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In this paper, the group will cover security issues and different
impacts regarding the traditional banking method. The group is
concerned about the issues presented because the group thinks that
these issues are very important and relevant today, a lot of people save
money and really trust banks with their money. In addition, the group
wants this research paper to be read by many students who are in no
knowledge about certain issues about banking. Lastly, the group will
provide and recommend different solutions about the issues regarding
E-Banking.
personal computer becomes their virtual banker who will assist them
in their banking errands.
INTRODUCTION
technology mostly people who are used to do things the old traditional
way. With the use of advertising, people are now motivated to use E-
banking because again, it eliminates the hassle encountered when
using the old process of banking.
In this paper, the group will cover security issues and different
impacts regarding the traditional banking method. The group is
concerned about the issues presented because the group thinks that
these issues are very important and relevant today, a lot of people save
money and really trust banks with their money. In addition, the group
wants this research paper to be read by many students who are in no
knowledge about certain issues about banking. Lastly, the group will
provide and recommend different solutions about the issues regarding
E-Banking.
A few examples:
more choice;
greater competition and better value for money;
more information;
better tools to manage and compare information;
faster service.
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.
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
fore – but more of that later.
In the very near future, one can see m-banking leaping into a
new phase. With the advent of Java-enabled e-bankingdevices, the
shape of m-banking services is in for a change. One would also be
ensured the same amount of security and comfort as one would be
when using internet banking.
DEFINITIONS
Definition of E-banking
HISTORY OF E-BANKING
The past few years have seen customers migrating from branch
banking to a host of non-branch channels like ATMs, call centre and
internet banking. In case of ICICI Bank, around 55% of the
transactions now happen through ATMs, 22% through the internet,
12% through call centre and the remaining through branches.
Incidentally, around five years ago, transactions through internet
banking was a minuscule 2%. Through the new platform Mobile, all
internet banking transactions can now be done on e-banking.
Customers can now transfer funds to ICICI Bank and non-ICICI Bank
accounts, pay their utility bills and insurance premium and do a host
of other operations. The application covers savings accounts, demat,
credit card and loan accounts.
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Advantages
Disadvantages
the agency. The FTC estimate there was 10 million identity theft
victims that year. Already lot of banks are either providing e-banking
services or getting ready to provide e-banking services.
DEVELOPMENT OF E-BANKING
Authorization,
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
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welcome any contributions from the industry to this debate; and have
indeed been actively soliciting them.
Cross-border issues
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.
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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.
MACROECONOMIC CHALLENGES
CHALLENGES
1. Interoperability
2. Security
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Another challenge for the CIOs and CTOs of the banks is to scale-
up the e-banking infrastructure to handle exponential growth of
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4. Application distribution
5. Personalization
Preferred Language
Date / Time format
Amount format
Default transactions
Standard Beneficiary list
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Alert.
IMPACT OF E-BANKING ON
TRADITIONAL SERVICES
32
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-
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strategy
customer levels
earnings and costs
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advertising spending
margins
funding costs
Merger opportunities and threats, both in the UK and abroad.
RISKS IN E-BANKING
1) Strategic Risk –
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.
2) Business risks –
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.
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3) Credit risk –
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4) Operations risk-
volume forecasts
management information systems and
Outsourcing.
In brief, this is a new area, nobody knows all the answers, and
banks need to exercise particular caution.
5) Regulatory risk-
6) Legal risk-
7) Reputational risk-
cuts the optimal response times for both banks and regulators to any
incident.
Adaptation-
Legalization-
Harmonization-
Integration-
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
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These are the issues line supervisors will be raising with their
banks as part of their on-going supervision. Security issues are a
major source of concern for everyone both inside and outside the
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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
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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:
TYPES OF E-BANKING:
Following are the types of e-banking
Internet banking
Mobile banking
ATM
Telephone banking
Internet Banking:
Features:
Internet banking has following features
1) 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.
2) Electronic financial transactions-
Electronic financial transactions have helped create new
services such as the “virtual financial site” that includes services
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3) 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.
Transaction types
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 Accounting
Mobile Brokerage
Mobile Financial Information Services
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Features:
Account Information
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
ATM:
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
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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.
Telephone banking:
TRENDS IN E-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.
Over the last few years, the e-banking 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 e-banking subscribers exceeded 2 billion in September
2005, and now exceeds 2.5 billion (of which more than 2 billion are
GSM).
In the last 4 years, banks across the globe have invested billions
of dollars to build sophisticated internet banking capabilities. As the
trend is shifting to e-banking, there is a challenge for CIOs and CTOs
of these banks to decide on how to leverage their investment in
internet banking and offer e-banking, in the shortest possible time.
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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
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For instance, the AP government has tied up with banks like the
State Bank of [Get Quote] India [Get Quote], Union Bank of India
[Get Quote], Axis Bank, Andhra Bank [Get Quote], State Bank of
Hyderabad, Andhra Pradesh Garmin Vikas Bank, and Punjab
National Bank [Get Quote].
Anurag Gupta, founder director & CEO of ALW, says: "We have
carried out pilot projects with SBI in villages located in some of the
most inaccessible and difficult terrains of the country such as
Pithoragarh in Uttarakhand, Mizoram, Meghalaya, and remote
villages in Andhra Pradesh."
Lokanath Panda, director, ALW, also pointed out that SBI had
tied up with the Indian Post to extend banking services especially in
unbanked/under-banked areas. "Select post offices will make
available to the public SBI's deposit and loan products, and ALW is
the technology partner."
E-BANKING SUGGESTION
Micro payments
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SMART Money
G-Cash
E-banking Remittance
PROGRESS OF E-BANKING
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Technologies like IVR, SMS, WAP, J2ME, and J2EE & BREW have
revolutionized the use the e-banking phones in banking services.
Though all the above predictions on cellular base, the Use of e-
banking technology with respect to banking services is at a very
infant stage.
existing: it's fierce as never before. In view of this fact, new and
new services are appearing. Some of them are good, while other
ones are not. But there is one service that hit the bull's eye: e-
banking. So today this industry is developing in a fly pace.
First, the new credit policy of the RBI came along with
guidelines for facilitating e-banking payments. Second, Dr Raghu
Raghuraman's CSFR report states that ''E-banking is the most
promising front end technology'' for broadening the access of
finance in the country.
CASE STUDIES
The big push came when LG Telecom Ltd., the smallest of Korea's
three e-banking service providers teamed up with the Kookmin bank
to launch the ‘Bank on' service. Under this scheme e-banking users
were able to use smart chips embedded in cell phones for accessing all
of the transaction and enquiry based services. The chip-based service
automated the authentication of users when they accessed their
bank's financial services to make the whole process much faster and
convenient. The icing on the cake came with the ability of these chip
enabled cell phones to be used simultaneously as cash cards. By
October 2004 there were already about 100,000 infrared readers
adapted to take payment directly from e-banking handsets in Korea.
Users can now use their cell phones to pay for everything, from
restaurant bills, travel tickets, merchandise and even haircuts.
CONCLUSION
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. 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
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BIBLIOGRAPHY
http:/www.bis.org/pub/bcbs76.htm
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http:/www.allbusiness.com/technology/technology-
service/278931-1.html