E Banking.pdf

A PROJECT ON “E-BANKING” SUBMITTED TO University of Mumbai

UNIVERSITY OF MUMBAI IN PARTIAL FULFULMENT OF THE REQUIREMENT FOR BACHELORS OF BANKING AND INSURANCE SUBMITTED BY MR. RINALI RAJU DOLAS 3rd YEAR 6th SEMESTER (2018-2019) UNDER THE GUIDANCE OF: MR. ANISH KALWANI VCMIT (BBI DEPT) VEDANTA COLLEGE OF MANAGEMENT AND INFORMATION TECHNOLOGY

(ULHASNAGAR)

Index Sr.No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40

Particular INTRODUCTION OF PROJECT E-BANKING DEFINATION Electronic banking ADVANTAGES OF ONLINE BANKING DISADVANTAGES OF ONLINE BANKING BENEFITS OF E-BANKING CONTAIN BANK PROFILE HISTORY OF ALLAHABAD BANK & E-BANKING E-BANKING IN INDIA E-BANKING IN ALLAHABAD BANK E-PAYMENT NATIONAL ELECTRONIC FUNDS TRANSFER RTGS ELECTRONIC FUND TRANSFER (EFT) ATM (AUTOMATIC TELLER MACHINE) CREDIT CARD KISAN CREDIT CARD Facilities offered to credit card holder DEBIT CARD E-TRADE MOBILE BANKING INTERNET BANKING TELEPHONE BANKING TERMINATION OF IB/SMSB/PB SERVICE DATA ANALYSIS INDIAN VIEW THE INDIAN SCENARIO GLOBAL VIEW EVOLUTION OF E-BANKING USAGE OF E-BANKING TYPES OF INTERNET BANKING OR E- BANKING E-BANKING PRODUCTS HOW E-BANKING CAN EASE YOUR LIFE RISK IN E-BANKING Strategic Risk Simple guidelines for safe online banking RECOMMENDATION & SUGGESTIONS CONCLUSION BIBLIOGRAPHY

Pages 1 1 1 2-4 4-5 5-6 6-10 10-12 12-15 15-17 17-19 17-22 22-24 24-25 25-27 27-30 30-32 32-33 33-36 36-38 38-39 39-43 43-48 48-53 53-53 53-56 56-58 58-58 59-60 61-62 63-63 64-67 67-70 70-72 73-78 78-78 79-80 80-81 81-82 82-92

VEDANTA COLLEGE OF MANAGEMENT AND INFORMATION TECHNOLOGY ULHASNAGAR

Certificate This is to certify that Ms. Rinali Raju Dolas has worked and duly completed her project work for the degree of Bachelor in Commerce (Banking and Insurance) under the Faculty of Commerce in the subject of Banking & Insurance and her project is entitled, “E-Banking” under my supervision. I further certify that the entire work has been done by the learner under my guidance and that no part of it has been submitted previously for any Degree or Diploma of any University. It is her own work and facts reported by her personal findings and investigation.

Name and Signature of Guiding Seal of College

Date of Submission:

Teacher

Declaration by learner

I the undersigned Miss. Rinal Rajul Dolas here by declare that the work embodied in this project work titled “E-Banking” forms my own contribution to the research work carried out under the guidance of Mr. Anish Kalwani is a result of my own research work and has not been previously submitted to any other University for any other Degree / Diploma to this or any other University. Wherever reference has been made to previous works of others, it has been clearly indicated as such and included in the bibliography. I, here by further declare that all information of this document has been obtained and presented in accordance with academic rules and ethical conduct.

Name and Signature of the learner Certified by Name and Signature of the Guiding Teacher

Aknowledgement To list who all have helped me is difficult because they are so numerious and the depth is no enormous. I would like to acknowledge the following as being idealistic channels and fresh dimensions in the completion of this project. I take this opportunity to thank the University of Mumbai for giving me chance to do this project. I would like to thank my Principal, Co-ordinator for providing the necessary facilities required for completion of this project. I take this opportunity to thank our Coordinator Mrs. Sweetie Kukreja for her moral support and guidance. I would also like to express my sincere gratitude towards my project guide Mr. Anish Kalwani whose guidance and care made the project successful. I would like to thank my College Library, for having provided various reference books and magazines related to my project. Lastly, I would like to thank each and every persons who directly or indirectly helped me in the completion of the project especially my parents and peers who supported me throughout my project.




 
   


 
                      
                                 

          

   


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> 

INDIAN VIEW The Reserve Bank of India constituted a working group on Internet Banking. The group divided the internet banking products in India into 3 types based on the levels of access granted. They are: Ø

Information Only System: General purpose information like interest rates,

branch location, bank products and their features, loan and deposit calculations are provided in the banks website. There exist facilities for downloading various types of application forms. The communication is normally done through e-mail. There is no interaction between the customer and bank's application system. No identification of the customer is done. In this system, there is no possibility of any unauthorized person getting into production systems of the bank through internet.

Ø

Electronic Information Transfer System: The system provides customer specific

information in the form of account balances, transaction details, and statement of accounts. The information is still largely of the 'read only' format. Identification and authentication of the customer is through password. The information is fetched from the bank's application system either in batch mode or off-line. The application systems cannot directly access through the internet.

Ø Fully Electronic Transactional System: This system allows bi-directional capabilities. Transactions can be submitted by the customer for online update. This system requires high degree of security and control. In this environment, web server and application systems are linked over secure infrastructure. It comprises technology covering computerization, networking and

19

security, inter-bank payment gateway and legal infrastructure. It includes the followings: o ATM o DEBIT CARDS o SMART CARDS o MOBILE BANKING

THE INDIAN SCENARIO DRIVERS OF CHANGE: Advantages previously held by large financial institutions have shrunk considerably. The Internet has leveled the playing field and afforded open access to customers in the global marketplace. Internet banking is a cost effective delivery channel for financial institutions. Consumers are embracing the many benefits of Internet banking. Access to one's accounts at anytime and from any location via the World Wide Web is a convenience unknown a short time ago. Thus, a bank's Internet presence transforms from 'brouchreware' status to 'Internet banking' status once the bank goes through a technology integration effort to enable the customer to access information about his or her specific account relationship. The six primary drivers of Internet banking includes, in order of primacy are: Ø Improve customer access Ø Facilitate the offering of more services Ø Increase customer loyalty Ø Attract new customers Ø Provide services offered by competitors Ø Reduce customer attrition 20

GLOBAL VIEW. Since its inception, Internet banking has experienced strong and sustained growth. World Bank report on leapfrogging in e-finance pointed out that the three countries with impressive progress in information technology in this sense are Estonia, Republic of Korea and Brazil. Creation of the world’s leading electronic banking systems has been done at a remarkably low cost compared to other world-class internet banks. In the European Union, 60 million people, representing 18 per cent of the adult population, use online banking In France, the number of online banking accounts is recording an annual growth rate of 75 per cent. However, Estonia is a country that has become a leader in Internet banking (which now reaches 18 per cent of the population), not only among Eastern European countries but in world rankings, through a combination of easy to- use software, free-of-charge transactions and behavior changes resulting from the influence of the Nordic countries’ IT culture on Estonia. A sector in which Latin America is seems to be performing better than in other industries is online retail banking. Growth in this area has been driven by traditional banks, which have used the online channel to generate customer loyalty and improve their operating margins. Two Brazilian banks, Bradesco and Banco do Brasil have thus achieved more than 4 million online customers each. Mexico is another leader of Internet banking in Latin America. It adopted legislation providing for the development of both E-Commerce and e-finance. In Mexico, the number of online bank users more than tripled from 700,000 in 2000 to 2.4 million in 2001, and it could reach 4.5 million in 2005 (E-Marketer 2002b). One reason for the success of Latin American banks’ online 21

ventures seems to be the attention they have paid to providing retail customers with multiple ways to access their accounts (Internet, telephone, wireless). However, given that the share of the total population that actually has a bank account is relatively small, the expansion of Latin American online banking may be facing a bottleneck. Compared with overall Internet usage estimated at 4.4 million in Australia, the major banks together have attracted only 1.2 million to online banking. The Internet is a global phenomenon and so is e-finance. Its deployment is not limited to developed countries, and indeed some developing countries – such as India and the Republic of Korea – are experiencing particularly strong growth in E-Banking. In Asia one of the most impressive records has been achieved by the Republic of Korea. The Republic of Korea is leading in online brokerage and in mobile banking. In South-East Asia Internet banking is also developing rapidly in Thailand, Malaysia, and Singapore and to a lesser extent, in the Philippines. In Bangladesh there is a large gap between the computerization of foreign banks and that of local commercial banks and as regards the state of their intra- and interbranch online networks. However, 75 per cent of local banks are planning to introduce E-Banking, which implies very dynamic improvements. Apart from North and South Africa the Sub Saharan Africa is the region that is seriously lagging behind in Internet banking, although it is giving to the rest of the world the good example of microfinance developments.

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EVOLUTION OF E-BANKING The story of technology in banking started with the use of punched card machines like Accounting Machines or Ledger Posting Machines. The use of technology, at that time, was limited to keeping books of the bank. It further developed with the birth of online real time system and vast improvement in telecommunications during late 1970’s and 1980’s.it resulted in a revolution in the field of banking with “convenience banking” as a buzzword. Through Convenience banking, the bank is carried to the doorstep of the customer. The 1990’s saw the birth of distributed computing technologies and Relational Data Base Management System. The banking industry was simply waiting for these technologies. Now with distribution technologies, one could configure dedicated machines called front-end machines for customer service and risk control while communication in the batch mode without hampering the response time on the frontend machine. Intense competition has forced banks to rethink the way they operated their business. They had to reinvent and improve their products and services to make them more beneficial and cost effective. Technology in the form of E-banking has made it possible to find alternate banking practices at lower costs. More and more people are using electronic banking products and services because large section of the banks future customer base will be made up of computer literate customer, the banks must be able to offer these customer products and services that allow them to do their banking by electronic means. If they fail to do this will, simply, not survive. New products and services are emerging that are set to change the way we look at money and the monetary system.

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Reasons of E-Banking Evolution Speaking in the most general way, the cause of E-Banking applications evolution changes application domain or context. Being more precise we must mention the evolution of clients’ needs. It’s the most evident, important and common reason that leads the banks to the evolution of EBanking. Banks are facing the constant evolution of the client's needs. They need to follow this evolution in order to achieve clients’ satisfaction and to preserve bank’s competitive advantage. E-Banking solution must cover the clients’ needs, otherwise bank risks to lose its clients. Below we give an example of such an evolution. The Evolution of the business model can be as well an incentive to E-Banking Evolution. An excellent example of such an evolution is how the Swiss quote bank evolved first from online financial information provider to online brokerage firm and then became a full electronic bank. Entrance to the new market or in the national law can be another source of changes. Differences in rules and national authorities requirements can result in specific procedures or different security level. In the same manner an evolution can appear, when existing laws basis are changing. We believe for instance, that current financial crisis will bring some deep changes to law regulations and as a result on E-Banking applications. In conclusion of this section we need to underline the following statement: No matter which exactly of the abovementioned reasons or set of them leads to evolution, but what is the most important is that the initiator of this incentive is always a business side. The needs of business are transformed into business requirements. Business representatives which use the IT solution, must always approve specified business requirements. The evolution of the EBanking applications caused by the evolution of the client's needs is the most perceptible for the external study. E-Banking applications were exposed to such an evolution especially during the last ten years. 24

USAGE OF E-BANKING The rise in the e-commerce and the use of internet in its facilitation along with the enhanced online security of transactions and sensitive information has been the core reason for the penetration of online banking in everyday life. According to the latest official figures from the office of National Statistics ( ONS 2007) indicate that subscriptions to the internet has grown more than 50% from 25 million in 2005 to 45 million in 2007 in India. It has also been estimated that 60% of the population in India use internet in their daily lives. The fundamental shift towards the involvement of the customer in the financial service provision with the help of the technology especially internet has helped to reduce the costs of financial institutions as well as helped client to use the service at anytime and from virtually anywhere with access to an internet connection. The use of electronic banking has removed personnel that facilitate the transactions and has placed additional responsibilities on the customers to transact with the service. The computerization of the banking operations has made maximum impact on:1) Internal Accounting System 2) Customer service 3) Diversification of system

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TYPES OF INTERNET BANKING OR EBANKING Understanding the various types of Internet banking will help examiners assess the risks involved. Currently, the following three basic kinds of Internet banking are being employed in the marketplace.

v Informational- this is the basic level of Internet banking. Typically, the bank has marketing information about the bank’s products and services on a standalone server. The risk is relatively low, as informational systems typically have no path between the server and the bank’s internal network. This level of Internet banking can be provided by the banks or outsourced. While the risk to a bank is relatively low, the server or web site may be vulnerable to alteration. Appropriate controls therefore must be in place to prevent unauthorized alterations to the bank’s server or web site.

v Communicative- this type of Internet banking systems and the customer. The interaction between the bank’s system and the customer. The interaction may be limited to electronic mail, account enquiry, loan applications, or static file updates (name and address change). Because these servers may have a path to the bank’s internal networks, the risk is higher with this configuration than with informational systems. Appropriate controls need to be in the place to prevent, monitor, and alert management of any unauthorized attempt to access the bank’s internal networks and computer systems. Virus controls also become much more critical in this environment 27

v Transactional- this level of Internet banking allows customers to execute transactions. Since a path typically exists between the server and the bank or outsourcer’s internal network, this is the highest risk architecture and must have the strongest controls. Customer transactions can include accessing accounts, paying bills, transferring funds etc.

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SWOT Analysis of Internet Banking The following are the strength, Weakness opportunists and threats of Internet Banking in India

1. Strength Ø Aggression towards development of the existing standards of banks Ø Strong regulatory impact by central bank to all the banks Ø Presence of intellectual capital to face the change in implementation with

good quality

Ø Fully computerized and techno savvy Ø A person can access his account from anywhere he is Ø A person can do banking transactions like funds transfer to any account, book ticket, bill pay at any time of the day

2. Weakness Ø High bank service charges. All the bank charges highly to the customers for the services provided through internet banking Ø Poor technology infrastructure Ø Ineffective risk measures Ø Easy Access of internet banking account by wrong people through email ids Ø When the server is down the whole process is handicapped

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3. Opportunities Ø Increasing risk management expertise Ø Advancement of technologies, strong asset base would help in bigger growth Ø Safety of using internet banking is robust, so more internet banking users in future Ø The international scope of internet banking provides new growth perspectives and internet business is a catalyst for new technologies and new business processes

4.

Threats Ø Banks provides all services through electronic computerized machines and this creates problems to the less educated people Ø Inability to meet the additional capital requirements Ø Huge investment in technologies Ø Internet banking will be replaced by mobile banking

E-BANKING PRODUCTS

Automated Teller Machine (ATM): These are cash dispensing machine, which are frequently seen at banks and other locations such as shopping centers and building societies. Their main purpose is to allow customer to draw cash at any time and to provide banking services where it would not have been viable to open another branch e.g. on university campus. An automated teller machine or automatic teller machine (ATM) is a 30

computerized telecommunications device that provides a financial institution's customers a method of financial\ transactions in a public space without the need for a human clerk or bank teller. On most modern ATMs, the customer identifies him or herself by inserting a plastic ATM card with a magnetic stripe or a plastic smart card with a chip that contains his or her card number and some security information, such as an expiration date or CVC (CVV). Security is provided by the customer entering a personal identification number (PIN). Using an ATM, customers can access their bank accounts in order to make cash withdrawals (or credit card cash advances) and check their account balances. Many ATMs also allow people to deposit cash or checks, transfer money between their bank accounts, pay bills, or purchase goods and services. Some of the advantages of ATM to customers are:Ø Ability to draw cash after normal banking hours Ø Quicker than normal cashier service Ø Complete security as only the card holder knows the PIN Ø Does not just operate as a medium of obtaining cash. Ø Customer can sometimes use the services of other bank ATM’s.

Tele banking or Phone Banking: Telephone banking is relatively new Electronic Banking Product. However it is fastly becoming one of the most popular products. Customer can perform a number of transactions from the convenience of their own home or office in fact from anywhere they have access to phone. Customers can do following:Ø Check balances and statement information Ø Transfer funds from one account to another Ø Pay certain bills Ø Order statements or cheque books 31

Ø Demand draft request This facility is available with the help of Voice Response System (VRS). This system basically, accepts only TONE dialed input. Like the ATM customer has to follow particular process, initially account number and telephone PIN are fed for the process to start. Also the VRS system provides the users within additional facilities such as changing existing password with the new desired, information about new products, current interest rates etc.

Mobile Banking: Mobile banking comes in as a part of the banks initiative to offer multiple channels banking providing convenience for its customer. A versatile multifunctional, free service that is accessible and viewable on the monitor of mobile phone. Mobile phones are playing great role in Indian banking- both directly and indirectly. They are being used both as banking and other channels.

Internet Banking: The advent of the Internet and the popularity of personal computers presented both an opportunity and a challenge for the banking industry. For years, financial institutions have used powerful 32

computer networks to automate million of daily transactions; today, often the only paper record is the customer’s receipt at the point of sale. Now that their customers are connected to the Internet via personal computers, banks envision similar advantages by adopting those same internal electronic processes to home use. Banks view online banking as a powerful “value added” tool to attract and retain new customers while helping to eliminate costly paper handling and teller interactions in an increasingly competitive banking environment. In India first one to move into this area was ICICI Bank. They started web based banking as early as august 1997.

HOW E-BANKING CAN EASE YOUR LIFE Indian banks are trying to make your life easier. Not just bill payment, you can make investments, shop or buy tickets and plan a holiday at your fingertips. In fact, sources from ICICI Bank tell us, "Our Internet banking base has been growing at an exponential pace over the last few years. Currently around 78 per cent of the bank's customer base is registered for Internet banking." To get started, all you need is a computer with a modem or other dial-up device, a checking account with a bank that offers online service and the patience to complete about a one-page application-which can usually be done online. You can avail the following services.

1. Bill payment service: Each bank has tie-ups with various utility companies, service providers and insurance companies, across the country. It facilitates the payment of electricity and telephone bills, mobile phone, credit card and insurance premium bills. To pay bills, a 33

simple one-time registration for each biller is to be completed. Standing instructions can be set, online to pay recurring bills, automatically. Onetime standing instruction will ensure that bill payments do not get delayed due to lack of time. Most interestingly, the bank does not charge customers for online bill payment.

2. Fund transfer: Any amount can be transferred from one account to another of the same or any another bank. Customers can send money anywhere in India. Payee’s account number, his bank and the branch is needed to be mentioned after logging in the account. The transfer will take place in a day or so, whereas in a traditional method, it takes about three working days. ICICI Bank says that online bill payment service and fund transfer facility have been their most popular online services.

3. Credit card customers: Credit card users have a lot in store. With Internet banking, customers can not only pay their credit card bills online but also get a loan on their cards. Not just this, they can also apply for an additional card, request a credit line increase and God forbid if you lose your credit card, you can report lost card online.

4. Railway pass: This is something that would interest all the aam janta. Indian Railways has tied up with ICICI bank and you can now make your railway pass for local trains online. The pass will be delivered to you at your doorstep. But the facility is limited to Mumbai, Thane, Nasik, Surat and Pune. The bank would just charge Rs 10 + 12.24 percent of service tax.

5. Investing through Internet banking: Opening a fixed deposit account cannot get easier than this. An FD can be opened online through 34

funds transfer. Online banking can also be a great friend for lazy investors. Now investors with interlinked demat account and bank account can easily trade in the stock market and the amount will be automatically debited from their respective bank accounts and the shares will be credited in their demat account. Moreover, some banks even give the facility to purchase mutual funds directly from the online banking system. So it removes the worry about filling those big forms for mutual funds, they will now be just a few clicks away. Nowadays, most leading banks offer both online banking and demat account. However if the customer have there demat account with independent share brokers, then need to sign a special form, which will link your two accounts.

6. Recharging your prepaid phone: Now there is no need to rush to the vendor to recharge the prepaid phone, every time the talk time runs out. Just top-up the prepaid mobile cards by logging in to Internet banking. By just selecting the operator's name, entering the mobile number and the amount for recharge, the phone is again back in action within few minutes.

7. Shopping at your fingertips: Leading banks have tie ups with various shopping websites. With a range of all kind of products, one can shop online and the payment is also made conveniently through the account. One can also buy railway and air tickets through Internet banking.

35

RISK IN E-BANKING Ø Transactional / Operational risk Ø Credit Risk Ø Reputational Risk Ø Legal Risk Ø Strategic Risk

Transaction or Operations Risk in E-Banking The most important category of risk management for e-banking services is transaction risk or operational risk. Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events. The main causes for operational risk can be: ·

Inadequate Information Systems

·

Breaches in internal controls

·

Fraud

·

Processing Errors

·

Unforeseen catastrophes The inadequate information system can result from general risks or from application oriented risks. The general risks can include physical access 37

to the hardware, logical access to the information and communication technology systems, emergency management or from an insufficient backup recovery measures-mitigate the consequences of system failures.

Control of Transaction Risks Controlling transaction risk lies in adapting effective policies, procedures, and controls to meet the new risk exposures introduced by e-banking ·

Basic internal controls including segregation of duties, dual controls, and reconcilements

·

Information security controls become more significant requiring additional processes, tools, expertise, and testing.

·

Institutions should determine the appropriate level of security controls abased on their assessment of the sensitivity of the information to the

·

customer and to the institution and on the institution’s established risk tolerance level.

Credit Risk Credit risk is the risk to earning and eventually capital, arising from a borrower’s failure to meet the terms of a credit contract with the bank or otherwise to perform as agreed. It is found in all activities where success depends on counterparty, issuer, or borrower performance. It arises any time bank findings are extended, committed, invested, or otherwise exposed through actual or implied contractual agreements, whether on or off the bank’s balance sheet.

38

The following aspects of on-line loan origination and approval tend to make risk management of the lending process more challenging. If not properly managed, these aspects can significantly increase credit risk. ·

Verifying the customer’s identity for on-line credit applications and executing an enforceable contract

·

Monitoring and controlling the growth, pricing, underwriting standards, and ongoing credit quality of loans originated through e-banking channels

·

Monitoring and oversight of third-parties doing business as agents or on behalf of the financial institution (for example, an Internet loan origination site or electronic payments processor).

·

Collecting loans from individuals over a potentially wider geographic area.

·

Monitoring any increased volume of, and possible concentration in, outof-area lending.

Reputational Risk This is the current and prospective risk to earnings and capital arising from negative public opinion. A bank’s reputation can be damaged by Internet banking services that are poorly executed (e.g., limited availability, buggy software, poor response). Customers are less forgiving of any problems and thus there are more stringent performance expectations from the Internet channel. Hypertext links could link a bank’s site to other sites and may reflect an implicit endorsement of the other sites.

39

Risk of damage to the bank’s reputation goes along with the other risks. It can arise, for example, from operational risk even if customers suffer no actual damage. If a hacker successfully breaks into a bank’s website and makes alterations, the bank concerned can suffer substantial damage to its reputation although customers’ balances are safe and the hacker has not obtained any financial benefit. This does not only affect the individual bank concerned but may also undermine confidence in the security of ebanking more generally and therefore slow down development in this area. Systems breakdown, even if only temporary, is another example of how banks may be affected by bad publicity. Given the fact that the element of trust is so fundamental to banks’ business, banks will find it increasing important to adopt measures to manage reputational risk and incorporate public relations strategies into their overall risk management framework. Some of the ways in which e-banking can influence an institution’s reputation include the following: 1. Loss of trust due to unauthorized activity on customer accounts. 2. Disclosure or theft of confidential customer information to unauthorized parties (e.g., hackers). 3. Failure to provide reliable service due to the frequency or duration of service disruptions. 4. Customer complaints about the difficulty in using e-banking services and the inability of the institution’s help desk to resolve problems. 5. Confusion between services provided by the financial institution and services provided by other businesses linked from the website 6. Compliance or Legal Risk

40

This is the risk to earnings or capital arising from violations of, or nonconformance

with,

laws,

regulations

and

ethical

standards.

Compliance risk may lead to diminished reputation, actual monetary losses and reduced business opportunities. Banks need to carefully understand and interpret existing laws as they apply to Internet banking and ensure consistency with other channels such as branch banking. This risk is amplified when the customer, the bank and the transaction are in more than one country. Conflicting laws, tax procedures and reporting requirements across different jurisdictions add to the risk. The need to keep customer data private and seek customers’ consent before sharing the data also adds to compliance risk. Customers are very concerned about the privacy of their data and banks need to be seen as reliable guardians of such data. Finally, the need to consummate transactions immediately (straight-through processing) may lead to banks relaxing traditional controls, which aim to reduce compliance risk. Compliance and legal issues arise out of the rapid growth in usage of e-banking and the differences between electronic and paper-based processes Specific regulatory and legal challenges include the following: ·

Uncertainty over legal jurisdictions and which state’s or country’s laws govern a specific e-banking transaction.

·

Delivery of credit and deposit-related disclosures/notices as required by law or regulation.

·

Retention of required compliance documentation for on-line advertising, applications, statements, disclosures and notices.

·

Establishment of legally binding electronic agreements.

41

Strategic Risk This is the current and prospective risk to earnings and capital arising from adverse business decisions or improper implementation of business decisions. Many senior managers do not fully understand the strategic and technical aspects of Internet banking. Spurred by competitive and peer pressures, banks may seek to introduce or expand Internet banking without an adequate cost-benefit analysis. The organization structure and resources may not have the skills to manage Internet banking. To manage the strategic risk financial institutions should pay attention to the following: ·

Adequacy of management information system (MIS) to track e-banking usage and profitability.

·

Costs involved in monitoring e-banking activities or costs involved in overseeing e-banking vendors and technology service providers.

·

Design, delivery, and pricing of services adequate to generate sufficient customer demand.

·

Retention of electronic loan agreements and other electronic contracts in a format that will be admissible and enforceable in litigation. (court case / legal action)

·

Costs and availability of staff to provide technical support for interchanges involving multiple operating systems, web browsers, and communication devices.

·

Competition from other e-banking providers.

·

Adequacy of technical, operational, compliance, or marketing support for e banking products and services.

42

Simple guidelines for safe online banking: • On no account utilize communal terminals like cyber cafes when you are carrying out banking transactions online. • The peril of compromise while making use of a wireless connection is to a large extent greater. Clients should carry out online banking transactions through a wireless connection provided that they are completely assured of the connection safety. • Clients should be certain that their spyware and anti-virus applications are up to date and it is advisable to perform regular system scans. • Clients should on no account log into a banking site via a link. Alternatively, clients should type out the address of the bank’s website into the browser bar. • Clients should never access any other web site when they are logged into an online banking site; they should be sure as to ascertain that there is only one window open. • Clients should choose their user name and password cautiously. Both password and user name shouldn't be easy for anyone to deduce and they should be changed regularly. • Client’s computer software should be updated regularly. • Clients should check for the padlock logo on the lesser right hand side of the browser window (it shows that the website is secured). • Once a client is done with his or her Online banking, the client should log out and close the browser window.

43

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