Internet banking is a way by which users / bank customers can connect to the bank server with the help of a personal computer and web browser, to carry out any of the banking operations. The banks which facilitates or offers internet banking for their customers, maintain a central database which is web enabled. Customers can operate upon it using internet and web browser. All the branch offices are also needed to be interconnected through some global or satellite links. A menu driven internet version of the banking application provides all possible / permitted services in the menu. Customers can select any of the service of their interest and continue further with the option. This is changing the traditional “bank and its branches” model to the “bank, its ATM network and the internet” model with new, alternate delivery channels. It gives a borderless bank entity to the customers allowing anywhere and anytime banking!
Internet banking systems
The Reserve Bank of India (RBI) is the central bank in India. It makes monetary policies, authorizes and regulates the banks, external sectors in India, and fixes income and currency markets. RBI has divided Indian internet banking products into three categories based upon the levels of access granted to the customers.
Information only banking systems
In this e-banking system, bank has a website which gives the general idea about bank such as its branches, different officers and their contact details, products and services offered by the bank, rates of interests, various loan and deposit schemes, installment (EMI) calculations etc. Users can access this information and download various application forms. A link is provided on the website to communicate with the bank by sending emails. However, this remains a one way communication as there is no direct interaction with the bank’s application system. E.g. Cosmos Bank ( http://www.cosmosbank.com/home.html). The cosmos bank website displays just the information about the bank such as their products and schemes, information about the services provided by the bank, ATM centers and their addresses etc. However, it does not display any account details or customer details online to the customers.
These types of banking systems requires least security means as no specific customer identification is needed to access the bank information, and bank do not allow access to any of its applications as well as database. Thus, there is no direct threat to the bank’s production system through internet.
Electronic information transfer banking systems
In this e-banking system, the bank generally has a website which is more customer specific than the ‘Information only banking systems’. Customers can access their account balances, transactional details or the account statement for a specific period. However, this whole information is still in read-only format. User has to enter his / her login id and password, generated by the bank, to get authenticated by the bank. Bank, still has to maintain a centralized database, however the access to this central server can be in batch mode or offline and updated on the website periodically. Thus, the data and information displayed on the bank’s website may not be updated up to the moment of access. For example, HDFC Ltd. i.e. Housing Development Finance Corporation Ltd (www.hdfc.com). HDFC allows online access to the existing loan customers and view the account details which are updated once in a month or in every two weeks. It also allows viewing and printing of various statements such as account summary, provisional interest statement, interest rate changes, and disbursement details etc. However, it allows online updating the personal details such as address, contact details, password etc. on the website.
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Fully electronic transactional banking systems
This banking system allows for bi-directional communications between the bank customer and the bank’s central database system as well as other application system. Customers can make online transactions to update the bank database dynamically. For example, State Bank of India (www.statebankofindia.com) which is the largest state owned banking and financial services in India. It has vast network of more than 16000 branches in India and nearly 130 branches overseas. It has about 21000 ATMs and if associate banks considered, then nearly 45000 ATMs in India. There are 56 million transactions happening per day all over the world and which lead an entry in Guinness Book of World records! SBI’s website exhibits informative contents such as various services provided, loans and finance schemes offered, interest rates, variety of charges and fees along with different forms to download such as compliant form, online loan application form and so on. However, the website also facilitates online internet banking and mobile banking.
SBI’s online internet banking enables the retail banking customers to operate their bank accounts from anywhere, and anytime just by sitting in front of their desktop. This mainly eliminates the limitations inflicted by geography, time zones and in India, the crowded bank counters. The internet banking of SBI allows performing normal banking transactions online such as funds transfer between two accounts, transferring money to third party account of any branch of SBI, group transfers to any account from SBI group banks as well as other banks, request to issue a demand draft, transfer money from saving account to PPF (Public Provident Fund) account, request to issue a cheque book etc. Along with these common banking transactions it also allow e-banking transactions such as online paying various utility bills, online booking of travel tickets by Road, Rail or Air, paying insurance premiums, transferring funds to SBI mutual funds, various government tax payments such as income tax, service tax and state government tax, paying customs duty, fee payment to few selected educational institutes such as IIT and NIT, and online share trading.
SBI website also offers mobile banking which permits paying bills or sending money to other accounts or checking the balance and paying utility bills, credit card bills, insurance premiums etc. using mobiles. It also allows m-commerce applications such as mobile top–ups, various dish TV top-ups etc.
This kind of powerful internet banking requires strong technologies to cover computerization, networking, sharing and a high degree of control and security. The central database server of the bank and the application system too, must be linked over an extremely secured infrastructure. For example, SBI’s website is ‘VeriSign’ certified. The communication between the user with the bank’s application server is secured with 128-bit SSL encryption technology ensuring the confidentiality of the data during the transaction.
Services offered by Internet Banking
Internet banking thus can offer many general features and capabilities which can be divided mainly into categories such as transactional, non transactional and administrative. Transactional services can be to make financial transactions such as transfer amount from one account of the customer to another of himself / herself, pay to third party account, pay various utility bills, make international wired money transfer, making investments using internet banking account, repayment of loan account etc. Non transactional services can be just view the recent transactions or transactions for a specific time period, downloading various forms as well as bank statements etc. The administrative services offered by the internet banking can be adding or modifying the billers, changing the password or address and other communication details of the customer, approving the transaction etc.
Here are few of the services offered by internet banks in detail.
Automated Teller Machine (ATM):
Now a day, ATM is another most important distribution channel of the bank. Bank provides a debit cum ATM card using which the customers can withdraw money and perform other operations with the help of ATM machines.
ATM card substitute cheque, skips the need of personal attention of the bank employee or personal presence of the customer, restrictions of banking hours and the complex paper based verification. ATMs can also be used to withdraw cash, check account balance, change the password, inter-account money transfer and pay the bills.
ATMs can be online or offline. Online ATMs allow banking facilities from anywhere. In such a case, any customer possessing ATM card issued by Shared Payment Network System can go to any ATM linked to Shared Payment Networks and perform his / her transactions. However, offline ATMs facilities are restricted to that particular ATM.
Bill payment service
Using internet banking one can pay various utility bills such as electricity bills, telephone bills, mobile bills, mobile top-ups, credit card payments, and insurance premium bills etc. the Bank offering the internet banking facility needs to make tie ups with various service providers, utility companies, insurance companies, and government agencies across the country.
To pay the bills, bank customers need to be the registered online banking customer. A bank registration form need to be filled and sent to the branch where the applicant maintains his / her account. Bank generally intimates the customers to collect their user id and password from the branch office. Once the user id and password is collected by the customer, he / she can start using the online banking services. On first use, its always recommended to change the password provided by the bank. Next, customers can add the billers and add the instruction, if bills need to be paid automatically
Credit Cards / Debit Cards:
The Credit Card holder is empowered to spend wherever and whenever he/she wants, with his/her Credit Card, but within the limits fixed by his/her issuing bank. Credit card is a post paid card. Debit card, on the other hand, is a prepaid card with some stored value. Every time a person uses this card, the internet banking house gets money transferred to its account from the bank of the buyer. The buyers account is debited with the exact amount of purchases. An individual has to open an account with the issuing bank which gives debit card with a Personal Identification Number (PIN). When he/she makes a purchase, enters the PIN on shop’s PIN pad. When the card is slurped through the electronic terminal, it dials the acquiring bank system – either Master Card or VISA that validates the PIN and finds out from the issuing bank whether to accept or decline the transaction. The customer can never overspend because the system rejects any transaction which exceeds the balance in his account. The bank never faces a default because the amount spent is debited immediately from the customer’s account.
4. Funds transfer
Bank customers can transfer any amount from one account to another, may be of the same bank and branch or different branch or another bank in India. Once logged in to the bank account using internet, customers can select the option for ‘third party payment’, followed by specifying the details of bank, branch, and account number as well as the amount to be transferred. Transfer takes place immediately or maximum in a day, depending upon the banks, compared to minimum three working days with traditional banking systems. ICICI banks, HDFC banks are most popular for their online banking services.
Internet banking can also be used for international funds transfer. There can be many reasons for NRIs to send money to home country such as for parents, for education or just a monthly payment and the need is to send it fast. Or it can be other way round – to pay the fees from Indian account to the international university or conferences etc. across the globe.
There can be different options to be selected for sending money to the bank account in other country, depending upon immediacy and finality of settlement of cost, value etc. The customer who wish to do funds transfer fills the necessary data such as name of the receiver, account number of the receiver along with the bank name and branch, amount to be transferred etc on the banks funds transfer application screen. He / she also need to furnish the details of IBAN or BIC codes so that the bank understands where the money needs to be sent.
IBAN (International Bank Account Number) is an international standard for identifying the bank accounts across the national borders. BIC (Business Identifier Code) is a standard format approved by ISO, to uniquely identify financial as well as non-financial institutions while transferring the money between two different international banks. BIC codes are also popularly known as SWIFT (Society for Worldwide Interbank Financial Telecommunication) codes. SWIFT also help exchange messages among banks or financial institutions. More than 9000 financial institutes across 209 countries are linked to SWIFT as on January 2011.
The bank sending money, transmits a message using SWIFT to the bank receiving money to request to accept the money as per the instructions given in the sender’s money transmission requesthttp://upload.wikimedia.org/wikipedia/commons/d/d4/Button_hide.png
. The actual funds transfer from one account to another may not be instantaneous, and may take several hours or days to reach to receiver’s account. The sender as well as the receiver needs to pay the charges towards this funds transfer. The charges may vary from country to country, mainly depending upon the location.
This bank to bank money transfer is generally the most safe online funds transfer as the information is transferred using encryption.
5. Making investments using internet banking
Making investments using internet banking account is ideal for all those who can spend a little more than needed, from a savings account. Bank customers can open FD account using online funds transfer facility, or can trade in stock market very easily. To play in stock market and invest in shares, customers need to be registered for online banking and open, interlink and registered for online a demat account. While trading, the amount will be debited from the savings account and the shares bought will be credited in the demat account. It allows investing in variety of stocks and bonds, still making the process of investment easy and fairly quick. International investments through internet banking are also becoming possible and popular, as the international communication means are improved to a great extent. It gives altogether a different flavor to internet banking.
Similarly, few banks offer the facility of purchasing mutual funds online using internet banking. E.g. State Bank of India.
6. Online shopping using internet banking
The banks generally provides links to various online shopping websites such as Indiatimes shopping, sifymall.com, SATYAPAUL, futurebazaar.com and lots of others as travel, properties, jobs, subscriptions, gifting, matrimonial, and gaming etc. It helps enable the customers to shop online and make payments conveniently on these websites through direct debit to their bank accounts. Similarly, it can be used for railway reservations, air ticket booking, pre paid mobile top ups, post paid mobile billing, and many more. Customers can also pay their credit card bills online using internet banking. They can also get a loan on their cards.
Smart cards look like credit cards from outside, but inside it is completely different. It contains either non-volatile memory and /or a small microprocessor chip inside to store and process the information. Thus, it can input the data, process it and deliver as output. Along with the credit card information, it can store other information such as banking information, medical records and can be used to make calls, electronic payments etc. The microprocessor on the smart card provides the security to the transactions carried out using the card.
Smart cards can be used for the e-business applications such as credit card transactions, to store electronic cash, to perform wireless communication, to store loyalty points, to store id cards, driver’s license, and so on. It can be programmed for multiple banking credentials.
Banks are now a day adding these chips to currently existing magnetic stripe to provide better security, reliability and offer new, advanced services. Many Indian banks have now started looking for updating their bank cards with contactless, smart cards. HDFC bank which has more than 1725 branches spread across 780 cities all over in India, is taking one step further to offer credit cards meeting the global EMV standard. EMV stands for Europay, MasterCard and Visa. These are the global standard for the inter operation and authentication of credit / debit cards with POS (point-of-sale) terminals and ATM machines. HDFC bank is switching from standard magnetic stripe format to chip based smart cards. It’s expected to provide highest security for the customers. The process they are planning to begin with credit and Forex prepaid smart card products from Visa. Later, to issue EMV smart debit cards. They are planning to issue 500,000 smart cards by March 2011 which are supplied to them by Indian Subsidiary of Security technology specialists Giesecke & Devrient (G & D) which is the German company manufacturing smart cards since 1982.
However, this will need coordinated efforts of banks, ATM manufacturers and point-of-sale terminal makers to update necessary technology in India.
Advantages of Internet banking
Internet banking has many outstanding advantages and that’s the reason it has become so popular in such a short span of time. One can access the personal as well as business accounts whenever and wherever need to while saving the journey to the bank.
Thus, it is convenient for the banks customers as just sitting in front of the computer he / she can perform various banking operations, any time and any number of times.
It eliminates the limits put forward by the bank timings, geography etc. Even if the bank is closed, doesn’t affect the banking operations.
Internet banking extremely reduces the time needed to process banking transactions, making it faster, convenient and attractive.
Thus provides a great flexibility in using bank for various banking operations.
It reduces the paperwork to a large extent.
Many services are now offered free of charge, however, even if charged for few services, it is a very reasonable cost. For instance, we can not get an extra statement from the bank for last 6-months or some specific period, unless we pay extra charge. However, with online banking we can take as many copies of bank statements as we wish and for any period.
It gives the ability to buy financial products such as shares, bonds, mutual funds and different deposits, from home or office using online banking without the intervention of financial intermediaries.
Funds transfer between national or international bank accounts, has made it very easy, convenient, and quick because of internet banking.
In addition to 24-hour banking, the other information regarding the rates of interests, bank policies etc. also become available. This may also help comparing services offered by various banks and the details of the formalities needed to acquire those, to ensure that the customer gets the best possible deal.
With the ability given to the customers to view the account anytime and on regular basis, one can keep eye on the account which makes it easier to catch the fraudulent activity in the account reducing the chances of mishaps.
Besides the customers, banks offering internet banking also get tremendous benefits by providing e-banking services to the customers. Internet banking is most cost effective for the banks as it reduces the physical traffic at the banks, and thus the related administrative costs, paperwork for every transaction etc. Banks too get the credit for serving thousands of customers simultaneously, all over the world which indirectly increases the profit margins significantly. Lowered operating costs, can make banks to reduce the interests rates on loans and increase rates on savings, which may subsequently benefit the customers.
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Internet banking – key issues and solutions
Implementing internet banking for a bank is not straight forward as it may need to cross many barriers or obstacles. Now for the first time, internet has arrived as channel for banking, as opposed to branch networks or telephone communications / banking. Internet has created great opportunities for the banks to offer numerous cost-effective and all the time available financial services to their customers. However, it has also increased the risks in financial transactions. Hence, banks need to handle the challenge of using the internet for its purpose, but should avoid the risks involved in it. Apart from the internet as medium for e-banking, there are few other problematic issues in implementation and management of e-banking solutions. The main issues can be –
Few banks still have the traditional structures which lead them not to support the necessary alertness e-banking requires
Employees sometimes are reluctant to change the systems, as they are not well acquainted with these internet technologies and may be facing difficulty to get updated with latest technologies.
Legacy systems create a difficult issue of integrating the older systems with the modern, updated systems.
Project issues or outsourcing problems. Upgrading the existing legacy systems is a must to have a uniform database. However, it is a very complex process requiring a very high level of technical as well as project management skills. Outsourcing of this data conversion is also risky being the financial data.
Regulatory issues. As the internet banking deals with international businesses. However, every country has different laws and regulations regarding the business as well as for financial services. It can be a major cause of having a problem in expanding the e-banking solutions at the international level.
Various security issues – e-banking needs to face various threats such as login detail disclosure, dummy websites, computer spy viruses, man in the middle attacks, and so on. In login detail disclosure, the criminals try to acquire the login details of the customer and use it to steal the money from the account. By keeping login details most safe by the customers, this risk can be avoided. Sometimes, criminals create a website very similar to the bank website. When the customers try logging on it, the login details are recorded and further used in operating the actual account by the criminals. Spy viruses are circulated through emails or other means. When the customer opens this email, the virus program residing with it, can get the details such as login id and other financial data stored on the computer or when used it. The ‘man-in-the-middle’ is a kind of virus attack in which the cyber criminal channels the legal or financial communication between the bank and the customer through a fake website, without any notice of both the parties. The criminal thus convert the important login details and other financial details to the fake website at the middle of a transaction.
Thus, e-banking needs to seriously define and develop the strategies to enable them to solve these issues by maintaining the security and build best practices into the system so that to enjoy the opportunities offered by the internet. Of course, a single strategy may not work for every bank and the same strategy may not work for a longer time. It has to be flexible enough so that can be changed periodically and according to the needs arrived. Banks can be more creative in rebuilding the organizational structure as well as to management processes, so as to fulfill the demand of internet banking. Banks can take advantage of the opportunities offered by the internet by using their imagination, showing some courage and by taking decisive actions. To maintain the security and avoid various virus attacks, several counter measures can be applied. Powerful anti virus solutions, digital certificates can be used to protect from phishing etc.
Security precautions in e-banking
Security takes major role in case of internet banking. By taking proper care, the bank as well as the customers can fully enjoy the benefits of internet banking.
Internet bank customers should never share the important banking information such as login id, password, PIN, security keywords etc. in any case. Login id and password should not be written or stored at one place in any case. It’s a good idea to memorize the password and then destroy the written copy. The PIN or banking password should be changed immediately after first use.
It’s a good practice to change the PIN as well as internet bank account passwords on regular basis. The password should be alphanumeric, should not be easy to guess, and should avoid using names and birthdays of kids or of spouse or telephone numbers.
One should not use the same password for several internet banking accounts, if any.
Once finished with the internet banking operations, log out properly and close the browser window to ensure that the session is properly terminated..
Use of internet banking on public computers or on unsecured wi-fi systems should be avoided.
Never leave the computer unattended while using internet banking.
The cyber criminals may send emails to get the banking details. Never reply to such emails.
To avoid phishing attacks, always check the bank’s website for the genuine URL, before logging in. a secured website contains ‘https’ and not ‘http’. The alphabet-‘s’ at the end, indicates the website is secured. Verify the padlock symbol appearing in the status bar or address bar, which ensures the security certificate.
Always type the web address of the bank’s website, never click on the link sent by somebody in the email.
Many banking websites provide the information such as – ‘Your previous site visit’, ‘Your last failed login attempt’, and ‘Your previous transaction’. It’s a good security precaution to check these details, whenever you log in. If any irregularity is observed, it should be brought into the notice of the bank very immediately.
By checking regularly for security updates, keep the system up to date. Always ensure that the operating system has all the security patches installed and updated.
Follow the time-to-time security instructions given by the bank. Use of virtual keyboard provided by the bank should be used as the characters typed by them are not identified by the hackers. SMS alerts may also make the customers aware of transactions taking place in the customer’s bank account.
These few simple tips can prevent the bank as well as the customers from falling into the trap of cyber criminals.
Future of e-banking
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