INTRODUCTION

A bank is a financial institution that accepts deposits from the

public and creates credit.[1] Lending activities can be
performed either directly or indirectly through capital markets.
Due to their importance in the financial system and influence
on national economies, banks are highly regulated in most
countries. Most nations have institutionalized a system known
as fractional reserve banking under which banks hold liquid
assets equal to only a portion of their current liabilities. In
addition to other regulations intended to ensure liquidity,
banks are generally subject to minimum capital requirements
based on an international set of capital standards, known as
the Basel Accords.
Banking in its modern sense evolved in the 14th century in
the rich cities of Renaissance Italy but in many ways was a
continuation of ideas and concepts of credit and lending that
had their roots in the ancient world. In the history of banking,
a number of banking dynasties notably, the Medicis, the
Fuggers, the Welsers, the Berenbergs and the Rothschilds
have played a central role over many centuries. The oldest
existing retail bank is Banca Monte dei Paschi di Siena, while
the oldest existing merchant bank is Berenberg Bank.

History

56

Banking began with the first prototype banks of merchants of

the ancient world, which made grain loans to farmers and
traders who carried goods between cities. This began around
2000 BC in Assyria and Babylonia. Later, in ancient Greece
and during the Roman Empire, lenders based in temples made
loans and added two important innovations: they accepted
deposits and changed money. Archaeology from this period in
ancient China and India also shows evidence of money lending
activity.
The origins of modern banking can be traced to medieval and
early Renaissance Italy, to the rich cities in the north like
Florence, Lucca, Siena, Venice and Genoa. The Bardi and
Peruzzi families dominated banking in 14th-century Florence,
establishing branches in many other parts of Europe.[2] One of
the most famous Italian banks was the Medici Bank, set up by
Giovanni di Bicci de' Medici in 1397.[3] The earliest known
state deposit bank, Banco di San
Giorgio (Bank of St. George), was founded in 1407 at Genoa,
Italy.[4]
Modern banking practices, including fractional reserve
banking and the issue of banknotes, emerged in the 17th and
18th centuries. Merchants started to store their gold with the
goldsmiths of London, who possessed private vaults, and
charged a fee for that service. In exchange for each deposit of
precious metal, the goldsmiths issued receipts certifying the

57

quantity and purity of the metal they held as a bailee; these

receipts could not be assigned, only the original depositor

could collect the stored goods.

The
sealing
of the
Bank of
England
Charter
(1694).

Gradually the goldsmiths began to lend the money out on

behalf of the depositor, which led to the development of
modern banking practices; promissory notes (which evolved
into banknotes) were issued for money deposited as a loan to
the goldsmith.[5] The goldsmith paid interest on these
deposits. Since the promissory notes were payable on
demand, and the advances (loans) to the goldsmith's
customers were repayable over a longer time period, this was
an early form of fractional reserve banking. The promissory
notes developed into an assignable instrument which could
circulate as a safe and convenient form of money backed by
the goldsmith's promise to pay,[6] allowing goldsmiths to
advance loans with little risk of default.[7] Thus, the goldsmiths
of London became the forerunners of banking by creating new
money based on credit.
The Bank of England was the first to begin the permanent
issue of banknotes, in 1695.[8] The Royal Bank of Scotland
established the first overdraft facility in 1728.[9] By the

58

beginning of the 19th century a bankers' clearing house was

established in London to allow multiple banks to clear
transactions. The Rothschilds pioneered international finance

on a large scale, financing the purchase of the Suez canal

for the British government.

59

Structure of the organised banking sector in India. Number of banks

are in brackets.

60

Banking in India, in the modern sense, originated in the last

decades of the 18th century.
Among the first banks were the Bank of Hindostan, which was
established in 1770 and liquidated in 1829-32; and the
General Bank of India, established in 1786 but failed in 1791.
[1][2][3][4]
The largest bank, and the oldest still in existence, is the State
Bank of India (S.B.I). It originated as the Bank of Calcutta in
June 1806. In 1809, it was renamed as the Bank of Bengal.
This was one of the three banks funded by a presidency
government, the other two were the Bank of Bombay and the
Bank of Madras. The three banks were merged in 1921 to form
the Imperial Bank of India, which upon India's independence,
became the State Bank of India in 1955. For many years the
presidency banks had acted as quasi-central banks, as did
their successors, until the Reserve Bank of India was
established in 1935, under the Reserve Bank of India Act,
1934.[5][6]
In 1960, the State Banks of India was given control of eight
state-associated banks under the State Bank of India
(Subsidiary Banks) Act, 1959. These are now called its
associate banks.[5] In 1969 the Indian government
nationalised 14 major private banks. In 1980, 6 more private
banks were nationalised.[7] These nationalised banks are the
majority of lenders in the Indian economy. They dominate
the banking sector because of their large size and
widespread networks.[8]
The Indian banking sector is broadly classified into scheduled
banks and non-scheduled banks. The scheduled banks are
those included under the 2nd Schedule of the Reserve
Bank of India Act, 1934. The scheduled banks are further
classified into: nationalised banks; State Bank of India and its
associates; Regional Rural Banks (RRBs); foreign banks;

and other Indian private sector banks.[6] The term

61

commercial banks refers to both scheduled and nonscheduled commercial banks regulated under the Banking
Regulation Act, 1949.[9]
Generally banking in India is fairly mature in terms of supply,
product range and reach-even though reach in rural India and
to the poor still remains a challenge. The government has
developed initiatives to address this through the State Bank of
India expanding its branch network and through the National
Bank for Agriculture and Rural Development with facilities like
microfinance.

DEFINITION OF E-BANKING

Electronic banking, also known as electronic funds transfer (EFT), is

simply the use of electronic means to transfer funds directly from one
account to another, rather than by cheque or cash. You can use
electronic funds transfer to:

Have your paycheck deposited directly into your bank or credit

union checking account.

Withdraw money from your checking account from an ATM

machine with a personal identification number (PIN), at your
convenience, day or night.

62

Instruct your bank or credit union to automatically pay certain

monthly bills from your account, such as your auto loan or your
mortgage payment.

Have the bank or credit union transfer funds each month from
your

account

to

your

mutual

fund

account.

Have your government social security benefits check or your tax

refund

checking

deposited

directly

into

your

checking

account.

Buy groceries, gasoline and other purchases at the point-ofsale, using a check card rather than cash, credit or a personal
check.

Use a smart card with a prepaid amount of money embedded in

it for use instead of cash at a pay phone, expressway road toll,
or on college campuses at the library's photocopy machine or
bookstores.

Use your computer and personal finance software to coordinate

your total personal financial management process, integrating
data and activities related to your income, spending, saving,
investing, recordkeeping, bill-paying and taxes, along with basic
financial analysis and decision making.

63

VARIOUS FORMS OF E-BANKING:

INTERNET BANKING:

64

Internet Banking lets you handle many banking transactions via your
personal computer. For instance, you may use your computer to view
your account balance, request transfers between accounts, and pay
bills electronically.

Internet banking system and method in which a personal computer is

connected by a network service provider directly to a host computer
system of a bank such that customer service requests can be
processed automatically without need for intervention by customer
service representatives. The system is capable of distinguishing
between those customer service requests which are capable of
automated fulfillment and those requests which require handling by a
customer service representative. The system is integrated with the
host computer system of the bank so that the remote banking
customer can access other automated services of the bank. The
method of the invention includes the steps of inputting a customer
banking request from among a menu of banking requests at a remote
personnel computer; transmitting the banking requests to a host
computer over a network; receiving the request at the host computer;
identifying the type of customer banking request received; automatic
logging of the service request, comparing the received request to a
stored table of request types, each of the request types having an
attribute to indicate whether the request type is capable of being
fulfilled by a customer service representative or by an automated
system; and, depending upon the attribute, directing the request

either to a queue for handling by a customer service

representative or to a queue for processing by an automated
system.

AUTOMATED TELLER MACHINES (ATM):

65

An unattended electronic machine in a public place, connected to a

data system and related equipment and activated by a bank customer
to obtain cash withdrawals and other banking services. Also called
automatic teller machine, cash machine; Also called money machine.
An automated teller machine or automatic teller machine (ATM) is
an electronic computerized telecommunications device that allows a
financial institution's customers to directly use a secure method of
communication to access their bank accounts, order or make cash
withdrawals (or cash advances using a credit card) and check their
account balances without the need for a human bank teller (or cashier
in the UK). Many ATMs also allow people to deposit cash or cheques,
transfer money between their bank accounts, top up their mobile
phones' pre-paid accounts or even buy postage stamps.
On most modern ATMs, the customer identifies him or herself by
inserting a plastic card with a magnetic stripe or a plastic smartcard
with a chip, that contains his or her account number. The customer
then verifies their identity by entering a passcode, often referred to as
a PIN (Personal Identification Number) of four or more digits. Upon
successful entry of the PIN, the customer may perform a transaction.
If the number is entered incorrectly several times in a row (usually
three attempts per card insertion), some ATMs will attempt retain the
card as a security precaution to prevent an unauthorised user from
discovering the PIN by guesswork. Captured cards are often destroyed
if the ATM owner is not the card issuing bank, as non-customer's
identities cannot be reliably confirmed.

The Indian market today has approximately more than 17,000 ATMs.

66

TELE BANKING:
Undertaking a host of banking related services including financial
transactions from the convenience of customers chosen place
anywhere across the GLOBE and any time of date and night has now
been made possible by introducing on-line Telebanking services. By
dialing the given Telebanking number through a landline or a mobile
from anywhere, the customer can access his account and by following
the user-friendly menu, entire banking can be done through Interactive
Voice Response (IVR) system. With sufficient numbers of hunting lines
made available, customer call will hardly fail. The system is bi-lingual
and has following facilities offered

Automatic balance voice out for the default account.

Balance inquiry and transaction inquiry in all

Inquiry of all term deposit account

Statement of account by Fax, e-mail or ordinary mail.

Cheque book request

Stop payment which is on-line and instantaneous

Transfer

of

funds

with

CBS

which

is

automatic

and

instantaneous

Utility Bill Payments

Renewal of term deposit which is automatic and

instantaneous
Voice out of last five transactions.

67

SMART CARD:
A smart card usually contains an embedded 8-bit microprocessor (a
kind of computer chip). The microprocessor is under a contact pad on
one side of the card. Think of the microprocessor as replacing the
usual magnetic stripe present on a credit card or debit card.
The microprocessor on the smart card is there for security. The host
computer and card reader actually "talk" to the microprocessor. The
microprocessor enforces access to the data on the card.
The chips in these cards are capable of many kinds of transactions.
For example, a person could make purchases from their credit
account, debit account or from a stored account value that's reload
able. The enhanced memory and processing capacity of the smart
card is many times that of traditional magnetic-stripe cards and can
accommodate several different applications on a single card. It can
also hold identification information, which means no more shuffling
through cards in the wallet to find the right one -- the Smart Card will
be the only one needed.

Smart cards can also be used with a smart card reader attachment to
a personal computer to authenticate a user.
Smart cards are much more popular in Europe than in the U.S. In
Europe the health insurance and banking industries use smart cards
extensively. Every German citizen has a smart card for health
insurance. Even though smart cards have been around in their modern
form for at least a decade, they are just starting to take off in the U.S.

68

DEBIT CARD:
Debit cards are also known as check cards. Debit cards look like credit
cards or ATM (automated teller machine) cards, but operate like cash
or a personal check. Debit cards are different from credit cards. While
a credit card is a way to "pay later," a debit card is a way to "pay now."
When you use a debit card, your money is quickly deducted from your
checking or savings account.

Debit cards are accepted at many locations, including grocery stores,

retail stores, gasoline stations, and restaurants. You can use your card
anywhere merchants display your card's brand name or logo. They
offer an alternative to carrying a checkbook or cash.

E-CHEQUE:

An e-Cheque is the electronic version or representation of paper

cheque.
The Information and Legal Framework on the E-Cheque is the
same as that of the paper cheques.

It can now be used in place of paper cheques to do any and all

remote transactions.

An E-cheque work the same way a cheque does, the cheque

writer "writes" the e-Cheque using one of many types of
electronic devices and "gives" the e-Cheque to the payee
electronically. The payee "deposits" the Electronic Cheque
receives credit, and the payee's bank "clears" the e-Cheque to

69

the paying bank. The paying bank validates the e-Cheque and
then "charges" the check writer's account for the check

70

OTHER FORMS OF ELECTRONIC BANKING

Direct Deposit

Electronic Bill Payment

Electronic Check Conversion

Cash Value Stored, Etc.

Advantages and Disadvantages of

Internet
Internet Banking refers to the banking services provided
by the banks over the internet. Some of these services
include paying of bills, funds transfer, viewing account
statement, etc. Banks also deliver their latest products
and services over the internet. Internet banking is
performed through a computer system or similar
devices that can connect to the banking site via the
internet. Nowadays, you can also use internet banking
on your mobile phones using a Wi-Fi or 3G connection.
With the ease of availability of cyber cafes in the

71

cities, it has become quite popular.

Banking is now no more limited in going and visiting

the bank in person for various purposes like
depositing and withdrawing money, requesting for
account statement, stop a payment, etc. You can do
all these tasks and many more using the online
services offered by the banks. You can also keep a
track of your account transactions and balance all
the time. Now getting passbooks updated to know
the total account balance is a matter of past.

72

Various Online Services

Online banking account is easy to open and operate.

The online services offered might differ from bank to
bank, and from country to country. To know about the
various services, always go through the welcome kit
that you get at the time of opening the account. You
also get the password to access your online account,
which you are supposed to keep with great care for
security reasons.

73

The common online services offered by banks are:

Transactional activities like funds transfer, bill pay, loan
applications and transactions.

Non-transactional activities like request for cheque

book, stop payment, online statements, updating your
contact information.

Advantages of Internet Banking

Internet Banking has several advantages over traditional

one which makes operating an account simple and
convenient. It allows you to conduct various transactions
using the bank's website and offers several advantages.

Some of the advantages of internet banking are:

Online account is simple to open and easy to operate.
It is quite convenient as you can easily pay your bills,
can transfer funds between accounts, etc. Now you do
not have to stand in a queue to pay off your bills; also
you do not have to keep receipts of all the bills as you

can now easily view your transactions.

It is available all the time, i.e. 24x7. You can perform
your tasks from anywhere and at any time; even in night
when the bank is closed or on holidays. The only thing
you need to have is an active internet connection.

74

It is fast and efficient. Funds get transferred from one

account to the other very fast. You can also manage
several accounts easily through internet banking.

Through Internet banking, you can keep an eye on your

transactions and account balance all the time. This
facility also keeps your account safe. This means that by
the ease of monitoring your account at anytime, you can
get to know about any fraudulent activity or threat to
your account before it can pose your account to severe
damage.

It also acts as a great medium for the banks to

endorse their products and services. The services
include loans, investment options, and many others.

Disadvantages of Internet
Banking

Though there are many advantages of internet banking,

but nothing comes without disadvantages and
everything has its pros and cons; same is with internet
banking. It also has some disadvantages which must be
taken care of. The disadvantages of online banking

include the following:

Understanding the usage of internet banking might be
difficult for a beginner at the first go. Though there are
some sites which offer a demo on how to access online
accounts, but not all banks offer this facility. So, a

person who is new, might face some difficulty.

You cannot have access to online banking if you dont
have an internet connection; thus without the

availability of internet access, it may not be useful.

Security of transactions is a big issue. Your account
information might get hacked by unauthorized people

over the internet.

Password security is a must. After receiving your
password, do change it and memorize it otherwise your

75

account may be misused by someone who gets to know

your password inadvertently.

You cannot use it, in case, the banks server is down.
Another issue is that sometimes it becomes difficult to
note whether your transaction was successful or not. It
may be due to the loss of net connectivity in between,
or due to a slow connection, or the banks server is

down.
Internet Banking has definitely made the life easy for
users by providing online access to various banking
services.

Do you use Internet Banking?

The 7 Best Online Banking Features

For Simplifying Your Life

76

Easy Account Creation

Financial Risk Management

Don't Pay For Bloated GRC
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There was a time when the only way to open a bank account
was in person. Nowadays, its possible to complete the
enrollment process from start to finish without ever leaving
your home.

Depending on the bank, the application forms can take less

than 10 minutes to fill out. All you have to do is input a few
details and send out photocopies of whatever forms of
identification the bank requires. Itll still take a few days or
weeks before your account is ready, but thats to be expected
regardless.

77

But the best part is that once youve made an account,

additional accounts are even easier to create since the bank
already has the necessary information in its database. With
multiple accounts, moving money between them is often free
and without delay.

Electronic Statements
Traditional bill statements are annoying on two fronts. First,
they unnecessarily clog up your physical mailbox. Second,
theyre a tremendous waste of paper. Maybe you dont care
too much about that second point, but for the most part paper
bills have become a messy inconvenience.

78

email is far easier than shredding paper. Plus, with apps like
Google Inbox, its nice to be able to receive and read your bill
reminders no matter where you go.
Worst case scenario: if you need a paper record for a
particular bill, you can always print it out. There arent any
good reasons not to switch over to electronic statements
ASAP. What are you waiting for?

Automatic Bill Payments

How many bills do you pay every month? For most of us, the
answer is too many. Youve got rent/mortgage, utilities, car
loans, various types of insurance, student loans, and all of the
other subscriptions and enrollments in your life. Thats a lot
of bills to juggle even if they come once per month.

79

Most online banks allow you to link your bills directly to your
account and have them paid on time automatically. For every
bill you set up, thats one less thing you need to juggle every
month. That can add up to a lot of reduced stress.
One important caveat: automatic bill payment should only be
used if your bank balance is more than enough to cover all of
your bills at any given time. This requires discipline with your
budget. If you live paycheck to paycheck, manual bill
payments are the best way to avoid accidental overdrafts.

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Mobile Check Deposits

Many banks offer a feature called Mobile Check Deposits,
though the precise name might differ from bank to bank. The
concept is simple: instead of physically visiting your local
bank branch to deposit a check, you can do it from home by
uploading a photo of the check (front and back).

80

The only thing you need to do this is a mobile deposit app,

which you should be able to find on the App Store or the Play
Store. Just be careful that you download a legitimate one! You
dont want to be sending your check photos to a malicious
third party. Again, make sure your bank offers this feature
before you try it.

Secure Message Alerts

One of the better reasons to use online banking is that you
can receive notifications in close to real-time. . These
notifications can be trivial or annoying at times, but they can
also save your life. For example, you can be notified when:

transactions are completed or completed or denied, a

bill payment date is approaching,
your bank balance is reaches a specified target
amount, details of your account were changed, there
were failed attempts to log into your account.

81

If anything suspicious happens on your account, its

incredibly helpful to have an immediate alert since
waiting too long can have disastrous consequences. That
being said, even the trivial alerts can be useful in the
right situations.

Report & Management Tools

Prior to online banking, it wasnt exactly easy to get ondemand reports and summaries for your account activity.
Depending on the bank, there might even have been a
fee associated with retrieving that info. Yet, with online
banking, its always one click away.

Some banks are better than others in this regard. Most of

them will provide you with a transaction history at the
very least, but the best ones have advanced features like
creating categories and viewing how much youve spent
in each category (e.g. bills, entertainment, emergency,
etc.).

82

Desktop Software Integration

If you use Quicken (or one of several Quicken
alternatives) to help manage your money, then online
banking might make that area of your life even easier. As
long as your bank supports your tool, you should be able
to integrate your bank account seamlessly with whatever
desktop software you use.

How To

Make A Budget And Wipe

e Out Debt With Quicken Onlin

READ MORE

Integration can involve a direct connection between your bank account and you

but if not, the other possibility is exporting your

transaction history as a file download (typically in .CSV
format) and importing it into the software like that.

Final Thoughts
On top of everything weve said here, there are a few
more reasons to start using online banking. Theres a
measurable increase in convenience, so much so that itll
grant you some space to step back and take a deep
breath with regard to your money.
83

SECUTRITY IN ELECTRONIC

BANKING
Issue

With the growth of electronic

banking have come new forms

of security risks. The challenge is to address these risks

without impairing further development of electronic
banking,

Risk

a platform popular with customers and rich in

potential for

Management

advances in productivity, efficiency, and quality

and range of
services.

Position Statement

84

ABA will continue to work with the

financial industry and
government agencies to ensure
that electronic banking provides for
secure transactions and supports
the legitimate
a
nd achievable needs of law
enforcement in such areas as
detecting and preventing criminal
activities and terrorism, including
money laundering, tax evasion, and
financial crimes. However, ABA
believes it is critical that financial
institutions have the flexibility to
select suitable security technologies,
policies, and procedures to manage
their electronic security risk. Any
regulatory requirements and/or
guidelines on electronic banking
security should also be carefully
crafted to take into account the
potential detrimental effect regulatory
and operational burdens can place on
small banking organizations.

Explanation
It is essential to the success of
electronic banking systems that they
be developed and operated in a
secure manner. This concern, while
not new, is exacerbated by today's
85

more extensive access to computer

technology, along with the persistent
risk of unauthorized access, network
attacks, and emerging threats such as
phishing, spear phishing, man-inthemiddle schemes, spyware scams, and
so forth. The safety of financial
institutions, as well as the integrity of
the nation's payments system, and
customer confidence in that system,
necessitate that special attention be
given to the security of electronic
banking systems. Banks have both
the expertise and the highest interest
in being successful.
Banks are active participants in
electronic banking, with an outstanding
record of maintaining high levels of
information security and protecting
confidential customer information. In
2011 the Federal Financial Institutions
Examination Council
(FFIEC) issued supplementary
guidance, "Authentication in an
Internet Banking Environment,"
affirming the importance of verifying
that parties accessing banking
information via the Internet are the
real account holders. The guidance
requires that banks conduct a risk
assessment of their operations and
implement additional measures if
required. The guidance very wisely
and appropriately does not mandate
86

a specific technological solution but

notes that shared secrets, tokens,
and biometrics can be considered as
well as software based techniques
that analyze the users' physical
location and their historical record of
online banking activity. Further,
encryption of data and the truncating
of sensitive information revealed on
an accessed account screen can also
be considered as risk mitigators. ABA
will continue to work with its
members and the banking
supervisory agencies to evaluate the
effectiveness of this program and the
fairness of the first round of
examinations under the new
guidance.
ABA will persevere in its work with the
regulatory agencies, including the FFIEC
and other industry groups, to ensure that
customer information continues to be
protected and that only authenticated
customers have online banking access.

E-BANKING CHALLENGES AND OPPORTUNITIES

IN THE INDIAN BANKING SECTOR
1

ARTICLE INFO

Department of Management ,AMU, Aligarh, India

ABSTRACT

87

Corresponding
Author:
Shamsul Haq
Faculty of
Management
Singhania University
Jhunjhunu, Rajasthan,
India

Cyber banking is a progressive technolo

India but its endorsement is very low a
percent population belongs to rural are
30 percent reside in urban. Banks are
investing huge amount of money to inc
the diffusion of cyber banking therefore
the need of time to know the real cause
low penetration. In this paper an attem
been made to know the objections whic
facing by banks and also to find out the
impact population vital statistics like
Education, age, occupation and income
they are influencing the adoption of cyb
banking in India. To find out the impact
these variables a structured questionna
been prepared a through a systematic
which was conducted at the NCR. The n
of respondents were 300 belongs to
heterogeneous population .The Chi-Squ
test was used to interpret the hypothes
result illustrates population vital statist
impel the adoption of online
banking.

Key Words: Cyber

Banking, Population
vital statistics, low
penetration

88

The progress of E-banking, after the liberalization and

globalization processes began since 1991, influencing the
financial sector, particularly on the banking sector. The
advancement has thoroughly and perceptibility revamps
the operational environment of the banking. The
Ecommerce drastic change is completely alter the way of
client banking, banks are providing different services cash
deposits to cash withdrawals through electronic means
therefore we can say number of electronic transactions are
increasing the world is going to be a cyber world where
each and everyone would be connected through internet.
The world is becoming a global market, characterized by
economic interdependence. National boundaries have
become less significant with the interlinked effect of
technology, information flows and foreign investment
mobility.
In past thirty years, operational efficiency of banks
increased now the time taken by the banks in different
transaction has been reduced with this advancement
competition is also increased .Banks are interested to
acquire more and more customer to increase their revenue
and using different tools of technology to increase the
number of their clients. E-banking is the service which the
banks are providing now a day to provide 24X7 banking.
The internet maneuver is means to build the long term
relationship with their clients because the Reponses of the
clients can be got immediately therefore banks are like a
shops of different products banks are managing accounts
of their clients, providing service of investment and
advising clients where they have to invest, Banks are
89

selling different insurance policy electronically with these

facilities the number of repeatedly purchase of different
products increased .In these days clients are not visiting
the banks they are only using cyber banking for each
transactions by that way the banks are able to reduce their
operating cost also.
This research is an attempt to know the different
objections which the banks are facing in the acceptance of
cyber banking and also to depict impact various
populations
statistics like age, income,
education,
occupation .
2REVIEW OF LITERATURE BASED ON RESEARCH
WORK
The review of literature reveals the various
research have been conducted so far related to population
statistics and acceptance of e-banking therefore thoroughly
banking literature has been reviewed .
Sournata, Mattila and Munnukka (2005), AlSabbagh and
Molla (2004)- all explore the various inhibitors and drivers of
electronic-banking adoption. They believe there are
relatively few empirical analyses of the impact of electronic
banking on customers. As Internet banking is a relatively
new concept in banking service delivery, not many studies
are available in Indian context. Most of the studies that the
authors have gone through are not in the Indian context.
According to research work of Karjaluoto et al. (2002)
found that Internet banking users in the Finnish market
were generally highly educated and relatively young.
Demographic factors affect online banking behavior.
Almahmeed et al. (2008) conducted a research on all
Kuwaiti and non-Kuwaiti banks. It was found that the
awareness of Internet banking proved to be relatively high
among business firms. The most frequently used services
90

by the customers were: reviewing the account balance,

obtaining detailed transaction histories, obtaining
information about deposits, loan interest rates, transfer
funds between companys own accounts, transfer funds to
other accounts within Kuwait, transfer funds to other
accounts outside Kuwait and issuing standing orders
Khurana (2009) studied the perception of Internet banking
users through the relationship between population statistics
of users along with the five independent variables, ,
responsiveness, reliability, efficiency, security of information
and ease of use. It depicts there was no significant relation
in between age, occupation sex on the use of number of
banks operate by clients. It also depicted age has significant
impact on the operational efficiency of clients. As regards
reliability, customers had no trust in websites.
Maiyaki and Mokhtas (2010) shown in their research that
there is no relation in between population statistics and
choice of banks. It was also found that statistically there is
a significant relationship between age and choice of banks.
Selvam and Nanjappa (2011), in their study, examined
customers awareness and satisfaction about e-banking of
ICICI bank on the basis of vital statistics of the E-banking
users. It depicted that college students are more
awareness level compare to other education groups. The
study revealed that awareness level of income group above
10,000 per month was high as compared to other income
groups.It was shown that it also depend on the size of
family. Sex is the crucial issues for the acceptance of
internet banking. Shergill and Li's (2005)depicted that
women are more serious regarding the security issues
91

compare to their male counterpar.Survey by Chung and

Paynter (2002)privacy and security issues are crucial for
the adoption of cyber banking. Perceived risk like theft of
private information was concerning issues regarding the
adoption of online banking (Black ef a/., 2002; Siu and
Mou,2005). Trust is important issues for the acceptance of
e-banking and it was also depend upon the geographical
connectivity.(e.g., see Espiritu 2003) rural are more poor
and not connected to technology therefore their adoption is
low(Mills and Whitacre 2003),Georaphical location is
important parameter for the adoption of online banking (for
general perspectives, see Greenstein and Prince 2006;
It is concluded through the literature review that Population
statistics have important parameters which are channelize
the acceptance of E-banking .
Research Objectives
This study was conducted to know the impact of
demographic parameters
I.
II.
III.
IV.
V.

VI.

To identify the challenges those affect the customers to

use internet banking.
To identify the challenges those affect the banks to
launch internet banking services.
To identify the main and general challenges that
affecting the internet banking.
To identify the factors influences consumers to use
internet banking.
To measure the relationship between factors (consumer
demographic factors, Internet banking attributes, social
influences) and the acceptance of internet banking.
To examine the factors those discourage customers
from using internet Banking

4. Hypothesis:
92

H1:There is no relationship of population statistics on the

endorsement of e-banking.
H2:There is no relationship between socioeconomic
characteristics and the acceptance of internet banking.
H3: There is a difference between user and non users with
regard to their perception of internet banking.
5 Research Methodology
The different parameters related to respondents like age,
sex, Income and occupation taken through the structured
questionnaire and cross tabulation is given below.It is
depicted the respondents complete profile who were using
banking service in NCR region. To evaluate data collected
and interpret it SPSS and Microsoft Excel was used. The
research has been conducted to determine the role of
demographic factors in the acceptance of cyber banking.
Sample Size:
50 questionnaires have to response from four commercial
centers (The ANSAL PLAZA, PACIFIC MALL, EDM MALL and
GREAT INDIA PALACE) would be interviewed therefore 200
respondents from the commercial centers the 100
respondents who are professionals like Faculties and Parma
companies therefore total number of 300 respondents
responded the questionnaires.
6 Demographic Profiles of Respondents: Analysis has
been done through the demographic profile of the users of
cyber banking than different statistical tools are used like
Chi-square test.
(Tables-1.1, 1.2, 1.3,1.4) representing the demographic
profiles of the respondents.

Table 1.1 Gender Profile of respondents

Respondents
Profile

93

General
Respondents
Internet Users

Male

Female

Total

168

13
2
48

30
0
12
0
18
0

56
%
72
60
%
Internet Non96
53
users
%
Table 1.2 Age of Respondents .
AGE Group (table 6.2)

84

44
%
40
%
47
%

100
%
100
%
100
%

General
Internet
Internet
Responde
users
Nonusers
nts
12
41%
38
32%
86
48%
4
95
32%
62
52%
33
18%
51
17%
15
13%
36
20%
30
10%
5
4%
25
14%
30
100
12
100
180
100
0
%
0
%
%
Table 1.3 Education level of respondents
Education level (table 6.3)

Postgraduat
e
undergradua
te
Highschool
Other
Total

General
Responden
ts
16
55%
4
82
27%

Internet
users

Internet
Non-users

10
4
11

87%

60

33%

9%

71

39%

45
4
18
0

25%
2%
100
%

46
15%
1
1%
8
3%
4
3%
30
100%
12
100
0
0
%
Table 1.4 Income of respondents
General
Respondent
Internal
users
Less than
58
19%
2
2%
`25000
`25000-`34000
54
18%
4
3%
`35000-`44000
50
17%
16
13%
`45,00052
17%
32
27%
`54000
`55,00051
17%
44
37%
`99999
`100,00018
6%
18
15%
199,999
`200,0000
0%
0
0%
299,999
over `300,000
0
0%
0
0%
other
17
6%
4
3%
Total
30
100%
120
100
0
%

Internet
Nonusers
56
31%
50
34
20

28%
19%
11%

4%

0%

0%

0
13
180

0%
7%
100%

Data Analysis and Interpretation

Chi-square test was used to establish the relation between
the population characteristics on the adoption of e94

banking .Chi-Square test was to know the significance

relationship among different nominal parameters.
Tables ( 1.1,1.2,1.3,1.4,1.5,1.6,1.7,1.8,1.9,2.0.2.1,2.2)
Table 1.5 Age users &non users Cross-tabulation

Pearson Chi-Square
Likelihood Ratio
Linear-by-Linear
Association
N of Valid Cases

Value

df Asymp. Sig.

38.973a
39.454
.858

3
3
1

(2sided)
.000
.000
.354

300

a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 12.00.
The p of 0.000 which is less than 0.05 Table (1.6) implies that chi-square test is significant and
indicates there is a relationship between the age and the adoption of internet banking.
Table1.7-EDUCATION * users and non-users Cross-tabulation
Count

EDUCATION
Total

PG
GRADUATE
HIGH SCHOOL
OTHER

USERAND NON
USER
USER NONUSER
104
60
11
71
1
45
4
4
120
180

Tota
l

164
82
46
8
300

Table 1.8-Chi-Square Tests

Pearson Chi-Square

Value

df

89.369

Asymp Sig
.
.
sided)
.000

.000

.000

Likelihood Ratio
Linear-by-Linear
Association
N of Valid Cases

103.03
2
58.843
300

(
2
- a. 2 cells (25.0%) have expected
count less than 5. The minimum
expected count is 3.20. The Chisquare is significant (p=0.000)

95

(Table-1.8 ) indicating that there is a significant relationship between education level and
the adoption of internet banking .
Table 1.9-Income of users and non-users cross-tabulation
Internet Banking
Tota
l
Income
Yes
No
Less than 14000
14000 to 24999
25000 to 34999
35000 to 49999
50000 to 99999
100000
to199999
Percent
200000
to299999
over 300000
other

2
4
16
32
44
18

56
50
34
20
7
0

58
54
50
52
51
18

15%
0

0%
0

6%
0

Total

0
4
120

0
13
180

0
17
300

Percent

100

100%

100

Table-2.0-Chi-Square Tests
Value

df

Pearson Chi-Square
141.998a
Likelihood Ratio Linear- 166.565
by-Linear
59.622

6
6

Asymp. Sig. (2sided)

.000
.000

.000

300

Association
N of Valid Cases

a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 6.80.
The Chi-square is significant (p=0.000)(table 2.0) indicating there is a significant relationship
between the income and adoption of internet banking
Table -2.1-OCCUPATION * USERS&NON Cross-tabulation
Count

EMPLOYED
UN-EMPLOYED
OCCUPATION PENSIONERS
SELF-EMPLOYED
OTHER
Total

USERS&NON
USE NONR
USERS
92 93
0
38
2
5
24 34
2
10
120 180

Total

185
38
7
58
12
300

Table 2.2-Chi-Square Tests

Value

Pearson ChiSquare
Likelihood Ratio
Linear-by-Linear
Association
N of Valid Cases

35.780a 4

Asymp.
Sig. (2sided)
.000

49.486 4

.000

5.137

.023

300

df

a. 3 cells (30.0%) have expected count less than

5. The minimum expected count is 2.80.

96

The Chi-square value is significant (p=0.000)(Table 2.2) which means there is a significant
relationship between occupation and the adoption of internet banking.

Table 3.0(t-test) This sections tests the hypothesis that

there is a significant difference between users and nonusers
with regard to their perception of relative advantage of
internet banking.
Table 3.0
internet
users
work Style

life
convenient
program is
easy

Internet
banking is
complex
Process is
Simple
Time
saving
comfortabl
e with bank

Telecommu
ni
cation cost

fees are
expensive

Group Statistics

N
120

Mean
4.6250

Std.
Deviat
i on
.67441

Nonusers
users
Nonusers
users

180

2.6944

.89128

.06643

120
180

4.1083
2.6222

.60524
.95224

.05525
.07098

120

3.5167

.09317

Nonusers
users
Nonusers
users
Nonusers
users
Nonusers
users

180

2.7944

1.0206
6
.89503

120
180

2.2917
3.5222

.92032
.89352

.08401
.06660

120
180

3.8083
2.5778

.89156
.77644

.08139
.05787

120
180

4.1333
3.2833

.06142
.08568

120

4.016
7

Nonusers

180

2.927
8

users

120

2.008
3

Nonusers

180

4.072
2

users

120

2.816
7

Nonusers

180

4.066
7

.67280
1.1495
7
.
6979
4
.
9917
6
.
9657
7
.
6075
0
.
7989
8
.
7215
7

users

Std.
Error
Mean
.06157

.06671

.
0637
1
.
0739
2
.
0881
6
.
0452
8
.
0729
4
.
0537
8

Most attitudinal factors including factors including relative

advantage, compatibility, complexity, perceived risk and
perceived cost are found to be significant, however
97

complexity, perceived risk and perceived cost present a

negative relationship .Social influences did not result in any
significant differences between users and non-users

FINDINGS AND CONCLUSION

Most of the users are middle-aged (i.e between (31-39)
have monthly income in excess `25000 are educated to
Post Graduate level and belongs to working class. Research
depicted that only 28 percent banking clients were using
internet banking after evaluating the population
characteristics it was no significant relationship in between
age and use of cyber banking (the significance level is
0,005 in the chi-square tests). It also depicted that there is
no relation in between gender and the adoption of internet
banking (the significance level is 0,000 so we assume null
hypothesis). There is a gender neutrality in the adoption of
e-banking. Qualification in terms of education and income of
respondents were playing the role in the acceptance of
online banking. (Significance level of the chisquare test is
0, so we reject null hypothesis).
This research depicted that users of internet banking are
increasing as their income and education standard is
improving number of users depending upon the education
standard of internet banking users with income. Therefore
it is the need of time financial literacy of the users should
be increased through various programs could be run by the
banks to increase the awareness of internet banking. There
is still a lot needed for the banking system to make reforms
and train their customers for using internet for their
98

banking account. Going through the survey main problem

lies that still customers have a fear of hacking of accounts
and thus do not go for internet banking. Banks are trying
their level best by providing the best security options to
the customers but there are a lot of factors which betrays a
customer from opening an internet bank account
By that way banks could be able to reduce the rush at the
branches and operating cost also therefore .Banks are now
spending heavily on information technology front but from
the side of the government there is requirement to invest
on the infrastructure like electricity and internet.
It is useful from the view of clients as well as the banks
therefore in the coming years E-banking reshape the
traditional banking.

BENEFITS/CONCERNS OF E-BANKING

BENEFITS OF E-BANKING
For Banks:
Price- In the long run a bank can save on money by not paying for tellers
or for managing branches. Plus, it's cheaper to make transactions over
the Internet.

Customer Base- The Internet allows banks to reach a whole new marketand a well off one too, because there are no geographic boundaries with

99

the Internet. The Internet also provides a level playing field for small
banks who want to add to their customer base.

Efficiency- Banks can become more efficient than they already are by
providing Internet access for their customers. The Internet provides the
bank with an almost paper less system.

Customer Service and Satisfaction- Banking on the Internet not only allow
the customer to have a full range of services available to them but it also
allows them some services not offered at any of the branches. The person
does not have to go to a branch where that service may or may not be
offer. A person can print of information, forms, and applications via the
Internet and be able to search for information efficiently instead of waiting
in line and asking a teller. With more better and faster options a bank will
surly be able to create better customer relations and satisfaction.

Image- A bank seems more state of the art to a customer if they offer
Internet access. A person may not want to use Internet banking but having
the service available gives a person the feeling that their bank is on the
cutting image.

For Customers:

100

Bill Pay: Bill Pay is a service offered through Internet banking that allows
the customer to set up bill payments to just about anyone. Customer can
select the person or company whom he wants to make a payment and Bill
Pay will withdraw the money from his account and send the payee a
paper check or an electronic payment

Other Important Facilities: E- banking gives customer the control over

nearly every aspect of managing his bank accounts. Besides the
Customers can, Buy and Sell Securities, Check Stock Market Information,
Check Currency Rates, Check Balances, See which checks are cleared,
Transfer Money, View Transaction History and avoid going to an actual
bank. The best benefit is that Internet banking is free. At many banks the
customer doesn't have to maintain a required minimum balance. The
second big benefit is better interest rates for the customer.

101

CONCERNS WITH E-BANKING

As with any new technology new problems are faced.

Customer support - banks will have to create a whole new customer

relations department to help customers. Banks have to make sure that the
customers receive assistance quickly if they need help. Any major
problems or disastrous can destroy the banks reputation quickly an easily.
By showing the customer that the Internet is reliable you are able to get
the customer to trust online banking more and more.

Laws - While Internet banking does not have national or state

boundaries, the law does. Companies will have to make sure that they
have software in place software market, creating a monopoly.

Security: customer always worries about their protection and security or

accuracy. There are always question whether or not something took place.

Other challenges: lack of knowledge from customers end, sit changes

by the banks, etc

102

E-banking Strategies: It reveals the

key strategies that banks must implement
to derive maximum value through the
online channel. It also brings guidance for
those banks, which are planning to build
online businesses.

E-banking

Transactions:

It

discusses how Internet has radically

transformed banking transactions. The
section

focuses

on

cross

border

transactions, B2B transactions, electronic

bill payment and presentment and mobile
payments. In spite of all the hype, Ebanking has been a non-starter in several
countries.

E-banking Trends: It discuses the

innovation of new technologies in banks.

103

E-BANKING STRATEGIES:
Though E-banking offers vast opportunities, yet even less than one in
three banks have an E-banking strategy in place. According to a study,
less than 15 percent of banks with transactional websites will realize
profits directly attributable to those sites. Hence, banks must recognize
the seriousness of the challenge ahead and develop a strategy that will
enable them to leverage the opportunities presented by the Internet.
No single E-banking strategy is right for every banking company. But
whether they adopt an offensive or a defensive posture, they must
constantly re-evaluate their strategy. In the fast-paced e-economy, banks
have to keep up with the constantly evolving business models and
technology innovations of the Internet space. Early e-business adopter
like Wells Fargo not only entered the E-banking industry first but also
showed flexibility to change as the market developed. Not many banks
have been as e-business-savvy. But the pressure is now building for all
banks to develop sound e-business strategies that will attract and retain
increasingly discriminating customers.

The major problem with the banks, which have already

invested huge amounts in their online initiatives, is that their
online offerings remain unprofitable. Though banks have
enrolled some existing customers in their online programs, they
are not getting customers in large numbers. This has made
banks wonder whether there is any value in the online channel.
Just enrolling customers for online banking may not be
sufficient until and unless they use the site actively. Banks must
104

make efforts to increase their site usage by customers and effectively

co-ordinate the online channel with branches and call centers. Then only
they will be able to derive maximum value that includes cost reduction,
cross-selling opportunities, and higher customer retention.
Customers have some rational reasons for staying offline. Some of these
reasons include usability features of the site, concerns about security and
frequent complaints that signing up is complicated and time-consuming.
Banks can solve these problems by refocusing investment on improving
the site's basic functionality and user-friendliness, and avoiding advanced
features that most customers neither understand nor value. Developing
advanced features that appeal to a relatively small numbers of customers,
creates far less value than strengthening core capabilities and getting
customers to use them. Banks must make efforts to familiarize customers
with their sites and show them how easy and efficient the online channel
is to use.
Integrating the online channel with the rest of the bank is another
important issue that banks must focus upon. This is important because
nearly all the value of the online channel is realized offline _ in cross sales
completed in other channels and in cost reductions. An actively used
online channel should also serve as a medium to sell banking services for
the branch staff, the call center, and the relationship manager. Integrated
channels working together are far more effective than a group of
channels working without any coordination.
To facilitate this integration, banks must formulate paths that people in
various customer segments are likely to take among the channels. The
interactions in each channel can then be worked around these paths. For
example, a call center representative must work out which channel(s) the
customer used before coming to her, and which channel(s) the customer

105

is likely to visit next. Each channel must have entry and exit points that
must welcome customers and then send to other channels. Hence, the
overall goal of banks is to create a seamless multichannel experience.
On the other hand, those banks that are planning to build their online
businesses will have to understand several strategic issues like do they
have the right business model for E-banking? How should they price their
E-banking products and services? Bankers planning to move into Ebanking have to explore different options, make investments and have to
develop a variety of partnerships. They have to put their time and efforts
to identify the best opportunities. In the case of traditional banks, if they
are too aggressive in using price incentives to build their e-business, they
risk the profitability of their traditional business. However, if they do not
offer sufficient price incentives for customers to bank online, their efforts to
build a sound e- banking business may not fructify.
Banks have to be creative in rethinking organizational structures and
management processes. Traditional banks that are conservative in nature
may find it difficult to attract and retain online talent. Moreover, getting
people in the traditional business to help build an e-enterprise would not
be an easy task. To make all this happen, requires a major revision of
incentive systems, planning and budgeting processes, and management
roles. Banks can exploit the opportunities provided by the Internet if they
demonstrate courage, use their imagination, and take decisive action.
While most of the banks have started focusing on E-banking activities, a
new challenge in the form of mobile banking has emerged. M-Banking is
both an additional opportunity for banks to offer their online services and
an additional channel from which to access new customers and cross-sell
to existing customers. Rapidly changing lifestyles of customers and their
demand for more speed and convenience has subdued the role of branch

106

banking to a certain extent. With the proliferation of new technologies,

disintermediation of traditional channels is being witnessed. Banks can go
beyond their traditional role as a channel for banking/financial services
and can become providers of personalized information. They can
successfully leverage m-banking to:

Provide personalized products and services to specific customers

and thus increase customer loyalty.

Exploit

additional

sources

of

revenue

from

subscriptions,

transactions and third-party referrals.

M-Banking gives banks the opportunity to significantly expand their
customer relationships provided they position themselves effectively. To
leverage these opportunities, they must form structured alliances with
service affiliates, and acquire competitive advantage in collecting,
processing and deploying customer information

107

108

THE INDIAN EXPERIENCE

RECOMMENDATIONS OF COMMITTEE ON
TECHNOLOGY UPGRADATION
The Reserve Bank continued to be involved in shaping the technology
vision of the banking system. Following the recommendations of the
Committee on Financial Sector Reforms, (which is popularly known as the
second

Narasimham

committee),

Committee

on

Technology

Upgradation was set up by the RBI for the Banking Sector in 1994. This
committee has representation from banks, Government, technical
institutions and the RBI. Among other things, this committee looked into
issues relating to

Encryption of Public Switching Telephone Network (PSTN) lines

Admission of electronic files as evidence

Record keeping

Modalities for a satellite based WAN for banks and financial

institutions with the necessary security systems by banks and other
financial institutions, to ultimately develop a sound and an efficient
payments system

109

Methods by which technological upgradation in banks and financial

institutions could be effected and in the context study the feasibility
of establishment of standards, designing payments system
backbone and standards relating to security levels, messages and
smart cards.

The Committee realised the urgent need for training, research and
development activities in the Banking Technology area. Banks and
Financial Institutions started setting up Technology based training centres
and colleges. However, a need was felt for an apex level Institute which
could be a Think-tank and Brain Trust for Banking Technology.
The committee recommended a variety of payment applications which
can be implemented with appropriate technology upgradation and
development of a reliable communication network. The committee also
suggested setting up of an Information Technology Institute for the
purpose of Research and Development as well as Consultancy in the
application of technology to the Banking and Financial sector of the
country. As recommended by the Committee, IDRBT was established by
RBI in 1996 as an autonomous centre for Development and Research in
Banking Technology at Hyderabad.

110

RISK MANAGEMENT PRINCIPLES FOR

ELECTRONIC BANKING
BASEL COMMITTEE RECOMMENDATIONS
Continuing technological innovation and competition among existing
banking organisations and new entrants have allowed for a much wider
array of banking products and services to become accessible and
delivered to retail and wholesale customers through an electronic
distribution channel collectively referred to as E-banking. However, the
rapid development of E-banking capabilities carries risks as well as
benefits.
The Basel Committee on Banking Supervision expects such risks to be
recognised, addressed and managed by banking institutions in a prudent
manner according to the fundamental characteristics and challenges of Ebanking services. These characteristics include the unprecedented speed
of change related to technological and customer service innovation, the
ubiquitous and global nature of open electronic networks, the integration
of E-banking applications with legacy computer systems and the
increasing dependence of banks on third parties that provide the
necessary information technology. While not creating inherently new risks,
the Committee noted that these characteristics increased and modified
some of the traditional risks associated with banking activities, in
particular strategic, operational, legal and reputational risks, thereby
influencing the overall risk profile of banking.
Based on these conclusions, the Committee considers that while existing
risk management principles remain applicable to E-banking activities,

111

such principles must be tailored, adapted and, in some cases,

expanded to address the specific risk management challenges created

by the characteristics of E-banking activities. To this end, the Committee
believes that it is incumbent upon the Boards of Directors and banks'
senior management to take steps to ensure that their institutions have
reviewed and modified where necessary their existing risk management
policies and processes to cover their current or planned E-banking
activities. The Committee also believes that the integration of E-banking
applications with legacy systems implies an integrated risk management
approach for all banking activities of a banking institution.
To facilitate these developments, the Committee has identified fourteen
Risk Management Principles for Electronic Banking to help banking
institutions expand their existing risk oversight policies and processes to
cover their E-banking activities.
These Risk Management Principles are not put forth as absolute
requirements or even "best practice." The Committee believes that setting
detailed risk management requirements in the area of E-banking might be
counter-productive, if only because these would be likely to become
rapidly outdated because of the speed of change related to technological
and customer service innovation. The Committee has therefore preferred
to express supervisory expectations and guidance in the form of Risk
Management Principles in order to promote safety and soundness for Ebanking

activities,

while

preserving

the

necessary

flexibility

in

implementation that derives in part from the speed of change in this area.
Further, the Committee recognises that each bank's risk profile is different
and requires a tailored risk mitigation approach appropriate for the scale
of the E-banking operations, the materiality of the risks present, and the
willingness and ability of the institution to manage these risks. This implies

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that a "one size fits all" approach to E-banking risk management issues
may not be appropriate.
For a similar reason, the Risk Management Principles issued by the
Committee do not attempt to set specific technical solutions or standards
relating to E-banking. Technical solutions are to be addressed by
institutions and standard setting bodies as technology evolves. However,
this Report contains appendices that list some examples current and
widespread risk mitigation practices in the E-banking area that are
supportive of the Risk Management Principles.
Consequently, the Risk Management Principles and sound practices
identified in this Report are expected to be used as tools by national
supervisors and implemented with adaptations to reflect specific national
requirements and individual risk profiles where necessary. In some areas,
the Principles have been expressed by the Committee or by national
supervisors in previous bank supervisory guidance. However, some
issues, such as the management of outsourcing relationships, security
controls and legal and reputational risk management, warrant more
detailed principles than those expressed to date due to the unique
characteristics and implications of the Internet distribution channel.
The Risk Management Principles fall into three broad, and often
overlapping, categories of issues that are grouped to provide clarity
1. Board and Management Oversight;
2. Security Controls; and
3. Legal and Reputational Risk Management.

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]REGULATORY TOOLS TO OVERCOME

CHALLENGES
There are four key tools that regulators need to focus on to address the
new challenges posed by the arrival of E-banking.

Adaptation: In light of how rapidly technology is changing and what the

changes mean for banking activities, keeping regulations up to date has
been, and continues to be, a far-reaching, time-consuming, and complex
task. In May 2001, the Bank for International Settlements issued its "Risk
Management Principles for Electronic Banking," which discusses how to
extend, adapt, and tailor the existing risk-management framework to the
electronic banking setting. For example, it recommends that a bank's
board of directors and senior management review and approve the key
aspects of the security control process, which should include measures to
authenticate the identity and authorization of customers, promote
nonrepudiation of transactions, protect data integrity, and ensure
segregation of duties within E-banking systems, databases, and
applications. Regulators and supervisors must also ensure that their staffs
have the relevant technological expertise to assess potential changes in
risks, which may require significant investment in training and in hardware
and software.

Legalization: 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 permissionssuch as the legal

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definition of a bank and the concept of a national borderwill also need to

be rethought.

Harmonization: International harmonization of electronic banking

regulation must be a top priority. This means intensifying cross-border
cooperation between supervisors and coordinating laws and regulatory
practices internationally and domestically across different regulatory
agencies. The problem of jurisdiction that arises from "borderless"
transactions is, as of this writing, in limbo. For now, each country must
decide who has jurisdiction over electronic banking involving its citizens.
The task of international harmonization and cooperation can be viewed as
the most daunting in addressing the challenges of electronic banking.
Integration: This is the process of including information technology
issues and their accompanying operational risks in bank supervisors'
safety and soundness evaluations. In addition to the issues of privacy and
security, for example, bank examiners will want to know how well the
bank's management has elaborated its business plan for electronic
banking. A special challenge for regulators will be supervising the
functions that are outsourced to third-party vendors.

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Conclusion

From all of this, we have learnt that information technology has

empowered customers and businesses with information needed to make
better investment decisions. At the same time, technology is allowing
banks to offer new products, operate more efficiently, raise productivity,
expand geographically and compete globally. A more efficient, productive
banking industry is providing services of greater quality and value.

E-banking has become a necessary survival weapon and is fundamentally

changing the banking industry worldwide. To day, the click of the mouse
offers customers banking services at a much lower cost and also
empowers them with unprecedented freedom in choosing vendors for their
financial service needs. No country today has a choice whether to
implement E-banking or not given the global and competitive nature of the
economy. The invasion of banking by technology has created an
information age and commoditization of banking services. Banks have
come to realize that survival in the new e-economy depends on delivering
some or all of their banking services on the Internet while continuing to
support their traditional infrastructure.

The rise of E-banking is redefining business relationships and the most

successful banks will be those that can truly strengthen their relationship
with their customers.

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Without any doubt, the international scope of E-banking provides new

growth perspectives and Internet business is a catalyst for new
technologies and new business processes. With rapid advances in
telecommunication systems and digital technology, E-banking has
become a strategic weapon for banks to remain profitable. It has been
transformed beyond what anyone could have foreseen 25 years ago.

Two years ago, E-banking was a strategic advantage, nowadays; it is a

business reality, if not a necessity.

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BIBIBIOGRAPHY

www.scribe.com
www.gogle.com
www.business dictionery

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