Status of Electronic Banking

in Pakistan
Review of Literature
 Status of Electronic Banking in Pakistan

ABSTRACT: 3

INTRODUCTION: 3

LITERATURE REVIEW: 4

TYPES OF E-BANKING 4
BENEFITS ASSOCIATED WITH E-BANKING 8
RISKS ASSOCIATED WITH E-BANKING 9

STATUS IN PAKISTAN 10

INTRODUCTION IN PAKISTAN 10
PERCEPTIONS TOWARDS E-BANKING, BENEFITS AND CHALLENGES 10
E-READINESS IN PAKISTAN 11
E-BANKING SERVICES IN PAKISTAN 12
GOVERNMENT POLICIES 13

CONCLUSION & SUGGESTIONS: 13

REFERENCES 14

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 Status of Electronic Banking in Pakistan

STATUS OF E-BANKING IN
PAKISTAN
ABSTRACT:
This paper examines the status of E-banking and in Pakistan. In the beginning
section E-banking has been defined briefly and types of e-banking have been
explained thoroughly. E-banking is beneficial both for customers and bankers, for
bankers it provides opportunity to increase their profits, by reducing the staff and
physical network of branches required to serve their customers. And for customers it
makes it easier to access their accounts and use banking facilities anywhere, anytime
24/7. But there are some risks associated with E-banking as well like hacking etc.
Foreign banks were the first to introduce e-banking in Pakistan, and among the local
banks Allied bank was the quickest to adopt it. But e-banking facilities have not been
utilized to their potential in Pakistan, because of lack of infrastructure, high
communication costs, low literacy rates, low level of e-readiness, and lack of
government policy to govern the e-banking activities; and laws to protect customers
from frauds, hacking and other risks.

INTRODUCTION:
A rapid growth of technology, especially in telecommunication sector has
revolutionized almost every kind of business. It has changed the way how
businesses connect with its customers, suppliers, employees and other important
stakeholders etc. this technological change has presented new opportunities and
threats for firms, firms not able to keep pace with this technological change lose
competitive advantage and are often forced out of the industry by market leaders
wisely utilizing these technological developments. Technological advancement has
influenced the banking sector firms too, to enhance their services offered to
customers. Apart from traditional banking services provided, banks have moved
towards branchless mode of conducting transactions. E-commerce revolutionized the
concept of traditional banking, and has introduced the world to E-banking.

Electronic banking can be divided into following categories on the basis of different
technology used for communication:

Phone Banking (Automated Telephone System).

Mobile Banking (SMS banking & GSM toolkit).

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 Status of Electronic Banking in Pakistan

Home Banking.

Internet Banking or Online Banking.

Payment Instruments.

Self Service Zones.

LITERATURE REVIEW:
Daniel (1999) defines electronic banking as the delivery of banks' information and
services by banks to customers via different delivery platforms that can be used with
different terminal devices such as a personal computer and a mobile phone with
browser or desktop software, telephone or digital television. Electronic banking
consists of any system that uses electronic signals to replace people or paper.

Types of E-Banking
Phone banking is the provision of banking services using a classic telephone line. A
bank client can obtain the necessary information on dialing a telephone number
specified in advance. Before the requested banking service information is provided,
the clients identity is determined using contractually agreed terms. Using this
banking service enables bank clients to obtain information concerning active and
passive banking products, but a client can also actively use the bank payment system
and request, for example, a payment order or a collection order, open or cancel a
term deposit or a current account. In this case a fax connected to the telephone serves
as an output communication channel (Chovanova, 2006).

Automated Telephone System works on the basis of a menu through which clients
can move around using buttons on the telephone. The service menu tree is usually
designed to be simple so that a choice does not take too long. More extensive
information is sent to the client by fax either to a telephone number agreed in
advance or to a number requested by the client (Chovanova, 2006).

SMS Banking uses short text messages sent through the clients mobile phone. SMS
text messages can be used for both passive and active operations similarly as with
classic telephone banking. A client can automatically receive information about his
account balance: an SMS is sent to the client immediately after a certain operation is
performed, or on request: a client sends the bank a correctly formatted message
which processes it and answers the clients request by SMS.

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 Status of Electronic Banking in Pakistan

Information sent on request mostly concerns current interest rates or currency

exchange rates. Providing these is simple for the bank because this is publicly
accessible information that needs no protection. A client however can request
information about the balance in his account, which is not public information and
must be protected when it is provided. Passwords are used for this purpose or
technologies based on the principle of an electronic key. A client however is required
to know the code of every transaction including constant and variable symbols. The
whole message containing data separated by # symbols sometimes has up to fifty
characters. Users can easily make mistakes. This is frequently a limiting factor for
clients, reducing the comfort factor in this service (Chovanova, 2006).

GSM SIM Toolkit The GSM SIM Toolkit service can only be used from a mobile
phone supporting this technology. GSM SIM Toolkit is a software interface that
enables arbitrary changes to the mobile phone menu. Operators supporting this
technology can use it to personalize mobile phone menus. This means that only
functions activated and paid for will appear on the user menu. This technology dates
back to 1998. Among the first companies to use it in banking applications based on
the GSM SIM Toolkit standard were RadioMobil and Expandia Bank in the Czech
Republic (Chovanova, 2006).

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 Status of Electronic Banking in Pakistan

Most mobile phones now on the market support for the GSM SIM Toolkit. To use
this service the client needs to be using services of an operator supporting this
standard in its network, be a client of a bank that offers handling of accounts
through the GSM SIM Toolkit, have a mobile phone supporting GSM SIM Toolkit
technology and use a special SIM card for banking services (Chovanova, 2006).

After buying a special SIM card and activating it at the pertinent bank branch the

client can begin using this service. The mobile phone menu will be widened to
include the Banking Services item, through which it is possible to carry out active or
passive banking operations. The precise structure differs from one financial
institution to another. Security is what is important here. To access banking services
it is necessary to know BPUK (PUK for banking applications) and BPIN. BPUK is
assigned to a client by the bank when the application is activated and recorded on
the mobile phones SIM card. BPIN is used for every access to protected items in the
banking application. When a client makes three unsuccessful attempts to type the
BPIN, access to the banking application and its items is blocked, it is necessary to
know the BPUK to unblock it. When the client fails ten times to type the right BPUK
the SIM card can no longer be used for banking services. The main advantage of this

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 Status of Electronic Banking in Pakistan

service is its simplicity. A client just follows instructions on the mobile phone
display (Chovanova, 2006).

Home Banking is a service that enables a bank client to handle his accounts from a
computer from a place selected in advance, at home or in the office. The main
features of home banking systems are the high level of security, comfort, simplicity
of use, openness of the system, wide communication possibilities, networking,
definition of users and their rights, automated data transmission and the option to
define a combined signature specimen.

A home banking system usually consists of two parts: a bank computer program and
a program in the clients computer. The bank program works as a communication
server. It receives calls from clients, verifies their identity, receives data from them,
authenticates digital signatures, generates digital receipts and sends data to clients.
A home banking computer system is a multi user application, meaning that several
of the clients employees can work with it (Chovanova, 2006).

a) Administrator can define new employees, change rights,

b) Sender ensures communication with the bank and transmission of

prepared data,

c) Accountant can type payment orders and orders for collection,

d) Viewer can browse through statements and announcements received.

Internet Banking can be used from the home or the office, as well as an internet
caf, although the latter is not recommended for security reasons. In order to handle
his account a user just needs an internet browser (such as MS Explorer or Netscape
Navigator). A client cannot avoid visiting the bank though, because he must first ask
for an identification code. After opening the banks web site the client simply selects
internet banking and, further to proper identification, can perform passive or active
operations. Good internet banking should provide a maximum of services. No less
important are the graphic interface, clarity, simplicity, and unambiguity of usage.
The intelligibility of texts determines simplicity and speed of understanding of the
meaning of menu items, data fields, and general text information displayed to the
client (Chovanova, 2006).

Safety for concrete applications is assured by client authentication, verification of

data and data protection by encryption. Client identification is done using
passwords or codes. The client chooses some of these and the bank assigns others. It
is recommended to choose a password made up of various types of characters,
which can be a combination of numbers, lower case and capital letters, and special
symbols (Chovanova, 2006).

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 Status of Electronic Banking in Pakistan

Mail Banking is another electronic banking service that makes it possible to

communicate with the bank by electronic mail or e-mail. The most frequently used
service is sending account statements at agreed periodicity to the clients mailbox. E-
mail is not used for more complex operations (Chovanova, 2006).

Payment Instruments and Self-Service Zones, Apart from those already

mentioned, there are other more or less widely known forms of electronic banking,
including a payment card, an electronic wallet and a self-service zone.

A payment card is currently one of the most widely used payment instruments
designated for authorized holders through which they can perform non-cash
payments or cash withdrawals from an extensive network of automated teller
machines (Chovanova, 2006).

An electronic wallet represents a chip card similar to a payment card that contains a
record of a financial sum that is available to its owner (Chovanova, 2006).

A self-service zone is a fully automated alternative work place of a bank with

terminals and devices that clients can use to get various bank services. It enables
active and passive operations offered by the bank to be made without the presence
of a bank employee. Devices are constructed for very easy use with simple intuitive
controls (user friendly). Equipment includes modern security systems outside and
inside a self-service zone. A payment card in combination with a password is used to
access a self-service zone. It is also possible to use other authentication devices, such
as an electronic key, but also a fingerprint. Self-service zones are available 24 hours a
day, 7 days a week. (Chovanova, 2006)

Benefits associated with E-banking

Howcroft et al., (2002) found that the most important factors motivating consumers
to use online banking are lower fees followed by reduced paper work and human
error, which subsequently minimize disputes (Kiang et al., 2000; Floh & Treiblmaier,
2006). According to Giglio (2002) for delivering banking products the cheapest
delivery channel can be the Online Banking. Convenience of conducting banking
transactions outside banks physical place at any time has been the most significant
motivator in cases of adoption. Moutinho et al., (1997) pointed out that each ATM
could carry out the same basic routine, transactions as do human tellers in branch
offices, but at half the cost and with a four-to-one advantage in productivity.

According to Karjaluoto et al. (2002) with the help of online banking services, the
number of branches and also the staff for required in banks have reduced and
customers are satisfied to use the online banking services as it will save a lot of time
and effort to go to branch of bank to perform those transactions. Increased availability

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 Status of Electronic Banking in Pakistan

and accessibility of more self-service distribution channels helps bank administration in

reducing the expensive branch network and its associate staff overheads. So the main
reason behind accepting the online banking a service is the time, cost saving and
freedom from the place (Polatoglu and Ekin, 2001). Gerrard and Cunningham (2003)
found a positive correlation between convenience and online banking and remarked that a
primary benefit for the bank is cost saving and for the consumers a primary benefits is
convenience.

Risks associated with E-banking

Electronic Banking is a new technology that has many capabilities and also many
potential problems, users are hesitant to use the system. The number of malicious
applications targeting online banking transactions has increased dramatically in
recent years.

Although, electronic banking provides many opportunities for the banks, it is also
the case that the current banking services provided through Internet are limited due
to security concerns, complexity and technological problems (Sathye, 1999; Mols,
1999). Confidentiality of consumer data is another important concern in the adoption
of online banking (Gerrard and Cunningham, 2003). Customers fear that someone
will have unlimited access to their personal financial information.

Lack of specific laws to govern Internet banking is another important concern for
both the bankers and the customers. This relates to issues such as unfair and
dishonest trade practice by the supplier and unauthorized access by hackers.
Larpsiri et al., (2002) argued that it is not clear whether electronic documents and
records are acceptable as sufficient evidence of transactions. They also pointed out
that the jurisdiction of the courts and dispute resolution procedures in the case of
using the Internet for commercial purposes are important concerns. Disputes can
arise from many sources. For instance, websites are not a branch of the bank. It is
difficult for the court to define the location of the branch and decide whether they
have jurisdiction (Rotchanakitumnuai and Speece, 2003). Other risks associated to
electronic banking are job losses, lack of opportunities to socialize and the
development of a lazy society (Black at al., 2001).

But in India, biometrics are being used to overcome these security concerns and to
ensure the privacy of online transactions (Fatima, 2011). Biometrics refers to
automatic identification of an individual based on her physiological or behavioral
traits like finger prints, retina recognition, voice recognition etc.

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 Status of Electronic Banking in Pakistan

STATUS IN PAKISTAN
Introduction in Pakistan
In Pakistan, foreign banks were the first to introduce e-banking services, they took
the lead by introducing ATMs and credit cards in the mid 1990s, and domestic banks
did the same to compete in the late 1990s. The SBP Annual Report (2003: p. 110)
explained this delayed entry in electronic banking largely by regulatory hurdles,
higher start up costs, on-going banking sector reforms and lack of technical skills.
The Government of Pakistan further promoted electronic banking with the
promulgation of the Electronic Transaction Ordinance 2002.

Allied bank is the pioneer in the field of online banking and introduce online
banking system in 2004 in Pakistan. Allied bank has the biggest ATM network with
806 branches in the country. All branches are Online with each other with 674 ATM
Machines. The top banks which are providing online and internet banking facilities
are Habib Bank Limited (HBL), United Bank Limited (UBL) and National Bank of
Pakistan (NBP) Allied Bank Ltd (ABL), Bank AlFalah, Standard Chartered Bank,
Askari Commercial Bank Ltd.

Perceptions towards E-Banking, Benefits and Challenges

A research aimed at studying bankers perception towards e-banking in Pakistan
concluded that, e-banking minimizes inconvenience, reduces transaction cost, and
saves time, but e-banking also have the demerit of greater risk and more chances of
fraud associated with it (Kaleem & Ahmad, 2008). Hassan et al. concluded that most
of the Pakistanis are well aware of electronic banking, but they are not satisfied with
the e-banking that are currently provided by banks of Pakistan. Improvement in
security level and services of electronic banking is demanded by customers. Thats
why they trust more on employees than e-banking. Nancy et al. (2001) argued that
customers like to interact with humans rather than machines. Mobile Banking is already
introduced which was started in 2006 but it is limited to retrieve Mini-statements
(Bakhtiar, 2005). Only 12% customers were familiar to use the debit and credit cards
facility while 88% customers were not aware of debit and credit cards. Internet users
are increasing day by day which reached 12 million in 2007 from 0.01 million in
1997-98 with 2389 cities connected to internet (Pakistan Telecommunication Authority,
2007).

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 Status of Electronic Banking in Pakistan

Due to lack of trust on technology and low computer literacy rate, customer hesitates
to adopt new technology (Ahmad et al, 2011). Banks are facing the problem of
customer awareness regarding security and privacy of using Internet banking
services as still customers are reluctant to use the online banking services so they
prefer to come to banks and deposit the money by hand (Shamim & Sardar, 2010).
Pakistan is far behind the developing countries as a lot of services regarding online
banking are not available in Pakistan. Omer et al. examined the customer perception,
preferences, problems and suggestions about online banking in Pakistan. Their
study revealed that mostly customers prefer internet banking (IB) services over
branch banking due to reliability, convenience, speed, safety and security, cost
effectiveness, user-friendly, and error free system. In contrast the parallel finding
shows that security problems, lack of trust and knowledge, ATM machine problems
etc. affect the adoption decision of customers of internet banking services.

Personal computer access is very important for online banking. It is the most
important reflection for developing countries like Pakistan. A normal personal
computer may cost 30000 PKR which is the average salary of two months for the
typical internet customer (Nizamuddin and Khalid, 2001).

E-Readiness in Pakistan
E-readiness is defined as, what is the countrys ability while promoting and
supporting digital and information and communication technology (ICT) services
(Economist Intelligence Unit, 2008, p. 2). E-readiness determines the quality of
countrys Information and Communications Technology and measure the ability of
consumers, business and governments to use the Information and Communication
Technology to their benefits. When country uses Information and Communication
technology to carry out more of their activities, its economy can become more visible
and efficient (Economist Intelligence Unit, 2008, p. 7).

Most of the access to Information and Communication Technology is provided by

means of traditional arrangement, such as dial-up connections using phone lines to
connect with the internet. Except for basic telephony services, the telecom sectors of
Pakistan stands almost fully liberalize. There are approximately 150 different
Internet Service Providers operating throughout Pakistan. Pakistan is an under
developing country and the availability of public internet access is very essential to
make the internet accessible to greater number of individuals and organizations.
Although now some companies have started to provide high speed internet
connections in Pakistan, but they are very expensive and due to high inflation and
low income level, majority of the population cant afford these connections.
Computer literacy rate is also low in Pakistan. Presently the use of computers in
public schools is almost non-existent. Only private schools, which are English

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 Status of Electronic Banking in Pakistan

medium schools, can afford to encourage the use of computers. However, higher
education institutes exploit the use of computers to train their students in
Information & Communication Technology.

E-Banking Services in Pakistan

According to Kolachi (2006), the following online banking services and products are
provided by the banks of Pakistan:

1. Inquiry:

Inquiry about the following things:

Bank Statement

Checking of the balance

Statement check inquiry

Fixed deposit inquiry

2. Payments:

The funds transfer

Payment of credit card

Direct payments

Payment of Utility bills

3. Request:

Request for Cheque book

Stop payment requests

Demand Draft request

Request for Credit/Debit card

4. Download:

Personal Profile

Bank Statement

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 Status of Electronic Banking in Pakistan

Government Policies
In Pakistan the banking system suffered a lot because the political situation is not
good. Especially when making the decisions there was a lot of pressure from
political parties and they interfere in making important banking decisions. In a large
extent these political parties take advantage from banking sector. The support at the
government level is very essential in promoting the culture of IT in a country that
will help in increasing the technology driven electronic banking. Currently Pakistan
is facing a lot of problems in IT penetration and it is a big challenge for Pakistan to
adopt IT in every aspect of life. According to Zarmeene (2006) the IT policy is very
important and government should take care of it seriously otherwise it will create
serious bottlenecks if it was not addressed properly. Currently Pakistan is working
on to change the manual to digital modes of doing banking transactions. So without
technology it is impossible virtually for the banking organizations to compete in
competition only if banks customers are provided with the value added services and
high level of service which will be possible if high technology is used. Now some
banks are offering online banking services to its customers but if we compare it from
developed countries like Sweden, UK, Denmark, USA and these countries are
enjoying the benefits of online banking system, Pakistan is still lacking behind and
government should need to have strong IT infrastructure.

CONCLUSION & SUGGESTIONS:

Online banking is a new phase in banking services. It is beneficial and convenient for
both customers and bankers. Customers can perform banking transactions 24/7 at
any place. And it has also helped bankers to cut their costs and increase their profits
(Sumra et al., 2011) by reducing the staff and branch network, required to service
their customers.

But along with these merits, there are also some demerits associated with e-banking
in Pakistan, like hacking, low computer literacy, security and privacy issues etc. but
it doesnt mean e-banking should not be adopted just because of these benefits, the
issues should be resolved. India has overcome these security issues through
biometrics; same should be done in Pakistan. Government also needs to play its role
to improve the e-readiness in Pakistan, by improving the telecommunication
infrastructure and regulating e-banking through its policies.

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 Status of Electronic Banking in Pakistan

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