The Various Forms Of E Banking Information Technology Essay

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.

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 checking account to your mutual fund account.

Have your government social security benefits check or your tax refund deposited directly into your checking account.

Buy groceries, gasoline and other purchases at the point-of-sale, 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.

VARIOUS FORMS OF E-BANKING:

INTERNET BANKING:

Internet Banking helps you manage many banking transactions online via your PC.

AUTOMATED TELLER MACHINES (ATM):

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.

TELE BANKING:

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.

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.

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.

E-CHEQUE:

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

OTHER FORMS OF ELECTRONIC BANKING

Direct Deposit

Electronic Bill Payment

Electronic Check Conversion

Cash Value Stored, Etc.

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 market- and a well off one too, because there are no geographic boundaries with 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:

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.

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

E-BANKING GLOBAL PERSPECTIVE

The advent of Internet has initiated an electronic revolution in the global banking sector. The dynamic and flexible nature of this communication channel as well as its ubiquitous reach has helped in leveraging a variety of banking activities. New banking intermediaries offering entirely new types of banking services have emerged as a result of innovative e-business models. The Internet has emerged as one of the major distribution channels of banking products and services, for the banks in US and in the European countries.

Initially, banks promoted their core capabilities i.e., products, services and advice through Internet. Then, they entered the e-commerce market as providers/distributors of their own products and services. More recently, due to advances in Internet security and the advent of relevant protocols, banks have discovered that they can play their primary role as financial intermediators and facilitators of complete commercial transactions via electronic networks especially through the Internet. Some banks have chosen a route of establishing a direct web presence while others have opted for either being an owner of financial services centric electronic marketplace or being participants of a non-financial services centric electronic marketplace.

The trend towards electronic delivery of banking products and services is occurring partly as a result of consumer demand and partly because of the increasing competitive environment in the global banking industry. The Internet has changed the customers’ behaviors who are demanding more customized products/services at a lower price. Moreover, new competition from pure online banks has put the profitability of even established brick and mortar banks under pressure. However, very few banks have been successful in developing effective strategies for fully exploiting the opportunities offered by the Internet. For traditional banks to define what niche markets to serve and decide what products/services to offer there is a need for a clear and concise Internet commerce strategy.

Banking transactions had already started taking place through the Internet way back in 1995. The Internet promised an ideal platform for commercial exchange, helping banks to achieve new levels of efficiency in financial transactions by strengthening customer relationship, promoting price discovery and spend aggregation and increasing the reach. Electronic finance offered considerable opportunities for banks to expand their client base and rationalize their business while the customers received value in the form of savings in time and money.

Global E-banking industry is covered by the following sections:

E-banking Scenario: It discusses the actual state, prospects, and issues related to E-banking in Asia with a focus on India, US and Europe. It also deals with the impact of E-banking on the banking industry structure.

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, E-banking has been a non-starter in several countries.

E-banking Trends: It discusses the innovation of new technologies in banks.

THE INDIAN EXPERIENCE

India is still in the early stages of E-banking growth and development. Competition and changes in technology and lifestyle in the last five years have changed the face of banking. The changes that have taken place impose on banks tough standards of competition and compliance. The issue here is – ‘Where does India stand in the scheme of E-banking.’ E-banking is likely to bring a host of opportunities as well as unprecedented risks to the fundamental nature of banking in India.

The impact of E- Banking in India is not yet apparent. Many global research companies believe that Ebanking adoption in India in the near future would be slow compared to other major Asian countries.Indian E-banking is still nascent, although it is fast becoming a strategic necessity for most commercial banks, as competition increases from private banks and non banking financial institutions.

Despite the global economic challenges facing the IT software and services sector, the outlook for the Indian industry remains optimistic.

The Reserve Bank of India has also set up a “Working Group on E-banking to examine different aspects of E-banking. The group focused on three major areas of E-banking i.e. (1) Technology and Security issues (2) Legal issues and (3) Regulatory and Supervisory issues. RBI has accepted the guidelines of the group and they provide a good insight into the security requirements of E-banking.

The importance of the impact of technology and information security cannot be doubted. Technological developments have been one of the key drivers of the global economy and represent an instrument that if exploited well can boost the efficiency and competitivity of the banking sector. However, the rapid growth of the Internet has introduced a completely new level of security related problems. The problem here is that since the Internet is not a regulated technology and it is readily accessible to millions of people, there will always be people who want to use it to make illicit gains. The security issue can be addressed at three levels. The first is the security of customer information as it is sent from the customer’s PC to the Web server. The second is the security of the environment in which the Internet banking server and customer information database reside. Third, security measures must be in place to prevent unauthorized users from attempting to long into the online banking section of the website.

From a legal perspective, security procedure adopted by banks for authenticating users needs to be recognized by law as a substitute for signature. In India, the Information Technology Act, 2000, in section 3(2) provides for a particular technology (viz., the asymmetric crypto system and hash function) as a means of authenticating electronic record. Any other method used by banks for authentication should be recognized as a source of legal risk..

Regarding the regulatory and supervisory issues, only such banks which are licensed and supervised and have a physical presence in India will be permitted to offer E-banking products to residents of India. With institutions becoming more and more global and complex, the nature of risks in the international financial system has changed. The Regulators themselves who will now be paying much more attention to the qualitative aspects of risk management have recognized this.

Though the Indian Government has announced cyber laws, most corporate are not clear about them, and feel they are insufficient for the growth of E-commerce. Lack of consumer protection laws is another issue that needs to be tackled, if people have to feel more comfortable about transacting online.

Taxation of E-commerce transaction has been one of the most debated issues that are yet to be resolved by India and most other countries. The explosive growth of e-commerce has led many executives to question how their companies can properly administer taxes on Internet sales. Without sales tax, online sellers get a price advantage over brick and mortar companies. While e-commerce has been causing loss of tax revenues to the Government, many politicians continue to insist that the Net must remain tax-free to ensure continued growth, and that collecting sales taxes on Net commerce could restrict its expansion.

A permanent ban on custom duties on electronic transmissions, international tax rules that are neutral, simple and certain and simplification of state and local sales taxes. The Central Board of Direct Taxes, which submitted its report in September 2001, recommended that e-commerce transaction should be taxed just like traditional commerce.

Also RBI is about to become the first Government owned digital signature Certifying Authority (CA) in India. The move is expected to initiate the electronic transaction process in the banking sector and will have farreaching results in terms of cost and speed of transactions between government- owned banks.

Thus efficiency, growth and the need to satisfy a growing tech-survey consumer base are three clear rationales for implementing E-banking in India. The four forces-customers, technology, convergence and globalization have the most important effect on the Indian financial sector and these changes are forcing banks to

redefine their business models and integrate technology into all aspect of operation.

COMPUTERISATION OF BANKS INDIA – ISSUES & EVENTS

In the Eighteenth and Nineteenth Centuries the Industrial revolution brought profound changes in the life style of man. Many activities that were hitherto performed by man employing his hands and his finger skill came to be carried at great speed and efficiency by machines. Man continued to carry out only those functions that needed his thinking process to be involved.

The Industrial Revolution on account of mass production of goods and services brought large commercial and business organizations, transcending national boundaries that employed several thousands of persons for performing routine, repetitive clerical tasks, relating to record keeping, maintaining accounts, attending/answering correspondence, preparing vouchers, invoices, bills and multiple of such other functions. This created white-collar employment for educated persons by leaps and bounds.

Clerical task is defined as a routine and repetitive performance involving, adding, subtracting, multiplying, dividing numbers, and duplicating data/information from one source to another. The tools employed are “a pen, ink and paper”, the knowledge of arithmetic tables, the basic knowledge of a language and minimum acquaintance with rules & procedures of the organisation that are followed day in day out and relevant to the job of the particular employee. Two plus two is four. It is always four. Should we need an educated worker to compute this task again and again? A business needed human agents to attend to production, marketing, finance etc. depicting high-level tasks. But more and more people were employed for performing low level tasks.

However as time went on the internal chorus of record keeping multiplied geometrically as commerce and industry grew in size and volume. The civil services of the Government and service-based organizations came in the fore-front to inherit this overload of white-collar employment. To quote a concrete example a major nationalised bank in India, which employed merely 3000 workers in the Fifties (around the time I entered its service in 1957), came to engage over 70,000 employees towards the end of the century, i.e. year 1996-97,when I retired from service from that bank.

The Government of India and the States including government owned bodies employed as many as 100 lakh junior employees at the clerical and subordinate level. Such employees by virtue of their strength of numbers organise themselves into powerful trade unions, and aggressively utilise the bargaining power without reference to the input benefit the organization is deriving from them and the productivity they are providing.

In this world of human beings necessity is the mother of inventions. After 15 years of educational studies, an individual should not be employed for routine repetitive tasks. This makes him dull and feel the work monotonous without job satisfaction. He turns back and diverts his loyalty to an informal group i.e. the trade union. He feels happy once in a month on pay day, but on other days his work leaves him nothing to rejoice. There are neither opportunities nor challenges to bring in his innovative or creative genius. As years passes the clerical employment results in the individual losing efficiency and productivity to progressively depict a trend of progress in reverse.

The advent of mechanical calculating devices and later electronic computing in the West heralded a new age, that dispensed with this white collar and white-elephant employment progressively. This evolved in the west three decades before, but the advent of this evolution in India is only now taking place.

To quote again a concrete example- the statistics of two banking institutions in India, the largest and the next large in size can be fruitfully compared. These are the State Bank of India, that was until recently employing 2.3 Lakh workers, for a turn over of Rs.36,000 Crores (Deposit 25000 + Advances 11000 Crores – latest).

ICICI bank has at present less than 1000 branches and around 10000 employees. It has a turnover of Rs.23000 Crores (Deposits 16 + Advances 7 thousand Crores). The bank started functioning from the year 1997 and has gained the No.2 position in status in India after SBI in volume of business turnover within 5 years of its operation. It will be interesting to know that CMD of ICICI Bank draws annual emoluments of Rs.150 Lakhs, while CMD of SBI around Rs.4 to 5 Lacs. ICICI is a new age high-tech and fully computerised bank, while SBI retained its manual operations in totality up to 1993 and maintained the work force of that time up to 2001, though it is partially computerised starting from the year 1993.

The per employee turnover for ICICI bank is Rs.2.3 Crores, that for SBI is Rs.1.56 Lakhs. The gap accounts for the difference between manual operations and high-tech banking.

If we project the future in respect of State owned banks, which employ presently nearly 10 Lakh employees, computerisation is destined to bring about rapid changes. By about the year 2010 the present turnover of commercial banks in India may double or even treble to around Rs.30 to 40 Lakh Crores, but these Banks will have no need of 75 percent (today 25 percent of the work force is subordinate staff, 50 percent is clerical staff and 25 percent is the officers) of the existing workforce by 2010. Only in very few hinterland rural pockets there may be a possibility of a need of the present structure of workforce. The objective of the recently administered VRS is to prepare for this reality of the first decade of the New Millennium, where banking will be more tech based and less people based.

Computerisation brings transparency, improves customer care and customer-service tremendously and reduces substantially scope for corruption or extending undue favour to particular constituents and uneven service to others.

CHALLENGES FACED IN COMPUTERISATION

Computerisation is expensive and needs huge investment in hardware and software and subsequent maintenance. The National Stock Exchange, India’s No.1 user in computerised service has spent Rs.180 Crores to enable investors and brokers across the country to trade securities online. The rate of obsolescence in respect of both hardware and software is considerable. New and better products are emerging in the market, whose use would enable a rival organization to throw a challenge.

Computer crimes are committed widely in the West. India is no less potentially exposed to this risk, when turnover under Internet banking increases. It is easier to enforce security of information and accountability of performers in a manual system. But it needs elaborate steps to incorporate these features in the electronic system.

The structure of legal system is so far based on manual record keeping. It has to provide for electronic data to be accepted legally as evidence and in contracts.

Indian banking has accepted computerisation since 1993, more out of sheer compulsion and necessity to cope up increasing overload and incompatibility of the manual system to sustain further growth. The following pages you are presented a series of articles discussing the various facets of this momentous event and its far-reaching effects anticipated to unfold in the coming decade.

ROLE OF RBI IN COMPUTERISATION OF BANKS IN INDIA

Computerisation became popular in the western countries right from the Sixties. Main Frames were extensively used both by the Public Institutions and Major Private Organizations. In the Seventies Mini Computer became popular and Personal Computers in early Eighties, followed by introduction of several software products in high level language and simultaneous advancement in networking technology. This enabled the use of personal computers extensively in offices & commercial organisations for processing different kinds of data.

However in India organised Trade Unions were against introduction of computers in Public Offices. Computerisation was restricted to major scientific research organizations and Technical Institutes and defence organizations. Indian Railways first accepted computerisation for operational efficiency.

The Electronics Corporation of India Ltd. was set up in 1967 with the objective of research & development in the fields of Electronic Communication, Control, instrumentation, automation and Information Technology. CMC Ltd (Computer Maintenance Corporation of India Ltd.) was established in 1976 to look after maintenance operations of Main Frame Computers installed in several organisations in India, to serve the gap, when IBM left India, due to the directive of the then Central Government.

In the Private Sector the first major venture was TCS (Tata Consultancy Services) which started functioning from 1968. In the year 1980 a few batch-mates of IIT Delhi pioneered the effort to start a major education centre in India to impart training in Information Technology and their efforts resulted in the setting up of NIIT in 1981. Aptech Computer Education was established in 1986 following the experiment of NIIT.

Before large scale computerisation, computer education became popular in India and coveted by bright students, when several Engineering Colleges and Technical Institutes introducing Post Graduate Degree courses in Computer Engineering. The booming hardware and software industry in the West attracted Indian students and many of them migrated for better opportunities to the U.S.A. and settled there. We have today the paradox of India being one of the major powers possessing diverse talents in fields of software development, but at the same time, we are still a decade back to the using computerised service extensively in the country and bringing the facility to the realms of the common man.

Rapid development of business and industry brought manual operations of data, a saturation point. This acted as a overload on the growing banking operations. Government owned banks in general found the “house-keeping” unmanageable. Several heads of accounts in particular inter-bank clearing and inter-branch reconciliation of accounts went totally out of control.

Low productivity pushed cost of wages high and employees realised that unless they agreed for computerisation further improvement in their wage structure was not possible.

In the year 1993, the Employees’ Unions of Banks signed an agreement with Bank Managements under the auspices of Indian Banks’ Association (IBA). This agreement was a major break through in the introduction of computerised applications and development of communication networks in Banks.

The first initiatives in the area of bank computerisation, however, stemmed out of the landmark report of the two committees headed by the former Governor of the Reserve Bank of India and currently Governor of Andhra Pradesh, His Excellency, Dr.C.Rangarajan. Both the reports had strongly recommended computerisation of banking operations at various levels and suggested appropriate architecture.

In the ‘seventies, there was a four-fold increase in the number of branches, five-fold increase in advances and a six-fold increase in deposits’. Mechanisation was seen as the best solution to the “problems inherent in the manual system of operations, their adverse impact on customer services and the grave dangers to banks in the context of increasing incidence of frauds.

The first of these Committees, viz. the Committee on the Mechanization of the Banking Industry (1984) was set up for the first time to suggest a model for mechanisation of bank branches, regional / controlling offices and Head Office necessitated by the explosive growth in the geographical spread of banking following nationalization of banks in 1969.

In the first phase of computerisation spanning the five years ending 1989, banks in India had installed 4776 ALPMs at the branch level, 233 mini computers at the Regional/Controlling office levels and trained over 2000 programmers/systems personnel and over 12000 Data Entry Terminal Operators. The Reserve Bank too had embarked upon an ambitious program to bring about state-of-the-art technology in the clearing process and had introduced MICR clearing at 4 centres and computerized clearing settlement at 9 centres.

Against this backdrop, the Committee on Computerisation in Banks was set up once again under Dr.Rangarajan’s Chairmanship to draw up a perspective plan for computerisation in banks. In its report submitted in 1989, the Committee acknowledged the gains of the initial efforts and sought to move away from the stand-alone dedicated systems to an on-line transaction processing environment in branch banking. It recommended that the thrust of bank computerisation for the following 5 years should be to fully computerise the operations at both the front and back offices of large branches then numbering around 2500.

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), a 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

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.

CASE STUDY – ICICI

ICICI is one of the leading private sector banks in India, which combines financial strength with a reputation for innovation and a universal culture that embraces change. On March 31, 2002 ICICI formally merged with ICICI bank and emerged as India’s first Universal Bank. The strategy of ICICI bank after the merger with ICICI Ltd. is that of building a diversified portfolio. The merged entity will continue to be into project finance and the focus will be to tap the potential in retail financing.

ICICI bank offers a wide spectrum of domestic and international banking services to facilitate trade, investment, cross border business, treasury and foreign exchange services). ICICI bank has

been quick to realize that E- banking has changed from a somewhat experimental delivery vehicle into an increasingly mainstream one for delivery of broad spectrum of banking products and services. Basic E- banking services are rapidly changing from competitive differentiator to competitive necessity.

The group has leveraged on a number of tie-ups to come up with its various offering. For its Internet banking offering the ICICI bank uses Infinity from Infosys, for its credit card business its uses Vision Plus from Pay Sys, USA, for WAP services the tie-up with cellular service providers Orange and Airtel helps reach out to these users, while the WAP technology is being implemented by the in-house ICICI Infotech service. To leverage the Net for its marketing initiatives ICICI bank and Satyam Info way have jointly set up a “COM” company to promote banking products on the Net. The bank has also entered into agreements with leading corporate like BPL, Rediff.com., Usha Martin and Tata Communications for B to C solutions in a bid to further strengthen its Internet banking product ffering and services. Also ICICI has joined hands with a consortium led by Compaq to take the lead in offering a solution to the Indian e-commerce community. This consortium offers a B2B and B2C ecommerce payment gateway within India.

The Bank has been offering phone banking free of charge and was first to launch an Internet Banking service in the country named Infinity. Infinity now provides a host of online banking solutions to retail as well as corporate customers. ICICI’s constant endeavour in providing more value to the customers has resulted in Infinity being the front-runner amongst online banking offerings in the country. Also, in keeping with the customers need for increased security, Corporate Infinity now provides multiple levels of authentication besides user ID/ password and includes security tokens.

ICICI also strives to be a center for leading research on financial engineering in India, particularly in the area of valuation of securities, risk management and derivatives. By leveraging on the groups resources ICICI provides custom tailored solution that can support even the most complex business strategy.

ICICI is now moving all its operations into the era of ‘virtual integration’. Not only has this drastically reduced costs, but it has also increased and improved its services to customers. 1488 Money 2 India offers a unique facility by ICICI of transferring funds to India. Additional modules were added-gifting and reminders to broaden its scope and enhance ICICI’s relationship with customers.

The table below gives the SWOT analysis of ICICI.

LOOKING FORWARD

An old Chinese saying goes: If you don’t know where you are going – you will never get there. Globally, the financial sector is metamorphosing under the impact of competitive, regulatory and technological forces. The banking sector is currently in a transition phase with re-alignment, mergers and entry of new players from different industry is becoming common. Many countries including India are de-regulating their banking sector and government policies no longer form an entry barrier to banks competitors. ICICI Bank, IDBI Bank, HDFC Bank and recently Kotak Mahindra Bank are prime examples of these.

Technology has leveled the playing field: the bargaining power of consumers is increasing, switching costs are becoming lower and consumer loyalties are harder to retain. Primary goal of the banking sector including every Bank is mainly to make profit, which in turn is ploughed back to increase business and reach, and pay dividends or share profits to the stakeholders. This is perfectly correct, yet generic goal. More over the product (schemes) differentiation is very difficult for banks as most of the products sold are constrained by legal or industry regulations. Now, if you are already thinking about Technology as a tool in Banking you could probably set some of these goals:

Selling financial products and services

Cutting operational costs

Branding & Market recognition

Keeping profitable customers

Every day more and more people are turning to the Technology for their personal banking. It is a safe, convenient way to shop for financial services, maintain bank accounts and conduct business 24 hours a day. Every one of us has always enjoyed a special relationship with their neighborhood bank. Why are so many people suddenly choosing their personal computers as the new way to view and manage their money? Quite simple – because it is a valuable option to have. Bank customers can save time by banking online. There is no need to stand in one more line to perform the most basic transactions when they can be done quickly from the desktop PC anytime, day or night. But even with more complicated transactions or investment decisions, people like having direct control over their finances themselves. They find it convenient to access all of their financial information in one place. Ease of use is one of the most important factors. Navigation through online banking should be simple and intuitive. Banks need to appeal to customers who may not be technologically sophisticated, and should not require an engineering degree to get started or use the service. Customers also choose banks whose online services are reliable. Most Banks now offers a comprehensive range of financial products and services, including a FREE checking account and internet bill paying services. In addition, an array of checking accounts are available in which you may also request a FREE check card. Hence most Banks of following Electronic Banking or Internet Banking FREE have following services:

Get your balance details, Obtain your last 3 transaction details, Request a cheque book, Stop a cheque payment, Enquire cheque status, Request an account statement, Get Fixed Deposit details, Bill payment details for electricity, mobile phone and telephone services, Convenience of setting an operative account, Designate a particular account linked to your customer id as the operative account. Customer Service available 24 hours a day, 7 days a week E-banking Benefits

Benefits for the bank should always reflect benefits for the customer of banking services.

CUTTING OPERATIONAL COSTS

Cutting transaction costs results in higher profit margin for the banks. The enclosed chart clearly indicates the benefits of E-banking over traditional methods banking.

Banking Method used

Cost per Transaction for Bank

1

Manual, personal

Rs. 40 – 100/- depending on Bank

Higher for Foreign Banks, as salaries and overheads are higher

2

ATMs

Rs. 20-30/- only

3

Internet / PC

Rs. 8/- only

4

Telephone Banking

Rs. 15/- only

As every Bank wants to be profitable E-banking is becoming necessity for survival. Electronic banking provides enormous benefits to consumers in terms of the ease and cost of transactions

Taking over customers from competition

Banks seeking new customers can use advantages of new distribution channels and acquire most profitable customer from their competition. It is a fact that people using E-banking are the ones who consider time as money and are the one with loads of money. Majority of banks see 80% of their business coming just 20% of the client base. This 20% customer base is vulnerable if the bank does not appreciate their time.

Building stronger customer relations

Offering new services, results in improved customer experience and stronger customer retention.

Bigger share in customer’s wallet 

It is well known fact that customers tend to keep their finances in one place. Banks holding customer accounts therefore have opportunity to cross sell different products and services. Recent studies show that banks in the USA lost 20% of their most valuable customers in favor of non-bank FI flexible enough to offer diversified services and products.

Identifying profitable customers

Customers using E-banking services have higher balances than average branch teller customers. Investments are more than twice higher than the average.

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. Today, 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.

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.