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Paper Regarding National Seminar On E- Banking By: Gunjan Jain Assist. Prof. In Comm.

KLSD College,LDH Home Address:Plot No.7,Vallabh nagar Shivpuri Road,Ldh. Mob.- 9464476597
Since the 80s, there has been turbulence in the banking and finance industry worldwide as the pace of changes continues to accelerate. Changes are being driven, above all by competition, technology and customer demand. The Internet both an opportunity and threat for banks - will intensify these effects. The globalisation process and the opening up of the Indian economy; have given reason for the banking sector to rethink its existing strategies. The penetration of computers and growth in Internet usage is making the customers crave for more more services, more convenience!. E-Banking is one such use; and a very important one at that. Due to the vastness of this subject, it is impossible to include every single detail.


Traditional Banking Traditionally the relationship between the bank and its customers has been on a one-to-one level via the branch network. This was put into operation with clearing and decision-making responsibilities concentrated at the individual branch level. The head office had responsibility for the overall clearing network, the size of the branch network and the training of staff in the branch network. The bank monitored the organizations performance and set the decision-making parameters, but the information

available to both branch staff and their customers was limited to one geographical location. On IT Adoption The Indian banking sector woke up to the world of technology in early 1990s. The banking sector in India has been dominated by the public sector banks, who hold between them more than 80% of the total asset base. New private sector banks and foreign banks have tended to concentrate their efforts more on the top 23 centres, which house the cream of the country's urban customers. These banks have taken the lead in technology adoption and have succeeded in building up a substantial base of technology savvy, high-end customers. However, the nationalised banks have taken to computerisation in the right earnest. Today most of them have their own in-house IT department which not only takes care of deployment and implementation issues but is also into developing specific and customised applications for the bank. From SBI to Canara Bank, everyone is expanding its IT division and making huge investments to develop the division as a profit centre by itself. Faced with deregulation, privatisation and globalisation, the Indian banks are slowly looking at various options to stay ahead in the rat race. This has resulted in the following recent trends: Phone Banking This means carrying out of banking transaction through the telephone. A customer can call up the banks help line or phone banking number to conduct transactions like transfer of funds, making payments, checking of account balance, ordering cheques, etc,. This also eliminates the customer of the need to visit the banks branch. ATM (Automatic Teller Machine) An ATM is basically a machine that can deliver cash to the customers on demand after authentication. An ATM does the basic function of a banks branch, i.e., delivering money on demand. Hence setting of newer branches is not required thereby significantly lowering infrastructure costs. These machines also hold the keys to future operational efficiency.

Electronic Banking in simple terms means, it does not involve any physical exchange of money, but its all done electronically, from one account to another, using the Internet. Internet banking is just like normal banking, with one big exception. You don't have to go to the bank for transactions. Instead, you can access your account any time and from any part of the world, and do so when you have the time, and not when the bank is open. For busy executives, students, and homemakers, e-banking is a virtual blessing. No more taking precious time off from work to get a demand draft made or a Chequebook issued.

Banks offer Internet banking in two main ways: An existing bank with physical offices can establish a Web site and offer Internet banking to its customers in addition to its traditional delivery channels.

A second alternative is to establish a virtual, branchless, or Internet-only bank. Online systems allow customers to plug into a host of banking services from a personal computer by connecting with the bank's computers over telephone wires. The convenience can be compelling. Not only is travel time reduced, but ATM machines, telephone banking or banking by mail are often unnecessary. And, technology continues to make online banking, once attempted only by computer enthusiasts, easier for the average consumer. Banks use a variety of names for online banking services, such as PC banking, home banking, electronic banking or Internet banking.

Internet banks offer a variety of features and perks, rushing to lure online customers. The race is on to increase market share and create customer loyalty with features that make online banking friendlier, more useful, and less expensive. E-Banking lures customers with convenience. The three broad facilities that e-banking offers are: Convenience - Complete your banking at your convenience, in the comfort of your home or at any place you can access the Net. No more Qs - There are no queues at an online bank. 24/7 service - Bank online 24 hours a day, 7 days a week and 52 weeks a year.

Benefits at participating online merchants

The banks partner with online merchants to offer discounts when a purchase is made with the card. (a) 24/7 customer service (b) Access to old transactions (c) Categorize transactions and produce reports (d) Export your banking data (e)Interactive guides & tools to help selection of proper product

(f) Loan status and credit card account information (g) View digital copies of checks (h) Online forms for ordering checks, stop payment.

Types of electronic money available over the net worldwide

First Virtual The account is set up by phone using a traditional credit card number and a First Virtual account number is issued. Clients provide their credit card numbers to First Virtual over the phone or other non-Internet method, and are issued a personal account number to make purchases over the Internet. DigiCash David Chaum, a mathematician and privacy expert, founded DigiCash. This provider creates e-cash, proprietary electronic cash tokens, which are marketed as being the equivalent of cash. An account is established at a DigiCash-licensed bank with real money. CyberCash This payment mechanism consists of a downloadable software package using public-key encryption that is designed to assure the security of credit card transactions over the Internet. An account is set up and acts as an Internet front end to any existing credit card that is designated. NetCash This concept is similar to e-cash, except that it does not require any special software to use. NetCash is transmitted across the Internet using an encryption scheme known as PGP (pretty good privacy). NetChex This payment mechanism is similar to CyberCash for checking accounts. Millicent The Millicent method is developed by Digital Equipment Corporation (DEC) to manage small and smallest payments. Electronic Checking Accounts Several organizations and coalitions of organizations have been trying to create ways of using existing checking accounts over the Internet. Credit Cards The credit card is usually a four-party card which involves two banks in each transaction, the cardholder's bank (the issuer of the card) and the retailers bank. Debit Cards With a debit card, the payment comes right out of your checking account. The card is

issued by the entity that holds your money on deposit, probably a bank, but possibly a money market fund. Stored Value Card Scheme or Smart Cards Smart card technology represents a real change in how and where information is processed. The smart card is a credit card-sized payment mechanism with an integrated circuit chip embedded within the card.

Consumers are embracing the many benefits of Internet banking.The following are a few advantages that e-banking gives to customers: - Consumers can use their computers and a telephone modem to dial in from home or any site where they have access to a computer. - The services are available seven days a week, 24 hours a day. - Transactions are executed and confirmed quickly, although not instantaneously. Processing time is comparable to that of an ATM transaction. -In general, the customer will find lower fees and higher interest rates for deposits due to the reduced cost of operating online and not needing numerous physical bank branches. - And the range of transactions available is fairly broad. Customers can do everything from simply checking on an account balance to applying for a mortgage. - The interface is very user-friendly and often intuitive. Additionally, business customers will most likely use the Internet for more than cash management, and they will be accustomed to a similar "look and feel" among all applications that they use.

The most obvious disadvantage is: Technophobes need not apply i.e. if you are still not comfortable using a computer, e-banking is not for you. The other disadvantages are: - Investment of time upfront can be formidable. The data entry is necessary before the numbers can be massaged and money managed successfully. -Switching software or banks can mean re-entry of data, although Internet-based systems are less impacted by this. - Like anything that deals with the transfer of large amounts of money, security is a major factor of Online Banking. - With a system as complex as Online Banking, some errors are inevitable. i.e.: An interrupted online session; late arrival of payments etc. A mistake made by either the user or the bank in question, can affect both, causing problems. - When dealing with computers, there is always the concern of the system crashing,

viruses entering the system or a power cut. - Need an account with an Internet Service Provider (ISP)


The bank has an opportunity to generate revenue, decrease operational and transactional costs, increase productivity, and attract new customers. 1. Ability to increase Revenue Online banking provides an excellent promotional opportunity to generate revenue by helping the bank to cross-sell products such as credit cards, loans, certificate of deposits, and other financial services. 2. Save Money In addition to making money, the bank can save money with an Internet banking system. Online banking can actually decrease operating costs by reducing the daily reproduction and distribution of paper-drawn transactions and delivering and processing statements for accounts, credit cards, and bills. 3. Improves Productivity Internet banking improves productivity as well. Bank representatives are able to process data more quickly and efficiently; track account activity with automated reports, help customers achieve daily tasks via the Internet, and reduce time spent handling service problems. 4. Marketing & Competitive Tool Internet banking also offers the bank an exceptional marketing and competitive tool. The people want to have the convenience of online banking for home or business use. This is an excellent opportunity for the community bank to keep their hometown customers from looking to national institutions for an online product.


Specific aspects of the Indian banking scenario which are pertinent to note are: The low ATM penetration A regulatory framework which is not conducive to net only banks The relative lack of inter branch networking and e-readiness of major public sector banks, which control a bulk of the deposit and branch network base The relative nascence of the Internet itself The entry of many new players The recent IT Act which accepts the legal validity of digital signatures Plans of Indian public sector banks to provide e banking services by 2002

The rapid growth of the Internet


The challenges that Indian banks are facing are: How to manage multiple distribution channels? Internet banking is bound to become the most important channel in next few years. Even the traditional banking would move towards Internet technology with open standards and low cost. How to address the issue of internationalization i.e. how to take in and make e-banking an integral part of one's attitudes or beliefs? The real challenge for Internet banking is to penetrate the customer base of banks. How to address the emergence of value-focused specialist competitors that are competing for specific value components currently dominated by banks and now are increasingly gaining access to the banks customers? The real trouble is that Internet Bank doesnt really need to be a bank. It can even be a group of innovative persons with no bank branch at all, just working through alliances and leading the field because of their superior capabilities through focus and innovation advantage. How to focus innovation potential onto designing new products and services facilitated by Internet delivery?

In concluding one may state that Indian banking in the new millennium is likely to be driven by mergers, universal banking and Internet technology. While mergers will confer economies of scale, universal banking will dismantle the barriers between the traditional dichotomies of financial services. While one realizes the fact that the Internet is likely to convert banking into a commodity one has to take into account that thirty years of solitude has steeped Indian Banks into a morass of inefficiency, slothfulness and complacency. If Indian banks refuse to visualize this trend they may well be consigned to history. However, if they react proactively Indian Banks stand to gain a lot from the opportunities that E-banking offers.