E-Banking

Sanjeev Kumar Chaswal

LL.M (IPR,ARB&ADR)

M.S (Cyber Law and Cyber Security)

DefinitionsDefinitions

* e-banking can be defined as:

…the automated delivery of new and traditional bankingproducts and services directly to customers throughelectronic, interactive communication channels.

A system of banking in which customers can view theiraccount details, pay bills, and transfer money by meansaccount details, pay bills, and transfer money by meansof the internet.

The remote delivery of new and traditional bankingproducts and services through electronic deliverychannels.

What is EWhat is E--banking or Net bankingbanking or Net banking� E-Banking is the use of electronic channels to

communicate and transact business with both domesticand international customers through internet.

� Internet banking (or E-banking) means any user with apersonal computer and a browser can get connected to hisbank -s website to perform any of the virtual bankingfunctions .functions .

� E banking is providing the same banking services such aspayment, inquiry, information processing but with interne t.It can be offered in two ways.

� First an existing bank with physical offices can alsoestablish an online website and offer e banking services.Secondly, e-banks can only exist only on Internet, thusallowing users to work with”Virtual Bank”. 3

E-banking vis-A-vis Traditional banking

�Speed

�Accessibility

�Electronic documentation

�Time saving�Time saving

�Satisfaction to the customer

�Complimentary to traditional banking

�Geographical boundaries surpassed

�Scince rather than art

Technology Commencement in Banking Technology Commencement in Banking

� In 70’s, banks started to establish centralized data processing centers.

� Essentially the roles of these data processing centers are:

� collect the handwritten documents from branches � collect the handwritten documents from branches

� compile the documents

�manual data entry by the operators

� generate reports for the bank staff and the central bank

� execute some banking transactions

E Banking in IndiaE Banking in India

� Opening up of economy in 1991 marked the entry offoreign banks. They brought new technology with them.

� Banking products became more and more competitive.Need

� for differentiation of products and services was felt.

� The ICICI Bank kicked off online banking in 1996.� The ICICI Bank kicked off online banking in 1996.Currently

� 78% of its customer base is registered for online banking.

� 1996 to 1998 marked the adoption phase, while usage

� increased only in 1999, owing to lower ISP onlinecharges, increased PC penetration and a tech-friendlyatmosphere .

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Guidelines for E bankingGuidelines for E banking

� The Internet Banking policy has been approved by theBank‘s Board.

� The policy fits into the bank's overall InformationTechnology and Information Security policy andensures confidentiality of records and securitysystems .systems .

� The policy takes into account operational risk.

� The policy clearly lays down the procedure to befollowed in respect of "Know Your Customer"requirements, and

� The policy broadly meets the parameters laid down inthe earlier circular.

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Banks Branch AutomationsBanks Branch Automations

� India’s banks have started automation of their bankbranches in 90’s, by started putting heavytechnology investments for the branches.

� The first step is offline branches .� The first step is offline branches .

� Terminals connected to local branch computers.

� Second step is online branches connected centrally.Most of the transactions started to be performed inthe central mainframe.

Why E banking?Why E banking?

� Differentiation of products from the others.

� A combination of regulatory and competitivereasons.

� Stress on branchless banking .� Stress on branchless banking .

� Increasing volumes of banking transactions.

� Providing customers with cost effective services

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Product Based BankingProduct Based Banking

� In the late-1990s, banks accepted product based banking and competed with their products.

� Banks developed new products for their customers.

�Credit card

�Credit deposit account (Super Account)�Credit deposit account (Super Account)

�Debit cards

� Beside branch, banks brought new channels to give better service to their customers.

�ATM

�POS (Point of sale)

� IVR

NEED FOR ENEED FOR E--BANKINGBANKING

� It is a flexible service provided by banks wherecustomer can work according to their needs.

� It removes the geographical barrier, thus customer canaccess from anywhere and at anytime. It provides 24hour-7 days services .

� It increases bank efficiency and competitiveness andlower the operating cost.

� It provides higher transaction speed.11

Role of RBI in E BankingRole of RBI in E Banking

� Electronic Clearing Service (ECS)

� Electronic Funds Transfer (EFT)

� Real Time Gross Settlement (RTGS)� Real Time Gross Settlement (RTGS)

� National Electronic Fund Transfer (NEFT)s

� Cheque Truncation System (CTS)

E Banking Delivery E Banking Delivery –– It can help inIt can help in

� Increasing customer satisfaction and retention

� Shifting of costs

� Increasing the brand value� Increasing the brand value

� Providing real time access (i.e. convenience)

� Delivering Services and products tocustomers through supporting technology

General Types of e-banking(RBI)

Fully electronic transactional

system

Electronic information

transfer system

Information only system

� The Website related to E-banking can be of two types:

� Information Website:

It gives general information about the financial instituteand its products or services to the customer.

� Transactional Website:

Simple Transactional Website: It allows customer tosubmit their instructions, applications for differentservices, queries on their account balances etc but doservices, queries on their account balances etc but donot permit any fund based transactions on theiraccounts.

� Fully Transactional Website:

It allows the customers to operate on their accounts fortransfer of funds, payment of different bills, subscribingto other products of the banks and to transact purchaseand sales security . 15

EE--BANKING SUPPORT SERVICESBANKING SUPPORT SERVICES

� Web linking

� Account Aggregation

� Electronic Authentication

� Website Hosting

� Payments for e-commerce

� Wireless banking activities16

Types E BankingTypes E Banking

�PC Banking

�Internet Banking

�SMS Banking

�Virtual banking

�Digital TV Banking�Digital TV Banking

�Automated teller machine

�Tele banking

�Plastic cards

�E-cheque

EE--Banking ConfigurationBanking Configuration

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How ATM’s work?How ATM’s work?

Bank computer

Host computer ATM

Tele bankingTele banking

CustomerBank

Enquiry

Request facility

Loans

Cheque Status

Fixed Deposit details

How mobile banking work?

BANK DATABASE

E BANK SERVICESE BANK SERVICES

Bill payment service

Credit card customers

Railway pass Railway pass

Recharging your prepaid phone

Shopping at your fingertips

E Banking products and servicesE Banking products and services

� Offered in a two tier structure

� A basic tier of Internet banking products includescustomer account inquiry, funds transfer and electronicbill payment.

� A second or premium tier includes basic services plusone or more additional services like brokerage, cashone or more additional services like brokerage, cashmanagement, credit applications, credit and debit cards,customer correspondence, demat holdings, financialadvice, foreign exchange trading, insurance, onlinetrading, opening accounts, requests and intimations, taxservices, e-shopping, standing instructions,investments, asset management services etc.

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Plastic cards

BENEFITS OF EBENEFITS OF E--BANKINGBANKING

� Any time banking

� Any where banking

� Cash free banking

� Reduction in Cost of transaction

� Easy to make utility payments

� On-line purchases� On-line purchases

� Competitive advantage

� Unlimited network

� Lesser work load

� Lesser chances of fraud & misappropriation

� Better profitability

� Better customer relationship

Advantages to banksAdvantages to banks

� Very low setup cost.

� Capability to cater to a very large customer base.

� Saves a lot of operational costs. Adds to the

baseline.baseline.

� Banks san offer a lot of personalized services to their customers.

� Reduction of burden on branch banking .

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E Banking DrawbacksE Banking Drawbacks

� Difficult in the adoption of technology

� Fear of technology

� High cost of technology� High cost of technology

� Lack of preparedness

� Restrictions on usage of technology

Advantages Disadvantages

Check account balances and track recent account activity

Need an account with an Internet Service Provider (ISP)

Transfer money between accounts Security concerns, like ‘hackers’accessing your bank accounts

Authorize electronic bill payments Original setup for bill paying time istime-consuming but will ultimatelybe a time-saver

Issue stop payment requests Switching banks can be moreIssue stop payment requests Switching banks can be morecumbersome online than in person

Apply for auto, mortgage, home equity, student, or personal loans

Must have basic computer skills and Internet knowledge

Receive investment product andservice information

Must be comfortable using acomputer

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EE--BANKING RISKSBANKING RISKS

� Transactional/Operational Risks

� Credit Risk

� Liquidity/Interest Rate Risk

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� Reputation Risk

� Compliance/ Legal Risk

� Strategic Risk

� Transactional/Operational Risks

� It arises because of inaccurate processing of transactions , non-enforceability of contracts, compromises in data accuracy , dataprivacy and confidentiality or unauthorized access to bank s systemand transaction etc. It arises during day to day activity of b ankingtransaction.

� Credit Risk

� It is the risk that counter party will not settle an obligatio n i.e. paytheir debt for full value, either when due or any time thereafter .their debt for full value, either when due or any time thereafter .

� Liquidity/Interest Rate Risk

� It arises out of a banks inability to meet the required obliga tionwhen they become due without incurring unacceptable losses ,even though the bank may ultimately be able to meet itsobligations.

� Reputation Risk

� It is the risk of getting significant negative public opinio n, whichmay result in a critical loss of lending or customer. 31

� Compliance/ Legal Risk

� It arises from violation of or non conformation withlaws, rules, regulations or prescribed practices orwhen the legal rights and obligations of parties to atransaction are not well established.

� Strategic Risk

� It is the risk associated with the financialinstitution’s future business plans and strategies

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SAFE GUARDS FOR E BANKINGSAFE GUARDS FOR E BANKING� Ensuring security while banking online, is to keep your pass word

and pin number a secret.

� The security of your personal computer is very important for safeinternet banking. Therefore, always install antivirus sof tware andsoftware to remove spyware.

� Checking your bank statements regularly will help you detec t anytransaction that has taken place without your knowledge ortransaction that has taken place without your knowledge orconsent.

�While banking through the internet, make sure that the banki ngsession is secure.

� In addition, always remember to completely log off, aftercompleting the banking session.

� Nowadays, the banking institutions have come up with a numbe rof safety measures for ensuring secure internet banking.

CHALLENGES IN E BANKINGCHALLENGES IN E BANKING

�E-banking is a generic term for delivery of bankingservices and products

�E-banking has improved efficiency andconvenience

�The government of India enacted the IT act, 2000

�It issued guidelines on risks and control incomputer and telecommunication system

Security Features E Banking Include:Security Features E Banking Include:� Security token devices. Protection through single

password authentication, as its the case in most secureinternet shopping sites, it is not considered secureenough for personal online banking applications in somecountries. Specifically, here are two different methods fo rinternet banking:

� The PIN / TAN system where the PIN represents a� The PIN / TAN system where the PIN represents apassword, used for the login and TANs representing one-time passwords to authenticate transactions.

� These token generated TANs depend on the time and aunique secret, stored in the security token. Usually,internet banking with PIN/TAN is done via a web browserusing SSL secured connections, so that there is noadditional encryption needed 35

� Signature based internet banking where alltransactions are signed and encrypted digitally. TheKeys for the signature generation and encryptioncan be stored on smartcards or any memorymedium, depending on the concrete implementatio n

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Attacks.� Most of attacks in internet banking are based on deceiving

the user to steal login data and valid TANs.

� Two well known examples for those attacks are phishingand pharming.

� Cross-site scripting and keylogger/ trojan horses can alsobe used to steal login information. A method to attacksignature based internet banking methods is to manipulatesignature based internet banking methods is to manipulatethe used software in a way, that correct transactions areshown on the screen and faked transactions are signed inthe background. A recent FDIC Technology Incident Report,generated form security risk activities reports that banksrecord quarterly, lists 536 cases of computer intrusion wit han average loss per incident of $30,000. That adds up tonearly $16 million loss in the second quarter of 2007 .

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CountermeasuresCountermeasures

� There exist few countermeasures which try to avoidattacks. For instance, digital certificates are usedagainst phishing and pharming, the use of class 3card readers is also a measure to avoid manipulationof transactions by the software in signature basedinternet banking variants . To secure their systemsinternet banking variants . To secure their systemsagainst viruses, trojan horses and worms,customers must use virus scanners and be carefulwith downloaded software or e-mail attachments .

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