E-Banking Opportunities and Threats

Dr. Meenakshi Somani

M.Com.,Ph.D.,PGD(Yoga)

Assistant Professor Govt.Comm.College, Gandhinagar

somaniminaxi@gmail.com
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Definition
E-Banking is an umbrella term for the process by which a customer may perform banking transactions electronically without visiting a brick-and-mortar institution. In true Internet banking, any inquiry or transaction is processed online without any reference to the branch (anywhere banking) at any time. Providing Internet banking is increasingly becoming a "need to have" than a "nice to have" service.
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What is E-banking?
In simple terms it does not involve any physical exchange of money, but its all done electronically, from one account to another, using the Internet. From a personal computer / Mobile Phone, one can access his/her bank account information, and perform many banking functions, like transferring money, making a loan payment etc.
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What is E-banking?
OPENING AN ACCOUNT: Customers, who have existing accounts at their Physical banks and want to begin using electronic banking services, may simply apply to their Bank for a password for Internet banking. Once they have joined the system, customers have electronic access to all of their accounts at the bank. The banks providing Internet banking service, at present are only willing to accept the request for opening of accounts. The accounts are opened only after proper physical introduction and verification. This is primarily for the purpose of proper identification of the customer and also to avoid benami accounts as also money laundering activities that might be undertaken by the customer. Supervisors world over, expect the Internet banks also to follow the practice of know your customer (KYC). 4

Features & Advantages

Distinctive features of e-banking are:
It removes the traditional geographical barriers as it could reach out to customers of different countries / legal jurisdiction. Though This has raised the question of jurisdiction of law / supervisory system to which such transactions should be subjected It has added a new dimension to different kinds of risks traditionally associated with banking, heightening some of them and throwing new risk control challenges
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Featurescontinue Security of banking transactions, validity of electronic contract, customers privacy, etc., which have all along been concerns of both bankers and supervisors have assumed different dimensions given that Internet is a public domain, not subject to control by any single authority or group of users It poses a strategic risk of loss of business to those banks who do not respond in time, to this new technology, being the efficient and cost effective delivery mechanism of banking services, A new form of competition has emerged both from the existing players and new players of the market who are not strictly banks.
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Advantage of Internet banking

Eliminates the use of paper and replaces it with computer screens No need to stand in line at the bank, because all one has to do is log onto the internet & access his/her account It is convenient, it isn't bound by operational timings, there are no geographical barriers and the services can be offered at a miniscule cost. Its safe, hassle free, saves hours of time a month
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Advantages.Continue It comes with a world of other benefits

o o o o o o o o o o

Interest earning checking accounts, Automatic bill payment ATM/Debit cards Credit Cards Direct Deposit Online Statements Loans Money market accounts Donate on line Air / Railway / Bus ticket bookings
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Progress in Indian Net Banking Scenario

At present, the total Internet users in the country are estimated at 10 crores. However, this is expected to grow exponentially to 20 crores by 2020. Only about 1% of Internet users did banking online in 1998. this increased to 16.7% in March 2000 and to 38.6% in 2010 while at present around 40% internet users doing Net banking. (idc report) India is one of the fastest growing market of payment cards, it registered 49% growth in debit card transactions in January 2011 to reach Rs 37 billion from Rs 25 billion last year. Similarly, credit card transaction rose by 28% during January 2011 as compared to last year about Rs 69 billion. (source: contify BANKING) Rough estimates assuming teller at Re 1 per transaction put ATM transaction costs at 45p, phone banking at 35p, debit cards at 20p and Internet banking a measly 10p.
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Growth in National Electronic fund Transfer

Increase in NEFT over years

12000.00 10000.00

Amount in crore Number in'000

Thousands

8000.00 6000.00 4000.00 2000.00 0.00 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 (Oct-11)
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Growth in Real Time Gross Settlement

Increase in RTGS over years
160000 140000 120000
Thousands

Amount in crore Number

100000 80000 60000 40000 20000 0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Year (Oct-11)
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E-banking in India
Marriage of technology and banking is inevitable to keep pace with changes in the global scenario. Technology is expected to be the main facilitator of change in the financial sector. Implementation of technology solutions involves huge capital outlay. Besides the heavy investment costs, technology applications also have a high degree of obsolescence. Banks will need to look for ways to optimize resources for technology applications. In this regard, global partnerships on technology and skills sharing may help.
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Initiatives (Already in place)

Services that have become cheaper or free Withdrawals of funds from third-party ATMs Remitting funds to other cities Online bill payments Generation of PIN online Annual charges on credit cards SMS alerts Services that cost more Cash transaction at branch Cheque books above prescribed limit Generation of PIN offline
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Initiatives (Required)
Development of a robust retail payment system by consolidation of the existing systems. Usher in advanced technological platforms and to ensure constant upgradation to meet the best international standards. Create the necessary environment for moving towards electronic based clearing system and reduce dependence on paper based clearing. Extend its services in an inclusive manner covering rural and remote areas so that the benefits are not denied to any sections of the society.
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Internet banking frauds:

In order to promote Internet banking services, it is necessary that the proper legal infrastructure is in place. Government has introduced the Information Technology Bill, which has already been notified in October 2000. Section 72 of the Information Technology Act, 2000 casts an obligation of confidentiality against disclosure of any electronic record, register, correspondence and information, except for certain purposes and violation of this provision is a criminal offence. Phishing: A person's personal details are obtained by fraudsters posing as bankers, who float a site similar to that of the person's bank. They are asked to provide all personal information about themselves and their account to the bank on the pretext of database upgradation. The number and password are then used to carry out transactions on their behalf without their knowledge. Typically, a phishing email will ask an online banking customer to follow a link in order to update personal bank account details. If the link is followed, the victim downloads a program which captures his or 15 her banking login details and sends them to a third party

Key Challenges, Conclusion & Recommendation

60 % population in the country do not have a bank account Only 10 % bank account holders are using Net Banking Delivering financial services to the satisfaction of customer, and prompt redressal of complaints of customers, if any, are very important Banking affects all of us. Our lives are dependent on the banking sector in one way or another, directly or indirectly. It is the life-blood of the economy, a contamination of the same can affect any sector or region of the economy. 16

Key Challenges, Conclusion & Recommendationcontinue

It is necessary to monitor retail payment system developments and related issues in the country and abroad to avoid shocks, frauds and contagions that may adversely affect the system. It is necessary to focus on customer-centric initiatives with emphasis on product innovations and on high quality service levels. It is necessary to fulfill public policy objectives and ensure that principles of fairness, equity and competitive neutrality are applied in its functioning.
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Key Challenges, Conclusion & Recommendation. continue

While application of technology would help banks reduce their operating costs in the long run, the initial investments would be sizeable. IT spent by banking and financial services industry in USA is approximately 7% of the revenue as against around 1% by Indian Banks. With greater use of technology solutions, IT spending of Indian banking system to go up significantly Risk management is an area the banks can gain by cooperation and sharing of experience among themselves Role of Indian Banks Association would become more pronounced as a self regulatory body. The Association would also be required to act as a lobbyist for getting necessary legislative enactments and changes in 18 regulatory guidelines.

Conclusion
From the earlier revenue = cost + profit equation i.e., customers are charged to cover the costs incurred and the profits expected, most banks have already moved into the profit =revenue - cost equation. The new paradigm in the coming years shall be cost = revenue - profit. To sum up , it is worth to recall the slogan given by Hon CM of Gujarat Shri Narendra Modi: IT + IT = IT (Information Technology + Indian Talent = India Tomorrow).
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