BANKING & ELECTRONIC FINANCE IN BUSINESS TRANSACTIONS: A

REVIEW OF ISSUES & REGULATORY STRUCTURE

Amit K Kashyap1

INTRODUCTION:
The word finance was originally a French word. In the 18th century, it was adapted by
English speaking communities to mean “the management of money.” Since then, it
has found a permanent place in the English dictionary. Today, finance is not merely a
word else has emerged into an academic discipline of greater significance. Finance is
now organised as a branch of Economics.2 Today, the profound effect of the Internet
and electronic commerce on financial markets and the financial services industry is
not seriously challenged. It is now hard to find a financial institution that does not
offer financial services via the Internet or offer some other kind of electronic
interaction with its customers, regulators or competitors. It has simply raised certain
new types of legal risks and problems, which have been dealt with by innovative
market practices, the general law of banking and finance and a limited number of
Internet-specific legal reforms that were necessary to replace outdated legal forms and
concepts.3
E-finance is not new. For example, the Fedwire used electronic communications
system as early as 1918. The NASDAQ market involved the electronic trading of
stocks as early as 1971. After this Online banking began in the mid-1990s and is
steadily becoming more important. In contrast to banks, however, insurance
companies have used the internet a relatively small amount. 4 Electronics in banking
(E-banking) is being used in India for some time now in the form of digital data in

1
Asst. Prof of law & Director, Centre for Corporate Law Studies, Institute of law, Nirma University,
Ahmedabad.
2
Franklin Allen, James McAndrews and Philip Strahan, E-Finance: An Introduction (1st edn, The
Wharton School, University of Pennsylvania 2001)
<http://fic.wharton.upenn.edu/fic/papers/01/0136.pdf> accessed 19 April 2016.
3
Thomas Meyer, E-Banking Snapshot: Deutsche Bank Research (1st edn, Deutsche Bank 2010)
<http://www.dbresearch.com/PROD/DBR_INTERNET_ENPROD/PROD0000000000257252/Little+u
se+of+advanced+services%3A+E-finance+at+small+firms.pdf> accessed 13 April 2016.
4
Stijn Claessens, Thomas Glaessner and Daniela Klingebiel, Electronic Finance: Reshaping The
Financial Landscape Around The World (1st edn, The World bank 2000)
<https://www.newyorkfed.org/medialibrary/media/newsevents/events/research/2001/Claessen.pdf>
accessed 11 March 2016.
computers, Credit and Debit Cards, ATMs, Net-banking. Its impact is being felt
increasingly.5
IMPORTANCE OF BANKING & ELECTRONIC FINANCE IN BUSINESS
E-Finance is a good complement to existing financial and enterprise resource
planning (ERP) system, as it enhance and make use of valuable information hidden
inside with the help of hi-tech IT. The use of e-commerce has drastically increased in
recent years when various intermediaries like Flipkart, Myntra and Amazon to name a
few have acquired the market of sale of goods through internet. In the world of e-
commerce payments are in the form of exchange of money through use of internet
itself and are termed as Electronic Payment.6 The online service providers or online
portals sell the goods to the customers and are paid with the help of E-payment
system.
E-FINANCE IN BUSINESS & CORPORATES
By the end of the 1990s, e-finance technologies had arguably affected all aspects of
the business of banking and financial intermediation, with the possible exception of
lending to large businesses. There are various services which has been augmented
with the use of information technology in business & corporates at various levels and
segments.
ELECTRONIC PAYMENT GATEWAYS & E-FINANCING
Electronic communications technologies have been used in the banking sector for
many years, particularly in interbank payment systems. One of the early applications
of electronic communication networks to finance was the Fedwire payment system.
By 1918 this linked the accounts of banks held at the twelve Federal Reserve Banks
across the U.S. using leased telegraph wires and inaugurated electronic settlement of
accounts. This facility, combined with the ability to settle in central bank balances,
eliminated the fluctuating exchange rates that had previously been common between
bank balances due from banks located in different regions of the country.
5
B. R. Sharma, “Bank Frauds Prevention & Detention Including Computer & Credit Card Crimes”, 3rd
Edn., Universal Law Publishing Co. 2012
6
Karamjeet Kaur, and Dr. Ashutosh Pathak; E-Payment System in E-commerce in India, ISSN: 2248-
9622 Vol.5 Issue 2, (Part 1) pp. 79-87; http://www.ijera.com/papers/Vol5_issue2/Part%20-
%201/M502017987.pdf accessed 18 March 2016
[ http://finance.wharton.upenn.edu/~allenf/download/Vita/e-finance.pdf]

REGULATORY FRAMEWORK:
There are no standard set of principles governing e-commerce activity but there are
only some guiding principles laid down such as UNCITRAL which drafted the model
law of e-commerce. In India, The Consumer Protection Act, 1986 specifically aims at
protecting the consumers from any unfair trade practices and deficiency in services of
the traders. The online sale of goods is also regulated by the Sale of Goods Act, 1930
and Information Technology Act, 2000, Central Bank (Reserve Bank of India (RBI))
guidelines on Internet Banking in India.

In this act special section deals with the transaction of fund through electronic
methods. Under the fourth schedule (sec-94) r/d amended the Reserve Bank of India
Act, 1934, in section 58, in sub-section (2), after clause (p), the following clause shall
be inserted, namely -“the regulation of fund transfer through electronic means
between the banks or between the banks and other financial institutions referred to in
clause (c) of section 45-1, including the laying down of the conditions subject to
which banks and other financial institutions shall participate in such fund transfers,
the manner of such fund transfers and the rights and obligations of the participants in
such fund transfers.”A computer based transfer of business information, which
consists of specific processes to facilitate communication over global networks.
However, Electronic commerce in financial services cannot and does not operate in a
legal vacuum. It needs and makes use of the general legal and institutional framework
within which online banks operate, including the rule of law, the national court
system, efficient commercial laws, banking and financial laws, regulatory and
supervisory standards of consumer and investor protection, monetary policy, safety
and solvency of the banking system, data protection, privacy laws, and the laws
relating to information safety and security.
The provision of financial services via the Internet, especially, requires an efficient
legal and regulatory framework, which creates confidence among financial
institutions and their customers that the undertaken promises will be kept and that the
contractual arrangements will be performed.[ Madhavi Goradia Divan “Facts of
Media Law” published by eastern book company, Lucknow] Electronic finance and
banking lies at the heart of the tension between ‘free flow of data’ and ‘legal or social
control’ in a paradoxical way. Few dataintensive activities could benefit more from
the open-source structure of the Internet architecture; and hardly any other activity is
subject to so many layers of legal control and so many laws and regulations which,
more often than not, must be implemented by banks themselves through self-imposed
mechanisms of access control and network security. It is not always clear how best to
reconcile the two competing claims. The properties of the core Internet protocol point
towards further integration but cannot conceal the Law and Regulation of Electronic
Finance and Internet Banking many political, institutional and legal forces that point
in exactly the opposite direction.

E-finance is not new. For example, the Fedwire used electronic communications
system as early as 1918. The Nasdaq market involved the electronic trading of stocks
as early as 1971. The difference today is that electronic communication and
computation is now used much more widely than before. A large number of people
have access to the internet and this has vastly changed the opportunities for the use of
electronic payments systems, the operations of financial services firms and financial
markets. We have argued that this change raises a number of important research
issues. For example, is the widespread use of paper-based checks efficient? Will the
financial services industry be fundamentally changed by the advent of the internet?
Why have there been such large differences in changes to market microstructure
across different financial markets? We look forward to these and other questions being
answered as the emerging field of E- finance develops.
 Electronic financial services- whether delivered online, through mobile phones or
other remote mechanisms, or through smart cards- have spread quickly in recent
years. This e-finance revolution is dramatically changing the structure and nature of
financial services around the world. The effects are not limited to industrial countries
and advanced emerging markets. Already, countries with underdeveloped financial
systems are using e-finance to leapfrog in some areas. In Africa electronic cash and
other smart and even chip cards are being offered as savings and payment services for
low-income customers who do not have access to formal bank accounts. Other
experiences-as in Brazil, Estonia, and the Republic of Korea-suggest that e-finance
can be introduced quickly even where basic financial infrastructure is weak or
nonexistent.[ http://kalyan-city.blogspot.in/2011/02/e-banking-online-banking-
advantages-of.html]

Technological advances are also making it possible to deliver financial services

from offshore, providing some emerging markets with the additional benefits of
international technology and Oversight. The World Bank is helping countries benefit
from these new developments in a number of ways. Realizing the gains from e-
finance will require changes in public policies toward financial services. Better
regulation will be needed in such critical areas as the telecommunications framework
information infrastructure, payment systems, and competition policy. The Bank’s
advisory services are being adjusted to reflect the new possibilities and changed
public policy priorities. This work involves diagnoses, under way in some countries,
of infrastructure’s readiness to support e-finance and related advice on needed policy
changes. Much of the focus will be on actions that can improve the ability (through
lower costs and increased competition) and willingness of private institutions to
broaden access to financial services.[ http://www.cefims.ac.uk/documents/sample-
120.pdf ]
The Bank has also been helping countries deal with the implications of e-finance
for the development of their capital markets. These efforts will increasingly be
coordinated with the operations of the International Finance Corporation (IFC).
Furthermore, the Bank’s extensive experience in using and applying technology in its
funding and investment operations is being leveraged in our advisory work. More
generally, the Bank’s efforts in this promising area will involve cross-departmental
and multidisciplinary approaches to address this new phenomenon in the needed
comprehensive way.

BIBLIOGRAPHY

WEBSITES, ARITICLES & BOOKS

http://kalyan-city.blogspot.in/2011/02/e-banking-online-banking-advantages-of.html
http://www.cefims.ac.uk/documents/sample-120.pdf
http://www.orcc.com/
http://fic.wharton.upenn.edu/fic/papers/01/0136.pdf
http://fic.wharton.upenn.edu/fic/papers/01/0136.pdf
http://finance.wharton.upenn.edu/~allenf/download/Vita/e-finance.pdf
http://www.dbresearch.com/PROD/DBR_INTERNET_EN-
PROD/PROD0000000000257252/Little+use+of+advanced+services%3A+E-
finance+at+small+firms.pdf
Justice Yatindra Singh “Cyber Laws” 4th Editions Published by Universal law
publication, New Delhi.
Vakul Sharma “Information Technology, Law and Practice & E-commerce
published by universal publication, New Delhi.
Madhavi Goradia Divan “Facts of Media Law” published by eastern book company,
Lucknow.