Advent of Electronic Banking in Pakistan

Research Proposal Submitted By: Muhammad Sibtain Ameer MBA-4(Evening) Registration No: 3686/FUIEMS/MBA-2009

FUIEMS, Foundation University institute of Engineering & Management Sciences.

Contact No: 03345001842 Dated: 20-01-2011

DECLARATION
I, Muhammad Sibtain Ameer, hereby declare that the matter printed in this thesis Advent of Electronic Banking in Pakistan Is my own word and have not been printed, published and submitted as Research work, thesis or publication in any form in any university in Pakistan or abroad.

Muhammad Sibtain Ameer

Dedication
All the efforts in compiling this thesis are dedicated To My beloved Parents and Friends And My Honorable faculty Members of FUIEMS As they help me in this Achievements.

Acknowledgement
Praise to ALLAH almighty and The HOLY PROPHET (P.B.U.H) who guided mankind to the path of understanding, knowledge, reasoning, and research, what makes him so different than other creatures in the universe. I am very grateful to the Foundation University Institute of Engineering & Management Sciences (FUIEMS) faculty for giving me this opportunity. I would like to thank the Department of Management Sciences, supervisor Ms. Nadia without the necessary help of whom I would not be able to accomplish this task. I am also thankful to all the Faculty Members of FUIEMS who provide me guidelines and enhance my interpersonal skills, and now at the end of Last semester of MBA I am able to perform this task. I am also grateful to honorable teachers and my friends for their help and guideline.

Abstract

The topic of our project is Advent of Electronic Banking in Pakistan. The purpose of this project is to investigate the effect which information technology has had on banking and what we should expect in the future. The information collected through literature survey and questionnaire shows that there are different variables that cause E- banking. Through questionnaires and interviews we concluded that whether the bank is a private sector or Government sector information technology effect the life of customers. On the basis of literature survey and questionnaire we develop our hypothesis i.e. people are getting benefit from IT resources used in banking sector .We have followed stratified random sampling. The sample comprised of banks. These banks are 1- MUSLIM COMMERCIAL BANK LIMITED. 2- UNITED BANK LIMITED 3- ALLIED BANK LIMITED 4- BANK OF PUNJAB LIMITED 5- BANK- AL- FALAH LIMITED 6- NATIONAL BANK PAKISTAN LIMITED 7- UNION BANK LIMITED After getting our data through formal interviews, we come to this conclusion that people are getting benefit from IT resources used in banking sector.

Table of contents Chapter No: 1

Introduction.. 8 page Number
Background of the study......8 Electronic banking....8 Types of Electronic banking........9 Purpose of study11 Problem Statement.....12 Theoretical framework13 Hypothesis of the study..17

CHAPTER No: 2
Literature Review....18 page Number

CHAPTER No: 3
Research Methodology....27 page Number
Type of Research....27 Data Collection........30 Research Tools................30

CHAPTER No: 4
Data Analysis31 page Number

CHAPTER No: 5
Conclusion and Recommendations.39 page Number Conclusion...39 Recommendation 39

CHAPTER No: 7
References..40

CHAPTER 1
INTRODUCTION
Background
The topic of our project is Advent of electronic banking in Pakistan. The purpose of our project is to explore the effect which information technology has had on banking and what we should expect in the future. The purpose of this investigation is to focus on the customers point of view in relation to Information Technology. We intend to look deeply into the areas of resistance to new technology by the existing staff, future plans for incorporating Information Technology into routine bank transactions, a comparison between the old manual systems and the present computerized one and the implications for training. We conducted interview of a manager of every bank. They asked how they have been affected by the advent of Information Technology and how they feel about all the changes it has brought. We also investigate the opinions of the customers who use the system by sending out some questionnaires to get a general opinion. The other main part of the project refers to the introduction of electronic banking. We study the new services, which are available or will be available soon and analyze customer reactions to them. The research involves face-toface interviews and questionnaires to gather the required information. Ultimately we will try to make predictions for the future.

Electronic banking
Electronic Banking is a generic title that has been used by banks and their corporate customers. At the same time as the packages differ, in its most basic 8

form it is a method of retrieving balance and statement information from your bankers via your desktop PC, along with the ability to generate payments, both domestic and international, from the same source. Whilst delivery is normally by branded software via telephone landlines, the Internet is being offered as an alternative in many cases, although surprisingly the service is sometimes restricted, and the majority of business and corporate customers receiving electronic information from their bank still use a direct connection with the bank.

Types of Electronic Banking

1. Automated Teller Machines An Automated Teller Machine (ATM) is an electronic machine which allows the user to withdraw and lodge cash, pay bills, request statements etc. Each user currently requires a card and a Personal Identification Number (PIN) to gain access to the machine. There are many services available from various ATMs and some of these are listed below: Withdraw cash up to your daily limit Make deposits Transfer funds between saving accounts and current accounts Check Balances Request mini statements Request posted statements Some ATM cards are also debit cards, which can be used in shops and supermarket. The purchase amount is deducted immediately from your account.

2. On-line Banking Only 10% of the people used on-line banking for both personal and business purposes. It was felt that on-line banking saved both time and money although opinions varied over whether it had improved communications with the bank.

3. Telephone Banking Telephone Banking was used by 14% of the people, all being for personal purposes. Communications with the bank were thought to have been improved for various reasons, for example, one person said that it enabled them to access their account and order stationary at any time, not just during bank opening times. Previously you would have to go to the bank to do this.

4. Credit cards Credit cards are used by the businessmen, Travelers and other Government officials. Bank provides a credit line in shape of Credit Card, the cardholder spends the amount in one month and repays the spend amount in the next month. He can pay minimum 5% of the bill and can carry over its credit in next month. Bank charges an interest of 2% to 2.50% per month. 40 to 50 free days are offered to the customers by the bank. Customers can earn rewards points upon making the shopping from their credit cards. These points are redeemable in the shape of gifts.

10

5. Fax banking Fax Banking is mostly associated with the corporate customers or credit cardholders having the facility of Fax. We can receive our account statements as well as monthly credit cards bills through Fax Banking.

6. Mobile Banking: WAP technology or SMS-based technology is used to establish a connection. Payments to pre-defined beneficiaries, inter-account transfers or ministatement enquiries are functionalities available to practitioners.

Purpose of study:
The present research is an attempt to focus on the various benefits getting by customers due to electronic banking in Pakistan. The research objectives are these: Identify the areas of improvement in services of banks due to Information technology. To identify the customers satisfaction level.

11

Problem Statement
The main problem in this regard is How electronic banking has affected the life of customers

12

Theoretical framework

Variables
Anything that can take on varying values. Those values can differ at various times for the same objects or persons. Types of variables 1. Dependant Variable 2. Independent Variable 3. Moderating Variable 4. Intervening variable Dependent variable Variable of primary interest to the researcher. Researchers goal is to explain or predict variability in the dependent variable. It is the main variable that it self leads towards investigation. Independent Variables The factors that influence the dependant variable are Independent

Variables. When independent variable is present then dependant variable is also present and increase and decrease in independent variable also affect the dependant variable.. Moderating Variable That has a strong effect on the independent variable dependant Variable relationship. The presence of third variable (moderating Variable) modifies the original relationship between independent 13

and dependant variable Intervening Variables Variable that surfaces between the time the independent variables start operating to influence the dependant variable and the time their impact is felt on it. It has temporary quality and time dimension, Helps to conceptualize and explain the influence of the independent variable on dependant variable. Variable used in research Variable which are used in research is as below. Independent variables 1. Phone banking 2. mobile banking 3. Internet banking 4. ATM 5. Fax banking 6. Credit cards

Dependent variable: Problems faced by customers in banking due to information technology

Intervening variable: 1. Lake of experience 2. High charges

14

3. Quick availability information 4. Inability to use 5. Unhelpful error messages in using it Moderating variable: 1. Quick availability of information 2. quick and fast accessibility

Measurement of variables
Dimensions CREDIT CARDS FAX BANKING ATM INTERNET BANKING PHONE BANKING MOBILE BANKING Cellphone banking

Elements

Credit cards 1. Costly 2. None Awareness Fax banking 15

1. 2. ATM

Un-availability to common People Omission and Error.

1. Usage Experience 2. Network failure Internet banking 1. Un-Available to every person. 2. Un-secure means of transaction. Phone Banking 1. Recorded Instruction are not up to the Mark 2. No proper follow up by the concerned bank

Mobile BANKING
1. Errors in mini-statement enquiries. 2. Un- Available to every Person.

16

Hypothesis of the study

Problems faced by Customers In banking due to information Technology

17

CHAPTER 2 Literature Review

E-banking is the use of electronic channels to communicate and transact business with both domestic and international customers, primarily through use of the Internet and the World Wide Web. This has enabled banks and other financial institutions to increase the use of electronic channels for receipt and delivery of their products and services. international, into three categories:

E-banking, both domestic and

Basic information web sites, which only broadcast information on banking products and services offered to bank customers and the general public. Simple transactional web sites which allow bank customers to submit applications for different services make enquiries about balances and submit instructions to the bank but not permit any account transfers. Advanced transactional web sites that allow bank customers to

electronically transfer funds to/from their accounts, pay bills and conduct other banking transactions on-line. E-banking risks - What are they? How should they be managed? Bob McDowell. Published: 4th November 2002 Present government in Pakistan, for the first time realized the potential of IT at the Government level. It gave due importance to this vital sector by declaring it one of the four pillars on which the national economy was to be revitalized .policies adopted by the government following important development took place within a short span of a year:

18

More than 500 cities and towns are connected to Internet in a year. More than 90 ISPs licenses have been given, and more than 60% are operative. Number of Internet Registered users has been increased from 230,000 to 850,000 in a year, actual users around 2,000,000. Approximately 500 Internet cafs, operating all over Pakistan. E-Mail users are more than 2.5/million. Mobile phone users have increased from 450,000 to 1,200,000 in a year due to CPP. International lines have been increased by 50%. International bandwidth has increased 600%. Spending on ICT increased more than 250%. PC population is now more than 2.5 million. 43% growth in hardware sales in one year with more than 270,000 units sold (IDC) in 2000. 15,000 graduates at Masters and Bachelor levels in both public and private sector are being produced. More than 100,000 Non-Graduates like diploma holders are being produced annually now. ( Country Report of Pakistan , 2001) Personal Banking services through the Internet and a fully computerized branch/off-site ATM Network. For our customers offer:

Extended working hours Any Time Anywhere Banking Banking Through Our ATM Network Online E-Banking/Internet Banking 19

E Alerts E News Mobile Banking 24 Hour 365 Days Interactive Customer Care Centre Remote Customer Terminal Tele banking / Fax Banking Special Service For Senior Citizens Special Service For Customer Who Cannot Physically Access The Bank credit cards online accounts Fully computerized service network .(personal banking anonymous)

Key benefits Simple, secure, fast and convenient access to your account Make bill payments Cancel direct debits and standing orders Look at your balance Order a statement or replace lost or stolen cards Contact a member of staff with your enquiries. (About E Banking . Anonymous)

Forms of electronic Banking

1. Self-service terminal at bank branches Although queuing is reduced thereby, a physical visit to the bank limits their usefulness for practitioners. 2. Use of encoded access cards at ATMs

20

The withdrawal of cash from practitioners trust accounts is not permitted. It is also not recommended in respect of business accounts (unless petty cash is required on an urgent basis after hours). The use of an encoded card at an ATM could provide at the time of doing so the only means for a practitioner legitimately to transfer funds from a trust to a business banking account (e.g. if a sole practitioner experiences difficulties to effect such a transfer by means of drawing a bank Cheque during normal banking hours on a trust banking savings account as defined in s 78(1) of the Act). This form of electronic banking is thus of limited use to practitioners.

3 telephone Banking: Telephone banking can be performed through a consultant or through an automated voice recorded system. It is a practical alternative for practitioners if faxed confirmation of transactions is received. 4 mobile Banking: WAP technology or SMS-based technology is used to establish a connection. Payments to pre-defined beneficiaries, inter-account transfers or ministatement enquiries are functionalities available to practitioners. 5 Internet banking: This direct banking system has useful practical application for small and medium practices. Controlled access to the banks mainframes: Larger practices with voluminous transactions may require controlled links to banks mainframes via a modem, or in exceptional cases, direct interfacing with the banks. 21

Inherent risks posed by electronic banking The three main risks identified by her are Electronic payments are irrevocable once they are released; Because of Straight through Processing, no validation on account names is possible; and The payer carries the risk of using the wrong account number. Features of electronic banking Cheque payments can be stopped electronically. Cost effective and quick fund transfers take place between accounts. Transactions can be post-dated or set up to recur periodically. Multiple payment batches can be prepared (even off-line). Statement enquiries are readily available and can often be imported into electronic reconciliation systems. (Electronic banking, anonymous ) Banks and Post offices across the country are facilitating Workers Remittance received from Overseas Pakistanis within 24 hours, without charges. There are 4 /million expatriates who send billions of dollars of foreign exchange to Pakistan. Banks are also facilitating Cellular phone user to check their balance and make transactions. Statement through SMS is also available. Internet banking is available with few of the banks; with payment options. Other banks are working on Internet banking solution. Digital Certificates availability and security issues are delaying the projects and decision making by the banks. (Country report Pakistan, anonymous) 22

The key to controlling transaction risk lies in adapting effective polices, procedures, and controls to meet the new risk exposures introduced by ebanking. 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 institutions established risk tolerance level. Security controls are discussed in this booklets Risk Management of E-Banking Activities section under the heading Information Security Program. (E banking risk, anonymous )

Bank provides the following types of services to customers a. Telephone banking b. Retail Internet banking services c. Corporate/wholesale Internet banking services d. Internet service provider (ISP) e. Brokerage services over the Internet f. Insurance services over the Internet g. Trust services over the Internet h. Account aggregation i. Electronic bill payment j. Other activities (e.g. Web portals, financial calculators, crossmarketing arrangements and alliances, unique services, etc.) (Electronic banking activities, anonymous)

23

In addition to Internet access to your personal accounts, you can also take advantage of our convenient Bill Payer Service. Bill Payer allows you to pay the individuals and/or companies of your choice via the Internet

Features include:

Access account balances Transfer money Make GSB Loan payments Conduct common banking tasks online

Online Cash Management Services

Bill Payer (first 20 payments included) Payroll Collections EFT Tax Payments ACH Payments ACH Receipts Wire Transfers (regular wire fees apply) Fast Pay In clearings Send a File Currency Orders (about e banking . Anonymous)

Major Benefits include: Reduce manual accounts payable systems Reduce manual accounts payable systems

24

Conduct transfers 24 hours a day from any PC with Internet access (e cash management services .Anonymous) Typical online banking usability problems in its widest sense, online banking consists of three main parts: the 'brochure ware' marketing pages, the online application, and the transactional banking area.

All can provide poor customer experiences: Inconsistent navigation and page layouts On-site search engines that dont find, even when it is available Bank-oriented jargon that is not explained Poor feedback using interactive tools and forms

Inability to save an application and complete it later Unhelpful error messages (User Friendly e-Banking, anonymous) The 95533 Customer Service Center at the CCB employs advanced

Pages that are inaccessible to customers who are blind or disabled

telecommunications technologies, and serves as a transaction and information platform for clients. l Account Access l Account Transfer l Payment: taxes Securities Services l Foreign Exchange Account Access (P95533 Customer Service Center, anonymous ) Electronic commerce has enabled us to shop from home, avoiding the Hassles of traffic jam and save us time. Moreover, we can order products from Any place of the world, 24 hours a day.( literature review , anonymous ) When we dial 95533, you will receive efficient banking services easily. It includes:

25

Pakistan is on the threshold of entering the IT era. Hindrances created by political turmoil and uncertainty notwithstanding it can be said safely that a large population of Pakistan has understood the importance of IT in their national life. Government of Pakistan has also realized the importance of this sector and is trying its best to present Pakistan as a regional IT Power in the short and a global IT power in the long run. If the present policies and vigor are maintained Pakistan will emerge as a vital IT player in the international market in not-too-distant future. Finely Pakistans affiliation with computers is now about four decades old. It was one of the first countries in Asia when it introduces computers in banking and airlines sector in the early sixties. Within two decades computer were used in every walk of life and computer education became an integral part of higher education. With the spread of personal Computers in the eighties the computers reached homes of Pakistanis. Internet came in the early stages and the first ISP in the region was established in 1994. As a result of policies adopted by the government. (Country Report of Pakistan , 2001)

26

CHAPTER 3

Research Methodology

Type of research
Our project is based on the effect which information technology has had on customer life. After the complete observation by conducting interview and questionnaire we find the following problematic area where we need to conduct research.

27

Changes in banking services for customers Preliminary data collection We gathered preliminary data by questionnaire to know the opinions of the customers and conducted interviews of every bank manager. This allowed finding out what the people who had to use this new technology really thought about various issues. The questionnaire is attached at the end of the project. Through questionnaire we conclude the following results: 1. From customers point of view The main benefit has been the increased accessibility to branches. Telegraphic transfers, telephone-banking, on-line banking and the enhancement of service tills have meant more convenience for the customer. People used to have to take time off to go to the bank and the queues in the branches were significantly longer than today. Cheques take less time to clear, cash points debit accounts automatically and now standard letters are sent to those who have over-drawn from their accounts. All these developments mean that employees have more time to spend with the customer and can put that "human touch" back into banking.

2. From bank manager point of view

28

To further our knowledge in this area we decided to interview a senior bank manager who, from his experience, would be able to give us an insight into the effects technology has had on the banking industry over the years. We get following results. They agreed that it would play a large role in the future of their working lives and they seemed open to changes in their jobs. They seemed less positive about the flow of information and communications within the bank. When changes occur they only tend to agree that they are kept informed on the future plans of the bank and the changes that will affect them. The threat of losing jobs due to Information Technology is an issue, which causes much insecurity amongst employees. When asked if they agreed that their job was secure, the average response was that they only tended to agree with the statement. Concerning the question of Information Technology making their job impersonal, they were fairly neutral with some agreeing and some disagreeing. The time spent on training for the new system was just over two weeks on average. The employees felt that his length of time was insufficient to fully prepare them for adjusting to the new system. A lot of the training consisted of on the job "learn while you work" accompanied by training manuals for reference.

29

Data collection
There are two ways for data collection in research process.
1. 2.

Primary data collection. Secondary data collection.

As most of the information and material related to our research is already exist, therefore we get more information from secondary data collection as it is easily available and less expensive as compare to primary data collection. The relevant material, in secondary data collection, we get by visiting library and browsing the Internet. But we also get information from primary data Collection tools like questionnaire and interviews to find out the basic problematic area. Research Tools: 1. Questionnaire. 2. Personal interviews. 3. Newspapers 4. Internet 5. Magazine 6. Books/Article

30

For primary data collection method we conducted the questionnaire and personal interview under the circumstance of demission and elements form the Managers of different bank and those customers which have bank Account.

CHAPTER 4

Data Analysis
Most of the people daily transit with bank. All of the people want to make the transaction quickly. Most of the people have and experienced of E-Banking Most of the people find it before the conventional baking. All people says it save time. All people says they are really beneficent Most of the people says that they do not use all of the services Most of the people have experienced problem while using E-baking Most of the people use ATM in E-banking. Most of the people do not experienced any problem related to Ebanking facility they used. In case of problem faced by people in use of E-banking, banks provide the assistant and fixed the problem.

31

Most of the people do not suffered from any misplacement or fraud of funds while using E-banking services

Most of the people are satisfied with the service of E-banking

As most of the information and material related to our research is already exist, therefore we get more information from secondary data collection as it is easily available and less expensive as compare to primary data collection. The relevant material, in secondary data collection, we get by visiting library and browsing the Internet. But we also get information from primary data Collection tools like questionnaire and interviews to find out the basic problematic area. 1. Questionnaire. 2. Personal interviews. 3. Newspapers 4. Internet 5. Magazine 6. Books/Article For primary data collection method we conducted the questionnaire and personal interview under the circumstance of demission and elements form the Managers of different bank and those customers which have bank Account.

QUESTIONNAIRE FROM THE BANKS MANAGERS 32

Subject: Research on Advent of E- banking in Pakistan Name of the Bank: Name of the branch manager: Web Site Address of the Bank: E-Mail Address: 1. Is your bank involved in e-banking? [] Yes is involved in. [] Basic Telephone Banking [] Automated Teller Machine (ATM) [] Internet Banking [] All of the above [] Others (state 3. What other area is your bank intending to go into in future with respect to e- banking? [] No 2. If yes, please kindly indicate which of the following areas your bank

4. What is the level of your banks participation in e-banking? [] Information Only [] Information transfer system [] Transactional 5. Does your bank have any security policy on e banking? 33

[] Yes

[] No

6. If yes, specify the various sections of the policy: -

7. S your bank making use of one or a combination of the following security controls: [] Authentication [] Firewall [] Cryptography [] Digital signature & certification [] Certification Authority & Digital Certificate [] Secured Socket Layer (SSL) [] Public Key infrastructure (PKI) [] Physical Security [] All of the above

8. How often has your system (e-banking) been accessed by Intruders or unauthorized customers? [] Very often [] Often [] Occasionally [] Not at all

34

9. In case of system (e-banking) break down, does your bank have a contingency plan in place? [] Yes how effective is the plan? [] No 10. If yes, what is the nature of the e banking contingency plan and

11. How does the bank keep track of its customers or intruders that access your e-banking facility?

12. Does the bank have training program for customers that operate the e banking? [] Yes [] No

13. If yes, state the form or nature of the training: -

14. If no, why?

35

15. Please comment freely on any issues / areas you want that should be incorporated in our report.

Questionnaire from the customer

Subject: Research on Advent of E-banking in Pakistan NAME: AGE: Phone No (Optional): 1. Do you have a Bank Account?
Yes No

2. Do you transact with the bank on daily basis?

Yes No

3. How much time does bank takes to finalize your transaction?

4. Do you want to make it quick?

Yes No

36

5. Do you ever experience the E-Banking?

Yes No

6. Do you have experienced the following options of E-Banking? [] Basic Telephone Banking [] Automated Teller Machine (ATM) [] Internet Banking [] All of the above [] Others (Please explain) 7. Have you find any thing new from conventional banking?
Yes No

A) If YES, then please state the reasons

8. Does it save your time?

Yes No

9. Do you find these services really beneficent?

Yes No

10.

Are you satisfied with the provision of above mentioned services?

Yes No

a) If NO, then please state any other service do you want to be provided? 37

11.

Have you ever experienced any problem related to above facilities?

Yes

No

A) If YES than what you have done?

12.

Does bank successfully fix all the problems faced by you?

Yes No

A) If No, then please explain the type/nature of Solution?

13.

Do you suffered from any temporary mis-placement or fraud of funds, while using these services?
Yes No

14.

How has the bank compensated you upon happening of such event?
Yes No

15.

Are you satisfied with the services of E-Banking?

Yes No

A) If NO, then please state the reasons? 38

16.

Please comment freely on any issues / areas you want that should be incorporated in our report.

CHAPTER 5

Conclusion and Recommendations

Conclusion
After the analysis and interpretation we conclude that E-banking is growing stage in Pakistan. Peoples have lack off awareness about the information technology and E-banking. Most of customer did not know about the E-banking as well as all those services which banks are providing to their corporate costumer. Due to lack of experience and knowledge most of the time costumer suffers.

Recommendations
E-banking is growing stage in Pakistan. Due to lack of experience and knowledge costumers are not able to fully utilities all services w.r.t to Ebanking. To develop the awareness among customer their should different programs like. Through learning programs for the customer 39

Through different advertisement

Chapter 6 Bibliography/REFERENCES
1. www.magportal.com 2. www.mamma.com 3. (http://www1.Arabia.com/tech/article/English/0,1690,67700,00.html) 4. www.altavista.com 5. (www.oecd.org/forum2000/index.htm 6. (http://papers.nber.org/w7833) 7. (www.neweconomyindex.org) 8. ((http://www.e-commerce.gov) 9. http://papers.nber.org/w7752) 10. (http://webopedia.internet.com/TERM/s/software.html) 11. (www.yourdon.com/articles/byte9403.htm) 12. . (www.economist.com) 13. (http://www.ahram.org.eg/weekly) 14. (www.yourdon.com/articles/byte9403.htm 40

15. (http://papers.nber.org/papers/W8095)

16. (http://papers.nber.org/papers/W8097) 17. (http://papers.nber.org/papers/W8096 18. (www.federalreserve.gov/boarddocs/speeches/2000/20000606.htm) 19. (www.itu.int/ITU-D/ict/cs/letter/egypt.htm) 20. (www.itu.int/ITU-D/ict/cs/letter/egypt.htm)..........

41