CONCEPT OF INTERNET BANKING

2.1 Concept of Internet Corporation

"A Internet corporation is a temporary network of independent company’s

suppliers, customers by information technology to share skills, costs, and

access to one another's markets. This corporate model is fluid and flexible- a

group of collaborators that quickly unite to exploit a specific opportunity.

Once the opportunity is met, the venture will, more often than not, disband. In

the concept's purest form, each company that links up with others to create a

Internet corporation contributes only what it regards as its core competencies.

Technology plays a central role in the development of the Internet

corporation. Teams of people in different companies work together,

concurrently rather than sequentially, via computer networks in real time." 16

The Internet corporation to be a 'must have' road map for every corporation

that will soon find itself, its members and most importantly, its customers,

living, working and shopping in a Internet world.17

Why there is a need to build a Internet Corporation:18

16

Research article A concept for supporting the formation of Internet corporations through negotiation by

Boris Kotting published in (WET ICE ‘99) , pp 40

17

Book, The Internet Corporation: Structuring and Revitalizing the Corporation for the 21st Century

byWilliam, H.Davidow, pp 23

18

Book The Complete idods guide: Ecommerce

Do we really need to build Internet Company? Let’s turn the question around

and state it as “Do we really need to invest money to reduce our cost?”

Believe it or not the answer is often “no”. There will be thousands of business

next year that will spend more on e-commerce than they will ever receive

back in profit. Many of these companies would be better off financially if they

invested their money and focused their operations on tasks that provide the

greatest return on investment. However there are hundreds of thousands of

companies that can redirect staff towards value added tasks, such as sales

through the greater use of automation. They can also reach new customers in

other locales or more effectively communicate with their existing customer by

using the virtual.

Role of information and communication systems in Internet corporations is

highly significant. The demands made on information technology for

supporting company networks are characterized by attempts at integration.

Electronic interoperation is supported by three pillars- Automation of

information flow and the elimination of media break ,the interchange of

unstructured data, the linking of several local area networks into wide area

networks.

There are five basic dimensions that organizations can virtually organize and

each dimension is a continuum from physical to virtual.

Location

Organizational interfaces or boundaries

Organizational processes

Organizational structures

Products / services

Benefit of virtuality:19

The benefits of Internet organizations include the

following:

Reduced operational costs. Reduced costs of providing information. A global

presence (accessible anywhere). Always open for business (accessible

anytime; Projects can be staffed with people based on competency regardless

of their physical location; People can connect with each other regardless of

time, space, or Organizational boundaries; Localized skills shortages can be

overcome.

Force Driving the Internet Corporation: 20

The first and foremost is Economics. The need for greater productivity per

employee, the reduction in capital available to corporations, and the arrival of

hungry new competitors. Big companies used to live off their fat in the lean

times. Lean is in, lean is good. Second force is Ecology i.e. Statutory need to

reduce the numbers of commuters into our city cores, to reduce automobile

pollution and to reduce the demand for ever more transportation capacity.

Internet offices, along with telecommuting, van pooling, transit vouchers, are

19

Book The Complete idods guide: Ecommerce 20

Book The Complete idods guide: Ecommerce

all attempts to deal with the environmental impact of millions of people

swamping our cities. The last but not the least is Technology. New

technologies have focused on management, marketing, sales, and white collar

technology. Technology enables the Internet corporation.

Role of information and communication systems in Internet corporations is

highly significant. The demands made on information technology for

supporting company networks are characterized by attempts at integration.

Electronic interoperation is supported by three pillars Automation of

information flow and the elimination of media break ,the interchange of

unstructured data, the linking of several local area networks into wide area

networks.

2.2 Concept of Internet Banking

The concept of virtualization play a vital role to transform banking industry

from paper banking to paperless banking which will majorly benefit the

customers of banking industry. Internet Banking works as a milestone to

achieve the customer satisfaction towards the services provided by

commercial banks.

Internet Banking is a type of banking which allowed customers to access their

financial and banking services via internet world wide web. It’s called a

Internet Banking because a Internet bank has no boundaries of brick and

mortar and exists only on the internet. With cybercafés and kiosks springing

up in different cities, access to the Internet Banking is going to be easy.

Internet Banking is a development of computer banking format that is rapidly

growing in popularity. It is not restricted to a specific computer, as there is no

need for the customer to have any financial software program installed on the

computer in order to conduct banking over the internet. Instead of establishing

a direct link between the customer’s own pc and the bank via a modem, the

World Wide Web is used as a distribution and communication channel to the

bank. This implies that Internet Banking may be cost-efficient and a

convenient banking format for many customers. It can be expected to generate

its main benefits from retail services such as short-term lending, deposits, cash

management including card payments, pre-scheduled payments for electricity,

insurance, housing, etc. In those cases, traditional manual operations within

the bank are being replaced by online ones performed by the customers

themselves.

Dr. Edward P. Shea define in there article Rethinking CRA in a technological

age21

that “Internet Banking is a term that suggests the ultimate state of

technological equilibrium in banking. That is the point at which banking as an

industry transcends mere physical presence and home-office size as a measure

of capability—the art and science of being everywhere at the same time. As

banks get bigger and more virtual, their markets will get more diffuse, harder

to pin down, and less well identified with neighborhoods or communities.”

21

Edward P. Shea, “Rethinking CRA in a technological age,” CRA Bulletin, Vol. 5, No. 3, 1995

Professor V. Shankar and his associates define in their article Customer

satisfaction and loyalty in online and offline environments.22

that “Indian

Banking Industry today is in the midst of an IT revolution. Nearly, all the

nationalized banks in India are going for information technology based

solutions. The application of IT in Banks has reduced the scope of traditional

or conventional banking with manual operations. Nowadays banks have

moved from disbursed to a centralized environment, which shows the impact

of IT on banks. Banks are using new tools and techniques to find out their

customers need and offer them tailor made products and services. The impact

of automation in banking sector is difficult to measure.”

The article titled as Core Banking Solution for Banks-The Indian Experience

by A K Mohanty23

highlights that the usefulness of Core Banking Solutions

(CBS) as a single channels enabler for banks as providers for all their products

such as ATM, debit cards, Telebanking, Internet Banking etc., as well as other

important functions. In spite of this some banks have failed to implement CBS

for fear of the complexities and cost involved.

22

V. Shankar, A. K. Smith, A. Rangaswamy: Customer satisfaction and loyalty in online and offline

environments, Intern. J. of Research in Marketing, Vol. 20 pp. 153-175, 2003 23

IUP Journal May-June 2005

2.3 Types of Internet Banking

Banking industry is continuously increasing their product day by day, by

which banks are transfering from real to Internet very speedily. Banks divided

Internet Banking products into 3 types based on the levels of access granted.

They are:

2.3.1 Information Only System:

This type of banking provides 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.

2.3.2 Electronic Information Transfer System:

In this type of banking 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.

2.3.3 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 covering Computerization,

Networking and secure payment gateway. Internet Banking, ATM, Phone

Banking, Mobile Banking, Smart Cards, are the types of fully electronics

transactional system.

Internet Banking: Tremendous growth of Internet during the mid- nineties

prompted banks to utilize Internet as a medium for offering banking services.

Internet Banking involves consumers using the internet to access their bank

account and to undertake banking transactions. At the basic level, Internet

banking can mean the setting up of web page by bank to give information

about its product and services. At an advance level, it involves provision of

facilities such as accessing accounts, fund transfer, and buying financial

products or services online. This is called “transactional” online banking.

There are two ways to offer of Internet banking. First, an existing bank with

physical offices can establish a website and offer Internet banking in addition

to its traditional delivery channels. Second, a bank may be established as a

“branchless, Internet only or Internet bank” without any physical branch

ATM: Automated Teller Machine or automatic teller machine also known as

automated banking machine (ABM), cash machine, cash point is a

computerized telecommunication device that enables the customers of bank to

perform banking transactions without the need of cashier, human clerk or

bank teller. On the most modern ATMS customer identified by inserting a

plastic ATM card with magnetic strip or a plastic smart card with a chip that

contains 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. Use of Automated teller machines has been a

tremendous rise in the past few years in India “Automated teller machines are

computerized Telecommunications device that provides customers of a

financial institution with access to financial transactions in public place.” 24

The best part about this Internet Banking is it access of 24 hours and 7 days.

There are many research in past few year related with customer perception

towards ATM services in India and in world shows that ATM is one of the

most convenient way of banking for withdrawal money, deposit money,

collect statements. Customers visiting will reduce by an estimated 80% which

will result in huge savings in the employee- related cost for the banks. The

cost incurred in servicing customers through ATM is 1/3rd

of the cost incurred

if the same customer were to be served personally through the branches of the

bank.

24 www.worldbank.org/indicator/FB.ATM

Phone Banking25

: Phone banking is also one of the types of Internet Banking

which has been provided by financial institutions. Telephone banking is a

service that enables customers of the financial institutions to perform financial

transaction over the telephone, without the need to visit bank branch or

automated teller machine. Telephone banking times can be longer than the

branch opening times and some financial institutions offer the services on a 24

hour basis. From the banks point of view, telephone banking reduces the cost

of handling transactions by reducing the need for customers to visit a bank

branch for non cash withdrawal and deposit transactions. To access telephone

banking, the customer would call the special phone number set up by bank,

and enter on the keypad the customer number and password. Some banks have

set up additional securities steps for access, but there is no consistency to the

approach adopted. Most telephone banking services use an automated phone

answering system with phone keypad response or voice recognition

capability. To ensure security, the customer must authenticate through a

numeric or verbal password or through security questions asked by a live

representatives.

Mobile Banking26

: Mobile technology is growing very speedily now a day in

India, it’s very economical and easy to maintain mobile for a person in its

pocket. “According to NDTV India is expected to have close to 165 million

25

www.worldbank.org/indicator/FB.PhoneBanking 26

www.worldbank.org/indicator/FB.MobileBanking

mobile Internet users by March 2015, up from 87.1 million in December 2014

as more people are accessing the web through mobile devices and dongles, a

report by Internet and Mobile Association of India (IAMAI) and IMRB.

According to the report, the number of mobile Internet users increased to 87.1

million by December 2014 from 78.7 million users in October 2014, who

accessed Internet through dongles and tablet PCs.”27

This tremendous growth of mobile users forces banking industry to begin one

another type of Internet baking i.e mobile banking to provide better service for

their customers. The main reason that mobile banking scores over internet

banking is that it enables ‘Anywhere Anytime Banking’. Customers don't

need access to a computer terminal to access their bank accounts, now they

can do so on-the-go while waiting for the bus to work, traveling or when they

are waiting for their orders to come through in a restaurant. it is a way for the

customer to perform banking actions on his or her cell phone or

other mobile device. It is a quite popular method of banking that fits in well

with a busy, technologically oriented lifestyle. It might also be referred to as

M-banking or SMS banking.

In mobile banking some banks offer only the option of text alerts, which are

messages sent to your cell phone that alert you to activity on your account

such as deposits, withdrawals, and ATM or credit card use, this is a basic type

27

http://gadgets.ndtv.com/mobiles/news/165-million-mobile-internet-users-in-india-by-march-report-

312466

of mobile banking. A more involved type of mobile banking allows the user to

log into his or her account from a cell phone, and then use the phone to make

payments, check balances, transfer money between accounts, notify the bank

of a lost or stolen credit card, stop payment on a check, receive a new PIN, or

view a monthly statement, among other transactions. This type of banking is

meant to be more convenient for the consumer than having to physically go

into a bank, log on from their home computer, or make a phone call. While all

of this is true, some are concerned about the security of mobile banking.

2.4 Constraints in Internet Banking

Although there are obvious benefits in Internet Banking, there are some

hurdles in the smooth implementation of Internet Banking.

1. Start-up cost: The initial start-up cost for venturing in to Internet

Banking is on the higher side and in includes the following:

Connection cost to the internet or any other mode of electronics

communication.

Cost of sophisticated hardware, software and other related

components like modem, router, bridges, network management

system etc,

Cost of maintenance of all equipment, web sites, skill level of

employees.

Cost of setting up organizational activities

2. Training and maintenance: The introduction of Internet Banking

involves 24 hours support environment, quality service to end users and

other partners which would necessitate a well qualified and robust group

of skilled people to meet external commitments. Hence the bank has to

spend lot training.

3. Lack of skilled Personnel: It is well known fact that there is an acute

scarcity of web developers, content providers and knowledgeable

professional to route banking transactions through internet.

4. Security: In paperless banking transaction, many problems of security

are involved. A security threat is defined as a circumstansive decision or

event with potential to cause economic hardship to data or network

resources in the form of destruction, disclosure, modification of data,

denial of services, fraud, waste and abuse. There are chances that the

documents such as cheque, passbook, can be modified without leaving

any visible trace. Distortions of information are also possible. Providing

appropriate security many require a major initial investment in the form

of application encryption which requires a major of firewalls etc., In

spite of implementation of several security measures, the possibility of

security breach cannot be ruled out.

5. Legal Issue: Legal framework for recognizing the validity of banking

transaction conducted through the ‘net’ is still being put in place.

Though initial legal framework has been devised for e- banking

activities, it is uncertain as to what possible legal issues may pop up in

future as banking on Internet progress.

6. Restricted clientele and technical problem: The user of Internet

Banking needs a computer and time to go on to the site, which means

that the target clientele is restricted to those who have home PC or can

access the ‘Net’ through the office or cybercafé. Moreover technical

constraints due to telephone connectivity, modem connections etc. may

cause constraints.

2.5 Concerns About Internet Banking28

Since the usages of Internet Banking not restricted in any specific customers

the concept involved in many different areas, so that use of Internet Banking

has brought many concerns from different perspectives: government,

businesses, banks, individuals and technology.

From a government point of view, the Internet Banking systems pose a threat

to the antitrust laws. Internet Banking also arouse concerns about the reserve

requirements of banks, deposit insurance and the consumer protection laws

associated with electronic transfer of money. The Indian Government is

28

Vulnerabilities in e-banking: A study of various security aspects in e-banking - Tejinder Pal Singh Brar

, International Journal of Computing & Business Research Proceedings of ‘I-Society 2014,ISSN

(Online): 2229-6166

concerned with the use of high quality of encryption algorithms because

encryption algorithms are a controlled military technology.

Businesses also raise concerns about this new media of interaction. Since

most large transfer of Money is done by businesses, these businesses are

concern about the security of their money. At the same time, these businesses

also consider the potential savings in time and financial charges (making cash

deposits and withdrawals which some banks charge money for these

processes) associated with this system another businesses concern is

connected to the customer. Businesses ponder the thought that there are

enough potential customers who would not make a purchase because the

business did not offer a particular payment system (e.g. electronic cash and

electronic check). This would result in a loss of sales. On the other side of the

coin, if this system becomes wide spread, this would allow more buying

power to the consumer which puts pressure on businesses to allow consumers

to use electronic transfer of money.

Banks are pressured from other financial institutions to provide a wide range

of financial services to their customers. Banks also profit from handling

financial transactions, both by charging fees to one or more participants in a

transaction and by investing the funds they hold between the time of deposit

and the time of withdrawal, also known as the “spread”. With more financial

transactions being processed by their central computer systems, banks are also

concern about the security of their system.

Individuals are mainly concern with the security of the system, in particular

with the unwarranted Access to their accounts. In addition, individuals are

also concern with the secrecy of their personal information. 82 percent of

Indian poled expressed concern over privacy of computerized data. As more

and more people are exposed to the information superhighway, privacy of

information and the security that goes hand and hand with this information is

crucial to the growth of electronic transactions. Some privacy technologies

related to the electronic banking industry are electronic cash and electronic

checks.29

2.6 Security Concern in Internet Banking

“The security of information may be one of the biggest concerns to the

internet users. For Internet Banking users who most likely connect to the

internet via dial-up modem, is faced with a smaller risk of someone breaking

into their computers. Only organizations such as banks with dedicated internet

connections face the risk of someone from the internet gaining unauthorized

access to their computer or network. However, the electronic banking system

29

Basic Reflections on Security. Http://www.esd.de/eng/secu/secu.htm#10

users still face the security risks with unauthorized access into their banking

accounts.” 30

In order to provide effective and secure banking transactions, the following

major controls must be ensured.

Authenticity controls: To verify identity to individuals like password,

pin etc.

Accuracy control: To ensure the correctness of the data, following

across the network

Completeness control: To make sure that no data is missing

Redundancy controls: To see that data is traveled and processed only

once and there is no repetitive sending of data

Privacy control: To protect the data from inadvertent or unauthorized

access.

Audit trail controls: To ensure keeping chronological role of events that

are occurred in the system,

Existence controls: To make sure that ongoing availability of all the

system resources with the same throughout.

Efficiency: To ensure that the system uses minimum resources, to

achieve the desired goal.

30

See Kit Burden, “Insurance of E-commerce Risks” [2000] I.C.C.L.R. Issue 2.

Firewall controls: To prevent unauthorized users accessing the private

network, which are connected to Internet.

Encryption controls: To enable only those who possess secret key to

decrypt the cyber text.

2.7 Benefits of Internet Banking

Advantages previously held by large financial institutions have shrunk

considerably. The internet has level led 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 'brochure

ware' 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:

• Improve customer access

• Facilitate the offering of more services

• Increase customer loyalty

• Attract new customers

• Provide services offered by competitors

• Reduce customer attrition

There are many different views given by educator related with the benefits of

Internet Banking system.

Dr. Mishra A. K. described31

that the Internet Banking is a cost-effective

delivery channel for financial institutions. The author also describes the

advantages of internet banking, current status of Internet Banking in India,

and the mechanism to protect the customer’s data. The advantages of internet

banking are:

To improve customer access; to facilitate more services; to increase customer

loyalty; to attract new customers; to provide services offered by competitors;

to reduce customer attrition.

Prof Geetika discussed32

the concept of Internet Banking, perception of

Internet bank customers, non-customers and issues of major concern in

Internet Banking. The state of Internet Banking in India has been explored

using various concepts like E-banking scale, and gap analysis related to the

various services and the security features offered. In order to have a clear and

focused insight about the perceptions of users (and non-users) about Internet

Banking a survey was conducted. The findings of the survey provide valuable

31

Mishra A. K., “Recent Trands in Internet Banking” International Journal of Research and Management,

issue I Dec 12. 32

Geetika, Nandan Tanuj, Upadhyay Ashwani , “Internet Banking in India: Issues and Prospects”, The

ICFAI University Journal of Bank Management, Volume-VII Issue 2 (May 2008) pages: 47-61

insights into concern for security, reasons for lower penetration, and likeliness

of adoption, which have been used to make useful recommendations.

2.8 Future Scope of Internet Banking

As the saying goes, change is the only certainty. And it is this change that

would govern the banking industry, which is graduating from financial

intermediary into risk intermediary. The repetitive and overlapping systems

and procedures have given way to simple key-press technology, ensuring

accuracy and speed of data flow to improve overall efficiency through

Knowledge Management. The emerging Information Technology (IT)

facilitates in utilizing Knowledge Management effectively and efficiently to

improve both product range and service quality in the banking sector.

Definitely by 2020, the vast and enormous differences in the ambience

presently noticed between public sector banks and the new generation private

sector as well as foreign banks would be noticeably narrowed down. But the

dominance of public sector banks, which accounts for nearly 80% share in the

banking sector, is likely to reduce considerably by 2020.

Technology has played a vital role in the evolution of banking sector, through

speed creation, accuracy and efficiency of operation and reduction in the

transaction cost. Banking services are now oriented to anyhow, anywhere,

anytime and any type banking.

Bank would ready with so many new technology which will going to be

applies in future banking industry.

Biometric ATM

We all know about ATM's that accept our credit/debit card and the PIN

number to dispense cash. Biometric ATM's are the latest inventions to help us

avoid fraud and duplication. If somebody steals our card and also knows our

PIN they can easily withdraw cash from our account. In case of biometric

ATM's they cannot. Usually the PIN for bio ATM's is the finger print of the

card holder or his eye retina scan etc. These cannot be duplicated and hence

they are very safe and secure. But they are very costly when compared to

traditional ATM machines and hence they are not very widely used now a

days but future banking will defiantly go with biometrix Banks are more

focused to put these ATMs in rural areas because biometrics makes it

possible for the low literacy population to use banks. With the development

of biometric solutions for the ATMs there is no need to remember PIN

numbers. Software vendors are coming up with finger print solutions for the

rural masses. Chennai based Financial Software and Systems (FSS) has

recently launched its Biometric ATM Interface Solution (BAIS) that enables

connectivity of ATMs with biometric support to Electronic Financial

Transaction (EFT) switches. Elaborating on the working of the biometric

solutions, G. P. Shekar, Head - Consulting Practice, Financial Software and

Systems (P) Ltd. says, Customers opting for biometric authentication can visit

a nearby kiosk or ATMs or bank, where his finger-print data would be

scanned into a special PC with a finger-print scanner and the scanned

fingerprint is then stored in an encrypted form in a central server. When a

customer inserts (or swipes) his card in a biometric enabled ATM, he is

prompted to set his finger in the fingerprint scanner. The transaction along

with customer’s biometric information is passed on to the switch. The switch

verifies the fingerprint with the server, and if successful, requests the banking

application to authorize the transaction. Based on the result, the Switch

instructs the ATM to complete the transaction. FSS’ BAIS solution meets this

requirement, by performing requisite message translations as well as

confirming authorization.

M-Pesa (M for mobile, pesa is Swahili for money):

M pesa is a mobile phone based money transfer and micro financing service,

which allows users with a national ID to use their money easily with a mobile.

Vodafone is expected to launch M pesa in India, in association with ICICI &

HDFC bank.

Mobile Payment

As much as mobile banking may please or even delight customers, most banks

have discovered that on its own, mobile banking is not really a moneymaker.

That’s where mobile payments come in. While mobile banking, much like

online banking before it, is generally offered for free, banks have an

opportunity to impose fees for mobile payments, particularly if they’re

performed in an expedited fashion. Now is the time to move in that direction.

“It is imperative that the financial services industry move beyond the confines

of mobile banking in order to fully realize the potential of the medium,” noted

Tower Group in an August report. The industry is just in the beginning stages

of untangling the bewildering array of options for supporting mobile

payments. So far, the Financial Services Technology Consortium has

identified about two dozen mobile payment options that it thinks have

potential. Says Lloyd L. Hamm Jr., chief administration officer of the $6.6

billion Boston-based Eastern Bank, “It’s the wild, wild West out there right

now. Everyone thinks they have the next best solution.” That complexity is

not proving to be a deal breaker. According to the Independent Community

Bankers of America’s 2009 payments study, nearly half (47%) of community

banks with more than $500 million of assets plan to offer mobile payments by

2011. Even the smallest banks are getting into the act. Seventeen percent of

banks with less than $100 million in assets expect to offer mobile payments.

CHAPTER 3