E-Banking

Sanjeev Kumar ChaswalAdvocate and IPR AttorneyLL.M (IPR,ARB&ADR)M.S (Cyber Law and Cyber Security)

Definitions* e-banking can be defined as:the automated delivery of new and traditional banking products and services directly to customers through electronic, interactive communication channels. A system of banking in which customers can view their account details, pay bills, and transfer money by means of the internet.

The remote delivery of new and traditional banking products and services through electronic delivery channels.

What is E-banking or Net banking

E-Banking is the use of electronic channels to communicate and transact business with both domestic and international customers through internet.Internet banking (or E-banking) means any user with a personal computer and a browser can get connected to his bank -s website to perform any of the virtual banking functions.E banking is providing the same banking services such as payment, inquiry, information processing but with internet. It can be offered in two ways. First an existing bank with physical offices can also establish an online website and offer e banking services. Secondly, e-banks can only exist only on Internet, thus allowing users to work withVirtual Bank.

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E-banking vis-A-vis Traditional bankingSpeedAccessibilityElectronic documentationTime savingSatisfaction to the customerComplimentary to traditional bankingGeographical boundaries surpassedScince rather than art

Why E banking?

Differentiation of products from the others.

A combination of regulatory and competitive reasons.

Stress on branchless banking.

Increasing volumes of banking transactions.

Providing customers with cost effective services*

E Banking Delivery It can help inIncreasing customer satisfaction and retention

Shifting of costs

Increasing the brand value

Providing real time access (i.e. convenience)

Delivering Services and products to customers through supporting technology

Technology Commencement in Banking In 70s, banks started to establish centralized data processing centers.Essentially the roles of these data processing centers are:collect the handwritten documents from branches compile the documentsmanual data entry by the operatorsgenerate reports for the bank staff and the central bankexecute some banking transactions

E Banking in India

Opening up of economy in 1991 marked the entry of foreign banks. They brought new technology with them. Banking products became more and more competitive. Need for differentiation of products and services was felt.

ICICI was the first bank to initiate the Internet banking revolution in India as early as 1997 under the brand name 'Infinity'. 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 online charges, increased PC penetration and a tech-friendly atmosphere.

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Banks Branch AutomationsIndias banks have started automation of their bank branches in 90s, by started putting heavy technology investments for the 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 in the central mainframe.

Product Based BankingIn the late-1990s, banks accepted product based banking and competed with their products.Banks developed new products for their customers.Credit cardCredit deposit account (Super Account)Debit cardsBeside branch, banks brought new channels to give better service to their customers.ATMPOS (Point of sale)IVR

RBI & E-BankingThe Reserve Bank of India constituted a working group on Internet Banking. The group divided the internet banking products in India into 3 types based on the levels of access granted. They are:- i) Information Only System:ii) Electronic Information Transfer System: iii) Fully Electronic Transactional System:

RBI & E-Banking

Guidelines for E banking

The Internet Banking policy has been approved by the Reserve Banks Board.The policy fits into the bank's overall Information Technology and Information Security policy and ensures confidentiality of records and security systems.The policy takes into account operational risk.The policy clearly lays down the procedure to be followed in respect of "Know Your Customer" requirements, and The policy broadly meets the parameters laid down in the earlier circular.*

General Types of e-banking(RBI)

Information Website: It gives general information about like interest rates, branch location, bank products and their features, loan and deposit calculations are provided in the banks website. There exist facilities for downloading various types of application forms. The communication is normally done through e-mail. There is no interaction between the customer and bank's application system. No identification of the customer is done. In this system, there is no possibility of any unauthorized person getting into production systems of the bank through internet.Electronic Information Transfer System: The system provides customer- specific information in the form of account balances, transaction details, and statement of accounts*

The system provides customer- specific information in the form of account balances, transaction details, and statement of accounts. The information is still largely of the 'read only' format. Identification and authentication of the customer is through password. The information is fetched from the bank's application system either in batch mode or off-line. The application systems cannot directly access through the internetFully Electronic Transactional System This system allows bi-directional capabilities. Transactions can be submitted by the customer for online update. This system requires high degree of security and control. In this environment, web server and application systems are linked over secure infrastructure. It comprises technology covering computerization, networking and security, inter-bank payment gateway and legal infrastructure

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RBI Role in E BankingElectronic Clearing Service (ECS)

Electronic Funds Transfer (EFT)

Real Time Gross Settlement (RTGS)

National Electronic Fund Transfer (NEFT)s

Cheque Truncation System (CTS)

Types E BankingPC BankingInternet BankingSMS BankingVirtual bankingDigital TV BankingAutomated teller machineTele bankingPlastic cardsE-cheque

E-Banking Configuration

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How ATMs work?Bank computerHost computerATM

Tele bankingCustomerBankEnquiryRequest facility

Loans

Cheque Status

Fixed Deposit details

How mobile banking work?BANK DATABASE

E BANK SERVICES

Bill payment service

Credit card customers

Railway pass

Recharging your prepaid phone Shopping at your fingertips

E Banking products and services

Offered in a two tier structureA basic tier of Internet banking products includes customer account inquiry, funds transfer and electronic bill payment.A second or premium tier includes basic services plus one or more additional services like brokerage, cash management, credit applications, credit and debit cards, customer correspondence, demat holdings, financial advice, foreign exchange trading, insurance, online trading, opening accounts, requests and intimations, tax services, e-shopping, standing instructions, investments, asset management services etc.*

E-BANKING SUPPORT SERVICES

Web linking

Account Aggregation

Electronic Authentication

Website Hosting

Payments for e-commerce

Wireless banking activities

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Plastic cards

BENEFITS OF E-BANKINGAny time bankingAny where bankingCash free bankingReduction in Cost of transactionEasy to make utility paymentsOn-line purchasesCompetitive advantageUnlimited networkLesser work loadLesser chances of fraud & misappropriationBetter profitabilityBetter customer relationship

Advantages to banks

Very low setup cost.Capability to cater to a very large customer base.Saves a lot of operational costs. Adds to thebaseline.Banks san offer a lot of personalized services to their customers.Reduction of burden on branch banking.*

E Banking DrawbacksDifficult in the adoption of technology

Fear of technology

High cost of technology

Lack of preparedness

Restrictions on usage of technology

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AdvantagesDisadvantagesCheck account balances and track recent account activityNeed an account with an Internet Service Provider (ISP)Transfer money between accountsSecurity concerns, like hackersaccessing your bank accountsAuthorize electronic bill paymentsOriginal setup for bill paying time is time-consuming but will ultimately be a time-saverIssue stop payment requestsSwitching banks can be morecumbersome online than in personApply for auto, mortgage, home equity, student, or personal loansMust have basic computer skills and Internet knowledgeReceive investment product andservice informationMust be comfortable using acomputer

E-BANKING RISKS

*Transactional/Operational Risks

Credit Risk

Liquidity/Interest Rate Risk

Reputation Risk

Compliance/ Legal Risk

Strategic Risk

Transactional/Operational RisksIt arises because of inaccurate processing of transactions, non-enforceability of contracts, compromises in data accuracy, data privacy and confidentiality or unauthorized access to banks system and transaction etc. It arises during day to day activity of banking transaction.Credit RiskIt is the risk that counter party will not settle an obligation i.e. pay their debt for full value, either when due or any time thereafter.Liquidity/Interest Rate RiskIt arises out of a banks inability to meet the required obligation when they become due without incurring unacceptable losses, even though the bank may ultimately be able to meet its obligations.

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Reputation RiskIt is the risk of getting significant negative public opinion, which may result in a critical loss of lending or customer.Compliance/ Legal RiskIt arises from violation of or non conformation with laws, rules, regulations or prescribed practices or when the legal rights and obligations of parties to a transaction are not well established.Strategic RiskIt is the risk associated with the financial institutions future business plans and strategies

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SAFE GUARDS FOR E BANKINGEnsuring security while banking online, is to keep your password and pin number a secret. The security of your personal computer is very important for safe internet banking. Therefore, always install antivirus software and software to remove spyware. Checking your bank statements regularly will help you detect any transaction that has taken place without your knowledge or consent. While banking through the internet, make sure that the banking session is secure. In addition, always remember to completely log off, after completing the banking session.Nowadays, the banking institutions have come up with a number of safety measures for ensuring secure internet banking.

Security Features E Banking Include:Security token devices. Protection through single password authentication, as its the case in most secure internet shopping sites, it is not considered secure enough for personal online banking applications in some countries. Specifically, here are two different methods for internet banking:The PIN / TAN system where the PIN represents a password, used for the login and TANs representing one-time passwords to authenticate transactions.These token generated TANs depend on the time and a unique secret, stored in the security token. Usually, internet banking with PIN/TAN is done via a web browser using SSL secured connections, so that there is no additional encryption needed*

Signature based internet banking where all transactions are signed and encrypted digitally. The Keys for the signature generation and encryption can be stored on smartcards or any memory medium, depending on the concrete implementation*

Attacks.Most of attacks in internet banking are based on deceiving the user to steal login data. There are well known examples for those attacks are phishing and pharming.Increasing number of fraudulent bank websites, Fake emails purporting to be sent from banks, Use of Trojan Horse programs to capture user IDs and passwords.A suspicious bank website: wwwsbonline.com, Original bank web site: www. onlinesbi.com, These website are believed to aim to trick persons into disclosing their sensitive personal information.When we open some suspicious websites or emails contains Viruses. Trojan Horse Program will install in our computer secretly. Viruses hidden in our computer sends data when you access. Fraudulent bank links of bank websites operated by hacker Capture our account and the password.

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Email send from Fraudulent banks.Ask for Verification of the personal information.Guiding the customer enter the fraud link.Customer gets in to Fraud link and Discloses their ATM card numbers, their details and passwords.*

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CountermeasuresThere exist few countermeasures which try to avoid attacks. For instance, digital certificates are used against phishing and pharming, the use of class 3 card readers is also a measure to avoid manipulation of transactions by the software in signature based internet banking variants. To secure their systems against viruses, trojan horses and worms, customers must use virus scanners and be careful with downloaded software or e-mail attachments.*

CHALLENGES IN E BANKINGE-banking is a generic term for delivery of banking services and productsE-banking has improved efficiency and convenienceThe government of India enacted the IT act, 2000It issued guidelines on risks and control in computer and telecommunication system .there are four main technology issues that need to be resolved. These issues are:SecurityAnonymityAuthenticationDivisibility

SecuritySecurity of the transactions is a main concern for banks while the lack of security may result in serious actual loss. Examples of potential hazards of internet banking include online transactions, minting electronic currency, etc.AnonymityThe privacy issue is a subset of the security issues banks face. By strengthening the secrecy of the sender's personal information and enhance the security of the transactions. Examples of private information relating to the internet banking industry include the amount of transactions, the date and time of a transaction as well as the name of the merchant where the transaction is taking place.*

AuthenticationEncryption may help make the transactions more secure but there is also a need to guarantee that no one can change data at either end of the transaction. In doing so, there are two possible ways that someone can verify the integrity of the message.DivisibilityElectronic funds may be divisible into different units of currency similar to real money value. Internet banking, at least to some degree, has become the norm for many simple bank transactions. And thats not a bad thing - the easier and more secure it is for consumers to check their accounts, pay their bills and transfer money from one account to another, the more likely they are to actually do these things and maintain a more organized financial life.

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*It questionable whether e-banking can actually increase customer satisfaction and retention as current data shows that that has not substantially increased customer baseShift cost is probably on the areas in which it has the greatest impact as it can reduce incremental service cost by 25% to 50%