Internet Banking A Case Study

Chpater 1 INTRODUCTION

Internet Banking A Case Study 1.1 Definition of Banking As per Section 5 (b) Banking Regulation Act, 1949, Banking means accepting for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawal by cheque, draft, order or otherwise. 1.2 History Of Banking Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India which started in 1786, and the Bank of Hindustan, both of which are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India. 1.3 Development Of Banks In Post Independence Period: Post-independence The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal, paralyzing banking activities for months. India's independence marked the end of a regime of the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The major steps to regulate banking included: In 1948, the Reserve Bank of India, India's central banking authority, was nationalized, and it became an institution owned by the Government of India. In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India."

Internet Banking A Case Study The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors. However, despite these provisions, control and regulations, banks in India except the State Bank of India, continued to be owned and operated by private persons. This changed with the nationalization of major banks in India on 19 July 1969.

1.4 Liberalization In Banking: The banking sector in India remained a regulated one and rigid since the nationalization of banks in 1969. Up to 1990, the concept of an independent regulatory authority had no relevance. With the liberalization of the Indian Economy, the Indian banking system also followed it suit and slowly entered in to a market driven competitive system. The economic policy of structural adjustment got a big boost in India in June 1991. A committee was setup for financial reforms which was to examine exhaustively all aspects relating to the structure, organization functions and procedures of the system. The committee recommended entry of foreign banks, new private sector banks and local area banks. The committee further advocated the introduction of universal banking, setting up of special recovery tribunals, introduction of banking ombudsment scheme etc. The liberalization and economic reforms in 1991 unleashed stiffer competiton among banks. The financial sector became intensively competitive with several new competitors like private banks, foreign banks, non-banking financial companies, merchant bankers mutual fund, and insurance companies. Besides Banking student need to understand Need, Scope and development of Internet Banking. I decided to conduct a Micro Level study in which I am studying Internet Banking facilities adopted by one specific Bank i.e Punjab National Bank. The broad objectives of my project are: I. To understand Internet Banking of Punjab National Bank II. To understand problem faced in Internet Banking 3

Internet Banking A Case Study

III.

To understand problem faced by Punjab National Bank.

Study of project is mainly based on secondary data which is collected through Internet Site, Periodicals, Magazines etc. To add to my knowledge I have taken interview from an officials of Punjab National Bank Branch.

Internet Banking A Case Study

Chpater 2 OVERVIEW OF INTERNET BANKING IN INDIA

2.1 Origin Of Internet Banking 5

Internet Banking A Case Study Internet is often described as Network of Networks born in 1970s. It is a number of computers interconnected. It is an open standard for digital communication used with World Wide Web Technologies. When two or more computers are connected a network is created; connecting two or more network creates inter-network or Internet. The advent of the Internet and the popularity of personal computers presented an opportunity and a challenge for the banking industry for new development of Internet Banking. Internet banking dates back to late 1990s. Most banks used a very simple layout, which allows user to sign in, see their accounts and statements, and make transfer from one account to other. It is really simple: we do not have to go down to bank because bank is already in our computer at our desk waiting for us to enter. Todays online banking features allows us to do all those previous online banking activities and also arrange for loan, set up direct debits, and pay bills online-all with just a few clicks of our mouse. Internet banking is usually conducted through a personal computer (PC) that connects to a banking Web site via modem and a phone line or other telecommunication connection. Now that its customers are connected to the Internet via personal computers, banks envision similar economic advantages by adapting those same internal electronic processes to home use. Most people have heard about Internet banking but probably not tried it. We still pay our bills by mail and deposit cheque at our bank branch. We might shop online for loan, life insurance or a home mortgage, but when it comes time to commit, we feel more comfortable working with banker or agent we know and trust. Online banking isnt out to change our money habits. Instead, it used todays computer technology to give us option bypassing the time consuming, paper-based aspects of traditional banking in order to manage our finance more quickly and efficiently. Banks view Internet banking as a powerful Value Added tool to retain and attract new customers and to eliminate costly paper handling in a increasingly competitive banking environment. 2.2 Definition Of Internet Banking A system allowing individuals to perform banking activities at home, via the internet. It is a web-based service that allows the bank authorized customer to 6

Internet Banking A Case Study access their account information. In the system, customers are allowed to log on the bank website with the help of identification issued by the bank and personal identification number (PIN). Banks replies the user and enables customers to access the desired services.

2.3 Internet Banking Internet Banking to mean that a bank offering its customers the ability to transact business with the bank over Internet. Internet banking refers to the use of the Internet as a remote delivery channel for banking services. Subsequently, dialup connections, personal computers, tele-banking and automated teller machines (ATMs) became the order of the day in most of the developed countries. Nowadays, all banks provide online banking facility to their customers as an added advantage. Gone are the days, when one had to transact with a bank which was only in his local limits. Online banking has opened the doors for all customers, to operate beyond boundaries. Nowadays, people are so busy in their work lives, that they don't even have time to go to the bank for conducting their banking transactions. Internet enable people to carry out most of their banking transactions using a safe website, which is operated by their respective banks. It provides many features and functions to their customers, and enables them to view their account balance, transfer money from their account to another account (be it in their respective bank or any other bank), view their account summary, etc. In this procedure, many financial transactions can be carried out by simply utilizing a computer with an Internet connection. The necessary things that a person needs for using online banking are, an active bank account with balance in it for transactions, debit or a credit card number, customer's user ID, bank account number, the Internet banking PIN number, and a PC with access to the web. People using Internet banking are certainly benefited by the online services their respective banks are providing them with. The primary reason why it is so famous and mostly used is that, customers are allowed to bank at non-working hours. Banks create their banking interfaces and websites in a viewable and userfriendly manner, which enable customers to conduct their financial transactions with ease. If they are stuck in any process while performing their online transactions, banks have another helpful facility that is 'phone banking', wherein 7

Internet Banking A Case Study customers can call the bank's toll-free number and get assistance in completing their transactions. Electronic bill payment, viewing and downloading financial records, and money transfers are some of the general transactions which the customers generally carry out. All online banking services, provided by some banks, are free of cost.

2.4 Internet Banking Services The Internet banking sites offers following services:2.4.1 Mobile Banking Mobile Phone banking takes banking one step ahead of internet banking. One can do banking without even phone call. Mobile banking works through a set of text messages.

Customer should first register for the facility and then can use wither SMS or WAP in case he/se subscribes to any of the various carries. Presently two types of services are available through Mobile Phone viz. Alert Services and Requests. This service really offers Any time anywhere Banking. However, the bank should have tie-up arrangement with the cellular service provider. A pre-designated mobile number should be available at the bank. A user needs to be provided to the customer to acquaint him with Banks specific codes and menus. In case of loss/theft of mobile, the customer is required to inform the bank immediately to deactivate or disable mobile banking service. 2.4.2 E-commerce and E-banking E-commerce is the online selling. It is total delivery of products and services to the customer through Internet to satisfy business objectives. It allows two-way communications and it is built around open standards. As a first step it will ensure the conversion of office it will ensure the conversions of office business equipment/machines into one digital platform. The interaction/communication taking place digitally between producers, intermediaries and consumers are

Internet Banking A Case Study referred to as the electronic market place. The sum total of commercial transaction taking place in the electronic marketplace in called Digital Economy. E-banking is an extension or a subset of E-commerce doing its process on personal computers because of their origin within the Internet, a network of computers. The first stage of expansion is within the installed base of computer users. The second wave will come when more people will get access to computers via lowered computer prices or cheaper devices. The third most important expansion is predicted to be from those with non-computer access to the global network through broadcast TVs, Cable TVs, Telephone Networks and new appliances. This widespread use of cheaper access media represents the phase of bringing E-commerce access media represents the phase of bringing E-commerce including E-banking into the living rooms of common people. It will give banks like ours a chance to give a run for their money to giant multibillion foreign banking corporate, both in India and abroad.

2.4.3 E MAIL- Banking The most common and basic use of Internet is the exchange of E-Mail (Electronic Mail). It is an extremely powerful and revolutionary result of internet, which has facilitated almost instantaneous communi-cation with people in any [art of the globe. With enhancement like attachment of documents, audio, video and voice mail, this segment of Internet is fast expanding as the most used communication medium for the whole world. Many websites offer

E-Mail as a free facility to individuals. Many corporate have interfaced their private network with Internet in order to make their e-mail accessible from outside their corporate network. In E-Mail security , a digital signature authenticates a transmission from a user in an un-trusted network environment. A digital signature a sequence of bits appended to a digital document. Like a handwritten signature, it is unique to the document being signed. Digital signatures are a good method of securing E-Mail transmission in that the signature. Digital signatures are based on a procedure called message digesting 9

Internet Banking A Case Study which computes a short fixed length number called a digest for any message of any length. Several different messages may have the same digest, but it is extremely difficult to produce any of them from the digest. A message digest is 128 bit cryptographically strong one-way hash function of the message. It is very similar to a checksum in that it completely represents the message and is used to detect changes in the message. In using digital signature for securing E-Mail messages, there are two different types of encryption techniques used to ensure secured messages. Messages can be secured using a (symmetric) secret key management system using DES or a public key (asymmetric) management using RSA.

2.4.4 Automated Teller Machines (ATMs) Automated Teller Machine (ATM) is a self-service terminal system. ATM as the name indicates is a very user-friendly machine that can render 24 hours services to help the bank customer perform basic bank transactions like depositing cash or cheques and withdrawing money. It is an extension of Anywhere, anytime concept of banking. When an ATM is connected to a online branch network, it can additionally provide services such as balance enquires, transfer of funds between the accounts, etc.

2.4.5 Electronic Data interchange (EDI) EDI is a transmission in standards syntax of the unambiguous information of business for strategic significance minimizes human intervention or re-keying. The sending organization to perform a specific function. There is no need to send repetitive input of senders address, operational instructions, authorized signatories which would already in the receivers computer database. There are 3 components of EDI, a generally accepted business format called DEI standards, translation capability i.e. ensured through EDI software and mail service called Value Added Network (VAN). The VAN acts as an electronic post office from where the messages are routed/picked up at regular intervals facilitating data inter-change between large numbers of organizations and keep the cost of network resources to the minimum. 10

Internet Banking A Case Study 2.4.5 Electronic Funds Transfer (EFT) Electronic Funds Transfer (EFT) is the exchange is the exchange of money via telecommunication without currency actually changing hands. EFT refers to any financial transaction that transfers a sum of money from one account to another, electronically. Usually, transactions originate at a computer at one institution (location) and are transmitted to a computer at another institution (location) with monetary amount recorded in the respective organizations accounts. Because of the potential high volume of money being exchanged, this system may be in an extremely high-risk category. Therefore, access security and authorization of processing are important controls. Security in an EFT environment is extremely important. Security includes the methods used by the customer to gain access to the system, the communications network and the host or application processing site. Individual consumer access to the EFT system is generally controlled by a plastic card and a personal identification number (PIN). Both items are required to initiate a transaction.

2.5 Advantages And Disadvantages Of Internet Banking 2.5.1 Advantages Advantages of Internet Banking are as follows:

2.5.1.1 Convenience Unlike our corner bank, Internet banking sites never close; theyre available 24 hours a day, 7 days a week, and they are just a click away. Not only this but all 11

Internet Banking A Case Study services that are usually available from the local bank can be found on a single website. Rather that having to ring a separate number to order a new chequebook or cancel a bankcard, or even go into the brancg to do so, it is possible to do all this from our personal home page.

2.5.1.2 Ubiquity/portability If we are out of states or even out of the country and when a money problem arises, we can log on instantly to our online bank and take care of business, 24/7. This is possibly the main advantage of Internet Banking as apposed to branch based banking. Our account is extremely accesses able with an online account and all the service which we expect to be provided by a banking service anytime anywhere.

2.5.1.3 Transaction speed Internet Banking sites generally executes and confirm transactions at the same rate or quicker than, ATM processing speeds. This means that if a customer withdraw or pay in money from/to his accounts then his balance will be updated at the same speed or often quicker yhan if he had done so at branch bank ATM.

2.5.1.4 Effectiveness Many online banking sites now offer sophisticated tools, including account aggregation, stock quotes, rate alerts and portfolio managing programs which help us to manage all our assets more effectively. Most are also compatible with money managing programs such as Quicken and Microsoft Money.

2.5.2 Disadvantages Disadvantages of Internet Banking are as follows: 12

Internet Banking A Case Study

2.5.2.1 Start-up may take time In order to register for our banks online program, we have to provide ID and sign a form at a bank branch. If husband and wife wife to view and manage their assetd together online, one of them may have to sign a durable power of attorney before the bank will display all their holding together. In comparison to opening a branch account this can be done real time wereby customer goes into branch, give them his personal details, sign some forms and once the account is activated he can use it almost straight away as the account is activated within the branch while he is there. Online accounts undergo the same form filling process but take up a week to be processed and validated before account can be opened and accessed.

2.5.2.2 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 the virtual lobby. Time needs to be taken to understand such things as how to check the balance online or how to setup a standing order. This alone can prevent some people considering opening an online bank account even if the rates are much better than bricks and mortar banks.

2.5.2.3 Bank sites changes The largest bank periodically upgrades their online programmes, adding new features in unfamiliar places. In some cases, one may have to re-enter account information. 2.5.2.4 The Trust Thing For many people, the biggest hurdle to online banking is learning to trust it. Did my transaction go through? Did I put my transaction button once oe twice? Best bet: always print the transaction receipt and keep it with bank records until it shows up on the personal site and/or bank statement. 13

Internet Banking A Case Study

2.5.2.5 Impersonal Online banking lacks personal service. There is virtually no human contact involved, and some people could see this as a drawback. The disadvantages of internet banking can be overcome to a greater extent; in the long run, the benefits out weight the risk involved. A testimonial to the utility of online banking is the growing number of customers that are signing up for it. In one way or another, most people who require some form of banking services stand to gain from banking over that Internet.

2.6 Risk In Internet Banking Internet is not an unmixed blessing to the banking sector. Along with reduction in cost of transactions, it has also brought about a new orientation to risks and even new forms of risks to which banks conducting Internet banking expose themselves. Risk is potential that events, expected or unexpected, may have an adverse impact on the banks earning or capital and reputation as well. These risks are briefly describe as below.

2.6.1 Strategic Risk This risk is associated with the introduction of a new products or services. It is also the current and prospective risk to earning and capital arising from adverse business decision or improper implementation of business decisions. For reducing such risk, banks need to conduct proper survey, consult experts from various fields, establish achievable goals and monitor performance. Also they need to analyze the availability and cost of additional resources, provision of adequate supporting staff, proper training of staff and adequate insurance coverage.

2.6.2 Transaction Risk 14

Internet Banking A Case Study Transaction risk is the current and prospective risk to earnings and capital arising from fraud, error, and the inability to deliver product and services, maintain a competitive position, and manage information. Transaction risk is evident in each product and service offered and encompasses product development and delivery, transaction processing, systems development, computing systems, complexity of products and services, and the internal control environment. A high level of transaction risk may exist with Internet banking products, because of the need to have sophisticated internal controls and constant availability. Most Internet banking platforms are based on new platforms which use complex interfaces to link with legacy systems, thereby increasing risk of transaction error. 2.6.3 Compliance Risk Compliance risk is the risk to earnings or capital arising from violations of, or nonconformance with, laws, rules, regulations, prescribe practices, or ethical standards. Thus, the bank may face compliance and regulatory risk if it does not adhere or follow the guidelines given by the supervisor or the regulator. Banks need to carefully understand and interpret existing laws as they to Internet baking and ensure consistency with other channels such as branch banking. Customers are very concern about the privacy of their data and banks need to be consummate transaction immediately may lead to bank relaxing traditional controls, which aim to reduce compliance.

2.6.4 Reputation Risk This is current and prospective risk to earnings and capital arising from negative public opinion. This affects the institutions ability to establish new relationships or services existing relationships. A banks reputation can suffer if it fails to deliver on marketing claims or to provide accurate, timely services. A banks reputation can be damaged by internet banking services that are poorly executed.

2.6.5 Information Security Risk 15

Internet Banking A Case Study This is the risk to earnings and capital arising out of lax information security processes, thus exposing the institution to malicious hacker or insider attacks, viruses, denial-of-services attack, data destruction and fraud. The speed of change of technology and the fact that the internet channel is accessible universally make this risk especially critical.

2.7 Bank fraud Bank fraud is the use of fraudulent means to obtain money, assets, or other property owned or held by a financial institution. In many instances, bank fraud is a criminal offense. While the specific elements of a particular banking fraud law vary between jurisdictions, the term bank fraud applies to actions that employ a scheme or artifice, as opposed to bank robbery or theft. For this reason, bank fraud is sometimes considered a white-collar crime.

2.8 FRAUDS-PREVENTION AND DETECTION A close study of any fraud in bank reveals many common basic features. There may have been negligence or dishonesty at some stage, on part of one or more of the bank employees. One of them may have colluded with the borrower. The bank official may have been putting up with the borrower's sharp practices for a personal gain. The proper care which was expected of the staff, as custodians of banks interest may not have been taken. The bank's rules and procedures laid down in the Manual instructions and the circulars may not have been observed or may have been deliberately ignored. Bank frauds are the failure of the banker. It does not mean that the external frauds do not defraud banks. But if the banker is upright and knows his job, the task of defrauder will become extremely difficult, if not possible. 2.8.1 Detection of Frauds

16

Internet Banking A Case Study Despite all care and vigilance there may still be some frauds, though their number, periodicity and intensity may be considerably reduced. The following procedure would be very helpful if taken into consideration: 1. All relevant data-papers, documents etc. Should be promptly collected. Original vouchers or other papers forming the basis of the investigation should be kept under lock and key. 2. All persons in the bank who may be knowing something about the time, place a modus operandi of the fraud should be examined and their statements should be recorded. 3. The probable order of events should thereafter be reconstructed by the officer, in his own mind. 4. It is advisable to keep the central office informed about the fraud and further developments in regard thereto. 2.8.2 Classification of Frauds and Action Required by Banks The Reserve Bank of India had set-up a high level committee in 1992 which was headed by Mr. A. Ghosh, the then Dy. Governor Reserve Bank of India to inquire into various aspects relating to frauds malpractice in banks. The committee had noticed/observed three major causes for perpetration of fraud as given hereunder: 1. Laxity in observance of the laid down system and procedures by operational and supervising staff. 2. Over confidence reposed in the clients who indulged in breach of trust. 3. Unscrupulous clients by taking advantages of the laxity in observance of established, time tested safeguards also committed frauds.

17

Internet Banking A Case Study

Chapter 3 Punjab National Bank

18

Internet Banking A Case Study

3.1 Logic Of The Logo Established in 1895 at Lahore, then undivided India, Punjab NationalBank (PNB) has the distinction of being the first Indian bank to have been startedsolely with Indian capital. The bank was nationalized in July 1969 along with 13other banks. From its modest beginning, the bank has grown in size and stature tobecome a front-line banking institution in India at present. It has more than 4000branches and over 400 extension counters. Strong correspondent bankingrelationship, which it maintains with over 200 leading international banks all overthe world, enhances 19

Internet Banking A Case Study its capabilities to handle transactions worldwide. More than50 renowned international banks maintain their Rupee Accounts with PNB. With its presence virtually in all the important centers of the country, PNB offersa wide variety

of banking services which include corporate and personal banking,industrial finance, agricultural finance, financing of trade and internationalbanking. The large presence and vast resource base have helped the bank to buildstrong links with trade and industry. At the same time, the bank has beenconscious of its social responsibilities by financing agriculture and allied activitiesand small-scale industries. The bank is committed to maintaining the highest standards of service and will be covering more offices under this quality movement titled 'Alliance with Quality'

3.2 Introduction of Punjab National Bank Established in 1895 at Lahore, undivided India, Punjab National Bank (PNB) has the distinction of being the first Indian bank to have been started solely with Indian capital. The bank was nationalized in July 1969 along with 13 other banks. From its modest beginning, the bank has grown in size and stature to become a front-line banking institution in India at present. A professionally managed bank with a successful track record of over 110 years. Largest branch network in India - 4525 Offices including 432 Extension Counters spread throughout the country. Strategic business area covers the large Indo-Gangetic belt and the metropolitan centers Ranked as 248th biggest bank in the world by Bankers Almanac, London. Strong correspondent banking relationships with more than 217 international banks of the world. 20

Internet Banking A Case Study More than 50 renowned international banks maintain their Rupee Accounts with PNB. Well equipped dealing rooms; 20 different foreign currency accounts are maintained at major centers all over the globe. With over 38 million satisfied customers and 4668 offices, PNB has continued to retain its leadership position among the nationalized banks. The bank enjoys strong fundamentals, large franchise value and good brand image. Besides being ranked as one of India's top service brands, PNB has remained fully committed to its guiding principles of sound and prudent banking. Apart from offering banking products, the bank has also entered the credit card & debit card business; bullion business; life and non-life insurance business; Gold coins & asset

management business, etc. Since its humble beginning in 1895 with the distinction of being the first Indian bank to have been started with Indian capital, PNB has achieved significant growth in business which at the end of March 2009 amounted to Rs 3,64,463 crore. Today, with assets of more than Rs 2,46,900 crore, PNB is ranked as the 3rd largest bank in the country (after SBI and ICICI Bank) and has the 2nd largest network of branches (4668 including 238 extension counters and 3 overseas offices). PNB has always looked at technology as a key facilitator to provide better customer service and ensured that its IT strategy follows the Business strategy so as to arrive at Best Fit. The bank has made rapid strides in this direction. Along with the achievement of 100% branch computerization, one of the major achievements of the Bank is covering all the branches of the Bank under Core Banking Solution (CBS), thus covering 100% of its business and providing Anytime Anywhere banking facility to all customers including customers of more than 2000 rural branches. The bank has also been offering Internet banking services to the customers of CBS branches like booking of tickets, payment of bills of utilities, purchase of airline tickets etc. Towards developing a cost effective alternative channels of delivery, the bank with more than 2150 ATMs has the largest ATM network amongst Nationalized Banks.

21

Internet Banking A Case Study With the help of advanced technology, the Bank has been a frontrunner in the industry so far as the initiatives for Financial Inclusion is concerned. With its policy of inclusive growth in the Indo-Gangetic belt, the Banks mission is Banking for Unbanked. The Bank has launched a drive for biometric smart card based technology enabled Financial Inclusion with the help of Business Correspondents/Business Facilitators (BC/BF) so as to reach out to the last mile customer to provide cost effective and transparent services. The Bank has started several innovative initiatives for marginal groups like rickshaw pullers, vegetable vendors, diary farmers, construction workers, etc. The Bank has already achieved 100% financial inclusion in 21,408 villages. Backed by strong domestic performance, the bank is planning to realize its global aspirations. In order to increase its international presence, the Bank continues its selective foray in international markets with presence in Hong Kong, Dubai, Kazakhstan, UK, Shanghai, Singapore, Kabul and Norway. A second branch in Hong Kong at Kowloon was opened in the first week of April09. Bank is also in the process of establishing its presence in China, Bhutan, DIFC Dubai, Canada and Singapore. The bank also has a joint venture with Everest Bank Ltd. (EBL), Nepal. Under the long term vision, Bank proposes to start its operation in Fiji Island, Australia and Indonesia. Bank continues with its goal to become a household brand with global expertise.

Amongst Top 1000 Banks in the World, The Banker listed PNB at 250th place. Further, PNB is at the 1166th position among 48 Indian firms making it to a list of the worlds biggest companies compiled by the US magazineForbes.

3.3 Punjab National Bank Internet Banking Punjab National Bank Internet Banking is one of the most convenient services offered by the bank to its retail as well as corporate customers. A large number of customers can manage their funds and account more effectively and efficient by getting the online banking services offered by PNB Bank. In order to enjoy net banking facilities, customers are required to have an account in one of the net 22

Internet Banking A Case Study banking branches of the bank. Then as a customer, you are required to register for internet banking services by submitting an application form at the bank branch. After submitting the application form, the user ID and the password will be delivered to the address provided in the application form. 3.4 PNB Internet Banking Services The representatives of the bank will call upon the applicants to collect their user ID and password to make first time login to http://netpnb.com/index.html. As soon as a user login to the net banking site, he or she is advised to change the user ID and the passwords with some other login ID and passwords that no one knows other than the customer himself. To make online login, visit the login page and choose the options corporate user or retail user and provide the user ID and password. The following are some of the convenient services made available by PNB net banking facility; 3.4.1 Bank account related services Balance enquiry Online details Account details Online account statement 3.4.2 Make Requests online Make online fund transfer between CBS accounts Send upto 17 different request to Relationship Manager of the bank branch Change your password if you fear that someone may have known it

Enjoy fast and safe payment options or air tickets, phone bill payments, etc. PNB internet banking application form is available on the official website of the bank and one can download it free of cost. The bank protects its online banking activities and important information of the customers with 128-bit Secure Socket

23

Internet Banking A Case Study Layer encryption technology. However, it is essential for the customers to follow some simple tips in order to maintain more security.

3.5 Core Banking Core means "Basic", hence the basic services provided by the inter-networked branches of bank is called "Core Banking". Core Banking is normally defined as the business conducted by a banking institution with its retail and small business customers. Many banks treat the retail customers as their core banking customers, and have a separate line of business to manage small businesses. Larger businesses are managed via the Corporate Banking division of the institution. Core banking basically is depositing and lending of money. Nowadays, most banks use core banking applications to support their operations where CORE stands for "Centralized Online Real-time Exchange". This basically means that all the bank's branches access applications from centralized datacenters. This means that the deposits made are reflected immediately on the bank's servers and the customer can withdraw the deposited money from any of the bank's branches throughout the world. These applications now also have the capability to address the needs of corporate customers, providing a comprehensive banking solution. A few decades ago it used to take at least a day for a transaction to reflect in the account because each branch had their local servers, and the data from the server in each branch was sent in a batch to the servers in the datacenter only at the end of the day (EoD). Normal core banking functions will include deposit accounts, loans, mortgages and payments. Banks make these services available across multiple channels like ATMs, Internet banking, and branches.

3.6 Core Banking Solutions In Punjab National Bank. Computerization first started in PNB among the nationalized public sector banks. It is divided in two parts: Transactions: uses Finnacle software of Infosys 24

Internet Banking A Case Study

For transactional purpose most banks use software like Finnacle made by Infosys as it is more convenient & user friendly from the perspective of customers & staff members.

3.7 Services offered by CBS in PNB

25

Internet Banking A Case Study

3.7.1 Electronic Clearing Service (ECS) 3.7.1.1ECS Credit 26

Internet Banking A Case Study Is a medium of payment whereby an organization wanting to pay interest, dividend, salary, pension etc. to a large no. of beneficiaries, can make payment electronically instead of issuing paper instruments. In this scheme while the companies have not to print and dispatch paper instruments, reconciliation is easier for the paying bank. 3.7.1.2 ECS- Debit ECS Debit is the medium that helps organizations to collect the proceeds of bills, premium, installments on due date based on mandates received from the users of their services. To avail this service a customer has to prepare the payment data and submit it to the Sponsor bank on magnetic media. The sponsor bank presents the data to local Banker" clearing house (managed by RBI and SBI) authorizing the clearing house to debit the sponsor bank's account and credit the accounts of destination banks where the beneficiaries of transactions maintain their accounts. The clearing house furnishes the service branches of destination banks, the details relating to the transactions, which in turn pass on the authorization to concerned branches of their banks for credit of the amount to the beneficiary's account. The maximum ceiling amount of Rs.2 crore per transactions fixed earlier by RBI removed by RBI as per Policy dated Oct 26, 2004. 3.7.1.3 Service Charges A) ECS: CREDIT CLEARING: Charges (per data entry/record) SPONSOR BANK: Minimum charges Rs.2000/- + charges payable to RBI and Destination Bank, if any. a) Upto 10000 records @Rs.5/- per record + charges payable to RBI and Destination Bank, if any b) Above 10000 to 100000 records @Rs.3/- per record + charges payable to RBI and destination Bank, if any. (Subject to a minimum of Rs.50,000/-). c) Above 100000 records @Rs.2/- per record + charges payable to RBI and Destination Bank, if any. (Subject to a minimum of Rs. 300000/-)

27

Internet Banking A Case Study

B) ECS: Debit Clearing ( Inclusive of service Tax and Education Cess) ECS: Debit Clearing: Rs.3/- per transaction charges Minimum charges Rs.2000/- + charges payable to RBI and destination Bank, if any. SUBJECT TO RECOVERY OF ALL OUT OF POCKET EXPENSES INCLUDING PROCESSING CHARGES IN CASE THEY ARE EVER AGAIN LEVIED BY RESERVE BANK OF INDIA. C) A sum of Rs.100/- be levied as returning charges on return of ECS (Debit) on account of Insufficient Funds PNB INSTA-REMIT: NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER CIRCULAR, FOLLOWING SERVICE CHARGES WOULD BE LEVIED FOR TRANSFER OF FUNDS THROUGH: REAL TIME GROSS SETTLEMENT (RTGS) NATIONAL ELECTRONIC FUND TRANSFER(NEFT) STRUCTURED FINANCIAL MESSAGING SYSTEM (SFMS)

RBI charges, if any prescribed, shall be recoverable in all the following: CATEGORY OF TRANSACTION Amount of transaction Charges ( Inclusive of Service Tax & Education Cess) 28

Internet Banking A Case Study A Customer Related RTGS Transactions B Inter Banks for clearing purposes Only C RTGS: Inward Remittances: Free Re.1 to Rs.5 lac Above Rs.5 lac Re.1 to Rs.5 lac Above Rs.5 lac Rs.27.50 per transaction Rs.55/- per transaction Rs.27.50 per transaction Rs.55/- per transaction

SERVICE charges for NEFT CATEGORY OF TRANSACTION Amount of transaction Upto Rs.1 lac Above Rs.1 lac Charges ( Inclusive of Service Tax & Education Cess) D OUTWARD NEFT/SFMSFOR CUSTOMER RELATED TRANSACTIONS: E Inward :NEFT Free Rs.5/- per transaction Rs.27.50 per transaction

If handling of cash is involved, cash handling charges would be levied @ 30% extra of normal charges.

3.7.2 Automated Teller Machine (ATM) 29

Internet Banking A Case Study The ATM was one of the earliest core banking services, being introduced in the mid 1970s. It provided customers with the ability to withdraw or deposit funds, check account balances, transfer funds and check statement information. As is the case with any new technology, it took some time before customers became familiar with the ATM and came to accept it as an alternative way of doing their banking. ATMs are electronic machines which are operated by a customer himself to deposit or withdraw cash. It can also be used to deposit cheques, getting balance information, getting account statement for limited entries, payment of bills, transfer of funds, etc. ATMs can be interior (ie located in the branch premises) or exterior (located outside the branch premises such as in a shopping center, airport, railway station, etc.) 3.7.2.1 Operation: For using an ATM, a customer requires an ATM card which is a plastic card magnetically coded & read by the machine. To use an ATM, the customer has to insert the card in the machine & quote his PIN (Personal Identification Number). After establishing the authentication of the customer, the ATM permits a customer to make entries & after processing the transaction, the machine performs the desired function. On completion of the transaction, the customers card is ejected. 3.7.2.2 Security: In order to provide proper security, the ATMs are provided access locks covering key board, monitor etc. that could be opened with the help of ATM card. 3.7.3 Personal Identification Number (PIN) These are secret numbers used for internet banking or written on the plastic money cards (say a debit card) with magnetic means & on insertion of the card into an ATM, the machine enquires about PIN. The machine allows the operation only on typing the correct PIN & it does not permit operation, in case the PIN is incorrect. These code numbers should be kept secret without disclosing to anyone else, to avoid misuse. PIN is similar to a password that a computer user has to quote for operating a computer. It is randomly generated sequence of digits printed on paper & is automatically folded & sealed before it reaches the bank. The seal is required to be opened by the card holder only & has to be kept secret.

30

Internet Banking A Case Study In addition to normal PIN used as a password by the card holder, the PINS facility could include dynamic signature verification, finger print verification, voice recognition system, hand geometry, retinal pattern verification, vein recognition, visual recognition. A virtual keyboard used for entering PIN during an online transaction. 3.7.4 Charges related to ATM Cards Sr. No. 1 2 Particulars of Charges ATM/ Debit Card issue charges ATM/ Debit Card (including Add on Cards) annual fee on completion of one year and thereafter to be charged on yearly basis. 3 4 Charges for issue of Add on card Charges for issue of duplicate PIN (However, if the card has not been used even once due to error in printing of PIN, issue of duplicate PIN shall be free) 5 Charges for issue of duplicate ATM/Debit card/ Replacement of ATM/Debit card 6 Issue of ATM/Debit card with photograph of the cardholder Rs. 25/Rs. 100/Rs. 50/per card Rs. 25/Charges Free Rs. 100/-

31

Internet Banking A Case Study 3.7.5 Plastic Cards (PLASTIC MONEY) Plastic cards are used as a medium of payment & are of different kinds with different features. These cards include: Credit Card. Debit Card. Smart Card.

3.7.5.1 Credit Cards Being an instrument of payment, the card holder can obtain either goods or services from merchant establishments (called Point of Sale) without prior payment, where such arrangements exist. At the time of purchase, charge slip is prepared on the basis of which payment is claimed from the card issuer bank. The amount is payable by the card holder to the issuer bank during a specified period.

3.7.5.2 Different types of Smart Cards Stored value card: These are also known as pre-paid cards or value added cards. Cards have magnetic stripe or a computer chip in which value is stored. On use of card, funds are directly debited from the card. 3.7.5.3 Magnetic stripe card:

Conventional cards like ATM card, credit card are all magnetic stripe cards. But smart card in the form of magnetic stripe card can store much more information
3.7.5.4

Re-loadable cards:

These are the cards where the value is replenished once it is used 3.7.5.5 Disposal cards: These cards have specific value and once the value is used, these are discarded. 3.7.5.6 Closed cards: 32

Internet Banking A Case Study These are the cards the value of which can be used for a specified purpose like phone cards. 3.7.5.7 Open Cards: These can be used for several issuers and called electronic purse or electronic wallet. 3.7.5.8 Electronic purse: The electronic cards have the provision for use of different types of accounts of the user. This facility is known as electronic pulse each having storage of separate amount. It provides a new method of payment which permits the bank to enter into transaction market complementary to the credit or debit card transaction market. The cash in electronic purse cannot be spent if the purse if reported as lost.

3.8 ELECTRONIC CASH 33

Internet Banking A Case Study The card holder can load the funds into a card for use in the form of cash that could be used for meeting various kinds of requirements after authorization through PIN.

3.8.1 Cheque Truncation In cheque truncation, the physical flow of cheque is stopped at some point. In place of the physical cheque, the image of the cheque moves. In this process, once a cheque enters the banking system, its electronic image is obtained and the physical cheque is stored at some point of time, may be the collecting branch where the customer deposits the cheque or collecting link branch (branch connected to the clearing house) and the processing of the cheque is done on the basis of electronic image i.e. paying bank makes payment on the basis of electronic image.

Truncation can be done by using the MICR data or by use of the image processing. 34

Internet Banking A Case Study 3.8.2 Electronic Cheques When a cheque is issued in electronic form instead of its normal physical form by use of digital signature, it is called electronic cheque. It contains exact mirror image of the paper cheque and is generated, written and signed in a secured system by ensuring the minimum safety standards with the use of digital signature (with or without biometrics signatures and asymmetric crypto system). Electronic cheque is also a valid like a paper cheque, u/s 6 of Negotiable Instrument Act (as per 2002 amendment to NI Act). For the time being, the Information Technology Act 1999 is applicable to cheques only and not other negotiable instruments such as Bill of Exchange and promissory notes. 3.8.3 Faster remittance services Electronic Funds Transfer (EFT) has accelerated the movement of funds across the globe. E-Cash or Cyber-Cash plays a predominant role in world commerce. Such electronic funds movements amounting to a few trillion dollars are settled on a daily basis at major international financial centers. Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a classic example of EFT among banks with its own standards for messages, which ensures speed reliability, security and accuracy. If large banks in India create such infrastructure for their branches in India, this will lead to more efficient use of funds and contribute to excellence in customer service in remittance and collection. 3.9 National Electronic Fund Transfer In PNB NEFT Transactions are meant for public ie individual customers only. There is no amount limit. RBI's EFT system is result of the Shere Committee recommendations. EFT has been defined as the series of transactions beginning with the Remitter's payment order to the remitting branch made for the purpose of making payment to the beneficiary. The EFT is completed when the remitting branch receives an acknowledgement from the destination branch which indicates payment having been made to the beneficiary or a refund made by the destination branch due to failure to make payment to the beneficiary for any of the valid reasons of nonpayment 35

Internet Banking A Case Study It has been introduced by RBI to help banks offering their customers, money transfer service from one account of a bank branch to another account of any bank (including same bank's) branch, both inter-city and intra-city. The system is an improvement over the existing system of demand draft, mail-transfers etc. as funds are transferred on day2. Under the scheme, the account of the receiving bank with RBI is credited on Day-2 for all

remittances affected by remitting bank on Day-1, up to prescribed cut-off time (3.30 pm). The receiving bank can credit beneficiary's account on Day-2. Each bank has to identify a branch at the respective centre to act as link point for transmission of outward message and receipt of inward message. 3.9.1 Procedure Applicant provides particulars of beneficiary and authorizes his banks to remit. Remitting branch sends duplicate of EFT | application to service/link branch, for EFT data preparation. Service branch prepares EF T data file in software of RBI and transmits the same to local RBI office (National Clearing Cell) by 3.30 pm. RBI consolidates all files so received, sorts transactions city-wise and transmits to | destination RBI offices. At destination centre, RB1 consolidates the files and sorts bank wise, which in turn are transmitted to concerned bank on Day-1. On Day-2 the receiving banks credit the beneficiarys account. Acknowledgement for receipt is sent on Day-3 along with confirmation for having credited beneficiarys account.

3.9.2 Ceiling on amount : The ceiling of Rs.2 crore removed by RBI (Oct 04) 36

Internet Banking A Case Study Service charges Rs.25, to be shared between remitting bank, receiving bank and RBI (Rs.10, Rs.10 and Rs.5)

Under the facility the beneficiary gets the funds credited to his account within 24 hours. The system was introduced during 1996. Currently the scheme is available across the banks at 15 centers where RBI manages its clearing house the centers are Ahmadabad, Bangalore, Chandigarh, Chennai, Guwahati, Hyderabad, Jaipur, Kanpur, Kolkata, Mumbai, Nagpur, New Delhi, Patna and Thiruvananatapuram.

3.10 Cash Management Services Of PNB. Punjab National Bank had taken a major initiative for managing the funds of Corporates. The services are essentially meant for pooling your funds spread across the country at a place of your choice with the least time delay, if not instantaneously in many cases. We shall collect your receivables from your representative or your business associates at more than 2700 CBS branches spread across 935 centers all over the country and pool the same at the branch specified by you. The services can be custom designed to cater to your specific needs. The Scheme offers the following options for you: Option I: Instant credit through our CMS to your account, pending clearance of funds. Option II: Credit to your account through our CMS after realizations. Option III: You can choose Option I or II according to your client profile and indicate to us client-wise. A host of Daily/weekly/monthly reports and special report including center-wise reports generated at our HUB at Delhi, can be sent you through electronic media as per requirements of your funds Managers. The Bank offers the above services at most competitive rates. The charges for the services are given as under:(Charges in paisa/Rs. 1000) 37

Internet Banking A Case Study For Metro locations (metropolitan cities) For Non-metro locations (state capitals & District HQs) For Remote locations (all other locations) 90 paisa 50 paisa 25 paisa

In case your turnover crosses certain assured level we offer attractive discounts on the above charges ranging from 20% to over 76%. For example, if your annual turnover of collection exceeds Rs. 250 crores at Chennai (a metro location), the charges shall be just 06 paisa per 1000/-.

3.11 SWIFT. The Society for Worldwide Inter-bank Financial Telecommunications (SWIFT) was formed during 1973 with its headquarters at Brussels & started functioning in May 1977. RBI, 27 Public Sector Banks & a number of other private sector banks obtained its membership. It provides rapid, reliable & cost-effective mode of transmitting the financial message worldwide to more than 125000 offices of SWIFT members.

SWIFT-II system had been launched by the society to bring improvement in the SWIFT-I for catering to the high growth in messages. SWIFT provides 24 hour facilities such as: Transfer of messages relating to the fixed deposits, Interest payment, Debit-Credit card statements, Foreign exchange, etc.

38

Internet Banking A Case Study It bears the liability arising from loss or delay in delivery of messages assumes the responsibility for proper functioning of the net work & its security. The delivery of message to other than member branches is responsibility of the user.

3.11.1 Security in SWIFT. It is taken care of through use of Key Authentication mechanism, Encryption, & Checksum. It is responsibility of the Regional Processor (in India in Mumbai).

Major message types in SWIFT. It includes; Customer transfers & cheques, Financial institutions transfers, Financial trading, Collection & cash letters, Documentary Credits & guarantees, Securities, Travellers cheque, Cash management, & Customer status & supporting system messages.

39

Internet Banking A Case Study

40

Internet Banking A Case Study 3.12 Real Time Gross Settlement System. (RTGS). This is used as a mode of transactions for corporate & public i.e. Individual customers. Its limit being 1 lakh and above. The inter-bank fund transfer system in India can be classified into the Batch Mode (Net) Real Time Gross Settlement System. (RTGS). In Batch Mode (Net), the transmission, processing & settlement is done for a set of transactions (say cheque clearing or sale or purchase of securities) at a particular point of time & the settlement on a pre-fixed interval of time (say at the end of the day). In Real Time Gross Settlement System. (RTGS) on other hand, the transmission, processing & settlement of an instruction are done on a continuous basis. World over, it is used for high value clearing involving inter-bank fund transfers & treasury related transactions, helping in reducing settlement & systemic risk. In India it has been implemented wef March 26, 2004 & its implementation places India at par with the best practices in world in terms of payment systems.

3.13 What is RTGS? RTGS is a centralized payment system in which, inter-bank payment instructions are processed & settled, transaction by transaction (one by one) & continuously (online) throughout the day, as & when the instructions are received & finally accepted by the system. RTGS uses INFINET & SFMS platform. 3.14 Need for RTGS? Under the existing system, the settlement of the individual payment takes place on a net basis (i.e. Difference of payment to be received & payment to be made) & that too at a designated time. This causes the system participants to be exposed to the financial risks for the period during which settlement is deferred. Due to such delays in settlement, a no. of capital market & money market frauds have taken place in India in recent years. Further, the existing payment system is capable to 41

Internet Banking A Case Study meet the requirement of the 80s or 90s when the no. & volume of financial transactions was limited. But, due to change in the economic perspective, its linkage with the global economies & the role of information technology, need has been felt for a more accurate, risk free, efficient & effective system. RTGS is an internationally compatible & transparent system which could be used to the full advantage of the existing client base without dispensing with the benefits already available to customers.

3.15 Process of RTGS In India, the RTGS has been implemented by RBI. It uses Y shaped structure out of the 4 message flow structures (V, Y, L, and T). In this structure, the following flow of instructions takes place; 1. Each bank is required to have a single gateway interface called Participant Interface (PI) for RTGS system. The payment message originates from the participants host system. 2. This message is passed on by the PI to Inter-bank Funds Transfer Processor (IFTP) acting as broker. Communication between PI & IFTP is through RTGS only. 3. IFTP stores the message & in case of payment message construct settlement message containing a core subset of the info required for the settlement & routed to the RTGS system at RBI. 4. After receipt of this subset, RBI (the settlement agent) carries the settlement by debit & credit of the accounts of respective banks & conveys the status to IFTP. 5. On receipt of this confirmation, IFTP reconstructs the message by adding back other details & sends settlement advice to both the originating & beneficiary participant. The business info is not known to the settlement agent i.e. RBI.

3.16 RTGS Business Day: It has 4 phases. 1 RTGS Open Phase all normal transactions are accepted & processed. 42

Internet Banking A Case Study 2 IDL Shut Phase- All transactions are processed as in RTGS open phase but no new IDL will be requests. 3 IDL closed Phase- Restrictions on fresh IDl continues. No transaction which debits a member with an outstanding IDL will be settled. 4 RTGS close phaseTransaction reversing outstanding IDL will only be permitted. Outstanding multilateral net settlement Batch transactions for settlement & MNSB return transaction are also permitted. 5 3.17 Present status of RTGS in India. The system was launched on March 26, 2004 (on pilot basis by involving 4 banks) by RBI for large value transactions for banks & their client. Majority of the banks have already joined the system. Nearly 3000 bank branches across 275 cities/ towns in India are expected to go live on this online fund transfer system.

3.18 Structured Financial Messaging System (SFMS) SFMS is an Electronic Data Interchange (EDI) system (like SWIFT) that permits the exchange of structured messages (prepared according to the published standards of Working Group on INFINET).

The system consists of 4 main elements: Hub that switches inter-bank message from sending banks gateway to receiving banks gateway. Bank gateway that switches intra-bank message from one branch server to another branch server & also out messages. Branch serve that receives & sends branch messages using online thin clients. SFMS security it uses X.509 Digital signatures for access control & authentication of messages. The outgoing messages are encrypted with the receiving nodes public key for protection of confidentiality of messages in transit.

43

Internet Banking A Case Study 3.19 Automated Teller Machine (ATM) The ATM was one of the earliest core banking services, being introduced in the mid 1970s. It provided customers with the ability to withdraw or deposit funds, check account balances, transfer funds and check statement information. As is the case with any new technology, it took some time before customers became familiar with the ATM and came to accept it as an alternative way of doing their banking. ATMs are electronic machines which are operated by a customer himself to deposit or withdraw cash. It can also be used to deposit cheques, getting balance information, getting account statement for limited entries, payment of bills, transfer of funds, etc. ATMs can be interior (ie located in the branch premises) or exterior (located outside the branch premises such as in a shopping center, airport, railway station, etc.) 3.19.1 Operation: For using an ATM, a customer requires an ATM card which is a plastic card magnetically coded & read by the machine. To use an ATM, the customer has to insert the card in the machine & quote his PIN (Personal Identification Number). After establishing the authentication of the customer, the ATM permits a customer to make entries & after processing the transaction, the machine performs the desired function. On completion of the transaction, the customers card is ejected. 3.19.2 Security: In order to provide proper security, the ATMs are provided access locks covering key board, monitor etc. that could be opened with the help of ATM card.

3.19.3 Advantage. Quick & efficient services.

44

Internet Banking A Case Study Provision for uninterrupted services for all days of the week & on any time (24*7*365). Any place availability to the customer of the bank amounting to anywhere banking. Extended working hours. Helps in utilizing human resources in more productive functions by taking over the routine payment functions. ATMs provide round the clock service with ease & privacy of operations. It reduces pressure on bank staff & avoids congestion in the bank premises. 3.20 Prepaid PNB World Travel Card Punjab National Bank has introduce a new product, a Prepaid PNB World Travel Card. This card is available to for US $, British and the Euro. This card does away with the need for carrying Traveler Cheques and Currency. It has several major advantages over other types of cards. 1. Your exposure to foreign currency is decided on the day the card is issued/ topped up and therefore you are protected against future currency fluctuations in the currency of issue. 2. You do not need to look around for money changers and pay their transaction charges in a foreign country. 3. In case of loss of card, you can immediately get it deactivated.

4. In the unlikely event of loss & subsequent misuse of your card, we are insuring loss up to USD 5000. 5. PNB customers can access their card account on line to check balance, spending etc. 6. 7. The unspent balance can be surrendered. Your card can be reloaded for any number of times within your entitlement.

8. We also have a 24x7 call centre to provide information and hot listing of the card in case of loss.

45

Internet Banking A Case Study

3.21 CBS Products

46

Internet Banking A Case Study

47

Internet Banking A Case Study 3.21.1 Mobile Banking Mobile banking (also known as M-Banking, m-banking, SMS Banking etc.) is a term used for performing balance checks, account transactions, payments etc. via a mobile device such as a mobile phone. Mobile banking today (2007) is most often performed via SMS or the Mobile Internet but can also use special programs called clients downloaded to the mobile device. A mobile banking conceptual model In one academic model, mobile banking is defined as: "Mobile Banking refers to provision and availment of banking- and financial services with the help of mobile telecommunication devices. The scope of offered services may include facilities to conduct bank and stock market transactions, to administer accounts and to access customized information." According to this model Mobile Banking can be said to consist of three interrelated concepts: Mobile Accounting Mobile Brokerage Mobile Financial Information Services Most services in the categories designated Accounting and Brokerage are transaction-based. The non-transaction-based services of an informational nature are however essential for conducting transactions - for instance, balance inquiries might be needed before committing a money remittance. The accounting and brokerage services are therefore offered invariably in combination with information services. Information services, on the other hand, may be offered as an independent module.

3.21.2 Challenges for a Mobile Banking Solution 48

Internet Banking A Case Study Key challenges in developing a sophisticated mobile banking application are: 3.21.2.1 Handset operability There are a large number of different mobile phone devices and it is a big challenge for banks to offer mobile banking solution on any type of device. Some of these devices support J2ME and others support WAP browser or only SMS. Initial interoperability issues however have been localized, with countries like India using portals like R-World to enable the limitations of low end java based phones, while focus on areas such as South Africa have defaulted to the USSD as a basis of communication achievable with any phone. The desire for interoperability is largely dependent on the banks themselves, where installed applications (Java based or native) provide better security, are easier to use and allow development of more complex capabilities similar to those of internet banking while SMS can provide the basics but becomes difficult to operate with more complex transactions. There is a myth that there is a challenge of interoperability between mobile banking applications due to perceived lack of common technology standards for mobile banking. In practice it is too early in the service lifecycle for interoperability to be addressed within an individual country, as very few countries have more than one mobile banking service provider. In practice, banking interfaces are well defined and money movements between banks follow the IS08583 standard. As mobile banking matures, money movements between service providers will naturally adopt the same standards as in the banking world.

49

Internet Banking A Case Study

3.21.2.2 Security Security of financial transactions, being executed from some remote location and transmission of financial information over the air, are the most complicated challenges that need to be addressed jointly by mobile application developers, wireless network service providers and the banks' IT departments. The following aspects need to be addressed to offer a secure infrastructure for financial transaction over wireless network:

50

Internet Banking A Case Study Physical part of the hand-held device. If the bank is offering smart-card based security, the physical security of the device is more important.

Security of any thick-client application running on the device. In case the device is stolen, the hacker should require at least an ID/Password to access the application. Authentication of the device with service provider before initiating a transaction. This would ensure that unauthorized devices are not connected to perform financial transactions. User ID / Password authentication of banks customer. Encryption of the data being transmitted over the air. Encryption of the data that will be stored in device for later / off-line analysis by the customer. 3.21.2.3 Scalability & Reliability Another challenge for the CIOs and CTOs of the banks is to scale-up the mobile banking infrastructure to handle exponential growth of the customer base. With mobile banking, the customer may be sitting in any part of the world (true anytime, anywhere banking) and hence banks need to ensure that the systems are up and running in a true 24 x 7 fashion. As customers will find mobile banking more and more useful, their expectations from the solution will increase. Banks unable to meet the performance and reliability expectations may lose customer confidence. There are systems such as Mobile Transaction Platform which allow quick and secure mobile enabling of various banking services. Recently in India there has been a phenomenal growth in the use of Mobile Banking applications, with leading banks adopting Mobile Transaction Platform and the Central Bank publishing guidelines for mobile banking operations. 3.21.2.4 Application distribution Due to the nature of the connectivity between bank and its customers, it would be impractical to expect customers to regularly visit banks or connect to a web site for regular upgrade of their mobile banking application. It will be expected that the mobile application itself check the upgrades and updates and download necessary 51

Internet Banking A Case Study patches (so called "Over The Air" updates). However, there could be many issues to implement this approach such as upgrade / synchronization of other dependent components. 3.21.2.5 Personalization It would be expected from the mobile application to support personalization such as: Preferred Language Date / Time format Amount format

Default transactions Standard Beneficiary list Alerts SMS banking SMS banking is a technology-enabled service permitting banks to operate selected banking services over the customers' mobile phone using SMS messaging. SMS banking services are operated using both Push and Pull messages. Push messages are those that the bank chooses to send out to a customer's mobile phone, without the customer initiating a request for the information. Typically push messages could be either Mobile Marketing messages or messages alerting to an event which happens in the customer's bank account, such as a large withdrawal of funds from the ATM or a large payment using the customer's credit card, etc. Another type of push message is a One-time password. Pull messages are those that are initiated by the customer, using a mobile phone, for obtaining information or performing a transaction in the bank account. Examples of pull messages for information include an account balance enquiry or requests for current information like currency exchange rates and deposit interest rates. 52

Internet Banking A Case Study The banks customer is empowered with the capability to select the list of activities (or alerts), that he/she needs to be informed. This functionality to choose activities can be done either by integrating to the Internet Banking channel or through the banks customer service call centre.

3.22 INTERNET BANKING.

53

Internet Banking A Case Study Online banking or e-banking can be defined as online systems which allow customers to plug into a host of banking services from a personal computer by connecting with the banks computer over the telephone wires. Technology continues to make online banking easier for the average consumer. Banks are using a variety of names for online banking services, such as PC banking, home banking, electronic banking or Internet banking. Regardless of the given name, these systems certainly offer specific advantages over the traditional banking methods.

E- Banking can be defined as delivery of banks services to a customer at his office or home using Electronic Technology. The quality, range and price of these electronic services decide a banks competitive position in the industry.

Technology in banking has been used in four major ways: To handle a greatly expanded customer base To reduce substantially the real; cost of handling payments To liberate the banks from the traditional constraints on time and place To introduce new products and services.

54

Internet Banking A Case Study

3.23 Home Banking: Under home banking the customer is served at his residence and there is no need for the customer to visit the banks premises for a number of routine transactions. If the customer needs some information the same can be got by contacting the bank over the phone as described in the telebanking. If the customer wants to put through transaction and wishes to see his account or to get a statement of his account, he may have to use a PC. This type of facility is available with a town, city or metropolitan area. Under such a situation the customer should have a: 55

Internet Banking A Case Study PC Modem Telephone line A compatible software for the home PC The home banking service can be broadly classified under two groups, one without using the information technology and another using information technology. When customer contacts the bank o the phone no specific technology is involved and the service of telebanking are provided to him.

56

Internet Banking A Case Study

Client instructions Next logs bank Money inday on to BANKING Gives is transferred Keys prepares a He goesthethe Deposits user to ELECTRONIC BANKING TRADITIONAL MoneyCheque site NameOnlinebank Chequeweb Banks transferred Samein is password & day

3.24 Impact of computer technology Computer technology has impacted the banking system and its various constituents (customer service, employees and services and products) in different manner as under: 3.24.1 Impact on customer services. 57

Internet Banking A Case Study Availability of 365 days and 24 hour banking services through ATMs, credit and debit cards. Networking of Branch-Banking to provide for anywhere Banking.

3.24.2 Impact on Employees. Change in job content with more emphasis on new products, new services and customer services Enhanced productivity of the employee Better working environment Enhanced Job security for the employee due to better sustainability of the banking system.

3.24.3 Impact on services. Faster transactions Availability of services for 24 hours Improved quality of services with better features Higher level of satisfaction to customers.

3.24.4 Impact on organizational structure and orientation. Reduction in hierarchical tier systems and direct liaison between top management and field functionaries. 58

Internet Banking A Case Study Less dependence on middle tiers for data collection and MIS Change in the outlook of top management as IT is seen as a functional requirement

Chpater 4 Conclusion

59

Internet Banking A Case Study

Internet Banking has become one of the important services which are provided by bank. Many services provided by banks like SMS Banking, Online Payments etc are preferred by the customers as they can do it at any place even sitting at home or office etc. Punjab National Bank has been providing Internet Banking Services Since 2002. It provides all services such as Accounting Opening, Cheque Book Request, DD Request, FD Breaking, FD Accounting, FD Renewal, Request Of NEFT, Transaction Password Request, Request For RTGS, Request For Account Statement etc. They have a total number of ATM Network as on date 15th August 2010 3796 and still growing. They are also equipped with Core Banking Solution. Bank provides different services like Internet Baking, Home Banking, Mobile Banking etc. \ Bank also provide assistance to their customers regarding usage of Internet Banking. They also educate them regarding Cyber Crime and Hacking. Bank suggest customers to frequently change their password in order to prevent hacking of their account. Punjab National Bank is really old bank working since 1895.it has branch network of 4525. More than 50 renowned banks keep their INR Account with Punjab National Bank. With over 38 million satisfied customers and 4668 offices, PNB has continued to retain its leadership position among the nationalized banks. Apart from offering banking products, the bank has also entered the credit card & debit card business; bullion business; life and non-life insurance business; Gold coins & asset management business, etc. PNB has always looked at technology as a key facilitator to provide better customer service and ensured that its IT strategy follows the Business strategy so as to arrive at Best Fit. The bank has made rapid strides in this direction. Along with the achievement of 100% branch computerization, one of the major achievements of the Bank is covering all the branches of the Bank under Core Banking Solution (CBS), thus covering 100% of its business and providing Anytime Anywhere banking facility to all customers including customers of more than 2000 rural branches. The bank has also been offering Internet banking 60

Internet Banking A Case Study services to the customers of CBS branches like booking of tickets, payment of bills of utilities, purchase of airline tickets etc. Towards developing a cost effective alternative channels of delivery, the bank with 3796 ATMs which is the largest ATM network amongst Nationalized Banks. With the help of advanced technology, the Bank has been a frontrunner in the industry so far as the initiatives for Financial Inclusion is concerned. With its policy of inclusive growth in the Indo-Gangetic belt, the Banks mission is Banking for Unbanked. The Bank has launched a drive for biometric smart card based technology enabled Financial Inclusion with the help of Business Correspondents/Business Facilitators (BC/BF) so as to reach out to the last mile customer to provide cost effective and transparent services.

61

Internet Banking A Case Study

Bibliography Books Online Banking In India A K Upal Magazine Indian Banker Weblography

http://finance.indiamart.com/investment_in_india/punjab_national_bank.htm l www.pnbindia.com/ https://netbanking.netpnb.com/ www.pnbindia.in/PNB1063.pdf www.wikepedia.org www.netpnb.com www.onlinebanksguide.com/punjab-national-bank/internet-banking.html http://en.wikipedia.org/wiki/Banking_in_India#Post-independence

62

Internet Banking A Case Study Annexure

Sample Questioner

1. 2.

When was Internet Banking introduced in Punjab National Bank? Which services are provided through Internet Banking? 63

Internet Banking A Case Study

3. 4. 5. 6. 7.

Is there any time limit for usage of Internet Banking? After introduction of Internet Banking In Punjab National Bank have any special training or special staff recruited? Is Internet Banking service Chargeable? Which type of customer prefers Internet Banking? How does Bank educate their customers regarding Cyber Crime or Hacking?

8. Is there any limit for customers regarding usage of Mobile Banking? 9. Any special facility that Bank provides to its customer? 10.In which currency is this card available?

64