Difference between Physical and Virtual Banking:

Physical banking has been the usual way that customers make use of a banking transaction and
financial services company. Physical banking involves physical branches that are located around
the most populated areas to serve their clients and allow people to compete their transactions and
services in person.

Virtual banking, which does not involve any physical action (going to a bank building, standing
in a line, and face to face communication), exists in the form of ATMs, phone banking, home
banking, and Internet banking. A virtual bank is a non-branch bank that involves the provision of
fully automated banking services. Online shopping has become available and more convenient,
and secure because of the appearance of online banking.

The major function of banking is to mobilize savings and transfers to entrepreneurs. Banks,
financial organizations, or financial applications such as Microsoft banking, Quicken, ADP, and
Bank Of America have found easy and secure ways to complete commercial and individual
transactions through the use of Internet banks are the most important financial tools and services
in the modern economy.

Types of E-Banking (Virtual Banking)

There are different types of e-banking. They can be process-based as with ATM transactions,
home banking transactions, phone-banking transactions, and Internet transactions

1. ATM (Automatic Teller Machine)

Automated teller machines work 24 hours a day, and are located in many different
places, especially in the most populated places, which makes them easy to find. Using an
ATM requires an ATM card and a personal PIN allowing customers secure 24 hour access to
banking services such as deposits, withdrawals, transfers, inquiries about account balances,
requests for cheque books, account statements, direct deposits, etc.
2. Telephone Banking
By the 1970s consumers were able to use their old system home phones to dial the phone
to check their balances, transfer funds, and pay bills. Telephone banking allows customers to
conduct banking services using the phone from anywhere and any time, but its only disadvantage
is that it doesn’t involve vision for the customers while producing their transactions. Customers
can have knowledge about their balances and listen to the transaction, but with the ability to
vision it such as viewing it on a computer or on a paper will add more confidence, and evidence
to the customer.
The phone banking services can be divided to two types:
 Operator attended
These functions are for customers who have very complicated inquiries and
needs that can’t be completed through automated services, or who are not
comfortable with automated services, or who have need for services that require high
security. Phone banking is one of the most used and valuable electronic services as
phone and cellular’s usage has spread all around the world.
  Automated
These functions are for the requests that can be executed and solved by the
automated system without the need for human operators.

Mobile e-commerce & e banking

This is a solution that enhances business to consumer interactions over the Internet.
People use their cell phones’ Internet features to conduct Internet banking and other business
transactions. People can use their phones’ internet connectivity to check bank accounts, balances,
statements, transfer assets among accounts, check lines of credits, pay bills, etc.

3. Home Banking

The roots of Internet banking can be found in home banking. By the beginning of
1970s home banking was available via touch-tone telephones, at the time banks considered
this service as home banking even though it involved the use of phones. Consumers were
allowed to pay bills, transfer funds, and check their accounts. By the mid 1980s, banks
started to offer home banking services to customers by allowing them to install software that
enabled them to connect to the bank through a dial up connection. Home banking allows
customers to complete some specific financial services directly from home. It is secure but it
is limited to a variety of services that the bank and customer agree on. After 1985, this
service was not as popular and was not widespread or used by many banks because it
required proprietary systems and huge technology investments, which only a few banks
could manage. Also, at that time the PC was not widely spread among many households.

4. Internet Banking
Internet banking is conducted by completing bank transactions by directly accessing
the bank through the Internet. Nowadays, Internet banking customers can access many
different services online, which makes physical banks open even after office hours. In means
of offline banking is becoming to be online banking while physical banks are not opened (out
of office hours), so customers do not need to go to the banks or call them any more unless
there is an issue that cannot be handled online.
Internet banking can be conducted either by accessing the Internet with a computer or
by using a phone that has Internet features. This type of banking takes place through a portal,
through which customers can use different kinds of banking services. Customers can use
digital signatures, which will defined later in the banking services section, manage personal
accounts, transfer funds, handle electronic invoices, etc.
Benefits of Internet Banking

Internet banking provides benefits for the bank and for the customers using it. Because an
automated website can be accessed 24 hours a day, E-Banking provides cost savings for banks
because they don’t need human operators to keep the bank services functioning. As mentioned,
Internet banking has reduced phone calls billings, shipping costs for the monthly bank statement
and account monthly transactions, gas billings, less labor, etc. Therefore, ecommerce has
reduced the cost of doing business and made organizations more profitable even though it does
involve other costs to allow it to be established such as maintaining complex secure information
systems and technology channels.

 More transactions are carried out over the Internet than in the physical branches
 Banks are offering more than banking services; they are offering services on the bank
website such as tax services, as allowing customers to fill out the tax application online,
calculating the taxes, etc.
 People can bank from any place that has Internet, so it is not limited to a time or a place
as it was with physical banking.
 With Internet banking people can check their account status and use other services while
phone-banking users can only hear this information. Therefore, Customers are moving
from phone banking to Internet banking.
 Internet banking allows customers to be alerted via email and phone of every update and
change that occurs in their account, which differentiates it from physical banking where
customers have to go to the bank to check for updates.
 Internet banking may be more cost effective for banks, which can then lower the fees for
the customers.

Internet banking services

 Opening an account

Most banks that provide Internet services allow customers to open new accounts by
accessing the bank website, logging in, filling in the application online and either submitting it
online or printing it and handing it to a teller at the branch.

 Accessing account information

This service allows customers to obtain information about other services available online
such as opening and closing accounts, checking account balances, discovering and checking the
latest updates and inquires (transactions that are taking place) that affect their accounts and
transactions.
 Electronic Check conversion

Though this service, customers can convert a paper check to an electronic payment. This
service allows customers to take an amount from their account and put a hold on it until the other
party receives the check and withdraws it. The benefit is that normal checks take longer time to
be processed.

 Transfer funds

Customers can easily to log in to their accounts, check their balances, and transfer funds
in between their accounts to cover any shortages in their accounts.

 Bank statement

This service is a bank document that customers can access through their accounts to
check the record of their transactions. This service allows customers to go over the previous
year’ transactions and make sure that their accounts have not been compromised. This document
could be printed online or saved as a word or PDF document on their computers for future
evidence. Banks vary by the number of months they allow their customers to review. For
example, CHASE bank allows customers to go a year back while IUCU allows for three months.

 Purchase bank products

This service allows its customers to purchase products electronically. Products are
different from banks to banks but they vary such as cars, gold, mortgage, land, silver, etc.

 Download account information

This is a service that enables customers to download any documentation of the services
available and account information. Usually, banks allow customers to download this information
to make them more comfortable with comparing the variety of services they apply with their
competitors. Usually, these documents are In a PDF format.

 Pay bills
Customers have the ability to go to their accounts, log in, check their balances and check
any required payments they wish to make for their credit cards, or other bill payments that are
registered on their account. They can pay all their bills online safely, easily, and quickly.

 Order check or deposit book

An order check or a deposit book is a booklet of blank checks which enables a bank
account holder to draw money from his/her checking account deposits by paying bills, paying
companies, etc. Internet banking has allowed their customers to order these checks online. Banks
will send them to the customers by mail.
 Cheque reconciliation
This is the process of matching and comparing figures from accounting records against
those presented on a bank statement. Bank reconciliation allows companies or individuals to
compare their account records to the bank's records of their account balance in order to uncover
any possible discrepancies. Internet banking moves this service online to make customers be
more comfortable and secure in use of bank services, which will increase the usage of these
services and customers’ satisfaction with them.

 Make IRD payments

IRD is income you which is not receivable during the lifetime. IRD is subject to both
income and estate taxes, and if possible to -skip taxes, too. The most common source of IRD is
an IRA or other retirement plans. Since IRD is not received before death, it is not included on the
final income tax return. However, the estate will have to pay federal estate tax, and state death
tax. However, this is a service that banks have made it available online to clarified their
customers of the process needed to complete such service. Rather than going to a bank, Internet
banking has simplified it to be processed electronically.

 Change passwords

This service is a security issue that allows account holders to ensure that their accounts
are safe from fraud or intruders. They can change their personal passwords as many times as they
want. This service requires the customer to answer some questions, to enter their old password,
and to the new one, to verify their identity, then allowing them to change their personal
password.

 Alerts

This is reminder or a notification for customers to inform them of any new or processed
transactions have occurred. This service also informs customers about balance issues, new
products that have been initiated, and about transactions that have been completed.

 Find locations and ATM

This service informs bank customers about the locations of the bank’s ATMs. This
service is most beneficial when people travel or when some ATMs are out of service or under
maintenance.

 Request a credit card or debit card

By using the Internet and accessing the bank website, customers are allowed to purchase
or request a new or second debit or credit card. These days many people are using debit and
credit cards, so there is no need to go and stand a line to request such service.
 Request a loan and check status

Customers can log in, and request a loan by filling in a form that requires them to enter
their personal information and loan requirements. They submit the form and receive an answer
online after the bank processes the application. Some banks prefer to respond by email, while
others call the customers and explain the reasons for denying or accepting the loan request.

 Housing mortgage

This is a service that the bank offers by loaning money to their customers who have good
credit histories to finance the purchase of real estate, usually with specified payment periods and
interest rates. The borrower (mortgagor) gives the lender (mortgagee) a lien on the property as
collateral for the loan. Internet banking is offering this service for the customers by requiring
them to fill the online application. While the online request if processing, the bankers are
fulfilling their requirements to ensure the customers fulfill all the bank requirements.

 Stock information

This service informs customers about the stock market. It sorts stock information in
different ways, such as old price, new price, etc. This service is available at most banks, but how
it is presented to customers is what differentiates this service among the banks.

 Tax documents and information

Banks help their customers complete many tax tasks by offering them tax documents
online, helping them to complete and submit these forms online. Banks have become places
where an account holder can go ask questions and resolve difficulties they are facing with their
taxes.

 Tutorials and online banking help

Some banks are offering online help for the most popular questions and a chat menu that
allows customers to go online on the site any time to chat with a representative to solve any
problems or difficulties. Also, some banks have voice, video presentation (tutorials) explaining
the process to complete some or all of their services to make it easier, more enjoyable for their
customers.

 Exchange and prime rates

Customers can be all kind of nationalities. Therefore, banks offer all kind of currencies to
allow their customers and account holders to find the best exchange rate so they won’t lose
money while converting currencies. By offering this type of service, the bank is showing how
important their customers are to them. For Example, a website that I have found converts 164
currencies.
 Digital Signature

This is an electronic signature that can be used to authenticate the identity of the sender
of a message or the signer of a document, and possibly to ensure that the original content of the
message or document that has been sent is unchanged. Digital signatures are easily transportable,
cannot be imitated by someone else, and can be automatically time-stamped. This service applies
the ability to ensure that the original signed message arrived means that the sender cannot easily
repudiate it later. This service is a secure approach that gives the customers the safety and
security they need.

Internet Banking without physical branch’s'

Lately, it has been versioned that there is some Internet banking websites that have been
initialized without the visibility of having physical branches. These internet bankers such as First
Internet Bank, which can be accessed from, have started because they realized the importance of
the electronic business and how people are increasing in the completing their financial
transactions through the banks website. These internet banking websites have contracts with
other physical banks in case that their customers need to go to a physical branch to solve a
certain issue that couldn’t be solved online or by phone. Also, their clients can use these bank
ATMs’ without any fee charges.

Challenges in E-Banking

 The ability to adopt global technology to local requirements: An adequate level of

infrastructure and human capacity building are required before developing countries can
adopt the global technology for their local requirements. For example, the review of the
migration plan of Society for Worldwide Interbank Financial
Telecommunications (SWIFT) to the internet shows that to date full migration has not
occurred in many developing countries due to the lack of adequate infrastructure, working
capital, and required technical expertise.

 Broadly accepted e-payment systems are another such example. Many corporate and
consumers in some developing countries either do not trust or do not have access to the
necessary infrastructure to be able to process e-payments.

 The ability to strengthen public support for e-finance: Historically, most e-finance initiatives
in developing countries have been the result of cooperative efforts between the private and
public sectors. For example,
Singapore’s successful Trade Net system was a government-sponsored project. If the public
sector does not have the necessary means to implement the projects it is essential that
cooperative efforts between public and private sectors, along with the multilateral agencies
like the World Bank, be developed to facilitate public support for e-finance related
initiatives.

 Confidentiality, integrity and authentication are very important features of the banking sector
and were very successfully managed the world over in pre-internet times. Communication
 across an open and thus insecure channel such as the internet might not be the best base for
bank-client relations as trust might partially be lost.

 E-Banking has created many new challenges for bank management and regulatory and
supervisory authorities.
They originate not just from increased potential for cross border transactions but also for
domestic transactions based on technology applications which raise many security related
issues. The Basel Committee on Banking Supervision’s Electronic Banking Group (EBG)
has defined risk management principles for electronic banking. They primarily focus on how
to extend, adapt, and tailor the existing risk-management framework to the electronic
banking setting. It is necessary to know whether the efforts undertaken by the RBI are
sufficient to ensure a reasonable level of security.

 Fifth, there are some serious implications of international e-banking. It is a common

argument that low transaction costs potentially make it much easier to conduct cross-border
banking electronically. For many banks, crossborder operations offer an opportunity to reap
economies of scale. But cross-border finance also needs a higher degree of cross-border
supervision. Such cooperation may need to extend to similar supervisory rules and disclosure
requirements (for efficiency and to avoid regulatory arbitrage) and some harmonising of
legal, accounting and taxation arrangements.

 There is no commercial bank in India, which has exclusively specialised in the small
business segment. SMEs in India have generic problems like the inability to provide quality
data, to exhibit formal systems and practices and the lack of asset cover. Legal and regulatory
compliance has also been inadequate. Traditional drawbacks like asymmetric and
nontransparent data and low capital bases continue to characterize their balance sheets. The
problem is further compounded due to the preponderance of a large cash economy in this
segment. There are many challenges involved in a web-based relationship model for SMEs
within India given the current state of regulation.

 The flip side of this technological boom is that electronic banking is not only susceptible to,
but may exacerbate, some of the same risks—particularly governance, legal, operational, and
reputational—inherent in traditional banking. In addition, it poses new challenges. In
response, many national regulators have already modified their regulations to achieve their
main objectives: ensuring the safety and soundness of the domestic banking system,
promoting market discipline, and protecting customer rights and the public trust in the
banking system.

 New methods for conducting transactions, new instruments, and new service providers will
require legal definition, recognition, and permission. For example, it will be essential to
define an electronic signature and give it the same legal status as the handwritten signature.
Existing legal definitions and permissions—such as the legal definition of a bank and the
concept of a national border—will also need to be rethought.