A. Internet Banking:-
a) Introduction: -
The delivery channels including direct dial-up connections, private networks, public networks, etc. with the popularity of computers, easy access to Internet and World Wide Web (WWW), Internet is increasingly used by banks as a channel for receiving instructions and delivering their products and services to their customers. This form of banking is generally referred to as Internet Banking, although the range of products and services offered by different banks vary widely both in their content and sophistication.
b) Banking Services through Internet: -
i. The Basic Level Service is the banks’ web sites which disseminate information on different products and services offered to customers and members of public in general. It may receive and reply to customer’s queries through e-mail;
ii. In the next level are Simple Transactional Web sites which allows customers to submit their instructions, applications for different services, queries in their account balances, etc. but do not permit any fund-based transactions on their accounts;
iii. The third level of Internet banking service are offered by Fully Transactional Web sites which allow the customers to operate on their accounts for transfer of funds, payment of different bills, subscribing to other products of the bank and to transact purchase and sale of securities, etc. The above forms of Internet banking service the customer or by new banks, who deliver banking service primarily through Internet or other electronic delivery channels as the value added services. Some of these banks are known as ‘Virtual’ banks or ‘Internet only’ banks and may not have physical presence in a country despite offering different banking services.
c) The Indian Scenario: -
The entry of India banks into Net Banking
• Internet banking, both as a medium of delivery of banking services and as a strategic tool for business development.
• At present, the total internet users in the country are estimated at 9 lakh. However, this is expected to grow exponentially to 90 lakh by 2003. Only about 1 percent of Internet users did banking online in 1998. This is increased to 16.7 percent in March 2000.
- (India Research, May 29, 2000, Kotak Securities)
• Cost of banking service through the Internet from a fraction of costs through conventional methods. Rough estimates assume teller cost at Re.1 per transaction, ATM transaction cost at 45 paise, phone banking at 35 paise, debit cards at 20 paise and Internet banking at 10 paise per transaction.
d) Product and Services Offered: -
• Banks in India are at different stages of the web-enabled banking cycle. Initially, a bank, which is not having a web site, allows its customer to communicate with it through an e-mail address communication, and is limited to a small number of branches and offices which have access to this e-mail account.
• With gradual adoption of Information Technology, the bank puts up a web site that provides general information on deposits products, application forms for downloading and e-mail option for enquiries and feedback.
• Vijaya Bank provides information on its website about its NRI and other services. Customers are required to fill in applications on the Net and can later receive loans or other products requested for at their local branch.
• A few banks provide the customer to enquire into his DEMAT account (security/shares) holding details, transaction details and status of instructions given by him. These web sites still do not allow online transactions for their customers.
• Some of the banks permit customers to interact with them and transact electronically with them. Such services include request for opening of accounts, requisition for cheque books, stop payment of cheques, viewing and printing statements of accounts, movement of funds between accounts within the same bank, querying on status or requests, instructions for opening of Letter of Credit and Bank Guarantees, etc.
• These services are being initiated by banks like ICICI Bank Ltd., Citibank, Global Trust Bank Ltd., UTI Bank Ltd., Bank of Madura Ltd., Federal Bank Ltd., etc.
• Some of the more aggressive players in this area such as ICICI Bank Ltd., HDFC Bank Ltd., UTI Bank Ltd., Citibank, Global Trust Bank Ltd., and Bank of Punjab Ltd., offer the facility of receipt, review and payment of bills online.
• The ‘Infinity’ service of ICICI Bank Ltd., also allows online real time shopping all payments to be made by customers.
• HDFC Bank Ltd., has made e-shopping online and real time with the launch of its payment gateway.
• Banks providing internet banking services have been entering into agreements with their customers setting out the terms and conditions of the services.
• The terms and conditions include information on the access through user-ID and secret password, minimum balance and charges, authority to the bank for carrying out transactions performed through the service, liability of the user and the bank, disclosure of personal information for statistical analysis and credit scoring also, non-transferability of the facility, notices and termination, etc.
e) The Future Scenario: -
• Compared to banks abroad, India banks offering online services still have a long way to go. For online banking to reach a critical mass, there has to be sufficient number of users and the sufficient infrastructure in place.
• Various security options like Line Encryption, Branch Connection Encryption, Firewalls, Digital Certificates, Automatic Sign-offs, Random Pop-ups and Disaster Recovery Sites are in place or are being looked at; there is as yet no Certification Authority in India offering Public Key Infrastructure, which is absolutely necessary for online banking.
• The communication bandwidth available today in India is also not enough to meet the needs of high priority services like online banking and trading.
• Banks offering online facilities also need to calculate their downtime losses, because even a few minutes of downtime in a week could mean substantial losses.
• Users of Internet Banking Services are required to fill up the application forms online and send a copy of the same by mail or fax to the bank.
• A contractual agreement is entered into by the customer with the bank for using the Internet banking services.
• Domestic customers, for whom other access points such as ATMs, Telebanking, Personal Contact, etc. are available, are often hesitant to use the Internet banking services offered by Indian banks. Internet Banking, as an additional delivery channel, may, therefore, be attractive/ appealing as a value added service to domestic customers. Non-resident Indians, for whom, it is expensive and time consuming to access their bank accounts maintained in India find net banking very convenient and useful.
• Cyber crimes are, therefore, difficult to be identified and controlled.
• In order to promote Internet banking services, it is necessary that proper legal infrastructure is in place.
• The Department of Telecommunications (DoT) is moving fast to make available additional bandwidth, with the result that internet access will become much faster in the future.
• Reserve Bank of India has constituted a group to examine different issues relating to I-banking and recommend technology, security legal standards and operational standards keeping in view the international best practices. In the following paragraphs a generic set of risks discussed as the basis for formulating general risk control guidelines.