ONLINE BANKING – Challenges and Opportunities

BACHELOR OF COMMERCEBANKING & INSURANCE

SEMESTER V (2011 – 12)

Submitted by:RONEY JOHN RODRIGUES

ROLL NUMBER – 36

Under the guidance of MRS. SHAILASHRI PRASADKUMAR

SIES COLLEGE OF COMMERCE AND ECONOMICS,Plot No. 71/72, Sion Matunga Estate

T.V. Chidambaran Marg,Sion (East), Mumbai – 400022

ONLINE BANKING – Challenges and Opportunities

BACHELOR OF COMMERCEBANKING & INSURANCE

SEMESTER V (2011 – 12)

SUBMITTEDIn partial fulfillment of the requirement for the award of Degree

of Bachelor of Commerce – Banking and Insurance

Under the guidance of MRS. SHAILASHRI PRASADKUMAR

SIES COLLEGE OF COMMERCE AND ECONOMICS,Plot No. 71/72, Sion Matunga Estate

T.V. Chidambaran Marg,Sion (East), Mumbai – 400022

SIES COLLEGE OF COMMERCE AND ECONOMICS,Plot No. 71/72, Sion Matunga Estate

T.V. Chidambaran Marg,Sion (East), Mumbai – 400022

CERTIFICATE

This is to certify that Mr. / Mrs.

Of B. Com – Banking and Insurance, Semester V (2011-12) has successfully

completed a project on

Under the guidance of Mrs.

Course Coordinator Principal

Project Guide/ Internal Examiner

External Examiner

DATE:

PLACE:

DECLARATION

I , student of B. Com – Banking and

Insurance, Semester V (2011-12), hereby declare that I have completed the project

on

The information submitted through this project is true and original to the

best of my knowledge.

DATE:

PLACE:

SIGNATURE

Roney RodriguesRoll number – 36

ACKNOWLEDGEMENT

All these years we have jus studying and passing. But this time we have got

an opportunity to make such a project study. So it is very obvious for me to thank

all those people associated with the making of the project.

I owe a great many thanks to my project guide Mrs. Shailashri Prasadkumar

who has been a constant support and guidance throughout the making of my

project and for monitoring my project with attention and care. She has taken the

pains to go through the project and make necessary corrections as needed.

I would also like to thank our course coordinator Mrs. Aarthi Kalyanaraman

for being a moral support to us during this project.

I express thanks to my college Principal Dr. Minu Thomas for extending her

support.

And last but not the least I would take the opportunity to thank my parents

without whom the project would have been a distant reality. Sincere thanks to all

my fellow mates and well wishers.

SUMMARY

Technological developments have been growing at an alarming speed in the

international arena. Internet is proudly one of the best in those. So, the banking

sector is also making the best utilization of it. In this study based on ONLINE

BANKING, it has been observed that the development of online banking has

increased by leaps and bounds during the past few years. Concentrating on the

Indian economy, the use of online banking is still in the developing stage.

Today in India the scope of online banking is growing by a good decent rise

in its usage. The rise in the usage of the Internet is the main criteria for

development of online banking.

This project helps us understand the how the online banking came into

existence and its need in the modern world. It shows us the insights of the online

banking in India. It helps us understand the opportunities and the challenges

associated with the online banking in India.

INDEX

SR.NO

TOPIC PAGE NO

I

1.

CHAPTER I – INTRODUCTION

Development of Online Banking through Evolution of Information Technology & E-Commerce

1 - 42

1 – 6

2. What is online banking? Features Advantages Disadvantages

6 – 14

3. How does online banking work and its structure. 15 – 16 4. Opportunities in Online Banking:

Is there a future in online banking? Changes in trend Why banks encourage online banking?

17 – 23

5. Challenges in Online Banking: Main concerns Related Problems Adherences to guidelines

23 – 36

6. Solutions 36 – 407. Case Studies 40 – 428. ICICI Bank 42

II

1.

CHAPTER II – RESEARCH METHODOLOGY

Objectives of the study

43

2. Limits of the study3. Methodology used

III CHAPTER III – DATA ANALYSIS 44 – 47

IV CHAPTER IV – RECOMMENDATION & CONCLUSION

48 – 49

V CHAPTER V – BIBLIOGRAPHY 50 – 51

CHAPTER I – INTRODUCTION

Online banking is a process that has evolved because of the development of

technology over the years. So before going into detail on the online we should have

a overview of it birth.

INFORMATION TECHNOLOGY

Information technology (IT) is the acquisition, processing, storage and

dissemination of vocal, pictorial, textual and numerical information by

a microelectronics - based combination of computing and telecommunications. IT

(information technology) is a term that encompasses all forms of technology used

to create, store, exchange, and use information in its various forms (business data,

voice conversations, still images, motion pictures, multimedia presentations, and

other forms, including those not yet conceived). It's a convenient term for

including both telephony and computer technology in the same word. It is the

technology that is driving what has often been called "the information revolution."

IT is the area of managing technology and spans wide variety of areas that include

but are not limited to things such as processes, computer software, information

systems, computer hardware, programming languages, and data constructs. In

short, anything that renders data, information or perceived knowledge in any visual

format whatsoever, via any multimedia distribution mechanism, is considered part

of the domain space known as Information Technology (IT). IT provides

businesses with four sets of core services to help execute the business strategy.

These four core services are broken into business process automation, providing

information, connecting with customers, and productivity tools.

IT professionals perform a variety of functions (IT Disciplines/Competencies) that

ranges from installing applications to designing complex computer networks and

1

information databases. A few of the duties that IT professionals perform may

include data management, networking, engineering computer hardware, database

and software design, as well as management and administration of entire systems.

Information technology is starting to spread further than the conventional personal

computer and network technologies, and more into integrations of other

technologies such as the use of cell phones, televisions, automobiles, and more,

which is increasing the demand for such jobs.

TECHNOLOGY in Banking

Many of the largest and most successful banks in the world emerged from the

technical changes that they are able to recognize at an early stage. India’s banking

sector has a long way to go before it can compete globally. Situation is especially

maintained in the late introduction of ICT in India banks. Our information

technology is designed to compete with information technology in the world, and

when we are in the area very quickly, it can be difficult for us to benefit from

liberalization.

Bank, with the right technology to provide timely information to increase

productivity and thus see a competitive advantage. Compete in the economy,

which has been opened, it is certainly the Indian banks to comply with the latest

technology and adapt to its surroundings. Except that the banks need much

improved use of technology to customer-friendly, efficient and competitive in the

current authorities and businesses, they also need the technology to newer products

and newer forms of service and the increasingly dynamic global environment to

offer. Information technology allows banks to build new systems, which bite the

needs of many customers that cannot be considered today.

2

On-line banking, for example, promises customers to conduct banking transactions

in a direct access to the core of the bank customer account works. Customers to

verify all information, all so far, all the checks, all credit card information.

In the future, the banks freed from the constraints of a delivery channel. They can

create, package, market and product niches, and because the tumbling price of the

technology, they can do so cost-effectively.

Technology gives banks the opportunity to be closer to customers, to a broader

range of services at lower costs, streamline the March belang systems so that all

information in one place where it can be used for the trends that can quickly lead

into new products. Electronic banking data can be gathered and analyzed.

Interactivity allows the consumer to save the settings, directing the development of

truly new products.

The development of I.T has helped the boom of E – Commerce. So it is also

important to know the concept of E – Commerce.

E-COMMERCE

Electronic commerce, commonly known as e-commerce, eCommerce or e-

commerce, refers to the buying and selling of products or services over electronic

systems such as the Internet and other computer networks. However, the term may

refer to more than just buying and selling products online. It also includes the

entire online process of developing, marketing, selling, delivering, servicing and

paying for products and services. The amount of trade conducted electronically has

grown extraordinarily with widespread Internet usage. The use of commerce is

conducted in this way, spurring and drawing on innovations in electronic funds

transfer, supply chain management, Internet marketing, online transaction

processing, electronic data interchange (EDI), inventory management systems, and

3

automated data collection systems. Modern electronic commerce typically uses

the World Wide Web at least at one point in the transaction's life-cycle, although it

may encompass a wider range of technologies such as e-mail, mobile devices and

telephones as well.

A large percentage of electronic commerce is conducted entirely in electronic form

for virtual items such as access to premium content on a website, but mostly

electronic commerce involves the transportation of physical items in some way.

Online retailers are sometimes known as e-tailers and online retail is sometimes

known as e-tail. Almost all big retailers are now electronically present on

the World Wide Web.

Electronic commerce that takes place between businesses is referred to as business-

to-business or B2B. B2B can be open to all interested parties (e.g. commodity

exchange) or limited to specific, pre-qualified participants (private electronic

market). Electronic commerce that takes place between businesses and consumers,

on the other hand, is referred to as business-to-consumer or B2C. This is the type

of electronic commerce conducted by companies such as Amazon.com. Online

shopping is a form of electronic commerce where the buyer is directly online to the

seller's computer usually via the internet. There is no intermediary service

involved. The sale or purchase transaction is completed electronically and

interactively in real-time such as in Amazon.com for new books. However in some

cases, an intermediary may be present in a sale or purchase transaction such as the

transactions on eBay.com.

Electronic commerce is generally considered to be the sales aspect of e-business. It

also consists of the exchange of data to facilitate the financing and payment aspects

of business transactions.

4

Business applications of ecommerce

Some common applications related to electronic commerce are the following:

Email Enterprise content management Instant messaging Newsgroups Online shopping and order tracking Online banking Online office suites Domestic and international payment systems Shopping cart software Teleconferencing Electronic tickets

E-COMMERCE APPLICATION IN BANKING INDUSTRY

New information technologies and emerging business forces have triggered a

new wave of financial innovation – electronic banking (e-banking). The banking

and financial industry is transforming itself in unpredictable ways (Crane and

Bodie 1996), powered in an important way by advances in information technology

(Holland and Westwood 2001). Since the 1980s, commercial banking has

continuously innovated through technology-enhanced products and services, such

as multi-function ATM, tele-banking, electronic transfers and electronic cash

cards. Over the past decade, the Internet has clearly played a critical role in

providing online services and giving rise to a completely new channel. In the

internet age, the extension of commercial banking to the cyberspace is an

inevitable development (Liao and Cheung 2003).

E-banking creates unprecedented opportunities for the banks in the ways they

organize financial product development, delivery and marketing via the internet.

5

While it offers new opportunities to banks, it also poses many challenges such as

the innovation of IT applications, the blurring of market boundaries, the breaching

of industrial barriers, the entrance of new competitors and the emergence of new

business models (Saatcioglu et al. 2001, Liao and Cheung 2003). Now the speed

and scale of the challenge are rapidly increasing with the pervasiveness of the

internet and the extension of information economy (Holland and Westwood 2001).

Globally, e-commerce growth has been led by the popularity of online shopping

portals like amazon.com and ebay.com but in India that has not been the case. It is

mainly driven by the online travel industry and banking sector. For instance, 29%

of Indian Internet users book airline tickets online and the figure is expected to

touch 46% next year. Online rail ticket booking stands at 39% of the total

bookings. As far as banking is concerned, there are 4.6 million online banking

users in India. This figure is expected to go up to over 16 million by 2007-08 that

will include both internet and mobile banking users. According to the Internet and

Mobile Association of India (IAMAI), the e-commerce industry in India is

expected to grow to a size of Rs. 2,300 crore by 2007 against the Rs.1,200 crore.

The total number of internet users which right now is 38.5 million is expected to

reach 100 million by 2008.

WHAT IS ONLINE BANKING?

If you're like most people, you've heard a lot about online banking but probably

haven't tried it yourself. You still pay your bills by mail and deposit checks at your

bank branch, much the way your parents did. You might shop online for a loan, life

insurance or a home mortgage, but when it comes time to commit, you feel more

comfortable working with your banker or an agent you know and trust.

6

Online banking isn't out to change your money habits. Instead, it uses today's

computer technology to give you the option of bypassing the time-consuming,

paper-based aspects of traditional banking in order to manage your finances more

quickly and efficiently.

Origin of online banking

The advent of the Internet and the popularity of personal computers presented both

an opportunity and a challenge for the banking industry.

For years, financial institutions have used powerful computer networks to automate

millions of daily transactions; today, often the only paper record is the customer's

receipt at the point of sale. Now that its customers are connected to the Internet via

personal computers, banks envision similar economic advantages by adapting

those same internal electronic processes to home use.

Banks view online banking as a powerful "value added" tool to attract and retain

new customers while helping to eliminate costly paper handling and teller

interactions in an increasingly competitive banking environment.

Brick-to-click banks

Today, most large national banks, many regional banks and even smaller banks

and credit unions offer some form of online banking, variously known as PC

banking, home banking, electronic banking or Internet banking. Those that do are

sometimes referred to as "brick-to-click" banks, both to distinguish them from

brick-and-mortar banks that have yet to offer online banking, as well as from

online or "virtual" banks that have no physical branches or tellers whatsoever.

The challenge for the banking industry has been to design this new service channel

in such a way that its customers will readily learn to use and trust it. After all,

7

banks have spent generations earning our trust; they aren't about to risk that on a

Web site that is frustrating, confusing or less than secure.

Most of the large banks now offer fully secure, fully functional online banking for

free or for a small fee. Some smaller banks offer limited access or functionality; for

instance, you may be able to view your account balance and history but not initiate

transactions online. As more banks succeed online and more customers use their

sites, fully functional online banking likely will become as commonplace as

automated teller machines.

Understanding Online Banking Services

Online banking is a great convenience for many people. Whether people use it to

manage traditional accounts or switch all of their banking to an online-only firm, it

is a wonderful improvement over the days when everything had to be done face-to-

face.

No matter what kind of banking is done online, it starts with a secure web site.

Usually, the bank will have certain requirements to ensure password strength as

well. This and other security measures ensure that online accounts are safe from

tampering. From there, all of the necessary services can be accessed.

Online banking is quite simple once the basics are understood. Depositing money

is simple, and can be done in a number of ways. The most popular method is likely

direct deposit. Many employers offer direct deposit of paychecks, and by providing

them with your online bank account number, your checks will go right into that

account. Other ways of depositing money include bank and wire transfers. Some

accounts even allow customers to mail their checks in.

8

Paper checks are typically provided with online checking accounts. This, however,

is not likely to be the most common way a customer will access funds. Online bill

payment allows users to pay their bills without mailing checks, and those who use

web-based accounts typically prefer this and other electronic payment methods.

Most types of bills can be paid via a debit card or electronic checks, as well. This

makes it easy to eliminate the need for paper checks entirely. Still, many find it

useful to have a few checks on hand for those few companies that haven’t quite

reached the modern age.

The management of traditional accounts is another common use for online

banking. Most banks offer online access to accounts, and all customers need to do

to make use of the service is sign up through their bank’s site. Once this is done,

checking your balance, seeing which payments have cleared, and other common

banking operations can be done from the computer. This eliminates the need to call

or visit the bank for simple account maintenance needs.

Every online banking interface is slightly different, but all banks try to make things

easy and intuitive for users. It won’t take long for a new user to figure out exactly

how everything works. Sign up for an online bank account or online access to your

current one, and soon you’ll wonder how you could have lived without it.

FEATURES OF ONLINE BANKING

We need to be able to manage our finances from anywhere in the world. Rich

online banking services are much more important than a physical location. Since I

have been doing all of my banking online with quite a few different online banks

as I looked for the best solution, I’ve had a chance to really experiment with what

works and what doesn’t work for us.

9

Here is a checklist of things to look for in an online bank. Some items you may be

familiar with. Others might be new to you if it isn’t something your current bank

offers.

1. Bill Pay Service - One of the biggest reasons for going with an online bank is to

get really good bill payment services. Different banks handle bill payment different

ways. Here are some things to think about:

A. How many bills are you allowed to pay per month?

B. What are the fees for going over the limit?

C. Can the bill payment send physical checks to merchants who aren’t set up to

take electronic payments?

D. Do checks come from your account or from a third party service? For privacy

reasons, it might be better to be able to pay someone without giving them your

bank account number on the check. On the other hand, if the checks actually come

from your account, the money doesn’t get taken out until the check is cashed.

E. Can you set up reoccurring payments?

2. Electronic Bill Notification – With electronic bills, your merchant (credit card

company, gas company, electric company, etc.) sends an electronic bill to your

bank. You can set it up to pay automatically or notify you for approval. This can be

particularly good for people who are on the road because it reduces the amount of

physical mail you have to somehow get read or forwarded to you.

3. Online Check Images – Most banks will show you an image of the check,

which makes it really easy to balance your account if you can’t remember what a

10

particular payment was for. (Ideally, you should minimize the number of physical

checks you write to reduce fraud.)

4. Online Deposit Slip Images – Most banks just record the total with no image. It

will let you see an image of each deposit slip. Having the images available can be

very helpful if you ever have to prove something for tax purposes or need to

remember where that $2581 deposit came from.

5. Reporting Tools – Most banks offer basic reporting tools that will let you see

how much you have spent in each category you’ve created. This may not be an

issue if you use desktop money management software, but it still can be handy if

you are traveling and want to see how much you’ve paid on your mortgage over the

past 12 months.

6. Linked Accounts – Can you link your bank account with a brokerage account?

Can you add your minor children as custodial accounts and manage them all

centrally? If you and your spouse both set them up IRAs, is it easy to view them

both along side the rest of your finances, or do you have to have a separate login for

each IRA to keep them on separate SSNs? These are small things that many banks

don’t support, but it starts getting really complicated when you have to manage a

bunch of accounts instead of having a single place to manage all of your money.

7. Convenient Deposit Methods - Since you may not be anywhere near the

physical location of your bank, make sure you understand how to deposit money.

Payroll can be set up on direct deposit, but there will be times when you need to

deposit checks. Does the bank provide postage paid envelopes and deposit slips?

11

Some banks work with FedEx or UPS stores to allow you to send in a deposit

overnight for free.

8. Low ATM Fees and Convenient Locations – If you need to get cash, will the

bank refund the ATM fees? Are there only certain ATMs that are free, and if so, are

they located near places you normally go? Are the ATMs available nation wide so

you can use them on vacation? What are the fees for using the ATM internationally

and how is the exchange rate handled?

9. Integration with Desktop Software – If you use Microsoft Money, Quicken or

something similar, you’ll want to make sure your bank supports it. Make sure you

understand if downloading transactions require you to login and manually

download a file, or if your money management software can directly connect and

download new transactions. If you are using Quicken on a Mac, make sure the bank

is paying Quickens extortion fee so the files will work with Mac users.

10. Many Account Types – Some banks only offer basic checking and savings

accounts. Ideally you want a bank that makes it easy to open money market

accounts, IRAs, health savings accounts, etc. If you have to go to another institution

to open a different type of account, it is more difficult to manage–especially if you

are on the road. You want to be able to easily open a CD to take advantage of a

higher interest rate, easily open an IRA to help reduce your tax liability, etc.

11. Free Money Transfers – Be sure to consider how easy it is to move money in

and out of the account. You should be able to set up links with your accounts from

other institutions to transfer money back and forth as necessary. Make sure you

12

understand what type of fees are associated with these transfers. Good banks should

allow a certain number of transfers per month with no fee.

12. Security Balanced with Convenience - Some banks spend so much effort

trying to keep things secure that you’ll find yourself automatically logged out of

their website while you try to balance your account. You want security but you

don’t want it to get in the way of you doing your banking. Also check into what

type of additional security features are available. For example, some banks will

offer you an RSA keychain with a number that changes every 60 seconds. In

addition to your password, you will need the number from that key in order to get

access to your account.

13. Ease of Use – This is something that most banks seem to struggle with. Right

now I have my personal account with one online bank and my business accounts

with another. I dread using the business accounts and I absolutely love using my

personal account. At first I thought I was just more familiar with the bank where

my personal accounts are, but I finally realize that it comes down to the ease of use.

One is ok and the other is superb, but it makes a big difference.

Advantages of online banking:

Convenience: Unlike your corner bank, online banking sites never close; they're

available 24 hours a day, seven days a week, and they're only a mouse click

away.

Ubiquity: If you're out of state or even out of the country when a money

problem arises, you can log on instantly to your online bank and take care of

business, 24/7.

13

Transaction speed: Online bank sites generally execute and confirm

transactions at or quicker than ATM processing speeds.

Efficiency: You can access and manage all of your bank accounts, including

IRAs, CDs, even securities, from one secure site.

Effectiveness: Many online banking sites now offer sophisticated tools,

including account aggregation, stock quotes, rate alerts and portfolio managing

programs to help you manage all of your assets more effectively. Most are also

compatible with money managing programs such as Quicken and Microsoft

Money.

Disadvantages of online banking:

Start-up may take time: In order to register for your bank's online program,

you will probably have to provide ID and sign a form at a bank branch. If you

and your spouse wish to view and manage your assets together online, one of

you may have to sign a durable power of attorney before the bank will display

all of your holdings together.

Learning curve: Banking sites can be difficult to navigate at first. Plan to invest

some time and/or read the tutorials in order to become comfortable in your

virtual lobby.

Bank site changes: Even the largest banks periodically upgrade their online

programs, adding new features in unfamiliar places. In some cases, you may

have to re-enter account information.

The trust thing: For many people, the biggest hurdle to online banking is

learning to trust it. Did my transaction go through? Did I push the transfer

button once or twice? Best bet: always print the transaction receipt and keep it

with your bank records until it shows up on your personal site and/or your bank

statement.

14

How Does Online Banking Work?Online banking provides many identical services that a traditional bank does with the biggest difference is in teller availability: Human tellers leave; electronic tellers—the websites—are available virtually all day, everyday—weekends and holidays, included.

Online Banking Structure:

Online banking mirrors traditional banking procedures in many instances, and in some, actually improves security and reduces both banks’ and customer’s costs.

In electronic form, online banking still allows:

1. Deposits to the account, whether via payroll deposits or funds transfers.

2. Bill payments via automatic payment schedules or individually ordered

payments. Most bill pay users opt for the bank-generated checks, but payments can

be ordered in a one off situation or scheduled regularly.

3. Statement formats can be electronic or paper; most who prefer online banking

choose the electronic statements for convenience and reduced paper use.

4. Wire transfers to accounts within and without the bank’s structure, though some

banks charge additional transaction fees for wire transfers.

5. Differing services depending on the individual financial institute.

Online Actions

All online banking transactions are initiated by creating an online account

identity. Account login name and password creation is followed by choosing and

answering security questions. It’s not recommended that security questions and

15

answers be common or known by others; they should have unique answers,

whether historically true or not.

For example, if a user chooses a security question, “What is the name your first

elementary school,” choose an answer that is not the actual name or the actual

elementary school. Use instead the name of another school or anything else that is

easily remembered.

Provide an email address that is not tied to an Internet Service Provider. If the user

changes ISPs, that email address will be lost. Instead, use a free email address that

can last for as long as the user chooses.

Once the security aspects are in place and verified, look around the bank’s website and note important areas, such as:

1. Account activity2. Statement delivery change areas3. Customer Service options4. Bill pay procedures, if any5. And any other area provided on the website.

Online banking often reduces funds availability delays and hastens resolution to

disputes and inquiries. While some complaints and problems do require human

intervention, Customer Service Agents are available for longer during a calendar

day than local branch personnel are.

Online banking differs from traditional banking when physical checks or cash is

deposited; human interaction via a drive thru lane or at the counter is required.

Cashier checks, traveler checks, and money orders cannot be purchased from the

institution via online banking, but because all transactions allowed are electronic,

tracking and accountability are easily provided.

16

OPPORTUNITIES IN ONLINE BANKING:

Is There a Future in Online Banking?

By this point, no one can dismiss online banking as a fad. However, it is worth

considering whether the trend towards online financial transactions is going to

slow or reverse in the years to come. There will continue to be people who resist

online banking in favor of offline transactions just as there are people who prefer

to keep their money in mattresses instead of putting it in banks. Whether these

people will exert serious influence on the movement towards online banking can

be examined by looking at the needs of modern consumers, and the interests of the

banks themselves.

The Move to Online Business

The global connectivity provided by the internet, combined with the fallout from

the global financial crisis has encouraged a growing number of entrepreneurs to

start their own businesses online. As an increasing number of people look to save

themselves from unemployment or augment otherwise insufficient salaries by

finding new ways to make money online, they will require new ways to send,

receive, and invest their online funds.

The Rise of Mobile Banking

As handheld mobile devices become more sophisticated, users are experimenting

with more sophisticated transactions. Moving beyond ringtone downloads;

consumers can now shop online and purchase software upgrades and

augmentations through app stores. In addition to this buying and selling, anyone

with a web browser on their phone can access their bank’s online banking site to

move and manage their money in more locations than ever before.

17

Staffing Solutions

As banks consolidate and grow larger, they are looking for more ways to cut costs,

and reducing the number of full-time employees on their payroll is an attractive

option. Encouraging customers to do their banking online allows banks to close

smaller branches in outlying locations and use economies of scale to develop

customer assistance centers in locations where the labor market is more favorable.

Physical Footprints

Online banking is also more attractive to banks because a reduced physical

footprint means reduced costs in other areas. In addition to saving the money that

would normally be associated with operating and maintaining physical branches,

no longer having to print and mail paper statements to customers would be a huge

savings for banks. As an added bonus, banks have been able to take advantage of

current pro-environment sentiment by marketing online banking as a “green”

alternative.

By appealing to more mobile customers and more cost-conscious financial service

providers alike, online banking continues to be an attractive option for everyone

involved. However, when discussing the internet it is dangerous to assume that

everything is going to be moved online; there will always be individuals,

industries, and transactions that are grounded in the real world with no desire to

change the way they do business.

Growth of Internet

The increase in the growth of internet usage will definitely help the cause of

growth of online banking in India. The following chart shows the growth of

internet in India during the past decade or so:

18

YEAR Users Population % Penetration1998 1,400,000 1,094,870,677 0.1 %1999 2,800,000 1,094,870,677 0.3 %2000 5,500,000 1,094,870,677 0.5 %2001 7,000,000 1,094,870,677 0.7 %2002 16,500,000 1,094,870,677 1.6 %2003 22,500,000 1,094,870,677 2.1 %2004 39,200,000 1,094,870,677 3.6 %2005 50,600,000 1,112,225,812 4.5 %2006 40,000,000 1,112,225,812 3.6 %2007 42,000,000 1,129,667,528 3.7 %2009 81,000,000 1,156,897,766 7.0 %2010 100,000,000 1,173,108,018 8.5 %

Why Banks Encourage Online Banking?

OVERVIEW

Online banking has enjoyed increased popularity, and some banks actually require

it. From standard, brick-and-mortar institutions to cloud managed institutions,

online banking offers flexibility and convenience for all involved.

BANK ADVANTAGES:

Each visit to a bank costs the institution money, whether in bank teller

wages and benefits to security costs to maintenance costs. Online banking

reduces those costs and increases the bank’s profit margin.

Online banking reduces the need for the number of physical locations and

services offered within each. Because Customer Service Departments are

united into fewer locations, asset sharing within those locations further

reduce bank costs.

CUSTOMER ADVANTAGES:

19

Online security of financial data has evolved tremendously since the early

days of online banking, and often transactions can be even more secure than

those conducted in a drive thru lane.

Online banking transactions require not only a secure login but also require

secured password entry. In-person transactions are based on account

information and a photo ID, both of which can be obtained “under the

radar.”Online banking transactions also track the Internet Protocol (IP)

address of the computer used in the transaction. The IP can be traced to the

method or mode of Internet access, often through an Internet Service

Provider who always notes activity, computer, and actions performed under

that IP address assigned to the ISP account holder. Whether a dynamic or

changing IP address or a static or unchanging IP address is used, the ISP

always records what IP address is assigned to what ISP account at any time.

Comprehensive Help sections on banks’ websites often reduce on-location

inquiries, further reducing overhead costs for banking institutions.

Additional service enrollment or dis-enrollment, address updates, and

account status and verification are all time saving activities for both the bank

and the banking customer.

Online Bill Pay processes reduce stolen or counterfeit checks which cost

banks billions of dollars every month. Each online bill pay transaction

allows for a grace period from the payment order date to the actual check

delivery date, which also allows the account holder additional time to

preview activity and account status.

DEVELOPMENT:

20

Increasingly, more and more people are switching to electronic platforms for

executing financial transactions. The wider usage of cell phone and internet

certainly seems to be playing a role in blurring physical boundaries, and unlocking

a whole new world of opportunities for banks in tapping newer customer segments

and in recording greater volume of transactions.

If latest RBI data on retail electronic payment systems is anything to go by,

electronic banking is set to become the catalyst for change in the way money

moves. Provisional data show that in FY09 to January, a total of 5,587.85 lakh

transactions were executed through the electronic channel, a rise of 234.76 lakh

transactions over the previous fiscal.

This growth was facilitated by the introduction of real-time gross transfer (RTGS)

and national electronic funds transfer (NEFT), which enabled fund transfers among

account holders of the same bank as well as inter-bank transfers. 

The growth has also been aided by banks' efforts to offer innovative services and

tighten security measures, and the increase in awareness of services available. RBI

outlining guidelines on mobile banking, setting up of the National Payments

Corporation of India and passage of the Payments and Settlement Act too have

given a positive thrust to the growth in electronic payments. The impact of all these

measures is likely to be felt in the current fiscal, which may well mean FY10 could

become a watershed year for e-banking. While opinions of industry players differ

on whether FY10 will indeed prove to be a tipping point, there seems to be

consensus that the year would mark a critical phase in the evolution of the

payments and settlement systems in India. "FY10 will certainly herald an

important phase for electronic banking in India and an upsurge in internet and

ATM transactions," says Ashvin Parekh, partner and national industry leader,

financial services, Ernst & Young. "At the same time, traditional fund transfer will

21

continue to hold its own. We are going to witness a co-existence of these two

systems. In the regulatory space, there will be huge changes. As and when India

Pay, which will eventually settle credit card and ATM transactions, comes into the

picture, we could witness a gradual shift away from Visa and MasterCard." The

implementation of core banking solutions by all public sector banks has not only

helped banks rationalise their costs, but has also allowed them to explore new ways

of optimally utilising their resources. Core banking, which facilitates linking up of

a bank's branches across the country, has enabled banks to improve their

efficiency.

"Now, decisions can be taken remotely and the activities too can be undertaken in

a centralised location. This means that branches need not spend time on processing

transactions and other back office operations, and rather utilise the time and

resources to function as selling outlets. Centralised operations benefit from

economies of scale and help in reducing bank costs," explains Janmejaya Sinha,

managing director of India operations, Boston Consulting Group. 

Opportunities in e-banking: ARE WE READY?

It has always been a chicken-and-egg dilemma in business. Either firms wait

for the market to mature until customers are ready for the products and services.

Or, firms can go ahead and offer the products and services, hoping that their

customers will catch on soon.

The same is true for new products and services that have emerged and

continue to emerge in the world of electronic banking (e-banking). Banking

executives interviewed by BusinessWorld Online have different ways of resolving

the issue. Some would go ahead with new ideas, wanting to take the first-mover

22

advantage. Others would wait in the sidelines, but armed nevertheless just in the

case the market take up suddenly increases.

Whether first-movers or latecomers, there is one partner in the e-banking game that

is not waiting for the chicken to lay the egg, or wait for the egg to hatch into a

chick. Technology providers are always up on their toes, like chicken ready to

catch the early worm.

CHALLENGES OF ONLINE BANKING

Information technology analyst firm, the Meta Group, recently reported that

"financial institutions who don't offer home banking by the year 2000 will become

marginalized." By the year of 2002, a large sophisticated and highly competitive

Internet Banking Market will develop which will be driven by

Demand side pressure due to increasing access to low cost electronic

services.

Emergence of open standards for banking functionality.

Growing customer awareness and need of transparency.

Global players in the fray

Close integration of bank services with web based E-commerce or even

disintermediation of services through direct electronic payments (E- Cash).

More convenient international transactions due to the fact that the Internet

along with general deregulation trends, eliminate geographic boundaries.

Move from one stop shopping to 'Banking Portfolio' i.e. unbundled product

purchases.

Certainly some existing brick and mortar banks will go out of business. But

that's because they fail to respond to the challenge of the Internet. The Internet and

23

it's underlying technologies will change and transform not just banking, but all

aspects of finance and commerce. It represents much more than a new distribution

opportunity. It will enable nimble players to leverage their brick and mortar

presence to improve customer satisfaction and gain share. It will force lethargic

players who are struck with legacy cost basis, out of business-since they are unable

to bring to play in the new context.

MAIN CONCERNS IN INTERNET BANKING:

In a survey conducted by the Online Banking Association, member institutions

rated security as the most important issue of online banking. There is a dual

requirement to protect customers' privacy and protect against fraud. Banking

Securely: Online Banking via the World Wide Web provides an overview of

Internet commerce and how one company handles secure banking for its financial

institution clients and their customers. Some basic information on the transmission

of confidential data is presented in Security and Encryption on the Web. PC

Magazine Online also offers a primer: How Encryption Works. A multi-layered

security architecture comprising firewalls, filtering routers, encryption and digital

certification ensures that your account information is protected from unauthorised

access:

Firewalls and filtering routers ensure that only the legitimate Internet users

are allowed to access the system.

Encryption techniques used by the bank (including the sophisticated public

key encryption) would ensure that privacy of data flowing between the

browser and the Infinity system is protected.

Digital certification procedures provide the assurance that the data you

receive is from the Infinity system.

24

Security concerns:

Security fears have served as deterrents to online growth. Of particular concern are

threats of pharming and phishing. Phishing is an internet fraud, through which

innocent people are enticed to divulge their personal information like user ID and

passwords, which are later on used by scammers in unauthorized ways.

The most common method of phishing is sending emails claiming to be from your

bank or other financial institutions which are dealing that already has your personal

information and you will be asked to confirm the details by clicking a particular

link (URL) provided in this fake email. This URL will take you to a fake website

which will be similar to your genuine website, and the information provided by the

customer in the forms provided in the fake website will be gathered and used for

committing fraud in their accounts or withdraw funds unauthorizedly from these

accounts.

Pharming is another internet fraud, whereby as many as users as possible are

redirected before they reach the legitimate online banking websites they intend to

visit and they are lead to malicious ones. The bogus sites to which victims are

redirected without their knowledge or consent, will likely looks the same as

genuine site. But when users enter their login name or password, the information is

captured by criminals.

FURTHER PROBLEMS RELATING TO NET BANKING IN INDIA

Given that India is the IT and tech services outsourcing hotspot of the world, it's

surprising that Internet banking has not really taken off. Despite the advent of a

very tech-savvy and vast consumer class in recent years, a mix of industry issues

and unique challenges continue to thwart the expansion of net banking in India.

25

Technology challenges, IT practices, certain cultural issues, industry lethargy, and

workplace constraints have affected widespread acceptance of Internet banking.

Low Broadband Internet Penetration

India has one of the lowest broadband connectivity penetration rates in Asia as

compared to Japan, Taiwan, Korea and Singapore. While the bigger cities such as

Mumbai, Delhi, Chennai, and Bangalore have relatively better broadband

penetration rates, PC users in smaller cities and towns still use dial-up options to

connect to the Internet. Slow connectivity speeds often dampen the online banking

experience for many customers eager to use such services.

Banks' Ambivalent Commitment Levels

Internet banking did take off in India at the turn of the millennium but soon

faltered due to lack of takers. In the middle of this decade, multinational and

domestic private banks started offering net banking services as a competitive

differentiator. Only recently, state-owned and public sector banks have started

doing likewise. However, banks' ambivalent commitment levels and their

reluctance to allocate huge budgets for net banking branding initiatives, as well as

a lack of industry advocacy efforts, have resulted in poor acceptance levels of

Internet banking by customers.

Customers' Preference for Traditional Branches

There are thousands of highly active traditional bank branches in India's crowded

cities and major towns. Office workers take longer lunch breaks to finish banking

activities and transactions at these branches rather than conduct them online. Most

customers prefer the personal touch and customized service offered by staff in

brick-and-mortar bank branches. Many Indians are also averse to calling call

26

centers and banks' customer contact lines to address issues related to online bank

accounts.

Fear of Online Threats/Scams

Ubiquitous and prevalent online threats about hackers, identity theft, stolen

passwords, viruses, worms and spyware tend to make customers wary just like in

any other country. Conservative Indian bank customers used to years of saving in

an erstwhile mixed-socialist economy are always fearful of losing hard-earned

savings in online scams. These customers are also not sure about the efficacy of

banks' websites and their commitment to allocate funds for reliable encryption

mechanisms and robust back-end technologies and systems.

Other Problems

Workplace constraints and corporate policies about using external websites or

pursing personal activities such as online banking have affected its expected fast-

paced acceptance among the growing affluent class in India. Cultural issues, such

as parents giving priority use of the home PC to their children rather than using it

themselves, stifle the potential growth of home access to Internet banking services.

Public sector banks with vast customer bases also don't tend to invest money in

training personnel for e-banking initiatives, resulting in poor customer service

levels.

Internet Banking in India – Guidelines

Reserve Bank of India had set up a ‘Working Group on Internet Banking’ to

examine different aspects of Internet Banking (I-banking). The Group had focused

on three major areas of I-banking, i.e. (i) technology and security issues, (ii) legal

issues and (iii) regulatory and supervisory issues. RBI has accepted the

27

recommendations of the Group to be implemented in a phased manner.

Accordingly, the following guidelines are issued for implementation by

banks. Banks are also advised that they may be guided by the original report, for a

detailed guidance on different issues.

I. Technology and Security Standards:

a. Banks should designate a network and database administrator with clearly

defined roles as indicated in the Group’s report.

b. Banks should have a security policy duly approved by the Board of

Directors. There should be a segregation of duty of Security Officer / Group

dealing exclusively with information systems security and Information

Technology Division which actually implements the computer systems.

Further, Information Systems Auditor will audit the information systems.

c. Banks should introduce logical access controls to data, systems, application

software, utilities, telecommunication lines, libraries, system software, etc.

Logical access control techniques may include user-ids, passwords, smart

cards or other biometric technologies.

d. At the minimum, banks should use the proxy server type of firewall so that

there is no direct connection between the Internet and the bank’s system. It

facilitates a high level of control and in-depth monitoring using logging and

auditing tools. For sensitive systems, a state full inspection firewall is

recommended which thoroughly inspects all packets of information, and past

and present transactions are compared. These generally include a real time

security alert.

e. All the systems supporting dial up services through modem on the same

LAN as the application server should be isolated to prevent intrusions into

the network as this may bypass the proxy server.

28

f. PKI (Public Key Infrastructure) is the most favoured technology for secure

Internet banking services. However, as it is not yet commonly available,

banks should use the following alternative system during the transition, until

the PKI is put in place:

1. Usage of SSL (Secured Socket Layer), which ensures server

authentication and use of client side certificates issued by the banks

themselves using a Certificate Server.

2. The use of at least 128-bit SSL for securing browser to web server

communications and, in addition, encryption of sensitive data like

passwords in transit within the enterprise itself. (Para 6.4.5)

g. It is also recommended that all unnecessary services on the application

server such as FTP (File Transfer Protocol), telnet should be disabled. The

application server should be isolated from the e-mail server. (Para 6.4.6) 

h. All computer accesses, including messages received, should be logged.

Security violations (suspected or attempted) should be reported and follow

up action taken should be kept in mind while framing future policy. Banks

should acquire tools for monitoring systems and the networks against

intrusions and attacks. These tools should be used regularly to avoid security

breaches. The banks should review their security infrastructure and security

policies regularly and optimize them in the light of their own experiences

and changing technologies. They should educate their security personnel and

also the end-users on a continuous basis.

i. The information security officer and the information system auditor should

undertake periodic penetration tests of the system, which should include:

1. Attempting to guess passwords using password-cracking tools.

2. Search for back door traps in the programs. 

29

3. Attempt to overload the system using DDoS (Distributed Denial of

Service) & DoS (Denial of Service) attacks.

4. Check if commonly known holes in the software, especially the

browser and the e-mail software exist.

j. The penetration testing may also be carried out by engaging outside experts

(often called ‘Ethical Hackers’).

k. Physical access controls should be strictly enforced. Physical security should

cover all the information systems and sites where they are housed, both

against internal and external threats.

l. Banks should have proper infrastructure and schedules for backing up data.

The backed-up data should be periodically tested to ensure recovery without

loss of transactions in a time frame as given out in the bank’s security

policy. Business continuity should be ensured by setting up disaster recovery

sites. These facilities should also be tested periodically.

m. All applications of banks should have proper record keeping facilities for

legal purposes. It may be necessary to keep all received and sent messages

both in encrypted and decrypted form.

n. Security infrastructure should be properly tested before using the systems

and applications for normal operations. Banks should upgrade the systems

by installing patches released by developers to remove bugs and loopholes,

and upgrade to newer versions which give better security and control.

II. Legal Issues

a. Considering the legal position prevalent, there is an obligation on the part of

banks not only to establish the identity but also to make enquiries about

integrity and reputation of the prospective customer. Therefore, even though

request for opening account can be accepted over Internet, accounts should

30

be opened only after proper introduction and physical verification of the

identity of the customer.

b. From a legal perspective, security procedure adopted by banks for

authenticating users needs to be recognized by law as a substitute for

signature. In India, the Information Technology Act, 2000, in Section 3(2)

provides for a particular technology (viz., the asymmetric crypto system and

hash function) as a means of authenticating electronic record. Any other

method used by banks for authentication should be recognized as a source of

legal risk.

c. Under the present regime there is an obligation on banks to maintain secrecy

and confidentiality of customers‘ accounts. In the Internet banking scenario,

the risk of banks not meeting the above obligation is high on account of

several factors. Despite all reasonable precautions, banks may be exposed to

enhanced risk of liability to customers on account of breach of secrecy,

denial of service etc., because of hacking/ other technological failures. The

banks should, therefore, institute adequate risk control measures to manage

such risks.

d. In Internet banking scenario there is very little scope for the banks to act on

stop-payment instructions from the customers. Hence, banks should clearly

notify to the customers the timeframe and the circumstances in which any

stop-payment instructions could be accepted.

e. The Consumer Protection Act, 1986 defines the rights of consumers in India

and is applicable to banking services as well. Currently, the rights and

liabilities of customers availing of Internet banking services are being

determined by bilateral agreements between the banks and customers.

Considering the banking practice and rights enjoyed by customers in

traditional banking, banks’ liability to the customers on account of

31

unauthorized transfer through hacking, denial of service on account of

technological failure etc. needs to be assessed and banks providing Internet

banking should insure themselves against such risks.

III. Regulatory and Supervisory Issues:

As recommended by the Group, the existing regulatory framework over banks will

be extended to Internet banking also. In this regard, it is advised that:

1. Only such banks which are licensed and supervised in India and have a

physical presence in India will be permitted to offer Internet banking

products to residents of India. Thus, both banks and virtual banks

incorporated outside the country and having no physical presence in India

will not, for the present, be permitted to offer Internet banking services to

Indian residents.

2. The products should be restricted to account holders only and should not be

offered in other jurisdictions.

3. The services should only include local currency products.

4. The ‘in-out’ scenario where customers in cross border jurisdictions are

offered banking services by Indian banks (or branches of foreign banks in

India) and the ‘out-in’ scenario where Indian residents are offered banking

services by banks operating in cross-border jurisdictions are generally not

permitted and this approach will apply to Internet banking also. The existing

exceptions for limited purposes under FEMA i.e. where resident Indians

have been permitted to continue to maintain their accounts with overseas

banks etc. will, however, be permitted.

32

5. Overseas branches of Indian banks will be permitted to offer Internet

banking services to their overseas customers subject to their satisfying, in

addition to the host supervisor, the home supervisor. 

Given the regulatory approach as above, banks are advised to follow the following

instructions: 

a. All banks, who propose to offer transactional services on the Internet should

obtain prior approval from RBI. Bank’s application for such permission

should indicate its business plan, analysis of cost and benefit, operational

arrangements like technology adopted, business partners, third party service

providers and systems and control procedures the bank proposes to adopt for

managing risks. The bank should also submit a security policy covering

recommendations made in this circular and a certificate from an independent

auditor that the minimum requirements prescribed have been met. After the

initial approval the banks will be obliged to inform RBI any material

changes in the services / products offered by them.

b. Banks will report to RBI every breach or failure of security systems and

procedure and the latter, at its discretion, may decide to commission special

audit / inspection of such banks.

c. The guidelines issued by RBI on ‘Risks and Controls in Computers and

Telecommunications’ vide circular DBS.CO.ITC.BC. 10/ 31.09.001/ 97-98

dated 4th February 1998 will equally apply to Internet banking. The RBI as

supervisor will cover the entire risks associated with electronic banking as a

part of its regular inspections of banks.

d. Banks should develop outsourcing guidelines to manage risks arising out of

third party service providers, such as, disruption in service, defective

33

services and personnel of service providers gaining intimate knowledge of

banks’ systems and misutilizing the same, etc., effectively.

e. With the increasing popularity of e-commerce, it has become necessary to

set up ‘Inter-bank Payment Gateways’ for settlement of such transactions.

The protocol for transactions between the customer, the bank and the portal

and the framework for setting up of payment gateways as recommended by

the Group should be adopted.

f. Only institutions who are members of the cheque clearing system in the

country will be permitted to participate in Inter-bank payment gateways for

Internet payment. Each gateway must nominate a bank as the clearing bank

to settle all transactions. Payments effected using credit cards, payments

arising out of cross border e-commerce transactions and all intra-bank

payments (i.e., transactions involving only one bank) should be excluded for

settlement through an inter-bank payment gateway.

g. Inter-bank payment gateways must have capabilities for both net and gross

settlement. All settlement should be intra-day and as far as possible, in real

time.

h. Connectivity between the gateway and the computer system of the member

bank should be achieved using a leased line network (not through Internet)

with appropriate data encryption standard. All transactions must be

authenticated. Once, the regulatory framework is in place, the transactions

should be digitally certified by any licensed certifying agency. SSL / 128 bit

encryption must be used as minimum level of security. Reserve Bank may

get the security of the entire infrastructure both at the payment gateway’s

end and the participating institutions’ end certified prior to making the

facility available for customers use. 

34

i. Bilateral contracts between the payee and payee’s bank, the participating

banks and service provider and the banks themselves will form the legal

basis for such transactions. The rights and obligations of each party must be

clearly defined and should be valid in a court of law.

j. Banks must make mandatory disclosures of risks, responsibilities and

liabilities of the customers in doing business through Internet through a

disclosure template. The banks should also provide their latest published

financial results over the net.

k. Hyperlinks from banks’ websites, often raise the issue of reputational risk.

Such links should not mislead the customers into believing that banks

sponsor any particular product or any business unrelated to

banking. Hyperlinks from a banks’ websites should be confined to only

those portals with which they have a payment arrangement or sites of their

subsidiaries or principals. Hyperlinks to banks’ websites from other portals

are normally meant for passing on information relating to purchases made by

banks’ customers in the portal. Banks must follow the minimum

recommended security precautions while dealing with request received from

other websites, relating to customers’ purchases.

2. The Reserve Bank of India have decided that the Group’s recommendations as

detailed in this circulars should be adopted by all banks offering Internet banking

services, with immediate effect. Even though the recommendations have been

made in the context of Internet banking, these are applicable, in general, to all

forms of electronic banking and banks offering any form of electronic banking

should adopt the same to the extent relevant.

3. All banks offering Internet banking are advised to make a review of their

systems in the light of this circular and report to Reserve Bank the types of services

35

offered, extent of their compliance with the recommendations, deviations and their

proposal indicating a time frame for compliance. The first such report must reach

us within one month from the date of this circular. Banks not offering any kind of

I-banking may submit a ‘nil’ report.

4. Banks who are already offering any kind of transactional service are advised to

report, in addition to those mentioned in paragraph above, their business models

with projections of cost / benefits etc. and seek our post-facto approval. 

SOLUTIONS:

Here are some simple tips to prevent you from falling into the trap of cyber

criminals. Remember, a simple ignorance or oversight can make a huge dent in

your hard- earned savings.

Securing your account: Avoid online banking on unsecured wifi systems

and operate only from PCs at home. Never reveal password to anyone. Do

not even write it on a piece of paper on diary. Just memorise it. It should be

alphanumeric and change it frequently.

Never reply to queries from bank online about account or personal details. The

personal information should not be kept in a public computer or in emails.

Phishing: A person's personal details are obtained by fraudsters posing as

bankers, who float a site similar to that of the person's bank. They are asked

to provide all personal information about themselves and their account to the

bank on the pretext of database upgradation. The number and password are

then used to carry out transactions on their behalf without their knowledge.

Phishing involves using a form of spam to fraudulently gain access to people's

online banking details. As well as targeting online banking customers, phishing

36

emails may target online auction sites or other online payment facilities. Typically,

a phishing email will ask an online banking customer to follow a link in order to

update personal bank account details. If the link is followed, the victim downloads

a program which captures his or her banking login details and sends them to a third

party.

Spam: Spam is an electronic 'junk mail' or unwanted messages sent to your

email account or mobile phone. These messages vary, but are essentially

commercial and often annoying in their sheer volume. They may try to

persuade you to buy a product or service, or visit a website where you can

make purchases; or they may attempt to trick you into divulging your bank

account or credit card details.

Nigerian Scam: Nigerian or Frauds 409 or 419 are basically the lottery

scam in which some overseas persons are involved to cheat innocent persons

or organizations by promising to give a good amount of money at nominal

fee charges. Their intention is to steal money in the form of fee against the

lottery prize.

Spyware: Spyware such as Trojan horse is generally considered to be

software that is secretly installed on a computer and takes things from it

without the permission or knowledge of the user. Spyware may take

personal information, business information, bandwidth; or processing

capacity and secretly gives it to someone else.

"Trojan Horse" scheme unfolds when malicious software (malware) embeds to a

consumer's computer without the consumer being aware of it. Trojans often come

in links or as attachments from unknown email senders. After installation the

software detects when a person accesses online banking sites and records the

username and password to transmit to the offender. People using public computers,

37

in places like Internet cafes, are often susceptible to Trojans like malware or

spyware.

Check sites Url: Always check the URL of your bank's web site. Fraudsters

can lure you to enter your user ID and password at a fake website that

resembles your bank. If you see anything other than the bank's genuine

URL, it has to be fake.

Never enter your user ID or password or such sensitive information without

ascertaining that you are on the right website. Always type the Web address of

your bank into the browser address space. Never click on the link in the email.

Fool-proof password: Change your online banking password at regular

intervals. Also, avoid easy-to-guess passwords, like first names, birthdays,

kid's or spouse's name and telephone numbers. Try to have an alpha-numeric

password, one that combines alphabets and numbers.

If you have several bank accounts, never use the same online banking password for

all. Never select the option on browser that stores or retains user name and

password. As it can easily be cracked by cyber criminals. Also, never paste your

password, always type it in. This little amount of `finger exercise' will go a long

way in safety.

Always check 'last logged': Most banks have a 'last logged in' panel on

their websites. If your bank has it, check the panel whenever you log in. If

you notice irregularities (like you are logging in after two days, but the panel

says you logged in that morning!), report the matter immediately to your

bank and change your password right away.

38

Always log out when you exit the online banking portal. Close the browser to

ensure that your secure session is terminated. Never exit simply by closing the

browser.

Keep your system up to date: Regularly check for security updates for

your computer operating system. Most security updates are aimed at

reducing risks to your computer, these may be data-related or otherwise.

Make sure that your operating system and browser have the latest security

patches installed. And, always install these only from trusted websites.

Install a personal firewall to prevent hackers from gaining unauthorised access to

your computer, especially if you connect to the Internet through a cable or a DSL

modem.

Public access can be injurious: Don't leave the PC unattended after keying

in information while transacting on the website. Avoid accessing your bank

online at cyber cafes or on a share or public computer. Also, avoid locations

that offer online connections through wireless networks (Wi-Fi), where

privacy and security are minimal.

Follow Bank instructions: Banks say that appropriate upgradations are

carried out from time to time by their IT departments for risk mitigation.

They issue instructions to the customers to manage their accounts through

virtual keyboards by way of which the characters typed by them are not

identified by hackers. SMS alerts are also an important tool since any

transaction carried out on account is reported to the account holder through

an SMS.

Protection: Learn the ways to protect yourself from online banking fraud

schemes. Detect Trojans that appear on your PC in the form of viruses,

spyware or malware through Antivirus Software, anti Spyware, and

39

Adware. Also, learn to keep your cards, documents and passwords safe, and

monitor your accounts to safeguard yourself from bank fraud committed

through identity theft.

CASE STUDIES:

1. Email password Hacking-

 

One day a lady came to cyber cell office and reported that she and her

brothers e-mail ID’S had been hacked by someone she suspected him to be her

husband. The lady had already lodged a case against him for dowry and was

pending for trial in Bhopal court.

The suspect had hacked lady’s and her brother e-mail ID account and copied all the

information to his e-mail and produced selected e-mails to claim that . she was

happy with him and case of dowry is a false one .

To malign the image of her brother the suspect sent a copy of FIR lodged against

him at police station Habibganj. This indicated that the husband of the lady was

behind the whole affair but police had not any evidence against him.

Cyber cell started enquiry by an order of IGP and obtained the login logs from

rediff.com .The logs indicated that the email IDs password were changed and

anonymous emails were sent from the house of lady’s husband and sent from his.

Cyber cell registered a case under section 66 IT act and submitted Challan has

been filed against the suspect and trial is over.

Court has hold the conviction against the suspect Sabrish Pillai but found that the

matter came before the court as Sabrish was having family dispute with his wife

40

and the, act of hacking was not against the society at large, Hence let him free after

warning.

2. Internet Lottery Fraud   :

MP Cyber police has investigated several case of cheating through Internet

lottery offer which is commonly known as Nigerian 419 scam. In this kind of

cheating the culprits used to send bulk emails, bulk SMS to millions of users using

software, stating that the receiver has won lottery worth thousands of pounds or

dollars which comes out to be crores of Indian rupees, in a lucky draw. They used

to create fake lottery winning certificate using logo and text from original website,

which seems to be original at a glance. This kind of sending bulk emails or SMS is

an act of commonly known as Phishing attack. Those who are lured by such offer

often tempted to contact them. The culprits then ask the target to fill a form and

thus receive all the personal information of the target and asks him to deposit token

money in various names to earn the lottery prize. The target who is hoping to earn

huge amount of money finds these charges to be minimal. The culprit asks the

target to deposit money in the name yellow tag, custom clearance UN anti

terrorism certificate, RBI charges or any other name they feel it to suitable to

convince the target. The culprits ask the target to deposit in various bank accounts

and once the money is deposited by the target it is withdrawn same day by the

suspect.

After losing lakhs of amount people come to know that they are being cheated. In

this kind of cheating the contact number are usually taken in the fake names or in

the other Indian guys name, account are being opened in the fake names or

acquired on the basis of commission by fooling the account holders.

41

Mp cyber police has investigated the case of Internet lottery fraud and arrested

Nigerian national Godspower from Meharauli Delhi with the suspected mobile

used for communication, one laptop, printer and box used for black dollar scam.

 Mp cyber police has investigated the case of Internet lottery fraud Crime no 07/09

420,468,34 IPC and crime no 05/10 420,468,34 AIPC and arrested Nigerian

national Idiiogbe Joseph from Mumbai with the suspected mobile used for

communication, laptop, fake Income tax certificate and seals.

Apart from the above  MPCP is investigating two more such cases in which 

suspects are being monitored and efforts are being made to arrest them.

ICICI BANK

ICICI bank (formerly known as Industrial Credit and Investment Corporation of

India) is the largest private sector bank in India. ICICI is the first bank to

introduce Internet banking in India.

ICICI bank offers various online banking services to its customers under the

name ICICI Net Banking. The ICICI net banking system allows you to access your

bank account any time of the day from the privacy of your home or office.

Moreover, you can transfer funds to any bank account across India instantly

using ICICI net banking facility.

CHAPTER II

RESEARCH METHODOLOGY

Objectives of the study:

42

1) The main objective of this study was to understand the growth of the

online banking sector in India.

2) To study the opportunities for growth of online banking in India, since

India is a very fast developing country.

3) To study the challenges associated with the growth of online banking.

4) To understand the scope and the infrastructure that is there in India for its

development.

Limits of the study:

The study of this project is limited to 25 people of Mumbai who have been

questioned to understand the project well.

Methodology used:

A. PRIMARY DATA: -

Questionnaire distributed among people having bank accounts. A sample

questionnaire of 10 questions distributed to 25 people.

B. SECONDARY DATA :-

Internet

Reference books

CHAPTER III

DATA ANALYSIS

A survey was conducted on online banking in India for the primary data

among 25 people. The analysis of this survey or data is as follows:-

43

Q. What kind of banking do you prefer?

Traditional Online Both0

2

4

6

8

10

12

14

POLL out of 25: Traditional – 5 ; Online – 8 ; Both – 12

FINDINGS: This shows us the preference of the people towards the type of

banking. They prefer to use the services of both the online and traditional banking

rather than a particular type.

Q. Do you think online banking is better than traditional banking?

44

YESNOCAN'T SAY

POLL out of 25: Yes - 13; No - 5; Can’t Say – 7

FINDINGS: The people understand that online banking is better than the

traditional banking because of its nature. While a few of the people are still not

fully convinced.

Q. Do you feel you account is secured in online banking?

YES NO CANT SAY0

2

4

6

8

10

12

Poll out of 25: Yes - 11; No - 7; Can’t Say – 7

FINDINGS: Majority of the people think that their Account is secured, but not all.

Their security concern should be eradicated. This will attract customers.

Q. How frequently do you use banking services?

45

WEEKLY MONTHLY REGULARLY RARELY0

2

4

6

8

10

12

POLL out of 25: Weekly - 5; Monthly - 11; Regularly - 2; Rarely – 7

FINDINGS: Most of the people do not need the services of banks regularly or

maybe there is no need. They may transact with the bank on monthly basis for

most of the time.

Q. How happy are you with services of online banking provided by your

bank?

COMPLETELY PARTIALLY FAIRLY NOT AT ALL0

2

4

6

8

10

POLL out of 25: Completely - 4; Partially - 9; Fairly - 9; Not at all - 3

FINDINGS: The satisfaction level of people with the online banking services of

their banks has a mixed review. This may be due to multiple reasons.

Q. What type of transaction do you make in online banking?

46

CHECK BALANCES

PAYMENTS TRANSFER OF FUNDS

OTHER

POLL out of 25: Check balances - 11; Payments - 7; Transfer of fund - 2; Other -5

FINDINGS: The utility of the online banking is service is not used to the extent is

should be and it is being majorly used for the purpose of checking the balance in

the account. The reason for this is the low volume of transaction among the people.

CHAPTER IV

47

RECOMMENDATIONS & CONCLUSIONS

CONCLUSION:

People are not confident enough to whether to rely completely on online

banking. There is hesitancy in their minds with regards to preference. So

they use both the techniques of banking i.e. Online and Traditional.

Because of the complexity and the unawareness in the people regarding the

online banking, there is less utilization of the online banking services

provided by the banks.

People are not sure whether their account is completely secured in online

banking. Security concern is the main and the core reason why people do not

tend to use online banking.

People in India are not aware of the full utility of online banking and the

services that can be availed of in online banking.

Most of the Indian population are salaries employees who do not have that

volume of transaction that can be used for online transaction.

RECOMMENDATION:

After analyzing the entire study on online banking with respect to both the primary

and the secondary data, the following recommendations can be put forth:-

The infrastructure for the development is not being implemented in way that

could be beneficial.

48

There are various obstacles in the banking scenario with regards to

guidelines and issues for functioning. This has led to decline in the usage of

the online banking service of the banks.

The people having accounts can be urged to take up an internet banking

facility. They should be motivated rather than just being told that there exists

a service of online banking.

There are more people who are not actually aware of all the benefits that

they reap out of the transaction of online banking. They should be proper

awareness.

Most of the people o not count online banking due the problems of security

concerns. Proper security software should be developed and people should

be convinced that their accounts are secured in online transactions.

CHAPTER V

BIBLIOGRAPHY

INTERNET:

49

http://www.onlinebanking.net/online-banking-services/

http://www.productivity501.com/choosing-online-bank/244/

http://www.thewisdomjournal.com/Blog/pros-and-cons-of-online-

banking/

http://www.onlinebanking.net/how-does-online-banking-work/

http://www.onlinebanking.net/future-of-online-banking/

http://www.onlinebanking.net/why-banks-encourage-online-banking/

http://en.wikipedia.org/wiki/Electronic_commerce

http://www.indianmba.com/Faculty_Column/FC889/fc889.html

http://www.banknetindia.com/banking/ibkg.htm

http://www.sendmoneyindia.org/icici-net-banking.php

http://economictimes.indiatimes.com/opinion/money-banking/e-

banking-could-open-opportunities-for-banks/articleshow/4461581.cms

http://www.ehow.com/about_5147496_problems-related-net-banking-

india.html

http://www.ehow.com/about_5340363_different-types-online-

banking.html

http://www.networkmagazineindia.com/200302/feature.shtml

http://theonlinebankingblog.blogspot.com/2011/04/challenges-of-online-

banking-security.html

http://searchcio.techtarget.com/definition/e-commerce

http://searchdatacenter.techtarget.com/definition/IT

50

http://nedogluka.com/internet-banking-global-way-for-banks-in-

india.html

http://nedogluka.com/the-size-and-growth-of-the-banking-jobs-in-

india.html

http://mpcyberpolice.nic.in/casestudies.htm#top

http://www.internetworldstats.com/asia/in.htm

REFERENCE BOOKS:

R.K. UPPALBANKING WITH TECHNOLOGYNEW CENTURY PUBLICATIONSNEW DELHI

APPENDIX

ONLINE BANKING IN INDIA (Survey)

Q.1 WHICH BANK DO YOU HAVE AN ACCOUNT?(1 – Private sector bank; 2 – Public sector bank; 3 – Other)

51

Q.2 WHAT KIND OF BANKING DO YOU PREFER? (1 – Traditional; 2 – Online; 3 – Both)

Q.3 DO YOU THINK ONLINE BANKING IS USEFUL?(1 – Yes; 2 – No; 3 – Can’t say)

Q.4 HOW FREQUENTLY DO YOU USE BANKING SERVICES?(1 – Weekly; 2 – Monthly; 3 – Regularly; 4 – Rarely)

Q.5 DO YOU THINK ONLINE BANKING IS BETTER THAN TRADITIONAL BANKING?(1 – Yes; 2 – No; 3 – Can’t Say)

Q.6 DO YOU FEEL ONLINE BANKING HAS A GROWTH POTENTIAL IN INDIA?(1 – Yes; 2 – No; 3 – Can’t Say)

Q.7 WHAT TYPE OF TRANSACTION DO YOU MAKE IN ONLINE BANKING?(1 – Check balances; 2 – Make payments; 3 – Transfer funds; 4 – Other)

Q.8 DO YOU FEEL YOUR ACCOUNT IS COMPLETELY SECURED IN ONLINE BANKING?(1 – Yes; 2 – No; 3 – Can’t Say)

Q.9 ARE YOU HAPPY WITH THE SERVICES OF ONLINE BANKING PROVIDED BY YOUR BANK?(1 – Completely; 2 – Partially; 3 – Fairly; 4 – Not at all)

Q.10 FOR ME ONLINE BANKING IS

NAME: PHONE:

EMAIL ID:

52