CBM Project

Internet Banking- The Future of Banking
CHAPTER 1: INTRODUCTION TO INTERNET BANKING
1.1.
Meaning of Internet Banking Internet banking, sometimes called online banking, is an outgrowth of PC banking.
Internet banking uses the Internet as the delivery channel to conduct any banking activity, for example, transferring funds, paying bills, viewing checking and savings account balances, paying mortgages, and purchasing financial instruments and certificates of deposit. An Internet banking customer accesses his or her accounts from a browser software that runs Internet banking programs resident on the banks World Wide Web server, not on the users PC. Net Banker defines a true Internet bank as one that provides account balances and some transactional capabilities to retail customers over the World Wide Web. Internet banks are also known as virtual, cyber, net, interactive, or web banks. Till date, more banks have established an advertising presence on the Internet primarily in the form of informational or interactive web sitesthan have created transactional web sites. However, a number of Banks that do not yet offer transactional Internet banking services have indicated on their web sites that they will offer such banking activities in the future. Although Internet banks offer many of the same services as do traditional brick-and-mortar Banks, analysts view Internet banking as a means of retaining increasingly sophisticated customers, of developing a new customer base, and of capturing a greater share of depositor assets. A typical Internet bank site specifies the types of transactions offered and provides information about account security because Internet banks generally have lower operational and transactional costs than do traditional brick-and-mortar banks; they are often able to offer low-cost checking and high-yield Certificates of deposit. Internet banking is not limited to a physical site; some Internet banks exist without physical branches, for example, Telebank (Arlington, Virginia) and Banknet (UK). Further, in some cases, web banks are not restricted to conducting transactions within national borders and have the ability to make transactions involving large amounts of assets instantaneously. According to industry analysts, electronic banking provides a variety of attractive possibilities for remote account access, including:
Availability of inquiry and transaction services around the clock;

Worldwide connectivity; Easy access to transaction data, both recent and historical; and Direct customer control of international movement of funds without
intermediation of financial institutions in customers jurisdiction.
1.2.
Origin
In 1990 the Wells Fargo Bank, based in California USA, introduced the world's first online banking service. Since the introduction of the first service many banks have started their electronic banking services with access available via your PC, mobile phone or an interactive TV. The term Internet banking refers to the use of the Internet as a remote delivery channel for banking services. Services include the traditional ones, such as opening an account or transferring funds to different accounts, and new banking services, such as electronic online payments (allowing customers to receive and pay bills on a banks web site).
1.3.
What is Internet Banking?
Internet banking refers to a system that enables bank customers to access accounts and general information on bank products and services through a Personal computer (PC) and Internet banking products and services can include:
i.
Wholesale products for corporate customers. Cash management. Wire transfer. Automated clearinghouse (ACH) transactions. Bill presentment and payment.
ii.
Retail and fiduciary products for consumers.
Internet Banking- The Future of Banking iii. Balance inquiry. Funds transfer. Downloading transaction information. Bill presentment and payment. Loan applications. Investment activity.
Other Internet Banking services Internet access as an Internet Service Provider (ISP). Information systems technology
1.4.
Importance of Internet Banking
Competition: Banks feel the need to offer I-banking services today just to keep up
with the competitors and to be able to retain their existing customers.
New Markets: The Internet is not only a low cost approach to determine new
distribution channels but also to establish a presence in new and up coming markets.
Customer Service: I-banking offers banks an opportunity to improve on their
customer service by collecting and managing information pertaining to their customers and their individualistic preferences.
Revenue Potential: I-banking also provides an opportunity to build on their
relationships with their existing customers. For Example, bank Web portals could offer purchasing services for business travel or insurance to generate more revenue.
Reduce Costs: E-banking is an opportunity for banks to reduce their overhead costs
as the need for physical branches is drastically cut down. The running cost of an ordinary
Internet Banking- The Future of Banking bank account for 50-60 per cent of their revenues, whereas the running cost of Internet banking are a mere 15-20 per cent of revenues. For example, in India, Net banking is estimated to cost just Rs. 2 per transaction compared to the RS. 43 incurred while banking at the branch.
CHAPTER 2: TYPES OF INTERNET BANKING
2.1.
Types of Internet Banking
More and more banks are transforming their businesses by using Internet technology to develop or expand relationships with their customers. The extent to which the Internet is used in a bank depends on the relative maturity of the bank in regard to Internet technology. Banks offer Internet banking in two main ways. An existing bank with physical offices, ordinarily termed a brick-and mortar bank, can establish a web site and offer Internet banking
Types of Internet Banking
Informational
Communicative
Transactional
to its customers as an addition to its traditional delivery channels.
An alternative is to establish either a virtual, branchless or Internet-only bank. The computer server or bank database that lies at the heart of a virtual bank may be housed in an office that serves as the legal address of such a bank or at some other location. Virtual banks provide customers with the ability to make deposits and withdrawals via automated teller machines (ATMs) or through other remote delivery channels owned by other institutions. Currently, there are three basic kinds of Internet banking are being employed in the marketplace:

Informational
This is the basic level of Internet banking. Typically, the bank has marketing information about the banks products and services on a stand-alone server. Risks associated with these operations are relatively low, as informational systems typically have no path between the server and the banks internal network. This level of Internet banking can be provided by the bank or can be outsourced. While the risk to a bank is relatively low, the data on the server or web site may be vulnerable to alteration. Appropriate controls, therefore, must be in place to prevent unauthorised alterations of the data on the banks server or web site.
Communicative
This type of Internet banking system allows some interaction between the banks systems and the customer. The interaction may be limited to electronic mail, account inquiry; loan applications or static file updates (name and address changes). Because these servers ordinarily have a direct path to the banks internal networks, the operational risk is higher with this configuration than with informational systems. Controls should be in place to prevent, monitor and alert management of any unauthorized attempt to access the banks internal networks and computer systems. Virus detection and prevention controls are also important in this environment.
Transactional
This level of internet banking allows customers to directly execute the transactions with financial implications. There are two levels of transactional Internet banking, each with a different risk profile. The basic transactional site only allows a transfer of funds between the accounts of one customer and the bank. The advanced transactional site provides a means for generating payments directly to third parties outside of the bank. This can take the form of bill payments via a bank official check or electronic funds transfer/automated clearing house entries. Many banks are also offering payments from consumer using either payment method. When the transfer of funds is allowed to a point outside of the bank; the operational risk increases. Unauthorised access in this environment can lead or give rise to fraud. Since a
Internet Banking- The Future of Banking communication path is typically complex and may include passing through several public servers, lines or devices between the customers and the banks internal networks, this is the highest risk architecture and must have the strongest controls.
Internet Banking- The Future of Banking 2.2. Advantages of Internet 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.
Transaction speed & Efficiency: Online bank sites generally execute and confirm
transactions at or quicker than ATM processing speeds. 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.
2.3.
Limitations of Internet 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 wish to view and manage your assets online, you may have to sign power of attorney before the bank will display all of your holdings.
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
Internet Banking- The Future of Banking programs, adding new features. In some cases, you may have to re-enter account information.
The trust thing: The biggest hurdle to online banking is learning to trust it. Did my
transaction go through? 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.
CHAPTER 3: PORTERS 5-FORCES IN INTERNET BANKING
3.1.
Application of Porters 5- Forces
Porter identified the five competitive forces, which tend to drive down the profitability of any industry as comprising: Threat of competitors Barriers to entry
Bargaining power of suppliers
Bargaining power of buyers and Threat of substitutes.
The application of the Porters Model to the banking industry clearly shows that this sector has reached the mature stage of its lifecycle. The trend towards electronic delivery of products and services is particularly important to the banking industry, where the shift is partly as a result of the consumers demand, but is also partly a result of the competitive environment. Some specific factors that have conspired to create the new competitive environment for banking include: changing consumer needs and perceptions, globalization, technological innovations, and competition from non-banking entities and increasingly, consumers expect online services from their financial institutions. Large organizations initially introduced Electronic Banking or Internet banking to simplify their salary and payroll problems.
Barriers to Entry: Barriers to an entry in banking industry no longer exist.
Competitors can come from any industry to disintermediate banks. Product differentiation is very difficult for banks, since most products sold in retail banking are constrained by legal or industry regulations, and, are therefore, readily limited.
10

Bargaining Power of Suppliers: Theoretically, the bargaining power of suppliers
would be high in this industry, as there are a small number of fairly large players in the industry. But, the development of online banks and financial intermediaries in areas such as mobile banking or home banking has lowered the bargaining power of the suppliers.
Bargaining Power of Consumers: Bargaining power of Consumers is increasing.
Switching costs are becoming lower with Internet Banking gaining momentum and as a result consumers loyalties are harder to retain.
Threat of Substitutes: Competition from the non-banking financial sector is
increasing rapidly. Sony and Software giants such as Microsoft are attempting to replace the banks as intermediaries.
3.2. Advantage of Porters Model
To Customer Consumers can use their computers and a telephone modem to dial in from home or any site where they have access to a computer.

The services are available seven days a week, 24 hrs a day Transactions are executed and confirmed almost instantaneously. Also, the range of transactions available is fairly broad. Consumers can do
everything from simply checking on an account balance to applying for a mortgage. Time saving and convenient.
To Organizations Improve customer access Facilitate the offering of more services 11
Internet Banking- The Future of Banking Increase customer loyalty Attract new customers Increase customer satisfaction Reduction in costs, as the need for physical branches is reduced 24x7 client servicing for general services Reduction in cost, as the need for manpower is reduced Transparent and fast response Directly reflected on the account statement, need for data entry is eliminated.
To Banks
Price: In the long run a bank can save on money by not paying for tellers or for
managing branches. Plus, it's cheaper to make transactions over the Internet.
Customer Base: The Internet allows banks to reach a whole new market- and a well
off one too, because there are no geographic boundaries with the Internet. The Internet also provides a level playing field for small banks who want to add to their customer base.
Efficiency: Banks can become more efficient than they already are by providing
Internet access for their customers. The Internet provides the bank with an almost paper less system.
Customer Service and Satisfaction: Banking on the Internet not only allows the
customer to have a full range of services available to them but it also allows them some services not offered at any of the branches. The person does not have to go to a branch where that service may or may not be offer. A person can print of information, forms, and applications via the Internet and be able to search for information efficiently instead of waiting in line and asking a teller. With more better and faster options a bank will surly be able to create better customer relations and satisfaction.
12
Image: A bank seems more state of the art to a customer if they offer Internet access.
A person may not want to use Internet banking but having the service available gives a person the feeling that their bank is on the cutting image.
3.3.
Changing the Rules
i.
Entry to Market: The Internet has helped demolish one of the biggest entry barriers to the banking market the need for a large bank network. The lower start-up costs and maintenance of the Internet Bank Branch makes it more attractive for start-up banks and for those wishing to break into new markets.
ii.
Online Servicing: Many new banking services for corporations will soon become available via the Internet and those already online will be greatly improved. With advances in technology, more and more corporations will be able to access the most up-to-date rates, select and confirm their deal, submit settlement instructions and confirmations via the Web and finally, check their accounts as the transaction is carried out.
iii.
Turning the Power of Internet Inward: Internet banking technology alone cannot only enhance what the bank can do for its customer, but it can also help the employees do their jobs effectively. For example: Union Bank of California has turned the search power of the Internet inward by creating information portals. These corporate web pages allow employees to create customized desktops with information relevant to their jobs.
iv.
New Banks: The Internet has inspired many corporations to throw their own hat into the banking arena although they appear to be primarily with the retail-banking sector at present. In Japan, 7-Eleven, Itochu and Sony have announced plans to venture into banking. The success or failure of these new banks is hugely dependent on their branding efforts, the proposition offered and its strategic execution. 13
3.4.
The Dos of Internet Banking
i.
Relationship: Banks and other financial institutions in India cannot go completely virtual, physical branches help forge a relationship with the customer that a virtual bank cannot. Most customers in India prefer direct and personal contact with their bankers.
ii.
Personalization: Banking Solutions become truly personalized when they are able to respond to the changing customer needs. For Example, Software that might tell you which credit card balance to pay off first, or alert you in advance when your Cheque will bounce. This level of personalization is still lacking in the banking solutions offered by Indian banks.
iii.
Integration: Another importance aspect is integrating customer service interface and channels, so that the customer deals with a single channel that caters to diverse needs such as kiosks, ATMs, Web TV, mobile phones, pagers and branch counters. Banks need to be one stop shops for an entire range of personal finance products from loans and insurance to mutual funds and even tax savings instruments. This is being done by account aggregators such as E-Balance and Vertical One that lets you log into the website and track information as diverse as bank and credit card balances, value of investments, and frequent-flier miles from several sites, each of which has its own username and password.
iv.
Innovation: Nowadays, banks need to depend on product innovation, expanding their range of their products and service offerings. Apart from just online accounts, e-banks would need to tailor specific products for the Internet, like online bill presentment or credit card with instant online approval. Many Internet Banks like Egg have taken the lead in offering innovative products like Egg card a credit card that features an introductory zero percent interest rates.
14
Internet Banking- The Future of Banking 3.5. How Internet Banking Section Works?
Individual or corporate Internet banking customer logins with approved user name
and password or via smart card & Customer request is sent to banks web server and passed to Internet banking. Customers login is authenticated and a response is sent back to the customer. Customer selects a banking function, such as Account Balance Inquiry. The request for balance is transmitted from the browser to the banks web server. Internet banking generates a transaction request based on the message received. The transaction request is sent to the transaction application services. The application services route the transaction to the back-end system holding the
customers account information.
Customers account information is identified, and a response is created and sent back
to Internet banking.
3.6.
Security 15
Security is the paramount issue, since access via dial-up telephone and the Internet both represent an opening of the computer system to outside world and potentially unauthorized users. Remote banking activities may also be conducted through other interactive devices, such as automated teller machines, telephones, and televisions. Therefore proper System security required to be implemented to safe guard against unauthorized access to the financial institutions networks, systems, and databases. Bank should control user access to prevent a security compromise of internal systems. Customer data must be protected from unauthorized access or alteration during transmission over public networks. Bank should develop methods to maintain confidentiality, ensure the intended person receives accurate information, and prevent eye dropping by others. In addition, to ensure non-repudiation, undeniable proof of participation by both the sender and the receiver in a transaction must be created. Most Indian enterprises equate security with anti-virus or firewall solutions.
It is only natural that business customers show concern about sending their personal details and account numbers over the Internet. The security measures are implemented partly by the bank and partly by the customers themselves through their own vigilance. Security is divided into FOUR levels:
Information Security: Information security enables information to be shared, while
ensuring protection of information and computing assets. It comprise of three basic components:
Confidentiality: Protecting sensitive information from unauthorised disclosure or
intelligible interception.

Integrity: Safeguarding the accuracy and completeness of information and software. Availability: Ensuring that information and vital service are available to users when required. 16
Transaction Security: The data exchanged between the bank and a customer is
coded or encrypted using secure servers with 40/128 bit SSL1 servers, which sit behind firewalls. The likelihood of a computer hacker breaking through these security measures is very remote.
Access Security: On registration, normally two levels of security are used each time
the customer accesses their account details with a user ID and password. A third level of authentication can be built in also, to protect misuse, for example querying the users date-of-birth.
Account Holders Vigilance: However tight the banks security system is, it is not
sufficient on its own. Business customers need to play their part too and exercise caution when banking online like not divulging their pin number or password to any third party, or by not leaving their pin lying around.
17
Internet Banking- The Future of Banking 3.7. KEY SECURITY FOR BANKS AND CUSTOMER
Authorization: Authorization involves the pre-determination of permissible
activities. Customers have access only to their own accounts and perform only authorized functions.
Access Controls: Traditional access controls, such as user identification, passwords,
and personal identification numbers (PINs), should be implemented for PC Banking customers. However, since the effectiveness of these controls is greatly influenced by the customer, there should be proper steps to educate the customer in this area.
Authentication:
Authentication is used to verify and recognize the identity of
parties to a transaction. Financial institutions may communicate with customers they never physically meet resulting in opportunities for misrepresentation. Digital certificates are being explored as methods of authentication in the PC banking environment. Authentication is the primary component of non-repudiation. Transactions on the Internet or any other telecommunication network must be secure to achieve a high level of public confidence. In cyberspace, as in the physical world, customers, banks, and merchants need assurances that they will receive the service as ordered or the merchandise as requested, and those they know the identity of the person they are dealing with. Banks typically use symmetric (private key) encryption technology to secure messages and asymmetric (public/private key) cryptography to authenticate parties. Asymmetric cryptography employs two keys a public key and a private key. These two keys are mathematically tied but one key cannot be deduced from the other. Internet banking systems should employ a level of encryption that is appropriate to the level or risk present in the systems. But stronger levels of encryption may slow or degrade performance. Therefore there should be balance in security needs with performance and cost issues. 18
Secure Data Storage: Confidential information or highly sensitive data should be
stored securely. Management should consider storing sensitive data in encrypted form and implementing stringent access controls.
Encryption - The Internet banking services work with both Netscape and Microsoft
Internet Explorer browsers that support 128-bit encryption, which is the most popular form of encryption generally available today. Encryption technology disguises information to hide its meaning and enhances confidentiality by restricting information access to only intended users. Encryption-based methods can also be used to verify message authenticity and accuracy. Encryption is the process of converting information into a more secure format for transmission. This means that plain text is converted to scrambled code while transmitted, and then decrypted back to plain text at the receiving end of the transmission.
Firewalls - A firewall is hardware and software placed between two networks. The
intent is for all network traffic, regardless of the direction of flow, to pass through this firewall. The firewall then can check all traffic to make sure it is authorized and prevent unwanted traffic from entering the system. The firewall also can check the traffic to determine whether it contains any unauthorized attachments, such as viruses. Firewalls need to be efficient to catch any traffic that is unauthorized in order to prevent potential harm to the institution. Firewalls are physical devices, software programs, or both, that enhance security by monitoring and limiting access to computer facilities. They create a security barrier between two or more networks to protect the institutions computer system from unauthorized entry. Filtering routers may be incorporated into the firewall system to screen data traffic and direct messages to certain locations.
Digital signature: A mathematical encryption technique that associates a specific
19
Internet Banking- The Future of Banking person with a given computer file and indicates that the file has not been altered since that person signed it; should not be confused with making an electronic representation of a written signature. Digital signatures were accorded legal acceptance by the IT ACT. The controller of certifying authorities, set up to implement the act, has issued licenses to four players who can issues digital signatures. These are Safescript limited, National informatics center, Institute for Development and Research in Banking Technology and Tata Consultancy Services. Government of India is planning to extend this facility to leading nationalized bank of India.
CHAPTER 4: TYPES OF ONLINE ATTACKS & BUDGETING
4.1.
Types of Online Attacks
Banks and service providers need to guard against various types of online attacks. The object of an attack may vary. Attackers may try to exploit known vulnerabilities in particular operating systems. They also may try repeatedly to make an unauthorized entry into a Web site during a short time frame thus denying service to other customers. Types of attacks may include:
Sniffers: Also known as network monitors, this is software used to capture
keystrokes from a particular PC. This software could capture logon IDs and passwords.
Guessing Passwords: Using software to test all possible combinations to gain entry
into a network. Brute Force A technique to capture encrypted messages then using software to break the code and gain access to messages, user IDs, and passwords.
Random Dialing: This technique is used to dial every number on a known bank
telephone exchange. The objective is to find a modem connected to the network. This 20
Internet Banking- The Future of Banking could then be used as a point of attack.
Social Engineering: An attacker calls the banks help desk impersonating an
authorized user to gain information about the system including changing passwords.
Trojan Horse: A programmer can embed code into a system that will allow the
programmer or another person unauthorized entrance into the system or network.
Hijacking: Intercepting transmissions then attempting to deduce information from
them. Internet traffic is particularly vulnerable to this threat.
Hacker: A computer operator who breaks into a computer without authorization, for
malicious reasons, just to prove it can be done or other personal reasons.
4.2.
Budgeting for Internet Banking
One of the problems for the bank is that any information technology project is the cost escalation. When banks are planning to implement an IT project they must take a detailed look at the costs involved. If cost is not calculated properly, the cost calculation can overshoot by 100 to 200 percent. And if the IT project is in crores of rupees, one cannot overemphasize the consequences. Important banking projects these days -such as centralized core banking and Internet Banking. Easily come in this price range.
Product Cost Structure: The cost structure in any proposal from a vendor will have
three components: First components are One-time license fee, which the vendor will charge the bank for Internet banking. Second component is the annual maintenance charge or the Annual License Fee. This 21
Internet Banking- The Future of Banking can vary from 10 to 20 percent of the software cost. This usually includes all the enhancements of the product that the vendor will release from time to time. Third component will be the professional service charges. Service charges will be
applicable to all activities in which the professional of the vendor will be working on banks Internet banking or IT project. The last component is most prone to cost surprises.
Professional Service Charges: In the contract of implementation and support this
rate will be marked as per-day fee for vendor professionals and allowance. Whenever bank want to implement a core banking system, or internet banking system, it will have to be approved by your Board of Directors, simply because of the financial implication i.e. if bank finds that the entire budget is over but the project is only 50 percent complete. The main culprit here is the professional fee for consultants. It is not always necessary that the vendor engineers are the most proficient ones. In fact most of the vendors send only the second or third line of consultants/engineers for implementation IT projects. This means that while the vendor consultants are refining their skills on their product, bank keep paying more and more. Or banks become their training ground. Besides, the professional service effort is always an estimated effort; bank cannot bind the vendor once the work. Bank mainly selected the Internet banking product through a quotation process from a number of vendors and bank insists on a fixed charge for the professional services. Another alternative banks follow is to have a man-days budget with a variation capital incorporated in the contract.
Fixed Manpower Budget: If bank manage to achieve a professional services cost
capitalization, will need to show some discipline. The worst area where banks let vendors down and compel them to be dishonest is the decision making process. When an IT project is launched, manpower resources are committed to it. These resources are highly paid besides having huge overhead costs. The decision making process in most of the banks is such that in spite of the budget having been approved for the IT project, for 22
Internet Banking- The Future of Banking every decision - be it for a business requirements specifications or be it for an item of expenditure- days and sometimes weeks are lost. This will throw any project plan and manpower budget out of gear. And a vendor, who has calculated and committed the price quotation on a reasonably tight budget, will incur heavy losses. Hence, if bank manage to get a fixed manpower budget in the contract, bank should have a foolproof decisionmaking and expenditure sanction machinery in place for the IT project.
Hidden Costs: Rather these are unforeseen costs, some of the banks normally fail to
see at the beginning when they are planning for Internet banking budget. Some of them are Internet banking expenditures that are left out at the time of initial budgeting. Individually, these appear to be small; together they become a substantial part of the total cost. And if bank miss out on these, bank wisdom in estimation is going to be questioned later on. Hardware and Software for Backup System and Test System; Firewall System Hardware, OS, Software; Firewall for back up system; Encryption mechanism; Web Server Certificates; Leased line and backup connection costs; Security policy design, validation and auditing costs; Disaster Recovery Center costs; Risk Management and Contingency Plan; Costs of hiring computers for project implementation and UAT; Costs involved in hiring consultant(s) for techno-legal planning; Process Change Management.
23
CHAPTER 5: INTERNET BANKING IN INDIA
5.1.
History of Indian Banking
Indias banking system dates back to 1870 when the Bank of Hindustan was set up. During British colonisation, three banks were set up under the Presidencys act of 1876, and these later amalgamated in 1921 to form the Imperial Bank of India. Princely states also had private banks. During World War II and Independence from British rule in 1947, the Reserve Bank of India (RBI) was established as an Apex bank under government control. In 1955, the RBI acquired control of the Imperial Bank of India, which was re-christened the State Bank of India, and took control over the state run private banks. By 1960, a merger of weak banks brought the number of banks down to 85. In 1969, most banks with higher deposits were nationalised. Fuelled by a sentiment of patriotism and bonding following independence, most Indians preferred to use nationalised banks, rather than private banks. Rigid controls by the RBI on the banking sector and closed markets fuelled the growth of these banks, although bureaucracy limited their activities. Private institutions and money lenders were not encouraged by the average Indian consumer, as the national sentiment was strongly inclined towards democratic socialism. However, this sentiment also gave birth to the concept of co-operative banks, run essentially by various unions with common objectives, for example, the milk producers union and agricultural unions. They were organised along the lines of cooperative management, with a no profit, no loss basis.
The early 1980s set the pace for computerization and mechanization, following the formation of the Rangarajan Committee, which had a mandate to develop a phased plan over, 1985-89 to automate banking processes and was supported by the growth of branch banking and the easy availability of PCs. The second Rangarajan Committee which was formed in 1988 drew up a comprehensive plan to computerize the banks and for an extension of automation to other areas like funds transfer, SWIFT, ATMs etc. Towards the 24
Internet Banking- The Future of Banking end of the 1980s, the deregulation process was gaining momentum with the growing high tech sector in India. Deregulation has become an important mechanism for generating competition in the banking system in many developing countries. The impact of liberalisation on commercial banks was felt in the early years of deregulation, with particular emphasis on the period covering 1986-1991. The results indicated that publicly owned banks were more efficient. However, towards the end of the study period, foreign banks appeared to catch up, perhaps due to their branching into metropolitan areas and better adaptation to the competitive environment. There were changes taking place within India itself, such as the impact of global trends, technological innovations, and a growing generation of technically skilled youth who were driven by rational views, moving away from the older generation with their nationalist attitudes, making further modification of attitudes and actions inevitable. The 1990s were a period of rapid development in the technology-based industries, and de-regulation of the market following the removal of protection by the government, leading to the growth of entrepreneurial activity on the part of many banks. The Narasimham Committee report in 1992 introduced new reforms, followed by the Banking Regulations Act in 1993, enabling new private banks to enter the arena. In 1996, full foreign investment was allowed. In 1997, the Tarapore Committee report on capital account convertibility launched a new mandate to support the full convertibility of the rupee by the turn of 2000. These developments were supported by the growing levels of expertise in information technology; venture capitalism and increasing amounts of foreign investment.
In the current banking system of India, the major participants in the financial system are the commercial banks, the financial institutions (FI), non-bank financial companies (NBFCs) and other market intermediaries such as stockbrokers and moneylenders. The banking segment in India functions under the umbrella of the Reserve Bank of India the regulatory, central bank. Broadly it consists of Commercial Banks and Co-operative banks, which include scheduled and unscheduled banks. The Commercial banks are further divided into public sector (with major shareholders such as the Government of India or the RBI), private 25
Internet Banking- The Future of Banking sector banks and foreign banks. IBA (the Indian Banking Association) regulates the bulk of the Indian commercial banks, with certain stipulations such as minimum deposit bases to open ATMs. Most public sector banks with unions are members of the IBA, although membership is not compulsory. There is also a consumer protection authority that safeguards the interests of the individual user.
5.2.
Indian Experiences
India is still in the early stages of Internet banking growth and development. While it is plagued by infrastructure problems, slow uptake of Internet access and PCs, poor telecommunication network policies and slow paced regulatory initiatives, the rapidly growing software industry in India and ever increasing demand from the IT professionals have been promoting and supporting the online banking concept. The formerly information poor nation is becoming a high tech intellectual center enabling banks to capitalize on the brainpower available in the country. Banking in the country is witnessing a sea change as the sector seeks new applications with the demand from and facilities provided by the growing info tech professional sector. Competition and changes in technology and lifestyle in the last five years have changed the face of banking. The changes that have taken place impose on banks tough standards of competition and compliance. Internet banking is likely to bring a host of opportunities as well as unprecedented risks to the fundamental Nature of banking in India. The impact of I-Banking in India is not yet apparent. Many global research companies believe that Internet banking adoption in India in the near future would be slow compared to other major Asian countries. Indian I-banking is still nascent, although it is fast becoming a strategic necessity for most commercial banks, as competition increases from private banks and non-banking financial institutions. The private banks have been quick to capitalize on this attitude, by forming alliances with utility service providers (mainly Credit cards, mobile operators and phone services), and offering services on the Internet. 26
5.3.
First Internet Bank in India
Private and foreign banks have been the early adopters of I-banking while the Public sector banks are also beginning to hold on to the competition. ICICI Bank and HDFC Bank have taken a lead in introducing Internet banking in India. ICICI was the first bank to initiate the Internet banking revolution in India as early as 1997 under the brand name Infinity ICICI Bank is the first one to have introduced Internet banking for a limited range of services such as access to account information and recently, funds transfer between its branches. ICICI is also getting into e trading, thus offering a broader range of integrated services to the customer. Other banks also followed the suit. However, 1996-98 was the period of Internet banking adoption while the Internet banking usage gained importance only in 1999. After ICICI, Citibank, IndusInd Bank, Global Trust Bank, HDFC Bank, Federal Bank were the early ones to adopt the technology in 1999. Large public sector banks like SBI and UTI initially slow to adopt online banking and Bank of Baroda too planning to invest around Rs 250 crore for its online banking operations.
5.4.
Internet Banking Services
Around 51 banks are offering a variety of Internet services. While 55% offer entry-level services, 8% offer advanced transactions such as online transfer, the other 37% is still in the process of catching up with Internet banking. The public sector banks, which constitute about 65% of the sector, are still plagued by union issues, inertia in the lower ranks and a general apathy towards technological innovations, especially the Internet. Foreign banks have a wider variety of I-Banking services with their existing high technology linkages and infrastructure. However, the newly formed private banks seem to be pulling ahead of the foreign and public sector banks, especially in the I Banking sector. To start with, they did not have the issue of legacy systems and processes that plagued the public sector banks and 27
Internet Banking- The Future of Banking therefore, did not have to restructure. As observed, the private banks have had the
benefit of being innovation leaders, supported by technology. The private banks have also been acquiring the older and weaker banks thus growing in size. In addition to this, the new generation of IT professionals demands innovative services, while supporting their growth. The public sector banks are trying to catch up in this competitive environment, but they still have a long way to go.
5.5.
Indian Consumer
The average Indian consumer was initially driven by national sentiment to use nationalised banks, an approach which also acted as a stability measure. But social and economic changes in India now mean there is an increasing number of better educated, better off and more financially sophisticated professionals who have no cultural problems with credit. The uptake of I-Banking usage is fairly low and is concentrated in urban areas. Lack of skill in using an Internet banking and inaccessibility have been identified as major causes for this slow uptake by the majority of banks. 5.6. Security & IT
RBI has issued guidelines to banking and finance companies advising them to secure their information assets. For banks, data translates to money and illicit data tampering could result in losses. Not to mention damage to reputation and defection of customer. The legal challenges of Internet banking in India include information security and regulatory compliance. The IBA recently launched EFT (electronic funds transfer) and ECS (electronic clearing system) as major electronic banking products. EFT is the safest and fastest way to transfer money, regardless of bank, branch, or city. ECS enables deposit of dividends into the shareholders account, if the bank account is given. The geographical spread lacking in EFT has led to the increasing popularity of ECS. In September 2000, the Institute of Development and Research in Banking Technology (IDBRT) implemented its long-awaited 28
Internet Banking- The Future of Banking EFT and real-time gross settlement (RTGS) system, with services available throughout India. The Indian Financial Network (Infinet), a VSAT-based communication backbone for the national payment system, was equipped with a full transponder on the INSAT-3B satellite to carry out its operations.
5.7.
Role of RBI
Like most of other activities in banking RBI also set up two committees in quick succession to accelerate the pace of automation of operations in the banking sector. In the early 80s, a high level committee was formed under the chairmanship of Dr. C. Rangarajan, then Governor of RBI, to draw up a phased plan for computerization and mechanization in the banking industry over a five year time frame of 1985-89. The focus by this time was on customer service and two models of branch automation were developed and implemented. Having gained experience in the earlier mode of computerization, the second Rangarajan committee constituted in 1988 drew up a detailed perspective plan for computerization of banks and for extension of automation to other areas like funds transfer, e-mail, BANKNET, SWIFT, ATMs, Internet banking etc.
The Government of India enacted the Information Technology Act, 2000, generally known as IT Act, 2000, with effect from the 17th October 2000 to provide legal recognition to electronic transactions and other means of Electronic Commerce. 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.
1. Technology And Security Issues The importance of the impact of technology and information security cannot be doubted. Technological developments have been one of the key drivers of the global economy and represent an instrument that if exploited well can boost the efficiency and competivity of the 29
Internet Banking- The Future of Banking banking sector. However, the rapid growth of the Internet has introduced a completely new level of security related problems. The problem here is that since the Internet is not a regulated technology and it is readily accessible to millions of people, there will always be people who want to use it to make illicit gains. The security issue can be addressed at three levels. The first is the security of customer information as it is sent from the customer's PC to the Web server. The second is the security of the environment in which the Internet banking server and customer information database reside. Third, security measures must be in place to prevent unauthorized users from attempting to long into the online banking section of the website.
2. Legal Issues 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.
3. Regulatory And Supervisory Issues The regulatory and supervisory issues, only such banks which are licensed and supervised and have a physical presence in India will be permitted to offer E-banking products to residents of India. With institutions becoming more and more global and complex, the nature of risks in the international financial system has changed. The Regulators themselves who will now be paying much more attention to the qualitative aspects of risk management have recognized this. Though the Indian Government has announced cyber laws, most corporate are not clear about them, and feel they are insufficient for the growth of E-commerce. Lack of consumer protection laws is another issue that needs to be tackled, if people have to feel more comfortable about transacting online. RBI had accepted the recommendations of the Working Group and accordingly issued guidelines on Internet banking in India for 30
Internet Banking- The Future of Banking implementation by banks. The Working Group has also issued a report on Internet banking covering different aspects of I-banking.
Considerable progress has been made in consolidating the existing payment systems and in upgrading technology with a view to establishing an efficient, integrated and secure system functioning in a real-time environment. Major projects under implementation are electronic clearing, centralized funds management, structured financial messaging solutions and the Indian Financial Network (INFINET). Facilities under Electronic Funds Transfer (EFT) have been upgraded and their spatial reach expanded with multiple settlements in a day. Foreign exchange clearing has been initiated through the Clearing Corporation of India Limited (CCIL). Adequate security features are being incorporated into the EFT. Preparatory work for the real time gross settlement (RTGS) is complete. Also RBI is about to become the first Government owned digital signature Certifying Authority (CA) in India. The move is expected to initiate the electronic transaction process in the banking sector and will have farreaching results in terms of cost and speed of transactions between government- owned banks.
Thus efficiency, growth and the need to satisfy a growing tech-survey consumer base are three clear rationales for implementing E-banking in India. The four forces-customers, technology, convergence and globalization have the most important effect on the Indian financial sector and these changes are forcing banks to redefine their business models and integrate technology into all aspect of operation.
31
CHAPTER 6: CASE STUDIES: 6.1 STATE BANK OF INDIA
Overview The State Bank of India has been, over the years, the flagship of Indian banking. State Bank of India is the largest bank in India in terms of profits, assets, deposits, branches and employees.
Internet Banking www.onlinesbi.com is the Internet banking service of the state bank of India. State bank of India is one of the Indias premier commercial bank. This service is available at certain designated branches of SBI. Customer can access the account (s) at he host branch through personal computer, from customer location. The connectivity is offered through SBI website.onlinesbi.com, through Internet gateway. www.onlinesbi.com is a self-service channel that is available for customer 24hours and 7days a week. This services available to the customer at a free cost. Website is user friendly for the customer.
Product and Services Online SBI offers all the main banking services, with the added flexibility of being able to manage customer-banking needs online. Any customer maintaining any account with designated branches can avail online service. To avail any of the services customers should register in onlinesbi.com.
Balances & Quick Look Statement This will give customer a detail of accounts and balances. In addition to the balance account, the last 10 transactions on the account could be view by customer.
Account Statement 32
Internet Banking- The Future of Banking Look at all transactions within a specified date range along with the opening and closing balances. Customer can download the statement in PDF or MS-Excel compatible formats.
Query on Transaction Details Customer can view detail transaction of there account by date range, amount or even cheque number!
Transaction Customer can transfer funds from any branch of SBI to any other branch at the click of a button. Send demand drafts, credit PPF accounts. More than 1 lakh users are now transacting at Online SBI in an extremely secure and safe environment. Some of the transactions are:
Funds Transfer: Transfer funds between your own accounts from any branch to any
other branch. Demand Drafts: Customer can ask for a DD online and pick it up by customer from
the branch. Third Party Transfer: Transfer funds to your trusted third parties whenever customer
pleases. link. View/Cancel Pending transactions: customer can put through transactions when the Status Enquiry: Customer can enquire the status of Internet transactions through this
branch systems are down. In such cases, bank store the transaction and process it at the earliest possible opportunity. However, you may cancel such transactions whenever you wish before they are put through.
Other Function Open an account, Request for cheque book, Bankers cheque, Stop cheque payment, Issue 33
Internet Banking- The Future of Banking standing instruction, Renew term deposit and Download statement.
E-PAY E-Pay is online bill payment services, launched by SBI. Bill Payment @ Online SBI (e-Pay) will pay Telephone, Mobile, Electricity, Insurance and Credit Card bills electronically over Online SBI website. Check & Pay bill online, 24 hours a day, over e-Pay. Customer can get a Cyber Receipt for the payments done online or scheduled over online SBI. Biller presents bills online or Auto-Pay instructions than bank will pay the bills as and when it falls due. This service is available only in Mumbai and Delhi Customer can get services through e-Pay Registration Form and send the same to branch. Branch will add biller for payment over epay
Booking Railway Tickets This facility has been launched from 1st September 2003 in association with IRCTC. The scheme facilitates Booking of Railways Ticket Online.
Steps to book railway ticket online

1. Registration: Customer required registering on http://www.irctc.co.in. /, and select a
train depending on journey.
2. Payment: Click on payment option, the user will be redirected to onlinesbi.com.
After logging on to the site payment amount, Traveling ID number and railway reference number will be displayed. On selecting the payment amount your account will be debited. User will return to http://www.irctc.co.in. /. PNR No. Will be displayed. User can print the ticket.
Individual and Corporate Customer This on-line channel enables customers to access their account information and initiate 34
Internet Banking- The Future of Banking transactions on a 24x7, boundary less basis. 1116 branches, covering 237 centers, are extending Internet banking service to their customers. All functionalities other than Cash and Clearing have been extended to individual retail customers. A separate Internet Banking module for corporate customers has been launched and available at 461 branches. Bulk upload of data for Corporate, Inter-branch funds transfer for Retail customers, Electronic Bill Presentment & Payment, SMS Alerts, E-Poll, IIT GATE Fee Collection, Off-line Customer Registration Process and Railway Ticket Booking are the new features deployed.
INDIVIDUAL CUSTOMER
Infrastructure: Customer should have a pc with minimum configuration of Pentium
(P100) chip with 32 MB RAM for logging on to the Internet, a telephone connection and a modem.
Avail Online SBI: Customer maintaining any account with designated branches can
avail onlinesbi.com services.
Registration Procedure: Customer has to enclose application form duly filled or can
visit site www.onlinesbi.com and down load the application form. The duly filled in application form may be mailed to the designated branch where account is maintained. Individual customer can also collect printed enrolment form from designated branches. The branch manager will register the name and User-ID and password is send through a courier to the customer. Two user Id and password are give to the customer. One UserID and password is give to log on to the service and other User-ID and password are to access the service. User-Id and password are alphanumerical. Once user ID and password are given to customer, system and customer can only recognize the password and userID. This user-ID and password should be acknowledged to the branch under the customer signature. Thereafter customer can log into www.onlinesbi.com. Individual customer has right to access the account after giving conformity information to the branch for operation 35
Internet Banking- The Future of Banking of the account.
CORPORATE CUSTOMER State bank of India offers corporate clients, a fully secured Internet based online, real time electronic delivery channel, providing convenient and secure access to there banking information over the Internet. State Bank of India has created 3-level hierarchical design, which is well suited to today's corporate vision of managing global business. To cater corporate needs, SBI Corporate Internet Banking has offered 3-hierarchical services which as follows:
i.
Advantage Advantage enables client access account information anywhere anytime. Advantage is also known as khata. Most suited for small firms, companies, institutions banking with one branch of SBI. Financial information can be accessed 24 hours and 7 day a week. Client has the following advantage:
Enquiry rights on the accounts & Facility to view account information at a branch of
client choice. All the authorized users from the corporate get a complete view of information.
ii.
Privilege Privilege is a second hierarchical level of service provide to corporate client, which is also know as vyapaar. This level of services most suited for small and medium sized organization. This service provided for small group user with discretional access and discretionary rights. In privilege corporate client can do business or financial transaction over Internet and make payment through cyber. Various features of this service are as follows:
Online transactional features enabled such as fund transfers, third party payments and draft issue. 36
Internet Banking- The Future of Banking Individual transactions of Rs. 5 lacs and less initiated online. Supports dealings with one branch.
Administrator module for better control and security.
Banking users who will carry out the banking operations. Small group user allowed to filtered access and delegated rights, which enable administrator to empower employees.
iii.
Freedom This service is mainly for large and very large organization who can access to organization account across branches with a single sign on. In this service corporate customer is allowed to operate the business at any geographical location from wherever they desire, freedom to take urgent financial decisions from any situation and also freedom to empower people to conduct business. This all services is provided by bank according to the framework laid down by the bank. Freedom provides an all-round financial or business solution, online.
Benefits Access to firms accounts across the branches with a single sign on. All Online transactional functionalities offered, e.g., fund transfers, third party
payments, draft issues etc. Fund transfers and transactions enabled across all Internet Banking enabled
branches. Receive payments over the Internet e.g., sales receivables, bills due.
TECHNOLOGY AND SECURITY STANDARD IN SBI
Security State bank of India has tied up with America security agencies to provide a well network security to the customer and for bank. Security procedure is very sophisticated and highly techno-savvy. Almost two and half year of internet banking service provided by state bank of 37
Internet Banking- The Future of Banking India, there has been no hackers or no virus problem faced by customer and as well as bank. Core system of bank handles all the security, which is also know as hub center. Core processing system is located in Bhandup, which control all Internet banking transactions. Security systems for online SBI are as follows:
Hosted from level-3 Internet data center o o o Well-structured security standards on the processing platform. Strong security in the application products being run on those platforms Protection of communications between the processor and third party vendors.
Logical security o
o
Fire wall system, intrusion detection systems. Login through HPIN based password & Different access and transaction
password
o
Verisign site certification: Verisign, Inc. delivers intelligent infrastructure
services that make the Internet and telecommunications networks more reliable and secure.
1. Identity verified certification it indicate
State bank of India owns or operates the Web site located at www.onlinesbi.com. Government records confirm State Bank of India as a valid business.
2. Security verified certification it indicate A Verisign SSL certificate secures this Web site. Information sent from addresses that begin with https is encrypted before
transmission. Technology SBI has outsourced the technology to Satyam computer system. It provides and supports the 38
Internet Banking- The Future of Banking Internet banking solution of SBI. Satyam computer system links the bank and the customer. It connects the core processing system. Internet security technologies solve issues of privacy, authentication access control, data integrity, and no repudiation.
Bill Payment State bank of India integrate consumers bank account information with a bill paying process that covers all form of consumers bills. This is a powerful tool for the bank facilities provided by Satyam computer system.
Active Selling Active selling involves gaining a better understanding of the customer by analyzing data that is either collected during user sessions or extracted from the SBI core processing systems. Using this data allows SBI to better identify cross-selling opportunities like ATM, mobile banking ECT.
SUPPORTING TECHNOLOGY OF STATE BANK OF INDIA
State Bank Electronic Payment: Under STEPS, the banks electronic funds transfer system; the Products offered are E-Transfer (eT), E-Realisation (eR), eDebit (CMP) and ATM reconciliation. STEPS handle payment messages and reconciliation simultaneously.
Special Electronic Funds Transfer (SEFT): SBI has launched the Special Electronic Fund Transfer (SEFT) Scheme of RBI, to facilitate efficient and expeditious Inter-bank transfer of funds. 323 branches of Bank in various LHO Centres are participating in the scheme. Security of message transmission has been enhanced.
Electronic Payment System: State Bank Electronic Payment Systems (STEPS) is a highly innovative and effective payment solution designed, developed and implemented by State 39
Internet Banking- The Future of Banking Bank of India in selected Fully Computerized Branches. STEPS provide an end-to-end fully automated Electronic Funds Transfer (EFT) to ensure availability of funds at the destination with speed and efficiency. STEPS ensure credit of funds to the beneficiarys account at the other branch on the next day. The coverage already ensures E-T facility at all the major and important centres across the country; the plans are on hand to include all 2,853 FCBs to provide the service. ET offers the value addition to the customer but comes at no extra cost (the exchange payable is normal like a draft or TT). SBI uses the VSAT technology consisting of 162 INFINET VSATs in 113 cities to extend the STEPS service to the customers, and VSAT connectivity is also increasing to cover more areas in the country.
Inter-Bank Electronic Funds Transfer: Inter-bank Electronic Funds Transfer facility of the Reserve Bank of India (RBI - EFT) is available with our branches in the clearing zone of Service Branches at Kolkata, Mumbai, New Delhi and Chennai.
WAN (Wide Area Network)
The bank has set up a Wide Area Network that provides connectivity to 1419 branches across 49 cities in the first phase. The networking project provides across the board benefits by providing nationwide connectivity for its business applications. Under phase two, Data craft India will undertake turnkey implementation of SBIs corporate backbone also known as SBI Connect from design, provision, supply and project management. It will help the Bank to network an additional 1400 branches of SBI at an additional 251 centres. 1700 branches of our Associates will also be connected in this phase at all the 300 SBI connect centres. In addition ATMs and other electronic delivery channels also will be connected.
BENEFITS TO BANK
Less work to bank 40
No manual work i.e. transaction and recording take place directly. Fewer loads for an employee. No requirement of front line staff. Avoid crowded banking halls. Transaction cost is lowered. Internet banking reduces error in transaction. Reconciliation is faster.
41
6.2 INTERNET BANKING AT ICICI BANK

About ICICI
The Industrial Credit and Investment Corporation of India Limited (ICICI) were formed in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry. The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. ICICI Bank was originally promoted in 1994 by ICICI Limited and was its wholly owned subsidiary. In 1999, ICICI become the first Indian company and the first bank or financial institution from non-Japan Asia to be listed on the NYSE. ICICI Bank is India's second-largest bank with total assets of about Rs. 1 trillion and a network of about 540 branches and offices and over 1,000 ATMs. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital, asset management and information technology. ICICI Bank also offers wide spectrum of domestic and international banking services to facilitate trade, investment, and cross-border business, treasury and foreign exchange services. This is in addition to a wide range of deposit services for individuals and corporate.
ICICI Bank's equity shares are listed in India on several stock exchanges and its American Depository Receipts (ADRs) are listed on the New York Stock Exchange (NYSE). The Bank is noted for its innovative services and has been active in pioneering new initiatives for its domestic-wide clients. It introduced a variety of financial products via an increasing number delivery channels like the Internet, call center services, Branch Tellers, ATMs and etc. With the liberalisation of the Indian economy in the 90's and regulatory changes, ICICI Bank extended its portfolio of financial services in the area of investment banking, retail banking, private banking, treasury services and of course internet banking. It 42
Internet Banking- The Future of Banking is characterised by state of- the-art technology and systems, all networked through V-SAT (satellite) technology. The bank has been quick to join the SWIFT network, a year after its inception, and sign mergers with banks (Bank of Madura) and keeping its image up as an innovation leader.
Internet Banking
The bank was first to launch an Internet Banking service in the country, named Infinity. ICICI bank uses Infinity from Infosys, for its credit card business its uses Vision Plus from Pay Sys, USA, for WAP services the tie-up with cellular service providers Orange and Airtel helps reach out to these users, while the WAP technology is being implemented by the inhouse ICICI Infotech service. To leverage the Net for its marketing initiatives ICICI bank and Satyam Info way have jointly set up a "COM" company to promote banking products on the Net.
Technology and Security
ICICI has announced a tie-up with technology providers such as Compaq, software trainers such as NIIT, and the ISP Satyam Online, to widen its reach. All these alliances are with organisations, which are growing at the rate of 50 percent or more per year. The growth of its own share prices is indicative of the organizations success. In July 2000, it launched Payseal, a payment gateway, which ensures safety and security of online transactions. Payseal interfaces between the Internet shopper, web merchant and banking systems in a secured environment to facilitate online payments. The bank has also entered into agreements with leading corporate like BPL, Rediff.com, Usha Martin and Tata Communications for B to C solutions in a bid to further strengthen its Internet banking product offering and services. Also ICICI has joined hands with a consortium led by Compaq to take the lead in offering a solution to the Indian e-commerce community. This 43
Internet Banking- The Future of Banking consortium offers a B2B and B2C e-commerce payment gateway within India.
Strategy
The bank seems to be focusing on the urban young professional, based on the underlying policy of catching them young and growing with them. The banks strategy is based on demand for services such as investment products, payment of utility bills, home loans, etc. by the young professionals concentrated in the metropolitan areas. ICICI bank seeks to branch out through a network of professional and supported mergers with other private sector banks (such as Bank of Madura), which will enable its growth into rural areas. The continuing momentum of Internet growth is expected to aid its expansion. Therefore, strategically, ICICI bank, despite regulatory and infrastructure issues have been able to capitalize on the technological growth momentum and joint ventures with major market share holders in significant growth sectors, to offer a wide range of online banking services, thus boosting its competitive advantage. ICICIs strength has been its ability to attack problems by leveraging its innovation leader status on Internet.
Challenge
Being among the first banks to introduce Virtual Financial Institution, ICICI was eager to pursue a click and brick strategy. Established primarily as a wholesale lending institution providing commercial lending facilities for large-scale finance projects, the institution wanted better integrated and flexible universal financial banking software that enabled the bank to address the complete financial services needs of both private and corporate customers. Given the scale of the initiative, there were serious risks to consider:
Business risk
44
Internet Banking- The Future of Banking In pursuit of its Click and Brick strategy, the Bank was growing at a speedy rate, with the branch network increasing from 60 to a targeted 250. ICICI faced the additional challenge of supporting both a physical network serving six million households and virtual banking processes and applications into one seamless platform. Furthermore, the necessity to comply with Indians regulatory policies, procedures and practice created major concern as the bank went on an aggressive expansion growth strategy.
Technology risk
As the entire project focused on a customer centricity, it was critical to have the appropriate level of business intelligence integrated into the new banking system. The Bank also needed to manage the technology risks associated with the migration from its legacy systems to the new technologies necessary to manage the increasing volumes of transactions at net speed.
45
Internet Banking- The Future of Banking SWOT ANALYSIS OF ICICI BANK STRENGTHS First mover advantage as innovation leader in Internet Banking Branded as technology leader WEAKNESSES Slow moving regulatory reform in the banking sector especially with net banking Infrastructure issues at micro and macro levels Capitalize on innovation leader image Threat of being acquired by a multinational bank or public sector corporation Consumer relationships built on demand Online Banking growth driven by consumer perceptions Advanced Technology and providing innovative products & services Too many subsidiaries and high cost of funds Cultural and distance barriers limiting the speed Speed Limitation due Higher Capital Base to telecom carriers OPPORTUNITIES Leverage the first mover advantage THREATS Market Share loss to industry rivals as well as new players
46
Internet Banking- The Future of Banking 6.3 HDFC RAPID GROWTH IN INTERNET BANKING
About HDFC Bank
HDFC Bank Ltd. is a new-generation, private sector commercial bank in India. Founded in 1994 by India's leading housing company, HDFC Bank initially focused on corporate banking. Within only 1.5 years HDFC Bank was established as the premier bank in this segment, forming relationships with the top 200 corporations in India. HDFC Bank has 4,000 employees and 1.9 million retail customers; and is adding 2,000 new customers every day. With assets of $2.6 billion, it is one of India's leading private sector banks and has averaged return on equity of 23 percent annually over the past five years. The bank's success has not gone unnoticed in the banking and business community. In the year 2000, leading financial magazine Forbes Global named HDFC Bank in its list of "The 300 Best Small Companies" in the world and as one of the "20 for 2001" best small companies in the world. The Economic Times has chosen HDFC Bank for The Economic Times Award for Emerging Company of the Year 2000-01.
Real-Time Internet Banking
These ratings are due in part to the bank's emphasis on using advanced technology to boost effectiveness, efficiency, and customer convenience. All 160-plus branches are networked using Intel-based servers and 2,500 Intel. Architecture-based desktops, connected to the bank's back-end legacy database server. Customer convenience has been enhanced through online, real-time banking services such as ATMs, IVR-based phone banking, mobile banking and net banking, which it launched to enhance customer convenience by harnessing the power of enabling technology. This awareness and the sheer convenience have created strong customer demand. As a result, HDFC Bank's strategy was to enter Internet banking for the convenience of customers, to enhance our rate of customer retention, and ultimately, 47
Internet Banking- The Future of Banking to lower transaction costs for the bank."
48
Internet Banking- The Future of Banking Internet Banking Product and Services
The bank has deployed three Internet banking solutions, all on Intel architecture making HDFC Bank the first bank in India to offer real-time online transactions. HDFC Bank's Net Banking* solution gives retail customers the convenience of accessing their accounts over the Internet, gaining real-time information such as account details, checkbook balances, and account histories. Net Banking also offers the ability to conduct core financial transactions such as check stop payment, bill payment, and fund transfers between accounts. HDFC Bank's Mobile Banking service gives retail customers account information and real-time transaction capabilities from their cell phones "anywhere, anytime, anyhow" convenience. And corporate Internet banking provides core account and real-time transaction services to the bank's commercial customers, including a link to the bank's business-to-consumer Internet gateway for bill presentment and payment.
Meeting Business-Critical Standards
HDFC Bank received many benefits from Internet banking solutions based on highperformance Intel-based servers and software. These include a lower cost of entry than RISC-based solutions, more freedom of choice in choosing vendors, products and partners, and faster solution development due to ease of applications with the large base of skilled technical engineers. HDFC Bank worked closely with solution providers I-flex Solutions Ltd. and SR Singapore Pte Ltd. for its Internet banking solutions, an example of the broad ecosystem of fellow travelers conversant in Intel architecture, software and solutions. These benefits come at no sacrifice to the essential robustness required of any solution in the financial services industry. Intel architecture Internet banking solutions meet businesscritical standards of reliability, availability, scalability and manageability "Cost effectiveness has also been very good. Intel architecture provides a cost-effective growth path, from a low cost of entry that can be scaled upward to meet a bank's growth needs. For HDFC time to 49
Internet Banking- The Future of Banking develop Internet banking solution was less than 12 weeks.
Internet banking is relatively new at HDFC Bank, detailed data is not yet available on return on investment, but the early returns indicate that the bank's e-Business solutions have helped to improve customer services, as well as in the acquisition of new customers. For instance, the bank's retail customer base has grown threefold during the two years that Internet banking has been in operation. And on the corporate side, Internet banking is popular and in demand, as many corporate customers are using it to automate their own value chain.
HDFC Bank's Enterprise IT Architecture
At HDFC Bank Internet banking exists in the context of a mixed, integrated enterprise IT architecture, featuring solutions deployed on Intel-architecture systems. HDFC Bank's Internet banking solutions feature a 3-tier, layered architecture with distinct layers for presentation, application, and enterprise application integration that interfaces with the bank's host systems. Both the corporate and retail Internet banking transaction processing engines, the Web servers, and the content servers all reside on Intel architecture systems, as do the firewall and several proxy servers. The primary client is Microsoft's Internet Explorer 5.0.
Internet Banking Solution
The retail Internet banking solution, ITPS, is an Internet transaction processing engine built around Microsoft Transaction Server-based middleware and uses the COM application architecture. This is deployed using a Java* 2 Enterprise Edition (J2EE) class application server, with the architecture layers interfacing with each other via Extensible Markup Language (XML). The application server runs on two 8 ways Intel. Pentium. III Xeon processors with 4GB RAM. The Microsoft* SQL Server* database supporting the 50
Internet Banking- The Future of Banking application runs out of two 4 way Intel. Pentium. III Xeon processors with 4GB RAM. In the retail space, the mobile Internet banking solution offers two services: GSM-based cell phones utilize Short Message Service (SMS) via Short Message Service Centers (SMSC) provided by the mobile service provider; Intel architecture-based Wireless Application Protocol (WAP) services rely on a micro-browser from Phone.com on the WAP mobile clients. Two-way connections from the mobile service provider to the bank's ITPS Internet transaction processing engine are via the Internet using SSL 3.0 to guarantee security.
Developing the Solution
To complement its real-time services available via branch, ATM, phone banking and call center, HDFC Bank decided to Internet-enable its services. At that point, HDFC Bank executives gathered and reviewed information from multiple sources about platforms and software solutions, and took into consideration the advice of I-flex and other trusted solution providers. In evaluating the possible choices, HDFC Bank first looked to the applications and system software that were available on Intel architecture. In the retail space, for instance, Iflex proposed the ITPS Internet banking application that runs on Intel-architecture, and from that point the basic due diligence began. Intel-based solutions offer the performance, reliability, availability, scalability and manageability required of any business-critical solution. Intel architecture also enabled HDFC Bank to take advantage of the latest technology enhancements in Microsoft's product suite, and in the Web application server areas, Java deployment and J2EE-based application servers.
51
CHAPTER 7: CONCLUSION
While electronic banking can provide a number of benefits for customers and new business opportunities for banks, it exacerbates traditional banking risks. Even though considerable work has been done in some countries in adapting banking and supervision regulations, continuous vigilance and revisions will be essential as the scope of e-banking increases. In particular, there is still a need to establish greater harmonization and coordination at the international level. Moreover, the ease with which capital can potentially be moved between banks and across borders in an electronic environment creates a greater sensitivity to economic policy management. To understand the impact of e-banking on the conduct of economic policy, policymakers need a solid analytical foundation. Without one, the markets will provide the answer, possibly at a high economic cost. Further research on policy-related issues in the period ahead is therefore critical. Current scenario of Internet banking
I-banking cannot only improve the access to finance, particularly for SMES but
also allows access to finance with better and more competitive rates. Uses online banking as new delivery tools to improve to access to finance and alleviate financial constraints As a regulatory authority focus on core principles & Basle capital accord.
The mobile and wireless market has been one of the fastest growing markets in the world. The arrival of technology and the escalating use of mobile and smart phone devices, has given the banking industry a new platform. Connecting a customer anytime and anywhere to their money and needs is a must have service that has become an unstoppable necessity. This worldwide communication is leading a new generation of strong banking relationships. The banking world can achieve superior interactions with their public base if they accommodate all their customer needs. They have a unique challenge to keep their customer alliances and keeping up with the new technologies, and competitive strategies that other banks also have to offer the public. Conveniences of services plus outside locations like ATMS are crucial 52
Internet Banking- The Future of Banking to every banks success. Meeting all challenges including safety and security are perfect examples of good banking strategies. In order for the financial institutions to effectively grow they must embrace the new technologies and customize them to suit their economic success and the publics success. Online banking is certainly here to stay. Online banking is a necessity for the bank's that we studied and others in order for them to stay in business. While its existence doesn't necessary give them a competitive edge because it is so common place, it is truly a cost of doing business. As a tool of modern living and as a lifestyle aid, it is absolutely indispensable. The fact is that many services that are now being offered with online banking are almost impossible to do conveniently with regular banking. As we venture into the future, the internet will undoubtedly continue to change the banking industry.
53
BIBLIOGRAPHY
The above presented information has been collected through various secondary sources which includes surfing through internet. The following websites & links provide the information related to the project which has been surfed through search engine Google: www.scribd.com www.wikipedia.com www.allbankingsolutions.com https://www.onlinesbi.com/
www.icicibank.com/Internet-Banking https://netbanking.hdfcbank.com/
54

CBM Project

Загружено:

Сведения о документе

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

CBM Project

Загружено:

Авторское право:

Доступные форматы

Internet Banking- The Future of Banking

CHAPTER 1: INTRODUCTION TO INTERNET BANKING

Availability of inquiry and transaction services around the clock;

Internet Banking- The Future of Banking

intermediation of financial institutions in customers jurisdiction.

What is Internet Banking?

Retail and fiduciary products for consumers.

Importance of Internet Banking

with the competitors and to be able to retain their existing customers.

Customer Service: I-banking offers banks an opportunity to improve on their

Revenue Potential: I-banking also provides an opportunity to build on their

Internet Banking- The Future of Banking

CHAPTER 2: TYPES OF INTERNET BANKING

Types of Internet Banking

Types of Internet Banking

to its customers as an addition to its traditional delivery channels.

Internet Banking- The Future of Banking

Internet Banking- The Future of Banking 2.2. Advantages of Internet Banking

Limitations of Internet Banking

Internet Banking- The Future of Banking

CHAPTER 3: PORTERS 5-FORCES IN INTERNET BANKING

Application of Porters 5- Forces

Bargaining power of buyers and Threat of substitutes.

Barriers to Entry: Barriers to an entry in banking industry no longer exist.

Internet Banking- The Future of Banking

Threat of Substitutes: Competition from the non-banking financial sector is

3.2. Advantage of Porters Model

To Organizations Improve customer access Facilitate the offering of more services 11

Internet Banking- The Future of Banking

Changing the Rules

Internet Banking- The Future of Banking

The Dos of Internet Banking

customers account information.

Internet Banking- The Future of Banking

Information Security: Information security enables information to be shared, while

Confidentiality: Protecting sensitive information from unauthorised disclosure or

Internet Banking- The Future of Banking

Authorization: Authorization involves the pre-determination of permissible

Access Controls: Traditional access controls, such as user identification, passwords,

Authentication is used to verify and recognize the identity of

Internet Banking- The Future of Banking

Secure Data Storage: Confidential information or highly sensitive data should be

Digital signature: A mathematical encryption technique that associates a specific

CHAPTER 4: TYPES OF ONLINE ATTACKS & BUDGETING

Types of Online Attacks

Sniffers: Also known as network monitors, this is software used to capture

Social Engineering: An attacker calls the banks help desk impersonating an

programmer or another person unauthorized entrance into the system or network.

Hijacking: Intercepting transmissions then attempting to deduce information from

them. Internet traffic is particularly vulnerable to this threat.

malicious reasons, just to prove it can be done or other personal reasons.

Budgeting for Internet Banking

Professional Service Charges: In the contract of implementation and support this

Fixed Manpower Budget: If bank manage to achieve a professional services cost

Internet Banking- The Future of Banking

CHAPTER 5: INTERNET BANKING IN INDIA

History of Indian Banking

Internet Banking- The Future of Banking

First Internet Bank in India

Internet Banking Services

Internet Banking- The Future of Banking

CHAPTER 6: CASE STUDIES: 6.1 STATE BANK OF INDIA

Steps to book railway ticket online

train depending on journey.