregation” that allows consumers to obtain
consolidated information about their financial accounts in one place.

○ Electronic bill presentment and payment - EBPP

○ Funds transfer between a customer's own checking and

savings accounts, or to another customer's account

○ Investment purchase or sale

○ Loan applications and transactions, such as repayments

Security:
Since electronic financial transactions, especially those in online retail banking,
are being conducted on open networks centered on the Internet, many challenges
arise in terms of transaction security, consumer protection and privacy. The existing
 systems of financial regulation and supervision are being amended to reflect the
changes in technology.
Online banking user interfaces are secure sites and traffic of all
information - including the password - is encrypted, making it next to
impossible for a third party to obtain or modify information after it is
sent. However, encryption alone does not rule out the possibility of
hackers gaining access to vulnerable home PCs and intercepting the
password as it is typed in (keystroke logging). There is also the danger
of password cracking and physical theft of passwords written down by
careless users.

Many online banking services therefore impose a second layer of security.

Strategies vary, but a common method is the use of transaction numbers, or TANs,
which are essentially single use passwords. Another strategy is the use of two
passwords, only random parts of which are entered at the start of every online
banking session. This is however slightly less secure than the TAN alternative and
more inconvenient for the user. A third option is providing customers with security
token devices capable of generating single use passwords unique to the customer's
token (this is called two-factor authentication or 2FA). Another option is using digital
certificates, which digitally sign or authenticate the transactions, by linking them to
the physical device (e.g. computer, mobile phone, etc). Other banks have responded
not with security tokens or digital certificates, but by setting up a combination of
controls that recognize a customer's computer, ask additional challenge questions for
risky behavior, and monitor for fraud ulent behavior

Electronic Fund Transfer:

Electronic funds transfer or EFT refers to the computer-based systems used to
perform financial transactions electronically. The term is used for a number of
different concepts:

• cardholder-initiated transactions, where a cardholder makes use of a

payment card

• electronic payments by businesses, including salary payments

• electronic check (or cheque) clearing

Card Based EFT:

EFT may be initiated by a cardholder when a payment card such as a credit card or
debit card is used. This may take place at an automated teller machine (ATM) or
point of sale (EFTPOS), or when the card is not present, which covers cards used
for mail order, telephone order and internet purchases.

Transaction types
A number of transaction types may be performed, including the following:

• Sale: where the cardholder pays for goods or service.

• Refund: where a merchant refunds an earlier payment made by a

cardholder.

• Withdrawal: the cardholder withdraws funds from their account, e.g.

from an ATM. The term Cash Advance may also be used, typically
when the funds are advanced by a merchant rather than at an ATM.

• Deposit: where a cardholder deposits funds to their own account

(typically at an ATM).

• Cashback: where a cardholder withdraws funds from their own

account at the same time as making a purchase.

• Inter-account transfer: transferring funds between linked accounts

belonging to the same cardholder

• Payment: transferring funds to a third party account

• Inquiry: a transaction without financial impact, for instance balance

inquiry, available funds inquiry, linked accounts inquiry, or request
for a statement of recent transactions on the account.

• Administrative: this covers a variety of non-financial transactions

including PIN change.

The transaction types offered depend on the terminal. An ATM would offer
different transactions from a POS terminal, for instance
 Online banking puts the power of banking into the hands of the customer and allows
the customers to self-service themselves with all their banking needs, just as customers
have become used to getting money from an ATM instead of going to the cash desk in
the bank. With this online service, customers can view their account details, review
their account history, transfer funds, order checks, pay bills, re-order checks and get
in touch with the customer care department of the bank. In most cases, there is no
special software to install other than a web browser and many banks do not charge for
this service

Mobile Banking:
Mobile banking is a term used for performing balance checks, account
transactions, payments etc. via a mobile device such as a mobile phone. Mobile banking
today (2008) is most often performed via SMS or the Mobile Internet but can also use
special programs downloaded to the mobile device.

Mobile Banking can be said to consist of three inter-related concepts:

• Mobile Accounting

• Mobile Brokerage

• Mobile Financial Information Services

Most services in the categories designated Accounting and Brokerage are transaction-
based. The non-transaction-based services of an informational nature are however essential
for conducting transactions The accounting and brokerage services are therefore offered
invariably in combination with information services. Information services, on the other
hand, may be offered as an independent module.

Trends in mobile banking:

The advent of the Internet has revolutionized the way the financial services
industry conducts business, empowering organizations with new business models and new
ways to offer 24x7 accessibility to their customers. The ability to offer financial
transactions online has also created new players in the financial services industry, such as
online banks, online brokers and wealth managers who offer personalized services,
although such players still account for a tiny percentage of the industry. Over the last few
years, the mobile and wireless market has been one of the fastest growing markets in the
world and it is still growing at a rapid pace. According to the GSM Association and Ovum,
the number of mobile subscribers exceeded 2 billion in September 2005, and now exceeds
2.5 billion (of which more than 2 billion are GSM).According to a study by financial
consultancy Celent, 35% of online banking households will be using mobile banking by
2010, up from less than 1% today. Upwards of 70% of bank center call volume is projected
to come from mobile phones. Mobile banking will eventually allow users to make payments
at the physical point of sale. "Mobile contact less payments” will make up 10% of the
contact less market by 2010.Many believe that mobile users have just started to fully utilize
the data capabilities in their mobile phones. In Asian countries like India, China, Indonesia
and Philippines, where mobile infrastructure is comparatively better than the fixed-line
infrastructure, and in European countries, where mobile phone penetration is very high (at
least 80% of consumers use a mobile phone), mobile banking is likely to appeal even more.
This opens up huge markets for financial institutions interested in offering value added
services. .Mobile devices, especially smart phones, are the most promising way to reach the
masses and to create “stickiness” among current customers, due to their ability to provide
services anytime, anywhere, high rate of penetration and potential to grow.

Features:
Mobile banking can offer services such as the following:

• Account Information
Alerts on account activity or passing of set thresholds

1. Monitoring of term deposits

2. Access to loan statements

3. Access to card statements

4. Mutual funds / equity statements

5. Insurance policy management

6. Pension plan management

7. Status on cheque, stop payment on cheque

Payments & Transfers
1. Domestic and international fund transfers

2. Micro-payment handling

3. Mobile recharging

4. Commercial payment processing

5. Bill payment processing

6. Peer to Peer payments

Investments
1. Portfolio management services

2. Real-time stock quotes

3. Personalized alerts and notifications on security prices

Support
1. Status of requests for credit, including mortgage approval, and
insurance coverage

2. Check (cheque) book and card requests

3. Exchange of data messages and email, including complaint

submission and tracking

4. ] ATM Location

Content Services
1. General information such as weather updates, news

2. Loyalty-related offers

3. Location-based services

Based on a survey conducted by Forrester, mobile banking will be attractive mainly to the
younger, more "tech-savvy" customer segment. A third of mobile phone users say that they
may consider performing some kind of financial transaction through their mobile phone.
But most of the users are interested in performing basic transactions such as querying for
account balance and making bill payment.
ATM:
An automated teller machine (ATM) is a computerized telecommunications device
that provides the customers of a financial institution with access to financial transactions in
a public space without the need for a human clerk or bank teller. On most modern ATMs,
the customer is identified by inserting a plastic ATM card with a magnetic stripe or a
plastic smartcard with a chip, that contains a unique card number and some security
information. Security is provided by the customer entering a personal identification
number (PIN).

Mechanical cash dispenser was developed and built by Luther George Simian and
installed in 1939 in New York City by the City Bank of New York, but removed after 6
months due to the lack of customer acceptance.

The ATM got smaller, faster and easier over the years. Thereafter, the history of
ATMs paused for over 25 years, until De La Rue developed the first electronic ATM, which
was installed first in Enfield Town in North London on 27 June 1967 by Barclays Bank..
This instance of the invention is credited to John Shepherd-Barron, although various other
engineers were awarded patents for related technologies at the time. Shepherd-Barron was
awarded an OBE in the 2005 New Year's Honors List. The first person to use the machine
was Reg Varney of "On the Buses" fame, a British Television programme from the 1960s.
The first ATMs accepted only a single-use token or voucher, which was retained by the
machine. These worked on various principles including radiation and low-coercively
magnetism that was wiped by the card reader to make fraud more difficult. The idea of a
PIN stored on the card was developed by the British engineer John Rose in 1965.

ATMs first came into wide UK use in 1973; the IBM 2984 was designed at the
request of Lloyds Bank. The 2984 CIT (Cash Issuing Terminal) was the first true Cash
point, similar in function to today's machines; Cash point is still a registered trademark of
Lloyds TSB in the U.K. All were online and issued a variable amount which was
immediately deducted from the account. A small number of 2984s were supplied to a USA
bank.
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. ATMs are
known by various casual terms including automated banking machine, money machine,
cash machine, hole-in-the-wall.

Telephone banking:

The Enhanced Telephone is a telephone developed by Citibank in the late 1980s for
customers to do banking and other financial transactions from their home. The official
launch date was February 26-27, 1990.The first version of the Enhanced Telephone, the
99A model, was beige and featured a monochrome CRT screen. Because of its chunky
appearance, several developers dubbed it the "sawed-off ski boot. The physical hardware
was manufactured by Transaction Technologies Incorporated (TTI).The second version of
the Enhanced Telephone, the P100 model, was manufactured by Philips Electronics and
featured an LCD screen and sleeker styling. The font was developed by Bit stream Inc.
Software for the Enhanced Telephone was written in a proprietary language called HAL
(Home Application Language).The Enhanced Telephone ultimately failed to become a
viable product because by the time it was introduced, home banking via PCs was becoming
more common. As the World Wide Web became popular in the early 1990s, the Enhanced
Telephone was rendered obsolete. The Philips P100 phone lived on and to this day
variations of it are used for other applications

Online lenders make loans to consumers via computer websites, online. Online lenders
generally provide loan information, application forms, email or instant message assistance
right on their website. The online applications are generally transmitted over an encrypted
web page for security. Ideally an online lender will provide a telephone number
prominently offering offline assistance to consumers also

Telephone banking is a service provided by a financial institution which allows its

customers to perform transactions over the telephone. Most telephone banking uses an
automated phone answering system with phone keypad response or voice recognition
capability. To guarantee security, the customer must first authenticate through a numeric
or verbal password or through security questions asked by a live representative (see
below). With the obvious exception of cash withdrawals and deposits, it offers virtually all
the features of an automated teller machine: account balance information and list of latest
transactions, electronic bill payments, funds transfers between a customer's accounts, etc.
Usually, customers can also speak to a live representative located in a call centre or a
branch, although this feature is not guaranteed to be offered 24/7. In addition to the self-
service transactions listed earlier, telephone banking representatives are usually trained to
do what was traditionally available only at the branch: loan applications, investment
purchases and redemptions, chequebook orders, debit card replacements, change of
address, etc. Banks which operate mostly or exclusively by telephone are known as phone
bank.

Difference b/w traditional and e banking:

Internet banking works much like traditional banking. The primary difference is
you are accessing your account and information, making payments and reconciling
statements using your computer rather than paper or the phone to complete transactions.
Instead of going down to your local branch office when you bank online you can
accomplish multiple tasks at once with the click of a button.

Online banking is rapidly becoming more and more popular as consumers recognize the
advantages online banking has to offer. For one most banks charge fewer fees if you take
advantage of their online banking services. You can also stop receiving paper statements if
you like in many cases and conduct 95% of your business over the Web when you take
advantage of Internet banking.

What Internet Banks Do?

What to Internet Banks do? The same things traditional banks do. They hold onto our money and
lend it out to others respectively. The manage loans and help us keep track of our finances.
Chances are if you own a bank account at a traditional bank they offer some type of Internet
banking or online services. The next time you stop into your branch office you should ask them
about online banking. You may find once you start you have no desire to go back to traditional
banking.
For those that have a hard time keeping track of paper statements, Internet banking is a life saver.
Internet banking is also advantageous for frequent travelers that need to keep a close eye on their
finances from abroad.

Literature Review
Case Study:
Analyzing the Factors that Influence the Adoption

of Internet Banking in Mauritius

Kesseven Padachi, Sawkuk Rojid, and Boopen Seetanah

School of Public Policy & Management, University of

Technology, Mauritius, Pointes-Aux-Sables, Mauritius

kpadachi@utm.intnet.mu; sawkutrojid@yahoo.com;

b.seetanah@utm.intnet.mu

Conclusion:
This study investigated the factors that influence the adoption of internet banking
for the case of
the emerging African economy of Mauritius. Mauritius provides a good case study as
the country

is actually one of the best performers of the continent and moreover has a relatively
well developed financial system and communication technology as well. Specifically
this work analyzed in the first instance the most widely use internet banking
services and subsequently investigated the relative importance of elements such as
accessibility and cost of computers and internet, customers reluctance, awareness
of the service, security of internet banking transactions, convenience and ease of
use influence the usage of Internet banking.

Using survey analysis, results shows that the mostly used services are inter account
transfer,

payment to other personal account, transfer to credit card account, recharge mobile
phones, standing order transactions, savings, current and fixed deposit account
application and debit/ credit card. The results are confirmed by the use of t-tests.
Comparing demographic variables of the internet banking users to the non-internet
banking users, the analysis shows that there is no

significant difference between the two groups of users, for the variable age group
and the education level of the respondents. This is however not the case for the
mean monthly income.

Using factor analysis to identify the factors affecting the adoption of internet
banking in Mauritius we found that the most significant factor is ease of use and
that other important elements are reluctance to change, trust and relationship in
banker, cost of computers, Internet accessibility, convenience of use and security
concerns.

Further analysis using cross tabulations relating selected factors and usage of
internet banking

facilities detected the presence of important statistical relationship between

awareness, access to
Internet facility, length of banking relationship, people working in the Internet
banking/finance

sector, education level in the category ‘post graduate’ and also income group with
the usage of

internet banking.

The results will have important implications and is believed to be very helpful for
the Mauritian

banking sector and also for the government since both will be aware of the
relatively important

elements that should be taken into account to formulate appropriate strategies,

foster this service

and thus reaping out its benefits. While this exploratory research has revealed some
interesting

results, one should be careful on some of its limitations related essentially to its
sample size.

Although we believe that this study is quite deep, we still believe that it can be
further extended

to include more respondents from different sectors and age groups to make it more
realistic and

more reliable from the perspective of policy analysis. Moreover, analysis can be
made for different

age groups and possible people working in different sectors to capture the micro
details of

Internet banking. There exist in the literature similar works on different countries.
Perhaps it

might be interesting to survey these studies and make a comparison to see whether
there exist
major differences in different countries. Finally a regression analysis can be
performed to find out

the main determinants affecting Internet banking in Mauritius.