CHAPTER# 01: INTRODUCTION

1.1: BACKGROUND

Electronic banking started in the early 1980s both in the United States and the United

Kingdom. It really took off with the arrival of the World Wide Web, when traditional banks

offered their clients account access online, while some new banks started operating on the Web

only. Since the 80s, there has been turbulence in the banking and finance industry worldwide as

the pace of changes continues to accelerate. Changes are being driven, above all by competition,

technology and customer demand.

One of the major forces behind the changes happening to business today is technology,

which is creating new products, services market opportunities and developing more information and

system oriented business and management processes. As an information medium, the Internet

offers different information services that have been developed over the time. The services are e.g.

electronic mail, file transfer protocol, and the worldwide web (www). The internet has no central

owner, but the connected networks are owned and administrated by different universities,

companies, authorities and other organizations.

Electronic commerce refers to the use of electronic means and technologies to conduct

commerce in various settings, such as business-to-business (B2B) and business-to-consumer

(B2C). The enabling technologies, of course, are also used for non-commercial activities such as

entertainment, communication, filing and paying taxes, managing personal finance, research

and education, which may still include the services of online companies. E-commerce is

the application of information technology to facilitate business exchanges among different

parties.

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 Banking is one of the most information intensive sectors and is an ideal domain for the

successful development of E-Commerce. Internet banking refers to the use of the Internet as a

remote delivery channel for banking services .For banks, technology has emerged as a strategic

resource for achieving higher efficiency, control of operations, productivity and profitability. For

customers, it is the understanding of their anywhere, anytime, anyway banking dream. This has

prompted the banks to embrace technology to meet the increasing customer expectation and face

the tough competition. Internet banking would help banks present a potentially low cost

alternative to brick and mortar branch banking. Internet banking services are crucial for long-term

survival of banks in the world of electronic commerce. The market for Internet banking is

forecasted to grow sharply in the next few years, affecting the competitive advantage enjoyed by

traditional branch banks.

Internet banking involves consumers using the Internet to access their bank account and

to undertake banking transactions. At the basic level, Internet banking can mean the setting up of a

web page by a bank to give information about its product and services. At an advance level, it

involves provision of facilities such as accessing accounts, funds transfer, and buying financial

products or services online. This is called transactional'' online banking.

There are two ways to offer Internet banking. First, an existing bank with physical offices can

establish a web site and offer Internet banking in addition to its traditional delivery channels.

Second, a bank may be established as a branchless, Internet only or virtual bank.

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Broadly the levels of banking services offered through Internet can be categorized in three types:

(i) The Basic Level Services use the banks websites which disseminate information on different

products and services offered to customers and members of public in general. It may receive and

reply to customers queries through e-mail.

(ii) In the next level are Simple Transactional Websites which allow customers to submit their

instructions, applications for different services, queries on their account balances, etc, but do not

permit any fund-based transactions on their accounts .

(iii) The third level of Internet banking services are offered by Fully Transactional Websites

which allow the customers to operate on their accounts for transfer of funds, payment of different

bills, subscribing to other products of the bank and to transact

purchase and sale of securities, etc. Most of the banks providing Internet banking products and

services offer, to a large extent, an identical and standard package of banking services and

transactional capabilities.

A website plays very significant and key role in Internet banking. Websites should be

able to convey all the information for both current customers and potential new customers via the

Internet. If the content of the site fails to pass sufficient information on account capabilities, then

the site is not fulfilling its objectives. The banks website provides a better way for

communication.

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1.2: WHAT IS E-BANKING?

Electronic Banking in simple terms means, it does not involve any physical exchange of

money, but its all done electronically, from one account to another, using the Internet. Internet

banking is just like normal banking, with one big exception. You don't have to go to the bank for

transactions. Instead, you can access your account any time and from any part of the world, and

do so when you have the time, and not when the bank is open. For busy executives, students, and

homemakers, e-banking is a virtual blessing. No more taking precious time off from work to get

a demand draft made or a Cheque book issued.

Electronic banking, also known as electronic funds transfer (EFT), is simply the use of

electronic means to transfer funds directly from one account to another, rather than by cheque or

cash. You can use electronic funds transfer to:

Have your pay check deposited directly into your bank or credit union checking account.

Withdraw money from your checking account from an ATM machine with a personal

identification number (PIN), at your convenience, day or night.

Instruct your bank or credit union to automatically pay certain monthly bills from your

account, such as your auto loan or your mortgage payment.

Have the bank or credit union transfer funds each month from your checking account to

your mutual fund account.

Have your government social security benefits check or your tax refund deposited

directly into your checking account.

Buy groceries, gasoline and other purchases at the point-of-sale, using a check card rather

than cash, credit or a personal check.

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1.3: OVERVIEW OF E-BANKING IN PAKISTAN

Globally banking is no longer confined to the four walls of a branch. Many countries are

far ahead of the facilities being available in Pakistan. The initiative in e-Banking in the country

was taken a bit late, but now focused efforts are being made to catch up with rest of the world.

The level of low banking, a few years back, was confined to the four walls of branch.

With the entry of private banks, having limited number of branches, investment in technology

was chosen, as alternative, to overcome this deficiency. The advent and common use of Internet,

leading to e-commerce, forced the banks globally to incorporate e-banking. Pakistani banks are

still far behind their global counter parts. One such example is complete lack of merchant

accounts in Pakistan.

However, lately a task force was established to study and implement formation of

Electronic Clearing House (ECH). Simultaneously, the local banks also went for on-line

banking, though still not a norm. Another step forward was installation of ATMs by the banks.

While some banks have their own ATMs, some other banks started using a dedicated network. In

this system an ATM card holder of a particular bank could use teller machines installed by all the

sponsors of this network. The system is working to a satisfactory level.

Though efforts are being made to increase the number of on-line branches, it is still a

capital intensive proposal. It is getting popular in urban areas, but has not become common in

rural areas, mainly due to low literacy level in the country. However, some analysts believe that

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with the passage of time, confidence in the system and increasing use, traffic to branches in

urban areas will go down considerably.

A factor which is the key issue in e-banking is low penetration level of computers in

Pakistan. The other factors, not allowing the people who have computers and Internet facility,

was lack of services being offered by the banks, legal framework and concerns about the

security. A landmark step in this direction is the promulgation of the Electronic Transactions

Ordinance 2002. This Ordinance provides legal recognition to digital signatures and

documentation reducing the risks associated with the use of electronic medium of business.

One factor prohibiting use of the newly offered services is, its high cost. The banking

sector terms this nominal, keeping in view the level of convenience. Saying this, they still

believe that cost can go down further with the increased use of these facilities. It is also believed

that while the use of these facilities is low due to apprehensions about security, clients take

refuge behind high cost.

A factor slowing down the process in this area is capital intensive nature of these

operations. The investment in technology by the commercial banks is affecting the payout to

shareholders as well as the depositors. The banking sector experts term this only a brief phase.

The global market for electronic transactions is growing at a phenomenal rate. Pakistan

should not sit back and ignore this global phenomenon. To actively participate in the global

economy, Pakistan must develop its e-commerce infrastructure. This comprise of three

ingredients: legal framework, security of transactions and e-readiness of the banks.

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 CHAPTER #02: ELECTRONIC BANKING

2.1: FORMS OF E-BANKING

2.1.1: Internet Banking

The advent of the Internet and the popularity of personal computers presented both an

opportunity and a challenge for the banking industry. For years, financial institutions have used

powerful computer networks to automate millions of daily transactions; today, often the only

paper record is the customers receipt at the point of sale. Now that their customers are connected

to the Internet via personal computers, banks envision similar advantages by adopting those same

internal electronic processes to home use. Banks view online banking as a powerful value added

tool to attract and retain new customers while helping to eliminate costly paper handling and teller

interactions in an increasingly competitive banking environment..

2.1.2: Automated Teller Machines (ATMs)

These are cash dispensing machine, which are frequently seen at banks and other locations

such as shopping centres and building societies. Their main purpose is to allow customer to draw

cash at any time and to provide banking services where it would not have been viable to open

another branch e.g. on university campus.

An automated teller machine or automatic teller machine (ATM) is a computerized

telecommunications device that provides a financial institution's customers a method of financial\

transactions in a public space without the need for a human clerk or bank teller. On most modern

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ATMs, the customer identifies him or herself by inserting a plastic ATM card with a magnetic

stripe or a plastic smartcard with a chip that contains his or her card number and some security

information, such as an expiration date or CVC (CVV). Security is provided by the customer

entering a personal identification number (PIN). The plastic card is replacing cheque, personal

attendance of the customer, banking hours restrictions and paper based verification.

Using an ATM, customers can access their bank accounts in order to make cash

withdrawals (or credit card cash advances) and check their account balances. Many ATMs also

allow people to deposit cash or checks, transfer money between their bank accounts, pay bills, or

purchase goods and services.

Some of the advantages of ATM to customers are:-

Ability to draw cash after normal banking hours

Quicker than normal cashier service

Complete security as only the card holder knows the PIN

Does not just operate as a medium of obtaining cash.

Customer can sometimes use the services of other bank ATMs.

2.1.3: Tele banking or Phone Banking

Telephone banking is fastly becoming one of the most popular products. Customer can

perform a number of transactions from the convenience of their own home or office; in fact from

anywhere they have access to phone. Customers can:-

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 Check balances and statement information

Transfer funds from one account to another

Pay certain bills

Order statements or cheque books

Demand draft request

This facility is available with the help of Voice Response System (VRS). This system

basically, accepts only TONE dialed input. Like the ATM customer has to follow particular

process, initially account number and telephone PIN are fed for the process to start. Also the

VRS system provides the users within additional facilities such as changing existing password

with the new desired, information about new products, current interest rates etc.

2.1.4: Mobile Banking

Mobile banking comes in as a part of the banks initiative to offer multiple channels

banking providing convenience for its customer. A versatile multifunctional, free service that is

accessible and viewable on the monitor of mobile phone. Mobile phones are playing great role in

Indian banking- both directly and indirectly. They are being used both as banking and other

channels.

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2.2: SERVICES BY E-BANKING

2.2.1: Bill Payment Service

Customers can facilitate payment of electricity and telephone bills, mobile phone, credit

card and insurance premium bills as each bank has tie-ups with various utility companies, service

providers and insurance companies, across the country. To pay the bills, all one need to do is

complete a simple one-time registration for each biller. Customers can also set up standing

instructions online to pay their recurring bills, automatically. Generally, the bank does not charge

customers for online bill payment.

2.2.2: Fund Transfer

Customers can transfer any amount from one account to another of the same or any

another bank. After login to the account, customers need to mention the payees account number,

his bank and the branch. The transfer will take place in a day or so, whereas in a traditional

method, it takes about three working days.

2.2.3: NEFT

The NEFT stands for National electronic to the credit account. Central bank acts as

the service provider and transfers the credit to the other banks account. This system operates on a

deferred Net Settlement (DNS) basis which settles transaction in batches. In DNS, the settlement

take place with all transactions received till the particular cut- off time. Any transaction initiated

after a designated settlement time would have to wait till the next designated settlement time.

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 2.2.4: RTGS

The acronym RTGS stands for Real Time Gross Settlement. RTGS system is a funds

transfer mechanism where transfer of money takes place from one bank to another on a real time

and on gross basis. This is the fastest possible money transfer system through the banking

channel. Settlement in real time means payment transaction is not subjected to any waiting

period. The transactions are settled as soon as they are processed. Gross settlement means the

transaction is settled on one to one basis without bunching with any other transaction.

2.2.5: Credit Card Customers

With Internet banking, customers can not only pay their credit card bills online but also

get a loan on their cards. If the customer lose credit card, they can also report lost card online.

2.2.6: Investing Through Internet Banking

Now investors 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 account.

Moreover, some banks even give the facility to purchase mutual funds directly from the online

banking system.

2.2.7: Recharging Your Prepaid Phone

Now customers can 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.

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 2.2.8: Shopping

With a range of all kind of products, customer can shop online and the payment is also

made conveniently through the account. Customer can also buy railway and air tickets through

Internet banking.

2.3: The three broad facilities that e-banking offers are:

2.3.1: Convenience

Complete yours banking at your convenience, in the comfort of your home or at any

place you can access the Net.

2.3.2: No more Qs

There are no queues at an online bank.

2.3.3: 24/7 service

Bank online 24 hours a day, 7 days a week and 52 weeks a year.

2.4: FEATURES OF E-BANKING

2.4.1: Transactional

Performing a financial transaction such as an account to account transfer, paying a bill or

applications like applying for a loan, new account, etc.

Electronic Bill Presentment and Payment (EBPP)

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 Funds transfer between customers own checking and savings accounts, or to another

customers account.

Investment purchase or sale.

Loan application and transactions such as repayments.

2.4.2: Non-Transactional

Online statements, Check links, Chat, Co-browsing etc.

Financial Institution Administration- features allowing financial institutions to

manage the online experience of their end users.

ASP/ Hosting Administration features allowing the hosting company to

administer the solution across financial institution.

2.5: TYPES OF INTERNET BANKING

2.5.1: Informational

This is the basic level of Internet banking. Typically, the bank has marketing

information about the banks products and services on a stand-alone server. The risk is relatively

low, as informational systems typically have no path between the server and the banks internal

network. This level of Internet banking can be provided by the banks or outsourced. While the risk

to a bank is relatively low, the server or web site may be vulnerable to alteration. Appropriate

controls therefore must be in place to prevent unauthorized alterations to the banks server or web

site.

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2.5.2: Communicative

The interaction between the banks system and the customer. The interaction maybe limited to

electronic mail, account enquiry, loan applications, or static file updates (name and address

change). Because these servers may have a path to the banks internal networks, the risk is higher

with this configuration than with informational systems. Appropriate controls need to be in the

place to prevent, monitor, and alert management of any unauthorized attempt to access the banks

internal networks and computer systems. Virus controls also become much more critical in this

environment.

2.5.3: Transactional

This level of Internet banking allows customers to execute transactions. Since a

path typically exists between the server and the bank or outsourcers internal network, this is the

highest risk architecture and must have the strongest controls. Customer transactions can include

accessing accounts, paying bills, transferring funds etc.

2.6: FACILITIES THROUGH INTERNET BANKING

2.6.1: Online Applications

Consumers can begin their banking relationship with an online application. No need to

waste time driving to a local branch to begin a banking relationship. Consumers can fill out and

submit electronically all necessary information needed to open a checking, savings account or

even a fixed deposit. When the application is submitted, the bank will mail a signature card for its

records and request one to mail or wire your initial funds. Some firms like American Express

enable customers applying for an account to fund their new account electronically via a credit card
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or cheque from another banking institution. There are some firms such as Wingspan and USA

BancShares.com that enable customers to digitally sign their applications.

2.6.2: Account Access

Internet banking customers now have the ability to view their accounts online, including

checking, savings, loans and credit cards. No need to wait for your monthly statements or wait in

queue for the next available customer service representative. Account access enables customers to

view most recent activity on accounts, including cleared checks, deposits, ATM transactions and

balances as of previous days activities. Customers no longer have to hold on to the cleared

checks, since their bank will store them for them online.

2.6.3: Account Transfer

Internet banking customers have the ability to transfer funds to and from their accounts

online. With a simple online form, customers can move money from a checking account to a

savings account and vice versa within the safety and convenience of their home - without

having to visit the ATM. Funds transferred online are updated in less than three hours. In

addition, customers can set up recurring transfers to accounts. A recurring transfer will take place

on the customer specified date, with a specified amount.

2.6.4: Bill Payment

Online bill payment enables customers to pay anyone, friends or family, as well as a pay

their bills electronically. As an add on feature to Internet banking, bill payment enables

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 customers to send paper checks to anyone or an electronic check to any institution that accepts

electronic bill payments. To use bill payment, customers are required to set up their payees

online. Customers then have the ability to set up recurring, automatic payments to a specific

biller on a specified day or just a one-time payment. Arrange payments three to five days, before

the due date, to ensure timely delivery. It is important to note that not all banks provide bill

payment as a free feature.

2.6.5: Benefits at Participating Online Merchants

The banks partner with online merchants to offer discounts when a purchase is made with

the card.

2.6.6:24/7 Customer Service

Although it is easy to yield to the temptation of allowing the Internet to replace expensive

branch personnel and overhead, many banks have found that an customer service staff ready at any

hour is well worth the expense. This can be especially true as customers transition to online

banking and need help learning the features. Offering telephone and email contacts is a basic level

of service. Offering live chat assistance is the exceptional level.

2.6.7: Access To Old Transactions

Choices made in designing the Internet interface may include how much history will be

available online. Some banks have chosen to show only 30-45 days, while others offer a history of

six months or a year.

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 2.6.8: Categorize Transactions and Produce Reports

Functionality is king as online banking customers using these features enjoy a Web

interface that delivers the utility of a money management software application.

2.6.9: Export Your Banking Data

Most banks offering the management interface also allow easy downloading of financial

information into files that can be imported into Microsoft Money and Intuit's Quicken.

2.6.10: Interactive Guides & Tools to Help Selection Of Proper Product

Although online, interactive guides through a bank's products, adds complexity to the

programming it also serves the bank by assisting potential customers in choosing new products or

services. Interactive Tools to design a savings plan choose a mortgage, obtain online insurance

quotes all tied to applications These tools help remove some of the mystery involved in so many

account options and costs.

2.6.11: Loan Status and Credit Card Account Information

Bank customers are familiar with reviewing their checking account information, but

many banks are adding the ability to look at one's loan status and credit card information as well.

Access to as many accounts held at the bank seems to be the goal.

2.6.12: View Digital Copies of Checks

This, again, is removing a down side to online banking. It makes images of checks

available as replacement for sending out cancelled checks or sheets of printed check images.

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2.6.13: Online Forms for Ordering Checks, Stop Payment, Etc.

Convenience is popular and if a customer visits his or her online account frequently it only makes

sense to allow the ability to reorder checks or perform certain other commands through the same

interface.

2.7: BENEFITS OF E-BANKING

2.7.1: To the Customers

Customers account is extremely accessible to an online account.

Customer can withdraw the cash at any time through ATMs that are now widely available

throughout the country.

Besides withdrawing cash customers can also have mini banks statements, balance

inquiry at the ATMs

Customers can operate their accounts while sitting in their offices or homes. There is no

need to go to the bank in person for such matter.

E-banking helps for the payment of utility bill.

All services that are usually available from the local bank can be found on a single

website.

The Growth of Credit Card usage also owes greatly to E-banking.

Banking is available throughout the day without holidays.

Services can be offered at a very low cost. As the chart shows results of a survey, cost

per transaction through internet banking is the least among all the other mode

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2.7.2: To Banking Industry

controlling banks operating cost

Increase efficiency, better time usage and enhanced control.

E-banking has made banks more competitive. It has also led to the expansion of the

banking industry, opening of new avenues for banking operations.

Electronic banking reduce paper work, thus helping them to move the paperless

environment.

proper documentation of their records and transactions.

The reach and delivery capabilities of computer networks like the internet are far better

than any branch network.

2.7.3: To General Economy

E-banking gives tangible benefits in the form of reduction of cost, reduced delivery time,

increased efficiency, reduced wastage

E-banking electronically controlled and thoroughly monitored environment discourage

many illegal and illegitimate practices

E-banking has also helped in documentation of the economic activities of the masses

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2.8: DISADVANTAGES OF E-BANKING

Compelled to have Computers with Internet Access.

Phone bills can increase.

Hackers may intercept data and defraud customers.

If the bank's server is down, we can't use it.

Many banks don't show us how to use online banking.

Our internet connection must be working properly so that customers can have access

2.9: CONCERNS WITH E-BANKING

As with any new technology new problems are faced

2.9.1: Customer Support

Banks will have to create a whole new customer relations department to help customers.

Banks have to make sure that the customers receive assistance quickly if they need help. Any

major problems or disastrous can destroy the banks reputation quickly an easily. By showing the

customer that the Internet is reliable you are able to get the customer to trust online banking

more and more.

2.9.2: Laws

While Internet banking does not have national or state boundaries, the law does.

Companies will have to make sure that they have software in place software market, creating a

monopoly.

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2.9.3: Security:

Customer always worries about their protection and security or accuracy. There are

always questions whether or not something took place.

2.9.4: Other Challenges:

Lack of knowledge from customers end, set changes by the banks, etc

2.10: FUTURE OF E-BANKING

The future of e-banking looks extremely promising. The term internet banking refers to

an individual that performs their normal banking operations via the internet. Many people

commonly refer to this type of banking as online banking as well. Inadvertently, there are wide

arrays of people that have chosen to take advantage of this particular type of banking for all of

their business affairs, and as a way to monitor their money.

The process of internet banking will involve your bank assigning you a personal user

name and password to use while on their site. There are some banks that will not issue this

information directly to you, thus giving you the opportunity to select your very own user name

and password when you are commencing in this type of banking.

If a bank does not equip you with a username and password, you are free to create your

very own log in information. However, normally if the bank that you handle your money through

does not give you a login you may still be asked to enter your account number into the database

so they can correctly locate your bank account.

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 For the most part, a lot of the banks that are operable today have some kind of internet

banking that they have as an additional option for consumers to manage their money. There are a

vast amount of firewalls and other protective security measures that are installed onto these sites

in order to ensure that your information remains visible to only you.

Normally once logged into your internet banking site you will be able to correctly

manage your money. You will see charges that show any pending deposits, pending charges, as

well as your transactions. This information is vital to anyone that has their own bank account to

keep a record of.

Your login information is what will be used to allow you access to your banks internet

banking website. It is crucial that no one receives your login information without your consent.

Typically, husband and wives will give each other their logins, since most couples share a bank

account amongst themselves.

Keep a record of your account information so you can easily obtain it if you need it.

There are a lot of people that actually print their transaction history and other bank information

off directly from the website. This helps them obtain a hard copy of their bank information,

making it easier to admonish all charges and manage their account.

Ensuring that after you have finished engaging in your banking practices online that you

completely log off of the website will also ensure the safety of your banking information. If you

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do not log off in the correct manner, your banking information can end up being found by

someone else, making your bank account susceptible to theft.

The invention of internet banking has made it possible for people to manage their

money a lot more effectively. A lot of banks are actually encouraging that any that has a bank

account tries to keep up with their accounts through online banking.

2.11: CHALLENGES OF THE E-BANKING REVOLUTION

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. 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.

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 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 risksparticularly governance, legal, operational, and

reputationalinherent 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.

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 CHAPTER#03 MOBILE BANKING

3.1: What Is M-Banking?

Mobile banking (also referred to as m-banking, phone banking, SMS banking, etc.)

means conducting account transactions via a mobile phone. For banks, mobile banking has

become the most promising medium of reaching out to their customers because of the ability to

provide services at any time or place in the world (of course, if there is cell phone reception).

Thats why news headlines weekly report about new financial institutions launching mobile

banking.

Internet Banking helped give the customers anytime access to their banks. Customers

could check out their account details, perform transactions like transferring money to other

accounts, and pay their bills, sitting in the comfort of their homes and offices. 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 Pakistan, India and China.

Mobile Banking addresses this fundamental limitation of Internet Banking, as it reduces

the customer requirement to just a mobile phone. Mobile usage has seen an explosive growth in

most of the Asian economies like Pakistan, India, China and Korea. The main reason that Mobile

Banking scores over Internet Banking is that it enables 'Anywhere Anytime Banking'

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Using comprehensive mobile technology, financial institutions can offer a wide array of different

services to their customers. The basic options include bill payments, balance inquiries and

transfers among accounts owned by the same person.

Mobile banking provides exceptional convenience for all cell phone users. There are various m-

banking methods to cover different capabilities of mobile phones: text messaging, the mobile

Internet, and special programs called clients that are downloaded to mobile devices. So even if

your phone does not support Web browsing, you can still take advantage of m-banking.

Text messaging is the most popular method of mobile banking. However, its functionality is

limited to two or three services. Web browser-based solutions are more sophisticated than text

messaging and provide the same range of options as online banking. M-banking clients,

generally created for smart phones, are the most comprehensive systems.

UK: The number of mobile phone subscribers that use their phones for mobile banking

transactions will exceed 150m globally by 2011, according to a new study by Juniper Research.

These figures refer to additive banking which is focused on developed markets rather than

transformational banking.

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 `

The Juniper Research report determined that the mobile banking market is currently

most advanced in the Far East, but that growing numbers of mobile banking services are being

offered in North America and Western Europe. The developed nations of the Far East, North

America and Western Europe are forecast to account for over 70% of the user base by 2011.

Mobile Banking report author Howard Wilcox gave more details: "Transactional or

"push" mobile banking is being offered increasingly by banks via downloadable applications or

the mobile web, complementing existing SMS messaging services for balance and simple

information enquiries. Mobile banking is a key element in banks' distribution channel strategies

as they compete to attract and retain customers."

However the report identified several factors that will need addressing to really foster

market development including financial regulations which vary from country to country,

27
application slickness, and security. Whatever the reality of the strength of the security, it is the

perception and image in the mind of the user that dictates whether they will trust the service.

The Juniper Research study provides an analysis of the trends and issues affecting this

market, exploring how the mobile banking market will develop. The report provides forecasts of

user take-up, user-level messaging traffic, user-level transaction volumes and gross transaction

values for "Push" Mobile Banking Information Services, and "Pull" transactional banking

services. The report also presents the strategies of 15 key vendors and 12 mobile banking

services pioneering in this developing market.

3.2: A MOBILE BANKING CONCEPTUAL MODEL

"Mobile Banking refers to provision and availment of banking- and financial services

with the help of mobile telecommunication devices.The scope of offered services may include

facilities to conduct bank and stock market transactions, to administer accounts and to access

customized information."

According to this model Mobile Banking can be said to consist of three inter-related concepts:

Mobile Accounting

Mobile Brokerage

Mobile Financial Information Services

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3.2.1Mobile Accounting

Mobile Accounting is sometimes characterized as transaction-based banking services that

revolve around a bank account and are availed using mobile devices .Not all Mobile Accounting

services are however necessarily transaction-based. A more precise definition of Mobile

Accounting would therefore characterize it as availment of account-specific banking services of

non-informational nature. Mobile Accounting services may be divided in two categories to

differentiate between services that are essential to operate an account and services that are

essential to administer an account.

3.2.2: Mobile Brokerage

Brokerage, in the context of banking- and financial services, refers to intermediary

services related to the bourse, e.g. selling and purchasing of stocks. Mobile Brokerage can be

thus defined as transaction based, mobile financial services of non-informational nature that

revolve around a securities account. Mobile Brokerage, too, may be divided in two categories to

differentiate between services that are essential to operate a securities account and services that

are essential to administer that account.

3.2.3: Mobile Financial Information

Mobile Financial Information refers to non-transaction based banking- and financial

services of informational nature. Mobile Financial Information services include subsets from

both banking and financial services and are meant to provide the customer with anytime,

anywhere access to information .The information may either concern the bank and securities

accounts of the customer or it may be regarding market developments with relevance for that

29
individual customer. The information may be customized on the basis of preferences given by

the customer and sent with a frequency decided by him. The information should be provided,

ideally, on both, pull and push basis. Information services are an integral part of Mobile

Accounting and Mobile Brokerage but they may also be offered as a stand-alone, independent

module, i.e. Mobile Financial Information can be offered without offering Mobile Accounting or

Mobile Brokerage but vice versa is not feasible.

3.3: MOBILE BANKING BUSINESS MODELS

A wide spectrum of Mobile/branchless banking models is evolving. However, no matter

what business model, if mobile banking is being used to attract low-income populations in often

rural locations, the business model will depend on banking agents, i.e., retail or postal outlets that

process financial transactions on behalf telcos or banks. The banking agent is an important part

of the mobile banking business model since customer care, service quality, and cash

management will depend on them. Many telcos will work through their local airtime resellers.

However, banks in Colombia, Brazil, Peru, and other markets use pharmacies, bakeries, etc.

These models differ primarily on the question that who will establish the relationship

(account opening, deposit taking, lending etc.) to the end customer, the Bank or the Non-

Bank/Telecommunication Company (Telco). Another difference lies in the nature of agency

agreement between bank and the Non-Bank. Models of branchless banking can be classified into

three broad categories - Bank Focused, Bank-Led and Nonbank-Led

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3.3.1: Bank-focused Model

The bank-focused model emerges when a traditional bank uses non-traditional low-cost

delivery channels to provide banking services to its existing customers. Examples range from use

of automatic teller machines (ATMs) to internet banking or mobile phone banking to provide

certain limited banking services to banks customers. This model is additive in nature and may

be seen as a modest extension of conventional branch-based banking.

3.3.2: Bank-led model

The bank-led model offers a distinct alternative to conventional branch-based banking in

that customer conducts financial transactions at a whole range of retail agents (or through mobile

phone) instead of at bank branches or through bank employees. This model promises the

potential to substantially increase the financial services outreach by using a different delivery

channel (retailers/ mobile phones), a different trade partner (telco / chain store) having

experience and target market distinct from traditional banks, and may be significantly cheaper

than the bank-based alternatives. The bank-led model may be implemented by either using

correspondent arrangements or by creating a JV between Bank and Telco/non-bank. In this

model customer account relationship rests with the bank

3.3.3: Non-bank-led model

The non-bank-led model is where a bank has a limited role in the day-to-day account

management. Typically its role in this model is limited to safe-keeping of funds. Account

management functions are conducted by a non-bank (e.g. telco) who has direct contact with

individual customers.

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3.4: FEATURES OF MOBILE BANKING

Mobile Customers: - those who use mobile telephony use mobile banking service. Mobile

telephony is used through mobile phones.

M Commerce: - mobile banking is a part of m Commerce whereby business and trade

takes place through mobile on-line. Those mobile users who became on line internet users do

M Commerce.

Technology based: - Mobile banking are based on technology of development. Mobile

banking makes use of internet for transmission, transaction & delivery of banking services.

The network provider the required software support.

Services: - Mobile banking offers the entire internet-based banking services such as on-line

account opening, account verification, funds transfer etc.

Eligibility: - At present, mobile banking is extended only to individual customer having

account with any branch of a particular bank that offers internet banking facility. Further, it is

also required that the customer is registered as on internet banking customer.

Application: - In order to avail the facility of mobile banking, an application duly filled is to

be submitted to the bank. The application is invariably made available in the official website

of the bank.

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3.5:MOBILE BANKING SERVICES

Mobile banking can offer services such as the following:

3.5.1: Account Information

Mini-statements and checking of account history

Alerts on account activity or passing of set thresholds

Monitoring of term deposits

Access to loan statements

Access to card statements

Mutual funds / equity statements

Insurance policy management

Pension plan management

Status on cheque, stop payment on cheque

Ordering check books

Balance checking in the account

Recent transactions

3.5.2: Payments, Deposits, Withdrawals, and Transfers

Domestic and international fund transfers

Micro-payment handling

Mobile recharging

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 Commercial payment processing

Bill payment processing

Peer to Peer payments

Withdrawal at banking agent

Deposit at banking agent

A specific sequence of SMS messages will enable the system to verify if the client has sufficient

funds in his or her wallet and authorize a deposit or withdrawal transaction at the agent. When

depositing money, the merchant receives cash and the system credits the client's bank account or

mobile wallet. In the same way the client can also withdraw money at the merchant: through

exchanging sms to provide authorization, the merchant hands the client cash and debits the

merchant's account.

3.5.3:Investments

Portfolio management services

Real-time stock quotes

Personalized alerts and notifications on security prices

3.5.4:support

Status of requests for credit, including mortgage approval, and insurance coverage

Check (cheque) book and card requests

Exchange of data messages and email, including complaint submission and tracking

ATM Location

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3.5.5: Content Support

General information such as weather updates, news

Loyalty-related offers

Location-based services

Based on a survey conducted by Forrester, mobile banking will be attractive mainly to the

younger, more "tech-savvy" customer segment. A third of mobile phone users say that they may

consider performing some kind of financial transaction through their mobile phone. But most of

the users are interested in performing basic transactions such as querying for account balance and

making bill payment

3.6: TECHNOLOGIES ENABLING MOBILE BANKING

Technically speaking most of these services can be deployed using more than one

channel. Presently, Mobile Banking is being deployed using mobile applications developed on

one of the following four channels.

IVR (Interactive Voice Response)

SMS (Short Messaging Service)

WAP (Wireless Access Protocol)

Standalone Mobile Application Clients

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3.6.1: IVR (Interactive Voice Response)

IVR or Interactive Voice Response service operates through pre-specified numbers that

banks advertise to their customers. Customer's make a call at the IVR number and are usually

greeted by a stored electronic message followed by a menu of different options. Customers can

choose options by pressing the corresponding number in their keypads, and are then read out the

corresponding information, mostly using a text to speech program.

Mobile banking based on IVR has some major limitations that they can be used only for

Enquiry based services. Also, IVR is more expensive as compared to other channels as it

involves making a voice call which is generally more expensive than sending an SMS or making

data transfer (as in WAP or Standalone clients).

One way to enable IVR is by deploying a PBX system that can host IVR dial plans.

Banks looking to go the low cost way should consider evaluating Asterisk , which is an open

source Linux PBX system

Asterisk, due to its open source nature has caught on in a big way and is being sold as an

PBX solutions by quite a few companies commercially. However there has been considerable

noise on multiple Asterisk related forums over the stability of Asterisk based systems.

Companies planning to use Asterisk for their IVR solutions should certainly do a rigorous

evaluation of its capabilities before committing their long term future on it.

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3.6.2: SMS (Short Messaging Service)

SMS uses the popular text-messaging standard to enable mobile application based

banking. The way this works is that the customer requests for information by sending an SMS

containing a service command to a pre-specified number. The bank responds with a reply SMS

containing the specific information.

3.6.3: WAP (Wireless Access Protocol)

WAP uses a concept similar to that used in Internet banking. Banks maintain WAP sites

which customer's access using a WAP compatible browser on their mobile phones. WAP sites

offer the familiar form based interface and can also implement security quite effectively.

Bank of America offers a WAP based service channel to its customers in Hong Kong.

The banks customers can now have an anytime, anywhere access to a secure reliable service that

allows them to access all enquiry and transaction based services and also more complex

transaction like trade in securities through their phone

A WAP based service requires hosting a WAP gateway. Mobile Application users access

the bank's site through the WAP gateway to carry out transactions, much like internet users

access a web portal for accessing the banks services.

The following figure demonstrates the framework for enabling mobile applications over

WAP. The actually forms that go into a mobile application are stored on a WAP server, and

served on demand. The WAP Gateway forms an access point to the internet from the mobile

network.

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3.6.4: Standalone Mobile Application Clients

Standalone mobile applications are the ones that hold out the most promise as they are

most suitable to implement complex banking transactions like trading in securities. They can be

easily customized according to the user interface complexity supported by the mobile. In

addition, mobile applications enable the implementation of a very secure and reliable channel of

communication.

One requirement of mobile applications clients is that they require to be downloaded on

the client device before they can be used, which further requires the mobile device to support one

of the many development environments like J2ME or Qualcomm's BREW. J2ME is fast

becoming an industry standard to deploy mobile applications and requires the mobile phone to

support Java.

The major disadvantage of mobile application clients is that the applications needs to be

customized to each mobile phone on which it might finally run. J2ME ties together the API for

mobile phones which have the similar functionality in what it calls 'profiles'. However, the rapid

proliferation of mobile phones which support different functionality has resulted in a huge

number of profiles, which are further significantly driving up development costs. This scale of

this problem can be gauged by the fact that companies implementing mobile application clients

might need to spend as much as 50% of their development time and resources on just

customizing their applications to meet the needs of different mobile profiles.

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3.7: ADVANTAGES OF MOBILE BANKING

The biggest advantage that mobile banking offers to banks is that it drastically cuts

down the costs of providing service to the customers. For example an average teller or phone

transaction costs about $2.36 each, whereas an electronic transaction costs only about $0.10

each. Additionally, this new channel gives the bank ability to cross-sell up-sell their other

complex banking products and services such as vehicle loans, credit cards etc.

For service providers, Mobile banking offers the next surest way to achieve growth.

Countries like Korea where mobile penetration is nearing saturation, mobile banking is helping

service providers increase revenues from the now static subscriber base. Also service providers

are increasingly using the complexity of their supported mobile banking services to attract new

customers and retain old ones.

A very effective way of improving customer service could be to inform customers

better. Credit card fraud is one such area. A bank could, through the use of mobile technology,

inform owners each time purchases above a certain value have been made on their card. This

way the owner is always informed when their card is used, and how much money was taken for

each transaction.

Similarly, the bank could remind customers of outstanding loan repayment dates, dates

for the payment of monthly installments or simply tell them that a bill has been presented and is

up for payment. The customers can then check their balance on the phone and authorize the

required amounts for payment.

39
 The customers can also request for additional information. They can automatically view

deposits and withdrawals as they occur and also pre- schedule payments to be made or cheques

to be issued. Similarly, one could also request for services like stop cheque or issue of a cheque

book over ones mobile phone.

There are number of reasons that should persuade banks in favor of mobile phones.

They are set to become a crucial part of the total banking services experience for the customers.

Also, they have the potential to bring down costs for the bank itself. Through mobile messaging

and other such interfaces, banks provide value added services to the customer at marginal costs..

Yet another benefit is the anywhere/anytime characteristics of mobile services. A

mobile is almost always with the customer. As such it can be used over a vast geographical area.

The customer does not have to visit the bank ATM or a branch to avail of the banks services.

Research indicates that the number of footfalls at a banks branch has fallen down drastically

after the installation of ATMs. As such with mobile services, a bank will need to hire even less

employees as people will no longer need to visit bank branches apart from certain occasions.

The banks add to this personalized communication through the process of automation. For

instance, if the customer asks for his account or card balance after conducting a transaction, the

installed software can send him an automated reply informing of the same. These automated

replies thus save the bank the need to hire additional employees for servicing customer needs.

40
3.8: DISADVANTAGES OF MOBILE BANKING

Many non-standards variables including handsets, browsers and operating system.

Inconsistent user experience due to varying connection speed and different

handset.

User needs to have a data plan, which may be a barrier to adoption among price

sensitive demographics.

No offline (out of the coverage) capability.

3.9: CHALLENGES FOR MOBILE BANKING

Key challenges in developing a sophisticated mobile banking application are:

3.9.1: Handset Operability

There are a large number of different mobile phone devices and it is a big challenge for

banks to offer mobile banking solution on any type of device. Some of these devices support

J2ME and others support WAP browser or only SMS.

Initial 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

41
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.

There is a myth that there is a challenge of interoperability between mobile banking

applications due to perceived lack of common technology standards for mobile banking. In

practice it is too early in the service lifecycle for interoperability to be addressed within an

individual country, as very few countries have more than one mobile banking service provider.

In practice, banking interfaces are well defined and money movements between banks follow the

IS0-8583 standard. As mobile banking matures, money movements between service providers

will naturally adopt the same standards as in the banking world.

3.9.2: 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 mobile 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.

42
 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.

3.9.3: Scalability & Reliability

Another challenge for the CIOs and CTOs of the banks is to scale-up the mobile

banking infrastructure to handle exponential growth of the customer base. With mobile 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 mobile 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. There are systems such as Mobile Transaction Platform which allow quick and

secure mobile enabling of various banking services.

3.9.4: 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 mobile banking application. It will be expected that the mobile application itself

check the upgrades and updates and download necessary patches (so called "Over The Air"

43
updates). However, there could be many issues to implement this approach such as upgrade /

synchronization of other dependent components.

3.9.5: Personalization

It would be expected from the mobile application to support personalization such as:

Preferred Language

Date / Time format

Amount format

Default transactions

Standard Beneficiary list

Alerts

3.10 : FEATURES OF MOBILE COMMERCE

Mobile Commerce is characterized by some unique features that equip it with certain

advantages against conventional forms of commercial transactions, including Electronic

Commerce:

Ubiquity:

Ubiquity means that the user can avail of services and carry out transactions largely

independent of his current geographic location (the anywhere feature).

44
Immediacy:

Closely related to the feature of ubiquity is the possibility of real-time availment of

services (the anytime feature). This feature is particularly attractive for services that are time-

critical and demand a fast reaction, e.g. stock market information.

Localization:

Positioning technologies, such as the Global Positioning System (GPS), allow

companies to offer goods and services to the user specific to his current location. LBS can thus

cater to consumers needs and wishes for localised content and services.

Instant connectivity:

Ever since the introduction of the General Packet Radio Service (GPRS) mobile devices

are constantly online, i.e. in touch with the network (the always-on feature). This feature

brings convenience to the user, as time-consuming dialup or boot processes are not necessary.

Pro-active functionality:

Mobile Commerce opens, by the virtue of its ability to be immediate, local and personal,

new avenues for business. The user may choose the products, and services, which he wants to be

kept informed about. The Short Message Service (SMS) can be used to send brief text messages

to customers ensuring that the right (relevant) information is provided to the user at the right

place, at the right time.

Simple authentication procedure:

Mobile devices function with an electronic chip called Subscriber Identity Module

(SIM). The SIM is registered with the network operator and the owner is thus unambiguously

identifiable. The clear identification of the user in combination with an individual Personal

45
Identification Number (PIN) makes any further time-consuming, complicated and potentially

inefficient authentication process redundant.

3.11: A POSITIVE MOBILE BANKING FUTURE

Quick change

Consumer behavior is changing at a rapid pace. Consumers have become mobile savvy,

choosing more sophisticated handsets powered by new technology to access a wide range of

media and services. Increased network speeds and reduced latency have dramatically improved

the potential for a rich customer experience. Touch screens make it easier to use more

sophisticated apps and browser-based services. Tablets and net books add to the numbers of

'always on' devices available.

The next generation of banking customers is already sophisticated users of mobile. Recent

research by Tremens surveying financial attitudes and behaviors of 16 to 18 year olds in the UK,

Brazil and China, identified that over 62% use their mobile handset for internet browsing.

Retailers have been quick to note that their customers use mobile as part of their shopping

experience. For example, shoppers browse in one shop while comparing prices online and, via

text and instant messaging, with friends in other shops.

M-banking services have to date been basic in design, commonly offering limited transactional

data and an ability to transfer funds between accounts with the same bank. Such limited

functionality is not aligned with the needs of todays customers, who want to conduct all their

banking business through a single channel in a single transaction.

46
M-banking has since improved to keep up with the ever evolving expectations of todays

consumer, and has been successfully introduced by banks, which are including convenient

customer alerts via SMS messaging technology and, according to Juniper Research, the number

of these will rise substantially.

Juniper Researchs 2011 predictions include that mobile banking will become a 'must have' when

opening a new bank account and that mobile devices will begin to replace credit cards, a

conclusion based on the increased inclusion of near field communication (NFC) chips in phones.

Time to treble

Consumers today are quickly becoming used to purchasing and downloading applications, video

and music through and to their handset device. According to Juniper, mobile payments for

physical goods will treble within three years as sites such as eBay Mobile and Amazon Mobile

are used increasingly, and are commonly preloaded to mobile handsets. Analysts expect wide

adoption of contactless payment via mobile phone, instigated by the ticketing and transport

sectors.

Mobile is not automatically a highly secure channel, but with the right technology, is capable of

delivering higher levels of security than the internet-based equivalent. Banks can exploit this and

provide the safest and most convenient way for customers to access and manage their accounts.

This security can do away with the need for extensive password and personal data checking,

47
which is necessary on a browser on a computer. Its not straightforward to ensure security when

using a laptop to access the internet via Wi-Fi, whereas a mobile phone with a highly secure

application communicating over an untrusted network still doesn't expose the content in the

transmission.

Apps can securely store personal details, removing the need for users to repetitively enter

information, thus enabling a truly mobile experience, available now, quickly conducted, and no

hassle. Encryption technology protects this data should the handset be lost. Banks could further

improve their services by allowing customers additional functionality and services such as to

check and approve bills, or report and disable a lost or stolen card.

As m-commerce becomes part of the mainstream, enabling retail customers to make secure

payments with their phone as they do now with their debit card and chip and pin, banks can play

a crucial role. The 'always on' user expects transactions to take place immediately and m-banking

may be a driver towards faster payment clearing. Banks need to re-evaluate their mobile

strategies today to protect their place in the market tomorrow.

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The reasons for this extraordinary growth are

The phenomenal growth of the telecommunication sector and the resultant

(unparalleled) penetration of the society by mobile phones present unique business

opportunities.

A new generation of technology- and innovation friendly consumers is taking centre

stage in business- and social life of the society. This generation is more open to the

opportunities presented by mobile telecommunication.

The ongoing process of Globalization and the integration of the world-economy are

forcing working professionals to be on the move within national and international

geographic boundaries. These professionals need to carry out their bank business also

while on the move.

The anytime, anywhere feature of Mobile Banking is thus nothing less than a

professional necessity for many of them. The banks are thus, on the one hand, forced

to take cognizance of the needs and wishes of some of their most attractive customer

groups. On the other hand, the advantages that Mobile services potentially bring to a

bank or any other provider of financial services are too palpable to deny. In the

following we list some relevant factors that ought to be taken into account while

making decisions on the launch, maintenance and scope of Mobile Banking

49
 CHAPTER#4 BRANCHLESS BANKING

4.1: WHAT IS BRANCHLESS BANKING?

Branchless banking is a distribution channel strategy used for delivering financial

services without relying on bank branches. While the strategy may complement an existing bank

branch network for giving customers a broader range of channels through which they can access

financial services, branchless banking can also be used as a separate channel strategy that

entirely forgoes bank branches.

By the definition of the Consultative Group to Assist the Poor (CGAP), branchless banking

comprises essentially all of the following elements:

Use of technology, such as payment cards or mobile phones, to identify customers and

record transactions electronically and, in some cases, to allow customers to initiate

transactions remotely

Use of (exclusive or nonexclusive) third-party outlets, such as post offices and small

retailers, that act as agents for financial services providers and that enable customers to

perform functions that require their physical presence, such as cash handling and

customer due diligence for account opening

Offer of at least basic cash deposit and withdrawal in addition to transactional or

payment services

Backing of a government-recognized, deposit-taking institution, such as a formally

licensed bank

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 Structuring of the above so that customers can use these banking services on a regular

basis (available during normal business hours) and without needing to go to bank

branches at all, if thats what they choose.

Examples of branchless banking technologies are the Internet, automated teller machines

(ATMs), POS devices, EFTPOS devices and mobile phones. Each of these technologies serve to

deliver a set of banking services and are part of distribution channels that may be used either

separately or in conjunction to form the overall distribution channel strategy

4.2: Permissible Branchless Banking Models

As per the policy of SBP on Regulatory Framework for Mobile Banking, presently, only

Bank-led Model of BB is allowed. Nonbank-Led Model will be opened up after the players and

stakeholders attain necessary level of maturity and after putting in place necessary controls.

As only bank-led model of branchless banking is allowed at present which may be

implemented in different ways. Firstly, it can be implemented either by using agency

arrangements or by creating a JV between Bank and Telco/non-bank.

Further, the mobile phone banking which make up for large part of branchless banking

can be implemented by using one-to-one, one-to-many and many-to-many models. It is the

responsibility of the FI to carry out detailed analysis of pros and cons of each model before any

of them. These models are briefly explained hereunder.

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4.2.1: One-to-one (1-1) Model

In this model one bank offers mobile phone banking services in collaboration with a

specific Telco. As a consequence, the services may only be offered to customers using mobile

connection of that specific telco. This model can be JV-based or implemented through specific

agency agreements between the telco and the bank. It offers greater customization, good service

standards, possibility of co-branding and co-marketing. On the other hand, it lack in outreach as

it is limited to the customers of one telco only.

4.2.2: One-to-many (1-) Model:

In this model a bank offers mobile phone banking services to customers using mobile

connection of any Telcos. This model offers the possibility to reach to any bankable customer

who has a mobile phone connection. But this model has several limitations in that all telcos may

not be ready to offer the bank a priority SMS pipe to enable it to provide quick services which

are of essence in mobile phone banking. Further, the FI needs to bear all advertising/marketing

expenses. Another serious drawback of this model is that it may require the bank to rely upon its

own branch network for product distribution and cash-in cash-out services etc.

4.2.3: Many-to-many (-) Model:

In this model many banks and many telcos join hands to offer services to virtually all

bankable customers. Under this system, a central transaction processing system (TPS) is

necessitated, which must be controlled by an FI; or by a subsidiary owned and controlled by an

52
FI or a group of FIs; or by a third party service provider under proper agency agreement with a

bank.

The TPS should be capable of:

settling all transactions on real time basis,

storing all proofs of transactions, and

providing a day end reconciliation to all member banks.

All settlements must take place in specific Branchless Banking clearing accounts of all

participating banks /telcos/TPS provider kept with a designated bank. This model offers the

maximum connectivity and hence maximum outreach and is closer to the desired situation where

all banks and all telcos should be able to entertain each others customers (Just like the existing

ATM network in the country where customer of any bank can use ATM of any other bank).

4.2.4: Alternate Channels:

Branchless banking can also be done using agents other then Telcos (like Fuel

distribution companies, Pakistan Post, chain stores etc.) and using technologies not limited to

mobile phone (like GPRS, POS terminals etc.). The above explained three sub-models (one-to-

one, one-to-many and many-to-many) can also be applied to this type of branchless banking (i.e.

one FI may join hands with one super agent [1-1], one FI with many agents [1-] or many FIs

and many super-agents may join hands to provide BB services [-]), provided the complexities

of each model are understood, the operating procedures are documented and the risks are

identified and taken care of.

In each case customer account relationship must reside with some FI and each

transaction must hit the actual customer account and no actual monetary value is stored on the

53
mobile-phone or TPS server (the balances shown on mobile phone etc. are merely a reflection of

actual account balances). Consequently the use of the term e-money to represent the services

offered under these guidelines is prohibited as being technically incorrect.

4.3: PERMISSIBLE BRANCHLESS BANKING ACTIVITIES

According to the SBP guidelines following products/services may be offered

4.3.1: Opening and Maintaining a BB Account

A BB account is an account opened and operated by a customer with a bank. Banks may

associate such account to a particular branch or to a centralized branchless banking unit. Account

capabilities/limits are commensurate with the level of customer due diligence (CDD) and KYC

procedures the customer has undergone.

4.3.2: Account-To-Account Fund Transfer

Customers may transfer funds to/from their BB account from/to their other pre-

registered accounts (current/saving bank accounts, loan limit accounts, credit card accounts etc.)

4.3.3: Person-To-Person Fund Transfers:

Customer can transfer funds from their BB account to BB or regular accounts of other

customers of same or some other bank (depending on the model capabilities).

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4.3.4: Cash-In And Cash-Out:

Customers may deposit and withdraw funds to/from their BB account using a variety of

options including bank-branch counters, ATM machines and authorized agent locations.

4.3.5: Bill Payments:

A BB account can also be used to pay utility bills (e.g. Gas, Electricity, Phone etc.)

4.3.6: Merchant Payments:

Customers can use a BB account to make payments for purchases of goods and/or

services.

4.3.7: Loan Disbursement/Repayment:

FIs, particularly MFBs may use BB accounts as a means to disburse small loan amounts

to their borrowers having BB accounts. The same accounts may be used by customers to repay

their loan installments.

4.4: AGENTS-ASSISTED BANKING

The true power of branchless banking cannot be unleashed until some trusted third

parties are not involved in performing some of the activities that are traditionally performed in

bank branches by bank staff. Use of the word agent in this context does not include third party

service providers who provide certain technical services to banks, such as provision of

transaction processing system. Though the term agent in this context does not include third

party technology service providers, there is no restriction on a third party technology service

provider to become a basic banking agent provided it meets the criteria for becoming an agent.

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4.4.1: Role of Agents

Agents may perform any or all of the following functions depending on the agency agreement

and agent type as detailed in the following sections.

Opening of BB Accounts

Cash in / Cash out.

Bills Payments. (Both from registered BB customers as well as from walk-in

Customers of any utility company).

Loan disbursement / Repayment Collection. (Without involving into loan marketing/

approval functions).

BB Agents cannot be involved in marketing, sales of any other products of the bank

(including but not limited to consumer banking products, liability products etc). One Agent can

provide services to multiple banks provided he (the agent) has a separate service level agreement

with each bank.

4.5: BRANCHLESS BANKING SERVICES OFFERED IN PAKISTAN

There are currently two services offered in Pakistan under branchless banking

4.5.1: Easypaisa

In 2008, Telenor acquired shares of Tameer Microfinance Bank for its upcoming project

related to Mobile Banking. They named it "Easypaisa" and called the product is a part of

Branchless Banking and successfully launched the product in 2009.

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Easypaisa Facilities

Utility Bill Payment (UBP)

Money Transfer (Domestic & International money transactions)

Mobile Wallet

Airtime Topup

Telenor Pakistan introduced a new scheme by making normal retailer shops as their

'merchants' who, in the first phase, will act as the spot where a person can make a transaction.

Added up by Telenor franchises across the country, the total number of easypaisa outlets went

into thousands giving country's people an ease of making money related transactions better than

going to a bank for the same purpose. The 'easypaisa' service is easy, quick & reliable as it the

very first of its own kind. At the end of October 2010, there are more than 11,000 easypaisa

shops all over Pakistan serving all customers with Financial Services (not just Telenor

subscribers). Over PKR 11 billion (USD 120 million) has been moved through 6 million

transactions from these shops. Easypaisa was also covered by CNN as the 'model to follow' in

the light of Mobile Banking.

4.5.2: UBL Omni:

UBL Omni is branchless banking service by UBL, which means user does not have to

go to UBL bank branch to avail banking services. all regular banking services are available for

UBL Omni account holders like money withdraw, deposit, transfer, mobile cards and bill

payments, electricity gas telephone bill payments, Web-portal access, SMS services, Wap

services, UBL branch support, Visa card, ATM etc.

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 All above services of UBL Omni account holders are available, and everyone with

CNIC, Mobile Phone (Number) can become UBL Omni account holder with Rs. 500 of cash

deposit.UBL Omni account holders can visit UBL Dukaan to avail their services

What is UBL Dukaan

UBL Dukaans are just like easypaisa outlets, and they offer following services:

Account Opening

Cash Deposit

Cash Withdrawal

Utility Bill Payments*: Customers can visit UBL OMNI Dukaans to pay their utility bills.

Prepaid mobile Airtime purchase

Postpaid mobile bill payment

Domestic Remittance

4.6: FUTURE PROSPECT OF BRANCHLESS BANKING

Branchless banking is the future of the countrys financial sector as it opens up great

opportunities for banks to tap into the unexploited potential by bringing he unbanked segment of

the society into the financial system. Branchless banking has a huge potential to reach the

unbanked and underserved segment of the population, the branchless banking certainly will

help people to take better advantage of the banking facilities at affordable cost.

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In a CGAP report authors identified four key forces , which are likely to increase the use of

branchless channels by the poor.

Demographic changes including a greater number of younger consumers coming into the

market and greater mobility at least within countries will be favorable for the adoption of

branchless banking.

Activist governments will play a greater role as regulators of the financial sector,

provider of social safety nets, and providers or encouragers of the rollout of low-cost

bank accounts and financial infrastructure. This expanded role may be helpful for

financial inclusion.

While security concerns about cash crime will continue to drive the adoption of

electronic transaction channels, the rise of electronic crime will affect consumer

confidence and test the risk management of financial providers.

Internet browsing via mobile phones will reduce costs of financial transactions and

enable new players to offer financial services.

The essential proposition of branchless banking that financial providers can reduce fixed

costs by using existing facilities and devices, whether owned by the customer (e.g., mobile

phones) or by agents, has caught the attention of providers.

Internet browsing via mobile phones will change the competitive landscape. Devices like

mobile phones, which require less energy than PCs and ATMs and which can be recharged

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by windup or solar power, are an increasingly important part of any rollout of branchless

channels to off-grid areas.

Where branchless banking is occurring, several of the following factors are usually at

work: (i) industry belief in future profitability; (ii) enabling regulatory change; (iii) a dramatic

fall in connectivity costs; (iv) the creation of cash-handling agents using existing networks which

indicates the future growth of branchless banking.

REALIZING THE POTENTIAL OF BRANCHLESS BANKING: CHALLENGES AHEAD

Understanding Customer Drivers

Understand that to what extent would currently unbanked people take up the

access offer, by signing up to a transactional account linked to a card or a mobile phone

enabling electronic transfers right from their home or from the local store

And then, how many financial services would they use, how often would they use these

services, and what would they be willing to pay? The potential for extensive use of the network,

getting transactions through, is what is going to pay for it and motivate all the different players to

cooperate in building it

If customer rejects a branchless banking offer, is it because they are not drawn by the

range of services on offer or is it because they are not comfortable with the technology through

which they need to transact.

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Making the Economics Work For Retail Agents

Branchless banking propositions have to satisfy the needs of agents as much as

customers. Agents are the bridges between the old cash economy and the new electronic

payments utility. Without a workable set of options for customers to cash in and cash out, they

will find limited benefit in storing value electronically, and they will not find much acceptance of

their stored value as a means of exchange.

Providing Transactional Accounts for All

Universal access requires having a set of financial institutions that, together, market and

sell their services to all segments of the population. Financial institutions have to develop

business models that allow them to find all segments profitable

Interoperable Business Models

Interoperability, the basis for sharing, is one of the key considerations of any networked

business, and the payments network is no different. To bring it back to the customer: once

customers have an account, they will want to use it for many types of payments. Indeed, the

value to customers of joining the network depends on how many of their friends, business

counterparties, utilities, financial institutions, agents, and so forth, are connected to that network.

If all account-issuing institutions are able to connect to the same national payments network,

then it will be possible to use any agent for cash-in/cash-out and undertake any-to-any payments,

and value to all customers in principle would be maximized.

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 Chap#5: RECOMMENDATION & CONCLUSION

5.1: RECOMMENDATIONS

Financial institutions need to ensure that technology and security standards are

completely met. It is to ensure that only the latest versions of the licensed software with latest

patches are installed in the system, proper user groups with access privileges are created and

users are assigned to appropriate groups as per their business roles, a proper system of back up of

data and software is in place and is strictly adhered to, business continuity plan is in place and

frequently tested .

The banks should acquire tools for monitoring systems and the networks against

intrusions and attacks. These tools should be used regularly to avoid security breaches.

All banks, which propose to offer transactional services on the Internet should obtain approval

from SBP prior to commencing these services. The banks should take up responsibility of

educating the customers and all the benefits of e-banking.

To prevent online banking from remaining an expensive additional channel that does

little to retain footloose customers, banks must act quickly.

The first and the most obvious step that they should take is to see that the basic problem

fueling dissatisfaction has been addressed.

In addition, to meet the challenge of online brokerage and other new

entrants, banks would need to add supermarkets selling products such as mortgage,
mutual funds and insurance.

Banks need to appeal to customers who may not be technologically

sophisiticated to use the service.

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5.2: CONCLUSION

From all of this, we have learnt that information technology has empowered customers

and businesses with information needed to make better investment decisions. At the same time,

technology is allowing banks to offer new products, operate more efficiently, raise productivity,

expand geographically and compete globally. A more efficient, productive banking industry is

providing services of greater quality and value.

Internet and mobile service is the need of the hour, it is a product of e-commerce in the

field of banking and financial services, it provides basically all the essential services which a

normal user needs or wants to do and for these it takes so much of time and money if he do them

in the traditional way. Mobile Banking presents an opportunity for banks to retain their existing,

technology-savvy customer base by offering value-added, innovative services. It might even

help attracting new customers.

E-banking has become a necessary survival weapon and is fundamentally changing the

banking industry worldwide. Today, the click of the mouse offers customers banking services at

a much lower cost and also empowers them with unprecedented freedom in choosing vendors for

their financial service needs. No country today has a choice whether to implement E-banking or

not given the global and competitive nature of the economy. The invasion of banking by

technology has created an information age and commoditization of banking services. Banks have

come to realize that survival in the new e-economy depends on delivering some or all of their

banking services on the Internet while continuing to support their traditional infrastructure.

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 The rise of E-banking is redefining business relationships and the most successful banks

will be those that can truly strengthen their relationship with their customers.

Without any doubt, the international scope of E-banking provides new growth

perspectives and Internet business is a catalyst for new technologies and new business processes.

With rapid advances in telecommunication systems and digital technology, E-banking has

become a strategic weapon for banks to remain profitable. It has been transformed beyond what

anyone could have foreseen 30 years ago.

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 REFERENCES/BIBLIOGRAPHY

Website
http://www.sbp.org.pk/

http://www.cgap.org/

http://en.wikipedia.org/w/index.php?title=Special%3ASearch&search=e-bankin

http://en.wikipedia.org/wiki/mobile_banking

http://www.ehow.com/about_5109945_history-ebanking.html#ixzz3qGUlUMcC

http://en.wikipedia.org/w/index.php?title=Special%3ASearch&search=e-banking

http://ezinearticles.com/?A-Brief-History-of-Internet-Banking&id=353450

http://www.sbp.org.pk/

http://www.brandonmcgee.blogspot.com/

http://www.tutorial-reports.com/mobile/mobile-banking

http://en.wikipedia.org/wiki/Branchless_banking

http://www.ifg-inc.com/Consumer_Reports/ElectBank.shtml

http://businessxtras.com/the-future-of-internet-banking-looks-extremely-promising/

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