Internet Banking. Department of Management

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1 Internet Banking Dr. Kavita Srivastava Department of Management ITS, Ghaziabad

2 E Banking E-banking is a generic term for delivery of banking services and products through electronic channels, such as the telephone, ep e, the internet, et, the cell phone, etc. The concept and scope of E-banking is still evolving. It facilitates an effective payment and accounting system thereby enhancing the speed of delivery of banking services considerably. 2 Dr. Kavita Srivastava

3 While E-banking has improved efficiency and convenience, it has also posed several challenges to the regulators and supervisors. Several initiatives taken by the government of India, as well as the Reserve Bank of India (RBI), have facilitated the development of E-banking in India. The government of India enacted the IT Act, 2000, which provides legal recognition to electronic transactions and other means of electronic commerce. The RBI issued guidelines on risks and control in computer and telecommunication system to all banks, advising them to evaluate the risks inherent in the systems and put in place adequate control mechanisms to address these risks. 3 Dr. Kavita Srivastava

4 Features of Internet Banking Internet banking involves use of Internet for delivery of banking products & services. A successful Internet banking solution offers: Exceptional rates on Savings Checking gwith no monthly fee, free bill payment and rebates on ATM surcharges Credit cards with low rates Easy online applications for all accounts, including personal loans and mortgages 24 hour account access Quality customer service with personal attention 4 Dr. Kavita Srivastava

5 The Internet has levelled 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 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. 5 Dr. Kavita Srivastava

6 Drivers of Internet Banking The six primary drivers of Internet banking includes, in order of primacy are: Improves customer access Facilitates the offering of more services Increases customer loyalty l Attract new customers Provide services offered by competitors Reduces customer attrition 6 Dr. Kavita Srivastava

7 Indian Banks on WEB The banking industry in India is facing unprecedented competition from banking institutions, which now offer banking and financial a services over the Internet. et. The deregulation of the banking industry coupled with the emergence of new technologies, are enabling new competitors to enter the financial services market quickly and efficiently. Indian banks are going for the retail banking in a big way. However, much is still to be achieved. 7 Dr. Kavita Srivastava

8 Throughout the country, the Internet Banking is in the nascent stage of development (only 50 banks are offering varied kind of Internet banking services). In general, these Internet sites offer only the most basic services. 55% are so called 'entry level' sites, offering little more than company information i and basic marketing materials. Only 8% offer 'advanced transactions' such as online funds transfer, transactions & cash management services. Foreign & Private banks are much advanced in terms of the number of sites & their level of development. 8 Dr. Kavita Srivastava

9 Emerging Challenges Information technology analyst firm, the Meta Group, recently reported that "financial institutions who don't offer Internet banking by the year 2000 will become marginalized." By the year of 2002, a large sophisticated and highly competitive Internet t Banking Market will develop which h will be driven by Demand side pressure due to increasing access to low cost electronic services. Growing customer awareness and need of transparency. Global players Close integration of bank services with web based E-commerce More convenient international ti transactions ti due to the fact that t the Internet along with general deregulation trends, eliminate geographic g boundaries. 9 Dr. Kavita Srivastava

10 Certainly some existing brick and mortar banks will go out of business. But that's because they fail to respond to the challenge of the Internet. The Internet and it's underlying technologies will change and transform not just banking, but all aspects of finance and commerce. It represents much more than a new distribution opportunity. It will enable nimble players to leverage their brick and mortar presence to improve customer satisfaction and gain share. It will force lethargic players who are struck with legacy cost basis, out of business-since i they are unable to bring to play in the new context. 10 Dr. Kavita Srivastava

11 Main Concerns in Internet Banking In a survey conducted by the Online Banking Association, member institutions rated security as the most important issue of online banking. There is a dual requirement to protect customers' privacy and protect against fraud. Some basic information on the transmission of confidential data is presented in Security and Encryption on the Web. PC Magazine Online also offers a primer on How Encryption Works. A multi-layered security architecture comprising firewalls, filtering routers, encryption and digital certification ensures that your account information is protected t from unauthorised access Firewalls and filtering routers ensure that only the legitimate Internet users are allowed to access the system. Digital certification procedures provide the assurance that the data you receive is from the Infinity system. 11 Dr. Kavita Srivastava

12 ATM 12 Dr. Kavita Srivastava

13 Automated Teller Machine (ATM) An Automated Teller Machine (ATM) or Automatic Banking Machine (ABM) is a computerised telecommunications device that provides the clients of a financial institution with access to financial transactions in a public space without the need for a cashier, human clerk or bank teller. On most modern ATMs, the customer is identified by inserting a plastic ATM card with a magnetic stripe, that contains a unique card number and some security information such as an expiration date or CVV. Authentication is provided by the customer entering a personal identification number (PIN). 13 Dr. Kavita Srivastava

14 Using an ATM, customers can access their bank accounts in order to make cash withdrawals and check their account balances aa If the currency being withdrawn from the ATM is different from that which the bank account is denominated in (e.g.: Withdrawing Japanese Yen from a bank account containing US Dollars), the money will be converted at a wholesale exchange rate. Thus, ATMs often provide the best possible exchange rate for foreign travellers and are heavily used for this purpose as well. 14 Dr. Kavita Srivastava

15 ATMs are known by various other names including Automated Transaction Machine. Automated Banking Machine Cash Point (in Britain) Money Machine Bank Machine Cash Machine Any Time Money (in India). 15 Dr. Kavita Srivastava

16 Financial Networks Most ATMs are connected to interbank networks, enabling people p to withdraw and deposit money from machines not belonging to the bank where they have their account or in the country where their accounts are held (enabling cash withdrawals ihd in local l currency). Some examples of interbank networks include PULSE, PLUS, Cirrus, Interac, Inter switch, STAR, and LINK. ATMs rely on authorization of a financial transaction by the card issuer or other authorizing institution via the communications network. This is often performed through an ISO 8583 messaging system. 16 Dr. Kavita Srivastava

17 Many banks charge ATM usage fees. In some cases, these fees are charged solely to users who are not customers of the bank where the ATM is installed; in other cases, they apply to all users. Where machines make a charge some people will not use them, but go to a system without fees. In order to allow a more diverse range of devices to attach to their networks, some interbank networks have passed rules expanding the definition of an ATM to be a terminal that either has the vault within its footprint or utilizes the vault or cash drawer within the merchant establishment, which allows for the use of a scrip cash dispenser. ATMs typically connect directly to their host or ATM Controller via either ADSL or dial-up modem over a telephone line or directly via a leased line. 17 Dr. Kavita Srivastava

18 Other services at ATMs ATMs are now seen more than the cash dispensing machine Customers recharge there mobile phone pre paid connections Pay there utility bills Transfer of money through h cheques 18 Dr. Kavita Srivastava

19 Credit Cards 19 Dr. Kavita Srivastava

20 An example of the front in a typical credit card: Issuing bank logo EMV chip on "smart cards" Hologram Credit card number Card brand logo Expiration Date Card Holder Name contact less chip 20 Dr. Kavita Srivastava

21 An example of the reverse side of a typical credit card: Magnetic Stripe Signature Strip Card Security Code 21 Dr. Kavita Srivastava

22 Credit Card is part of a system of payments named after the small plastic card issued to users of the system. It is a card entitling its holder to buy goods and services based on the holder's promise to pay for these goods and services. The issuer of the card grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user. 22 Dr. Kavita Srivastava

23 A credit card is different from a charge card, where a charge card requires the balance to be paid in full each month. In contrast, credit cards allow the consumers to 'revolve' their balance, at the cost of having interest charged. Most credit cards are issued by local banks or credit unions, and are the shape and size specified by the ISO/IEC 7810 standard as ID-1. This is defined as mm in size. 23 Dr. Kavita Srivastava

24 Credit cards are issued after an account has been approved by the credit provider, after which cardholders can use it to make purchases at merchants accepting that card. When a purchase is made, the credit card user agrees to pay the card issuer. The cardholder indicates consent to pay by signing a receipt with a record of the card details and indicating the amount to be paid or by entering a personal identification number (PIN). Also, many merchants now accept verbal authorizations via telephone and electronic authorization ti using the Internet, t known as a 'Card/Cardholder Not Present' (CNP) transaction. 24 Dr. Kavita Srivastava

25 Each month, the credit card user is sent a statement indicating the purchases undertaken with the card, any outstanding fees, and the total amount owed. After receiving the statement, the cardholder may dispute any charges that he or she thinks are incorrect Oh Otherwise, the cardholder dhld must pay a df defined d minimum proportion of the bill by a due date, or may choose to pay a higher amount up to the entire amount owed. The credit issuer charges interest on the amount owed if the balance a is not paid in full (typically y at a much higher rate than most other forms of debt). Some financial institutions can arrange for automatic payments to be deducted from the user's bank accounts, thus avoiding late payment altogether as long as the cardholder has sufficient funds. 25 Dr. Kavita Srivastava

26 Benefits to Customers The main benefit to each customer is convenience. Compared to debit cards and cheques, a credit card allows small short-term loans to be quickly made to a customer who need not calculate a balance remaining before every transaction, provided the total charges do not exceed the maximum credit line for the card. Many credit cards offer rewards and benefits packages, such as offering enhanced product warranties at no cost, free loss/damage coverage on new purchases, and points which may be redeemed for cash, products, or airline tickets. Additionally, carrying a credit card may be a convenience to some customers as it eliminates the need to carry any cash for most purposes. 26 Dr. Kavita Srivastava

27 Detriments to Customers Credit cards with low introductory rates are limited to a fixed term, usually between 6 and 12 months after which a higher rate is charged. Credit cards will often stipulate a default rate of 20 to 30 percent in the event a payment is missed. That is, if a consumer misses a payment, the rate will automatically increase to a very burdensome level. 27 Dr. Kavita Srivastava

28 Benefits to the Merchants For merchants, a credit card transaction is often more secure than other forms of payment, such as cheques, As the issuing bank commits to pay the merchant the moment the transaction is authorized, regardless of whether the consumer defaults on the credit card payment In most cases, cards are even more secure than cash, because they discourage theft by the merchant's employees and reduce the amount of cash on the premises. 28 Dr. Kavita Srivastava

29 Precautions If transaction is denied in one ATM try another ATM nearby instead of trying again and again. Sometimes swindlers offer to help you and filch your card and give you some others stolen or dead card. They vanish before you realize that you have been cheated. Stand between the door and the ATM machine so that nobody can watch you punching your pin. keep track of your transactions and withdrawals regularly, (note down in a book with details of purchases, date and amount),. which enables you to bring to the notice of the Bank if your card details have been misused. 29 Dr. Kavita Srivastava

30 while using a credit card, go to the counter where the machine is kept and watch. Sometimes the card is swiped twice when you don t watch and double billing takes place though you are give only one slip. check after taking back your card after billing. Sometimes the cards are exchanged with expired cards and you are swindled of a lot of money before you realize and inform the Bank Put your credit card or ATM card immediately after use. keep the previous withdrawal slip to keep track of your balance. Keep checking your Bank statements and credit card statements 30 Dr. Kavita Srivastava

31 Tips Use your credit card only for purchases of higher denomination Takeout your ATM or credit card only at the time of billing Act fast and inform your Bank if your card has been exchanged or lost or you have been billed twice for the same transaction. It is a better idea to keep changing your pin numbers if your memory cooperates. Memorize your pin (if your No. is 6522 your year of birth + your age when you graduated ) Take a relative or friend if you are going to withdraw heavy amounts 31 Dr. Kavita Srivastava

32 Caution Do not ask strangers for help if you have a problem while withdrawing cash from ATM Do not write your pin on the ATM card cover or feed into your cell phone. Exchange of credit cards(by mistake) or deliberate switching of cards with dead cards is common, during transactions. A minute s checking on your side would save the day. Swindlers install small gadgets g called Skimmers in the ATM machines or card swiping machines collect data of the card holders account and pin no and prepare new cards. Sometimes a person posing as card holder waiting for his turn can use a lighter like gadget to collect data of your card. 32 Dr. Kavita Srivastava

33 Electronic Fund Transfer Electronic funds transfer or EFT refers to the computer-based systems used to perform financial transactions electronically. The term is used for a number of different concepts: Cardholder-initiated i i d transactions, where a cardholder makes use of a payment card Direct deposit payroll py py payments for a business to its employees, possibly via a payroll services company Direct debit payments from customer to business, where the transaction is initiated by the business with customer permission Electronic bill payment in online banking, which may be delivered by EFT or paper check 33 Dr. Kavita Srivastava

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