E Banking

An Overview

-Chinmay Sangoram

Banking in India
Started in the year 1786 with The General Bank of India being the first. Reserve Bank of India came in 1935. Became the central banking authority in 1965. Banking Companies Act passed in 1949. Formation of State Bank of India in 1955. Nationalization of 14 major banks in 1969. Seven more in 1980. Opening up of economy, implementations of recommendations of the Narsimham committee.

What is E Banking?
Internet banking (or E-banking) means any user with a personal computer and a browser can get connected to his banks website to perform any of the virtual banking functions. The term "electronic banking" or "e-banking" covers both computer and telephone banking. In other words it is said that it is updated 'on-line, real time'. The system is updated immediately after every transaction automatically.

Why E banking?
Differentiation of products from the others. A combination of regulatory and competitive reasons Stress on branchless banking. Increasing volumes of banking transactions. Providing customers with cost effective services

E Banking in India
Opening up of economy in 1991 marked the entry of foreign banks. They brought new technology with them. Banking products became more and more competitive. Need for differentiation of products and services was felt. The ICICI Bank kicked off online banking in 1996. Currently 78% of its customer base is registered for online banking. 1996 to 1998 marked the adoption phase, while usage increased only in 1999, owing to lower ISP online charges, increased PC penetration and a tech-friendly atmosphere.

Guidelines
The Internet Banking policy has been approved by the Bank's Board. The policy fits into the bank's overall Information Technology and Information Security policy and ensures confidentiality of records and security systems. The policy takes into account operational risk. The policy clearly lays down the procedure to be followed in respect of "Know Your Customer" requirements, and The policy broadly meets the parameters laid down in the earlier circular.

Facts and figures

Internet population currently is 38.5 million and expected to grow to 100 million by 2007-08. At present 4.6 million of these use internet banking. This figure is estimated to grow to 16 million by the end of 07-08. Only 59 per cent of adult population have access to a bank account. This implies 41 per cent of adult population is unbanked.

E Banking products and services

Offered in a two tier structure A basic tier of Internet banking products includes customer account inquiry, funds transfer and electronic bill payment. A second or premium tier includes basic services plus one or more additional services like brokerage, cash management, credit applications, credit and debit cards, customer correspondence, demat holdings, financial advice, foreign exchange trading, insurance, online trading, opening accounts, requests and intimations, tax services, e-shopping, standing instructions, investments, asset management services etc.

Levels of services offered in E Banking

Information Only System Electronic Information Transfer System Fully Electronic Transactional System

Tools of Electronic Banking

Automated Teller Machine Credit Cards/Debit Cards Smart Card

Services/Transactions
Answering routine queries Bill payment service Electronic Fund transfer(ETF) Electronic Clearing System(ECS) Credit card customers Railway Pass Investing through internet banking Recharging your prepaid phone Shopping

Advantages to banks
Very low setup cost. Capability to cater to a very large customer base. Saves a lot of operational costs. Adds to the baseline. Banks san offer a lot of personalized services to their customers. Reduction of burden on branch banking.

Advantages Check account balances and track recent account activity Transfer money between accounts

Disadvantages Need an account with an Internet Service Provider (ISP) Security concerns, like hackers accessing your bank accounts Original setup for bill paying time is time-consuming but will ultimately be a time-saver Switching banks can be more cumbersome online than in person

Authorize electronic bill payments

Issue stop payment requests

Apply for auto, mortgage, home equity, Must have basic computer skills and student, or personal loans Internet knowledge Receive investment product and service information Must be comfortable using a computer

Advantages to customers
It is convenient. It isn't bound by operational timings. There are no geographical barriers. Services can be offered at a miniscule cost. Check your transactions at any time of the day, and as many times as you want to. Getting quarterly statements from the bank, transferring funds to outstation, and other such activities can be done free of charge through online banking.

Some more numbers.

At ICICI Bank in the year 2000, 94% of the transactions happened at the branches, just 2% over the net. In fiscal 2006, transactions at the branch were down to 22 per cent of the total while Net banking transactions rose to 18 per cent. At HDFC Bank, branch transactions that accounted for 43 per cent of all transactions in fiscal 2001 came down to 23 per cent in fiscal 2006. In the same period, internet transactions rose from about 3 per cent to 16 per cent. About 40 per cent of the transactions on the net take place during non-banking hours - i.e. between 6 p.m. and 8.a.m.

Pre cautions to be taken

Customers should never share personal information like PIN numbers, passwords etc with anyone, including employees of the bank. Documents that contain confidential information should be safeguarded. PIN or password mailers should not be stored, the PIN and/or passwords should be changed immediately and memorised before destroying the mailers.

Continued.
Customers are advised not to provide sensitive accountrelated information over unsecured e-mails or over the phone. Take simple precautions like changing the ATM PIN and online login and transaction passwords on a regular basis. Ensure that the logged in session is properly signed out.

Critical issues
The present system of authentication does not address the security aspect in full Data Protection and the need for a legal and regulatory framework- another major issue. There is a dual requirement to protect customers' privacy and protection against fraud. Stringent regulatory and operational security measures.

The road ahead

Reduction in branch banking. Gradual evolution of Virtual banking People will want to process more transactions on the Internet. Geography will not be an inhibitor any more. The future of banking would be in terms of integration.