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CHAPTER-2
INDIAN BANKING SECTOR:
Brief History and Information Technology Trends There In
India is very different from the India of 1991. It is now a vibrant economy and has also
emerged as productive and profitable destination. Banks were bound to have an important role in
this mammoth change taking place. Further, the period also saw a massive shift in customer
expectations and demand for services. The high net worth technology savvy customers expected
standards of service and distribution channels which they were getting overseas or from foreign
banks operating in India (Joshi and Joshi, 1998). The Far Eastern Economic Review, in its
February 6th
1997 issue, had commented on the sad state of work systems in Indian banking. The
authors had stated ―that most Indian banks were state-owned dinosaurs that treat customers as
supplicants and also kept them waiting for long hours on end while lethargic clerks consulted
dusty ledgers and scribbled in transactions‖. At present, the things have changed drastically and
the Indian banking sector is rolling interesting times.
Technological developments, particularly in the area of telecommunications and
information technology, have revolutionized the Indian banking sector. To a large extent,
current developments reflects the banks‘ responses to changing customer expectations.
Customers want value-added services and innovations. Banks trying newer product design and
convenience in product delivery and access. Customers are keen on having self-serving
capability. These developments have prompted new delivery channels and banking systems
including Automatic Teller Machine (ATM), Telephone banking, Mobile banking, Internet
banking etc. Internet banking has become one of the most rapidly diffused banking technologies.
From a bank‘s perspective, Internet banking can reduce costs, increase the speed of service,
expand the market, and improve overall customer service. From the consumers‘ perspectives,
Internet banking can lower services fees, and allow customers to manage their finances more
conveniently, anytime and anywhere. ATMs now days are considered as mini banks catering to
different needs and wants of the consumers-be it withdrawal or deposit of cash or cheques,
opening of a fixed deposit (FDR), payment of utility bills and the list goes on and on.
29
The very rules of the game are changing. Neither geography nor time is a hindrance any
more. It‘s immaterial whether a person is in United States of America or a remote town of India,
as long as the person have a mobile phone, and a network to boot, he can transfer money and do
other transactions. Hence mobile banking is rightly called as ―bank in your pocket‖ and is now
being considered as an emerging banking channel. As rightly said by Sullivan (2000),
“technology will bring fundamental shift in the functioning of the banks. It would not only help
them bring improvements in their internal functioning but also enable them to provide better
customer service. Technology will break all boundaries and encourage cross border banking
business”.
2.1 Brief History of Indian Banking Sector
The Indian banking system underwent four distinct phases of evolution (Joshi, 2006). The
phases are briefly discussed as under:
i. The Foundation Phase-Pre Nationalization period prior to 1969
When India achieved independence in 1947, its banking system was already fairly well
developed. The Reserve Bank of India (RBI) had been established in 1935 following the passing
of the Reserve Bank of India Act in 1934. At the end of 1947, over 600 commercial banks were
operating in India. (Cygnus: Economic & Business Research (2004), p. 5; ICRA (2004), p.
4;Reddy (2002), p 337.) During this phase, the government focused on creating a country-wide
sound system for banking. This phase saw the establishment of the necessary legislative
framework for the consolidation and re-organization of the Indian banking system, thus
delivering what is required for the Indian economy. This phase also marked two of the biggest
changes in the banking industry- reorganization of the Imperial Bank as the State Bank of India
(1955), followed by the nationalization of major private banks in 1969.
ii. The Expansion Phase- Nationalization of banks 1969
This phase began in the mid 1960s but only gained impetus in 1969, after the
nationalization of 14 major banks and resulted in a shift from class banking to mass banking.
This phase continued till 1984. The most notable factor of this phase was the determination to
30
make banking facilities available to the Indian masses. The branch networks were widened
rapidly, which was achieved in spite of many hindrances like poor infrastructure, inaccessibility
and harsh living conditions. Doing so, inversely affected the banks in terms of asset quality,
yielded negative profits and decreased the competitive efficiency of the system. The next wave
of reforms saw the nationalization of 6 more commercial banks in 1980.
iii. The Consolidation Phase-Slow down of branch expansion 1985
The RBI undertook several policy initiatives which resulted in a slow-down of branch
expansion from 1985. The banks laid more emphasis on improving the customer service,
housekeeping, staff productivity, credit management and profitability of the banks.
iv. The Reform Phase- Liberalization of the banking system of India 1991
Before 1991 banking sector in India was facing several problems such as:
a. Eroding productivity and inefficiency of public sector banks which led to continuous losses,
b. Poor customer service and obsolete work technology,
c. Increasing NPAs, deteriorated portfolio quality and inability to face competition effectively.
In order to remove the above-mentioned deficiencies, Narasimham committee was
appointed in 1991 which acted towards the liberalization of the banking system of India. The
committee submitted its report within three months in November 1991 with measures to improve
the productivity and efficiency of the banking sector (Uppal and Kaur, 2007).The aim was to
improve efficiency, productivity and profitability of the Indian financial sector. The
recommendations among other things laid emphasis on revitalizing overall monetary policy
framework, strengthening financial institutions and integrating the financial system with the
global economy to attract capital and modern technology (Rajneesh De and Padmanabhan,
2002).
This phase faced a major challenge in replacing the development initiatives through
administratively management of planned actions with elements of market incentives. Corporate
governance in banks was established (especially the PSBs), leading to changes in the regulatory
31
environment, monetary policies and structural transformation. During this phase, the policies
fuelled competition and enabled greater opportunities for practicing genuine corporate element in
banks. Competition increased with the introduction of private sector banks in the system, new
foreign sector banks and also liberalizing norms for the existing ones. Thus, the financial sector
reforms of 1991 brought about deregulation of interest rates, technological advancements,
increased competition, and autonomy packages, prudent guidelines for income recognition and
asset classification and enhancement of micro-credit category.
2.1.1 Evolution of the Indian Banking Sector
In the evolution of this strategic industry spanning over two centuries, immense
developments have been made in terms of the regulations governing it, the ownership structure,
products and services offered and the technology deployed. The entire evolution can be classified
into four distinct phases.
Phase I- Pre-Nationalization Phase (prior to 1969)
Phase II- Era of Nationalization and Consolidation (1969-1990)
Phase III- Introduction of Indian Financial & Banking Sector Reforms and Partial
Liberalization (1990-1991)
Phase IV- Period of Increased Liberalization (2004 onwards)
32
Figure 2.1: Phases of Evolution of the Indian Banking Sector.
33
2.1.2 Current Structure of Indian Banking System
Financial requirements in a modern economy are of diverse nature, distinctive variety and
large magnitude. Hence, different types of banks have been instituted to cater to the varying
needs of the community (Tiwari, 2011). The present structure of the Indian banking industry has
been analyzed on the basis of its organized status, business as well as product segmentation.
Figure 2.2: Structure of the Organized Banking Industry.
Banks in the organized sector may, however, be classified in to the following major forms:
1. Central Bank
2. Commercial Banks
34
3. Specialized Banks
1 Central Bank: - A central bank is the apex financial institution in the banking and financial
system of a country. It is regarded as the highest monetary authority in the country. It supervises
control and regulates the activities of the commercial banks. The central bank of the country is
the Reserve Bank of India (RBI). It was established in April 1935(with the passing of the RBI
Act. 1934) with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton
Young Commission (Tiwari, 2011).
2 Commercial Banks: - India‘s commercial banking system consists of ―scheduled banks‖ and
―non scheduled banks‖. Scheduled Banks in India are included in the second schedule of RBI
Act, 1934, consist of scheduled commercial banks and scheduled cooperative banks. The former
are further divided into four categories:
Public Sector Banks (includes Nationalized Banks and State Bank of India (SBI) and its
subsidiaries),
Private Sector Banks (includes Old Private Sector Banks and New ones that emerged after
1991),
Foreign Banks in India,
Regional Rural Banks (operate exclusively in rural areas). Scheduled Cooperative Banks are
further divided into Scheduled Urban Cooperative Banks and Scheduled State Cooperative
Banks.
3 Specialized Banks: - These banks cater to special needs and include:
Foreign Exchange Banks,
Industrial Banks,
Development Banks,
Land Development Banks,
Ex-im Bank
35
2.1.3 Narasimham Committee Report and Banking Sector Reforms
Several changes have taken place following the recommendations made by the
Narasimham committee, some of which are as follows:
• Free entry of new private sector/foreign banks
• Introduction of prudential accounting norms
• Prescription of capital adequacy requirements
• Increasing trend towards deregulation of interest rates
• Diversification of activities
• Emphasis on fee-based services
• Increasing competition
• Increasing customer expectations
• Rapid introduction of computerization and technology
These rapid developments have become new challenges for the banks. And in the post
liberalization era the banking sector has truly become one in which the survival of the fittest has
become the norm (Ramakrishnan, 1999). V. Leeladhar (2006), the then Deputy Governor of
Reserve Bank of India (RBI) had identified a few broad challenges faced by the Indian banks.
They are enhancement of customer service; application of technology; implementation of Basel
II; improvement of risk management systems; implementation of new accounting standards;
enhancement of transparency and disclosures; and compliance with Know Your Customer
(KYC) aspects. The Indian Financial Network (INFINET) was inaugurated in June 1999. It is
based on satellite communication using VSAT technology and would enable faster connectivity
within the banking sector (Nanda, 2010). The Reserve Bank constituted a National Payments
Council (Chairman: Shri S.P.Talwar) in 1999-2000 to focus on the policy parameters for
developing an IPSS with a real time gross settlement (RTGS) system as the core.
2.1.4 Profile of Banks Considered for the Study
The research work undertaken, comprises six banks from each group i.e. public sector
banks, private sector banks and foreign banks. They are:
36
1) State Bank of India(SBI Bank)
2) Industrial Development Bank of India (IDBI Bank)
3) Axis Bank Limited
4) Housing Development Bank of India ( HDFC Bank)
5) Standard Chartered Bank ,India
6) The Hongkong and Shanghai Banking Corporation Limited, India (HSBC Bank)
THE BANKER TO EVERY INDIAN
The State Bank of India was constituted on 1 July 1955.It is the country‘s oldest Bank
and a premier in terms of balance sheet size, number of branches, market capitalization and
profits is today going through a momentous phase of Change and Transformation – the two
hundred year old Public sector behemoth is today stirring out of its Public Sector legacy and
moving with an ability to give the Private and Foreign Banks a run for their money. The bank is
entering into many new businesses with strategic tie ups – Pension Funds, General Insurance,
Custodial Services, Private Equity, Mobile Banking, Point of Sale Merchant Acquisition,
Advisory Services, structured products etc – each one of these initiatives having a huge potential
for growth. The Bank is forging ahead with cutting edge technology and innovative new banking
models, to expand its Rural Banking base, looking at the vast untapped potential in the hinterland
and proposes to cover 100,000 villages in the next two years. The Bank is changing outdated
front and back end processes to modern customer friendly processes to help improve the total
customer experience. With about 8500 of its own 10000 branches and another 5100 branches of
its Associate Banks already networked, today it offers the largest banking network to the Indian
customer. The Bank is also in the process of providing complete payment solution to its clientele
with its over 21000 ATMs, and other electronic channels such as Internet banking, debit cards,
37
mobile banking, etc. Mr.Pratip Chaudhuri is the new chairman of country largest banking
institution State Bank of India.
Table 2.1.a :Vital Statistics :Manpower Planning, SBI.
Staff Strength as on Total
31.03.2011 222933
31.03.2012 215481
Source: SBI Annual Results FY 2011-12
Table 2.1.b: Branch Expansion, SBI.
As on Metro Urban Semi-Urban Rural Total
31.03.2011 2079 2416 3909 5138 13452
31.03.2012 2218 2502 3995 5382 14097
No. of e-SBIN
branches merged
during 2010-2011
121 85 144 120 470
Source: SBI, Annual Results, F.Y.- 2011-12
Table 2.1.c: Network in Uttar Pradesh, SBI.
Branches ATMs
1,215 1,280
Source: Business Standard, March 21st,
2012
Manpower Planning
Branch Expansion
Network in Uttar Pradesh
38
Table 2.1.d : Expanding Footprint, SBI.
Source: SBI, Annual Results, F.Y.- 2011-12
Expanding Footprint
Branches
No. of Group Branches 18266 19193 927
No. of SBI Domestic Branches 13542 14097 555
No. of Overseas Branches 156 173 17
ATMs
No. of ATMs for the Group 25005 27286 2281
No. of ATMs for SBI 20084 22141 2057
Hits per day 285 285 ----
Internet Banking
No. of customers (in lacs) 62.57 83.63 27.06
No. of transactions (in lacs) 457.74 796.30 338.56
Mobile Banking Registered mobile users (in lacs) 10.13 36.45 26.32
No. of financial transaction (lacs) 49.30 190.65 141.35
Debit Cards
Alternate Channels
No. of Debit Cards (in lacs) 728 910 182
% of total transactions 27.66 36.32 866 bps
on alternate channels
MAR ’ 11 MAR ’12 1212
YOY Incr.
39
SBI 'banking' on alternative channels
State Bank of India (SBI), which has the largest banking network in Uttar Pradesh of over
1,200 branches, is expanding the alternative channels of banking. These channels are being
strengthened to provide anytime and secure banking services to its clients using IT platform such
as ATM, mobile banking and internet banking. Currently, SBI has almost 4, 00,000 and 2,
00,000 customers on its internet and mobile banking platforms respectively in the Lucknow
Circle of UP spanning 57 districts. According to SBI chief general manager K. Ramachandran
SBI has 1,280 ATMs in the circle and are planning to add 1,400 more ATMs in the next two
years. He underlined that alternate banking would only grow stronger and SBI with its robust
technology platform would continue to lead its peers. To leverage technology, SBI had recently
introduced ‗Mobicash‘, which is akin to prepaid wallet for online payments, fund transfer and
merchant payments. To provide ease of transferring money from accounts by using ATM card,
the Bank had introduced ‗SBI trans-cash‘.
SBI had launched Green Channel Counters, wherein customers can withdraw and transfer
funds up to Rs 40,000 by swiping ATM card without filling any paper forms. This is aimed at
saving paper and help conserve environment. The bank has rolled out this facility in 400
branches and plans to add 200 more machines (presently 730 machines) in 100 more branches in
coming months. Besides, the Bank plans to add 35 more branches to its Lucknow Circle tally of
1,215. The Bank is giving priority to the agriculture and the MSME sectors, which together form
the backbone of India‘s second largest economy of UP. State Bank of India also became the first
bank to install an ATM at Drass in Jammu & Kashmir Kargil region, to serve locals as well as
soldiers guarding the frontiers in the country‘s coldest inhabited place. This is the banks
27,032nd ATM and is located adjacent to the Kargil Vijay Dwar, a memorial to the soldiers who
made the ultimate sacrifice in ensuring our armed forces re-occupied Tiger Hill (Pt 5353) in the
1998 war with Pakistan.
40
BANKING FOR ALL- IDBI BANK
“A new generation Government owned Bank”
Industrial Development Bank of India Ltd, (since renamed as IDBI Bank Ltd.), was
incorporated under Companies Act 1956, as a Limited Company, registered with the Registrar of
Companies, Maharashtra, Mumbai vide Certificate of incorporation dated 27th September, 2004.
In terms of the Articles of Association of the IDBI Bank Ltd., the Central Government being a
shareholder of the company shall, at all times, maintain not less than 51% of the Issued Capital
of the company. Reserve Bank of India has, vide its letter no DBOD. BP. 1630/21.04.152/2004-
05 dated April 15, 2005 confirmed that IDBI Ltd. (since renamed as IDBI Bank Ltd.) may be
considered as Government-owned bank. IDBI Bank Ltd. is a Universal Bank with its operations
driven by a cutting edge core Banking IT platform. The Bank offers personalized banking and
financial solutions to its clients in the retail and corporate banking arena through its large
network of Branches and ATMs, spread across length and breadth of India.
Headquartered in Mumbai, IDBI Bank today rides on the back of a robust business
strategy, a highly competent and dedicated workforce and a state-of-the-art information
technology platform, to structure and deliver personalised and innovative Banking services and
customised financial solutions to its clients across various delivery channels. As on March 31,
2012, IDBI Bank has a balance sheet of Rs.2.91 lakh crore and business size (deposits plus
advances) of Rs.3.92 lakh crore. As an Universal Bank, IDBI Bank, besides its core banking and
project finance domain, has an established presence in associated financial sector businesses like
Capital Market, Investment Banking and Mutual Fund Business. Going forward, IDBI Bank is
strongly committed to work towards emerging as the 'Bank of choice' and 'the most valued
financial conglomerate', besides generating wealth and value to all its stakeholders. As on March
31, 2012, the Bank had a network of 973 Branches and 1542 ATMs. The Bank's total business,
during F.Y. 2011-12, reached Rs. 3,91,651 Crore, Balance sheet reached Rs. 2,90,837 Crore
while it earned a net profit of Rs. 2032 Crore (up by 23.15 %). The Bank‘s vision is “TO BE
41
THE MOST PREFERRED AND TRUSTED BANK ENHANCING VALUE FOR ALL
STAKEHOLDERS”. Shri R.M.Malla is the Chairman and Managing Director of IDBI Bank.
Table 2.1.e : Network in Uttar Pradesh, IDBI Bank.
Source: As per Newsletter, IDBI Bank, (2012)
Table 2.1.f : Expanding Footprint, IDBI Bank.
Source: IDBI Bank Ltd., Annual Report, 2011-12
Branches ATMs
53 143
Network in Uttar Pradesh
Expanding Footprint
Branches
MAR ’ 11 MAR ’12 11
YOY Incr.
ATM’s
Manpower
No. of Branches 815 973 158
No. of ATMs 1370 1542 172
on alternate channels
No. of Employees 13598 15172 1574
42
BADHTI KA NAAM ZINDAGI….
Axis Bank was the first of the new private banks to have begun operations in 1994, after
the Government of India allowed new private banks to be established. The Bank was promoted
jointly by the Administrator of the specified undertaking of the Unit Trust of India (UTI - I), Life
Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) and
other four PSU insurance companies, i.e. National Insurance Company Ltd., The New India
Assurance Company Ltd., The Oriental Insurance Company Ltd. and United India Insurance
Company Ltd. The Bank has strengths in both retail and corporate banking and is committed to
adopting the best industry practices internationally in order to achieve excellence.
The Bank's Registered Office is at Ahmedabad and its Central Office is located at
Mumbai. Ms. Shikha Sharma is the Managing Director and CEO of the bank. The Bank has
strengths in both retail and corporate banking and is committed to adopting the best industry
practices internationally in order to achieve excellence.
The Bank‘s Vision 2015 is “TO BE THE PREFERRED FINANCIAL SOLUTIONS
PROVIDER EXCELLING IN CUSTOMER DELIVERY THROUGH INSIGHT, EMPOWERED
EMPLOYEES AND SMART USE OF TECHNOLOGY.”
The Core Values of the Bank are:
-Customer Centricity
-Ethics
-Transparency
-Teamwork
-Ownership
43
The Bank has a very wide network of more than 1600 branches (including 169 Service
Branches/CPCs as on 30th June, 2012). The Bank has a network of over 10000 ATMs (as on
30th June, 2012) providing 24 hrs a day banking convenience to its customers. This is one of the
largest ATM networks in the country. It has a total of 111 branches and 733 ATMs in Uttar
Pradesh (Source: Hindustan Times, Thursday, July 26th
2012).
Table 2.1.g : Network in Uttar Pradesh, Axis Bank.
Branches ATMs
111 733
Source: Hindustan Times, Thursday, July 26th
2012
Table 2.1.h : Expanding Footprint, Axis Bank.
Source: Axis Bank Ltd., Annual Report, 2011-12
Network in Uttar Pradesh
Expanding Footprint
Branches
ATM’s
Manpower
MAR ’12 11
YOY Incr. MAR ’ 11
No. of Branches 1,390 1,622 232
No. of ATMs 6,270 9,924 3,654
on alternate channels No. of Employees 26,435 31,738 5,303
44
WE UNDERSTAND YOUR WORLD
The Housing Development Finance Corporation Limited (HDFC) was amongst the first
to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the
private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. The
bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered
office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank
in January 1995. Mr. C.M. Vasudev has been appointed as the Chairman of the Bank with effect
from 6th July 2010. Mr. Vasudev has been a Director of the Bank since October 2006 and
Mr.Aditya Puri is the Managing Director. The Bank is headquartered in Mumbai. The Bank at
present has an enviable network of 2,544 branches spread in 1,399 cities across India. All
branches are linked on an online real-time basis. Customers in over 500 locations are also
serviced through Telephone Banking.
The Bank's expansion plans take into account the need to have a presence in all major
industrial and commercial centers‘ where its corporate customers are located as well as the need
to build a strong retail customer base for both deposits and loan products. Being a
clearing/settlement bank to various leading stock exchanges, the Bank has branches in the
centre‘s where the NSE/BSE have a strong and active member base. The Bank also has 9,709
networked ATMs across these cities. Moreover, HDFC Bank's ATM network can be accessed by
all domestic and international Visa/MasterCard, Visa Electron/Maestro, Plus/Cirrus and
American Express Credit/Charge cardholders. HDFC Bank operates in a highly automated
environment in terms of information technology and communication systems. All the bank's
branches have online connectivity, which enables the bank to offer speedy funds transfer
facilities to its customers. Multi-branch access is also provided to retail customers through the
branch network and Automated Teller Machines (ATMs).
The Bank has made substantial efforts and investments in acquiring the best technology
available internationally, to build the infrastructure for a world class bank. The Bank has
prioritized its engagement in technology and the internet as one of its key goals and has already
45
made significant progress in web-enabling its core businesses. In each of its businesses, the Bank
has succeeded in leveraging its market position, expertise and technology to create a competitive
advantage and build market share.
Table 2.1.i : Network in Uttar Pradesh, HDFC Bank.
Source: Welcome Letter, HDFC Bank Ltd., 2012
Table 2.1.j : Expanding Footprint, HDFC Bank.
Source: HDFC Bank Ltd., Annual Report, 2011-12
Branches ATMs
212 1062
Network in Uttar Pradesh
Expanding Footprint
MAR ’ 11 MAR ’12 11
YOY Incr.
Branches
ATM’s
Manpower
No. of Branches 1,986 2,544 558
No. of ATMs 5,471 8,913 3,442
on alternate channels
No. of Employees 55,752 66,076 10,324
46
Figure 2.3: Showing Trend, Growth and % Customer Initiated Transactions by Channel,
HDFC Bank.
Source: HDFC Bank, Investor Presentation, 2011-12
Greater Choice and Convenience for Our Retail Customers
Multiple Delivery Channels
Regionalized Processing Units
Electronic Straight Through
Processing
Provide New or Superior Products
Improve Sales & Credit Efficiencies,
Cross-sell
Leveraging Technology
ATMs30%Branches18%Phone
Banking12%Internet
Reduce Transaction Costs and Error
Rates
Derive Economies of Scale
Data Warehousing, CRM,
Analytics
Innovative Technology Application
Leveraging Technology
47
YOUR RIGHT PARTNER
The Chartered Bank opened its first overseas branch in India, at Kolkata, on 12 April
1858. When The Chartered Bank first established itself in India, Kolkata was the most important
commercial city, and was the centre of the jute and indigo trades. With the growth of the cotton
trade and the opening of the Suez Canal in 1869, Bombay took over from Kolkata as India's
main trade centre. Today the Bank's branches and sub-branches in India are directed and
administered from Mumbai (Bombay) with Kolkata remaining an important trading and banking
centre.
Table 2.1.k : Network in Uttar Pradesh, Standard Chartered Bank.
Table 2.1.l Expanding Footprint, Standard Chartered Bank.
Source: Standard Chartered Bank, Annual Report, 2011-12
Branches ATMs
6 13
Network in Uttar Pradesh
Expanding Footprint
MAR ’ 11 MAR ’12 11
YOY Incr.
Branches
ATM’s
No. of Branches 94 94 -----
No. of ATMs 307 319 12
on alternate channels
48
THE WORLD’S LOCAL BANK
The antecedents of the HSBC Group in India can be traced back to October 1853 when
the Mercantile Bank of India, London and China was founded in Bombay (now Mumbai).
Starting with an authorized capital of Rs 5 million, the Mercantile Bank soon opened offices in
London, Madras(Chennai), Colombo and Kandy, followed by Calcutta(Kolkata), Singapore,
Hong Kong, Canton(Guangchow) and Shanghai by 1855. The following hundred years were in
many ways propitious for the Mercantile Bank. In 1950 it moved into its new head office
building in Mumbai at Flora Fountain. After the Mercantile Bank was acquired by The
Hongkong and Shanghai Banking Corporation, the Flora Fountain building became and remains
to this day, the Head Office of the HSBC Group in India. Through the 1990s, HSBC has
vigorously developed its role as one of the leading banking and financial services organizations
in the world. Its strategy of 'managing for value' emphasizes the Group's unique balance of
business and earnings between older, mature economies and faster-growing emerging markets.
HSBC in India is proud to have retained the Group's pioneering streak by being an active
partner in the development of the Indian banking industry - even giving India its first ATM way
back in 1987. The organization‘s adaptability, resilience and commitment to its customers have
further enabled it to survive through turbulent times and prosper through good times over the
past 150 years. In India, the Bank offers a comprehensive suite of world-class products and
services to its corporate and commercial banking clients as also to a fast growing personal
banking customer base. Mr. Stuart Milne has been appointed as chief executive officer for its
India business and Ms. Naina Lal Kidwai, a director at HSBC in Asia-Pacific, is currently the
country head of the bank in India. Currently, the bank has a nationwide network of 50 branches
and has the second largest branch network among foreign banks in the country. The total number
of ATMs of the bank is 150.
49
Table 2.1.m : Network in Uttar Pradesh, HSBC Bank.
Table 2.1.n : Expanding Footprint, HSBC Bank.
Source: HSBC Bank, Annual Report, 2011-12
Branches ATMs
2 2
Network in Uttar Pradesh
Expanding Footprint
MAR ’ 11 MAR ’12 11
YOY Incr.
Branches
ATM’s
No. of Branches 47 50 3
No. of ATMs 148 151 3
on alternate channels
50
2.2 Information Technology in Indian Banking Sector
“If you don‟t see the Internet as an opportunity, it will be a threat.” (Tony Blair, Former UK
Prime Minister)
The Information Technology (I.T.) saga in Indian Banking commenced from the mid
eighties of the twentieth century when the Reserve Bank took upon itself the task of promoting
automation in banking to improve customer service, book keeping, MIS and productivity. This
role played by the Reserve Bank has continued over the years (Department of Information
Technology-Financial Sector Technology Vision Document, 2005). Indian banking today is
witnessing drastic changes. Technology has made tremendous impact on banking. ―Anywhere
banking‖ and ―Anytime banking‖ i.e. (24*7 banking) has become a reality. There is a
transformation in every sphere of activities of the banks in India, especially in governance,
nature of business, style of functioning and delivery mechanisms (Tiwari, 2010).
The new generation banks brought the necessary competition into the industry and
spearhead changes towards higher utilization of technology, improved customer service and
innovative products. However the public sector and the old private sector banks, which were
following the traditional method of banking till a few years ago, also realized the benefits that
could be reaped through the introduction of technology in their day-to-day operations. So they
are also of late increasingly pursuing a technology-centric strategy in banking operations and
services delivery as manifested by their adoption of core banking solutions and the introduction
of technology-enabled banking solutions (Sambrani and Suryanarayana, 2007).
Technology has opened up new markets, new products, new services and efficient
delivery channels for the banking industry. Information technology has been the cornerstone of
recent financial sector reforms aimed at increasing the speed and reliability of financial
operations and of initiatives to strengthen the banking sector (Nanda, 2010). Information
Technology and the Communication Networking Systems have revolutionized the functioning of
banks and other financial institutions all over the world. The Reserve Bank of India (RBI) took
several initiatives and assigned top priority to the up gradation of technological infrastructure in
the Indian financial system. The RBI‘s role in the implementation of I.T. deployment in banking
51
has been commendable. In fact, RBI had appointed various committees to work on the
implementation of information technology in banking sector. The reports of various committees
are briefly summarized below:
1) Dr. C. Rangarajan Committee [1983]
Dr. Rangarajan committee had drawn up in 1983-84 the first blue print for
computerization and mechanization in banking industry and looked into modalities of drawing
up a phased plan for mechanization for the banking industry covering period 1985-89.The
committee in its report in 1984 recommended introduction of computerization and
mechanization at branch, regional office / zonal office and head office levels of banks. In 1988
another committee was constituted under the chairmanship of Dr. Rangarajan for making plans
for computerization for the next five years from 1990-94 for the banking industry. It identified
the purpose of computerization as improvement in customer service, decision making,
housekeeping and profitability. The committee observed that banking is a service industry and
improved efficiency will lead to a faster rate of growth in output and help to expand employment
all around. The work force in the banking industry must, therefore, look upon computerization as
a means to improve customer service and must welcome it in that spirit.
2) W.S. Saraf Committee [1994]
In 1994, the Governor, Reserve bank of India had appointed a committee on technology
issues under the chairmanship of W. S. Saraf. The committee looked into technological issues
related to the payment system and to make recommendations for widening the use of modern
technology in the banking industry. The Saraf committee recommended setting up institutions
for electronic funds transfer system in India. The committee also reviewed the
telecommunication system like use of BANKNET and optimum utilization of SWIFT by the
banks in India.
52
3) Shere Committee [1995]
In 1995, RBI formed a committee under the chairmanship of K. S. Shere, to study all
aspects relating to electronic funds transfer and propose appropriate legislation. The Shere
committee had recommended framing of RBI (EFT system) regulations under section 58 of the
Reserve bank of India Act 1934 (RBI Act.), amendments to the RBI act and to the bankers book
evidence act, 1891 as short term measures and enacting of a few new acts such as EFT act, the
computer misuse and data protection act etc. as long term measures.
4) Narasimham Committee [1998]
In order to examine the various issues related to the technology up gradation in the
banking sector, the Reserve Bank of India appointed Narasimham committee in September 1998.
The committee consists of representatives from the Government, Reserve Bank of India, banks
and academic institutions associated with the information technology. The committee dealt with
the issues on technology up gradation and observed that the most of the technology that could be
considered suitable for India in some form or the other has been introduced in some diluted form
or as a pilot project, but the desired success has not been achieved because of the reasons inter-
alia lack of clarity and certainty on legal issues. The committee also suggested implementation of
the necessary legislative changes, keeping in the view the recommendations of Shere committee.
The need for addressing the following issues was also emphasized:-
• Encryption on Public Switching Telephone Network (PSTN) lines
• Admission of electronic files as evidence
• Treating Electronic Funds Transfers on par with crossed cheques / drafts for purposes of
Income Tax etc
• Electronic Record keeping
• Provide data protection
53
• Implementation of digital signatures
• Clarification on payment finality in case of EFT
Taking into consideration the recommendations by various committees appointed by RBI and
guidelines of RBI, banks have started using IT to automate banking transactions and processes.
V.Leeladhar (2006), Deputy Governor, RBI described technology as a key driver in the
banking industry, the infusion of which has led to new business models and processes. This has
revolutionized the provisioning of banking services through introduction of new distribution
channels. Banks which have not made enough investments in technology are at peril as they will
soon find their customer base eroding. Those banks which have invested in technology have
gained great mileage through improved competitive advantage and are potentially poised to
attract increased market share. Technology adoption has also improved the quality of risk
management systems in banks. On February 28, 2011 RBI released its IT Vision Document for
2011-17. Main recommendations in the IT Vision document 2011-17 are as under:
The Vision Document sets priorities for commercial banks to move forward from their
core banking solutions to enhanced use of IT in areas like MIS, regulatory reporting,
overall risk management, financial inclusion and customer relationship management.
It also dwells on possible operational risks arising out of adopting technology in the
banking sector which could affect financial stability and emphasizes the need for internal
controls, risk mitigation systems, fraud detection / prevention and business continuity
plans.
Although banks have deployed technology for transaction processing, analytical
processing by banks is still in a nascent stage.
The Report urges banks to work towards reaping benefits of technology in terms of cost
reduction of small value transactions, improved customer services and effective flow of
information within the banks and to the regulator.
54
2.3 Electronic Banking (E-Banking) or Information Technology-Enabled Banking Services
(ITEBS) or Technology-Enabled Banking Services (TEBS)
In the present study the terms „Electronic Banking‟ and „Information Technology-
Enabled Banking Services‟ and „Technology-Enabled Banking Services‟ have been used
interchangeably. The term "banking technology" refers to the „use of sophisticated information
and communication technologies together with computer science to enable banks to offer
better services to its customers in a secure, reliable, and affordable manner, and sustain
competitive advantage over other banks‟.
Banking technology also subsumes the activity of using advanced computer algorithms in
unraveling the patterns of customer behavior by sifting through customer details such as
demographic, psychographic, and transactional data. This activity, also known as data mining,
helps banks achieve their business objectives by solving various marketing problems such as
customer segmentation, customer scoring, target marketing, market-basket analysis, cross-sell,
up-sell, customer retention, and so forth. Successful use of data mining helps banks achieve
significant increase in profits and thereby retain sustainable advantage over their competitors.
From a theoretical perspective, banking technology is not a single, stand-alone discipline, but a
confluence of several disparate fields such as finance (subsuming risk management), information
technology, communication technology, computer science, and marketing science (Vadlamani,
2008).
2.3.1 E-Banking Defined
Bank branches alone are no longer enough to offer services to meet the needs of today‘s
high demanding and challenging customers (Bradley, L et al, 2003). The most recent deliverance
channel to be introduced is electronic banking (Daniel, E. 1999). Electronic banking is the latest
delivery channel to be presented by the retail banks and there is large customer acceptance rate
which means delivery of banking services to customers using electronic technology either at
their office or home. The e-banking offers enormous opportunities in every sphere of business as
the competitive advantage, member/client retention, increased revenues and reduced costs
(Esser, 1999). Several definitions of electronic banking exist in the literature. Often E-banking is
defined as web based banking (Hertzum et al., 2004).
55
According to Nanda (2010), ―Electronic banking refers to the use of technology which
allows customers to access banking services electronically whether it is to pay bills, transfer
funds, view accounts or to obtain information and advices. It refers to the electronic services that
are made available to the customers through phone, personal computer, atms and the internet‖.
Sharma (2007), gave a rather interesting definition of electronic banking when he
equated it as ―providing banking service to customer at his/her office/home or at any other place
or time wherever the person is- be it traveling, shopping or even in a stadium through the usage
of electronic technology‖.
Uppal (2007), takes a broader definition to include all the services provided by banks
through all types of electronic delivery channels such as telephone, internet, cell phone and so
on. Hence as per this definition banking services such as internet banking, telephone banking,
mobile banking and services provided through ATMs are all brought under its purview.
Engler & Essinger (2000), gave a broader definition, ―Electronic banking is a generic
term encompassing internet banking, telephone banking, mobile banking and automated teller
machines. In other words, it is a process of delivery of banking services and products through
electronic channels such as telephone, internet, atms etc‖.
According to Daniel (1999), e-banking means, ―the provisioning of information and
services by a bank to its customers via computer, telephone or television‖. According to her, it
also means ―the access to the banking services via kiosks or ATMs located in work places or at
public locations such as an airport or a railway station‖.
Joshi (2004), ―E-banking is defined as the automated delivery of new and traditional
banking products and services directly to customers through electronic and interactive
communication channels.‖
Bajaj & Kaur (2004), ―Banking done electronically is electronic banking or delivery of
bank‘s service to a customer at his office or home by using E-technology can be termed as E-
banking.‖
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Shah& Clarke (2009), ―In its very basic form, e-banking can mean the provision of
information about a bank and its services via a home page on the World Wide Web
(WWW).More sophisticated e-banking services provide customer access to accounts, the ability
to move their money between different accounts, and making payments or applying for loans via
e-Channels.‖
Burr (1996), ―E-banking is described as an electronic connection between bank and
customers in order to manage and control financial transactions.‖
Mols, Sathye and Daniel (1999), defined e-banking ― as type of products and services
through which bank customers request information and carryout most of their retail banking
activities through computer, television or mobile phone.‖
2.3.2 E-Banking and Technology
Information and communication technologies are playing a very important role in the
advancements in banking. In fact information and communication technologies (ICT) are
enabling banks to make radical changes to the way they operate. E-banking relies heavily on
information and communication technologies (ICT) to achieve its promise of 24 hours
availability, low error rates, and quicker delivery of financial services (Oliga & Narter,2001).
When considering e-banking, bank websites usually come to mind first, but e-banking requires
much more than just a good website. It needs back end applications such as account systems,
support applications such as Customer Relationship Management (CRM systems),
communication technologies to link e-banking to the payment systems such as LINK, and
middleware to integrate all these often different type of systems.
2.3.3 Evolution of Delivery Channels
Financial sector reforms set in motion in 1991 have greatly changed the face of Indian
banking. The pace of transformation has been more significant in recent times with technology
acting as a catalyst. Traditionally, when a bank wanted to expand it had to open new branches,
thereby incurring high start up and maintenance costs. This was a high cost strategy considering
the high real estate and bank operating expenses. This forced the banks to develop strategies that
57
could help them reach out to end customers in cost-effective ways. In the recent years, the Indian
banking industry saw a host of new faces called new generation banks entering with their
innovative strategies. All these bankers are generally slim in structure but heavily using the
technology and multi-channel facilities to reach out a large section of the customers. Technology
products, ―delivery channels‖, such as Automated Teller Machines (ATMs), Mobile banking,
Internet banking, etc improved customer convenience by providing anywhere any time banking
services. They turned out to be the growth drivers for private banks in India (Srikanth and
Padmanabhan, 2002). Technology is no longer being used simply as a means for automating
processes. Instead it is being used as a revolutionary means of delivering services to customers.
The adoption of technology has led to the following benefits: greater productivity, profitability,
and efficiency; faster service and customer satisfaction; convenience and flexibility; 24x7
operations; and space and cost savings (Sivakumaran, 2005).
2.3.4 New Technologies in Banking and Customer Services in Banks
Rising to the demands of the rising competition across the Globe, the Indian banks are
investing huge amounts on technology. It is estimated that Indian banks have collectively spent
around Rs. 10,000 crores on the road to Core Banking Solution (CBS) (Chawla, 2012).Besides
computerization of front-office operations, the banks have move towards back-office
centralization. ―Core Banking‖ or ―Centralized Banking‖ has also been implemented by the
banks, which provides connectivity between all of its branches and offer a large number of
value-added products, benefiting a large number of its customers.
Core Banking Solution (CBS) is networking of branches, which enables customers to
operate their accounts, and avail banking services from any branch of the bank on CBS network,
regardless of where he maintains his account. The customer is no more the customer of a branch.
He becomes the bank‘s customer. Thus, CBS is a step towards enhancing customer convenience
through anywhere and anytime banking. Technology is no longer a matter of choice for the
banking industry. With CBS forming the technological spinal cord of most banks, the focus
today is on technologies that aid in customer retention and result in tangible benefits in an era of
stiff competition. What we are seeing is the entry of business analytics and other integrated
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systems into the banking arena. Since some of these technologies require sophisticated
environments to operate in, they are forcing banks to modernize their CBS.
RBI Annual Report for the fiscal 2010-11 stated that the use of Automated Teller
Machines (ATMs) has been growing rapidly and this has helped in optimizing the investments
made by banks in infrastructure. The payment and settlement system is also modernized. With
the starting of operations of the Real Time Gross Settlement (RTGS) system effective from
March 26, 2004, India crossed a major milestone in the development of systemically important
payment systems abided by the core principles framed by the Bank for International Settlements.
RTGS provides for transfer of fund relating to inter bank settlements as also for customer related
fund transfers. It is a fully secure system and the reach and utilization of the system is
consistently increasing. Tele banking refers to banking on phone services. It is extensively user
friendly and effective in nature. Mobile banking is a new revolution in the realm of e-banking. It
provides a new way to pick up information and interact with the banks to carry out the relevant
banking business. The potential of mobile banking is limitless and is expected to be a big
business.
Electronic Funds Transfer (EFT) automatically transfers money from one account to
another. This system facilitates speedier transfer of funds electronically from any branch to any
other branch. The scheme has been in operation since February 7, 1996, in India. Internet
banking, involves the use of internet for delivery of banking products and services. Mechanized
cheque clearance has been used which uses Magnetic Ink Character Recognition (MICR)
technology. Cheque Truncation (E-Cheque) is another important element in e-banking in which
‗the image or relevant data of a cheque is electronically captured and transmitted to enable
payment of that cheque to the payee‘s account and simultaneously debiting the account of the
drawer without the physical movement of the cheque itself‘. The new delivery channels such as
ATMs, Mobile Banking, Telephone Banking and Internet Banking along with better access to
customer information have reformed the relationship between banks and customers. Banks have
the opportunity to market their products and services online and additional financial services like
banc assurance can be targeted at the existing customers and prospects, thus facilitating
59
customization to suit the needs of individual customers (Godse, 2005). There is a phenomenal
change and paradigm shift towards customer focus over the past five decades (Tripathy, 2007).
Table 2.3.1: Customer Focus Over The Decades.
Decade Focus on Customer
1950-1960 Serving the customer
1960-1980 Satisfying the customer
1980-1990 Pleasing the customer
1990-2000 Delighting the customer
2000 and beyond Retaining the customer
Source: Tripathy, 2007
Table2.3.2: Paradigm Shift Scenario in India.
Before 1991 After 1991
Seller‟s market Buyer‟s market
Protected market Open market
Not many global brands Increase in number of global brands
Friendly competition Cut-throat competition
Patient customers Demanding customers
Non-awareness customers Awareness among customers
Limited choice for customers Multiple choice for customers
Limited media promotion Extensive media promotion
Limited customer services Increase customer services
I.T.-competitive advantage I.T.-enabler
Focus on new customer Focus on new customer as well as retaining
existing customers
Transactional banking Relationship banking
Little customer commitment High customer commitment
High customer contact due to traditional
banking
Moderate customer contact due to e-banking
Source: Tripathy, 2007
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2.4 E-Banking Channels
Electronic delivery of banking products and services can take a number of different forms
(Seitz & Stickel, 1998).
2.4.1 Automated Teller Machines (ATMs): “The one stop shop”
The first form of electronic banking was the ATM (Kass, 1994).ATMs are the cash
dispensing machines that can be seen at banks (on-site) and other locations (off-site) where
crowd proximity is more. ATMs started as a substitute to a bank to allow its customers to
withdraw cash at anytime and to provide services where it would not be viable to open another
physical branch. The ATM is the most visited delivery channel in retail banking, with more than
40 billion transactions annually worldwide. In fact, the delivery channel revolution is said to
have begun with the ATM. It was indeed a pleasant change for customers to be in charge of their
transaction, as no longer would they need to depend on an indifferent bank employee.
ATMs have made banks realize that they could divert the huge branch traffic to the ATM.
The benefits hence were mutual. Once banks realized the convenience of ATMs, new services
started to be added.ATM card holder‘s can perform routine cash transactions without interacting
with a human teller (Sivakumaran, 2005). “A machine that spat money! Automated teller
machines (ATMs) were a thing of wonder in the 1990s. But that was then” (Cairns, 2006).The
ATM is no longer just a machine to withdraw and deposit cash. It is a mini bank branch where
customers can do a host of financial activities as per their own conveniences. ATM is the most
popular way of banking that serves the customers for 24 hours a day, 7 days in a week. It is
convenient and cheaper technology and made the customer visits to a branch less necessary
(Hanson and Kalyanam, 2007).
Hongkong and Shanghai Banking Corporation (HSBC) was the first bank to introduce the
ATM concept in India way back in 1987. Now every commercial bank gives ATM facilities to
its customers. New private sector banks have taken the lead in introducing ATMs initially in a
big way to supplement their branch network and to compete with large public sector banks
having many branches. ICICI bank was the first bank to cross the 1000 mark in installing ATMs
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in India (Joshua, 2009). But in current scenario, public sector banks are also aggressively taking
up the installation of ATMs seriously for Indian market.
In a recent move, public sector banks have geared up to establish 60,000 more ATMs
across the country over the next two years. According to data from National Payments
Corporation of India, the number of ATMs in the country-of public, private, foreign and
cooperative banks, part of National Financial Switch connecting all ATMs- had reached 98,025
by the end of April 2012 (Business Standard, Friday, May 11-2012).
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Figure 2.4: Use Case Diagram for an ATM.
The above exhibit show the use case diagram for an Automated Teller Machine (ATM),
where customers can perform transaction by inserting their ATM card and carry out the
Approval Process by entering PIN Number. Security is provided in form of entering a Personal
Identification Number (PIN) by the customer (Ghose, 1987).After the approval, customer is
requested type of transaction (deposit of money, withdrawal of money etc.), and the transaction
Transaction Completed
Remove Card
Insert ATM Card
Enter Pin Code
Fund Transfer
Balance Inquiry
Bill Payment
Cash Withdrawals
Mini Statement
ATM Transaction
Process
Approval Process
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is carried out accordingly. At the completion of the transaction, the customer exit application and
remove his/her card.
2.4.1. A ATM Scenario In India
Table 2.4.1.a: ATM Strength of Scheduled Commercial Banks (As at end-March 2011).
Serial
Number
Bank Group On-Site
ATMs
Off-Site
ATMs
Total
Number of
ATMs
Off-Site
ATMs as
Percentage
of Total
ATMs
1 2 3 4 5 6
(1) Public sector
banks
29,795 19,692 49,487 39.8
(1.1) Nationalized
banks*
15,691 9,145 24,836 36.8
(1.2)
SBI group 14,104 10,547 24,651 42.8
(2) Private sector
banks
10,648 13,003 23,651 55.0
(2.1) Old private sector
banks
2,641 1,485 4,126 36.0
(2.2) New private sector
banks
8,007 11,518 19525 59.0
(3) Foreign banks 286 1,081 1,367 79.1
(4) Total 40,729 33,776 74,505 45.3
(*Include IDBI Bank Ltd.)
Source: RBI website
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Table 2.4.1.b: ATM Strength of Scheduled Commercial Banks (As at end-March 2012).
Serial
Number
Bank Group On-Site
ATMs
Off-Site
ATMs
Total
Number of
ATMs
Off-Site
ATMs as
Percentage
of Total
ATMs
1 2 3 4 5 6
(1) Public sector
banks
34,012 24,181 58,193 41.5
(1.1) Nationalized
banks*
18,277 12,773 31,050 41.1
(1.2)
SBI group 15,735 11,408 27,143 42.0
(2) Private sector
banks
13,247 22,830 36,077 63.3
(2.1) Old private sector
banks
3,340 2,429 5,769 42.1
(2.2) New private sector
banks
9,907 20,401 30,308 67.3
(3) Foreign banks 286 1,130 1,416 79.8
(4) Total 47,545 48,141 95,686 50.3
(*Include IDBI Bank Ltd.)
Source: RBI website
It is very much clear from table that the total number of ATMs installed the banks was
74,505 as on 31st March 2011 whereas by the same period in 2012 it was 95,686, registering a
growth rate of 28.42 over the previous year 2011. Nationalized banks constituted the largest
share of installed ATMs, followed by the new private sector banks, SBI group, old private sector
banks and foreign banks. While new private sector banks and foreign banks had more off-site
ATMs, nationalized banks, SBI group banks and old private sector banks had more on-site
ATMs. Understandably foreign banks and new private sector banks depend on off-site ATMs to
overcome the limitation of having less number of branches. With the installation base of more
than 95,000 ATMs (as on 31st March,2012) all over the country, ATMs are going to play greater
role in day-to-day banking transactions.
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Future ATMs will be more than just cash dispensing machines; they will be providing
additional value added services including several non-banking and non-cash ones (Mohanty,
2007). The common nonbanking services provided by most banks via ATMs are payment of
electricity, telephone, cellular and credit card bills, payment of insurance premiums, and
refilling/recharging pre-paid mobile phone connections. Bankers also testify that ATMs are now
an integral part of the bank‘s service delivery network. Says Shalini Mehta, executive vice-
president, Kotak Mahindra Bank: ―Subsequent to the Reserve Bank of India's (RBI) free price
regime, ATMs have become more powerful than before in terms of evolving as one of the
preferred medium of customers for their banking needs.‖ She adds that, at Kotak, close to 32 per
cent of the total bank transactions are conducted through the ATM channel. Says Mehta: ―Banks
are consciously driving the usage of these services on ATMs with customers so that it reduces
their time in visiting bank branches or service provider outlets‖. Today, a visit to the nearest
ATM can help you accomplish a myriad of tasks, such as utility payments, open an FD, pre-paid
mobile recharge, credit card payments, tax payments and others like donate funds to charity or
temple trusts, whilst acting as a cash point too. There has been a mushroom growth of ATMs in
metro and urban areas as banks have been given the freedom by the Reserve Bank of India to set
them up at any location of their choice.
According to Mr.Navroze Dastur, Senior General Manager (South Asia channel partners
and strategic alliance), NCR Corporation, ―Bank ATMs are growing at a phenomenal rate in
India. In the past five years, this segment witnessed a growth of over 30 percent. According to
data, ATM terminals in India are expected to grow at a compounded average growth rate
(CAGR) of 25 percent between 2011 and 2015. However, there is a lot of room for growth. At
present we have 75-80 ATMs per one million people and when we compare this figure with
China, we would find that there are 200 plus ATMs per million people. However, Indian banking
is also witnessing a steady growth and there are a number of reasons driving this growth. One
obvious reason is that banks themselves are opening a large number of new branches.
There is now a major focus on financial inclusion which means ATMs now have a wider
reach in rural and remote corners of the country. There is also a huge demand from the urban
population who are looking for instant services alongside seeking to avail of more value-based
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features.‖ Off late, the Reserve Bank of India reviewed the policy on ATMs and it has been
decided to permit non-banks to set up, own and operate ATMs to accelerate the growth and
penetration of ATMs in the country. Such ATMs will be in the nature of white label ATMs
(WLA) and would provide services to customers of all banks. While such WLAs will be owned
and operated by non-bank entities, cash management and customer grievance redressal will be in
the domain of the sponsor banks. The draft guidelines on WLAs were placed on the Reserve
Bank‘s website for public comments in February 2012. Roles and responsibilities of the
stakeholders (WLA operators, sponsor banks and ATM network operators) were indicated in the
draft circular keeping in view various aspects, including cash management, ATM network
membership and customer grievance redressal. The final guidelines will be issued, after taking
into account the views of public and stakeholders. (Business Standard, August 2012).
2.4.1.B ATM Security and Privacy Issues
Do‟s:
1) Do keep your PIN (Personal Identification Number ) secure .
2) Please memorize your PIN And destroy the printed PIN mailer.
3) Change your PIN immediately after receiving the PIN mailer and Card.
4) Always remember to take your Card after the transactions at the ATM.
5) Report loss of Card immediately .
6) Register for SMS banking with your branch to get ATM transaction SMS alerts.
7) Protect the Magnetic Stripe from damage. Never keep the Card near strong Magnetic source
like speakers, television set and other electronic equipments.
8) If you receive the PIN mailer in a tampered state please do not accept the same. Ask for a
fresh PIN.
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9) Verify account statements regularly and monitor your accounts. Notify the branch in case of
any doubtful transactions.
10) Ask for printed receipt , only if necessary. The balance details are shown on the screen after
transactions.
Don‟ts :
1) Do not keep the Card and PIN together.
2) Do not set PIN, which can be guessed easily.
3) Do not reveal your PIN to anyone or through Email/Internet . Banks do not ask for such
details.
4) Do not allow anyone else to withdraw for you.
5) Do not use helmets, cap etc while entering the ATM room.
2.4.1.C Biometric ATMs for Rural India
“ATMs with biometric devices are the latest solution in the ongoing effort to offer
banking services to the rural masses”.
To reach the rural masses, banks are going all out in providing a user-friendly banking
experience by deploying biometric solutions with ATMs. In recent years the importance of
biometrics has grown tremendously with an increasing demand of security in accordance of
unique identification of individuals. Its use for identification in applications other than policing is
on the rise. In view of the rapidly increasing applications, the scope of biometrics is also
increasing, be it identification via face, voice, retina or iris.
Fingerprinting, however, has the advantage of being a familiar concept worldwide. In the
retail payments arena, developments in biometric technology have made their presence felt in the
pervasiveness of self service devices including Automated Teller Machines (ATMs) and Point of
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Service (POS) machines. ATM enhancements with biometric support envisaged by vendors
eliminate the need for PIN entry, and authenticate customer transactions by thumb-impressions.
A simplified menu on ATMs coupled with possible audio guidance in local language
enable easy use for rural masses. So far bank ATMs are dependent on PIN verification. The
fingerprint authentication method is non-PIN based, and this requires enhancements to the
standard Switch environment.
2.4.1.D Securing Transactions with Fingerprints
With the development of biometric solutions for the ATMs there is no need to remember
PIN numbers. Software vendors have come up with finger print solutions for the rural masses.
Elaborating on the working of the biometric solutions, G. P. Shekar, Head - Consulting Practice,
Financial Software and Systems (P) Ltd. opined that, ―Customers opting for biometric
authentication can visit a nearby kiosk or ATMs or bank, where their finger-print data would be
scanned into a special PC with a finger-print scanner and the scanned fingerprint is then stored in
an encrypted form in a central server. When a customer inserts (or swipes) his card in a biometric
enabled ATM, he is prompted to set his finger in the fingerprint scanner. The transaction along
with customer‘s biometric information is passed on to the switch. The switch verifies the
fingerprint with the server, and if successful, requests the banking application to authorize the
transaction.‖ Based on the result, the Switch instructs the ATM to complete the transaction. FSS‘
BAIS solution meets this requirement, by performing requisite message translations as well as
confirming authorization.
2.4.1.E Bank ATMs Stop Sucking-in Cash After RBI Direction-“An initiative by RBI to
Enhance Customer Satisfaction and to Boost the Usage of ATMs.”
RBI has asked all banks to disable cash retraction facility at all their ATMs, however
customers will have to be extra careful in collecting money dispensed by the ATM, as they
cannot later claim it from the bank. Most of the banks, including HDFC Bank, Axis Bank and
IDBI Bank, have already removed the cash retraction facility from all their ATMs, while the
withdrawal process for this facility is underway for few remaining ATMs .As per RBI directions,
the banks are communicating to their customers about the withdrawal of this facility, under
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which the cash goes back into the ATM machine if not collected within a stipulated time, which
is generally 10-15 seconds, but varies from bank to bank. The facility was initially implemented
to avoid the cases of someone else getting the money, if the actual cardholder forgets to collect
the withdrawn cash before leaving the ATM.
However, RBI in the past one year has come across banks reporting several instances of
frauds pertaining to mis-use of cash retraction facility at the ATMs. The typical modus operandi
has been to hold on to a few pieces of notes in ATM machines that have cash retraction system,
while allowing one or two pieces of notes to be retracted and then claiming non-receipt of cash.
Since retracted transactions are credited back to the customer's account, the balance in the
fraudster's account remains unaffected even after collecting bulk of the delivered cash.
The ATMs do not have the capability to count the pieces of retracted notes, thus leaving a
loophole for committing such frauds. RBI discussed the matter at a special meeting of the
National Financial Switch Steering Committee, where disabling of ATM cash retraction facility
was suggested as one of the possible solutions. RBI accepted the suggestion and after a
successful pilot project decided to ask the banks to disable cash retraction facility at all their
ATMs. The Reserve Bank also asked the banks to educate the customer on the consequences of
cash retraction and the reasons for disabling this facility, display information regarding disabling
cash transaction at each and every ATM location and ensure wide propagation.
In its notice to customers, HDFC Bank said: "The Cash Retraction Facility on ATMs has
been disabled as per an RBI mandate. The cash will remain in the ATM dispenser tray till the
time it is not collected and will not get retracted into the ATM‖. "The bank has also asked its
customers to ensure that they collect the entire cash withdrawn through the ATM before leaving
the ATM and ―the bank would not be liable for any financial loss on account of failure to collect
the cash from the ATM dispenser tray‖.
In a similar message, IDBI Bank has informed its cardholders that the retraction of cash
by ATM has been disabled as per RBI directives and they should ensure collecting cash before
leaving the ATM room.
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Axis Bank said that as per the RBI guidelines, it is mandatory to remove 'cash retract'
feature from the ATMs. ―In line with the RBI directive, we at Axis Bank have taken out the
'Cash Retraction' facility from our ATM machines. Do not forget to collect your cash as the cash
will not be retracted in the ATM machine and will remain in the mouth of the ATM till the time
the cash is not collected,‖ the bank said. Similar communications are being made by various
other banks to their customers.
2.4.1.H Summing Up
In many parts of the world the majority of bank customers regularly use Automatic Teller
Machines (ATMs) and today‘s Western youth have not known a world without them (Angeli,
Athavankar, Joshi, Coventry and Johnson). Automatic Teller Machines (ATMs) allow
customers to deposit money, withdraw cash, request a balance and pay bills at any time. ATM
services not only provide convenience for customers, but also decrease operating costs for the
bank (Rose and Hudgins, 2008) .
Automatic Teller Machines have become a mature technology which provides financial
services to an increasing segment of the population in many countries (Das and Debbarma,
2011). Financial institutions have played a major, sometime coercive, role in encouraging ATM
adoption. Research has monitored this period revealing major drivers and deterrents of adoption
and basic usability issues (Stevens et al., 1986; Hatta and Iiyama, 1991; Pepermans et al., 1996;
Mead and Fisk, 1998; Little et al., 2003).
The ATM flourishes within societies where time is precious and money readily available.
This culture is composed of individuals, who have personal bank accounts and access to a wide
range of technology. For these people, ATMs are convenient and reliable everyday artifacts:
push a few buttons and get your money (Angeli & Johnson, 2009).
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2.4.2 Mobile Banking (m-banking): “Banking on the Move and Fingertips”
Mobile Banking (m-banking) is fast catching up as an alternative channel for banking
services. Mobile phone as a channel provides enormous potential in banking. ‗It is the hottest
area of development in the banking sector and has the potential to be used as a means to bring
into the banking fold the unbanked and under banked segment of the population (Nanda, 2010)‘.
Mobile banking is regarded in the industry as "the delivery channel of the future" for various
reasons. First and foremost is the convenience and portability afforded. It is just like having a
bank in the pocket. Other key reasons include the higher level of security in comparison to the
Internet and relatively low costs involved. The possibility that customers will adopt mobile
banking is high, considering the exponential growth of mobile phone users worldwide.
Mobile banking typically provides services such as the latest information on account
balances, previous transactions, bank account debits and credits, and credit card balance and
payment status (Vadlamani, 2008). ―As customers become comfortable with the mobile banking
channel, we expect its volumes to overtake those of Net banking. Roughly , for every user surfing
the Net , there are eight mobile phone users‖ (Rajiv Sabharwal, Executive Director, ICICI
Bank). According to a report by KPMG International (2009), the ability to identify customer‘s
most pressing need at a given moment of time is one of the promising propositions of mobile
banking and the challenge now is to deliver services according to consumers‘ perception of value
and trust.
2.4.2.1 Mobile Banking Defined
Mobile banking (m-banking) involves the use of a mobile phone or another mobile
device to undertake financial transactions linked to a client‘s account. M-banking is one of the
newest approaches to the provision of financial services through information communication
technology (ICT), made possible by the widespread adoption of mobile phones even in low
income countries(Anderson,2010).
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Mobile banking is an extension to application such as phone banking and online banking
(Pousttchi K. and Schurig M., 2004). It can be defined as a channel whereby customers interact
with a bank through a mobile device e.g. cell phone (Scornavacca E. and Barnes S.J., 2004).
Mobile banking (also known as m-banking, SMS banking etc.) is a term used for
performing balance checks, account transactions, payment, etc via mobile device such as mobile
phones. Mobile banking today is most often perform via SMS or mobile Internet, but can also be
used by special programs called clients downloaded to the mobile device (Anyasi and
Otubu,2009).
Mobile banking is an element of electronic banking that uses mobile phone technology
(or other wireless devices) to deliver electronic financial services to consumers. It has been
taunted as a powerful new marketing and CRM tool for financial services companies (Sangle
and Awasthi, 2011).
Mobile banking helps the customers to perform a lot of wide range of transactions on
cellular phones. Also, mobile devices improve the quality of the service because clients can
perform transactions at their convenience wherever and whenever they want it (Laukkanen,
2007) provided there is a connection. Thus, a mobile bank service can foster stronger
relationships to the existing ones between financial institutions and clients. Several factors are
found to moderate attitude towards intention to adopt mobile banking namely age, computer
skills, mobile technology readiness, and social influence (Kleijnen et al., 2004).
The scope of offered services may include facilities to conduct bank and stock market
transactions, to administer accounts and to access customized information (Srivastava, Gupta
and Dubey 2012). It provides 24 hours banking facility to the customers with no time and
location constraints at banking environment.
2.4.2.2 Mobile Banking Services
Banks offering mobile access are mostly supporting some or all of the following services:
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Figure 2.5: Mobile Banking “Your One Stop Shop.”
Source: Outlook Money, August 8th
, 2012
Mobile
Banking: “Bank
In Your Palm”
BANK ACCOUNT
Instant fund transfer & Bill payment.
Balance Inquiry/ last transaction details.
Cheque book request.
Cheque status inquiry/ stop cheque
payment.
Open a Fixed Deposit / Recurring
Deposit.
LOAN
Loan request.
Loan outstanding details.
EMI payment.
Loan rate.
CREDIT CARD
FACILITY
Payment of dues.
Balance details.
Last payment details.
Unbilled transaction
details.
Latest statement.
MOBILE SHOPPING
Prepaid mobile recharge.
Movie tickets.
Air tickets.
DTH recharge.
Railway tickets.
DEMAT ACCOUNT
Holding enquiry.
Transaction status.
Bill inquiry.
Stock market scrip
rates.
Total holding details.
OTHER SERVICES
Locate a branch.
Locate an ATM.
Track service request.
Donations to charity/ trust.
Insurance premium
payments.
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2.4.2.3 Mobile Banking in India: History & Current Trend
The pioneering bank to offer mobile banking services in India was ICICI bank in the year
1999, followed by HDFC bank and IDBI bank (Aithal , 2008) . Among the 11 prominent private
sector banks, seven are providing mobile banking facility to their customers. State Bank of India,
Bank of Baroda and Corporation Bank are some of the public sector banks which have started
offering this service to their customers (Joshua, 2009).Mobile banking in India is set to explode.
According to official data of RBI, the number of mobile phone subscribers in India increased to
811.59 million in March 2011 month-on-month with the addition of 20.21 million connections.
In a month only, 0.68 million transactions worth INR 610 million are being made through
mobiles, RBI said. To boost mobile banking in the country, in May, RBI enhanced the limit of
virtual money a user can load on a cell phone to INR50,000 from INR5,000 to relax the norms
for making payments through mobile banking. Agreed that mobile banking in India is still at its
nascent stage but the future prospect and growth looks brighter than anything else. Transactions
in mobile banking are also on an upsurge as more than 2,800,000 transactions (worth about Rs
196.12 crore [US$ 38.37 million]) were conducted during February 2012. According to the
country's central bank, the Reserve Bank of India (RBI), there are already 47 banks in the
country that actively provide mobile banking services. While some leading private sector players
have been experimenting with mobile banking over the past decade, it took a nudge from the
banking industry regulator for most other Indian banks to wake up to the vast potential of mobile
banking. The country‘s largest state-backed lender, State Bank of India (SBI), for instance,
launched mobile banking in December 2008, only after the RBI published mobile banking
guidelines. Shyamala Gopinath , deputy governor of the Reserve Bank of India, says: ―The RBI
recognised the potential and growing importance of mobile phones as a medium for providing
banking services and, in October 2008, issued formal guidelines for mobile banking, covering
regulatory and supervisory issues, technology and security standards, interoperability, transaction
limits, and customer service and so on‖.
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Figure 2.6 : The History Of Mobile Banking In India.
Source: Outlook Money, 08 August 2012
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2.4.2.4 Vital Statistics On Mobile Banking
Mobile Banking Usage
Mobile Banking has really caught up in India. According to recently conducted survey by
ACI Worldwide, 76% of Indian mobile respondents used their mobiles for banking in last 6
months. This percentage is highest across the world. Comparatively, only 38% respondents from
US, and 31% from UK used mobile banking in last 6 months (Q1 2012). China came in after
India with 70% users using mobile banking followed by South Africa-61%. The global average
for Mobile Banking adoption rate stands at 35%.
Figure 2.7: Mobile Banking Usage.
0%
10%
20%
30%
40%
50%
60%
70%
80%
Mobile Banking Usage
Source: AITE Group; ACI Worldwide study of 4,200 consumers in 14 countries, Q1 2012
Most Popular Mobile Banking Services
It is very much evident from the graph below, that urban Indian customers‘ use mobile
banking services for checking account balances most frequently(15.9%) followed by viewing last
three transactions(11.8%).
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Figure 2.8 : Most Popular Mobile Banking Services.
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
Request A Cheque Book
(7.5%)
Checking Account Balances (15.9%)
Status of Cheque/ Demand Draft
(8.7%)
View Last Three Transactions
(11.8%)
Payment Reminders (7.3%)
Most Popular Mobile Banking Services
Source: Banknet India
Value of Mobile Transactions
It is very much clear from the table below (Source, RBI) that mobile banking is gaining traction,
whether it‘s in Public sector banks, Private sector banks or Foreign banks.
Table 2.4.2.a: Mobile Banking-Strong Reception.
BANKS* VALUE OF MOBILE TRANSACTIOS (In Rs. Crore)
GROWTH
(*Top seven banks on May 2012)
May 2011 May 2102 (In percentage)
State Bank of India 52.38 111.11 112
ICICI Bank 27.80 107.70 287
Citi Bank 3.84 33.61 774
Axis Bank 0.44 12.50 2,683
Union Bank of India 1.03 3.09 198
Bank of Baroda 0.06 2.94 4,400
HDFC Bank 1.29 2.82 118
All Banks 91.22 286.54 214
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Over the last 10 years, mobile adoption has moved up from approximately 10% to over
80%, and mobiles phones are becoming main stream for data access. This has made banking on
mobile natural and integral to most customers. Thus it is important for banks to refresh their
channel strategy and include mobile as a standalone core distribution channel.RBI reports that
while the government typically incurs a transaction cost of 12%-13%, mobile banking brings the
cost down to a mere 2%.
According to Dr. K. C. Chakrabarty, Deputy Governor, Reserve Bank of India,
“Mobile banking is the cheapest way to reach rural customers”. Mr.Joydeep Sengupta, head
of McKinsey‟s financial services practice in India, is bullish about mobile banking in
India: “There are lots of players driving mobile payments, the penetration of mobile is very
good, customers use the mobile for a lot of purposes and the RBI has very proactively and
favourably come up with good regulations. Additionally, there is ongoing migration from
rural to urban towns and cities, which will drive the need for remittances. The environment is
ripe for mobile banking.”
In the next seven to 10 years, he predicts, mobile banking is going to be a $350m to
$500m opportunity, with mobile payments playing a key role, and between $100m and $150m
coming through financial inclusion. Technology, in the guise of mobile and smart-card banking,
is bringing the remote sectors of India's population within reach of the country's banks.
2.4.2.5 Mobile Banking Security and Privacy Issues
By 2015, Berg Insight forecasts that 894 million people worldwide will use mobile
banking or related services. That is up 1,525 percent from the 55 million mobile banking users in
2009. As mobile banking continues to grow in popularity, consumers need to take steps to
protect themselves while accessing important information on their phone (Giselle Tsirulnik,
senior editor, mobile commerce daily and mobile marketer, 2009).
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Do‟s:
1. Use caution while installing a bank‘s software for mobile banking to ensure it is authentic and
reach out to the bank for confirmation.
2.Password-protect the mobile phone and choose a complex password with a minimum of 8
characters using letters, numbers and special symbols.
3. Review account statements frequently to check for fraudulent transactions.
4.Report a lost or stolen phone immediately to the bank and arrange to deactivate the mobile
banking service.
Don‟ts:
1.Don‘t store sensitive information such as credit cards details, mobile banking password and
user ID details in a separate folder on your phone.
2. Don‘t multi-task when you are transacting using mobile banking software installed on your
phone.
3.Don‘t forget to advise your bank of changes in your mobile number to ensure that SMS
notifications are sent to someone else.
4. Don‘t forget to intimate your bank in case your mobile is lost or stolen, so as to discontinue
the mobile banking services.
2.4.2.6 Benefits Mobile Banking Services (Uppal, R.K.)
(A)To Customers
Customers need not stand in the bank counters/front offices for various enquiries about
his account.
Customer can save his valuable time in banking transactions and save in travel cost
reaching the bank branch etc.
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It is a mobile banking to have information of all the 365 days at anytime anywhere about
his account.
Customer can pay his utility bills in time and save paying penalties, since alerts are
received from the bank.
Cheque book requests can be made sitting in his work place.
(B)To Bankers
M-banking helps banks in saving crore of rupees by way of reduced transaction costs.
Govt. incurs a cost of Rs. 12-13 for every Rs.100. Mobile banking helps it reduce the cost
to a mere Rs.2.
Banks can utilize the time saved for expansion of business, marketing and sales activities
by channel migration of customers to mobile banking.
Banks providing mobile banking service can have competitive advantage on those banks,
which are not providing this service.
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2.4.3 Internet Banking or On-Line Banking
In the present study the terms ‗Internet Banking‘ and ‗On-Line Banking‘ have been used
interchangeably. Internet banking often referred to as ‗online banking‘ can be defined as
performing financial transactions over the internet through a bank‘s website (Shao,
2007).Internet banking is quickly becoming an essential service for any size bank and is
increasingly becoming popular because of convenience and flexibility (Singhal and
Padmanabhan, 2008). It is an emerging technology that permits conduct of banking transactions
through the Internet. It represents an electronic marketplace whereby consumers may conduct
their financial transactions on a virtual level (Reiser, 1997; Daniel, 1999).
―Internet banking‖ refers to systems that enable bank customers to access accounts and
general information on bank products and services through a personal computer. Internet
banking products and services can include wholesale products for corporate customers as well as
retail products for consumers. Soon, the products and services obtained through Internet banking
may mirror products and services offered by other bank delivery channels such as traditional
branch banking, automated teller machines, phone banking, and call centers (Gartner, 2003).
Banks with a physical brick-and-mortar presence or virtual banks can offer Internet banking
(Gopalakrishnan, 2003). With the widespread growth of the Internet, customers can use this
technology anywhere in the world to access to a bank's network.
The Internet, as an enabling technology, has made banking products and services
available to more customers and eliminated geographic and proprietary systems barriers
(Malhotra and Singh, 2005). With an expanded market, banks also may have opportunities to
expand or change their product and service offerings. According to an International Data
Corporation (IDC) report (2012), ―reflecting the growing popularity of Internet banking, the total
number of user registrations for Internet banking in India at present stands at over 2 million‖.
These findings need to be adjusted for dormant users and multiple accounts (a user having
accounts with more than one bank). As per IDC estimates, India has a little less than a million
active Internet banking users that might be just 0.096 per cent of the total population, but
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represent 15 per cent of the Internet user population in India. In its latest report (2012), on the
status of e-Banking in India, IDC feels that though the banks have taken the first step, they have
got a long way to go before Internet banking becomes a way of life.
Internet banking services vary, but basic access to account information is the core
functionality. Customers today demand Internet banking facilities when they open new accounts
and the situation is particularly true in developed economies. Internet banking allows customers
of banks to:
Do balance enquiry, for example, online enquiries of current checking or savings account
balances.
Transfer funds electronically, for example, transfer funds between one's own accounts or
external accounts.
Pay bills, for example, utility bills or insurance premiums, or buy railway and air tickets,
and so forth.
Make loan applications, for example, applications for car loans, housing loans, personal
loans, and so forth.
Make investments, for example, create fixed deposits and so forth.
Trade in shares and securities.
Make stop payment for cheques etc.
Besides the above mentioned advantages the Internet banking offers to the customers, it
provides certain benefits to the bankers as well such as reducing operating costs, wide customer
reach, promote business diversification, savings on manpower, increased productivity,
opportunity to target new customer segments and retain market share (Carlson, 2001, Centeno,
2003).Nair, (2005) opined that ‗the prime driver for offering services online is to offer 24x7
availability and convenience to its customers, beyond that, cost reduction is another major
reason. It is estimated that the cost to the bank per transaction done over the Internet is nearly
one eighth of that done through branch banking. So the challenge to all banks will be to expand
the Internet banking user base and slowly increase the range of services customers use‘. How the
banks fare in designing, improving, marketing and rolling out services will greatly impact the
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adoption trends. The Internet banking is now being considered as a strategic weapon and will
revolutionize the way banks operate, deliver, and compete against one another, especially when
competitive advantages of traditional branch networks are eroding rapidly (Nehmzow & Seitz,
1998).
Furst, Lang, & Nolle, (2000) suggested different types or levels of Internet banking. The
basic level of Internet banking is primarily informational. The bank's Web site has marketing
information about the bank's products and services. The second level is communicative where
the Web site allows interaction between the bank's system and the customer such as account
inquiry, loan applications, or static file updates (name and address changes). At the third level
bank customers have more power to operate their accounts. This is the transactional level where
customers have the ability to execute transactions like paying bills, transferring funds, making
fixed deposits, and so forth. Most banks offer balance enquiry and funds transfer capabilities
through the Internet today. It is expected that more banks will develop the facilities for bill
payment, credit applications, new account setup, cash management, and fiduciary and insurance services
through Internet banking (Dinz, 1998).
As per the RBI‘s classification in their Report of Internet banking (2001), the levels of
banking services offered through internet can be categorized into three types:
i. The basic level service is 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.
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The above forms of internet banking services are offered by traditional banks, as an
additional method of serving the customer or by new banks, who deliver banking services
primarily through internet or other electronic delivery channels as value added services.
2.4.3.1 Features of On-line Banking-Some of the distinctive features of on-line banking are:
1. It removes the traditional geographical barriers as it could reach out to customers of different
countries.
2. It has added a new dimension to different kinds of risks traditionally associated with banking,
heightening some of them and throwing new risk control challenges.
3. Security of banking transactions, validity of electronic contract, customers‘ privacy, etc.,
which have all along been concerns of both bankers and supervisors have assumed different
dimensions given that Internet is a public domain, not subject to control by any single authority
or group of users.
4. It poses a strategic risk of loss of business to those banks, who does not respond in time, to
this new technology, being the efficient and cost effective delivery mechanism of banking
services.
The emergence of Internet banking has prompted many banks to rethink their IT
strategies in order to stay competitive. Customers today are demanding much more from banking
services. They want new levels of convenience and flexibility (Birch & Young, 1997).
2.4.3.2 Internet Banking Scenario in India
The race for market supremacy has compelled banks in India to adopt the latest
technology on the Internet in a bid to capture new markets and customers. ICICI bank was the
first one to offer online banking way back in 1996 with the launch of ‗infinity‘ and other banks
especially those belonging to new private sector and foreign banks followed suit (Geetika,
Nandan and Upadhyay, 2008). The period from 1996 to 1998 marked the adoption phase even
for the internet as a whole. The usage increased only by 1999 as a result of lower online charges
and increased PC penetration combined with a tech- friendly atmosphere.
After ICICI Bank, Citibank, IndusInd Bank, HDFC Bank and Times Bank (now part of
HDFC Bank), were the early ones to introduce online banking (Rajneesh De and Padmanabhan,
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2002). At first the online banking facility was used as a vehicle for meeting the information
requirements of the customers and gradually transaction facilities like fund transfer and third
party transfers were introduced. Banks like Axis Bank Ltd., HDFC Bank Ltd. etc. are thus
looking to position themselves as one stop financial shops. These banks have tied up with
Internet Services Providers and portals for expanding their Net banking services, and widening
their customer base.
2.4.3.3 Internet Banking Security and Privacy Issues (E-threats)
“Security issues are important because fraudsters can make life unsafe and miserable”.
Acceptance of Internet banking is directly influenced by the confidence of customers
with regard to the security of the computer, network and most importantly the infrastructure of
the bank they wish to access. The main issues in internet banking relate to security,
authentication, access control, data confidentiality, data integrity, non-repudiation, security audit
trail, business continuity planning, and customer awareness. These issues are not only important
for the banks but also they are essential to build customer confidence and satisfaction (Kumar et
al., 2007).
Security: The providers of Internet banking services must be more responsive towards
security requirements (Fatima,2011).Security in Internet banking comprises both the computer
and communication security. The aim of computer security is to preserve computing resources
against abuse and unauthorized use, and to protect data from accidental and deliberate damage,
disclosure and modification. The communication security aims to protect data during the
transmission in computer network and distributed system.
Authentication: There has to be a process of verifying claimed identity of an individual
user, machine, software component or any other entity so that unauthorized persons cannot gain
access.
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Access Control: It is a mechanism to control the access to the system and its facilities by
a given user up to the extent necessary to perform his job function. It provides for the protection
of the system resources against unauthorized access. It goes hand in hand with authentication.
Data Confidentiality: The concept of providing for protection of data from unauthorized
disclosure is called data confidentiality. Due to the open nature of Internet, unless otherwise
protected, all data transfer can be monitored or read by others.
Data Integrity: To ensure that information cannot be modified in unexpected way.
Failure to protect the correctness of data may render data useless, or worse, dangerous.
Non-Repudiation: To verify whether the transactions have been effected through proper
encryption measures and digital signature.
Security Audit Trail: A security audit refers to an independent review and examination of
system's records and activities, in order to test for adequacy of system controls.
Business Continuity planning: To ensure transaction despite any interruptions.
Customer security awareness creation: Educating customers about preventive measures.
These measures are essential as there is increased threat of phishing or online identity
theft according to a study by Gartner, as cited by Balaraju and Balakrishnan (2008). They also
found that most of the senior bankers surveyed by them (97%) felt that phishing is a threat to
their online banking services and they also felt that most of the customers have low knowledge
levels about it.
Stronger authentication such as two factor authentication, usage of biometrics, quantum
cryptology along with proper customer sensitization are required to increase security and reduce
stealing of customer data (Fatima, 2011).
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2.4.3.4 What is Phishing?
Phishing is a technique employed by scamsters to illegally procure personal information
like account numbers, Internet banking user ids and passwords, etc. The most frequently used
method is to send a spam email to a large database of email ids say, all gmail ids or all yahoo ids.
The spam email is designed in such a way as to look exactly like an email sent by the targeted
company / bank. The email simply asks the recipient to click on a link and enter their user id and
password. Different techniques are used to lure the recipient to click on the link: validation of
account information, threat of account suspension, etc.
Stay Safe While Banking Online
Here's a list of Must Do's to keep your online banking a safe and secure experience.
Precautions while logging in
Avoid using Internet Banking on shared computers and public places like Cafés,
Libraries.
Always remember to Log off on Internet Banking and close your browser when you have
finished your online banking.
Disable the 'AutoComplete' function within your browser
Your account information safety
Change your Internet Banking password regularly and never disclose it to anyone.
Always use alphanumeric passwords and for multiple accounts, use different passwords .
Ensure that your system anti-virus is updated regularly.
Do not give your account information to telemarketers or to callers claiming to confirm
or verify your account information.
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2.4.4 Tele-Banking or Telephone Banking
Banks offers one more value added service, i.e. Tele Banking also known as telephone
banking services (another form of technology-enabled banking providing various banking
services in the self-service mode through the telephones) to its customers for handling banking
related services from the comfort of their home, office or on the move, that too all in their
preferred language . By dialing the number allotted by the bank, customers can transact most of
the banking transactions. Presently Tele-banking facility is available throughout the day( i.e.
24*7). This facility is available only for the account holders in Core Banking branches. Tele-
banking is offered by the banks (Kunjukunju, 2008) through a technology known as Interactive
Voice Response System (IVRS).The customers can dial toll free number within India to get the
following services from the Bank.
Figure 2.9: Services Available Through Telephone Banking.
Balance inquiry in respect of all the accounts of the customer.
Details of last 5 transactions of the account.
Cheque Status Inquiry. Request for Account statement through Fax,
email or post.
Stop Payment Instructions. Loan details of the customer.
Bank product information. Funds Transfer Facility.
Reporting of ATM/Debit/Credit card lost. Facility to change password.
Demat Account details. Facility to talk to Phone banker/Relationship
Manager/Call Centre
(Al-Ashban & Burney, 2001), ―With the obvious exception of cash withdrawals and
deposits, telephone banking offers all the virtual features that are accessed with the use of an
ATM such as balance inquiry, check latest transactions, bill payments, order statements, check
foreign exchange rate, activate cards, change passwords and funds transfer between customer
accounts‖.
In this study, both the IVRS and Phone Banking (option of interacting with the phone
banking officer) facility availed by bank customers have been included.
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2.4.4.1 New Terms in Tele-Banking
Customer Identification Number (CIN) – Unique digit numbers allotted by banks.
Telephone Identification Number (TPIN) – Password for query purpose.
Financial Telephone Personal Identification Number (FTPIN) – Password for transaction
purpose.
Phone Banking services are a combination of IVR and Agent offering, depending on the
type of transaction. For all transactions that cannot be completed on the IVR, phone banker
assisted services are available. Hence another variant of tele-banking is sometimes called the
phone banking in which a customer talks to a phone banking officer for transacting a banking
business.
2.4.4.2 What is Vishing?
Vishing is a combination of the words voice and phishing. Vishing is very similar to
phishing - the only difference is the technology. Phishing involves the use of emails to trick you
into providing your personal details whereas vishing involves voice or telephone services. If you
use a Voice over Internet Protocol (VoIP) phone service, you are particularly vulnerable to a
vishing scam. A typical vishing call involves a scammer, posing as an employee from your bank
or another organization, claiming to need your personal details. Scammers are very creative and
they could tell you many different reasons why they need this information from you. Do not
assume you won't be a target of a vishing scam. Regardless of the story you are told, the
scammer will be aiming to convince you to divulge confidential personal and banking
information, such as your PIN or password. Even if you use your telephone keypad or keyboard
to type in your details, if you are on the line to a scammer, the scammer can record them.
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2.4.4.3 Tele-Banking Security and Privacy Issues
The Telephone Personal Identification Number (TPIN) of the tele-banking service is for
the purpose of the user‘s personal use, strictly confidential and non transferable. TPIN shall not
be disclosed to any third party under any circumstances or by any means whether voluntarily or
otherwise as the TPIN restricts the usage of the tele-banking facility only to the authorized user.
The user shall not keep any written record of TPIN in any place or manner, which may enable a
third party to use the tele Banking. TPIN shall not be used for any purpose other than for
transaction designated by the bank. The user shall self generate the TPIN on accessing the tele
Banking Service for the first time and change the same as frequently thereafter as possible as a
safety measure. The user shall take all necessary precautions to prevent illegal use of the service
by any third party. For the purpose of using the tele-banking service, the User shall provide the
TPIN in the manner directed by the Bank. By use of the TPIN, the user shall be deemed to
represent that he is the legal and beneficial owner of or, authorized to deal with the funds and
property in the accounts each time the User uses the tele-Banking service and seeks information
in respect thereof. All transactions conducted with use of this TPIN will be the responsibility of
the account holder(s) and the account holder(s) will abide by the record of the transaction as
generated/maintained by the Bank (Xlander & Tui, 2008).
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2.4.5 Electronic Statement or E-Statement (Account Statement on Your Emails)
“Save paper. Save trees. Switch to e-statements…..A key green banking initiative”
(The present study includes both savings/current bank account statement and credit card
statement sent on registered email ids of the bank customers).
Paper statements are a standard feature of most banks in India. But times are changing,
the banking industry is moving quickly away from plain old paper to electronic statements. to
save money, streamline processes, and to better serve customers and members online.
E-statement save trees and help eliminate manual workflow.
(Higdon,2008), ―E-statement is a periodic account statement delivered via email to bank
account holders‖. (Stanford,2007), ―E-statements are secure electronic documents in the form of
account statements that are delivered directly to customer inboxes‖. E-statement adoption
continues to grow, with younger generation consumers particularly likely to say ―no‖ to paper
statement because of environmental considerations. (Phil,2007), ―E-Statements are electronic
versions of paper statements that state that the customer's regular statements are online and
available for viewing at any time‖.
With the advent of this new and emerging delivery channel, the bank customers can get
their savings account statement, current account statement and credit card statement on their
mails and even have the option to generate an account statement for a date range for any of their
accounts. Banks like HSBC sends a secure mail to its customers, informing them when their E-
Statement is ready. SBI gives the option of generating the statement on-line and Standard
Chartered bank delivers the same on mail box of the customers. Thus, the option of getting the
statements (savings/current and credit card) by emails and also to generate the same online has
been included in this research work undertaken.
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2.4.5.1 Picture Not Too Good in India
According to N Chandrasekaran, Chairman, CII Banking Tech Submit, 2012 ―Today,
more than ever before, people are using the Internet to pay their bills and conduct other financial-
related business at their convenience. However, the vast majority of bank and insurance
customers still aren‘t opting for entirely paperless communications from their financial
institutions, preferring instead to receive their statements and other correspondence by mail. This
is clearly bad news for banks, insurers and capital markets firms that could be reaping the
benefits of electronic communications with their customers. For instance, electronic statement
delivery can substantially cut costs and increase profitability, because these communications are
much less expensive to send. And e-statements bring customers the convenient on-demand
access to their account information they demand, increasing satisfaction with their financial
institution‖.
2.4.5.2 Barriers to E-Statement Adoption
In general, the public is hesitant to take advantage of electronic correspondence delivery,
and with good reason. All too often, customers hear horror stories of phishing or fraud incidents
that make them doubt the security of the online channel—and their personal financial
information being transmitted over it. Accessing electronic statements typically is an arduous
process, requiring users to click multiple links to be authenticated and to get to the appropriate
document.
According to John Hunter, senior product marketing manager, Adobe Systems Inc., very
few banks reach the 20 percent adoption rate for e-statements and e delivery, with most banks in
the 10 percent to 15 percent adoption range. Customer hesitance to utilize the online channel for
correspondence is proving to be very costly for banks. ―The cost to print and mail paper
statements can be upwards of $1.20 per statement,‖ notes Hunter. ―Multiply that by literally
millions of statements that financial institutions must print on a monthly basis, and the costs are
enormous—and the potential for cost savings becomes considerable.‖
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2.4.5.3 The Industry Needs A Better Way
Thus it is very much essential that banks and other financial institutions find a better way
to deliver electronic communications to customers in order to gain their acceptance of the online
channel and entice them to take advantage of electronic delivery of their statements and other
communications. Financial considerations alone are substantial, but there are also benefits as
well. ―E-Statements take all the benefits of paper statements from financial institutions today,
transform them into electronic mode and make them highly interactive,‖ Hunter points out.
2.4.5.4 Special Features of E-Statement
With the advent of the e-banking, many core solution banks have stopped mailing regular
statements to their customers. Instead, banks now prefer to send electronic statements or e-
statements. E-statements offer myriad functional benefits to customers: -
Significant savings - Significant reduction in postage, paper, printing and distribution
costs.
Reliability – customers don't have to worry about your bank statement getting lost in
mail.
Convenient – customers can access your bank statement at your fingertips and that too
24*7.
Secure - no need to worry about someone else opening your bank statement as it is
password enabled.
Faster- prompt delivery, instant availability and person specific delivery.
Record- no hassle of physical record maintenance.
Storage- e-statements can be stored virtually anywhere i.e. desktop, hard drive, in a
private e-vault etc.
Charges- there is no charge for this convenient, time-saving service. It‘s free of cost.
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2.4.5.5 Electronic Statement Security and Privacy Issues
1) User‘s availing this facility must not share their email pass word with third person.
2) Customer‘s should never share their customer id (cust id) generated by bank with others.
3) User‘s must save their downloaded statement in some safe place in your system and
ensure it is password protected.
2.5 Potential Benefits of E-Banking
Many banks and other organizations have already implemented or are planning to
implement e-banking because of the numerous potential benefits associated with it. Some of
these major benefits are briefly described below.
(a) Choice and convenience for customers
A ‗customer first‘ approach is critical for success in e-banking. Customers hold the key to
success and companies must find out what different customers want and provide it using the best
available technology, ensuring that they are acting on the latest, most up-to-date information. In
modern business environments, customers want greater choice. They want the traditional range
of banking services, augmented by the convenience of online capabilities and a stronger focus by
banks on developing personal relationships with customers. Offering extra service delivery
channels means wider choice and convenience for customers, which itself is an improvement in
customer service. E-banking can be made available 24 hours a day throughout the year, and a
widespread availability of the Internet, even on mobile phones, means that customers can
conduct many of their financial tasks virtually anywhere and anytime. This is especially true of
developed countries, but increasingly in developing countries, the spread of wireless
communications means that services such as e-banking are becoming accessible.
(b) Attracting high value customers
E-banking often attracts high profit customers with higher than average income and
education levels, which helps to increase the size of revenue streams. For a retail bank, e-banking
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customers are therefore of particular interest, and such customers are likely to have a higher
demand for banking products. Most of them are using online channels regularly for a variety of
purposes, and for some there is no need for regular personal contacts with the bank‘s branch
network, which is an expensive channel for banks to run (Berger & Gensler, 2007).
(c) Enhanced image
E-banking helps to enhance the image of the organization as a customer focused
innovative organization. This was especially true in early days when only the most innovative
organizations were implementing this channel. Despite its common availability today, an
attractive banking website with a large portfolio of innovative products still enhances a bank‘s
image. This image also helps in becoming effective at e-marketing and attracting
young/professional customer base.
(d) Increased revenues/incomes
Increased revenues as a result of offering e-channels are often reported, because of
possible increases in the number of customers, retention of existing customers, and cross selling
opportunities. It has also allowed banks to diversify their value creation activities.
(e) Easier expansion
Traditionally, when a bank wanted to expand geographically it had to open new branches,
thereby incurring high start up and maintenance costs. E-channels, such as the Internet, have
made this unnecessary in many circumstances. Now banks with a traditional customer base in
one part of the country or world can attract customers from other parts, as most of the financial
transaction do not require a physical presence near customers living/working place
(f)Load Reduction on branches
E-Channels are largely automatic, and most of the routine activity such as account
checking or bill payment may be carried out using these channels. This usually results in load
reduction on other delivery channels, such as branches or call centers.
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(g) Cost Reduction
The main economic argument of e-banking so far has been reduction of overhead costs of
other channels such as branches, which require expensive buildings and a staff presence. It also
seems that the cost per transaction of e-banking often falls more rapidly than that of traditional
banks once a critical mass of customers is achieved.
(h) Organizational Efficiency
To implement e-banking, organizations often have to re-engineer their business
processes, integrate systems and promote agile working practices. These steps, which are often
pushed to the top of the agenda by the desire to achieve e-banking, often result in greater
efficiency and agility in organizations.
2.6 Reasons for Implementing E-Banking
This section summarizes some of the reasons often cited by banks to be their primary
motive for implementing e-banking.
(a) Customers Demands
With the emergence of the digital economy the balance of power seems to be shifting to
customers. Customers are increasingly demanding more value, 24 hours availability, with goods
customized to their exact needs, at less cost, and as quickly as possible. To meet these demands,
banks need to develop innovative ways of creating value, and e-banking is seen as one of those
innovative ways to meet customers‘ expectations.
(b) Changes in the Environment
There have been some significant shifts in the importance of different sectors of the
economy. In most western countries, primary (such as mining, agricultural) and secondary
(manufacturing) have been steadily declining, whilst the service (e.g. financial services) sector is
growing in importance. This has increased the prominence of service sector organizations,
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resulting in more pressure on them to diversify their offerings and look beyond their immediate
markets to create value. They see new technologies such as the Internet and mobile
telecommunications as a key enabler in accessing new markets and the creation of value. Social
changes are also forcing banks to change the way they interact with their customers. Customers
are increasingly mobile (they move or travel more often), and this, coupled with the rise of single
person households, means that demand for flexible services is rising at rapid pace.
(c) To meet out competition
Some banks are offering e-banking because their competitors have done it, and not doing
so will mean losing an important customer segment to traditional competitors as well as new
entrants to the financial sector. If this is their sole reason for doing so, they often drag behind
their competitors and lack of enthusiasm prevents them from using e-banking to boost other
sources of innovation, which are often enabled by the new technologies.
(d) Achieving competitive advantage
Most organizations aspire to achieve competitive advantage, but few attain truly succeed,
and even if attained, few are able to sustain this. As Internet banking has spread widely, it is no
longer a source of competitive advantage on its own, at least in developed world. E-banking with
the help of other technologies such as data mining can however help in other sources of
competitive advantage such as faster product development, superior customers service and cross
selling. To gain competitive advantage, banks must continually develop new and innovative
services to differentiate themselves from the competition, as having a large branch network or
even e-banking is no longer seen as a main source of competitive advantage.
(e) To achieve efficiencies
Some banks look at e-banking from a cost savings point of view, as it is widely reported
in e-commerce literature (Shah et al., 2007) that cost per transaction is much lower than for other
service delivery channels. Banks may fail if they are thinking only of providing low cost
transactions, as these costs only become lower once a bank exceeds a critical mass of online
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customers, owing to the large upfront costs of implementing e-banking. Conducting cost/benefit
analysis on a regular basis often gives a clearer picture in this regard, enabling the analysis of
feasible alternatives in terms of the major costs involved together with the major benefits that are
expected to accrue. E-banking can also help lower operational costs since, to offer e-banking,
banks have to fine tune their business processes, systems and the ways in which employees
communicate with one another. This may be seen as an unnecessary and costly exercise initially,
but in the long run can prove immensely valuable, and may even enable a bank to survive the
economic pressures and down-turns.
2.7 Barriers to E-Banking
The following factors demonstrate why e-banking may be difficult to implement, or why
a bank may not realize the full benefits from it.
(a) Internet access
Although the growth of the Internet has been very fast, there is still a large population not
connected to the Internet. Lack of computer literacy, high cost of hardware and call charges and
various other social and economic factors are some of the reasons cited for this (Walczuch et al.,
2000). This is changing fast as more and more people connect to the Internet, and numbers are
expected to grow even faster with the maturity of mobile communications (Samuals, 2002).
However, this is still more of a problem in some developing countries, where the
telecommunications infrastructure is less developed.
(b) Consumer behaviour
A large number of consumers of financial services are still reluctant to conduct their
financial management online. A study of consumer habits in 10 countries found that two-thirds
of consumers do not consider online services important and that almost 30 percent do not know
whether their bank offers Web-base services (Regan & Macaluso, 2000). Changing consumer
behaviour takes many years, as was the case with the 10-year adoption cycle of the ATM. This
process can be accelerated with aggressive marketing and high value-added features, two things
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that are lacking in today‘s online banking market (Franco & Klein, 1999). This can also be true
for some businesses, which may be even slower than consumers in adopting new technologies.
Factors such as security, perceived difficulties of use, perceived usefulness, functionality and
lack of promotion (such as availability of cheaper products on new channels) are most commonly
cited factors which are hindering the widespread adoption of new technologies (Cheng et al.,
2006).
(c) Language and culture issues
These play a major role in global e-commerce. Although English is accepted as the
primary language of the Internet worldwide, in some cases a website has to be designed
specifically to suit the market that it is trying to reach. The main problems associated with this
are speed and cost. It takes a human translator up to a week to translate a small website into just
one language (Turban et al., 2000). Financial services related websites are usually very large and
consume large resources in the translation process. The problem does not end with the translation
of a website, it also need be adapted to the local culture to attract visitors. Banks around the
world would do well to learn from Swiss banks, which successfully offer their services in several
different languages.
(d)Adverse industry trends
The financial services industry worldwide is in the middle of dealing with a number of
significant developments, which usually means that e-banking is low on their priority list. These
developments include the recent ‗credit crunch‘, conversion to the Euro, and various mergers.
These require sizeable resources to deal with resulting costs and to upgrade and integrate various
systems, distracting the attention from e-banking development and advancements.
(e) Increase in cost
Some banks have been hesitant to promote e-banking systems, fearing that their costs will
become too high and that it will be difficult for them to match the prices of competing Internet
only banks. These fears have proven to be significant in most developed markets. Mols (1998)
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also stresses this point but suggests that not offering e-Services is not an option, instead
companies should focus on other means such as product differentiation to protect themselves
from excessive competition. Traditional banks could also use their well established brand names
and product development expertise to manage competition from new entrants.
(f) Security issues
Internet security is still one of the major issues hindering the growth of Internet related
trade. Since the Internet is an open network, high security risks are involved with financial
transactions (Han & Noh, 1999-2000). Internet fraud is common, and related stories get
immediate media attention, making people hesitant to bank online. Different security methods
(including hardware and software) are being tested and employed currently but there is still some
way to go to win the trust of a large majority of customers (Mols, 1999).
(g) Availability of resources
For some banks, lack of financial and human resources will be a problem because
offering the sophisticated Internet based services is an expensive project requiring major changes
in IT infrastructure (Mols, 1998). Similarly, Walczuch et. al. (2000) reported that the primary
deterrents for businesses establishing a Web presence is start up costs and the costs associated
with major organizational changes required for such moves. Mols (1998) suggests strategic
partnerships between banks to share such costs. These partnerships could combine to develop e-
banking related systems. However, finding suitable partners in very competitive environments
may prove difficult.
(h) Return on investment
E-banking should be considered more as a business project rather than a technological
initiative. In this context, cost benefit analysis may be very useful. Offering e-banking is
expensive because of initial technological, human and marketing costs. A detailed investment
appraisal may save a company from costly mistakes. Internet banking should be considered in
terms of how it can achieve business objectives.
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2.8 Importance of Security in Electronic Banking
Security has been widely recognized as one of the main obstacles to the adoption of
Electronic banking channels and particularly the Internet banking or the on-line banking. Many
studies suggest that banks must first convince their customers that Internet banking and
transactions are secure before customers show willing to use Internet banking. Security is a very
important aspect in the debate over the challenges facing electronic banking. Further, it has been
stated in numerous studies that the greatest challenge to the electronic banking sector will be
winning the trust of consumer in issues of security and confidentiality (Runge and Zimmermann
1997; Furnell and Karweni 1999; Bestavros 2000).
Adam et al. (1999) claim that ensuring security and confidentiality are fundamental
prerequisites before any commercial activities involving sensitive information can take place.
They add that security is the leading barrier to widespread electronic business on the Internet.
The rapid developments in technology have made significant contributions to securing the
Internet for electronic business. However, the challenges remain in this area, and security
remains a substantial issue for the development of electronic businesses, especially electronic
banking. Security is of paramount importance to Internet users Gervey and Lin (2000).
According to Furnell and Karweni (1999) consumers with a greater awareness of security
will be more likely to use Internet-based services such as shopping and banking. Their results
imply that awareness is the key in increasing consumer confidence. The need for security has
already been recognized within the Internet / electronic banking community and a number of
technologies have been developed to secure electronic transactions. The most common approach
used to secure current online transactions is the Secure Socket Layer (SSL) protocol developed
by Netscape (Frier et al. 1996), which is a general cryptographic protocol used at the transport of
the TCP/IP suite for securing bi-directional communication channels.
To conclude the discussion concerning security concerns, electronic banking via the
Internet will be the most secure financial system in the banking business (Nehmzow 1997;
Furnell and Karweni 1999). For example in Finland, one of the leading countries in the field of
Internet banking, security problems have never arisen in Internet banking. In fact, banking via
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the Internet is considered more secure than banking via ATMs. It is also clear that Internet
banking will always have its opponents, and one frequently used way to denigrate Internet
banking is to criticize its security (Karjaluoto and Mattila 2001).
2.9 Customer, Service and Customer Satisfaction in Banking Sector
Banks are competing in a highly competitive environment to offer quality oriented
services according to customers‘ expectations (Devlin, 1995). Indian banks face stiff competition
from their peers and conventional banks prevailing in the economy. Different aspects of banks
are studied by researchers e.g. operations, service quality, employee satisfaction, customer
satisfaction, financing products, bank efficiency, financial performance etc. as the key segments
for research. Many studies tried to assess the quality of services/products offered by the banks.
Customers became a center for all banking activities due to increased competition for greater
market share .
Banks also focus on demographic characteristics of customers to assess their needs.
Every bank is trying to enhance its performance by improving its service quality according to
customers' expectations. The efficiency of a banking sector depends upon how best it can deliver
services to its target customers. It is seen that 5% increase in customer retention can increase
profitability by 35% in banking business, 50% in insurance and brokerage, and 125% in the
consumer credit card market. Therefore, banks are now stressing on retaining customers and
increasing market share (Chothani et al. 2004).
2.9.1 Services
Service is defined as a set of benefits delivered from a service provider to the service
consumer. The service firm provides benefits (due to competency, skills, knowledge and
experience etc.) to the customers for the sake of reward (fee, salary, wages, etc.). Services may
be coaching, teaching, consultancy and other modes to facilitate the customers. Banks provide
financial inter-mediation, consultancy and agency services that are diversified with the passage
of time. Services are different from goods because they are intangible as they cannot be seen,
touched or felt; perishable as we are unable to store them; inseparable because they are attached
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with a service provider, and insubstantial due to heterogeneity (Parasuraman et.al.,1985;
Hoffman and Bateson, 2002).
Thakur (2007) suggested that superior service quality shows the organization's ability to
meet customers' desires and needs. So organization must improve their services to meet the
customers' wants and requirements. It is found that customers' perception of service quality is
very important for managers to compete in the market (Hoffman and Bateson,2002). Quality is
an ability of any product to meet customers' expectations and requirements. It is a set of features,
characteristics or attributes that are required or expected by the customers. There are several
studies that found a relationship between the service quality offered by banks and its
consequences as satisfaction level among customers. It is reported that quality is observed as a
major factor in reference to customer acquisition and retention (Galloway and Ho, 1996). Service
quality and customer satisfaction became core issues for the successful survival of any service
organization.
Service quality is considered very important indicator towards customer satisfaction
(Spreng and Machoy, 1996). Service quality got popularity among professionals and academia
due to increased competition. It contributes a lot to gain competitive advantage to maintain long-
term relationship with customers (Zeithmal et.al., 2000).
2.9.2 Technology-Enabled Service in Banks
The ‗bank‘ is generally understood as ―an institution that holds a banking license granted
by financial supervision authorities. Under the authorities, the bank conducts the most
fundamental banking services like accepting deposits and loans, and other financial services‖
(Wang and Wang, 2007). The banking industry is one of the earliest adopters of service
automation as providers recognized that technological innovations in banking services
represented an opportunity to differentiate themselves from competitors in what was otherwise a
mature market (Devlin, 1995 cited in Proenca and Rodrigeus, 2011).
Customers have altered the ways in which they access many services because of the
growth of technology-based self-service designs in recent years, including banking services
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(Bobbitt and Dabholkar, 2001 cited in Proenca and Rodrigeus, 2011). In banking services, most
of the studies have scrutinized the service quality linked to the specific technologies like internet
banking, ATM banking and phone banking (Al-Hawari et al., 2005; Curran and Meuter, 2005
cited in Ganguli and Roy, 2011).
Definition :
(a) Customer
A customer can be defined as a user or potential user of banking services. A customer
would include an account holder, or his representative, or a person carrying out casual business
transactions with a bank, or a person who, on his own initiative, may come within the banking
fold (Talwar Committee Report 1976).
(b) Satisfaction
Satisfaction means a feeling of pleasure because one has something or has achieved
something. It is an action of fulfilling a need, desire, demand or expectation. Every rationale
customer compares the cost (price) and benefit (utility) of any product or services. Customers
compare their expectations about a specific product/services and its actual benefits. This
comparison results into three types of customers: dissatisfied customers (expectations are more
than actual performance of the service); satisfied customers (actual benefits realized from
services are equal to or more than expectations); indifferent customers (actual performance and
expectation are exactly equal).
Westbrook (1981) reported that overall satisfaction is the outcome of customer's
evaluation of a set of experiences that are linked with the specific service provider. It is observed
that organization's concentration on customer expectations resulted into greater satisfaction
(Peters and Waterman, 1982).
Kotler (2000) defined satisfaction as a person's feelings of pleasure or disappointment
resulting from the comparison of product's perceived performance in reference to expectations.
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Customers' feelings and beliefs also affect their satisfaction level. It is said that satisfaction is a
function of customer's belief about fair treatment (Hunt, 1991).
2.9.3 Customer Satisfaction- “Is a function of expectation………..!”
Satisfaction is an emotional or feeling reaction (Westbrook, Newman, Taylor, 1978). It is
the result of a complex process that requires understanding the psychology of customers.
Satisfaction is influenced, in by expectations and the gap between perceived quality and expected
quality, called ―expectancy disconfirmation‖ (Zahorick,1996).
Customer satisfaction is an important driver for better organizational performance
especially in the banking sector due to increased competition and innovation. Several studies
measured the relationship between customer satisfaction and performance of the firm (e.g.
Anderson et.al., 1994; Al-Hawari and Ward, 2006 cited in Ahmed, 2011).
Mishra and Jain (2006-07) opined that satisfaction of the customers is an invaluable asset
for the modern organizations and by improving product and service quality attributes, customer
satisfaction increases. This increase in customer satisfaction, lead to greater customer retention
and loyalty and this in turn will lead to greater profitability. Satisfied customers are also likely to
tell others of their favorable experiences and thus engage in positive word of mouth advertising
(File and Prince, 1992; Richens, 1983).
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Figure 2.10: Chain Reaction of Customer Satisfaction.
Source: Piti Tantakasem and Sang M. Lee, (2002)
Satisfaction has a significant impact on customer loyalty (Sharma and Patterson, 2000)
and, as a direct antecedent, leads to commitment in business relationships (Burnham et al.,
2003), thus greatly influencing customer repurchase intention (Morgan and Hunt, 1994).
Satisfied customer is the real asset for any organization that ensures long-term profitability even
in the era of great competition.
It is found that satisfied customer repeat his/her experience to buy the products and also
creates new customers by communication of positive message about it to others (Dispensa,
1997). On the other hand, dissatisfied customer may switch to alternative products/services and
communicate negative message to others. So, organizations must ensure the customer
satisfaction regarding their goods/services (Gulledge, 1996). Today, a successful digital offering
in banking implies the provision of high quality online and mobile banking access.
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Figure 2.11: Adopting a Customer-Centric Approach to Build Profitable Relationships.
CUSTOMER’S.....
.....Expect More:
Expectations are being shaped by experiences outside of the banking industry where content, interactions and features are richer, delivering a more engaging and rewarding experience for the consumer.
…..Trust Their Peers:
The role of banks as the financial expert has been replaced by ‘word of mouth’ peer conversations, or independent influencers. The rapid emergence of social media in parallel with the rise of mobility has seen customers increasingly turn to their peers for information and advice, rather than to financial experts in banks.
…..Are Informed:
Financial consumers are more savvy today, due to the easy access to research, data and ‘expert’ views. As more financial services customers become ‘self-directed’, they are coming to rely less upon traditional sources of financial advice.
…..Have Choices:
Comparison and purchase of alternative financial products and services online is now straightforward and widespread. It has opened up a wide range of choices for consumers, some outside the boundaries of traditional banking services, such as peer-to-peer lending.
…..Have A Voice:
The rise of social media platforms has allowed a single consumer voice to be amplified to a tremendous degree, and consumers have not been shy about raising it. Stories of bad customer experiences rapidly spread through these media and often cause irreparable damage to associated brands.
Source: www.pwc.com/india
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In line with changing customer behaviour, following are among the key areas that need
focus to provide an enhanced experience to customers:
Transforming customer experience through seamless delivery across channels.
Providing flexibility through 24/7 cross-channel capability.
Deepening customer engagement by building additional applications around the customer
lifecycle.
Technology investments help organizations achieve greater customer-centric capabilities
at a competitive cost. Seamless delivery across all channels (atm, branch, internet, mobile,
phone, etc.) means that customers can shift easily between different channels, and complete an
activity in a channel different from where it was initiated.
Successful multi-channel banks extend full-time support (e.g. 24/7 support on phone or
the internet) to enable customers to access their channel of choice anytime anywhere. By
building multichannel capabilities, banks can enhance customer experience and also achieve cost
savings in the medium- to long-term. This will lead to overall customer satisfaction.
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Figure 2.12: E- Banking, Customer Adoption & Customer Satisfaction “A Conceptual
Framework.”
Source: A Conceptual Framework-Compiled From Self Study
E –Banking Channels:
ATM Internet Banking E-Statement Mobile Banking Tele Banking
Customer Adoption:
Awareness Interest Evaluation Usage
Customer Satisfaction:
Service Quality Security Cost of Channels Availability of
Channels (24*7)
Advantage Banks:
Commitment Loyalty Retention Recommendation
of Services Tele Banking
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The conceptual framework examines the factors influencing bank customers‘ acceptance
and satisfaction of E-Banking services. It further highlights the advantages the banks‘ derive on
the adoption of such services by their customers. Keltner (2000) opined that the relevant factors
determining the adoption of electronic banking among consumers include the level of awareness
or attention, the accessibility to computers and the Internet, convenience, privacy, costs, and the
availability of knowledge and support concerning electronic banking.
The introduction of electronic banking services is facilitated by the bank‘s reputation in
terms of size, awareness and trust awareness of service and its benefits in form of the amount of
information a customer has about electronic banking and its benefit may have a critical impact
on the adoption of electronic banking (Jaruwachirathanakul and Fink, 2005; Al-Somali et al.,
2008).
Kent, Program Manager, Citi Bank electronic banking product, opined that ―there is a
direct relationship between customer use of the Internet and the Internet knowledge o f our work-
force.‖ He continues that banks first need to change the behavior and attitudes of the sales
representatives themselves. Internal education in banks is one of the key forces driving customer
migration. Furthermore, the Vice President of Bank One, Dean Kontul, continued that ―nothing
could be worse than having customers inquire about the services available on our Internet site
and to have the sales representative unable to answer intelligently‖. Gan et al. (2006) indicate
that when consumers are aware of the availability of electronic banking, they will use and adopt,
though some may not.
Lichtenstein and Williamson (2006) noted that several converging reference domains and
theories suggest numerous potential influences on consumer adoption of internet banking
including theories of consumer behavior in mass media choice and use, gratification theories,
innovation diffusion, technology acceptance, online consumer behavior, online service adoption,
service switching costs and the adoption of internet banking. Davis (2003) proposed that
customers‘ intentions to use internet banking can be affected by customers‘ attitudes toward
using internet banking. When customers have positive attitudes, they are more likely to adopt
internet banking and vice versa (Lichtenstein and Williamson, 2006). Eriksson et al. (2005)
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found that customers‘ attitude are significant factor affecting customer behaviors in accepting or
rejecting technology. It was found that the relationship between attitude towards using and usage
was significant.
Customers' attitudes are a significant factor affecting customer behaviors in accepting or
rejecting technology (Davis et al., 1989). Further, Clarke et.al., (2006) clarified that ―banks
providing electronic banking services to its customers must ensure the safety and security of the
channels, level of services being offered i.e. the quality , cost of availing the delivery channels
and lastly its availability i.e. services should be provided uninterruptedly round the clock (24*7).
This will lead to customer delight and satisfaction which in turn will benefit the bank(s) in form
of customer commitment, loyalty, retention and referrals/recommendation of services (Uppal,
2007). Power and Associates (2009) defines customer loyalty as a deeply held commitment to
frequently rebuy or repatronize the same product or service, and though multidimensional in
nature, it includes rebuy, repurchasing and resistance towards price increase (Wangenheim and
Bayon, 2004).
Levesque and McDougall (1996) suggest that, ―in retail banking, increasing customer
satisfaction and loyalty will result in reducing banks‘ servicing cost and gaining knowledge of
the financial relationship and customers‘ needs, thereby allowing banks to effectively and
efficiently cross-sell existing and new products or services to their customers‖. Hansemark
&Albinsson ( 2004) suggest that ―satisfied customers tend to be less price sensitive, more
willing to buy additional products, and less influenced by competitors and in turn will
recommend such services to others thus increasing the organization‘s customer base‖.
2.9.4 Customer Satisfaction in Banking Sector
Customer satisfaction appears as the cumulative result of customer‘s internal feelings
about their experiences related to products/services. Molina, Marty and Esteban (2007)
investigated the customer satisfaction in retail banking by an empirical analysis of 204 bank
customers. They found a direct relationship between confidence benefits and customer
satisfaction. In the year 2000, the Cruickshank Report was unveiled (Cruikshank, 2000). The
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Report categorically acknowledged that service quality was low in retail banking in the UK,
implying low customer satisfaction.
Metawa and Almossawi (1998) investigated the banking behavior of Islamic banking
customers in Oman by collecting data from 300 customers. They aimed to find out the awareness
and satisfaction level among customers of Islamic banks by considering their demographic data.
The findings showed that the most of the customers are highly satisfied with products and
services of Islamic banks. They suggested that bankers should develop professionalism and
competency to maintain profitable relations with customers. Factors related to service offerings
are furthermore related to customer satisfaction (Levesque and McDougall, 1996).
As said by Levesque and McDougall (1996), convenience and competitiveness of the
bank are two main factors which are likely to influence the overall satisfaction levels of a
customer. Reidenbach (1995) argued that customer value is a more viable factor than customer
satisfaction because it includes not only the usual benefits that most banks focus on but also a
consideration of the price that the customer pays. Customer value is a dynamic that must be
managed. The survey by Leeds (1992), who documented that approximately 40 percent of
clients, switched banks because of what they measured to be poor service. Earlier research by
Brownlie, (1989) has recommended that some consumers have positive attitudes towards ATMs
based on dominant perceptions of convenience/accessibility/ease of use.
Anderson et al. (1976) and Laroche (1988), researchers of customer satisfaction opined
that convenience and accessibility which are enabling factors that make it easy for the customers
to do business with the bank. The bank‘s ability to deliver these benefits on a continuing basis to
its existing customers will probably have a high and positive impact on customer satisfaction.
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2.9.5 Reserve Bank of India and Customer Satisfaction in the Indian Banking Sector
“Customer first, RBI tells banks”
There have been remarkable improvements in banking services since the early 1990s, the
way customers conduct banking transactions, be it online payments, swiping cards at shopping
outlets or withdrawing cash from ATMs. The RBI regulations aimed at strengthening the safety
infrastructure and banks encouraging the use of alternative channels like ATMs, Internet
banking, Cards, etc has meant that the routine transactions have become more user friendly and
secure, providing optimum satisfaction to the user‘s of such services.
A committee set up by the Reserve Bank of India (RBI), under the chairmanship of
former SEBI chief M.Damodaran, has made some path breaking suggestions on customer service
in banks.
Internet banking: To make Internet banking safer, the committee suggested that there be
a secure total protection policy/zero liability against loss for any customer-induced
transaction utilizing the technology through ATMs/POS/online banking, etc. Banks may
introduce mechanisms whereby a customer has a choice of restricting account-to-account
transfers to be done only from particular IP addresses or a choice of addresses.
Plastic money: The committee has suggested that POS (point of sale) transactions should
necessarily be PIN-based and that all plastic cards carry the cardholder‘s photograph and
scanned signature. In case of lost cards, it's been suggested that hot listing be allowed
online; and the transaction is automatically reversed and the amount credited back into
the account. Banks should send alerts for each transaction to a customer on his mobile. If
the customer finds any misuse of his card, he should be able to block the card through an
SMS reply. Further, the customer‘s loss due to card misuse should be the minimum,
Banks can ensure that by prescribing rules that will allow a temporary credit which
refunds the full amount, pending a detailed probe.
Service charge: While the core banking system is in place for some time now, banks
continue to charge customers for non-home branch transactions. The committee has
suggested that customers shouldn‘t be charged for third-party, non-home branch trans-
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actions in case of self or local cheques; and in case of inter-city transactions, the charge
should not exceed the intercity collection charge. Also, you may no longer have to pay
penal charges if a cheque presented by you is returned.
Banks to make good your loss: You can get protection against non-authorized
transactions. The onus will be on a bank to prove a customer's mistake in any monetary
dispute arising out of any ATM/Internet banking.
Single access window: RBI has now asked banks to initiate the process of providing a
single view of all bank accounts of a customer, including deposits and loans, with the
help of technology like core banking solution (CBS). It has mandated that banks
complete the process within a year. Some banks are providing consolidated one window
access to their customers, but the RBI mandate will make it a uniform practice across all
banks in India.
Alerts for all transactions: Another customer-friendly measure that has been introduced
from 1 July is one that could minimize the damage caused by misuse of lost or stolen
cards. Banks have been asked to send SMS alerts to their customers for all card
transactions, be it online, at merchant establishments or ATMs. Prior to this, banks sent
alerts only if the value of transactions exceeded a certain limit, usually Rs 5,000. With
this facility being extended to all transactions, you will be in a better position to take
immediate remedial measures, such as blocking the lost or stolen card in case a
fraudulent transaction is conducted without your knowledge or consent.
2.9.6 New Rules Govern the ATM Usage
In an attempt to reduce the number of customers who visit branch offices, banks have
introduced several services that can be availed of at ATM kiosks and, of course, through the
bank Websites. Banks too are keen that ATMs are seen as more than just cash dispensing
machines, resulting in their increased usage. "After the changes in the regulation on ATM usage,
we have seen a four-fold increase in non-Standard Chartered customers accessing our ATMs,"
says Rajashree Nambiar, general manager, distribution, Standard Chartered Bank. Many banks
offer services that not only save time but also effort. These include paying utility bills and taxes,
fund transfers, donations to charities, etc, through their ATMs. "Our account holders can perform
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multiple transactions, which include prepaid mobile top-ups, fund transfer to any Stan-Chart
account, request for cheque book or account statement, cash or cheque deposit (at select ATMs),
and online/mobile banking registration," says Nambiar.
RBI issued the following guidelines to banks:
Failed ATM Transaction: The Reserve Bank of India (RBI) issued a circular on 27 May
2011 mandating banks to refund the money debited in a failed ATM transaction within
seven working days of receiving the customer‘s complaint. If the bank fails to do so, it
will have to pay `100 in compensation for each day of delay. To be eligible for this
compensation, however, the customer has to lodge the complaint within 30 days of the
date of the failed transaction.
PIN for all ATM transactions: Since January 2011, the RBI has mandated that account
holders will have to enter their PIN for every individual transaction at the ATM. Earlier,
you could carry out several transactions by entering the PIN just once. This effectively
rules out the possibility of anyone withdrawing cash from your account in case you forget
your debit card in the ATM slot.
Limited free transactions: The most recent stricture from the banking regulator concerns
third-party ATM transactions. Beginning July 1st 2011, the five free transactions allowed
at third-party ATMs include non-financial transactions as well. So, while earlier there
was no limit on nonfinancial transactions like balance enquiry and taking a mini-
statement, now these will be charged.
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Figure 2.13: Rules for ATM at a Glance.
Source: (The Economic Times, August 8th
, 2011)
2.10 The Information Technology- Enabled Banking Services (ITEBS) Scenario in India
“Traditional banking is facing its steepest challenge in over a generation. We believe
that a new tipping point has been reached, with digital at its fulcrum”(Pricewaterhouse
Coopers).
2.10.1 Bank Branches go High-Tech
Till a few years back, Indian bank branches wore a melancholy facade and had an
impatient air. Long queues decorated their periphery. Customers waited for tellers who would do
everything behind a counter. That‘s not the case anymore. Today‘s highly evolved branches look
like modern retail stores, all thanks to the widespread use of information technology and the
Indian banking industry‘s yearning to change. Today, financial service companies bank on the
latest technologies to meet a slew of needs from taming the competition to retaining their
customer base. With the arrival of foreign banks and private banks stepping up their efforts in the
past decade, competition in India‘s banking sector has increased manifold. Spoiled for choice
when it comes to picking a financial services provider, consumer expectations have risen. This,
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along with growing competition, has led to an increased awareness among banks on the role and
importance of technology in branch level banking. These revolutionary changes at the branch
level delivery channel began with Automated Teller Machine (ATM) technology. Innovations in
IT storage, wireless technologies, new applications etc. are equipping bank branches to take the
next big leap.
2.10.2 Digital Channels Enter Banking Mainstream
“Banks are beginning to treat digital channels as mainstream options rather than
alternative mechanisms for customer service. IT heads at banks are focusing on strengthening
these channels to sell financial products and acquire customers (Jhingan, 2012)”.
For banks in India, expansion no longer means adding branches. Welcome to the digital
era where banks are investing in technologies to reach out to customers through a variety of
digital channels including ATMs, kiosks, online portals and mobile apps and sites. Digital
platforms are critical for banks as a staggering volume and frequency of daily transactions are
executed electronically. As per a BCG study, ‗by 2015, $350 billion in payment and banking
transactions in India could flow through mobile phones, compared with about $235 billion of
total credit-and debit-card transactions today‘. Services like distance banking, branch free
banking, client-empowered demat accounts, virtual banking, etc. have started to come into play.
According to Gowri Mukherjee, Group Head - Digital Marketing, Standard Chartered
Bank, “ internet banking, given that it has been there for over 12 years now, is by far the most
mature among the new channels and is already an important channel for customer service with
over 50% of all of SCB‘s transactions being conducted though online channels.
Kartik Jain, Executive Vice President, Head - Marketing, HDFC Bank, said that the
focus had clearly shifted to ―offering the maximum width of transactions and ensuring complete
ease-of-use on the online channel‖. Mobile usage has also boomed in the last few years and the
bank expected that the penetration of data plans would drive usage further that allows customers
to access a wide range of banking transactions while on-the-move.
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Mukherjee of Standard Chartered reasoned that, ―The core banking system is the same
and all these channels at the end of the day have to connect into our core banking system in the
most seamless, state free way. What will differentiate each of these channels is how well they
individually improve the quality of consumer engagement without losing out on consistency.‖
2.10.3 Implementation of Strategic ITEBS- „Banking on Technology‟
Technology has taken the centre-stage and is transforming every industry. In the Banking
industry, it is fast changing the way products are conceived, designed and delivered across
channels and market segments. Strategic I.T. initiatives have long term impact on the entire
business and are focused on enhancing Banks' value propositions. Most Banks are planning for
I.T. initiatives that contribute significantly to strategic positioning of services and cost reduction.
As part of implementation of strategic I.T. initiatives, Banks are deploying I.T. solutions to
facilitate automation in transaction management, reporting and risk management.
Figure 2.14: Implementation Status of ITEBS in Banks.
TYPE OF
BANK
SEGMENTS COVERED UNDER I.T. INITIATIVE
Core Banking
CRM IAM Business Intelligence
GRC Self Service Kiosk
Internet Banking
Mobile Banking
Financial Inclusion
Public Banks H L L L M L H H H
Private Banks H H H M H H H H H
MNC/Foreign Banks
H H H H H H H H L
H:Implemented/In Progress M: Immediate Future L: Near Future/Not Planned
Source: The Economic Times Banking Technology Conclave, September 3rd 2010, Mumbai, KPMG
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Most banks across segments have already implemented core banking systems and general
ledger automation systems. Initiatives such as internet based transaction banking, self service
kiosks, mobile banking are either underway or are planned in near term. Initiatives in the area of
financial inclusion are already underway in Public and Private Banks. However, MNC Banks
have planned them in a two to three year window.
While initiatives in the areas of Governance-Risk-Compliance (GRC) and Identity and
Access Management (IAM) solutions are already underway or implemented in MNC and Private
Banks, Public Banks have planned to implement them at least after one year. Business
Intelligence and analytics initiatives are planned in the near term by Public Banks and in a two to
three year window by Private Banks. The deployment of new technologies is gaining
momentum, which has the potential to bring far reaching impact in the Banking industry as a
whole.
In order to derive a competitive advantage, banks must effectively leverage technology to
deliver on fast-changing customer expectations, align with regulatory controls and compliances,
and attract the tech-savvy Generation Y. It is therefore critical for banks to increase their IT
investments to align with new innovations in technology to meet their objectives. In this context,
technology initiatives in the banking industry coupled with continued innovations by technology
vendors will define a new growth path for the industry (Chandrasekaran, Chairman, CII Banking
Tech Submit, 2012).
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Figure 2.15: Various Technology-Based Initiatives Undertaken by Indian Banks.
Source: Technology Enabled Transformation in Banking - KPMG 2011
Operational Efficiency
-Straight-through-processing
-Transformation of Service Channels
-Collaborative Channel Management Strategy
-Branchless banking for Financial Inclusion
New Solutions
-Mobile phone based banking application
-Social media support
Customer Centricity
-Customer analytics
-Efficient customer data management
Governance & Risk Management
-Enterprise risk management
-Real-time executive dashboards
-Real time Security management
-Risk based Authentication
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Figure 2.16: Channel Interaction Mix Across Customer Segment.
TARGET
SEGMENT
RETAIL
BANKING
CUSTOMER DELIVERY STRATEGY-CHANNELS
BRANCH BANKING/ R.M./STAFF
INTERNET BANKING
MOBILE BANKING
ATM/KIOSK TELE-BANKING/
IVR
E-STATEMENT
URBAN CUSTOMERS
L H H H M H
NON-URBAN
CUSTOMERS
H L M M L L
H: High M: Medium L: Low
Source: Technology Enabled Transformation in Banking - KPMG 2011
2.10.4 Transforming the Service Channels
A number of banking institutions in India continue to hold on to the belief that physical
branches remain at the core of the customer delivery strategy. Many banks, today, have not
adapted easily to the customer of tomorrow who rarely visits the branch or the customer who
sees no need for an over-the-counter transaction. Customers should have the freedom to choose
channels and interactions that get them to their desired solution in the quickest and most efficient
manner. Each of these channels has a different role to play for both the consumer and the bank.
The banks therefore have to be careful while planning their strategies for each of these channels.
Online access almost eliminates the need for a customer to physically walk into a branch
giving him the convenience of doing all of his banking from his desk. For the bank, this
translates into cost savings as also the opportunity to engage the customer at a time when he is
more amenable to receiving messages from the bank.
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A mobile phone , on the other hand, puts the bank in the customers' pocket allowing him
to transact on-the-go and bringing the bank closer to its consumers.
ATMs have established themselves in India in the past decade. They are no longer
considered just a machine to withdraw cash. In fact, it has turned out to be a mini bank branch
where customers can do a host of financial activities and, that too, at their own convenience and
24*7.
2.10.5 Cost Benefits of E-Banking to Banks
Digitization will lead to an overall reduction of operational costs and transactional
overheads. Front-end transformation solutions ranging from customer interaction management
right up to channel innovation, put the customer in the driver‘s seat, enabling the bank to grow
its customer base and offer an enhanced portfolio of tailored services. Technology results in
sustainability and continuity in the progressive amelioration of service quality, anytime and
anywhere banking, focused product delivery, cross-selling and multi-channel touch
points.Organizations experience efficiency gains through lower costs in the first phase of
technological application. There are significant performance improvements in deploying Internet
banking over alternative delivery mechanisms. Baras (1986), has found that the Internet
significantly lowers the cost of distribution of banking products and services. In India the
banking industry estimates branch banking costs Re.1.25/-, teller cost at Re.1/- per
transaction, ATM costs Re. 0.45/-, phone banking Re.0.35/-, and Internet banking Re.
0.10/-per transaction (Indian Express, 2004).
The cost-conscious banks in the country have therefore actively considered use of the
Internet as a channel for providing services. Fully computerized banks, with better management
of their customer base are in a stronger position to cross-sell their products through this channel.
For banks, introducing Internet banking as a new delivery channel is a cost-effective and
revenue-generating venture. The capital investment to deploy Internet banking is relatively low
compared to opening a new branch or even installing an ATM. In spite of the low costs, all banks
do not adopt Internet banking speedily. This is primarily due to environmental factors (the level
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of penetration of the Internet), the industry-level factors (basic computerization of banks), and
firm-level factors (individual bank strategies to introduce Internet banking).
Figure 2.17: Transaction Costs by E-Delivery Channels.
Source: The Indian Express, 2004
With the changing trends, banks prefer servicing their customers at their doorsteps and at
their convenience. This not only gives them an opportunity to service larger customer base but
also reduce their transaction costs.
2.10.6 Tomorrow‟s Branches
A bank branch as a front-end will diminish. Given the pace with banks are deploying
cutting-edge technology, branches of the future will embrace digital signs, self-service kiosks
and other visually interactive technologies to improve the banking experience and communicate
more effectively with customers. The revolution in mobile technology will do a lot for banks. It
enables customers to carry out transactions via cell phones or tablets.
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The Reserve Bank of India is revising a few norms around mobile banking, and this is
expected to give a fillip to the category. Banks and telecom service providers will join hands to
deliver next generation solutions. Mobile networking is going to pioneer new business delivery
mechanisms for banks, which will in the future do away with the branch concept in totality.
2.10.7 Future Perfect With New Channels
Sophisticated and high technology banking is important to improve customer service,
productivity, and operational efficiency of banks. As a part of their action plans, banks in India
have introduced many new techniques and a considerable degree of mechanization and
computerization in their operations. Banks are developing and standardizing suitable computer
software‘s in a big way. Modern bank branches are employing more automation and self-service
technologies to offload work from the staff. New channels have carved out a niche for
themselves and are here to stay. Banks will have to keep abreast with technological
advancements coming in these areas.
2.10.8 Still Miles To Go…….!
―Digital channels such as the Internet and mobile offer significant potential to improve a
financial institution‘s overall performance provided they can ensure an integrated customer
experience and engagement‖ (Accenture,2102 „weaving digital strategy into the DNA of
financial institutions in India‟). According to a survey conducted by Accenture, only 40 percent
of Indian banking customers use at least one new digital channel to interact with their primary
bank. This is on a very lower side when compared to other developed countries
(Phalgunan,2011).Over half of India‘s 1.2 billion population is yet to be covered under the
formal banking system. There are at least 120 million Indians connected to the Internet and 898
million mobile subscribers in India, 292 million of whom live in rural areas, indicating a strong
adoption of the mobile phone as a channel for communication. However, there are only 240
million bank accounts and 88,000 bank branches resulting in more than half of Indian
households, 110 million altogether, not having access to banks as they do not have a bank
account.
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According to D. Subbarao, Governor, Reserve Bank of India, ―Although there has been a
steady year-on-year 25 per cent growth in the number of ATMs in the country, their penetration
as measured by the number of ATMs per million population is still very low when compared to
other emerging markets," (keynote address at the IDRBT Banking Technology Awards
Function). In proportional terms, India has one of the lowest numbers of ATMs and PoS (Point
of Sales) terminals - 63 ATMs and 497 PoS per million population. Speaking on mobile banking
penetration, D.Subbarao, Governor, Reserve Bank of India, said ―as of June, 2012, as many as 50
banks were providing mobile banking services with an aggregate customer base of 14.75
million‖. Both the volume and value of mobile banking transactions are witnessing a remarkable
growth.
As of June 2012, a year-on-year growth in terms of volume was 143 per cent while that in
terms of value was 213 per cent, as per data released by Reserve Bank of India. Further it was
stated in press release that when compared with other emerging markets like Brazil, Mexico and
Russia, ― the value of banknotes and coins in circulation in India, at 12 per cent of GDP, is high‖.
The number of ― non-cash transactions per person in India stands at just 6 per year‖, which again
is very low in comparison with other emerging economies. Clearly the penetration of banking
services is much lesser than that of technology channels such as mobile and online. Instead of
setting up brick and mortar branches this presents an ideal opportunity to use these alternative
technology channels as a means to deliver banking services both cost-effectively and
immediately. As banks are integrating channels in order to ensure the accuracy and integrity of
transaction data, there is a growing demand for technology to support these channels.
Ernst & Young Global Consumer Banking Survey (2011) : “Customers E-Banking
Channel Experience”
A survey was conducted by Ernst & Young in which the Indian customers shared their E-
banking Channel Experience. Upon the completion of the survey, it was found that customers in
India are very satisfied with branches, internet banking and ATMs followed by mobile banking
and tele/phone banking.84% are satisfied with the branch experience, 81% are satisfied with
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ATMs and 79% are satisfied with internet banking. 59% are satisfied with mobile banking and
52% are satisfied with tele/phone banking.
Figure 2.18: Customer Satisfaction Level in % For Different Delivery Channels.
84%81% 79%
59%
52%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Branches ATMs Internet Banking
Mobile Banking
Tele/ Phone Banking
Delivery Channels
Customer Satisfaction Level for Delivery Channels
Branches
ATMs
Internet Banking
Mobile Banking
Tele/ Phone Banking
Source: Ernst & Young Global Consumer Banking Survey (2011)
2.11 Global E-Banking Trends- „International Experience: Country Wise & E-Banking
Channel Wise‟
Many banks globally have started to take initiatives to set in place more cost-effective
alternative service delivery systems in the form of internet and mobile banking. It has been
estimated that the average cost of service delivery at a typical bank ranges from 285 to 350 basis
points per dollar of deposits which is far higher than that for non-bank competitors (Barrett,
1997). For example, considering the cost per transaction of a customer to check account balance
costs $10.00 using a branch, $3.00 using a telephone and a live representative, $0.40 using an
automated telephone system and just a few cents using the internet (Barrett, 1997).
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Finnish banking system in Finland (a Nordic country) was the pioneer and perhaps the
world leader in the development, adoption and integration of electronic banking in the world
(Karjaluoto, 2002). The first Internet based banking service (online banking) was launched in the
year 1996 and according to the Finnish Banking Association‘s survey, the penetration rate is
over 70 percent (Pikkarainen et al., 2006). E-banking is still growing in Finland and has the
highest percentage of penetration (Yenenchua, 2006). In April 2005, 2.6 million consumers or
half the total Finnish population used IB on a regular basis (The Finnish Bankers‘ Association,
2005). Of roughly 700 million credit transfers made during the year 2005, 284 million were
made using the Internet (The Finnish Bankers‘ Association, 2006). According to Internet Usage
Stats and Telecom Reports (ITU), there are 4,661,265 Internet users as on December 2011,
representing 88.6% of the population with usage of internet banking services at 76%.
E-banking is widely used in Denmark. According to a report Focus Denmark released by
Ministry of Foreign Affairs (2010), ―The number of people in Denmark with access to their bank
accounts via the internet continues to increase. New figures show that more than 3 million out of
the 5.5 million populations have now made an internet banking agreement with their bank‖.
Bank customers with an internet banking agreement increased by almost 100,000 in the first six
months of 2010 and the figures reached to 250,000 by the end of year 2010. The number of
companies that conduct their banking transactions via the internet also continues to increase.
There are now more than a quarter of a million companies using internet banking. Nordic banks
lead the way in terms of numbers of internet banking customers.
In the mid 1990s, Lan & Spar Bank was the first bank in Denmark to offer a basic
internet banking solution. Later, the major banks followed with more advanced solutions, and
since then the range of internet banking facilities has grown tremendously. Even the smallest co-
operative bank in Denmark offers internet banking to its customers. This is possible because all
the small banks, savings banks and co-operative banks collaborate on the operation of EDP
centrals, making them large enough to develop the advanced systems that run the internet
banking facilities.
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Survey on Internet banking by U.K. Payments Administration during 2010-11 showed
that the ―number of internet users now banking online exceeds 50% for the first time ever‖.
According to the report , ―it is just 12 years since internet banking began, but its popularity has
grown so much that, in the first half of 2010, 23 million adults used internet banking on their
main current account. This means that for the first time ever more than 50 per cent of regular
internet users (41.4 million) are banking online‖.
According to information from the American Bankers Association (ABA) ,2011, ―62
percent of U.S. adults now view online banking as their preferred banking method, compared to
just 36 percent in 2010‖. The survey shows that older American's--those over the age of 55--are
helping drive the online banking trend. Results of the survey, which was conducted by Ipsos
Public Affairs, show that 57 percent of these adults prefer online banking, a 35 percent increase
over 2010 numbers. In second place behind online banking were bank branches, with 20 percent
of participants identifying them as their preferred method. ATMs were a far third choice and
were selected by 8 percent of participants. According to ABA Senior Council Nessa Feddis
‗customers of all age groups prefer the speed and convenience of conducting their banking
transactions on the internet‘. Feddis said that banks "are still committed to providing multiple
choices to serve the needs of all customers. Bank customers will continue to have the choice to
use branches, ATMs, telephone, mobile devices or the Internet to conduct their transactions."
As per Annual report on China's Online Banking Market, ―Online banking has achieved
rapid growth in recent years. In 2008, number of online banking subscribers increases by 54.7%,
and trade volume increases by 100.8%‖. Chinese domestic banks have recently been actively
engaged in e-banking initiatives (Kurnia, Peng and Liu). The first generation of electronic
banking was introduced by the China Merchant bank in 1997, in the form of internet payment
system (Laforet and Thong et.al. 2005).
Clair Gowenlock (2011) opined on Net Banking in Australia that the internet has become
more of a necessity, with the convenience of online banking, shopping and communication.
Nearly half of Australians own a mobile phone with internet capability. Michelle Hammond
(2011) stated in his report on trends in Australian Banking Sector that ―more Australians do their
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banking online rather than visiting a branch, although industry experts say face-to-face service
still resonates with small business customers‖.
According to Hammond‘s report, ―Over the past 12 years, internet banking use has risen
from 1% to 45%. As of December 2011, 45% of Australian consumers had used online banking
services in the previous four weeks, narrowly beating the 44% of consumers who visited a
branch over the same period. According to the study, ATMs have remained the most used
banking channel, with 77% of Australian consumers having used an ATM in the previous four
weeks. Meanwhile, internet banking is displacing phone banking, which has fallen consistently
since a peak usage of 28% in January 2003 to 18% in December 2011‖.
Suela Qemal, finance industry director at Roy Morgan, says the popularity and
convenience of the internet continues to drive customers towards internet banking. ―There is a
shift-away from traditional staff-based services of phone banking and the standard walk-in
branch visit,‖ Qemal says.
According to Japan Information Network (JIN), ―full Internet banking has arrived in
Japan and lower costs to operate Net banking may attract customers from all walks of life. The
emergence of Net banking in Japan may signal the start of a new trend in the banking industry‖.
Japan Net Bank, the first in Japan to operate entirely on the Internet, opened for business on
October 12, 2000. Currently, banks in Japan are increasingly focusing on e-banking transactions
with customers. Internet banking is an important part of their strategy. While some banks provide
services such as inquiry, settlement, purchase of financial products and loan application, others
are looking at setting up finance portals with non-finance business corporations. Most banks use
outside vendors in addition to in-house services.
A study on Internet Banking in New Zealand by Chung and Paynter (2002) revealed that
―banks in New Zealand enhance their retail banking services through the Internet‖. New Zealand
banks perform extremely well in providing up-to-date information. This had led to rapid growth
of customers registering for I-Banking and more than 50 percent of the populations have Internet
access and 34 percent use it on a regular basis (Groenfeldt, 2000). It is further predicted that the
usage of internet banking in New Zealand will continue to grow in the near future, as customer
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support for internet banking is mounting. According to New Zealand Herald ―there are more than
2 million Internet banking users performing 66% of the banking transactions‖.
According to Reuters (Press Release, 2011), ―The Singaporean online banking market is
among the most advanced in the world with a high proportion of the population using the online
channel. The number of online banking customers in Singapore will grow to almost four million
by 2013‖. According to an AC Nielson Survey, Singapore ranks third in the world in terms of
increased usage of electronic banking. Almost 80 percent of the banking population uses
electronic banking to communicate and transact, both domestically and internationally.
ComScore, Inc. (NASDAQ: SCOR), leader in measuring the digital world, (2011),
―Online Banking on the rise in Hong Kong. As per the report, there was an upward trend in
number of consumers opting for online banking throughout 2010. According to Joe Nguyen,
ComScore Vice President, ―Although online banking in Hong Kong does not exhibit as high a
level of penetration as markets in North America or Europe, it is growing rapidly as more
consumers respond to the convenience of the online channel for conducting banking activities
and transactions. As the Internet takes a more central role in how consumers interact with their
banks, it will be important to continue to enhance and develop site features and improve the
overall customer experience to continue to appeal to current and prospective customers‖. By the
end of the year 2010, Hong Kong‘s online banking audience grew 18 percent to 1.5 million
visitors, representing 35.5 percent of the total online population and ranking as the most highly
penetrated online banking market in the region.
ComScore, Inc. (NASDAQ: SCOR), leader in measuring the digital world, (2011),
―Across markets in Southeast Asia, visitation to online banking sites increased strongly in the
past year, growing by double-digits percentages‖. Malaysia, home to the largest total number of
online banking users in the study, climbed 16 percent to 2.7 million visitors in January 2011.
Indonesia posted the largest percentage increase, growing 72 percent to 749,000 unique visitors
followed by Philippines growing 39 percent to 525,000 unique visitors followed by Vietnam
growing 35 percent to 949,000 unique visitors for the same year i.e. January 2011.
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Accenture - Global Consumer Banking Survey (2012)
“A new era of customer expectation”
Globally, retail banks are entering new era and for banks to compete, differentiate and
grow in this new customer era, they must swiftly accelerate their innovation around banking
products and service offerings. Those that do so will enrich their brands and protect and increase
market share at a time when customer loyalty is no longer guaranteed. The banking industry in
mature markets has witnessed a wholesale and ongoing shift in confidence, and never before has
loyalty management and personal customer attention been such an issue for the sector. Despite
service quality being a key attrition lever, efforts by banks to improve the quality of service they
deliver have not yet resulted in improved customer perceptions. Most customers continue to feel
that they are not getting the level of personalized service they would like.
43% of customers say they get no, or only occasional, personal attention from
their main bank.
The personal attention received in emerging markets seems to be significantly
better, with 81% of Indian respondents saying they receive good or very good
personalized service.
Customers are open to greater communication, provided it is relevant and pertinent to
their personal circumstances. When it comes to channels, customers are responding positively to
the convenience, accessibility and reliability provided by digital channels, and particularly the
internet and ATMs.
Internet banking (83%), ATMs (79%) and Branches (79%), are the channels with
the highest levels of customer satisfaction.
Globally, 42% of customers never use mobile banking and only 44% are satisfied
with this emerging channel in banking.
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Call centers are not popular, with only 50% of customers satisfied with their
services and 30% never using them.
E-Statement(s) latest in offerings, enjoy 65% satisfaction among bank customers.
Figure 2.19: Level of Customer Satisfaction in % For Different Delivery Channels.
Internet Banking, 83%
ATMs, 79%
Branches, 79%
Mobile Banking, 44%
Tele/Phone Banking, 50%
E-Statement / Mails, 65%
Level of Customer Satisfaction for Delivery Channels
Internet Banking
ATMs
Branches
Mobile Banking
Tele/Phone Banking
E-Statement / Mails
Source: Accenture - Global Consumer Banking Survey
Thus it may be stated that, banks need to reconnect with their customer base by
improving the customer experience. There is a clear demand for greater personal attention among
the respondents, and it is also evident that banks need to invest in channels and become more
customer-centric across their operations. There is considerable room for improvement in the
levels of channel efficiency, personalization and integration that banks offer their customers.