INTRODUCTION

UNIT-1

E-Banking:

eBanking is your personal banking service on the Internet, protected with

bank identifiers. It is available anywhere, anytime. eBanking allows you to
pay invoices to Finnish and foreign recipients easily and securely. You can
also check your account balances and transactions. You can order a new
card, withdraw a loan granted to you and make mutual fund subscriptions.

You access eBanking services by obtaining bank identifiers. eBanking as

such is free of charge but commissions and fees in accordance with the
service tariff will be levied on orders and other transactions carried out
through eBanking.

eBanking allows you to pay invoices to Finnish and foreign recipients easily
and securely. You can also check your account balances and transactions.
You can order a new card, withdraw a loan granted to you and make mutual
fund subscriptions.

You access eBanking services by obtaining bank identifiers. eBanking as

such is free of charge but commissions and fees in accordance with the
service tariff will be levied on orders and other transactions carried out
through eBanking.
 SCOPE OF THE STUDY

Electronic banking (E-banking) is a generic term encompassing

internet banking, telephone banking, mobile banking etc. In other words, it
is a process of delivery of banking services and products through electronic
channels such as telephone, internet, cell phone etc. The concept and scope
of E-banking is still evolving.
Electronic services allow a banks customers and other stakeholders to
interact and transact with the bank seamlessly through a variety of channels
such as the internet, wireless devices, ATMs, on-line banking, phone banking
and telebanking. Other services offered under E-banking include electronic
fund transfer, electronic clearing service and electronic payment media
including the credit card, debit card and smart card. On-line banking helps
consumers to overcome the limitations of place and time as they can bank
anywhere, anytime as these services are available twenty four hours, 365
days a year without any physical limitations of space like a specific bank
branch, city or region. They also bypass the paper based aspect of
traditional banking.
As compared to other countries, e-banking growth and development is
at a nascent stage in India, yet the changing profile of customers and the
resultant competition from establishment of new private sector banks and
foreign banks has provided a fillip to its growth. As a result, India has
emerged as one of the fastest growing markets in the world.
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.
As a regulator and supervisor, the RBI has made considerable progress in
consolidating the existing payment and settlement systems, and in
upgrading technology with a view to establishing an efficient, integrated
and secure system functioning in a real-time environment, which has further
helped the development of E-banking in India. The Government of India
enacted the IT Act, 2000 with effect from October 17, 2000, which provides
legal recognition to electronic transactions and other means of electronic
commerce.
 3.2 AUTOMATIC Teller Machines

The Automated Teller Machine (ATM) is seen everywhere. This machine has
brought innovations in the Banking sector all over the world. The advent of
the ATM has made the concept of round the clock banking a reality. The
ATM has been helpful to both the bankers and the customers. The long
crowd of customers in the banking hall of a branch waiting for their turn to
collect cash is disappearing. The branch business timings have lost
significance to the customers after the introduction of ATM.
The ATM is a device used by the bank customers to process account
transactions. The customer inserts into the ATM, a plastic card i.e. encoded
with information on a magnetic strip. The strip contains an identification
code that is transmitted to the banks central computer by modem. Every
cardholder should be given a PIN (personal identification number) that he
should enter and after verifying the same with the records, ATM would allow
operations.
Functions of ATM: The functions of ATM differ from bank to bank. The
following features are available in the ATM of all the banks.
Fast Cash: When you want to do the only activity of drawing cash in
pre-determined amounts like Rs. 500, Rs. 1,000, Rs. 2,000, Rs. 5,000 etc.
you can use this option.
Normal Cash Withdrawal: Every bank has fixed a maximum limit of cash
withdrawal per account per day. It ranges between Rs. 10-15000. While in
some banks the maximum amount may be drawn in one shot (HDFC, ICICI)
and in some other banks it should be drawn in lots (Syndicate Bank, State
Bank of India). All withdrawals shall be in multiple of Rs. 100 only.
Balance Enquiry
Mini statement of account: You get detail of last 5-10 transactions.
Pin change:
Cash Deposit: Varied procedures exist. Here special covers are available
in the ATM wherein the client has to fill up the challan, the denominations
and key in these details. Then, a window opens wherein the cover
containing the cash has to be dropped. At the end of the day, officials of the
 branch to which the ATM is attached, would open the machine, take the
cover and credit the account of the customer. If there is any cover, the
decision of the bank is final.
Transfer transactions: If you want to transfer funds with in the bank
i.e. from one account to another at same branch or at different branch, you
can use this option.
The ATMs are emerging as the most useful tool to ensure, Any-Time
Banking and Any-where Banking or Any-Time Money. While the
benefits of ATM are immense, the cost of ATM, though has come, down, it
still prohibitive. An ATM costs between Rs. 8-10 lakh. If a bank has to install
100 ATMs it should spend at least Rs. 8-10 crs. Added to this, is the
maintenance cost. Today any electronic device attracts and annual
maintaing cost of Rs.8-12 per cent of capital cost. Besides this banks have to
incur expenditure on the rent for retail outlet, its ambience and on security
personnel etc. While many public sector banks have gone on a big way in
opening ATMs there is a need for sufficient examination of their economic
viability. Already there is experience that the hits per ATM are less than 200
resulting in no big gain for either the bank or customer. India with more
population density should show a higher average hit per day and this
emerges as a critical factor in the overall ATM strategy towards making the
whole business idea profitable.
The rationale for banks introducing ATMs in 1970s, was to deliver their
products more cheaply than traditional branch networks which are loaded
with expensive staff.
3.3 Internet Banking
Internet banking is the latest and the cheapest technology introduced in the
banking industry. It is acknowledged that the internet has already had a
profound effect on delivery of financial services and this likely to bring more
radical changes. At the basic level, interknit banking can mean the setting u
of a web-page by a bank to give information about its products and services.
At an advance level, it involves provision of facilities such as accessing
accounts, fund transfer, and buying financial products or services online.
This is called Transactional Online Banking.
In general Internet Banking refers to the use if internet as a delivery
channel for the banking services, including traditional services, such as
opening an account or transferring funds among different accounts, as well
as new banking services such as electronic bill presentation and payment
 which allows the customers to pay and receive the bills on a banks
website.
There are two ways to offer Internet Banking. First, an existing bank with
physical offices can establish a web-site and offer internet banking in
addition to its traditional delivery channel. Second, a bank may be
established as a branchless, Internet only, or Virtual bank. Further
internet banking sites offer financial services products to customer in three
basic formats
Information Only: Informational only presents online information
about the different banks services and products to the customers as well as
general public and may include unsecured e-mail contract, with no customer
identification or verification required.
Information Exchange: Information Exchange Customer
Information such as name, address and account information may be
collected or displayed, with possible secure e-mail and/or data transfer,
with verification of customer identification required. No financial
transactions are to be made.
Transactional: Transactional customer account information enquiry,
financial transactions such as transfer of funds, payment of bill, application
for loans and a variety of other financial transactions, with strong customer
authentication required.
When it was introduced for the first time, Internet Banking was used
mainly as an information presentation medium in which banks marketed
their products and services on their web sites with the development of
asynchronous technologies; however more banks have come forward to use
internet banking both as a transactional as well as an informational medium.
A successful Internet Banking solution offers:
Exceptional rate on savings CDs, and IRAS.
Checking with no monthly fee, free bill payment and rebates on ATM
surcharges.
Credit card with low rates.
Easy online applications for all accounts, including personal loans and
mortgages.
24 hours account access.
Quality customer service with personal attention.
 Internet banking is a cost-effective delivery channel for financial
institutions. All the transactions are encrypted, using sophisticated multi-
layer security architecture, including fire walls and filters. Firewall is a
protection device to shield a vulnerable area from some form of danger. In
Internet, a firewall system set up specifically, to shield a web from outside.
Typically, this allows insiders to have full access to services on the outside,
while granting access into the internal system, selectively based on log-in-
name and password.
Internet banking is somewhat different from PC banking. PC banking is
transactions through PC at ones office or home, which is connected to the
branch through a modem. PC banking is available only when branch is open
and is available only through any PC. But, internet banking enables to do the
same through any PC connected to the internet, from anywhere in the
world.
Advantages of Internet Banking
Anywhere and anytime banking as services are provided round the
clock.
Worldwide connectivity as it transcends geographical boundaries.
Easy access to recent and historical data.
Direct customer control of international movement of funds.
Greater processing speed and accuracy.
3.4 Telephone Banking
The banks are aiming to make them more accessible by introducing
telephone banking. Telephone banking refers to dialing one telephone
number using a telephone to access the account, transfer funds, request
statements or cheque book simply by following recorded message and
touching the keys on your phone. It allows the customers to check account
at convenient time and get simple things done without visiting bank
premises. Telephone banking aims at providing 24 hour service that is fast,
convenient and secured for all customers. In the modern society everyone
has to access to telephone. Registering for telephone banking cost nothing
although there is a small transactions charge for making bill payment and
frequent usage charges.
3.5 Electronic Clearing Service

In 1994, RBI appointed a committee to review the mechanization in

the banks and also to review the electronic clearing service. The committee
recommended in its report that electronic clearing service-credit clearing
facility should be made available to all corporate bodies/Government
institutions for making repetitive low value payment like dividend, interest,
refund, salary, pension or commission. It was also recommended by the
committee Electronic Clearing Service- Debit clearing may be introduced for
pre-authorized debits for payments of utility bills, insurance premium and
installments to leasing and financing companies. RBI has been necessary
step to introduce these schemes, initially in Chennai, Mumbai, Calcutta and
New Delhi.
3.6 Electronic Funds Transfer (EFT)
computers is a electro computers is a through demand drafts, mail
transfers and telegraphic transfers. In 1996, RBI devised an electronic fund
transfer (EFT) system to facilitate fast transfer of funds electronically. The
funds can be transferred between any two bank accounts even if the sender
and the receiver are located in different cities or deal with different banks.
EFT has accelerated the movement of funds across the globe. E-cash or
cyber cash plays a predominant role in world of commerce. Such electronic
funds movements amounting to a few trillion dollars are settled on a daily
basis in major international financial centers. Society for worldwide inter-
bank financial telecommunication is a classic example of EFT among banks
with its own standards for messages, which ensures speed, reliability,
security and accuracy. SWIFT, as a co-operative society was formed in May
1973 with 239 participating banks from 15 countries with its headquarters at
Brussels. It started functioning in May 1977. Reserve Bank of India and 27
other public sector banks as well as 8 foreign banks in India have obtained
the membership of the SWIFT. SWIFT provides rapid, secure, reliable and
cost effective mode of transmitting the financial messages worldwide. At
present more than 3000 banks are the members of the network. To cater to
the growth in messages, SWIFT was upgrade in the 80s and this version is
called SWIFT-II. Banks in India are hooked to SWIFT-II system.
SWIFT is a method of the sophisticated message transmission of
international repute. This is highly cost effective, reliable and safe means of
fund transfer.
 This network facilitate the transfer of messages relating to fixed
deposit, interest payment, debit-credit statements, foreign exchange etc.
This service is available throughout the year, 24 hours a day.
This system ensure against any loss of mutilation against transmission.
It serves almost all financial institution and selected range of other
users.
The objective of establishing an EFT system is to facilitate an efficient,
secure, economical, reliable and expeditious system of funds transfer and
clearing in the banking sector throughout India, and to relieve the stress on
the existing paper based funds transfer and clearing system.
Advantages of EFT
Funds can get transferred easily and conveniently without delays and
paper work.
Built-in security measures ensure safety of funds during transfer.
Losses and frauds are minimized due to easy tracking of
transactions/customers.
3.7 Credit Cards
There are various ways of making payment through the banking system.
These include cheques, direct debits, bank drafts, electronic transfer,
international money orders, letters of credit, etc. Increasing affluence
combined with increasing complexity of life has led to the phenomenon of
Credit Cards. They provide convenience and safety in the purchasing
process. It is generally known as plastic money. The credit card are made of
plastic is widely used by the consumers all around the globe. The changes in
consumer behavior and tastes led to the tremendous growth of credit cards.
Credit card is a card which enables the consumers to purchase products or
services without paying immediately. This credit concept is based on the
principle of Buy now pay later. Credit card is a document that can be used
for purchase of goods and services all over the globe.
The worlds first credit card was issued by Mobil in 1940. This card was
initially issued by the Company to give specialized services to its regular
customers. It helped to boost sales and increase the customer base. After
the tremendous success of Mobil card various organisations began to think
about the use of cards in different segments of the business. The Diners
Club, American Express and Carte Blanche Cards have emerged. The credit
cards were popularly known in USA. During the second World War US saw the
growth of the credit cards. The first bank card was issued by
Fanklin National Bank, USA in the year 1952. In 1960, the credit card
operating system was developed by Bank of America, USA. An international
bank card system known as VISA International was established. Another
international bank card system called Mastercard was established. At
present the market is dominated by the VISA and Master Card. In the year
1988, the first woman card was launched My Card by international bank of
Asia in HongKong.
The credit cards are made of plastic. It is widely used by the consumers
all around the globe in the digital economy. The card identifies its owner.
The owner of the card is entitled to purchase the goods without cash. It
provides purchase services without money and be eligible to get credit from
a number of merchant establishments. The issuer of the card issues credit
cards depending on the credibility of the customers. The card issuer enters
into a tie up with different merchant vendors located indifferent
geographical places in various fields of business activities. The card issuer
will put up a credit limit for its card holders and a ceiling limit for each
vendor. The card offers the card holder an opportunity to buy air, rail
tickets and stay at hotels for payments. The card holder need only to
present the card at the cash counter and has to sign some firms. The credit
cards can be considered as a substitute for cash and cheques. The cards are
not accepted by all the merchant vendors.
Process of Credit Card Business Cycle
Credit cards facilitate its holder to make purchases at various
designated merchant establishments. The establishments like travel
agencies. Star hotels, Departmental stores will accept all valid cards in lieu
of cash payments. The card holder can avoid the risk of carrying cash. The
following steps are involved in the process of a transaction.
Step I: a card holder purchases goods and present the credit card to the
designated merchant establishment.
Step II: The retail vendor verifies the number on the card against the hot list
provided to him by the bank.
Step III: The card holder is required to sign on the voucher and the signature
has to tally with the one on the credit card.
Step IV: The Retailer has to present the sales vouchers to the bank for
reimbursement for the customers purchases. The bank also charges
commission from the retailer.
Step V: The bank will make payment to the retailer on behalf of the card
holder.
Step VI: After completion of the process. The bank sends the bill to the card
holder and received the money.
Benefits of the Credit Cards
The benefits of credit cards may be classified into two categories:
(A) Benefits to the Card Holders: There are so many benefits to the card
holders for using the cards:
The card holder need not to carry cash at all times.
The card holder will be covered by free insurance.
The card can be used as identification card in some
situations.
The issuer of card offers rewards and gifts to the card holder.
The card holders can avail special counters for Air and Travel
reservations.
The card holder can get complimentary magazines. For
example, diners club provide signature magazine to card
holders.
Family members of the card holder can avail this facility.
The card holder can enjoy free credit uto 30 to 45 days.
If the credit card is lost/stolen the liability is limited to a
maximum of one thousand rupees.
Some credit holders will get free services such as confirmed
ticket booking and hotel reservations.
Some card holders will get benefit from the world wide
network, for example, Master card, Amex, Visa etc.
(B) Benefits to the Card Holders: There are also advantages to credit
issuers. Such advantages are such as:
 This business offers higher profits.
The issuers can also improve their name and image by serving large
number of credit card holder base.
This business is an additional activity in the banking sector to
enhance their profitability.

(c ) Additional Facilities: The credit cards besides providing credit facility,

the issuer extend some additional facilities to attract more customers.
These facilities and services are presented below
a) Incidental Expenses: The credit card holders can use their cards to
pay for incidental expenses. They have to do is to call the issuer bank and
instruct it to make payment like telephone bills, electricity bills, payment
to mutual funds, public issues etc.
b) Instant cash Withdrawal: Some issuers allows their credit card holder
to withdraw instant cash up to 60 percent of his credit line from ATMs in all
metros. The card holders can also draw cash in case of medical emergencies
for meeting expenses on treatment at other than their home town. This
emergency medical advance facility is available with all Indian and foreign
banks.
c) 24 7365 Customer Service: The technology adopted by the
banking sector makes comfortable life to the customers. The revolutionary
phone banking service ensures that the banks are just a phone call away to
assist the card holders around the clock. Foreign banks provide a world class
service to card holders. A credit card holder can call Citiphone banking
and ask for temporary credit line any time.
d) Free insurance: Some of the issuers, insures the card holder at free of
cost for a particular sum. Citibank offer a complimentary personal accident
insurance. The Bank of Baroda card extends insurance protection to card
holders spouse also.
e) Buy Anything on Credit Card: The credit cards are well accepted by
the public. The card can be used for all occasions and seasons. The card is
also useful for purchasing essential commodities like groceries, fuel, auto
accessories and cosmetics. The cards are useful even passing customs duties
and hospital bills. We can purchase everything, anywhere at any time under
the sum at designated locations.
f) Joint Credit card and ATM Facility: Indian banks and foreign banks
have introduced a joint card. The joint card holder can access his accounts
with the bank through ATMs.
g) Hotel Discount Facility: The credit holders are entitled to get
discounts at all leading hotels and clubs. The card holders are eligible to
avail the facilities as per the schemes which were offered by the hotels,
travel agencies and on air ticket. Even the consumer products are also
available in this method.
h) Fuel Facility at Petrol Pumps: The BOB, Citibank, Standard Chartered
cards are accepted at all Bharat petroleum outlets. This is very convenient
foe card holders at all leading metro cities.
i) Purchase Protection: The credit card facility protects the purchases
against damage or loss due fire and theft. For compensation the card holder
can claim the value of the product damaged or lost from The New India
Assurance Company. This protection is available for a limited period from
the date of purchase of the product on the credit card. Some of these
facilities are exclusive offers, airport lounges, special hospital facilities,
special travel services.

Types of Credit Cards

The credit card system is becoming very popular in India and abroad. The
system facilitates a wide range of products and services. The growth of
service sector depends on the pulse of the customer. The needs of the
customers are taken care off by different card issuers. The credit cards can
be classified into 4 basic types based on the issuers: Travel and
entertainment card, bank card, retail card, fuel card. There are many types
of cards which are popular in India and abroad. These cards can also be
classified as follows:
a) Based on Geographical Territory: Under this category, the
credit cards can be categorised as Domestic cards and International
cards. The domestic cards are generally available from most of the
banks. These cards will be valid in India and Nepal only. All the
transactions will be in rupees only. International cards will be issued
to persons who travel foreign countries frequently. These cards are
subject to the rules and regulations of the RBI. These cards will be
honoured in throughout the world except in India and Nepal.
b) Based on Franchise: The credit cards can be classified based on
the tie-ups. They are Visa card, Master card, Proprietary card and tie-
up card. Visa card can be issued by any bank which is having tie-up
with VISA international USA. The card holder can avail the facilities of
Visa network for their transitions. Master card is a brand name for
another type of credit card. The issuer of the card has to obtain
permission from the master card corporation of USA. It will be
honoured in the master card network Proprietary card will be issued
by the issuer bank on their own brand name. These cards will be
issued by banks in addition to their other tie-up cards. Tie-up cards
are issued by banks having a collaboration with domestic card brands.
c) Based on Status: This type of credit cards will be further
classified as standard cards, business cards and gold card. The
standard card is a normal card generally issued by all issuing banks.
The card holder is offered limited privileges when compared to the
other cards. These cards are issued by some banks under the brand
name of classic card. Business card is meant for tax consultants,
chartered accountants, small firms, solicitors and executives etc.
These cards are very useful for their business trips more and more
convenient. The business card facilitates more privileges than the
standard card. Some banks are issuing these cards in the brand name
of executive.
d) Based on User: Under this category the credit cards are further
classified as Individual cards and corporate cards. The individual
cards are issued to individual persons. All the brands of cards will be
given to individual corporate cards are issued to corporate companies
and business firms only. The corporate cards are issued on the name
of the company. The cards will be utilized by the executives and top
officials the firms. The bills will be paid by the company to the banks.
e) Based on Credit Recovery: These type of cards are again
classified into two categories. They are Revolving credit type card
and charge card. The revolving credit card is generally based on the
revolving credit principle. According to this scheme, the card holder
has to pay a percentage of the outstanding credit for every month.
The interest is charged on the outstanding. The interest rate is
charged on the outstanding amount. The interest rate is more than 30
percent per annum charge card is a convenient instrument. The issuer
gives a consolidated bill for every month to the card holder. The card
 holder shall pay the bills on presentation of the consolidation bills.
Therefore, there are no interest charges on this use of cards.

Credit Cards in India

The first credit card in India was Diners club card in the year 1964. Andhra
Bank and Central bank were the first to launch credit cards among the
commercial banks. The Andhra bank introduced the card in the year 1981
under the brand name of Visa classic followed by Central bank of India in
collaboration with Master Card Corporation in 1981. The other banks Canara
bank, bank of India and Bank of Baroda introduced credit cards in India.
The foreign banks such as Citi bank, Standard Chartered bank, Bank of
America and American Express bank have also introduced cards in India
through their branches in India.
3.8 Smart cards
Smart card is a little plastic card. It is just like a credit card but it contains
a micro-processor and a storage unit. This card is developed with latest
technology and it is an innovation that overcomes all limitations. They are
more expensive. The stored data is not exposed to physical damage. These
cards can store at least 100 times more data than magnetic strip cards. They
are more popular in Europe. They are categorized in two kinds; memory
smart cards and intelligent smart cards. Memory card contains less
information and processing capabilities they are used to record a monetary
or unit value for a specific amount. Intelligent cards contain more
information and process a wider variety of information components than a
memory smart card. This card also has greater processing capabilities for
programmed decision making for various applications. The electronic purse
is used to refer to monetary value, that is loaded on to the smart cards
microprocessor and that can be used by consumer for purchase. The
merchants, who are accepting the cards, must have a smart card reader.
The smart card technology may be used in either an online or offline mode
as with magnetic strip cards. Offline card technology can be used in
underdeveloped countries. The functioning of offline smart cards as
presented below:
Step 1: Smart card holder inserts card into machine and downloads money
from bank as to microprocessor on the card.
Step 2: The consumer pays for merchandise/ service by inserting smart card
into merchants smart card reader.
 Step 3: The merchants smart card reader records the transaction.
Step 4: At the end of the day, the merchant inserts a smart card to receive
download of the days sales.
Step 5: Take to bank for credit for days sale for cash.
Smart cards used in place of cash have the advantage of providing an
electronic record for purchases and the ability to printout transaction data
which can serve as receipts.
The smart card holder inserts his card into smart card reader enter a valid
password and the amount of the purchase is deducted from the balance
from the balance on the card. The card reader computes a running total of
the sales amounts deducted from the customers. The smart card can be
taken to the bank for immediate cash payment. If the merchant has a
networked personal computer and banking software then it may insert the
smart card and transfer the amount on the smart card directly into a bank
account. The telephone manufacturers are introducing smart card phones
that can be used for a variety of purposes. The phones can be used to:
I. Pay for items purchased over the phone,
II. Download money from bank accounts to a smart card,
III. Transfer balances between accounts, and
IV. Check bank balances.
3.9 Electronic Cheques
Another mode for internet payments is the electronic cheques. In this
method, the payor instructs its bank to pay a specific amount to another
party, the payee. The financial EDI systems have performed this function for
years using private communication circuits such as value added network.
The new generation of electronic cheques provides the following functions:
I. Present the bill to the payor,
II. Allow the payer to initiate payment of the invoice,
III. Provide remittance information,
IV. Allow the payer to initiate automatic payment authorization,
V. Interface with financial management software, and
VI. Allow payments to be made at first time.
 Electronic payment system involves two parties, payor and payee. An
electronic bill contains the same information as a hard copy bill transported
to the payor through the postal system. An electronic bill does not have to
be received, a payor or can make payments for bills received through the
postal system.
Most electronic cheques can accommodate situations where the payee
does not have account at a financial institution; therefore many electronic
cheque service providers will produce a hard copy check for these types of
payments. Electronic payment of bills is expected to increase substantially
over the forthcoming years.
3.10 Debit Card
Debit Card is the innovative instrument in the financial services sector. It is
the most convenient method of payment to the merchant establishment. It
needs involvement of many banks. The card holder will present the card on
completion of his purchases at the merchant establishment on production of
a debit card. The card details are fed through a terminal at the merchants
establishment. The card holder is immediately debited from the card
holders account and transferred to the account of merchant establishment.
No overdrawing is allowed in the case of debit card. A debit card is the
variant of an ATM card. It has the following features:
I. Whereas an ATM card can be used only where the ATMs are
provided by the banks, and that too only for cash withdrawals, the debit
card can be used in any merchant outlet that is linked with the customers
bank for making payment.
II. Credit card is issued to clients after a proper assessment of their
credit standing. But for a debit card holder there is no need to make such an
assessment.
III. At the time of making payment through a debit card, the amount is
instantly debited to the customers account unlike payment made through
the credit card where the account of the customer is debited after a certain
period.
IV. Debit card freeze the cardholder from carrying cash for his/her
purchases.
V. Debit card is like a blank cheque, so it must be used carefully
otherwise an unscrupulous person can wipe the entire balance in the bank
account of the holder.
VI. There are no chances of the debit card user to fall into the debt trap,
since payment is immediately debited to his account, as he can only use the
money which is available in his account.
VII. There are no transaction costs and no question of late fee payment in
the use of debit card.
VIII. Bankers also avoid the risk of bad debts.

3.11 Risks in E-banking

If internet banking has facilitated the banking service processes and made
the customers life a lot easier, it has also thrown new challenges in terms
of various risks which may affect the banks profitability, capital and
reputation as well. Let us discuss some of the risk issues related to the
online banking.
1. Operational Risk: Operational risk is the price, which attaches to
internet banking arising from error, fraud and inability to provide
services to customers or deliver products as per the expectation, which
may result in current and prospective loss to earnings of the bank.
Inaccurate processing of transactions, non privacy and confidentiality,
attacks or unauthorized access to banks systems and databases, weak
technology adoption or systems design or human factors like lack of
awareness on the part of employees or customers may lead to
operational risk.
2. Credit Risk: Credit risk arises when a counter-party fails to settle an
obligation when due or any time henceforth for its full value. In internet
banking scenario the credit worthiness of the customer may not be
properly evaluated. So any credit facilities provided to retail or
corporate customers requires proper evaluation and constant audit of
lending as well as the repayment progress at regular intervals to avoid
such a risk.
3. Liquidity Risks: The bank may face liquidity crunch in short-term
time horizon in internet banking scenario as well. In this case, the
outflow of fund may be sudden and hence the banks, which are more
exposed to internet banking, should ensure for sufficient liquidity in case
of redemption or settlement demands.
4. Foreign Exchange Risk: Due to the geographical and market
extension of banks and customers in internet banking scenario forex,
 legal and regulatory risk may arise. In cross border transactions there
would be difficulty in correctly assessing the counter parties credentials
and hence forex transaction against electronic money may lead to forex
risk. Different international cross-border jurisdiction can expose banks
to legal and compliance risks in view of different national rules, laws
and regulations.
5. Security Risk: Security risk is one of very important issue in internet
banking systems. In internet banking information is considered as an
asset and so worthy of protection. Firewalls are frequently used on
internet banking systems as security measure to protect internal systems
and should be considered for any system connected to an outside
network. Firewalls are a combination of hardware and software placed
between two networks through which all traffic must pass, regardless of
direction flow. They provide gateway to guard against unauthorized
individuals gaining access to the banks `network. Therefore, awareness
among the internet banking customers as well as adoption of security
mechanism is essential.
6. Compliance Risk: The bank may face compliance and regulatory risk
if it does not adhere or follow the guidelines given by the supervisor or
the regulator. Due to lack of awareness and transparency the bank may
fail in this matter and hence more care is required in this a.
7. Reputation Risk: A bank offering internet banking suffers reputation
loss due to negative opinion if the systems failed or discontinued for a
considerable time or when the banking products offered not found to
their expectation or even the fraudulent activities by the
internal/external people or hackers using bona fide customers
credentials. The bank-customer relationship may suffer due to this and
this may also affect bringing prospective customers to its fold.
8. Legal Risk: Internet banking being a relatively a new phenomenon,
the legal issues or risks are usually less crystallized or ambiguous. They
may arise from the violation of, or non-conformance with laws, rules,
and regulations or prescribed practices. A bank may also face legal
actions from the customers in case of hushing attacks or any other
fraudulent activities where the terms and conditions have not been
framed adequately by the bank.
9. Strategic Risk: Strategic risk may emanate from adverse business
decisions due to wrong implementation of unfavorable market conditions
related to either the banking products offered through electronic
 channel, or any technology or strategic decisions like outsourcing policy,
etc. Therefore, a proper market as well as technological survey is
essential in this regard before taking any final decision.
10. Money Laundering Risk: In view of the lack of personal interaction
among the bank staff and the customers in the internet banking
scenario, the know your customers norms may not be implemented
effectively as fund transfer transactions of dubious nature may be done
by the offenders without much of hassles.
11. Interest Rate Risk: In case of electronic money becoming widely
prevalent in the payment system, the interest rate risk and market risk
will have an impact on the value of the banks assets against its
electronic money liabilities.
3.12 Conclusion
Popularity which internet banking has won among customers, owing to its
speed, convenience and round-the-clock access they offer, is likely to
increase in the future. Thats why internet banking is a successful strategic
weapon for banks to remain profitable in volatile and competitive
marketplace of today. Banks are in a position to lead consumer views, as
well as to cater to existing demands. Clearly, despites of all the threats in
banking industry, there is an enormous opportunity for farsighted banks to
reap the rewards available from internet banking. Internet banking is going
to develop much faster than most people imagine. With the revolution, a
new financial system will evolve that in many ways will be far more secure
than the one we have today.
3.13 Test Questions
1. Discuss the various e-banking services offered by a bank.
2. Plastic money has replaced paper money. Critically analyze this
statement. What are the limitations of credit cards.
3. Write short notes on
a) Smart Card
b) ECS
c) Telebanking
 limitations of the study

According to a report from CNET, an estimated 48 million Americans used online banking in some
capacity in 2009 -- and that number is expected to increase to 63 million in 2014. The reasons are
obvious: like online shopping, using the Internet for managing checking and savings accounts saves
consumers time and transportation costs compared to visiting the physical bank. What's more is that
online banking also enables features such as online bill payments, which saves consumers the price
of postage. However, despite the added convenience, there are also some notable drawbacks to
online banking.

Customer Service
Banks don't just enable customers to deposit checks, withdraw money and transfer funds -- they also
make it easy for you to get answers to any questions that you might have. That's one area that
online banking trails in. Although some banks have implemented instant message chatting features
on their websites and offer customer service lines, these communications means don't compare to
the convenience of speaking with a teller or other banking professional in person.

Deposit Limitations
Many employers have implemented direct deposit, meaning that paychecks are electronically
deposited into an employee's bank account. But there's other instances when consumers need to
deposit checks or cash they've received. This can't be done online, unless you have a smartphone
and belong to one of the banks that offer smartphone apps to make deposits. If you don't own a
smartphone or belong to a bank that offers such technology, the only way to deposit funds is to
make a visit to your bank, or, in the case of an online-only bank, use snail mail to send the deposit
in.

ATM Limitations
Using online banking, customers have 24-hour access to their accounts and are able to transfer
funds, make payments and view bank statements. However, if you need to withdraw cash for
something, that must be done at either your bank location or at an ATM machine. If you're
withdrawing cash at an ATM not affiliated with your bank, you'll most likely be subject to service fees.
Internet-only banks don't have a network of ATMs, so such customers can expect to pay ATM fees
with every withdrawal.

Security Risks
According to a report in IT News, 86 percent of online banking users deem security as a concern,
with four out of five people identifying desiring better security measures than just a password.
According to a story in Computerworld, hackers have been responsible for robbing small- to
medium-sized businesses of millions. While banks maintain that their websites are safe, factors such
as accessing accounts on smartphones and from unprotected Internet connections -- as well as
cyberattacks -- have the potential to put banks, and user accounts, at risk.