Table of Content

1. 2. 3. 4. 5. 6. 7. 8. 9.

Introduction Types of E-Banking Project scope Objectives of the proposed system Feasibility study Software requirement specification( SR S) Entity Relationship Diagram Data Flow Diagram Database Table overview

10. System Specification 11. Pros N Cons 12. Conclusion 13. Bibliography 14. Securities of E-Banking 15. Conclusion 16. Bibliography

INTRODUCTION
E-banking is the wave of the future. It provides enormous benefits to consumers in terms of ease and cost of transactions, either through Internet, telephone or other electronic delivery. Electronic finance (Efinance) has become one of the most essential technological changes in the financial industry. E-finance as the provision of financial services and markets using electronic communication and computation. In practice, e-finance includes e-payment, e-trading, and e-banking. According to the definitions from the Bank for International Settlement (BIS-EBG, 2003b), e-payment creates considerable efficiencies and is superior to traditional paper based solution. E-trading is referred to as a wide variety of systems that provide electronic order routing, automated trade execution, and electronic dissemination of pre-trade and post-trade information. With the help of the e-trading systems, the transactions can be executed at a remote server and information can be conveyed to a remote location. And e-banking means the provision of retail and small value banking products and services through electronic channels and large value electronic payments and other wholesale banking services delivered electronically. Although clients have enjoyed great convenience of ebanking and bankers have improved cost efficiency of banks (Lin and Lin, 2006, 2007), e-banking may lead to unstable financial environments. In other words, e-banking could make the financial markets less manageable by the regulators. Internet banking refers to the deployment over the Internet of retail and wholesale banking services. It involves individual and corporate

clients, and includes bank transfers, payments and settlements, documentary collections and credits, corporate and household lending, card business and some others.Since its inception Internet banking has experienced strong and sustained growth. According to Jupiter Media, Internet traffic for all United States banks which grew by 77.6 per cent between July 2000 and July 2001, compared with overall World Wide Web traffic growth of 19.8 per cent over the same period. Another source estimated that the share of United States households using Internet banking will increase from 20 per cent in 2001 to 33 per cent in 2005, and that by 2010 there might be 55 million users. Internet banking operations currently represent between 5 per cent and 10 per cent of the total volumeof retail banking transactions both in the United States and in Europe. This is less than the share of Internet securities trading, estimated at between 20 and 25 per cent of the total, but much more than . toverall business to-consumer (B2C) e-commerce, which represent leaa then total 2 % of the retail trade

TYPES OF E-BANKING
Types of Internet Banking:
Information: This is the most basic level of Internet banking. The bank has marketing information about its products and services on a stand-alone server. This level of Internet banking service can be provided by the bank itself or by sourcing it out. Since the server or Web site may be vulnerable to alteration, appropriate controls must therefore be in place to prevent unauthorized alterations to data in the server or web site. Communication: This type of Internet banking allows interaction between the banks systems and the customer. It may be limited to electronic mail, account inquiry, loan applications, or static file updates. The risk is higher with this configuration than with the earlier system and therefore appropriate controls need to be in place to prevent, monitor, and alert management of any unauthorized attempt to access banks internal network and computer systems. Under this system the client makes a request to which the bank subsequently responds. Transaction: Under this system of Internet banking customers are allowed to execute transactions. Relative to the information and communication types of Internet banking, this system possesses the highest level of risk architecture and must have the strongest controls. Customer transactions can include accessing accounts, paying bills, transferring funds, etc. These possibilities demand very stringent security.

The six primary drivers of Internet banking includes, in order of primacy are:
Improve customer access

 Facilitate the offering of more services Increase customer loyalty Attract new customers Provide services offered by competitors Reduce customer attrition

Impact of the Information and Technology Act, 2000: The information and technology act is an act to provide legal recognition for transactions carried out by means of electronic data interchange and other means of electronic communication commonly referred to as "electronic commerce". Reasons for adopting the online banking: The growth of online banking has been fuelled by broadband availability as well as secures connections over the Internet. Many banks now offer some form of online banking activity, whether it is checking bank balance, paying bills online or even simple cash transfer transactions. As customers gain more confidence in carrying out secure transactions over the Internet, vulnerabilities are present and can be exploited by cyber criminals to obtain a user's personal banking details. In one of the latest developments, FSecure, a leading security provider for Internet and mobile networks, has issued a warning against computer users of an upsurge in attacks against banking sites, targeting personal user data. It started with software that was capable of retrieving the data typed into the computer keyboard and then more complex mechanisms arrived on the scene such as Phishing1 and Pharming2. .
1

Phishing typically involves fraudulent bulk e-mail messages that guide recipients to legitimate-looking but fake Web sites and try to get them to supply personal information like account passwords 2 Pharming tampers with the domain-name server system so that traffic to a Web site is secretly redirected to a different site altogether, even though the browser seems to be displaying the Web address you wanted

A new concept of cell phone banking has taken over the Indians. Basix, an organization that specializes in bringing micro loans and other financial services to India's poor, has teamed up with Axis, an Indian commercial bank, to begin offering accounts to workers in Delhi's slums. Its approach relies on a combination of high technology and old-fashioned shoe leather. The main risk of online banking is the security concerns. For this the IT Act has a provision, Section 3(2) which, provides for a particular asymmetric crypto system and function as a means of authenticating electronic record. Any other method used by banks for authentication should be recognized as a source of legal risk. The provisions for the offences committed: Under the chapter IX Section 43, the punishments for the offences so caused are defined. By this act under chapter X, Section 48 defines the establishment of a cyber appellate tribunal. But there is one fundamental difficulty in punishing the cyber criminals. It is the matter of jurisdiction. This is because any person who possesses a computer and an internet can commit this crime and it is practically impossible to trace the person out. Even if the person can be traced, there is no geographical border to bring him under the jurisdiction of a particular country. However the banking regulatory body, RBI has issued a guideline dated 14th June, 2001, which discusses issues pertaining to his territorial jurisdiction within which the internet banking products can be made available. Advantages of Internet Banking System:

to visit.

The benefits of Internet banking are plentiful as witnessed by the consequential reaction of a tremendous rise in usage and application. The potential appears to be unlimited ranging from virtual banks to e-cash. Reduced Transaction Costs: It has been repeated shown that as a delivery or distribution channel, the Internet could bring a substantial cost advantage for banks. No doubt the ATM is considerably cheaper than a teller, but even so, the Internet is nearly 3 times cheaper than the ATM usage. In short, replacing a teller with an Internet channel should in theory, show a 10 fold increase in the distribution revenue for the bank. This reason alone should be sufficient for banks to encourage this form of distribution channel. Perfect Information: Internet makes perfect information available to all market participants by bringing about efficiencies in the search process. For buyers of banking services, there are sites that aggregate information on product offerings from different providers at a single location. By merely making information available to customers about multiple providers, the Internet performs the function of dismantling the oligopoly of a few providers and bringing about a structure favorable towards perfect competition. Perfect Competition: This is achieved by two means. The first is through the aggregation of buyers and sellers and also through the provision of a search function platform. The second is by bringing about efficiency in determining price that is enabled by the online auction mechanism which makes pricing transparent and also makes it dynamic since it is driven by near perfect market conditions of demand and supply. Similarly, by creating competition among the providers of capital, the Internet

helps companies raise money at much finer spreads. Also banks using the Internet have pioneered the use of online auction to price Initial Public Offerings (IPOs). In this manner market forces are given greater prominence thus ensuring conditions for perfect or near perfect competition. Disadvantages of Internet Banking System: There are always two sides to a coin. Similarly Internet banking too has a bane side to it. The bane lies in its inexorable slide towards higher risk from various facets of bank operations. Risk is the potential that unexpected events may have an adverse impact on the banks earnings. Internet banking risks consists of risk associated with credit, interest rate, transaction, etc. These risks are not mutually exclusive but invariably all of these are associated with Internet banking. Credit Risk: Credit risk is the risk to earning and eventually capital, arising from a borrowers 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 banks balance sheet.. Interest Rate Risk: Interest rate risk is the risk to earnings arising from movements in interest rates. From an economic perspective, a bank focuses on the sensitivity of the value of its assets, liabilities and revenues to changes in interest rates. Interest rate risk arises from differences between the timing of rate changes and the timing of cash flows (repricing risk); from changing rate relationships among different

yield curves affecting bank activities (basis risk); from changing rate relationships across the spectrum of maturities (yield curve risk); and from interest-related options embedded in bank products (options risk) (Comptrollers Handbook, 1999). Liquidity Risk: Liquidity risk is the uncertainty arising from a banks inability to meet its obligations when they are due, without incurring unacceptable losses. Liquidity risk includes the inability to manage unplanned changes in market conditions affecting the ability of the bank to liquidate assets quickly and with minimal loss in value. Transaction Risk: Transaction risk is the current and prospective risk to earnings and capital arising from fraud, error, the inability to deliver products or services, the failure to maintain a competitive position and services, and the inability to manage information properly. This risk is evident in each product and service offered and encompasses product development and delivery, transaction processing, systems development, computing systems, complexity of products and services, and the internal control environment (Comptrollers Handbook, 1999). A high level of transaction risk may exist with Internet banking products, particularly if those lines of business are not adequately planned, implemented, and monitored. Total Reliability Risk: As with most other Internet ventures, an exclusive reliance on virtual channels is probably not a very wise move. A strategy of combining brick and mortar with click and avatar is probably more viable. There are transactions such as balance enquiry that are ideally suited for the Internet. But transactions such as working capital loan applications are more detailed and personal discussions may be necessary. In the latter, the absence of a physical channel is a problem.

Internet banking is on the rise. When viewed as another channel, its benefits are modest. However, when integrated with other channels, Internet banking becomes a powerful tool for improving customer satisfaction and increasing cross-selling opportunities. But at the same time banks must keep in mind that, every electronic channel including the Internet has its short falls which can have major consequences. Keeping track of the ever changing banking industry and the latest update in Internet technology, banks need to equip themselves for the competition. Even though there are enormous opportunities and virtual banks are on the rise brick and mortar banks and transactions should not be neglected or relegated to the sidelines. However, Indian internet banking faces following challenges3:
Proper understanding of the customer - i.e. proper identification of their needs and wants. For this a massive survey must be undertaken may be in collaboration with other banks. There is need for transparency in offering services as customers awareness has grown considerably. Breach of privacy: online transactions enter straightaway into the records revealing the identity of customer. Thus black money cannot be transferred with ease. Bandwidth: Though companies claim to offer good speed and high bandwidth, still there are problems in accessing high speed on net. Internet banking can go high only on the wings of proper infrastructure comprising telecommunications and bandwidth. Computer literacy in India is still very low and that is a barrier in fast acceptance of Internet banking.
3

 The mindset of the Indian customer need to be changed. Customer has to be protected against being "net-jacked" i.e. he needs to be protected from fraud. Threats19 can be Cracking login and passwords is a common way of fiddling with the data. Denial of services: Directing millions of queries can block computer network. Data Diddling: Data can be modified in an unauthorized manner. A customer can therefore receive bills of higher amounts than the actual transactions Session hijacking: Hijackers become unauthorized intermediaries between the server and the client; they can then hijack the data and prevent it from reaching the destination.

HISTORY OF E-BANKING
In countries like Korea, two SIM Card is used in e-banking. One for the telephonic purpose and the other for banking. Bank account data is encrypted on a smart-card chip. About 3.3 million transactions were reported by Bank of Korea in 2004. In a move that will take the frontiers of banking transactions beyond the ATM and internet, fullfledged banking transactions through e-banking have been introduced by ICICI Bank. The bank has now kicked off a e-banking service, where a customer can replicate all transactions through ebanking similar to an internet banking transaction. Till now, customers were only able to get all information like balance in the account and e-banking alerts through 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. According to ICICI Bank ED V Vaidyanathan said, the new service will help to give more power to the customer. They can now transact from practically anywhere. He expects the new service to see transactions of over 40% over a period of time. Both GPRS and non-GPRS customers would be able to use the service. Customers will be required to enter four-digit PIN to enter the e-banking application, which will prevent unauthorized use of the service. Currently, ICICI Bank has 13 million customers, Of which, there are 2.5-million active customers. It also has 7-million registered customers for SMS alerts. The bank currently sends around 20 million alerts a month. Citi and HSBC have this service in other parts of the world. Some of these banks are now looking at launching these services here. Until now, e-banking services, which were provided by banks, have been SMS-enabled. Moreover, these were push-services like SMS alerts and balance enquiries. There have also been security

concerns plaguing the introduction of such services since the SMS route, through which the information travels, is totally unsecured. Aditya Menon, Chief IT officer of Obopay India a ebankingpayments solutions company said many banks have been working on a mobile-payment solution. Obopay is working with six other banks to provide a service that will enable bank customers to transfer funds to anyone who has a e-bankingphone and a bank account. In fact, banks like Corporation Bank and Union Bank of India also have similar products in the pipeline. The first e-banking and payment initiative was announced during 1999. The first major deployment was made by a company called Pay box (largely supported financially by Deutsche Bank). The company was founded by two young German's (Mathias Entemann and Eckart Ortwein) and successfully deployed the solution in Germany, Austria, Sweden, Spain and the UK. At about 2003 more than a million people were registered on Pay box and the company was rated by Gartner as the leader in the field. Unfortunately Deutsche Bank withdraws their financial support and the company had to reorganize quickly. All but the operations in Austria closed down. Another early starter and also identified as a leader in the field was a Spanish initiative (backed by BBVA and Telephonica), called Mobi Pago. The name was later changed to Mobi Pay and all banks and e-banking operators in Spain were invited to join. The product was launched in 2003 and many retailers were acquired to accept the

special USSD payment confirmation. Because of the complex shareholding and the constant political challenges of the different owners, the product never fulfilled the promise that it had. With no marketing support and no compelling reason for adoption, this initiative is floundering at the moment. Many other large players announced initiatives and ran pilots with big fanfare, but never showed traction and all initiatives were ultimately discontinued. Some of the early examples are the famous vending machines at the Helsinki airport supported by a system from Nokia. Siemens made announcements in conjunction with listed and high-flying German e-commerce company, Brocket. Brocket also won the lucrative Vodafone contract in 2002, but crashed soon afterwards when it runs out of funds. Israel (as can be expected) produced a large number of e-banking payment start-ups. Of the many, only one survived - Trivet. Others like Advantech and Patty disappeared after a number of pilots but without any successful production deployments. Initiatives in Norway, Sweden and France never got traction. France Telecom launched an ambitious product based on a special ebanking with an integrated card reader. The solution worked well, but never became popular because of the unattractive, special phone that participants needed in order to perform these payments. Since 2004, e-banking and payment industry has come of age. Successful deployments with positive business cases and big strategic impact have been seen recently.

E- BANKING 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 simple one-time registration for each biller is to be completed. Standing instructions can be set, online to pay recurring bills, automatically. Onetime 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. Payees 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 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.

List of some banks operating E-Banking in India

Bank Name ABN AMRO Bank Abu Dhabi Commercial Bank Bank of India Citibank Corporation Bank Deutsche Bank Federal Bank Global Trust Bank HDFC Bank HSBC ICICI Bank IDBI Bank IndusInd Bank Punjab National Bank Standard Chartered Bank State Bank of India UTI Bank Technology Vendor Infosys (Bank Away) Infosys (Bank Away) I-flex Orbitech (now Polaris) I-flex Sanchez Infosys (BankAway) i-flex/ Satyam Infosys, ICICI Infotech Infosys (Bank Away) CR2 Infosys (Bank Away) In-House Satyam/Broadvision Infosys (Bank Away) Service offering NetBanking ADCB NetLink BOIonline Citibank Online CorpNet db direct FedNet ibank@gtb NetBanking Online@hsbc Infinity i-net banking IndusNet Internet Banking Me Standard Chartered Online onlinesbi.com I connect

PROJECT SCOPE
The projects aim is to automate the system,pre-checking the inclusion of all required material and automatically process the transactions used in a banking. The criterions which include over here is to creation of an account and its all respective perspectives. The data used by the system is stored in a database that will be the centre of all information held about the customer and the base for the remainder of the process after initial signing up been made. This enables things to be simplified and considerably quickened ,making the jobs of the involved people easier. It supports the current process but centralizes it and makes it possible for decisions to be made earlier and easier way. The main goal of the system is to automate the process carried out in the bank with improved performance an realize the vision of paperless banking. some of the goals of the system are listed below: Manage large number of customer details with ease. Manage all details of the student who are registered with the bank and send appropriate details about latest policy of the bank to each of its customer. Create customer account and maintain its data efficiently and effectively. View all the details of the customer. Create a statistical report to facilitate the finance department work. Activities like updating, modification, deletion of records should be easier.

OBJECTIVES OF THE PROPOSED SYSTEM

The aim of the proposed system is to address the limitations of the current system .The requirements for the system has been gathered from the defects recorded in the past and also based on the feedback users of the previous metrics tools.
Manual Process

Leaves the bank

Customer physically visits the bank

Inquires for an existing service or some specific information

Associated and integrates the information as needed

The incharge clerk checks the specification and answers the query

Customer makes a counter sign and receives the checkbook

Customer physically visits the bank

Raises a request for new checkbook by filling in the prescribed form

The cheque book is sent for manages initials

The incharge clerk accepts the request and prepares the cheque book with respect to given specification

The development of the new system contains the following activities which try to automate the entire process keeping in view of the database integration approach. Following are the Objectives of the proposed system:

1. The administrators have grates accessibility in collecting the consistent information that is very much necessary for the system to exist and coordinate. 2. The system at any point of time can give the customers information related to their Accounts and accounts status The balance enquiry The fund transfer standards The cheque book request 3. The system can provide information related to the different types of accounts that are existing within the bank. 4. The system can provide the bank administration with information on the number of customers who are existing in the system. 5. The system at any point of time can provide the information related to the executed transactions by the customer. 6. The system with respect to the necessities can identify all the history details of the trial participants along with their outcome of the results. 7. The system with respect to the necessities can provide the status of research and development process that is under schedule within the organization currently. 8. With proper storage of the data in a relational environment the system can Applegate itself to cater to the standards of providing a clear and easy path for future research standards that may arise due to organizational policies.

FEASIBILITY STUDY
A significant transformation in banking system has occurred in the world. The online system of banking and improvements has been made through recognizing difficulties encountered by the customer and the authority. Both qualitative and quantitative research, through parent/career surveys. Focus groups and staff training sessions have influenced the online process. As a result this had produced an efficient and user friendly system, that relies on an effective online form, but on the coordination between ban and its customer. A comprehensive feasibility study of social, economical and technical aspects has also been made and implemented as below:-

Social Feasibility
It has simplified the banking procedure. Customers and banking authority had a huge acceptance to the notion. It had a good social impact and no objections or problems regarding the project is found

Economic Feasibility
The project is economically Feasible since we are getting ample economic support required for the project from banking authorities.

Technical Feasibility
Minimum requirement for execution of the project is a java supporting operating system since the connection to the database will be made using JSP and SERVLETS,minimum of 64 MB of RAM, a database software, a server and a web browser with which we were previously equipped.

DATABASE DRIVEN WEB APPLICATION

A database wb application is an appliction wizard based on WWW(WORLD WIDE WEB) and database using web browser as a client TRADITIONAL CLIENT-SERVER(2-tier archietechture) A client computer handles the user interface (Access forms, Oracle forms, reports) and a database server stores the data.The actual functionality (business logic)of the application resides on the client and/or in the databases.

WEB BASED MULTI-TIER ARCHIETECHTURE A client computer uses a browser to access information from two or more servers(web servers, application servers, database servers) i.e. a web server handles a web request, an application server handles the dynamic request and a database server stores the data.

System Specification
SOFTWARE SPECIFICATION
Client on Internet: Web browser(any),operating system(any) Client on Intranet: Client software, Web Browser, Operating System

(any) Web server: Apache Tomcat or Glassfish, Operating System(any) Database Server: MS-access, Operating System(Microsoft Windows<any version>) Development End: Net beans (J2EE, Java, Servlets, JSP), MSAccess (DB tool).

HARDWARE SPECIFICATION CLIENT SIDE :INTERNET EXPLORER 6.0 PROCESSOR PENTIUM II at 500 MHz

RAM
64 MB

DISK SPACE
500 MB

SERVER SIDE :APACHE TOMCAT MS-ACCESS PENTIUM III at 1GHz PENTIUM III at 1GHz 512 MB 512 MB 1GB 512 MB

DATABASE TABLE OVERVIEW

The database tables which are used over here are ten in number which are customer,administrator,account,transaction,businessloan,homeloan, personal loan,educational loan,agricultural loan.The structures of the tables are shown as follows:

1.customer
ATTRIBUTE NAME ATTRIBUTE TYPE F_NAME L_NAME ACC_NO E_MAIL BR_NAME USER_ID PIN DOB Text Text Number Text Text Text Text Text ATTRIBUTE SIZE 50 50 50 20 40 10 5 10

2.administrator
ATTRIBUTE NAME USER_ID PASS_WD ATTRIBUTE TYPE Text Text ATTRIBUTE SIZE 20 10

2.account
ATTRIBUTE NAME ACC_NO OPENDATE BALANCE ATTRIBUTE TYPE Number Text Number ATTRIBUTE SIZE 50 10 100

2.transaction
ATTRIBUTE NAME SL_T ACC_NO DOT DESOT CORD AMOUNT ATTRIBUTE TYPE Number Number Text Text Text Number ATTRIBUTE SIZE 50 10 20 5

2.businessloan
ATTRIBUTE NAME TYPEOF_BUSINESS ANN_INC AMT_LOAN TENURE SECURITY_DET PAN_NO BR_NAME ATTRIBUTE TYPE Text Number Number Number Text Text Text ATTRIBUTE SIZE 100 100 100 10 100 50 20

F_NAME L_NAME ADD ACC_NO CON_NO

Text Text Text Number Number

50 50 100 50 10

2.homeloan
ATTRIBUTE NAME LOC_PRO AR_CONS OCC_DET AMT_LOAN TENURE SECURITY_DET PAN_NO BR_NAME F_NAME L_NAME ADD ACC_NO ATTRIBUTE TYPE Text Text Text Number Number Text Text Text Text Text Text Number ATTRIBUTE SIZE 100 100 100 100 10 100 50 20 50 50 100 50

CON_NO

Number

10

3.personalloan
ATTRIBUTE NAME REASON_LOAN OCC_DET ANN_INC AMT_LOAN TENURE SECURITY_DET PAN_NO BR_NAME F_NAME L_NAME ADD ACC_NO CON_NO ATTRIBUTE TYPE Text Text Number Number Number Text Text Text Text Text Text Number Number ATTRIBUTE SIZE 100 100 100 100 10 100 50 20 50 50 100 50 10

4.educationalloan
ATTRIBUTE NAME ATTRIBUTE TYPE ATTRIBUTE SIZE

TYPEOF_COURSE PRE_EDU_QUALIFICATION SEC_MARKS HIGHSEC_MARKS GRADUATION_MARKS ANN_INC TENURE PAN_NO BR_NAME F_NAME L_NAME ADD ACC_NO CON_NO

Text Text Number Number Number Text Number Text Text Text Text Text Number Number

100 100 100 100 10 100 10 50 20 50 50 100 50 10

4.agriculturalloan
ATTRIBUTE NAME AR_LAND ANN_PRO OCC_DET ATTRIBUTE TYPE Text Text Number 100 100 100 ATTRIBUTE SIZE

ANN_INC TENURE SECURITY_DET PAN_NO BR_NAME F_NAME L_NAME ADD ACC_NO CON_NO

Text Number Text Text Text Text Text Text Number Number

100 10 50 50 20 50 50 100 50 10

PROS N CONS
Features of Internet banking
The features available from an on-line bank account are similar to those which are available via 'phone banking or visiting the local branch. Online banking features do differ between the banks, but usually include:

Transfer of funds between accounts; It brings efficiency in CRM(Customer relationship management) Make Payment of bills Introduces new & innovative products &services. View balance and statements. Brings door to door services. Create, view and maintain Standing Orders

Have evolutionary trend at a globle scenario. Customer can View Direct Debits.

Advantages of Internet Banking

Opening & closing of accountes Make the payments of merchandise transaction through Debit & Credit cards. It gives reliefs to their customer from carrying heavy cash. Enables prompt & speedy operation to clients.

It saves lot of time to their customers &convenient to access.

Disadvantages of Internet Banking

Customer may have to face risky transaction & fraud. Failure of power supply cause to break down of system. Loss of heavy income at times of settlement of higher magnitude. Cost involved in trainning staff may not be profitable specially in times of attrition.

 Development of an attitude of lethargy.

PROFILE OF THE TEN BANKS UNDER STUDY

1. State Bank of India: State Bank of India (SBI) is the leading commercial bank in India, offering services such as retail banking, commercial banking, international banking and treasury operations. The bank is an integral part of State Bank Group, which includes seven other banks and offers additional services such as mutual funds and insurance. The bank primarily operates in India. It is headquartered in Mumbai, India and employs about 179,205 people.

The company recorded revenues of INR902,188.1 million (approximately $22,410.4 million) in the financial year ended March 2008 (FY2008), an increase of 34.4% over 2007. The operating profit of the company was INR183,315.4 million (approximately $4,553.6 million) in the financial year 2008, an increase of 27.4% over 2007. The net profit was INR89, 606.1 million (approximately $2,225.8 million) in the financial year 2008, an increase of 40.8% over 2007. The company primarily operates through four business units, treasury, wholesale banking, mid corporate group, retail banking and other banking business. The retail banking comprises the bank's national banking group (NBG), which consists of business groups, personal banking, small & medium enterprise (SME), government banking. The bank's wholesale banking group consists of strategic business units, corporate accounts group (CAG), project finance & leasing SBU, stressed assets management group and mid corporate group. The mid corporate group (MCG) has been serving the needs of mid corporate units through relationship management and quicker credit processing. 695 new mid corporate clients were added to the MCG during the year 2007. In keeping with its integrated approach to all treasury activities in various markets in different time zones i.e., forex, interest rates, bullion, equity and alternative assets, the bank redesignated its treasury operations into global markets. The other banking businesses include rural business unit serves the financial needs of farmers through different schemes such as adoption of villages for overall development and economic upliftment and so far 237 villages have been adopted and self help groups. International banking has a network of 84 overseas offices spread over 32 countries.

The bank offers a range of services such as SBI foreign travel cards, broking services, ATM services, internet banking, bill payments, gift cheques, safe deposit lockers and foreign inward remittances. The bank has a factoring services arm under the name SBI Factors and Commercial Services and Global Trade Finance. Through its subsidiary, SBI Capital Markets, it offers merchant banking services throughout the country. SBI offers life insurance association with BNP Paribas through its subsidiary SBI Life Insurance Company. SBI is the largest (public sector scheduled commercial bank) bank in India on several parameters (number of branches/offices, employees, deposits, loans/advances, assets, and profits etc). The bank has over 10,186 domestic branches and it offers more than 8,460 ATMs (Automated Teller Machines). In fact, SBI has the second largest bank branch network in the world. The dominance of the bank in the Indian banking sector is evident from the fact that it commands around 16.11% market share in total deposits and 16% in advances. Online cash transactions (E-transactions) are gaining popularity, with more people preferring to send and receive money electronically. As more bank branches get interconnected through core banking systems, settlements through the electronic systems have almost tripled since April 2007. According to RBIs data, the number of transactions settled through electronic funds transfer (EFT) and the national electronics funds transfer system (NEFT) increased to 1.92 million a month in June 2008 from 0.7 million in April 2007, although the value of transactions have not picked up at the same pace. The total amount settled electronically was INR121.6 billion in April 2007. It went up to INR200.7 billion by May 2008. The substantially lower costs and ease of transaction have been major

factors for the increased adoption of electronic fund transfers. The value of these transactions has also grown considerably over the past year. RBI has been promoting the use of electronic funds transfer systems for a while now, and it has made it mandatory for all payments between entities it regulates to be done electronically. In fact, all branches that are on the core-banking network are equipped to carry out NEFT transactions. Since, SBI has the country's largest network of NEFTenabled branches, it is expected that SBI would gain maximum (in comparison to other banks) from the increasing adoption of E-transactions4. 2. Canara Bank Ltd.: Canara Bank 5was founded by Shri Ammembal Subba Rao Pai, a great visionary and philanthropist, in July 1906, at Mangalore, then a small port in Karnataka. The Bank has gone through the various phases of its growth trajectory over hundred years of its existence. Growth of Canara Bank was phenomenal, especially after nationalization in the year 1969, attaining the status of a national level player in terms of geographical reach and clientele segments. Eighties was characterized by business diversification for the Bank. In June 2006, the Bank completed a century of operation in the Indian banking industry. The eventful journey of the Bank was strewn with many memorable milestones. Today, Canara Bank occupies a premier position in the comity of Indian banks. With an unbroken record of profits since its inception, Canara Bank has several firsts to its credit. These include:
Launching of Inter-City ATM Network

4 5

Datamonitor, (2008) Company Profile State Bank of India, source: www.datamonitor.com Datamonitor, (2008) Company Profile Canara bank Ltd., source: www.datamonitor.com

 Obtaining ISO Certification for a Branch

Articulation of Good Banking Banks Citizen Charter

Commissioning of Exclusive Mahila Banking Branch

Launching of Exclusive Subsidiary for IT Consultancy

Issuing credit card for farmers

Providing Agricultural Consultancy Services

Over the years, the Bank has been scaling up its market position to emerge as a major 'Financial Conglomerate' with as many as nine subsidiaries/sponsored institutions/joint ventures in India and abroad. As at September 2008, the Bank has further expanded its domestic presence, with 2710 branches spread across all geographical segments. Keeping customer convenience at the forefront, the Bank provides a wide array of alternative delivery channels that include over 2000 ATMs- the highest among nationalized bankscovering 698 centres, 1351 branches providing Internet and Mobile Banking (IMB) services and 2027 branches offering 'Anywhere Banking' services. Under advanced payment and settlement system, all branches of the Bank have been enabled to offer Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) facilities.

3. Indian Overseas Bank:

Indian Overseas Bank was established in 1937 with the aim to specialize in foreign exchange and overseas banking business in India. It started with simultaneously three branches in Chennai, India; Rangoon, Burma (Now Myanmar) and Penang. On the Independence Day, Indian Overseas Bank had expanded to 38 branches within the country and 7 branches abroad. Before nationalization in 1969, the bank had ventured into consumer credit, had begun computerization of their branch in 1964 and had established an independent department for agricultural finance. In 1969, IOB had 195 branches in India. In 1977, Indian Overseas Bank opened a branch in Seoul followed by a foreign currency-banking unit in Colombo in 1979. In 1997, the bank launched its official website and introduced online Bill Payment Services for MTNL Bills to its New Delhi branch customers in 1999. The IOB presence is marked in key trade centres of the world like Singapore, Seoul, Hong Kong, Bangkok and Germany. Its India presence is well networked branch system spanning the country with multiple branches in major cities like Bangalore, Chennai, Mumbai, Noida, Hyderabad, New Delhi, Coimbatore, Pune, Faridabad, Gurgaon and Kolkata. Indian Overseas Bank currently provides specialized banking services to its retail customers that include Any Branch Banking (ABB), ATM Banking, IOB STARS (Indian Overseas Bank - Speedy Transfer And Realization Service) and the most popular and latest one is the 8% Saving (Taxable) Bond Scheme.

4. Axis Bank: Axis Bank 6was founded in 1994 as UTI Bank. Axis Bank is a banking corporation offering retail and corporate banking services, including retail loans, corporate and business credit, forex and trade finance services, investment banking, depository services, and investment advisory services.The bank primarily operates in India, where it is headquartered in Mumbai and employs about 15,000 people. The company recorded revenues of INR88,010 million (approximately $2,186.2 million) in the fiscal year ended March 2008, an increase of 60.9% over 2007. Its net profit was INR10,591.4 million (approximately $263.1 million) in fiscal 2008, an increase of 61.9% over 2007. The business of the bank is divided into four segments: treasury, corporate/wholesale banking, retail banking and other banking business. Treasury operations include investments in sovereign and corporate debt, equity and mutual funds, trading operations, derivative trading and foreign exchange operations on the proprietary account and for customers and central funding corporate. Corporate / Wholesale banking includes corporate relationships not included under retail banking, corporate advisory services, placements and syndication, management of public issue, project appraisals, capital market related services and cash management services Retail banking constitutes lending to individuals/small businesses subject to the orientation, product and granularity criterion and also includes low value individual exposures not exceeding the threshold limit of
6

10.

Datamonitor, (2008) Company Profile Axis bank Ltd., source: www.datamonitor.com

INR50 million. Retail banking activities also include liability products, card services, internet banking, ATM services, depository, financial advisory services and NRI (nonresidence Indian) services. Other banking business includes all banking transactions not covered under any of the above three segments. In 1998, UTI bank went for an initial public offering (IPO). In the following year, the banks Cashmanagement services (CMS) were launched. In 2000, the bank launched its internet banking module, and iConnect retail loans was introduced by the bank in the same year. After two years, in 2002, the bank signed memorandum of understanding with BSNL regarding bill collection services across the country through both online and offline channels. UTI bank signed an agreement with Employees Provident Fund Organization (EPFO) for disbursement of pension in 2003. In the same year, the bank launched Travel Currency Card. In 2004, the bank signed a bilateral arrangement with State Bank of India (and its seven associate member banks) for a combined network of over 4,000 ATMs. UTI Bank was listed on the London Stock Exchange in 2005. In the same year, UTI Bank launched Smart Privilege, a special bank account designed for women. In 2006, UTI Bank and UTI Mutual Fund launched a new service for sale and redemption of mutual fund schemes through the Bank's ATMs across the country. In the same year, UTI Bank opened its first international branch in Singapore. UTI Bank along with Geojit Financial Services offered online trading service to its customers in 2006. Moreover in 2006, UTI Bank launched its Credit Card business and operations of UBL Sales, its sales subsidiary, and inaugurated its first office in Bangalore. In February 2007,

UTI Bank launched gift card and meal card. In the same month, the bank launched Cobranded credit card exclusively for Small Road Transport Operators (SRTOS). UTI Bank opened a branch in Hong Kong in March 2007. In the same month, UTI Bank formed an agreement with IIFCL to provide finance for infrastructural projects in India. In the following month, the Bank opened a branch in Dubai. In July 2007, the bank changed its name from UTI to Axis Bank. In September 2007, Axis Bank made a tie up with Banque Privee Edmond de Rothschild Europe for wealth management. In the following month, Axis Bank decided to incorporate a Public Limited Company, as a wholly owned subsidiary of the Bank to undertake the Trustee Services Business. In the same month, the bank also decided to incorporate an Asset Management Company as a subsidiary of the Bank to carry out the activities of Asset and Fund Management and Advisory and other related activities; and also proposed to establish a Mutual Fund, in the form of a Trust. In June 2008, Axis Bank decided to raise INR65,200 million (approximately $1619.6 million) by way of upper Tier II capital in Indian or foreign currencies and/or lower Tier II capital in the form of sub-ordinate debentures. In the same Month, Axis Private Equity, an operating unit of Axis Bank, decided to invest a total of INR1,420 million (approximately $35.3 million) in two Indian companies namely Neesa Leisure and Corrtech International. In July 2008, Axis Private Equity, a unit of Axis Bank, invested $15 million in Vishwa Infrastructure & Services, a firm involved in water supply and sanitation projects. 5. Dena Bank ltd.:

Dena Bank, in July 1969 along with 13 other major banks was nationalized and is now a Public Sector Bank constituted under the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970. Under the provisions of the Banking Regulations Act 1949, in addition to the business of banking, the Bank can undertake other business as specified in Section 6 of the Banking Regulations Act, 1949. Dena Bank was founded on 26th May, 1938 by the family of Devkaran Nanjee under the name Devkaran Nanjee Banking Company Ltd. It became a Public Ltd. Company in December 1939 and later the name was changed to Dena Bank Ltd. In July 1969 Dena Bank Ltd. along with 13 other major banks was nationalized and is now a Public Sector Bank constituted under the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970. Under the provisions of the Banking Regulations Act 1949, in addition to the business of banking, the Bank can undertake other business as specified in Section 6 of the Banking Regulations Act, 1949. Bank has set up its own network DENANET using leased lines, VSATs, dial-up lines and ISDN Backup for ATMs connecting more than 1051 branches and 34 offices spread over 100 centres. Dena m-banking offers customers an easy, hassle free means to access banking information with the help of Mobile phones 24 hours a day, 7 days a week. Now our customers can get the required information regarding their bank account by using SMS facility from their mobile phones. Presently m-banking provides facilities like
Balance Inquiry

Mini Statement of accounts

 Status of the cheques issued.

6. Syndicate Bank: Syndicate Bank was established in 1925 in Udupi, the abode of Lord Krishna in coastal Karnataka with a capital of Rs.8000/- by three visionaries - Sri Upendra Ananth Pai, a businessman, Sri Vaman Kudva, an engineer and Dr.T M A Pai, a physician - who shared a strong commitment to social welfare. Their objective was primarily to extend financial assistance to the local weavers who were crippled by a crisis in the handloom industry through mobilising small savings from the community. The bank collected as low as 2 annas daily at the doorsteps of the depositors through its Agents under its Pigmy Deposit Scheme started in 1928. This scheme is the Bank's brand equity today and the Bank collects around Rs. 2 crore per day under the scheme. The progress of Syndicate Bank has been synonymous with the phase of progressive banking in India. Spanning over 80 years of pioneering expertise, the Bank has created for itself a solid customer base comprising customers of two or three generations. Being firmly rooted in rural India and understanding the grassroot realities, the Bank's perception had vision of future India. It has been propagating innovations in Banking and also has been receptive to new ideas, without however getting uprooted from its distinctive socioeconomic and cultural ethos. Its philosophy of growth by mutual sustenance of both the Bank and the people has paid rich dividends. The Bank has been operating as a catalyst of

development across the country with particular reference to the common man at the individual level and in rural/semi urban centres at the area level. The Bank is well equipped to meet the challenges of the 21st century in the areas of information technology, knowledge and competition. A comprehensive IT plan is being put in place and the skills and knowledge of the Bank's personnel are being upgraded through a variety of training programmes to promote customer delight in every sphere of its activity. The Bank has launched an ambitious technology plan called Centralised Banking Solution (CBS) whereby 500 of our strategic branches with their ATMs are being networked nationwide over a 4 year period. 7. HDFC Bank: HDFC Bank specializes in the provision of banking and other financial services to corporate and institutional clients.The company's services include commercial, transactional and electronic banking products. It also provides treasury services, retail banking and capital markets infrastructure. The company primarily operates in India. HDFC Bank is headquartered in Mumbai, India and employs about 14,900 people. The company recorded revenues of INR124,928 million (approximately $3,131.9 million) during the fiscal year ended March 2008, an increase of 51.9% over 2007. The net profit was INR15901.8 million (approximately $398.7 million) in fiscal year 2008, an increase of 39.3% over 2007.

HDFC Bank was incorporated in 1994 and was amongst the first to receive an 'in principle' approval from the Reserve Bank of India, to set up a bank in the private sector. HDFC Bank began operations as a Scheduled Commercial Bank in early 1995. TimesBank (a private sector bank promoted by Bennett, Coleman & Co/Times Group) merged with HDFC Bank in 2000.The amalgamation added significant value to HDFC Bank in terms of increased branch network, expanded geographic reach, enhanced customer base, skilled manpower and the opportunity to cross-sell and leverage alternative delivery channels. HDFC Bank was the first bank in India to launch an international debit card (in association with VISA) and also issued the MasterCard Maestro debit card. The bank launched its credit card in association with VISA in the year 2001. In the same year, HDFC became the first private sector bank authorized to collect income tax for Central Government. Following this, the bank listed its stock on NYSE through ADS issue of $172.5 million. The bank also launched credit card business in Chennai during the year. In the following year, the bank's branch network expanded to 200. Also during the year, the bank entered into a joint venture agreement for non-life insurance with Chubb Corporation (a global non-life insurer). In 2003, the bank was named 'Best Local Bank- India' by The Asian Bankers Journal. The bank launched its credit card in over 100 cities, with its credit card base crossing one million by 2004. HDFC's branch network expanded to 400 in the same period. The bank was included in the Forbes Global listing of 'best under a billion', 100 best smaller size enterprises in Asia Pacific and Europe. 8. UCO Bank:

Founded in 1943, UCO Bank is a commercial bank and a Government of India Undertaking. Its Board of Directors consists of government representatives from the Government of India and Reserve Bank of India as well as eminent professionals like accountants, management experts, economists, businessmen, etc. UCO Bank, with years of dedicated service to the Nation through active financial participation in all segments of the economy - Agriculture, Industry, Trade & Commerce, Service Sector, Infrastructure Sector etc., is keeping pace with the changing environment. With a countrywide network of more than 2000 service units which includes specialised and computerised branches in India and overseas, UCO Bank has marched into the 21st Century matched with dynamism and growth. 9. Punjab National Bank: Punjab National Bank (PNB) is a India based banking corporation. It offers a range of banking services such as corporate and personal banking, industrial finance, agricultural finance, financing of trade and international banking. The bank primarily operates in India. It is headquartered in New Delhi, India and employs about 56,000 people. The company recorded revenues of INR162,625.8 million (approximately $4,039.6 million) in the fiscal year ended March 2008, an increase of 25.4% over 2007.The company's operating profit was INR40,062.4 million (approximately $995.2 million) in fiscal year 2008, an increase of 10.7% over 2007. Its net profit was INR20,487.6 million (approximately $508.9 million) in fiscal year 2008, an increase of 33% over 2007.

The bank was nationalised in 1969. In September 2007, PNB partnered with Venture Infotech Global (VIG) and American International Group (AIG) Consortium to form a Joint Venture for credit card business in Bhutan. In the following month, PNB entered into a memorandum of understanding with India Infrastructure Finance Company (IFCL) to finance infrastructure projects in the country. In the same month, PNB launched a pilot project on financial inclusion at Neemrana in Alwar district of Rajasthan as part of a plan to cover 75 million people by 2010. 10. ICICI Bank: ICICI Bank is a diversified financial services company that provides a range of banking and financial services to customers, including retail banking, project and corporate finance, working capital finance, insurance, venture capital and private equity, investment banking, broking, and treasury products and services. The company operates in, India, the UK, Canada and Russia. It is headquartered in Mumbai, India and employs about 25, 400 people. The company recorded revenues of INR257.6 billion (approximately $5.8 billion) during the fiscal year ended March 2006, an increase of 52.2% over 2005. The net profit was INR24.2 billion (approximately $0.5 billion) in fiscal year 2006, an increase of 30.7% over 2005. In early 2004, ICICIBank.com, the online banking channel of ICICI Bank, became the first online air booking service in India. Teaming up with India mobile, ICICI launched mobile banking in India in mid-2004. Later in the year, offshore banking unit was opened in Bahrain. The company launched a new remittance service in 2005 in partnership with the

US bank Wells Fargo. Following that Lloyds TSB inaugurated an Indian banking service with ICICI. In January 2006, the company opened its first branch in Sri Lanka, establishing a branch presence for the first time outside India in the SAARC region. ICICI Bank signed cooperation agreement with BMW India for offering finance through BMW Financial Services and Raiffeisenlandesbank Oberosterreich for intensifying cooperation between India and Austria in financial sector; in February 2007. It also entered into an agreement with Sarovar Hotels, to launch the ICICI Bank Sarovar Hotels co-branded credit card. The Reserve Bank of India approved the amalgamation of Sangli Bank with ICICI Bank in April 2007. In the same month ICICI Bank received a license to set up a branch in the Qatar Financial Centre, Doha, Qatar.

RESEARCH METHODOLOGY

Population: All the Branches of Commercial Banks in Mangalore region. Customers having Accounts in Banks in Mangalore, i.e. both users and non users of Internet banking Services. Sample Size and Sampling Techniques: 10 Banks operating in Mangalore that provides Internet Banking Services selected using Simple Random Sampling technique. 100 Customers of banks selected using Stratified Random Sampling from the above selected 10 Banks. Scope of the Study: The Area covered for this study is Mangalore. This study is relevant only to Mangalore Region and the Banks performing in Mangalore. Also, it is relevant only to the time period when this study is conducted since the Technology is fast growing and there might be more advancement in Banking Services. This study also is useful for those who are interested in the Banking sector to know the recent advancements in Banking Industry as of this time period. Data Source: Required data was collected from two main sources:

 Primary Source: The primary data is to be collected through distribution of Questionnaires to the Bank Managers and the Customers in Mangalore. Secondary Source: The secondary sources to be availed for the data collection are:

Internet/ websites Reference books/ journals Articles from various magazines

Questionnaire Design: The questionnaire mainly consists of both open ended as well as close ended questions. The Questionnaire is designed in such a way that it extracts all the required information from each individual respondent clearly and as the studys requirements. Two sets of Questionnaire are devised: One, for the Banks operating in Mangalore to get the information relating to the performance of the Banks before and after implementing the Internet Banking Services. And the Second one, to all the individual Customers selected as respondents to get the information relating to their perception and usage of Internet Banking Services. Tools for Data Collection: The Data is collected from 10 Bankers using Questionnaire Schedule Method. Data from Individuals is collected using Questionnaire Schedule method for few respondents and Questionnaire Distribution method due to time constraint. Tools for Analysis:

The statistical tools used are: Chi- Square technique to test whether the usage of Internet Banking Services depends on the perception regarding the security level in Banking transactions. ANOVA technique to find whether the average of the maximum amount transacted by different customers through the Banks IBS in 10 different banks are equal or not.

DEVELOPMENT OF E-BANKING
So, these are some of the particular risks arising in E-banking that we have hitherto identified in the UK domestic environment though I suspect that many of my regulator colleagues outside the UK would share many of these views. I would like to move on to the international side. Supervision in todays global environment can only ever be effective if it has an international dimension. This is especially the case with e-banking because of its non-territorial nature, the ease with which customers outside the home country can access the site and the opportunity to buy several types of product. Of course, regulators have long had to deal with the regulatory problems of international banking. They had set up mechanisms for cross-border supervision; agreements over home/host responsibilities (especially within the Community), bilateral agreement for information sharing and general standards by which they expect all banks, including those offshore territories, to abide. In principle, the expectation is that this general mechanism for international supervision will be robust enough to work just as well in the e-banking as the physical environment.

Nevertheless, it will not be quite as easy as that! Inevitably the nature of e-banking raises particular issues in the application of the general approach outlined here. E-banking makes it even more necessary to develop a cohesive international approach to regulation not only in the field of prudential regulation where Basel has made much progress, but also in the areas of conduct of business for consumer protection. The Basel Committee E-Banking Group believes that Basel "should provide the international supervisory community with a broad set of advisory guidance with respect to electronic banking," thereby providing a basis for domestic regulation and supporting consumer and industry education. Globally, such guidance would assist international co-operation and act as a foundation for a coherent approach to supervising e-banking. It could facilitate international e-banking by creating consumer confidence in sound banks based in different, possibly less satisfactory, regimes and might dissuade host supervisors from imposing additional, potentially draconian, regulation on such banks. The Group identified:

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 groups next meeting and a roundtable for its members and a number of European banks and service providers. We welcome any contributions from the industry to this debate; and have indeed been actively soliciting them.

Cross-border issues
There are also significant cross-border issues. We foresee difficulties for depositors identifying the jurisdiction within which e-banks offering services in the UK are based, given the potential absence of physical presence and the ability for e-banks to move to a new jurisdiction relatively rapidly. These concerns have prompted a considerable amount of debate and analysis in the international supervisory community. Within Europe home v host state supervision is a particularly important issue. Banks may tend to seek authorization wherever the tax, compliance and costs are lowest, as location will become less of a critical issue since services may easily be provided on a cross-border basis. E-banking is likely therefore to significantly increase the usage of the 2BCD passport (that is the Community equivalent of your passport, but for a bank), thereby making it even more crucial that all European regulators undertake supervision in a satisfactory (and harmonised) manner and that communication between regulators is adequate.

A number of initiatives with implications for home and host state supervision are being discussed, for example the draft ecommerce and distance marketing directives and the Rome and Brussels conventions. The debate is far from being resolved and a considerable degree of uncertainty remains. For example within the e-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.

CHALLENGES AND OPPORTUNITIES

E-banking is a generic term for delivery of banking services and products through electronic channels, such as the telephone, the internet, the cell phone, etc. The concept and scope of E-banking is still evolving. It facilitates an effective payment and accounting system thereby enhancing the speed of delivery of banking services considerably. While E-banking has improved efficiency and convenience, it has also posed several challenges to the regulators and supervisors. 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. The government of India enacted the IT Act, 2000, which provides legal recognition to electronic transactions and other means of electronic commerce. The RBI has been preparing to upgrade itself as a regulator and supervisor of the technologically dominated financial system. It issued guidelines on risks and control in computer and telecommunication system to all banks, advising them to evaluate the risks inherent in the systems and put in place adequate control mechanisms to address these risks. The existing regulatory framework over banks has also been extended to E-banking. It covers various issues that fall within the framework of

technology, security standards, and legal and regulatory issues. This book containing 12 scholarly articles will benefit those interested in the technological developments of E-banking in India

Electronic banking is the wave of the future. It provides enormous benefits to consumers in terms of the ease and cost of transactions. But it also poses new challenges for country authorities in regulating and supervising the financial system and in designing and implementing macroeconomic policy. 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. Electronic banking also makes it easier for customers to compare banks' services and products, can increase competition among banks, and allows banks to penetrate new markets and thus expand their geographical reach. Some even see electronic banking as an opportunity for countries with underdeveloped financial systems to leapfrog developmental stages. Customers in such countries can

access services more easily from banks abroad and through wireless communication systems, which are developing more rapidly than traditional "wired" communication networks. The flip side of this technological boom is that electronic banking is not only susceptible to, but may exacerbate, some of the same risks-particularly governance, Legal, operational, and reputational-inherent in traditional banking. In addition, it poses new challenges. In response, many national regulators have already modified their regulations to achieve their main objectives: ensuring the safety and soundness of the domestic banking system, promoting market discipline, and protecting customer rights and the public trust in the banking system. Policymakers are also becoming increasingly aware of the greater potential impact of macroeconomic policy on capital movements. MACROECONOMIC CHALLENGES But the challenges are not limited to regulators. As the advent of e-banking quickly changes the financial landscape and increases the potential for quick ross-border capital movements, macroeconomic policymakers face several cdifficult questions. If electronic banking does make national boundaries irrelevant by facilitating capital movements, what does this imply for macroeconomic management? How is monetary policy affected when, for example, the use of electronic means makes it easier for banks to avoid

reserve requirements, or when business can be conducted in foreign currencies as easily as in domestic currency? When offshore banking and capital flight are potentially only a few mouse clicks away, does a government have any leeway for independent monetary or fiscal policy?
How will the choice of the exchange rate regime be

affected, and how will e-banking influence the targeted level of international reserves of a central bank Can a government afford to make any mistakes? Will the spread of electronic banking impose harsh market discipline on governments as well as on businesses? The answers to these questions fall into two emerging strands of thought. First, the technological revolution-- particularly the expansion of electronic money but also, more broadly, electronic advances in banking practices-- could result in a decoupling of households' and firms' decisions from the purely financial operations of the central bank. Thus, the ability of monetary policy to influence inflation and economic activity would be threatened. Second, as electronic banking expands, financial transaction costs can decline significantly. The result would be tantamount to a reduction in the "sand in the wheels" of the financial sector machinery, making capital flows even easier to effect, with a potential erosion of the effectiveness of domestic monetary policy. In this regard, proponents of the Tobin tax--which would tax short-term capital flows to increase their cost and, thereby, the sand in the

wheels-- would feel that electronic banking makes an even more compelling case for introducing such a tax. CHALLENGES Key challenges in developing a sophisticated e-banking application 1. Interoperability There is a lack of common technology standards for e-banking. Many protocols are being used for e-banking HTML, WAP, SOAP, XML to name a few. It would be a wise idea for the vendor to develop a e-banking application that can connect multiple banks. It would require either the application to support multiple protocols or use of a common and widely acceptable set of protocols for data exchange. There are a large number of different e-bankingphone devices and it is a big challenge for banks to offer e-banking solution on any type of device. Some of these devices support J2ME and others support WAP browser or only SMS. Overcoming interoperability issues however have been localized, with countries like India using portals like R-World to enable the limitations of low end java based phones, while focus on areas such as South Africa have defaulted to the USSD as a basis of communication achievable with any phone. The desire for interoperability is largely dependent on the banks themselves, where installed applications (Java based or native)

provide better security, are easier to use and allow development of more complex capabilities similar to those of internet banking while SMS can provide the basics but becomes difficult to operate with more complex transactions. 2. Security Security of financial transactions, being executed from some remote location and transmission of financial information over the air, are the most complicated challenges that need to be addressed jointly by e-banking application developers, wireless network service providers and the banks' IT departments. The following aspects need to be addressed to offer a secure infrastructure for financial transaction over wireless network: Physical part of the hand-held device. If the bank is offering smart-card based security, the physical security of the device is more important. Security of any thick-client application running on the device. In case the device is stolen, the hacker should require at least an ID/Password to access the application. Authentication of the device with service provider before initiating a transaction. This would ensure that unauthorized devices are not connected to perform financial transactions. User ID / Password authentication of banks customer. Encryption of the data being transmitted over the air.

 Encryption of the data that will be stored in device for later / off-line analysis by the customer.

3. Scalability & Reliability Another challenge for the CIOs and CTOs of the banks is to scaleup the e-banking infrastructure to handle exponential growth of the customer base. With e-banking, the customer may be sitting in any part of the world (true anytime, anywhere banking) and hence banks need to ensure that the systems are up and running in a true 24 x 7 fashion. As customers will find e-banking more and more useful, their expectations from the solution will increase. Banks unable to meet the performance and reliability expectations may lose customer confidence. 4. Application distribution Due to the nature of the connectivity between bank and its customers, it would be impractical to expect customers to regularly visit banks or connect to a web site for regular upgrade of their ebanking application. It will be expected that the e-banking application itself check the upgrades and updates and download necessary patches (so called Over the Air updates). However, there could be many issues to implement this approach such as upgrade / synchronization of other dependent components. 5. Personalization

It would be expected from the e-banking application to support personalization such as: Preferred Language Date / Time format Amount format Default transactions Standard Beneficiary list Alert.

IMPACT

OF

E-BANKING

ON

TRADITIONAL SERVICES
One of the issues currently being addressed is the impact of ebanking on traditional banking players. After all, if there are risks inherent in going into e-banking there are other risks in not doing so. It is too early to have a firm view on this yet. Even to practitioners the future of e-banking and its implications are unclear. It might be convenient nevertheless to outline briefly two views that are prevalent in the market. 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 yesterdays competitive advantage - a large branch network, into a comparative disadvantage, allowing e-banks to undercut bricks-and-mortar banks. This is commonly known as the "beached dinosaur" theory.
E-banks are easy to set up so lots of new entrants will arrive.

Old-world systems, cultures and structures will not encumber these new entrants. Instead, they will be adaptable and

responsive. E-banking gives consumers much more choice. Consumers will be less inclined to remain loyal. E-banking will lead to an erosion of the endowment effect currently enjoyed by the major UK banks. Deposits will go elsewhere with the consequence that these banks will have to fight to regain and retain their customer base. This will increase their cost of funds, possibly making their business less viable. Lost revenue may even result in these banks taking more risks to breach the gap. Portal providers, are likely to attract the most significant share of banking profits. Indeed banks could become glorified marriage brokers. They would simply bring two parties together e.g. buyer and seller, payer and payee. The products will be provided by monoclines, experts in their field. Traditional banks may simply be left with payment and settlement business even this could be cast into doubt. Traditional banks will find it difficult to evolve. Not only will they be unable to make acquisitions for cash as opposed to being able to offer shares, they will be unable to obtain additional capital from the stock market. This is in contrast to the situation for Internet firms for whom it seems relatively easy to attract investment. There is of course another view which sees e-banking more as an evolution than a revolution. E-banking is just banking offered via a new delivery channel. It simply gives consumers another service (just as ATMs did). Like ATMs, e-banking will impact on the nature of branches but will not remove their value. Traditional banks are starting to fight back.

The start-up costs of an e-bank are high. Establishing a trusted brand is very costly as it requires significant advertising expenditure in addition to the purchase of expensive technology (as security and privacy are key to gaining customer approval). E-banks have already found that retail banking only becomes profitable once a large critical mass is achieved. Consequently many e-banks are limiting themselves to providing a tailored service to the better off. Nobody really knows which of these versions will triumph. This is something that the market will determine. However, supervisors will need to pay close attention to the impact of e-banks on the traditional banks, for example by surveillance of: strategy customer levels earnings and costs advertising spending margins funding costs merger opportunities and threats. Before talking about the issues of risks and responses to E banking, I would like to spend a little time considering the wider question of what the e-banking revolution might mean for the future. I take "E" to mean anything electronic whether it be Internet, television, telephone or all three. One of the issues currently being addressed is the impact of ebanking on traditional banking players. After all, if there are risks inherent in going into e-banking there are other risks in not doing so. It is too early to have a firm view on this yet. Even to practitioners the future of e-banking and its implications are unclear. It might be convenient nevertheless to outline briefly two views that are prevalent in the market.

The view that the Internet is a revolution that will sweep away the old order holds much sway. Arguments in favor are as follows Ebanking transactions are much cheaper than branch or even phone transactions. This could turn yesterdays competitive advantage - a large branch network - into a comparative disadvantage, allowing ebanks to undercut bricks-and-mortar banks. This is commonly known as the "beached dinosaur" theory. E-banks are easy to set up so lots of new entrants will arrive. Old-world systems, cultures and structures will not encumber these new entrants. Instead, they will be adaptable and responsive. E-banking gives consumers much more choice. Consumers will be less inclined to remain loyal. E-banking will lead to an erosion of the endowment effect currently enjoyed by the major UK banks. Deposits will go elsewhere with the consequence that these banks will have to fight to regain and retain their customer base. This will increase their cost of funds, possibly making their business less viable. Lost revenue may even result in these banks taking more risks to breach the gap. Portal providers are likely to attract the most significant share of banking profits. Indeed banks could become glorified marriage brokers. They would simply bring two parties together e.g. buyer and seller, payer and payee. The products will be provided by monoclines, experts in their field. Traditional banks may simply be left with payment and settlement business even this could be cast into doubt. Traditional banks will find it difficult to evolve. Not only will they be unable to make acquisitions for cash as opposed to being able

to offer shares, they will be unable to obtain additional capital from the stock market. This is in contrast to the situation for Internet firms for whom it seems relatively easy to attract investment. There is of course another view which sees e-banking more as an evolution than a revolution. E-banking is just banking offered via a new delivery channel. It simply gives consumers another service (just as ATMs did). Like ATMs, e-banking will impact on the nature of branches but will not remove their value. Experience in Scandinavia (arguably the most advanced ebanking area in the world) appears to confirm that the future is clicks and mortar banking. Customers want full service banking via a number of delivery channels. The future is therefore Martini Banking (any time, any place, anywhere, anyhow). Traditional banks are starting to fight back. The start-up costs of an e-bank are high. Establishing a trusted brand is very costly as it requires significant advertising expenditure in addition to the purchase of expensive technology (as security and privacy are key to gaining customer approval). E-banks have already found that retail banking only becomes profitable once a large critical mass is achieved. Consequently many e-banks are limiting themselves to providing a tailored service to the better off. Nobody really knows which of these versions will triumph. This is something that the market will determine. However, supervisors

will need to pay close attention to the impact of e-banks on the traditional banks, for example by surveillance of:

strategy customer levels earnings and costs advertising spending margins funding costs Merger opportunities and threats, both in the UK and abroad.

RISKS IN E-BANKING
There are risks involved in e-banking. They are as follows:
1) Strategic Risk

A financial institutions board and management should understand the risks associated with e-banking services and evaluate the resulting risk management costs against the potential return on investment prior to offering e-banking services. Poor e-banking planning and investment decisions can increase a financial institutions strategic risk. On strategic risk E-banking is relatively new and, as a result, there can be a lack of understanding among senior management about its potential and implications. People with technological, but not banking, skills can end up driving the initiatives. E-initiatives can spring up in an incoherent and piecemeal 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. Banks should respond to these risks by having a clear strategy driven from the top and should ensure that this strategy takes account of the effects of e-banking, wherever relevant. Such a strategy should be clearly disseminated across the business, and supported by

a clear business plan with an effective means of monitoring performance against it. On strategic risk E-banking is relatively new and, as a result, there can be a lack of understanding among senior management about its potential and implications. People with technological, but not banking, skills can end up driving the initiatives. E-initiatives can spring up in an incoherent and piecemeal 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.

Banks should respond to these risks by having a clear strategy driven from the top and should ensure that this strategy takes account of the effects of e-banking, wherever relevant. Such a strategy should be clearly disseminated across the business, and supported by a clear business plan with an effective means of monitoring performance against it.
2) Business risks

Business risks are also significant. Given the newness of ebanking, nobody knows much about whether e-banking customers will have different characteristics from the traditional banking customers. They may well have different characteristics. This could render existing score card models inappropriate, this resulting in either higher rejection rates or inappropriate pricing to cover the risk.

Banks may not be able to assess credit quality at a distance as effectively as they do in face to face circumstances. It could be more difficult to assess the nature and quality of collateral offered at a distance, especially if it is located in an area the bank is unfamiliar with (particularly if this is overseas). Furthermore as it is difficult to predict customer volumes and the stickiness of edeposits (things which could lead either to rapid flows in or out of the bank) it could be very difficult to manage liquidity. 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 institutions 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 institutions 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 institutions 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 ebanking 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. The key to controlling transaction risk lies in adapting effective polices, procedures, and controls to meet the new risk exposures introduced by e-banking. Basic internal controls including segregation of duties, dual controls, and reconcilements remain important. Information security controls, in particular, become more significant requiring additional processes, tools, expertise, and testing. Institutions should determine the appropriate level of security controls based on their assessment of the sensitivity of the information to the customer and to the institution and on the institutions established risk tolerance level. Business risks are also significant. Given the newness of e-banking, nobody knows much about whether e-banking customers will have different characteristics from the traditional banking customers. They may well have different characteristics eg I want it all and I want it now. This could render existing score card models inappropriate, thus resulting in either higher rejection rates or inappropriate pricing to cover the risk. Banks may not be able to assess credit quality at a distance as effectively as they do in face to face circumstances. It could be more difficult to assess the nature and quality of collateral offered at a distance, especially if it is located in an area the bank is unfamiliar with (particularly if this is overseas). Furthermore as it is difficult to

predict customer volumes and the stickiness of e-deposits (things which could lead either to rapid flows in or out of the bank) it could be very difficult to manage liquidity.
3) Credit risk

Generally, a financial institutions credit risk is not increased by the mere fact that a loan is originated through an e-banking channel. However, management should consider additional precautions when originating and approving loans electronically, including assuring management information systems effectively track the performance of portfolios originated through e-banking channels. 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 customers 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); Valuing collateral and perfecting liens over a potentially wider geographic area; Collecting loans from individuals over a potentially wider geographic area; Monitoring any increased volume of, and possible concentration in, out-of-area lending. Liquidity, interest rate, price/market risks - Funding and investment-related risks could increase with an institutions e-

banking initiatives depending on the volatility and pricing of the acquired deposits. The Internet provides institutions with the ability to market their products and services globally. Internet-based advertising programs can effectively match yield-focused investors with potentially high-yielding deposits. But Internet-originated deposits have the potential to attract customers who focus exclusively on rates and may provide a funding source with risk characteristics similar to brokered deposits. An institution can control this potential volatility and expanded geographic reach through its deposit contract and account opening practices, which might involve face-to-face meetings or the exchange of paper correspondence. The institution should modify its policies as necessary to address the following ebanking funding issues: Potential increase in dependence on brokered funds or other highly rate-sensitive deposits; Potential acquisition of funds from markets where the institution is not licensed to engage in banking, particularly if the institution does not establish, disclose, and enforce geographic restrictions;

Potential impact of loan or deposit growth from an expanded Internet market, including the impact of such growth on capital ratios;

Potential increase in volatility of funds should e-banking security problems negatively impact customer confidence or the markets perception of the institution.

This changing financial landscape brings with it new challenges for bank management and regulatory and supervisory authorities. The major ones stem from increased cross-border transactions resulting from drastically lower transaction costs and the greater ease of banking activities, and from the reliance on technology to provide banking services with the necessary security.
4) Operations risk-

The reliance on new technology to provide services makes security and system availability the central operational risk of electronic banking. Security threats can come from inside or outside the system, so banking regulators and supervisors must ensure that banks have appropriate practices in place to guarantee the confidentiality of data, as well as the integrity of the system and the data. Banks' security practices should be regularly tested and reviewed by outside experts to analyze network vulnerabilities and recovery preparedness. Capacity planning to address increasing transaction volumes and new technological developments should take account of the budgetary impact of new investments, the ability to attract staff with the necessary expertise, and potential dependence on external service providers. Managing heightened operational risks needs to become an integral part of banks' overall management of risk, and supervisors

need to include operational risks in their safety and soundness evaluations. There are three types of operation risks. They are as follows: volume forecasts management information systems and Outsourcing. Accurate volume forecasts have proved difficult - One of the key challenges encountered by banks in the Internet environment is how to predict and manage the volume of customers that they will obtain. Many banks going on-line have significantly misjudged volumes. When a bank has inadequate systems to cope with demand it may suffer reputational and financial damage, and even compromises in security if extra systems that are inadequately configured or tested are brought on-line to deal with the capacity problems. As a way of addressing this risk, banks should:

undertake market research, adopt systems with adequate capacity and scalability, undertake proportionate advertising campaigns, and Ensure that they have adequate staff coverage and develop a suitable business continuity plan.

In brief, this is a new area, nobody knows all the answers, and banks need to exercise particular caution.

The second type of operations risk concerns management information systems. Again this is not unique to E-banking. I have seen many banks venture into new areas without having addressed management information issues. Banks may have difficulties in obtaining adequate management information to monitor their eservice, as it can be difficult to establish/configure new systems to ensure that sufficient, meaningful and clear information is generated. Such information is particularly important in a new field like ebanking. Banks are being encouraged by the FSA to ensure that management have all the information that they require in a format that they understand and that does not cloud the key information with superfluous details. Finally, a significant number of banks offering e-banking services outsource related business functions, e.g. security, either for reasons of cost reduction or, as is often the case in this field, because they do not have the relevant expertise in-house. Outsourcing a significant function can create material risks by potentially reducing a banks control over that function. Outsourcing is of course neither new nor unmanageable but banks should be mindful of the FSAs guidance on outsourcing, which addresses these risks. 5) Regulatory riskBecause the Internet allows services to be provided from anywhere in the world, there is a danger that banks will try to avoid regulation and supervision. What can regulators do? They can require even banks that provide their services from a remote location through the

Internet to be licensed. Licensing would be particularly appropriate where supervision is weak and cooperation between a virtual bank and the home supervisor is not adequate. Licensing is the norm, for example, in the United States and most of the countries of the European Union. A virtual bank licensed outside these jurisdictions that wishes to offer electronic banking services and take deposits in these countries must first establish a licensed branch. Determining when a bank's electronic services trigger the need for a license can be difficult, but indicators showing where banking services originate and where they are provided can help. For example, a virtual bank licensed in country X is not seen as taking deposits in country Y if customers make their deposits by posting checks to an address in country X. If a customer makes a deposit at an automatic teller machine in country Y, however, that transaction would most likely be considered deposit taking in country. Regulators need to establish guidelines to clarify the gray areas between these two cases. 6) Legal riskElectronic banking carries heightened legal risks for banks. Banks can potentially expand the geographical scope of their services faster through electronic banking than through traditional banks. In some cases, however, they might not be fully versed in a jurisdiction's local laws and regulations before they begin to offer services there, either with a license or without a license if one is not required. When a license is not required, a virtual bank--lacking contact with its host country supervisor--may find it even more difficult to stay abreast of

regulatory

changes.

As

a consequence,

virtual

banks

could

unknowingly violate customer protection laws, including on data collection and privacy, and regulations on soliciting. In doing so, they expose themselves to losses through lawsuits or crimes that are not prosecuted because of jurisdictional disputes. Money laundering is an age-old criminal activity that has been greatly facilitated by electronic banking because of the anonymity it affords. Once a customer opens an account, it is impossible for banks to identify whether the nominal account holder is conducting a transaction or even where the transaction is taking place. To combat money laundering, many countries have issued specific guidelines on identifying customers. They typically comprise recommendations for verifying an individual's identity and address before a customer account is opened and for monitoring online transactions, which requires great vigilance. In a report issued in 2000, the Organization for Economic Cooperation and Development's Financial Action Task Force raised another concern. With electronic banking crossing national boundaries, whose regulatory authorities will investigate and pursue money laundering violations? The answer, according to the task force, lies in coordinating legislation and regulation internationally to avoid the creation of safe havens for criminal activities. 7) Reputational risk-

Breaches of security and disruptions to the system's availability can damage a bank's reputation. The more a bank relies on electronic delivery channels, the greater the potential for reputational risks. If one electronic bank encounters problems that cause customers to lose confidence in electronic delivery channels as a whole or to view bank failures as system wide supervisory deficiencies, these problems can potentially affect other providers of electronic banking services. In many countries where electronic banking is becoming the trend, bank supervisors have put in place internal guidance notes for examiners, and many have released risk-management guidelines for banks. This is considerably heightened for banks using the Internet. For example the Internet allows for the rapid dissemination of information which means that any incident, either good or bad, is common knowledge within a short space of time. The speed of the Internet considerably cuts the optimal response times for both banks and regulators to any incident. Any problems encountered by one firm in this new environment may affect the business of another, as it may affect confidence in the Internet as a whole. There is therefore a risk that one rogue e-bank could cause significant problems for all banks providing services via the Internet. This is a new type of systemic risk and is causing concern to e-banking providers. Overall, the Internet puts an emphasis on reputational risks. Banks need to be sure that customers rights and information needs are adequately safeguarded and provided for. Breaches of security and disruptions to the system's availability can damage a bank's reputation. The more a bank relies

on electronic delivery channels, the greater the potential for reputational risks. If one electronic bank encounters problems that cause customers to lose confidence in electronic delivery channels as a whole or to view bank failures as system wide supervisory deficiencies, these problems can potentially affect other providers of electronic banking services. In many countries where electronic banking is becoming the trend, bank supervisors have put in place internal guidance notes for examiners, and many have released riskmanagement guidelines for banks. Reputational risks also stem from customer misuse of security precautions or ignorance about the need for such precautions. Security risks can be amplified and may result in a loss of confidence in electronic delivery channels. The solution is consumer education--a process in which regulators and supervisors can assist. For example, some bank supervisors provide links on their websites allowing customers to identify online banks with legitimate charters and deposit insurance. They also issue tips on Internet banking, offer consumer help lines, and issue warnings about specific entities that may be conducting unauthorized banking operations in the country. Money laundering is an age-old criminal activity that has been greatly facilitated by electronic banking because of the anonymity it affords. Once a customer opens an account, it is impossible for banks to identify whether the nominal account holder is conducting a transaction or even where the transaction is taking place. To combat money laundering, many countries have issued specific guidelines on identifying customers. They typically comprise recommendations for

verifying an individual's identity and address before a customer account is opened and for monitoring online transactions, which requires great vigilance.

REGULATORY TOOLS AND SECURITY

There are four key tools that regulators need to focus on to address the new challenges posed by the arrival of e-banking. AdaptationIn light of how rapidly technology is changing and what the changes mean for banking activities, keeping regulations up to date has been, and continues to be, a far-reaching, timeconsuming, and complex task. In May 2001, the Bank for International Settlements issued its "Risk Management Principles for Electronic Banking," which discusses how to extend, adapt, and tailor the existing risk-management framework to the electronic banking setting. For example, it recommends that a bank's board of directors and senior management review and approve the key aspects of the security control process, which should include measures to authenticate the identity and authorization of customers, promote non repudiation of transactions, protect data integrity, and ensure segregation of duties within e-banking systems, databases, and

applications. Regulators and supervisors must also ensure that their staffs have the relevant technological expertise to assess potential changes in risks, which may require significant investment in training and in hardware and software.

Legalization-

New

methods

for

conducting

transactions,

new

instruments, and new service providers will require legal definition, recognition, and permission. For example, it will be essential to define an electronic signature and give it the same legal status as the handwritten signature. Existing legal definitions and permissions--such as the legal definition of a bank and the concept of a national border--will also need to be rethought.
Harmonization-

International

harmonization

of

electronic

banking

regulation must be a top priority. This means intensifying crossborder cooperation between supervisors and coordinating laws and regulatory practices internationally and domestically across different regulatory agencies. The problem of jurisdiction that arises from "borderless" transactions is, as of this writing, in limbo. For now, each country must decide who has jurisdiction

over electronic banking involving its citizens. The task of international harmonization and cooperation can be viewed as the most daunting in addressing the challenges of electronic banking.
Integration-

This is the process of including information technology issues and their accompanying operational risks in bank supervisors' safety and soundness evaluations. In addition to the issues of privacy and security, for example, bank examiners will want to know how well the bank's management has elaborated its business plan for electronic banking. A special challenge for regulators will be supervising the functions that are outsourced to third-party vendors. Security is one of the most discussed issues around e-banking. E-banking increases security risks, potentially exposing hitherto isolated systems to open and risky environments. Security breaches essentially fall into three categories; breaches with serious criminal intent (fraud, theft of commercially sensitive or financial information), breaches by casual hackers (defacement of web sites or denial of service - causing web sites to crash), and flaws in systems design and/or set up leading to security breaches (genuine users seeing / being able to transact on other users accounts). All of these threats have potentially serious financial, legal and reputational implications.

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 Internet could remove some errors introduced by manual processing (by increasing the degree of straight through processing from the customer through banks systems). This reduces risks to the integrity of transaction data (although the risk of customers incorrectly inputting data remains). As e-banking advances, focusing general attention on security risks, there could be large security gains. Financial institutions need as a minimum to have:
a strategic approach to information security, building best

practice security controls into systems and networks as they are developed

 a proactive approach to information security, involving

active testing of system security controls (e.g. penetration testing), rapid response to new threats and vulnerabilities and regular review of market place developments sufficient staff with information security expertise active use of system based security management and monitoring tools strong business information security controls. 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 banking industry. E-banking increases security risks, potentially exposing hitherto isolated systems to open and risky environments. Both the FSA and banks need to be proactive in monitoring and managing the security threat. Security breaches essentially fall into three categories; breaches with serious criminal intent (e.g. fraud, theft of commercially sensitive or financial information), breaches by casual hackers (e.g. defacement of web sites or denial of service - causing web sites to crash), and flaws in systems design and/or set up leading to security breaches (e.g. genuine users seeing / being able to transact on other users accounts). All of these threats have potentially serious

financial, legal and reputational implications. 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, e.g. a banks retail web site, and gain entry to a high value system via the banks internal network. We are encouraging banks to look at the firewalls between their different systems to ensure adequate damage limitation should an external breach occur. As ever though, the greatest threat so far has been from the enemy within i.e. your own employees, contractors and so on. It is easy to overemphasize the security risks in e-banking. It must be remembered that the Internet could remove some errors introduced by manual processing (by increasing the degree of straight through processing from the customer through banks systems). This reduces risks to the integrity of transaction data (although the risk of customers incorrectly inputting data remains). As e-banking

advances, focusing general attention on security risks, there could be large security gains.

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: a strategic approach to information security, building best practice security controls into systems and networks as they are developed a proactive approach to information security, involving active testing of system security controls (e.g. penetration testing), rapid response to new threats and vulnerabilities and regular review of market place developments sufficient staff with information security expertise active use of system based security management and monitoring tools strong business information security controls These are the issues line supervisors will be raising with their banks as part of their on-going supervision; or, for new applicants, will need to be given adequate assurances about.

MARKETING FOR E-BANKING

E-banking is poised to become the big killer e-banking application arena. However, Banks going e-banking the first time need to tread the path cautiously. The biggest decision that Banks need to make is the channel that they will support their services on. E-banking through an SMS based service would require the lowest amount of effort, in terms of cost and time, but will not be able to support the full breath of transaction-based services. However, in markets like India where a bulk of the e-banking population users' phones can only support SMS based services, this might be the only option left. On the other hand a market heavily segmented by the type and complexity of e-banking usage might be good place to roll of WAP based e-banking applications. A WAP based service can let go of the need to customize usability to the profile of each e-banking, the tradeoff being that it cannot take advantage of the full breadth of features that a e-banking might offer. E-banking application standalone clients bring along the burden of supporting multiple e-banking device profiles. According to the Gartner Group, a leading wireless computing consulting organization, e-banking services will have to support a minimum of 50 different device profiles in the near future. However, currently the

best user experience, depending on the capabilities of a e-banking, is possible only by using a Standalone client. E-banking has the potential to do to the e-banking what E-mail did to the Internet. E-banking Application based banking is poised to be a big m-commerce feature, and if South Korea's foray into mass ebanking is any indication, e-banking could well be the driving factor to increase sales of high-end e-banking. Nevertheless, Bank's need to take a hard and deep look into the e-banking usage patterns among their target customers and enable their e-banking services on a technology with reaches out to the majority of their customers.

DIFFERENCE BETWEEN TRADITIONAL AND E BANKING:

Internet banking works much like traditional banking. The primary difference is you are accessing your account and information, making payments and reconciling statements using your computer rather than paper or the phone to complete transactions. Instead of going down to your local branch office when you bank online you can accomplish multiple tasks at once with the click of a button. Online banking is rapidly becoming more and more popular as consumers recognize the advantages online banking has to offer. For one most banks charge fewer fees if you take advantage of their online banking services. You can also stop receiving paper statements if you like in many cases and conduct 95% of your business over the Web when you take advantage of Internet banking The E-banking-Service will only be available for e-banking and data connections which meet the required specifications and configurations as may be specified by the Bank from time to time and you agree to procure and maintain a e-banking and data connection which meet these requirements at your own expense. User Guidance on the operation of the E-banking-Service will be made available to you. You must follow all relevant User Guidance whenever you access or operate the E-banking-Service. The Bank may inform you from time to time about changes to the way you should

access or operate the E-banking-Service. You must observe all such changes when accessing or operating the E-banking-Service. The E-banking Services are intended to be available 7 days a week, 24 hours a day but there is no warranty that the same will be available at all times. You further agree that the Bank shall be entitled at any time, at the Bank's sole discretion and without prior notice, to temporarily suspend the operation of the E-banking-Service for updating, maintenance and upgrading purposes, or any other purpose whatsoever that the Bank deems fit, and in such event, the Bank shall not be liable for any loss, liability or damage which may be incurred as a result.

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. The ability to offer financial transactions online has also created new players in the financial services industry, such as online banks, online brokers and wealth managers who offer personalized services, although such players still account for a tiny percentage of the industry. 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). According to a study by financial consultancy Clement, 35% of online banking households will be using e-banking by 2010, up from less than 1% today. Upwards of 70% of bank center call volume is projected to come from e-banking. E-banking will eventually allow users to make payments at the physical point of sale. "E-banking contact less payments will make up 10% of the contact less market by 2010.[2]

Many believe that e-banking users have just started to fully utilize the data capabilities in their e-banking. In Asian countries like India, China, Bangladesh, Indonesia and Philippines, where ebanking infrastructure is comparatively better than the fixed-line infrastructure, and in European countries, where e-banking penetration is very high (at least 80% of consumers use a e-banking), e-banking is likely to appeal even more. This opens up huge markets for financial institutions interested in offering value added services. With e-banking technology, banks can offer a wide range of services to their customers such as doing funds transfer while traveling, receiving online updates of stock price or even performing stock trading while being stuck in traffic. According to the German e-banking operator Mobilcom, e-banking will be the "killer application" for the next generation of e-banking technology. E-banking devices, especially smart phones, are the most promising way to reach the masses and to create stickiness among current customers, due to their ability to provide services anytime, anywhere, high rate of penetration and potential to grow. According to Gartner, shipment of smart phones is growing fast, and should top 20 million units (of over 800 million sold) in 2006 alone. 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. The proliferation of the 3G (third generation of wireless) and widespread implementation expected for 20032007 will generate the development of more sophisticated services such as multimedia and links to m-commerce services. Internet banking is gaining ground. Banks increasingly operate websites through which customers are able not only to inquire about account balances and interest and exchange rates but also to conduct a range of transactions. Unfortunately, data on Internet banking are scarce, and differences widespread in in definitions Austria, make the cross-country Scandinavian comparisons difficult. Even so, one finds that Internet banking is particularly Korea, countries, Singapore, Spain, and Switzerland, where more than 75 percent of all banks offer such services (see chart). The Scandinavian countries have the largest number of Internet users, with up to onethird of bank customers in Finland and Sweden taking advantage of e-banking. In the United States, Internet banking is still concentrated in the largest banks. In mid-2001, 44 percent of national banks maintained transactional websites, almost double the number in the third quarter of 1999. These banks account for over 90 percent of national banking system assets. The larger banks tend to offer a wider array of electronic banking services, including loan applications and brokerage services. While most U.S. consumers have accounts with

banks that offer Internet services, only about 6 percent of them use these services. To date, most banks have combined the new electronic delivery channels with traditional brick and mortar branches ("brick and click" 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

E-BANKING SUGGESTION
Micro payments In the more affluent economies, a good infrastructure for a cashless environment is already prevalent and most people have bank accounts and access to both debit and credit facilities. These factors are incentives in the developing countries to move the population at large away from cash with introductions of low cost solutions such as micro-payments to further efficiency gains. SMART Money The service was launched in December 2000 in co-operation with First E-Bank, which has since been acquired by Banco de Oro, and MasterCard, one of the worlds leading payment services providers. According to SMART, SMART Money was the worlds first re-loadable electronic cash wallet, linked together by their cellular network. Once cash has been transferred to the SMART Money account, it can be used in thousands of shops and restaurants. The cash value can also be used to load airtime, pay utility bills, or transfer money from one SMART Money card to another.

 G-Cash The service was launched in October 2004, with an initial set of three anchors services; international and domestic remittance, P2P (phone-to-phone or person-toperson) transfers and payments for retail purchases. With G-Cash, all of Globes subscribers are mCommerce-enabled. As users do not need to have a card or bank account to be part of the service, G-Cash is able to provide MCommerce capability to a previously underserved segment of the market, including those who currently do not do banking. Unlike Smarts approach whereby it operates the service jointly with BDO, GLOBE on its own maintains records of all transactions and arranges settlement between the retailers and the G-Cash customers. G-Cash provides services through close to 4,900 retail outlets nationwide and more than 500 G-Cash partners.
E-banking Remittance

Migrant remittances, which are personal flows from migrants to their friends and families, have become a major source of external development finance, and in the process, play an effective role in reducing poverty. Capitalizing on the benefits of such a system, remittance services can become cheaper and more convenient,

thus improving financial access of migrants, their beneficiaries and the financial intermediaries in the origin countries.

Microfinance through E-banking Technology

Currently, a major constraint to microfinance is the high cost of operating in remote areas. Many institutions are now working toward low-cost delivery options such as Internet banking and cashless transactions to help the rural poor. The e-bankingdevices that could be a more efficient tool for such transactions. For people in such rural areas, using computers is often a problem due to faulty Internet connections and frequent power failures. Hence, providing micro credits through a e-bankingplatform (SMS-based) could be the best way to reach out to the poor.

RBI GUIDELINES FOR E-BANKING

The Reserve Bank of India on Friday released its final operative guidelines for e-banking. The central bank has decided to keep the limit on the ticket-size for e-banking at Rs 2,500 per transaction, and Rs 5,000 per day. Banks have also been allowed to put in place a monthly transaction limit, depending on the banks risk perception of the customer. While the guidelines will enable lenders such as State Bank of India and Axis Bank to go ahead with their launch of mobile-banking services, the central bank has decided to restrict the services only to holders of debit and credit cards. The card user base in the country is 80 million, with 55 million debit card users and 25 million credit card users. Only Indian rupee-based domestic services shall be provided on the mobile- payment platform, and the use of mobile-banking for cross-border transactions have been strictly prohibited. Banks which are based, licensed and supervised in India will be allowed to offer such services. Further, only banks which have implemented the core banking platform will be allowed to offer ebanking. At the same time, the RBI has recommended that all ebanking transactions are validated through a two-factor authentication system, thereby complying with the latest security and encryption standards.

PROGRESS OF E-BANKING

If technological revolution is at its peak, One of the important sectors of the economy where technology is at it helm of affairs with respect to customer service is banking. Over the years has banking rise above from a traditional brick-and mortar model of customers queuing for services in the banks to modern day banking where banks can reach at any point for their services. In todays business, technology has been on the predominant indicators of growth and competitiveness. Entry of new banks resulted in a paradigm shift in the ways of banking. The banking industry today is in the midst of an IT revolution. The combination of regulatory and competitive reasons have led to increasing importance of total banking automation in the banking Industry. . Information Technology has basically been used under two different avenues in banking. One is Communication and Connectivity and other is Business Process Reengineering, both basically focusing on increasing its customer reach. Information technology enables sophisticated

product

development,

better

market

infrastructure,

implementation of reliable techniques for control of risks and helps the financial intermediaries to reach geographically distant and diversified markets The latest revolution seems to happen with respect to e-banking an attempt to leverage on the synergies of e-banking technology in telecom and information technology in the banking services. Today, Banks have welcomed wireless and e-banking

technology into their boardroom to offer their customers the freedom of paying bills, planning payments while stuck in traffic jams, to receive updates on the various marketing efforts while present at a party to provide more personal and intimate relationships. E-banking can be classified as Push vs. Pull and Transaction vs. Enquiry that is briefly given below Push Based, Pull Based o Transaction some of the other features where ebanking has lent its hand are Fund Transfer & Bill Payment where the customers have the freedom of maintaining account through mobile. E-banking has also welcomed other financial services like share trading. The latest Information technology revolution enables

sophisticated Enquiry Based banking services for Credit/Debit Alerts. Some of the other outcomes of the Revolution in the banking industry are Minimum Balance Alerts, Account Balance Enquiry, Account Statement Enquiry, Cheque Status Enquiry, Cheque Book Requests and Bill Payment Alerts. The last time that

technology had a major impact in helping banks service their customers was with the introduction of the Internet banking. However the biggest limitation of Internet banking is the requirement of a PC with an Internet connection, not a big obstacle if we look at the US and the European countries, but definitely a big barrier if we consider most of the developing countries of Asia like China and India. E-banking addresses this fundamental limitation of Internet banking, as it reduces the customer Requirement to just a e-banking. E-banking usage has seen an explosive growth in most of the Asian economies like India, China and Korea. The main reason that E-banking scores over Internet banking is that it enables Anywhere Banking'. Customers now don't need access to a computer terminal to access their banks, they can now do so on the go when they are waiting for their bus to work, when they are traveling or when they are waiting for their orders to come through in a restaurant. The scale at which E-banking has the potential to grow can be gauged by looking at the pace users are getting e-banking in these big Asian economies. Revolution of E-banking phones in banking service. According to the Cellular Operators Association of India (COAI) the e-banking subscriber base in India crossed the 50 million mark in October 2005, which stood at 50.87 million. The explosion as most analysts say, the worldwide number of cellular subscribers will surpass 2 billion in 2005up from 11M in 1990 and 750M in 2000. Worldwide cellular subscribers are forecasted to reach 3.2B by the end of 2010.Among the leaders in e-banking

technologies, most aggressive being Korea which is now witnessing the roll-out of some of the most advanced services using 3G technologies, like using e-banking phones to pay bills in shops and restaurants. The growth of e-banking technology over the last few years has enriched the progress of the e-banking services. 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 ebanking technology with respect to banking services is at a very infant stage. There are a lot of challenges and issues relating to content, security, coverage, technology and connectivity speed are to be sorted out with respect to e-banking technologies. Objectives of the Report:1. To study the technological readiness in relation to the challenges faced by the players particularly the banks with respect to e-banking in order to enhance global competitiveness by embracing technology and banking services.2. To study and awareness, expectation and acceptance levels of the Customers with respect to its use and effectiveness of e-banking

CONCLUSION
Thus reaching to the conclusion of our project we observe that Traditional banks offer many services to their customers, including accepting customer money deposits, providing various banking services to customers, and making loans to individuals and companies. Compared with traditional channels of offering banking services through physical branches, e-banking uses the Internet to deliver traditional banking services to their customers, such as opening accounts, transferring funds, and electronic bill payment. E-banking can be offered in two main ways. First, an existing bank with physical offices can also establish an online site and offer e-banking services to its customers in addition to the regular channel. For example, Citibank is a leader in e-banking, offering walk-in, face-to-face banking at its branches throughout many parts of the world as well as e-banking services through the World Wide Web. Generally, e-banking is provided without extra cost to customers. Customers are attracted by the convenience of e-banking through the Internet, and in turn, banks can operate more efficiently when customers perform transactions by themselves rather than going to a branch and dealing with a branch representative. E-banking services are delivered to customers through the Internet and the web using Hypertext Markup Language (HTML). In order to use e-banking services, customers need Internet access and web browser software. Multimedia information in HTML format from online banks can be displayed in web browsers. The heart of the e-banking application is the

computer system, which includes web servers, database management systems, and web application programs that can generate dynamic HTML pages. One of the main concerns of e-banking is security. Without great confidence in security, customers are unwilling to use a public network, such as the Internet, to view their financial information online and conduct financial transactions. Some of the security threats include invasion of individuals' privacy and theft of confidential information.

On October 1, 2000, the electronic signatures bill took effect, recognizing documents signed online as legal. Some banks plan to begin using electronic checks as soon as they can work out various security measures. The range of e-banking services is likely to increase in the future. Some banks plan to introduce electronic money and electronic checks. Electronic money can be stored in computers or smart cards and consumers can use the electronic money to purchase small value items over the Internet.