A PROJECT ON

“E-BANKING”

SUBMITTED TO

University of Mumbai

UNIVERSITY OF MUMBAI

IN PARTIAL FULFULMENT OF THE REQUIREMENT FOR

BACHELORS OF BANKING AND INSURANCE

SUBMITTED BY

MR. RINALI RAJU DOLAS

3rd YEAR 6th SEMESTER (2018-2019)

UNDER THE GUIDANCE OF:

MR. ANISH KALWANI

VCMIT (BBI DEPT)

VEDANTA COLLEGE OF MANAGEMENT AND INFORMATION TECHNOLOGY

(ULHASNAGAR)
 Index
Sr.No. Particular Pages
1 INTRODUCTION OF PROJECT 1
2 E-BANKING 1
3 DEFINATION 1
4 Electronic banking 2-4
5 ADVANTAGES OF ONLINE BANKING 4-5
6 DISADVANTAGES OF ONLINE BANKING 5-6
7 BENEFITS OF E-BANKING 6-10
8 CONTAIN BANK PROFILE 10-12
9 HISTORY OF ALLAHABAD BANK & E-BANKING 12-15
10 E-BANKING IN INDIA 15-17
11 E-BANKING IN ALLAHABAD BANK 17-19
12 E-PAYMENT 17-22
13 NATIONAL ELECTRONIC FUNDS TRANSFER 22-24
14 RTGS 24-25
15 ELECTRONIC FUND TRANSFER (EFT) 25-27
16 ATM (AUTOMATIC TELLER MACHINE) 27-30
17 CREDIT CARD 30-32
18 KISAN CREDIT CARD 32-33
19 Facilities offered to credit card holder 33-36
20 DEBIT CARD 36-38
21 E-TRADE 38-39
22 MOBILE BANKING 39-43
23 INTERNET BANKING 43-48
24 TELEPHONE BANKING 48-53
25 TERMINATION OF IB/SMSB/PB SERVICE 53-53
26 DATA ANALYSIS 53-56
27 INDIAN VIEW 56-58
28 THE INDIAN SCENARIO 58-58
29 GLOBAL VIEW 59-60
30 EVOLUTION OF E-BANKING 61-62
31 USAGE OF E-BANKING 63-63
32 TYPES OF INTERNET BANKING OR E- BANKING 64-67
33 E-BANKING PRODUCTS 67-70
34 HOW E-BANKING CAN EASE YOUR LIFE 70-72
35 RISK IN E-BANKING 73-78
36 Strategic Risk 78-78
37 Simple guidelines for safe online banking 79-80
38 RECOMMENDATION & SUGGESTIONS 80-81
39 CONCLUSION 81-82
40 BIBLIOGRAPHY 82-92
VEDANTA COLLEGE OF MANAGEMENT AND INFORMATION TECHNOLOGY

ULHASNAGAR

Certificate
This is to certify that Ms. Rinali Raju Dolas has worked and duly completed her
project work for the degree of Bachelor in Commerce (Banking and Insurance)
under the Faculty of Commerce in the subject of Banking & Insurance and her
project is entitled, “E-Banking” under my supervision.

I further certify that the entire work has been done by the learner under my guidance
and that no part of it has been submitted previously for any Degree or Diploma of any
University.

It is her own work and facts reported by her personal findings and investigation.

Name and Signature of Guiding

Seal of
Teacher
College

Date of Submission:
 Declaration by learner

I the undersigned Miss. Rinal Rajul Dolas here by declare that the work embodied in
this project work titled “E-Banking” forms my own contribution to the research work
carried out under the guidance of Mr. Anish Kalwani is a result of my own research
work and has not been previously submitted to any other University for any other
Degree / Diploma to this or any other University.

Wherever reference has been made to previous works of others, it has been clearly
indicated as such and included in the bibliography.

I, here by further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.

Name and Signature of the learner

Certified by

Name and Signature of the Guiding Teacher

 Aknowledgement

To list who all have helped me is difficult because they are so numerious and the
depth is no enormous.

I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me chance to do
this project.

I would like to thank my Principal, Co-ordinator for providing the necessary

facilities required for completion of this project.

I take this opportunity to thank our Coordinator Mrs. Sweetie Kukreja for her moral
support and guidance.

I would also like to express my sincere gratitude towards my project guide Mr. Anish
Kalwani whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference
books and magazines related to my project.

Lastly, I would like to thank each and every persons who directly or indirectly helped
me in the completion of the project especially my parents and peers who supported
me throughout my project.



 








 
 


  
    
     
 
  
   





  

 












 







 











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INDIAN VIEW

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

Ø Information Only System: General purpose information like interest

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

Ø Electronic Information Transfer System: The system provides

customer specific
information in the form of account balances, transaction details, and
statement of accounts. The information is still largely of the 'read only' format.
Identification and authentication of the customer is through password. The
information is fetched from the bank's application system either in batch mode
or off-line. The application systems cannot directly access through the
internet.

Ø Fully Electronic Transactional System:

This system allows bi-directional capabilities. Transactions can be
submitted by the customer for online update. This system requires
high degree of security and control. In this environment, web server
and application systems are linked over secure infrastructure. It
comprises technology covering computerization, networking and

19
 security, inter-bank payment gateway and legal infrastructure. It
includes the followings:
o ATM
o DEBIT CARDS
o SMART CARDS
o MOBILE BANKING

THE INDIAN SCENARIO

DRIVERS OF CHANGE: Advantages previously held by large

financial institutions have shrunk considerably. The Internet has leveled
the playing field and afforded open access to customers in the global
marketplace. Internet banking is a cost effective delivery channel for
financial institutions. Consumers are embracing the many benefits of
Internet banking. Access to one's accounts at anytime and from any
location via the World Wide Web is a convenience unknown a short time
ago. Thus, a bank's Internet presence transforms from 'brouchreware'
status to 'Internet banking' status once the bank goes through a technology
integration effort to enable the customer to access information about his
or her specific account relationship. The six primary drivers of Internet
banking includes, in order of primacy are:
Ø Improve customer access
Ø Facilitate the offering of more services
Ø Increase customer loyalty
Ø Attract new customers
Ø Provide services offered by competitors
Ø Reduce customer attrition

20
GLOBAL VIEW.

Since its inception, Internet banking has experienced strong and sustained
growth. World Bank report on leapfrogging in e-finance pointed out that
the three countries with impressive progress in information technology in
this sense are Estonia, Republic of Korea and Brazil. Creation of the
world’s leading electronic banking systems has been done at a
remarkably low cost compared to other world-class internet banks. In the
European Union, 60 million people, representing 18 per cent of the adult
population, use online banking In France, the number of online banking
accounts is recording an annual growth rate of 75 per cent. However,
Estonia is a country that has become a leader in Internet banking (which
now reaches 18 per cent of the population), not only among Eastern
European countries but in world rankings, through a combination of easy
to- use software, free-of-charge transactions and behavior changes
resulting from the influence of the Nordic countries’ IT culture on
Estonia.
A sector in which Latin America is seems to be performing better than in
other
industries is online retail banking. Growth in this area has been driven by
traditional banks, which have used the online channel to generate
customer loyalty and improve their operating margins. Two Brazilian
banks, Bradesco and Banco do Brasil have thus achieved more than 4
million online customers each. Mexico is another leader of Internet
banking in Latin America. It adopted legislation providing for the
development of both E-Commerce and e-finance. In Mexico, the number
of online bank users more than tripled from 700,000 in 2000 to 2.4
million in 2001, and it could reach 4.5 million in 2005 (E-Marketer
2002b). One reason for the success of Latin American banks’ online

21
ventures seems to be the attention they have paid to providing retail
customers with multiple ways to access their accounts (Internet,
telephone, wireless). However, given that the share of the total population
that actually has a bank account is relatively small, the expansion of Latin
American online banking may be facing a bottleneck. Compared with
overall Internet usage estimated at 4.4 million in Australia, the major
banks together have attracted only 1.2 million to online banking. The
Internet is a global phenomenon and so is e-finance. Its deployment is not
limited to developed countries, and indeed some developing countries –
such as India and the Republic of Korea – are experiencing particularly
strong growth in E-Banking. In Asia one of the most impressive records
has been achieved by the Republic of Korea. The Republic of Korea is
leading in online brokerage and in mobile banking. In South-East Asia
Internet banking is also developing rapidly in Thailand, Malaysia, and
Singapore and to a lesser extent, in the Philippines. In Bangladesh there is
a large gap between the computerization of foreign banks and that of
local commercial banks and as regards the state of their intra- and inter-
branch online networks. However, 75 per cent of local banks are planning
to introduce E-Banking, which implies very dynamic improvements.
Apart from North and South Africa the Sub Saharan Africa is the region
that is seriously lagging behind in Internet banking, although it is giving
to the rest of the world the good example of microfinance developments.

22
EVOLUTION OF E-BANKING

The story of technology in banking started with the use of punched card
machines like Accounting Machines or Ledger Posting Machines. The
use of technology, at that time, was limited to keeping books of the bank.
It further developed with the birth of online real time system and vast
improvement in telecommunications during late 1970’s and 1980’s.it
resulted in a revolution in the field of banking with “convenience
banking” as a buzzword. Through Convenience banking, the bank is
carried to the doorstep of the customer.
The 1990’s saw the birth of distributed computing technologies and
Relational Data Base Management System. The banking industry was
simply waiting for these technologies. Now with distribution
technologies, one could configure dedicated machines called front-end
machines for customer service and risk control while communication in
the batch mode without hampering the response time on the frontend
machine. Intense competition has forced banks to rethink the way they
operated their business. They had to reinvent and improve their products
and services to make them more beneficial and cost effective.
Technology in the form of E-banking has made it possible to find
alternate banking practices at lower costs. More and more people are
using electronic banking products and services because large section of
the banks future customer base will be made up of computer literate
customer, the banks must be able to offer these customer products and
services that allow them to do their banking by electronic means. If they
fail to do this will, simply, not survive. New products and services are
emerging that are set to change the way we look at money and the
monetary system.

23
Reasons of E-Banking Evolution
Speaking in the most general way, the cause of E-Banking applications
evolution changes application domain or context. Being more precise we
must mention the evolution of clients’ needs. It’s the most evident,
important and common reason that leads the banks to the evolution of E-
Banking. Banks are facing the constant evolution of the client's needs.
They need to follow this evolution in order to achieve clients’ satisfaction
and to preserve bank’s competitive advantage. E-Banking solution must
cover the clients’ needs, otherwise bank risks to lose its clients. Below we
give an example of such an evolution. The Evolution of the business
model can be as well an incentive to E-Banking Evolution. An excellent
example of such an evolution is how the Swiss quote bank evolved first
from online financial information provider to online brokerage firm and
then became a full electronic bank. Entrance to the new market or in the
national law can be another source of changes. Differences in rules and
national authorities requirements can result in specific procedures or
different security level. In the same manner an evolution can appear,
when existing laws basis are changing. We believe for instance, that
current financial crisis will bring some deep changes to law regulations
and as a result on E-Banking applications. In conclusion of this section
we need to underline the following statement: No matter which exactly of
the abovementioned reasons or set of them leads to evolution, but what is
the most important is that the initiator of this incentive is always a
business side. The needs of business are transformed into business
requirements. Business representatives which use the IT solution, must
always approve specified business requirements. The evolution of the E-
Banking applications caused by the evolution of the client's needs is the
most perceptible for the external study. E-Banking applications were
exposed to such an evolution especially during the last ten years.
24
USAGE OF E-BANKING

The rise in the e-commerce and the use of internet in its facilitation along
with the enhanced online security of transactions and sensitive
information has been the core reason for the penetration of online
banking in everyday life. According to the latest official figures from the
office of National Statistics ( ONS 2007) indicate that subscriptions to the
internet has grown more than 50% from 25 million in 2005 to 45 million
in 2007 in India. It has also been estimated that 60% of the population in
India use internet in their daily lives. The fundamental shift towards the
involvement of the customer in the financial service provision with the
help of the technology especially internet has helped to reduce the costs
of financial institutions as well as helped client to use the service at
anytime and from virtually anywhere with access to an internet
connection. The use of electronic banking has removed personnel that
facilitate the transactions and has placed additional responsibilities on the
customers to transact with the service. The computerization of the
banking operations has made maximum impact on:-
1) Internal Accounting System
2) Customer service
3) Diversification of system

25
TYPES OF INTERNET BANKING OR E-
BANKING

Understanding the various types of Internet banking will help examiners

assess the risks involved. Currently, the following three basic kinds of
Internet banking are being employed in the marketplace.

v Informational- this is the basic level of Internet banking. Typically,

the bank has marketing information about the bank’s products and
services on a standalone server. The risk is relatively low, as
informational systems typically have no path between the server and
the bank’s internal network. This level of Internet banking can be
provided by the banks or outsourced. While the risk to a bank is
relatively low, the server or web site may be vulnerable to alteration.
Appropriate controls therefore must be in place to prevent
unauthorized alterations to the bank’s server or web site.

v Communicative- this type of Internet banking systems and the

customer. The interaction between the bank’s system and the
customer. The interaction may be limited to electronic mail, account
enquiry, loan applications, or static file updates (name and address
change). Because these servers may have a path to the bank’s internal
networks, the risk is higher with this configuration than with
informational systems. Appropriate controls need to be in the place to
prevent, monitor, and alert management of any unauthorized attempt
to access the bank’s internal networks and computer systems. Virus
controls also become much more critical in this environment

27
v Transactional- this level of Internet banking allows customers to
execute
transactions. Since a path typically exists between the server and the bank
or
outsourcer’s internal network, this is the highest risk architecture and
must
have the strongest controls. Customer transactions can include accessing
accounts, paying bills, transferring funds etc.

28
SWOT Analysis of Internet Banking
The following are the strength, Weakness opportunists and threats of Internet
Banking in India

1. Strength

Ø Aggression towards development of the existing standards of banks

Ø Strong regulatory impact by central bank to all the banks
Ø Presence of intellectual capital to face the change in implementation
with good quality
Ø Fully computerized and techno savvy
Ø A person can access his account from anywhere he is
Ø A person can do banking transactions like funds transfer to any
account, book ticket, bill pay at any time of the day

2. Weakness

Ø High bank service charges. All the bank charges highly to the
customers for the services provided through internet banking
Ø Poor technology infrastructure
Ø Ineffective risk measures
Ø Easy Access of internet banking account by wrong people through
email ids
Ø When the server is down the whole process is handicapped

29
3. Opportunities

Ø Increasing risk management expertise

Ø Advancement of technologies, strong asset base would help in bigger
growth
Ø Safety of using internet banking is robust, so more internet banking
users in future
Ø The international scope of internet banking provides new growth
perspectives and internet business is a catalyst for new technologies
and new business processes

4. Threats

Ø Banks provides all services through electronic computerized machines and

this creates problems to the less educated people
Ø Inability to meet the additional capital requirements
Ø Huge investment in technologies
Ø Internet banking will be replaced by mobile banking

E-BANKING PRODUCTS

Automated Teller Machine (ATM): These are cash dispensing

machine, which are frequently seen at banks and other locations such as
shopping centers and building societies. Their main purpose is to allow
customer to draw cash at any time and to provide banking services where
it would not have been viable to open another branch e.g. on university
campus.
An automated teller machine or automatic teller machine (ATM) is a

30
computerized telecommunications device that provides a financial
institution's customers a method of financial\ transactions in a public
space without the need for a human clerk or bank teller. On most modern
ATMs, the customer identifies him or herself by inserting a plastic ATM
card with a magnetic stripe or a plastic smart card with a chip that
contains his or her card number and some security information, such as
an expiration date or CVC (CVV). Security is provided by the customer
entering a personal identification number (PIN). Using an ATM,
customers can access their bank accounts in order to make cash
withdrawals (or credit card cash advances) and check their account
balances. Many ATMs also allow people to deposit cash or checks,
transfer money between their bank accounts, pay bills, or purchase goods
and services.
Some of the advantages of ATM to customers are:-
Ø Ability to draw cash after normal banking hours
Ø Quicker than normal cashier service
Ø Complete security as only the card holder knows the PIN
Ø Does not just operate as a medium of obtaining cash.
Ø Customer can sometimes use the services of other bank ATM’s.

Tele banking or Phone Banking: Telephone banking is relatively

new Electronic Banking Product. However it is fastly becoming one of
the most popular products. Customer can perform a number of
transactions from the convenience of their own home or office in fact
from anywhere they have access to phone. Customers can do following:-
Ø Check balances and statement information
Ø Transfer funds from one account to another
Ø Pay certain bills
Ø Order statements or cheque books
31
Ø Demand draft request This facility is available with the help of Voice
Response System (VRS). This system basically, accepts only TONE
dialed input. Like the ATM customer has to follow particular process,
initially account number and telephone PIN are fed for the process to
start. Also the VRS system provides the users within additional
facilities such as changing existing password with the new desired,
information about new products, current interest rates etc.

Mobile Banking: Mobile banking comes in as a part of the banks

initiative to offer multiple channels banking providing convenience for its
customer. A versatile multifunctional, free service that is accessible and
viewable on the monitor of mobile phone. Mobile phones are playing
great role in Indian banking- both directly and indirectly. They are being
used both as banking and other channels.

Internet Banking: The advent of the Internet and the popularity of

personal computers presented both an opportunity and a challenge for the
banking industry. For years, financial institutions have used powerful
32
computer networks to automate million of daily transactions; today, often
the only paper record is the customer’s receipt at the point of sale. Now
that their customers are connected to the Internet via personal computers,
banks envision similar advantages by adopting those same internal
electronic processes to home use. Banks view online banking as a
powerful “value added” tool to attract and retain new customers while
helping to eliminate costly paper handling and teller interactions in an
increasingly competitive banking environment. In India first one to move
into this area was ICICI Bank. They started web based banking as early
as august 1997.

HOW E-BANKING CAN EASE YOUR LIFE

Indian banks are trying to make your life easier. Not just bill payment, you can make
investments, shop or buy tickets and plan a holiday at your fingertips. In fact, sources
from ICICI Bank tell us, "Our Internet banking base has been growing at an
exponential pace over the last few years. Currently around 78 per cent of the bank's
customer base is registered for Internet banking." To get started, all you need is a
computer with a modem or other dial-up device, a checking account with a bank that
offers online service and the patience to complete about a one-page application--
which can usually be done online. You can avail the following services.

1. Bill payment service: Each bank has tie-ups with various utility
companies, service providers and insurance companies, across the
country. It facilitates the payment of electricity and telephone bills,
mobile phone, credit card and insurance premium bills. To pay bills, a

33
simple one-time registration for each biller is to be completed. Standing
instructions can be set, online to pay recurring bills, automatically. One-
time standing instruction will ensure that bill payments do not get delayed
due to lack of time. Most interestingly, the bank does not charge
customers for online bill payment.

2. Fund transfer: Any amount can be transferred from one account to

another of the same or any another bank. Customers can send money
anywhere in India. Payee’s account number, his bank and the branch is
needed to be mentioned after logging in the account. The transfer will
take place in a day or so, whereas in a traditional method, it takes about
three working days. ICICI Bank says that online bill payment service and
fund transfer facility have been their most popular online services.

3. Credit card customers: Credit card users have a lot in store. With Internet
banking, customers can not only pay their credit card bills online but also get a loan
on their cards. Not just this, they can also apply for an additional card, request a credit
line increase and God forbid if you lose your credit card, you can report lost card
online.

4. Railway pass: This is something that would interest all the aam
janta. Indian Railways has tied up with ICICI bank and you can now
make your railway pass for local trains online. The pass will be delivered
to you at your doorstep. But the facility is limited to Mumbai, Thane,
Nasik, Surat and Pune. The bank would just charge Rs 10 + 12.24 percent
of service tax.

5. Investing through Internet banking: Opening a fixed deposit

account cannot get easier than this. An FD can be opened online through

34
funds transfer. Online banking can also be a great friend for lazy
investors. Now investors with interlinked demat account and bank
account can easily trade in the stock market and the amount will be
automatically debited from their respective bank accounts and the shares
will be credited in their demat account. Moreover, some banks even give
the facility to purchase mutual funds directly from the online banking
system. So it removes the worry about filling those big forms for mutual
funds, they will now be just a few clicks away. Nowadays, most leading
banks offer both online banking and demat account. However if the
customer have there demat account with independent share brokers, then
need to sign a special form, which will link your two accounts.

6. Recharging your prepaid phone: Now there is no need to rush

to the vendor to recharge the prepaid phone, every time the talk time runs
out. Just top-up the prepaid mobile cards by logging in to Internet
banking. By just selecting the operator's name, entering the mobile
number and the amount for recharge, the phone is again back in action
within few minutes.

7. Shopping at your fingertips: Leading banks have tie ups with

various shopping websites. With a range of all kind of products, one can
shop online and the payment is also made conveniently through the
account. One can also buy railway and air tickets through Internet
banking.

35
 RISK IN E-BANKING

Ø Transactional / Operational risk

Ø Credit Risk

Ø Reputational Risk

Ø Legal Risk

Ø Strategic Risk

Transaction or Operations Risk in E-Banking

The most important category of risk management for e-banking services

is transaction risk or operational risk. Operational risk is the risk of direct
or indirect loss resulting from inadequate or failed internal processes,
people and systems or from external events. The main causes for
operational risk can be:

· Inadequate Information Systems

· Breaches in internal controls

· Fraud

· Processing Errors

· Unforeseen catastrophes

The inadequate information system can result from general risks or from
application oriented risks. The general risks can include physical access
37
 to the hardware, logical access to the information and communication
technology systems, emergency management or from an insufficient
backup recovery measures-mitigate the consequences of system failures.

Control of Transaction Risks

Controlling transaction risk lies in adapting effective policies, procedures,
and controls to meet the new risk exposures introduced by e-banking
· Basic internal controls including segregation of duties, dual controls, and
reconcilements

· Information security controls become more significant requiring

additional processes, tools, expertise, and testing.

· Institutions should determine the appropriate level of security controls

abased on their assessment of the sensitivity of the information to the

· customer and to the institution and on the institution’s established risk

tolerance level.

Credit Risk

Credit risk is the risk to earning and eventually capital, arising from a
borrower’s failure to meet the terms of a credit contract with the bank or
otherwise to perform as agreed. It is found in all activities where success
depends on counterparty, issuer, or borrower performance. It arises any
time bank findings are extended, committed, invested, or otherwise
exposed through actual or implied contractual agreements, whether on or
off the bank’s balance sheet.

38
 The following aspects of on-line loan origination and approval tend to
make risk management of the lending process more challenging. If not
properly managed, these aspects can significantly increase credit risk.

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

executing an enforceable contract

· Monitoring and controlling the growth, pricing, underwriting standards,

and ongoing credit quality of loans originated through e-banking channels

· Monitoring and oversight of third-parties doing business as agents or on

behalf of the financial institution (for example, an Internet loan
origination site or electronic payments processor).

· Collecting loans from individuals over a potentially wider geographic

area.

· Monitoring any increased volume of, and possible concentration in, out-
of-area lending.

Reputational Risk

This is the current and prospective risk to earnings and capital arising
from negative public opinion. A bank’s reputation can be damaged by
Internet banking services that are poorly executed (e.g., limited
availability, buggy software, poor response). Customers are less forgiving
of any problems and thus there are more stringent performance
expectations from the Internet channel. Hypertext links could link a
bank’s site to other sites and may reflect an implicit endorsement of the
other sites.

39
 Risk of damage to the bank’s reputation goes along with the other risks. It
can arise, for example, from operational risk even if customers suffer no
actual damage. If a hacker successfully breaks into a bank’s website and
makes alterations, the bank concerned can suffer substantial damage to its
reputation although customers’ balances are safe and the hacker has not
obtained any financial benefit. This does not only affect the individual
bank concerned but may also undermine confidence in the security of e-
banking more generally and therefore slow down development in this
area. Systems breakdown, even if only temporary, is another example of
how banks may be affected by bad publicity. Given the fact that the
element of trust is so fundamental to banks’ business, banks will find it
increasing important to adopt measures to manage reputational risk and
incorporate public relations strategies into their overall risk management
framework. Some of the ways in which e-banking can influence an
institution’s reputation include the following:

1. Loss of trust due to unauthorized activity on customer accounts.

2. Disclosure or theft of confidential customer information to unauthorized

parties (e.g., hackers).

3. Failure to provide reliable service due to the frequency or duration of

service disruptions.

4. Customer complaints about the difficulty in using e-banking services and

the inability of the institution’s help desk to resolve problems.

5. Confusion between services provided by the financial institution and

services provided by other businesses linked from the website

6. Compliance or Legal Risk

40
 This is the risk to earnings or capital arising from violations of, or
nonconformance with, laws, regulations and ethical standards.
Compliance risk may lead to diminished reputation, actual monetary
losses and reduced business opportunities. Banks need to carefully
understand and interpret existing laws as they apply to Internet banking
and ensure consistency with other channels such as branch banking. This
risk is amplified when the customer, the bank and the transaction are in
more than one country. Conflicting laws, tax procedures and reporting
requirements across different jurisdictions add to the risk. The need to
keep customer data private and seek customers’ consent before sharing
the data also adds to compliance risk. Customers are very concerned
about the privacy of their data and banks need to be seen as reliable
guardians of such data. Finally, the need to consummate transactions
immediately (straight-through processing) may lead to banks relaxing
traditional controls, which aim to reduce compliance risk. Compliance
and legal issues arise out of the rapid growth in usage of e-banking and
the differences between electronic and paper-based processes
Specific regulatory and legal challenges include the following:

· Uncertainty over legal jurisdictions and which state’s or country’s laws

govern a specific e-banking transaction.

· Delivery of credit and deposit-related disclosures/notices as required by

law or regulation.

· Retention of required compliance documentation for on-line advertising,

applications, statements, disclosures and notices.

· Establishment of legally binding electronic agreements.

41
 Strategic Risk
This is the current and prospective risk to earnings and capital arising
from adverse business decisions or improper implementation of business
decisions. Many senior managers do not fully understand the strategic
and technical aspects of Internet banking. Spurred by competitive and
peer pressures, banks may seek to introduce or expand Internet banking
without an adequate cost-benefit analysis. The organization structure and
resources may not have the skills to manage Internet banking.

To manage the strategic risk financial institutions should pay attention to

the following:

· Adequacy of management information system (MIS) to track e-banking

usage and profitability.
· Costs involved in monitoring e-banking activities or costs involved in
overseeing e-banking vendors and technology service providers.

· Design, delivery, and pricing of services adequate to generate sufficient

customer demand.

· Retention of electronic loan agreements and other electronic contracts in

a format that will be admissible and enforceable in litigation. (court case /
legal action)

· Costs and availability of staff to provide technical support for

interchanges involving multiple operating systems, web browsers, and
communication devices.

· Competition from other e-banking providers.

· Adequacy of technical, operational, compliance, or marketing support for

e banking products and services.

42
 Simple guidelines for safe online
banking:
• On no account utilize communal terminals like cyber cafes when you are carrying
out banking transactions online.

• The peril of compromise while making use of a wireless connection is to a large

extent greater. Clients should carry out online banking transactions through a wireless
connection provided that they are completely assured of the connection safety.

• Clients should be certain that their spyware and anti-virus applications are up to
date and it is advisable to perform regular system scans.

• Clients should on no account log into a banking site via a link. Alternatively,
clients should type out the address of the bank’s website into the browser bar.

• Clients should never access any other web site when they are logged into an
online banking site; they should be sure as to ascertain that there is only one window
open.

• Clients should choose their user name and password cautiously. Both password
and user name shouldn't be easy for anyone to deduce and they should be changed
regularly.

• Client’s computer software should be updated regularly.

• Clients should check for the padlock logo on the lesser right hand side of the
browser window (it shows that the website is secured).

• Once a client is done with his or her Online banking, the client should log out and
close the browser window.

43
 

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