Polytechnic University of Puerto Rico

Hato Rey, Puerto Rico

Group #4

Denisse Santiago ID 44764

Jaime Torres ID 63855

Andres Salgado ID 65694

MEM-6110, Engineering Management 1

Prof. Johnny Elías

October 30, 2010

 INDEX

INTRODUCTION 3

VIRTUAL BANKS 4

Definition

Advantages and Disadvantages

DIGITAL WALLETS 8

Definition

Advantages and Disadvantages

CASE STUDY 1: Virtual Banks 13

CASE STUDY 2: Digital Wallets 15

CONCLUSION & RECOMMENDATIONS 16

REFERENCES 17
INTRODUCTION

Dur ing t his cent ur y, virt ual banks and digit al wallet s are consider ed t he mo st

effect ive met ho ds t o manag e o ne’s cash and mo net ar y asset s, as well as wit hi n

t he co mpan ies and mark et s. When we make use o f Int er net bank account s, we

are u nder t he impressio n t hat we really are more empowered especia lly in t he

management o f our mone y; t hat is act ually t rue becau se t hro ug h I nt ernet

banking, yo u have fu ll co nt ro l o f your mo ney. Web banking or in any ot her case

referred t o as banking by wa y o f I nt er net t echno lo g y has a lo t o f benefit s t o

o ffer t o consumer s.

In t his paper we will be defining what are virt ual bank s, and d ig it al wallet s. We

will be present ing t he ad vant ages, and disadvant ages, legal aut hor it ies,

respo nsib ilit ies, as we ll as case st udies t o help underst and so me o f t he

charact er ist ics and usage o f virt ual banks and digit al wallet s.

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VIRTUAL BANK S

Virt ual banks are int er net based financial inst it ut ions t hat offer deposit s,

wit hdrawa l, and o t her bank ing ser vices t hrough aut o mat ed t eller machines o r

ot her devices wit ho ut having a physical walk- in facilit y. So me o f t he financia l

ser vices pro vid ed are: t elep ho ne banking, o nline banking, aut omat ed t eller

machines, mail bank ing, and mo bile banking amo ng ot hers. This t ype o f

inst it ut io ns can pro vid e ver y at t ract ive int erest rat es and lo wer ser vice charges

to t heir cust o mers by eliminat ing t he overhead cost associat ed wit h t rad it io nal

bank branches.

Trad it io nal bank ing was hig hly impact ed by t he co mmer cializat ion o f t he

int er net in t he beg inn ing s o f 1990. As t he int er net ser vices became mo r e

accessib le t o t he g eneral public, t radit ional banks began t o exper iment wit h

virt ual banks. T he id ea was fant ast ic because t hey were able t o provide ser vices

to t heir client s wit h lit t le over head.

The su ccess o f t he int er net banking lead t o t he development and creat ion o f

virt ual bank s o r int ernet o nly banks. These banks were designed wit ho ut a

t radit io nal bank ing infr ast ruct ure, a cost saving feat ure t hat allo wed t hem t o

o ffer ver y hig h int erest rat e o n t heir savings account s, and ver y low int erest

rat es o n t heir lo ans.

Several o f t he ad vant ages t hat make virt ual banks accept ed by cust o mers o ver

t he regu lar bank s ( br ick and mo rt ar as known over t he int er net ) are:

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 • Co nvenience: virt ual banks never clo se; t hey are open 24/7 and o nly a

click away.

• Transact io n read iness o r speed: t hey can process and execut e t ransact io ns

qu icker t han t rad it io nal bank s. There is no line.

• E ffic iency: cust omer s have in fo r mat io n abo ut t heir acco unt s read il y

available at any t ime, t herefore t hey can access t heir account s fro m

anywher e o ver o ne secure sit e.

• E ffect ive: t hey can pro vide a set o f t ools which may help t o manage t he

cust o mer’s asset s mo re effect ively.

• Ad d it io nal ser vices: fr ee bill pay, rebat es on AT M surcharges, cred it

cards wit h lo w rat es, fr ee online check ing, easy online applicat ions fo r

perso nal lo ans, vehicle lo ans, and mort gages.

• Accessib ilit y: cust o mers can access t heir account s fro m any lo cat ion at

any t ime.

• FDI C insured

So me o f t he d isad vant ages t hat are common for cust omer s and banks are:

• The in it ia l co st fo r set t ing up a virt ual banks st ruct ure is high.

• New users t o virt ual banks ma y find t he st ruct ure hard t o navigat e.

• I f t here is no int er net , cust omer s cannot access t heir account s.

• Major it y o f t hese banks requ ir e h ig h sp eed bro ad band.

• Techno lo g y can go do wn easy; t her efore virt ual banks are mo re

suscept ib le t o go do wn.

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 • Mo ney ma y not be read ily available for wit hdr aws.

• And hack ers.

Fro m a lega l p ersp ect ive, alt ho ugh elect ronic banking or virt ual banks is rapid ly

o vert ak ing dir ect bank-t o -cust omer and bank-t o-bank cont act and seems t o be

mo ving fo rward wit ho ut ser ious problems t he law gover ning t his

t eleco mmunicat ion- based business is no t always c lear ly defined in relat io n to

cert ain issues t hat ar ise wit h ever-great er fr equency, especially in cross- bo rder

t ransact io ns. There is app licable legal consensus for each o f t hese import ant

issu es, based o n exist ing legis lat io n and relevant jud icia l d ecis io ns. So me o f

t he qu est io ns aro u nd t he secur it y o f t he virt ual banks have t o do wit h t he legal

issu es in quest io n ar ise fro m such event s, act ivit ies, and act ualit ies as t he

fo llo wing:

• det er minat io n of lo cal jur isd ict io n

• app licab ilit y of co nt ract ual obligat io ns; probat ive value o f d ig it al

do cument s

• elect ro nic evidence

• elect ro nic mo ney

• prot ect io n o f pr ivacy

• day-t rading fac ilit ies

• web market ing o f lend ing ser vices

• elect ronic bills o f lading

• Int ernet sto ck o ffer ings

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• elect ro nic det er minat io n o f t it le

• out so urcing o f elect ro nic banking funct ions

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DIG ITAL WALLETS

Dig it al wallet s are so ft ware t hat allo ws people t o pay product s t hrough t he

int er net qu ick and safe. This so ft ware keeps in memor y direct ions, card

nu mbers and ot her per sonal info r mat io n. When yo u bu y a pro duct in t he web,

and put yo ur in fo r mat io n o n it , t he info r mat io n is aut omat ically saved in t his

so ft ware facilit at ing yo ur next purchase.

There are many people who do no t bu y o n t he I nt ernet becau se t hey must fill a

lo t o f in fo r mat io n. So met imes t hey are r equired t o fill out a lengt hy for m. The

d ig it al wallet help s t o facilit at e t he purchase. When yo u fill t he in fo r mat io n t he

first t ime, t his infor mat io n is aut o mat ically st o red in t he d ig it al wallet . Ever y

t ime yo u have t o fill out infor mat io n, t his will fill t he sp aces t hat requ ire t he

in fo r mat io n alread y saved. It updat es it self ever y t ime you make a change on t he

web.

Also t his gives you secur it y wit h your infor mat io n. When you purchase an it e m

at t he end o f t he purchase o ffer s t o get a free digit al wallet , if yo u agree, yo u

mu st inst all t he so ft ware o n yo ur co mput er and your infor mat ion will be st o red

o n your co mput er, also will have a key number t o yourself.

Ho w it wo rks?

1. When yo u make a purchase on t he Int er net , E-bay or Amazon

co u ld be examples of shopping; you should put your

in fo r mat io n (name, card number, et c.).

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 2. Then, when t he t ransact ion ends, is o ffered t o t he consumer a dig it a l

wallet ser v ice fr ee, t hey ask for a name and a password. This w ill allo w

t he used to access yo ur d igit al wallet .

3. When t he co nsu mer accept s, t he infor mat ion used t o make t he purchase is

safely st ored in t he digit al wallet .

4. When re- mak ing a purchase, t he digit al wallet asks for your name and

passwo rd, and t he in fo r mat io n is aut o mat ically placed in t he boxes.

So me o f t he advant ages o f digit al wallet s could be seen in t oday’s wor ld; t his is

mak ing t ang ib le cash t o beco me less frequent . Wit h t he int roduct ion o f int er net /

o nline bank ing, debit cards, o nline bill payment s and int er net business, pap er

mo ney is beco ming a t hing o f t he past .

Bank s no w o ffer many ser v ices whereby a cust omer can t ransfer funds, purchase

st o cks, co nt ribut e to t heir ret irement plans and o ffer a var iet y o f ot her ser vices

wit ho ut having t o handle phys ical cash or checks. Cust omers do not have t o wait

in lines; t his pro vides a lo wer- hassle environment .

Debit cards and o nline bill payment s allo w immediat e t ransfer o f funds fro m a n

ind iv idual's p erso nal acco u nt to a business's account wit hout any act ual paper

t ransfer o f mo ney. T his o ffer s a great convenience t o many people and

bu sinesses alike.

When it co mes t o disadvant ages, t here are also many significant ones. T hese

inc lude fraud, failure o f t echno logy, possible t racking o f individuals and lo ss o f

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hu man int eract ion. Fraud over d ig it a l cash has been a pressing issu e in recent

years. Hack ing int o bank acco unt s and illegal ret r ieval o f banking records has

led to a widespread invas io n o f pr ivacy and has pro mot ed ident it y t heft .

There is also a pressing issue regarding t he t echno logy invo lved in digit al cash.

Po wer failures, lo ss o f r eco rds and undependable so ft ware oft en cause a majo r

set back in pro mo t ing t he t echno logy.

Pr ivacy quest ions have also been raised; t here is a fear t hat t he use o f deb it

cards and t he lik e will lead t o t he creat ion by t he banking indust r y o f a glo ba l

t rack ing syst em. So me people are working on anonymous e-cash t o t ry t o

address t his issue.

In regard s t o legal issues, all in fo r mat io n st o red in t he d ig it al wallet is

impo rt ant , sensible and requir es hig h lev els o f secur it y. This in fo r mat io n in t he

hands o f o t hers co u ld cause fraud, illegal use of mo ney, mo ney launder ing, et c.

So we have man y laws t hat defend t he purchasing o f fraud and misuse o f

in fo r mat io n. Many o f t hese include t he prot ect ion o f t he mo ney used in o nlin e

shopp ing.

Fo r exa mple: co nsu mer laws. It also is used when t he seller does not give t he

buyer a good pro duct

The go ver nment pro vides pro t ect io n t o consumer s in cert ain t ypes o f lo sses and

pro vides secur it y. An examp le o f t his prot ect ion it is t he FDI C, which pro t ect s

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cust omers when a bank go es bankrupt . S imilar ly, t here is prot ect ion, such as

Regu lat io n Z, which limit unaut hor ized t ransact io ns credit card.

In t he int er net we can find d ifferent met hods t hat prot ect you fro m fraud, su ch

as t he st ro ng encr ypt io n. The gover nment also offer s t hese met hods t o prot ect

yo u fro m t hese peo p le who can break t he codes for fraud.

This can help u s much, becau se in t he fut ure, if people are co mfort able buyin g

t hro ugh t he Int er net , t hey will prefer t o bu y t hro ug h t his channel. We will have

secur it y o ver o ur info r mat io n and can be pur chased t hrough t he wo r ld.

So met imes we do so me sho pping inhibit ed because we feel t here is no

secur it y. But if ever yo ne k new t his co u ld be beneficia l t o bo t h t he seller, and

t he co nsu mer.

In o t her su ch met ho ds canno t provide secur it y, because t here are already var io u s

cr ypt o graphic t oo ls t hat are d ifficu lt t o co mbat . This will provide easy t o use,

divis ib ilit y and independ ence.

Cyber Cash:

It is o ne o f t he best syst ems in place and exper ience in t he Unit ed St at es. It is

expand ing to different count r ies such as Japan, Ger many, UK, It aly,

Swit zer land. This is being do ne by agreement wit h t he different banks. Fou nded

in 1994. Work wit h o ver 3000 U.S. stores and 97% of t he bank in t he count r y.

To reach t hese levels t hey have pro vided a so lid infrast ruct ure, effic iency and

secur it y when making online payment s.

To use it , t he cust o mer mu st download t he syst em, regist er and inst all o n yo ur

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co mput er. The client mu st ent er t he card infor mat io n t o be used. T he same

pro gram is respo nsib le fo r t he gener at io n o f t he key so t he dat a ar e

prot ect ed. The seller must also have t he program.

When yo u are mak ing a purchase is made t hrough t he pur se t hat it

provides. T his pro vided a spreadsheet which cont ains t he card number and

cust omer ident ificat io n. T his sheet you signed wit h t he secret key before being

sent . Once sig ned, it will send a not ice t o t he cust omer and t he seller, and t hen

t he seller can send t he art icle wit h t he assurance t hat you will r eceive payment .

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CASE STUDY 1

A) Virtua l Banks

In t he year 2006 in Puert o Rico Bank of San Juan was mo ving in t he r ig ht

d irect io n. T hey were t he first bank o f t he island and t he pu blic lo ved t heir

ser vice but t hey had a ma jo r proble m. T he average cust omer spent 2 hours in t he

weekends and 1 ho ur in t he week making a transact io n in t he bank because o f

ho w man y per so ns came t here. Juan Manuel De Go nza lez was a 28 year o ld

emp lo yee of t he bank. He was an eng ine er who lo ve t echno lo g y. He was in t he

Eng ineer and So ft ware Depart ment . The manager o f t hat d ivis io n was Diego

Salcedo . Diego was a 63 years o ld elect r ical engineer who has be ing wit h t he

bank since t he beg in n ing. Diego had a great relat ionship wit h t he owner o f t he

bank, Lio nel Messi. He’s t he godfat her of his son. Juan Manuel have been

t elling Diego t hat he believes t hat t he bank had t o mo ve t owards a virt ual bank

becau se t hat will help t he cu st omer and at t he same t ime t hat would lead t o less

emp lo yees and mo re pro fit . Cost umers would begin do ing t ransact io ns fro m

t here ho me cr eat ing less line. Diego did not believe t hat was necessar y. He was

raised in t he “p aper and line” bank and t hough t hat t he only so ft ware t hat t he

co mpany had t o wo rk was t he so ft war e inside t he co mpany. One day Jose

Manu el d ecided t o go to Mr. Messi, and to ld him his id ea; 30 min aft er t he

reun io n Lio nel call Diego and gave him a direct order t o list en t o Manuel and

order him t o put Manu el in charge o f t he virt ual bank pro ject . Diego felt

bet rayed by Manu el and Lio nel and decided to resign. 4 years lat er The Bank o f

San Juan is t he leader in virt ual bank ing in Puert o Rico and t he Car ibbean.

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Did Jose Manuel action o f going st raight to the bank’s CEO was a correct

decisi on?

Jose Manuel decis io n was r ig ht if we t hink about t he benefit s t hat his propo sa l

bro ug ht t o t he bank. By co nvert ing part of t he operat ion t o Virt ual, t he exist ing

and fut ure relat io nship bet ween t he cust omer and t he bank was improved.

How did the Virtua l ban ks technology b enefit the organi zation?

Virt ual Banks o perat io ns improve because t he bank was able t o lower t heir

o perat io nal co st . This reduct io n not only benefit s t he cust omers wit h lo wer

int erest rat es in mo rt gages and per sonal loans, but also higher int er est rat es o n

t heir saving s acco unt s.

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CASE STUDY 2

B) Digital Wa llet

Lu is is an u nemp lo yed so ft ware engineer fro m Puert o Rico. He has beco me a

hacker due t o his financial pro blems. One day he was checking his account and

he decided to hack his bank. He was so impressed and sad of how eas y he did it .

He st art ed t o panic and t ho ug h t hat his infor mat io n was not secur e. He did no t

kno w what to do.

What shou ld Lui s do with thi s in formation? Call the ban k, not tell anyone

or publi sh what he found on his b log?

Calling t he bank fo r sure ma y affect him, because he could be leg all y

pro cessed. Not t elling an yo ne would leave t he s yst em as bad as it is r ight no w.

I f he put t he info r mat io n in his blog, any ot her hacker could see it and could act

fast er t han t he secur it y t eam o f t he bank. I would reco mmend him t o call t he

bank, and ask t o t alk t o t he secur it y depart ment and explain t o t hem h is

find ing s.

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CONCLUSIO N & RECOMMENDATIO NS

In co nclusio n, virt ual banks and digit al wallet s are here t o st ay; As v irt ual

banks provid es t he cu st o mer s wit h higher int erest rat es in deposit s and lo w

int erest rat es o n lo ans, t he d ig it al wallet s, provide t he co nvenience of havin g

t he financial info r mat io n st o red at t he t ip of t he finger when per for ming int er net

t ransact io ns. The virt ual banks, provides value by not passing t he ser vice o r

o ver head charges t o t he cu st o mer s. In general, as descr ibed in t his paper, t here

are mo re ad vant ages t han d isad vant ages making ver y at t ract ive t o cust omer s t o

sign up for t his t ype o f ser vice. Thinking global, t hese ser vices can pot ent ially

provide an easy wa y t o perfor m int er nat io nal t ransact ions, t his helping t he

cust o mers exp and int o ot her market s easily, as well as giving t he abilit y t o

pro vide serv ices aro und t he g lo be.

Regard less o f t he t echno logy it is hig h ly reco mmend ed t hat any per so n t hink ing

about gett ing invo lved wit h virt ual banks or digit al wallet s, do t heir ho mewo rk.

First , und erst and t he safet y issu es relat ed to int er net transact io ns, it is import ant

befo re get t ing invo lved wit h t hese t echno lo g ies t o invest ig at e abo ut t he bank s,

and u nd erst and what you ar e signing into. From a legal perspect ive, peo p le

need t o be awar e o f t he app licable laws at t heir locat ion, as well as t he locat io n

o f t he t ransact io n. T here are pot ent ial issues t hat manager s must t ake int o

co nsid erat ion before engaging in co mmer cial relat io nship s using t hese

t echno lo g ies.

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REFERENCES

The Fut ure o f Bank ing

By Bent o ne E Gup
Greenwood Publish ing Gro up, 2003

Leg al Aspect s o f I nt er net Banking Relat ed to Int ernat ional Business

Transact io ns
1. Auflage 2005
www.gr in. co m
Druck and Bind u ng: Bo o ks o n Demand

Management of I nfor mat io n S yst ems: Or ganizat io n and Techno logy

Lau ndo n, Kennet h C.
Prent ice Hall, I nc 1998

www.ehow.co m/abo ut _6694081_virt ual- banking_. ht ml

ht t p://en.art iclesgrat u it s.co m/o nline- bank ing-t he-pros-and-cons- id843.php

ht t p://en.wikipedia.org/wiki/direct _bank

ht t p://wr it .news. find law.co m/ramasast r y/20071231. ht ml

www. in fo .gov. hk/ hkma/eng/ bank/ e- bank in g/e- bank ing _ f. ht m

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