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“World wide a rising percentage of population are adopting the Internet and the Global Financial
Transactions are increasingly Electronic. Under such a scenario, the greatest threat to Global Finances
is Cyber Security. A breach could have catastrophic consequences.”
FT11108 Anandadivya K
FT11144 Pradeep Krishnan A
FT11157 Ramkumar B
FT11220 Dinesh Sambamoorthy
FT11268 Sonal Bomb
FT11362 Sriram C
FT11432 Muthu Natesan G
FT11447 Ram Mohan Kripa Ramanan
FT11450 Sagar Shankaranarayanan
FT11465 Swamynathan A
Introduction : e-finance
The provision of financial services and markets using electronic communication and computation
involving use of modern-day technology to enhance ease of use and reduce wastage of time in
executing financial transactions is referred to as e-finance. The advent of the internet has
fundamentally transformed the financial services industry and financial markets. The internet
represents the latest in a long line of electronic technologies that have reshaped and helped in the
faster growth of the financial industry. Although the usage of the net for banking and financial
transactions is fraught with challenges, the internet has drastically transformed the financial landscape
telecommunications, deregulation, and the rapid growth of the Internet and communication
technologies are dramatically changing the structure and nature of financial services. Internet and
related technologies are more than just new distribution channels - they are a different way of
providing financial services. The impact of the internet in finance can be broadly classified into two
areas. Improvements in the banking industry and the positive impact for the financial markets around
the world. Many of the services traditionally provided by banks are now being done through the
internet. Especially in developing countries where access to and the quality of financial services is
for trading risks and it has the capacity to provide widened access to financial services to a much
greater set of clients by offering a more cost effective delivery of services. Emerging markets
are beginning to participate in the e-finance revolution, with a significant impact showing strong
growth characteristics and promises. A large number of electronic order routing and trading networks
have emerged in recent years. These networks have evolved into order-driven matching systems that
are electronically provided to participants who seek anonymity. Electronic communication networks
originally started as pools of liquidity feeding into existing markets but later on began to serve as
Widely available real-time market information considerably lowers the cost of transacting
reducing transaction costs associated with paper processing or human error. Novel distribution
channels have opened, added to it search costs have fallen for consumers, and new entities like
Financial service providers using the internet can avoid many technology conflicts, some of
which are as separate interface-to-core systems for ATMs, branch, call center, or kiosk transactions.
by combining the capabilities of a browser, a display standard, and a Web server as the access point
into well developed back-end operational systems. As a result of this, cross-selling of products
With massive speed of growth in technology, its usage for financial services has become much
cheaper. A typical customer transaction through a branch, either in person or through a phone call
costs about $1, but that transaction costs just $0.02 online over the internet. Also, the overhead
expenses for internet banks are lesser than or equal to 1 percent of assets, compared with anywhere
between 2 to 3 percent for brick-and-mortar banks. Some more advantages in the case of e-finance are
improved price transparency, differential pricing and effective transformation of distribution channels.
Improved price transparency in general increases competition and reduces profit margins. Transaction
costs of search are somewhat higher that differential pricingcannot be ruled out and this will become
increasingly important in financial services. Therefore, increased use of the internet and
communication technology will lead to the unbundling of services and will also promote
What are the major challenges due to the increasing use of E-Finance?
The internet that serves the banks and other financial organizations can be easily hacked into by
antisocial elements or terrorist organizations. There are a number of instances of such happenings. In
its present form, the Internet allows easy unauthorized access to proprietary user data even for
sophisticated
users who take precautions. Moreover, the vast majority of Internet users who are the customers of
such financial services are totally unaware of the security threat that the Internet poses on their private
information. Communication is two-way by nature and in the absence of sophisticated protocols which
help in blocking access to private data and encrypt the transferred data, Internet communication
remains very insecure. Firms collect and collate elaborate information about activities of individuals
on the Internet in an attempt to use it to target advertisements. This has also raised significant security
concerns.
The single main threat to e-finance remains cyber fraud or the misuse of technology to illegitimately
What should Governments and Financial institutions do to preserve and protect global citizens
and ensure that they are not exploited by vested interests in the cyber world?
Thanks to e-finance, consumer and investor protection are now a more important function of
public policy. As discussed above, issues include security, privacy, and transparency. Consumer and
investor protection raises some important questions as to the role of standards, and who can best
develop such standards, and who should enforce them. The answer to this will be governments and
institutions and the organizations who use such services need to take some preventive measures.
It has to be noted that security risks are being looked into but they need more emphasis. With
technological development like cryptographic techniques, cards with hi-fi built-in chips and other
require operators to adopt best practice standards in the interest of the public. It has to be ensured that
further protocols and certain legal changes, including ones for digital signatures, will be needed to
facilitate electronic transactions. Privacy issues are becoming more important. The Internet has to a
huge extent simplified the collection and sharing of credit and other data on individuals and
businesses, and technology has lowered the costs of processing and using such information. Global
standards and
protocols will be a must to assure desired privacy levels, so as to enable cross-border provision of
financial services, and to also allow global service providers to operate efficiently.
Exiting laws are likely to be unenforceable for such crimes in most countries. The outright
lack of legal protection would mean that firms those engage in e-finance need to solely rely on
technical measures to protect themselves from elements who tend to steal, deny access to or destroy
any valuable information. Creating a trustworthy model and an environment for people and business
needs extension of the rule of law into cyberspace. Because that extension is still in progress
organizations must first and foremost defend their own systems and information in their own interest
from any kind of intrusion from outsiders or from within. They should wisely rely only secondarily
To provide this self-protection, organizations should focus on implementing cyber security plans
which can address people, process, and technology issues. Organizations need to somehow commit
the resources to educate employees about security practices, develop thorough plans for the handling
of sensitive data, records and transactions, and also incorporate robust security technology such as
firewalls, anti-virus software, intrusion detection tools, and authentication services throughout the
organizations' computer systems. Most countries, particularly those in the developing world, are
can help eliminate the potential danger from the inadvertent creation of cyber crime havens. Firms
should secure their networked information. The proliferation of financial products, delivery channels,
and institutions, along with the speed of innovation, have allowed easier comparison of prices and
products. But the links between infomediaries and financial service providers can lead to less
transparency on the service being offered. An important transparency issue in capital markets will be
assuring fairness and best execution and trading practices. Solutions will likely vary by country and
market.
frameworks. Government agencies need not directly intervene to combat these problems,
however. Instead more intense efforts should be made to educate consumers. Authorities
should set minimum disclosure standards for new financial intermediaries and possibly for
Regulators would prescribe minimum standards for detecting fraud and they would also ensure that a significant
amount of operational risks are in place at self-regulating the organizations that administer these funds so as to
compensate the customers against any fraud. One such fund is the SIPC or the Securities Investor Protection
Corporation Fund in the US. The increasing amount of transactions of global nature will require a lot of