E-banking

Module 9
 Introduction
• Electronic banking can be traced back to the 1970s
when the computerisation of financial and banking
institutions gained momentum.
• However, visible presence of electronic banking was
evident only since 1981 with the introduction of the
Automated Teller Machines (ATMs). Since then,
electronic banking has grown remarkably.
• The emergence of Automated Voice response
technology in the early decade of the 1990
contributed to further development in e-banking.
 Meaning of E- banking
• E- banking or electronic banking means conduct of
banking operations through electronic means or
devices, such as computers, telephones, mobile
phones, ATMs, etc. In other word, e-banking means
provisions of banking products and services by banks
directly to customers through electronic delivery
channels.
• In short e-baking means the conduct of banking
operations by bankers through electronic tools or
devices.
Characteristic feature of e-banking
• E-banking is essentially performance of banking
operations through electronic means or tools.
• E- banking is provision of banking products and
services by banks through the extensive use of
information technology without direct recourse to
the bank by customers.
• Provision of round the clock access to banking
facilities is an essential feature of e-banking.
• E-banking is conduct of banking operations globally.
 Difference between traditional banking and
e-banking
• In traditional banking, a customer has to visit the branch of his bank
in person to perform the basic banking operations, such as accounts
enquiry, funds transfer, cash withdrawal, etc… But e-banking
enables a customer to perform the basic banking transactions, viz.,
account enquiry, funds transfer, cash withdrawals, etc., by sitting at
office or at home through personal computer.
• Conventional or traditional banking is an art. But e-banking is more
of a science, as it is knowledge-based and mostly scientific in using
the electronic devices of the computer revolution.
• Traditional banking is conducted only during specified time,
generally, between 10 am and 12 pm. But e-banking is available
round the clock.
 Cont…
• In the case of traditional banking, a bank building is
essential for doing the banking transaction. That
means, traditional banking is confines to a branch of
a bank. But no building is required for e-banking.
Banking business can be conducted through
websites.
• Banks are able to deliver their products and services
through e-banking more cheaply than through
traditional banking.
 Benefits of e-banking
• An important benefit of e-banking to banks is better brand image.
• E-banking ensures large number of satisfied customers for a bank,
and thereby, contributes to higher rate of retention of existing
customers for a bank.
• There is more scope for offering differential services under e-
banking.
• E-banking also helps in attracting new customers for a bank
because of the availability of innovative banking facilities.
• E-banking contributes to profitable banking for banks through
reduced cost of operations, increased number of satisfied
customers, etc.
 Cont…
• Risks of banks can be better monitored and
controlled by e-banking by establishing centralised
database.
• E-banking also helps in attracting new customers for
a bank because of the availability of innovative
banking facilities.
 Security measures for e-banking
For venturing into e-banking, the following of major
security measures or controls must be ensured.
• Accuracy controls to ensure the correctness of the data
flowing across the network.
• Authority controls to verify identity to individual letter,
password, PIN, etc.
• Completeness controls to make sure that n data is
missing.
• Privacy controls to protect the data from inadvertent
or unauthorized access.
 Cont…
• Encryption controls to enable only those which
possess secret key to decrypt the cyber text.
• Efficiency controls to ensure that the system uses
minimum resources to achieve the desired goal.
• Audit trail controls to ensure keeping chronological
note of events that have occurred in the system.
• Existence controls to make sure that on going
availability of all the system resources is the same
throughout.
Obligation of banks and the online banking

• Banks has to maintain secrecy of customers

account
• Banks are also under obligation to produce
documents to the court whenever called for
• Obligation to verify forgery of signatures
• The other obligation on the banker is to
provide proper service to the customer –
Vimal Chandra Grover v. Bank of India(2000)
 Forms of e-banking
There are different forms of e-banking. Some of the
important forms of e-banking are:
• Internet banking
• Mobile banking
• Telephone banking
• Home banking
In India, ICICI bank is the leader in the introduction of
internet banking.
 Internet banking
• Internet banking refers to provisions of banking
services by a bank to its customers through its
website.
• Currently, the internet, ie., the websites, are used by
the Indian banks to disseminate the information to
users and generate awareness about their products
and services.
• A number of Indian banks have tried to create some
level of interactivity at their websites with features
like e-mail and account opening forms.
 Advantages of Internet banking
• Internet banking enables the customers to have every
banking activity which a customer could do over a
bank counter with comforts from his office or home.
• Internet banking acts as an economic means of
advertising their products and services.
• Internet banking helps the banks to raise huge
deposits from the NRI’s.
• Internet banking is quite beneficial to a bank with less
number of branches, since customer retention is
higher in internet banking.
 Limitations
• The security of internet banking is one of the key
issues or problems. This issue is required to be solved
successfully.
• The initial cost of installation of web sites and
provisions of internet banking is quite high.
 Mobile banking
• Mobile banking refers to conduct of banking
operations on mobile. In other words, mobile
banking means banking operations that are done
through mobile phone while a person is on the move.
• The development of mobile banking may be
attributed to increasing demand from the mobile
work force.
Essential requirements of Mobile banking

To register and use the mobile banking services, it is

necessary that the following requirements are met.
• Services is available only to an existing customer of
the bank availing internet banking services.
• Registration is essential for internet banking and
mobile banking services.
• Mobile banking is available for the individual
customers.
 Telephone banking
• Telephone banking refers to the delivery of banking and
financial services to the customer of a bank through the
medium of telephone.
• In other words, telephone banking is a form of e-banking
under which a customer can obtain the necessary
information on dialing a telephone number specified in
advance.
• Telephone banking is a secure, fast and convenient way to
obtain a range of banking services, such as information on
account, conduct of selected transactions, reporting of loss
of ATM cards, etc., without visiting the bank.
 Home banking
• With less and less time available at their disposal, today, more
and more bank customers conduct their operations with their
banks by using personal computers at home or in offices.
• Use of personal computers at home for conducting their
banking operations with their banks is called home banking.
• Home banking has features like simplicity of use, comfort,
high level of security, wide communication possibilities,
openness of the system, etc.
• Home banking offers intra-bank and inter-bank transfer of
funds.
 Credit card
• A credit card is an instrument which provides
instantaneous credit facilities to its holder to purchase
goods or services from business establishments enrolled
as members of the credit card system.
• A credit card is popularly known as plastic money, it is
usually made of plastic.
• There are three parties to a credit card:
1. The issuing banker
2. The card holder and
3. The member business establishment
 Features of Credit cards
• Credit card is technology dependent. That is, use of
technology is quite essential for the success of credit
card.
• A credit card is a payment device to access a
customer’s financial resources.
• Credit card can be used for the purchase of goods and
services and for getting credit facilities.
• A credit card sets up a credit limit for the card holder,
and a floor limit for the merchant establishment to
ensure safety of funds.
 Advantages
The major benefit of a credit card is that the individual
using it does not require ready cash to make payments
for various purchases. Several other important benefits
are listed out in details below.
• No immediate cash is required for several expenses when a
person has a credit card. This will ensure that the person does
not have to carry the money with him/her at the time of
making the expense.
• Free credit is the advantage that sets credit cards apart from
other types of borrowings. Most of the borrowings by an
individual whether short term or long term come with a cost
in the form of interest.
 Cont…
• World wide usage- The best thing about a credit card is that there
is no restriction about the time and place of its use. A credit card
can be used in any city; more importantly, when traveling abroad it
frees a person from having to keep foreign currency with them.
This is a major relief because carrying foreign currency around in a
foreign land becomes a bit difficult task for any traveller.
• Tracking expense- the limit on a credit card is fixed. This means
that a person knows the maximum amount that can be spent on
his/her credit card. If cardholders take due care this also becomes a
way in which they are able to track the expense that they make,
and this can limit the amount spent by them using their credit
cards.
 Cont…
• A credit card is essential for e-buying. It means if you
want to buy something over the Internet you need a
credit card as most e-commerce sites allow payments
only through credit cards.
 Disadvantages
There are various features of a credit card that seem to be a gift for the person
using the card. But a little bit of carelessness can change the entire position
and the same factor can end up being a curse for the credit card user. The
cost for this has to be paid in the form of higher interest and charges that
make it a costly way to use funds if due care is not taken.

• Interest Cost- The interest that a person pays while using a credit card is the
highest among all the options available in the market. Specific loans come at
reasonable rates, for example, a car loan can be taken at an interest rate of
14%-15% per annum. Similarly, a personal loan where there is no restriction
on the end usage is available at the rate of 18%-19% per annum but when it
comes to a credit card the amount paid by a user is anything between 35%-
42% depending upon the exact rate charged.
 Cont..
• Charges- The payments made by a credit card user do not end with interest
charges because there are a lot of other payments that might be required
to be paid on the credit card. This is mainly in the form of penalties and
charges. For example, inability to pay the required amount of the credit
card in time can lead to a late payment charge that can be anything
between Rs 300-Rs 500.

• Credit trap- Things are great as far as the usage of the credit card is
concerned when things are under control. In such a position, there can be
no charge and no interest payment but the moment one falls into the
revolving cycle there are a whole lot of factors that impact the person at
the same time. For example, the moment one full payment is missed every
single expense is covered by the interest rate and no credit period is
available.
 Cont…
• Multiple credit cards- The other disadvantage is that people
accumulate more and more credit cards as these are issued very easily
by banks. This makes the problem of managing multiple credit cards a
very difficult task. Remembering the payment dates and amounts for
each one along with the other requirements often become a tough
task leading to missing out on some occasions. This can result in a large
amount of charges coming in which is an additional cost.

• Overspending - A credit card is the worst enemy of impulsive buyers. A

credit card user is always liable to develop a tendency of overspending.
For example, if your salary is Rs 50,000 and the credit limit on your
card is Rs 1,00,000, it doesn’t mean that you can afford to spend Rs
1,50,000
 EFT- Electronic Funds Transfer
• EFT is a system by which cheques, pay-in-slips and
other financial papers are replaced by computer
controlled invisible and immediate transfer of funds
from one account to another.
• The main object of EFT is to help banks to offer to
their customers money transfer service from one
account of a bank branch to another account of a
bank branch both inter-city and intra-city and also
from one account of a bank to an account of another
bank either in the same city or in different cities.
 Features
• This scheme offers facility for transfer of funds within
24 hrs inter-bank, inter-city across 15 major cities.
• At present, the money transfer under this scheme is
only among public sector banks.
• Remitter and receiver of funds can be from different
banks.
• Some service charge is levied for the transfer of
funds. The service charge is Rs. 25 per transaction.