Internet Banking

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Electronic copy available at: http://ssrn.com/abstract=2074321 1 | Page E-BANKING IN INDIA: A COMPARATIVE STUDY Dr. Tapas K. Bandhyopadhyay 1 , Gargi Rajvanshi 2 , Indrajit Dube 3 E-Banking in India opened up with the liberalization in 1991 that marked the entry of foreign banks. They brought new technology with them. Banking products became more and more competitive. Hence, a need for differentiation of products and services was felt. The ICICI Bank had started online banking in 1996. Currently, 78% of its customer base is registered for online banking. E-delivery channels has been used for Banking services and products, which has become increasingly popular in recent years. E-banking makes it possible to offer banking services around the world 24 hours a day. The Dependence on Technology with the necessary security and the cross border nature of transactions, involves additional risks for banks and new challenges for banking regulators and supervisors. This paper analyses the following issues : Development of E-banking, Proper Regulatory and supervisory authorities for E-banking, Position of E-banking in India and its comparison with that of USA, Malaysia and other well developed countries to draw out the fact with what is the status of e-banking in India, how we are going on, where we are lacking behind, causes for the problem and how things can be improved further for the efficient working of electronic banking in the larger interest of consumers as well in the interest of economy as a whole. Key Words: E-Banking, Regulatory System, Consumer, Economy, Technology 4 It was in early 90’s when the technology regarding computer and computer informatics come to the country. With this, a debate has been started to introduce these technological mechanism in every service provider sector may it be Telecom, Insurance and most importantly the Banking Between,1996 to 1998 this marked the adoption phase, while usage increased only in 1999, owing to lower ISP online charges, increased PC penetration and a tech-friendly atmosphere. 1 Assistant Professor, Rajiv Gandhi School of Intellectual property Law, Indian Institute of Technology, Kharagpur (W.B.) [email protected] , Mobile number: +91-9475658924 2 PhD Research Scholar, Rajiv Gandhi School of Intellectual property Law, Indian Institute of Technology, Kharagpur (W.B.) [email protected] , Mobile number: +91-9378438577 3 Assistant Professor, Rajiv Gandhi School of Intellectual property Law, Indian Institute of Technology, Kharagpur (W.B.), 4 Chinmay Sangoram ,E-Banking: An Overview. Available online at http://www.slideshare.net/cssangoram/e- banking , [accessed Dec 2010]

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internet banking in india

Transcript of Internet Banking

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E-BANKING IN INDIA: A COMPARATIVE STUDY

Dr. Tapas K. Bandhyopadhyay1, Gargi Rajvanshi2, Indrajit Dube3

E-Banking in India opened up with the liberalization in 1991 that marked the entry of foreign

banks. They brought new technology with them. Banking products became more and more

competitive. Hence, a need for differentiation of products and services was felt. The ICICI Bank

had started online banking in 1996. Currently, 78% of its customer base is registered for online

banking.

E-delivery channels has been used for Banking services and products, which has become

increasingly popular in recent years. E-banking makes it possible to offer banking services

around the world 24 hours a day. The Dependence on Technology with the necessary security

and the cross border nature of transactions, involves additional risks for banks and new

challenges for banking regulators and supervisors. This paper analyses the following issues :

Development of E-banking, Proper Regulatory and supervisory authorities for E-banking,

Position of E-banking in India and its comparison with that of USA, Malaysia and other well

developed countries to draw out the fact with what is the status of e-banking in India, how we

are going on, where we are lacking behind, causes for the problem and how things can be

improved further for the efficient working of electronic banking in the larger interest of

consumers as well in the interest of economy as a whole.

Key Words: E-Banking, Regulatory System, Consumer, Economy, Technology

4

It was in early 90’s when the technology regarding computer and computer informatics come to

the country. With this, a debate has been started to introduce these technological mechanism in

every service provider sector may it be Telecom, Insurance and most importantly the Banking

Between,1996 to 1998 this marked the adoption phase, while usage increased only in

1999, owing to lower ISP online charges, increased PC penetration and a tech-friendly

atmosphere.

1 Assistant Professor, Rajiv Gandhi School of Intellectual property Law, Indian Institute of Technology, Kharagpur (W.B.) [email protected], Mobile number: +91-9475658924 2 PhD Research Scholar, Rajiv Gandhi School of Intellectual property Law, Indian Institute of Technology, Kharagpur (W.B.) [email protected], Mobile number: +91-9378438577 3 Assistant Professor, Rajiv Gandhi School of Intellectual property Law, Indian Institute of Technology, Kharagpur (W.B.), 4 Chinmay Sangoram ,E-Banking: An Overview. Available online at http://www.slideshare.net/cssangoram/e-banking , [accessed Dec 2010]

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sector. As a result, lots of efforts were made by the government in the banking sector and finally

in year 2000 it became possible to inaugurate the E-Banking in the Indian Banking System.

Though as far as the International scenario is concerned, Estonia5

With this we will be giving our core attention to a study which compares the establishment and

functioning of E-banking in India with that of the other developed countries which make us easy

is internationally renowned

for being a pioneer in the adaptation to new banking technologies.

Thus, it can be made very clear that introduction of E-banking concept in the Banking field is not

only to facilitate the transactions of the customers through the banking means but also in

expanding their economic interests through an advanced technologically equipped medium. India

never remains an exception in adopting new and well advanced technologies in every sphere be

it polity, social, economic and others. Though somehow late, but India has also adopted E-

Banking in its Banking Sector as a means of making its Banking Sector more and more

professional, reachable and feasible at par with the world.

INTRICACIES IN E-BANKING

The beginning of the Information Technology age has been motivational for the business

environment and breaking out innovative and unconventional ways of doing transactions,

communications business and other transaction through electronic mode. One of the latest

outcomes of this E-transaction is E-Banking. Banking sector has been reengineering it to adopt

the change and to be in the race of globalization. Thus it has become imperative for the banking

industry to better gauge the E-Banking phenomenon. This study painstakingly attempts to

bestow the process of utilizing E-banking in India under the questions:

1) To know about E-banking

2) To analyze the position of E-banking in India

3) To compare position of India with that of USA and Malaysia as to E-Banking

4) To find out the ways and methods to make E-Banking more advantageous, workable,

effective, transparent as well as industrious.

5 African Journal of Business Management Vol.3 (6), pp. 248-259, June 2009,Available online at http://www.academicjournals.org/AJBMISSN 1993-8233 , [accessed Dec 2010]

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to find out that where we people are lacking and what would be the factors to remove loopholes

from Indian E-banking service.

WHAT IS E-BANKING ALL ABOUT:-

Online banking allows people access all of their account through a secure bank-created website.

Depending on the services chosen, a customer may simply be able to view the day-to-day

activity of every account they have with a bank.6 E-banking means any user with a personal

computer and a browser can get connected to his bank’s website to perform any of the

virtual banking functions.7 In internet banking system the bank has a centralized database that

is web-enabled. All the services that the bank has permitted on the internet are displayed in

menu. Any service can be selected and further interaction is dictated by the nature of service.

The traditional branch model of bank is now giving place to an alternative delivery channels with

ATM network.8

6 Your Source of knowledge.2009.The Pros and Cons Of Online Banking. Available at

Once the branch offices of bank are interconnected through terrestrial or satellite

links, there would be no physical identity for any branch. It would a borderless entity

permitting anytime, anywhere and anyhow banking.

The network which connects the various locations and gives connectivity to the central office

within the organization is called intranet. These networks are limited to organizations for which

they are set up. SWIFT is a live example of intranet application.

ELECTRONIC BANKING IN INDIA: A REGULATORY PERSPECTIVE

Before dealing with the position of Internet banking in India we have to keep one thing in our

mind clearly that Internet banking is a part of E-banking. E-banking is genus and Internet

Banking is its species. The Reserve Bank of India has constituted a working group on Internet

Banking. The group divided the internet banking products in India into three types based on the

levels of access granted.

http://www.essortment.com/pros-cons-online-banking-28443.html [accessed Dec 2010] 7 Economy Section. Internet Banking (E-Banking).Available at http://www.worldjute.com/ebank.html [accessed Dec 2010] 8 Andrea Schaechter, 2002. Issues in E-banking: An Overview. Washington D.C. IMF Policy Discussion Paper

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They are: 1) Information Only System 2) Electronic Information Transfer System:

3) Fully Electronic Transactional System9

There are various popular modes through which we can conduct the E-banking process in our

day today life. These models include Automated Teller Machine (ATM), Credit Cards/Debit

Cards, and Smart cards. There are other services as well which a customer can avail through the

medium of E-banking. These services includes Bill payment service, Fund transfer, Credit card

customers, Railway pass

10

E-banking is a generic term for delivery of banking services and products through electronic

channels, such as the telephone, the internet, 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. 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

, Investing through Internet banking, Recharging your prepaid phone

and Shopping etc.

POSITION OF E-BANKING IN INDIA: A CRITICAL ANALYSIS

11. The government of India

enacted the IT Act, 200012

9 Banking. Internet banking (or E-banking).

, which provides legal recognition to electronic transactions and other

means of electronic commerce. The RBI has been preparing to upgrade itself as a regulator and

supervisor of the technologically dominated financial system. It 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.

The existing regulatory framework over banks has also been extended to E-banking. It covers

various issues that fall within the framework of technology, security standards, and legal and

regulatory issues.

http://www.realbanking.blogspot.com/ [accessed Jan 2011] 10 These E-railway pass are available only in some cities. 11 RBI Guidelines on E-Banking. Internet Banking in India – Guidelines .DBOD.COMP.BC.No.130/ 07.03.23/ 2000-01 June 14, 2001 12 Information Technology Act, 2000: Recently got amended in Year 2008.

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As far as the position of E-banking is concerned we will study the position in the following five

heads:

• Feasibility of E-banking in India,

• Challenges before India as to E-banking,

• Future of E-banking,

• Legal Regulatory Framework for E-banking in India,

• A performance charts of E-banking in India through the functioning of ATMs (most

commonly used device of E-banking) an empirical study.

FEASIBILITY OF E-BANKING IN INDIA:-

The red-tapism in public sector banking and lesser consumer base is being attributed to as the

reasons for the Indian banks to enter into the online banking this late. With the rapid

development in the technological infrastructure (security, confidentiality is being mainly referred

to) and the legal framework being better equipped, the online bank has become a feasible mode

of banking in India.

Regulatory framework in India has gone a long way forward, with the Information Technology

Act 2000 attempting to address a number of e-commerce regulatory issues, address the need for

banks to go online and have laid out security measures to be adopted (since online banking is

overlapping with e-commerce on most occasions and having to deal with cross-border

jurisdictions), and with the comprehensive and forward looking guidelines brought out by the

RBI.

Along with the favorable scenario in the techno-legal aspect and the increasing internet

consumer base has taken the trend of online banking from basic information dissemination

service to fund-based transactions on their accounts, hinting at the ample growth prospect of

online banking in India.

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THE CHALLENGES13

• Authorization, means to whom we have to authorize to take care of all the E-banking

activities taking place in the country and how to authorize functioning and legality of E-

banking.

:-

In the Internet banking system, information is considered as an asset and so worthy of protection.

However, the present system of authentication does not address the security aspect in full. This

calls for an urgent need to acclimatize the whole system. According to 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 protection against fraud. Another

major issue is that of Data Protection and the need for a legal and regulatory framework.

Currently, India has no law on data protection. Information security in e-banking present two

main areas of risk: preventing unauthorized transactions and maintaining integrity of customers’

transactions. Data protection falls in the latter. Data protection laws primarily aim to safeguard

the interest of the individual whose data is handled and processed by others. ‘Interests’ are

usually expressed in terms of privacy, autonomy and/or integrity. The Information Technology

Act, 2000 does not address this issue. India should take cue from nations, which have favored ad

hoc enactment of sectorial laws over omnibus legislation. Along with these issues, the

contradictory issues present in the Banking Regulations Act, 1949, the Reserve Bank of India

Act, 1934 and the Foreign Exchange Management Act, 1999 need also to be looked into.

On the technological front the Indian Internet banking system is facing many hurdles. The

problems include operational risks, security risks, system architecture risks, reputational risks

and legal risks. Phishing is another issue that needs attention. Experts suggest that simple rules

such as not sharing login IDs and passwords with anyone, would keep customers safe.

Thus Indian Economy is facing the following major challenges in respect of E-banking:-

• Cross borders E-banking and Supervisory issues,

13 Uppal, R.K. & Jatana, Rimpi, 2007. E-banking in India - Challenges and Opportunities. New Delhi: Eastern Book House.

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• Risk management that includes:-

Optional risk like back door, hijacking sniffing, spoofing to retrieve and use confidential

customer information.

Reputational risk that is if the services given by banks keep on degrading their standards

and status through E-banking mechanism then this reflects upon the overall reputation of

the particular bank.

Legal risk means the risks as to the unawareness of the local laws and rules of the

territories where the banks expend their E-banking network.

Other risks like business risk, liquidity risk, market risk, foreign exchange risk.

• Money laundering.

• Consumer education and protection.

FUTURE OF E-BANKING IN INDIA:-

It would obviously take much time before the online banking could be called a fully alternative

banking mode to the conventional one. Legal and cross-border risks can be avoided through

proper customer identification devices, information screening techniques, periodic reviews on

compliance with various laws, and gaining knowledge of various national laws (applicable) and

guide the customers through their cross-border dealings. The compliance part and policy

regulation part should be assured by the RBI and the need for a data protection law cannot be

denied.

The security issues can be tackled by having the bank's systems technologically equipped to

evade operational and security risks. Reputational risks can be prevented by testing of the system

before implementation, developing contingency plans (to handle system disruptions, system

hackers, security lapses and virus attacks) and creating back-up facilities. Customer education

and awareness also need to addressed, as unless the customers are taken into confidence and

made comfortable with the working of online banking all the technological development will go

in vain.

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LEGAL PROVISIONS DEALING WITH E-BANKING ISSUES

If we are supposed to make a research as to what are those laws which provides a shield or a

Regulatory framework to the concept of banking then there are loads and loads of Legislative

Statutes and rules which governs the process of E-banking. But out of all the existent Laws and

Rules the important which governs the E-banking are following few which are:-

• The Banking Regulation Act, 1949

• The Information Technology Act, 2000

• Reserve Bank of India Guidelines on E-Banking

• Brussels Conventions

Relevant provisions of these Law regarding E-banking:-

As far as Banking Regulation Act 1949 is concerned the following sections deals with the

provisions of Regulation of the Banking Business:-

Section 10-A, 10-B, 10-BB as well as Section 35-A also deals with that how to regulate a

banking concern for the proper function of that concern but these sections do not specifically

mentions the regulation of e-banking business.

Apart from the other Statute which through recognizes the regulation of the E-banking business

is The Information Technology Act, 2000

Section 10, 14 15 16, Section 43 to 47, Section 48 to 61, Section 79 and most importantly

Section 81-A., all these sections deals with the protection of the transactions and processes taken

place through the electronic mode in general. But the only section which deals with the processes

of the E-banking is Section 81-A. Section 81-A deals with “Application of the Act to

electronic Cheque and truncated Cheque.”

But unfortunately the only section which provides for the application of provisions of IT Act,

2000 to the transactions taken place under Negotiable Instrument Act, 1881 has also been

repealed by the recent amendment of year 2008 in The Information Technology Act 2000.

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Thus sketch of the sections gives an insight that though we are have loads of sections in the two

most important Statutes regarding the management and control of the banking establishments as

well as the online transaction managements but all these sections deals with the concept of E-

banking in a very general way.

Thus this shows that Indian Legislature is not having proper mechanism of the statutes which can

give proper management, control and functioning to E-banking. There is an urgent need to have

a law which can easily deal with the process of E-Banking in India.

DATA OF AN EMPIRICAL RESEARCH:-

The Researcher has researched 8 main working branch of Punjab National Bank in the cities of

Meerut and Muzaffarnagar (U.P.)

• Out of that research the following facts come to discern that:-

• Around 400 to 450 transactions are taken place in the ATM booth of the main branch

concern.

• Out of the 400-450 transactions 2 to 3 complaints daily got registered with the concerned

Bank Branch.

• These complains mainly involves the complaint that transaction is not proper through the

ATM machine either the money withdrawn is not received properly or the money

completely not receives but money got debited in the account of the account holder.

• And in a month around four to five complaints got registered where there is complaint

that someone has illegally used the ATM card of the holder and withdraw the money.

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As far as the security of the transactions through ATM machine is concerned, there is a provision

of TXN no. in the ATM machine transactions. This TXN no. keeps on recording each and every

detail of the particular transaction through that ATM machine.

This TXN no. helps the bank to solve the problems coming out of ATM transactions. For

example, if somebody complains to bank that he has withdrawn the money from a particular

ATM machine but money is not actually delivered but there has been a debit from his account.

How does the bank solve such problems? This problem requires the details of the transaction of

the A/c holder Bank. Now the role of TXN no. begins because it is the TXN no. which provides

proper time, proper transaction and other details regarding the ATM card of the holder which

helps the bank to serve his customers query.

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POSITION OF E-BANKING IN OTHER COUNTRIES: - (As to the legal framework)

MALAYSIA14

1. Terms and conditions for the use of internet banking services,

All banking and financial services in Malaysia is regulated by its Central Bank, Bank Negara

Malaysia (BNM). Internet banking was introduced in Malaysia in June 2000 when BNM allowed

the local banks to offer internet banking services in Malaysia. In 2002 the facility was extended

to foreign owned banks as well. As of Jan. 2008, there were 23 banks offering internet banking

facilities in addition to their traditional services. BNM has provided ‘Minimum Guidelines on

the Provision of Internet Banking Services by Licensed Banking Institutions’ (MGIB) 2000

modeled after the BCBS recommendations. BNM defines internet banking as being ‘products

and services offered by licensed banking institutions on the internet through access devices,

including personal computers and other intelligent devices’. Banking institutions are legal

entities licensed under the Banking and Financial Institutions Act (BAFIA) 1989. The aim of

the MGIB is to protect both consumers and the banks themselves from the risks associated with

such banking. The BNM guidelines are systematically structured into 6 chapters dealing with the

types of internet banking sites, oversight, risk management, security, consumer protection,

compliance and other general requirements.

Prior to the offering of internet banking services, BNM requires banks to have a web page to

educate their customers on the various issues including:-

2. The risks involved in using the internet banking, e.g. risk of ‘phishing’ where fraudsters

copy the bank’s website and set up a fake page that appears to be part of the bank’s web

site. A fake e-mail is then sent out with a link to this page which solicits the user’s credit

card data or password.

3. Statement of liability. Customers should be fully aware of their rights and responsibilities

and that they are responsible for their own actions. Banks will be absolved from liability

in the case of disputed transactions arising from the customer’s failure to adhere to these

guidelines. In this context the guidelines specifically provide that “contractual

14 Ahasanul Haque, Arun Kumar Tarofder, Sabbir Rahman and Md Abdur Raquib, June 2009. Electronic transaction of internet banking and its perception of Malaysian online customers, African Journal of Business Management. Vol.3 (6), pp. 248-259

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arrangements for liability should provide for sharing of risks between the banking

institution and the customers. Customers should not be liable for loss not attributable to

or not contributed by them” This is a highly contentious area as banks often contract out

of their liability.

4. That maximum limits may be specified for fund transfers to limit their risks,

5. Advised to read the privacy policy statements prior to providing any personal information

to any third party advertisers or hypertext web links,

6. Educating customers on their role in maintaining security of banking information by not

sharing IDs and passwords with any one, by regularly changing their passwords and

remembering to sign-off.

7. Notification of any variation in terms and conditions,

8. Advise on contractual arrangements for liability arising from unauthorized or fraudulent

transactions, mode of notification, and information relating to lodgment of complaints.

9. A Client Charter on Internet Banking stating the institutions policies, products and

services and commitment to offering quality service.

UNITED KINGDOM15

At present, there is an absence of any legal frame work laying down clear rules as to the

apportionment of liability in the event of any disputed online transactions be it in the event of

fraud or a systems failure or malfunction. In 1986, “Banking Services: Law and Practice” a

Review Committee was set up which published its report in 1989. The Committee was

particularly concerned with customer activated Electronic Fund Transfers (EFT) transactions.

The Committee recommended the adoption of provisions similar to S.83 and S.84 Consumer

Credit Act 1974 that a customer should be liable for losses incurred up to the point where the

customer notifies the bank, subject to a financial limit. The bank would be liable for loss

thereafter. Where gross negligence on the part of either party could be proved, then that party

should be liable for the full amount of the loss. Three different approaches as taken by banks can

be observed. First, terms similar to card transactions i.e. where banks assume liability from the

15 Banking Code, 2008(UK), Available online at http://www.bba.org.uk/content/1/c6/01/30/85/ banking_Code_2008.pdf , [accessed Jan 2011]

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point of notification but with certain limits imposed on the customer. Secondly, banks assume

the entire risk until and unless it can be proved that the customer acted fraudulently or

negligently and thirdly where a bank excludes all liability in case of fraudulent transactions until

they are notified. This has been found to be the most common approach adopted by UK banks.

Although banks are governed by a Banking Code each bank may set its own terms and

conditions on the matter and the customer have no choice but to abide by them or change the

bank.

S. 2 of the new Banking Code 2008 (the Code) includes key commitments requiring banks to

treat customers fairly.

S.12 of the code gives customers the most up to date information on how to protect their

accounts from fraud.

S.12.13 Liability is outlined as :- Unless, you have acted fraudulently or without reasonable care

(for example by not following the advice in section 12.9), you will not be liable for losses caused

by someone else which take place through your online banking service. The burden is on the

customer to take all reasonable precautions and show that all instructions given by the bank had

been complied with. However there are still grey areas that need to be resolved.

AUSTRALIA16

• Relate to forged, faulty, expired or cancelled access methods;

The Electronic Funds Transfer Code of Conduct (Revised 2002) (the Code) operative since

April 1st 2002, provides best practices for consumer protection in a technology neutral form for

users of electronic banking and payment products. The Code is voluntary, but once adopted by a

bank it becomes contractually binding upon the banks and financial institutions. The Code sets

out detailed rules regarding allocation of liability in cases of losses from unauthorized

transactions. It takes a tiered approach to allocation of liability. Clause 5.2 of the Code provides

that the account holder will not be liable for losses that are caused by the fraudulent or negligent

conduct of the employees or agents of the account institution;

16 Review of Electronic Funds Transfer, Code of Conduct by the Australian Securities and Investment Commission (ASIC) 2007/08. Consultation Paper 90 released on 3 Oct. 2008. Available online at:- http://www.asic.gov.au/asic/pdflib.nsf/Lookup ByFileName/CP-90-Review-of-Electronic-Funds-Transfer-Code-v1.pdf/$file/CP-90-Review-of-Electronic-Funds-Transfer-Codev1.pdf , [accessed Jan 2009]

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• Occur before the device or code has been received by the user, where a code or device is

required for the user to use the access method; or

• Caused by the same transaction being incorrectly debited more than once to the same

account

Clause 5.3 also provides that the account holder will not be liable for losses resulting from

unauthorized transactions that occur after the account holder has notified the financial institution

of the loss or theft of any security code or device forming part of the access method. Financial

institutions have a duty to provide an effective and convenient method of notification.

Clauses 5.5 and 5.6 set out circumstances where the account holder will be held responsible:-

• Where the account institution can prove on a balance of probability that the user’s fraud

or the breaching of certain security requirements by the user contributed to the loss.

• Where the account institution can prove on a balance of probability that the user

contributed to the loss by unreasonably delaying the notification of the loss, theft, misuse

etc. of the security code.

• Where a secret code is required to perform the transaction and neither of the first two

circumstances applies, the account holder is liable up to a limit of $150/- of the losses.

This thus provides a no fault approach within limits.

In cases of systems failure Clause 6.1 of the Code provides that the account institutions will be

liable to their users for loss caused by the failure of an institution system or equipment to

complete the transaction accepted by the institution in accordance with the user’s instructions.

Further, by Clause 6.2, an institution cannot deny its liability for a systems failure i.e. it cannot

contract out. Again Clause 8.2 provides an institution cannot avoid its obligation by reason of

the fact that they are party to a shared EFT system. This requires account institutions to secure

back to back indemnity agreements.

The EFT Code is currently under review by Australian Securities and Investment

Commission (ASIC).

There is currently a cause of action that allows people to recover payments made under a mistake

of fact.

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The law on mistaken payments following decisions in David Securities v Commonwealth

Bank of Australia and Australia17 and New Zealand Banking Group Ltd v Westpac

Banking Corporation18

• A mistaken payment is recoverable since the recipient is unjustly enriched

may be summarized as follows:

• In order to establish a prima facie right to recovery, the plaintiff must show that the

payment was made because of a mistake

• It is then up to the defendant to establish reasons why the payment should not be

returned.

Applying this law to the case of an electronic payment, a payment has been made under a

mistake of fact to a person who would not have been paid but for the mistake. As a consequence,

the payer has a prima facie right of recovery.

USA19

This receipt is your record of transfers initiated at an electronic terminal. You can compare this

receipt with your periodic bank account statement, which must show electronic fund transfers to

and from your account, including those made with an ATM or debit card, by a pre authorized

E-Banking and Consumer Protection

The Electronic Fund Transfer Act (EFTA) is the major federal consumer protection law covering

electronic banking transactions. It covers most electronic fund transfer (EFT) products and

services associated with a consumer bank account, such as ATM and debit cards and computer

banking.

Under the provisions of Federal Reserve Board Regulation E (Electronic Fund Transfers), which

implements the act, when you use an ATM card to withdraw money from or make deposits to

your bank account, or use a debit card at a point-of-sale (POS) terminal to pay for a purchase

with money from your bank account, you must receive a written receipt giving such information

as the amount of the transfer, the date it was made, and the location of the terminal.

17(1992) 175 CLR 353 18(1988) 164 CLR 662 19 U.S. Consumers and Electronic Banking, 1995–2003: A Report of Federal Reserve Government. Available online at http://www.federalreserve.gov/pubs/bulletin/2004/winter04_ca.pdf [accessed Dec 2009]

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debit, under a telephone transfer plan, or as a computer banking transaction. The statement must

also identify the party to whom payment was made and show any EFT service fees.

Consumer liability limits for unauthorized transfers involving ATM and debit cards linked to a

bank account are different from the limits for the unauthorized use of credit cards. The federal

limit for consumer liability on a lost or stolen credit card is $50.20

20See, For more information on liability limits on credit cards, ‘‘Consumer Handbook to Credit Protection Law’’ Available online at

Under Regulation, the limit for

an unauthorized transfer by an ATM card, debit card, or other access device linked to a bank

account can vary:

• Your loss is limited to $50 if you notify the financial institution that issued the card within two

business days after learning of the loss or theft of your card or personal identification code.

• Your loss could be as high as $500 if you do not notify the financial institution within two

business days after learning of the loss or theft of your card or code.

• If you do not report an unauthorized transfer that appears on your statement within sixty days

after the statement is mailed to you, your liability for losses is the amount of any unauthorized

transfers that take place between the end of the sixty-day period and the time you notify the

financial institution. The financial institution must be able to show that the transfers would not

have taken place if you had notified it within the sixty-day period. Your loss could include all the

money in your account plus your maximum overdraft line of credit, if you have such a line of

credit.

Under the EFTA, if you notify your financial institution of an error involving an electronic fund

transfer—including an unauthorized transfer—the institution must promptly investigate and

correct the error. If you believe there has been an error in an electronic fund transfer associated

with your account,

1. Write or call your financial institution immediately if possible, but within sixty days of the

date the institution mailed the first statement that you think shows an error. Give identity details,

explain why you believe there is an error, describe the error, and state the dollar amount and date

in question. If you call the financial institution, you may be asked to send the information in

writing within ten business days.

www.federalreserve.gov/pubs/consumerhdbk/

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2. The financial institution must promptly investigate an error and generally must resolve it

within ten business days. If the institution cannot resolve the error within ten business days, it

may take up to forty-five days to complete its investigation. In that case, within ten business days

of your notifying the financial institution of the error, the institution must put back into your

account the amount in question while it finishes the investigation. If the error involves a new

account opened in the past thirty days, the financial institution generally must resolve the error

within twenty business days. For a POS transaction, an international transaction, or a new

account (if the error could not be resolved within the applicable period), the financial institution

may take up to ninety days to complete its investigation.

3. The financial institution must notify you of the results of its investigation. If there was an

error, the institution must correct it promptly, for example, by making there-credit final. If it

finds no error, the financial institution must explain in writing why it believes no error occurred

and let you know that it will deduct any amount re-credited during the investigation.

Generally, electronic fund transfer products not associated with a consumer bank account, such

as stored-value cards, are not covered by the EFTA. For this reason, you should read the

documents you receive with a stored-value card to find out about protections as well as any fees

for using the card. Some cards can be registered so that if the card is lost or stolen, a replacement

can be issued.

COMPARISON OF E-BANKING IN INDIA WITH THAT OF OTHER COUNTRIES:-

From the above, the administrative as well as the legal regulatory framework with respect to E-

Banking in India as well as of the other developed countries like Australia, Malaysia, USA, and

UK is quite clear.

Thus after taking everything into consideration we can compare Indian position with that of other

countries and we can also draw reasons that why India is not making up to the mark steps in E-

banking under the shadow of the following points.

• The first and the foremost reason for inefficient E-banking functioning is that the

regulatory framework regarding E-banking in India is not refined and satisfactory

as to the need of the society.

• The level of awareness among the people regarding functioning of E-banking is very low.

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• Less people in India are following the proper security measures while dealing under the

process of E-banking.

• The security measures regarding E-banking dealing is also not very proper.

• Lack of development, hosting and management of packaged software from a central

facility regarding E-banking.

• And being a developing country, India is taking time to develop this new technology and

making it popular among the masses.

What market factors, obstacles, problems and issues are affecting the growth of E-banking

in developing countries?

Human tellers and automated teller machines continue to be the banking channels of choice in

developing countries. Only a small number of banks employ Internet banking. Among the

middle- and high-income people in Asia questioned in a McKinsey survey21

21 McKinsey survey, 2007. Mckinsey Quarterly., “A survey regarding the position of E-banking in Asia.”

, only 2.6% reported

banking over the Internet in 2000. In India, Indonesia, and Thailand, the figure was as low as

1%; in Singapore and South Korea, it ranged from 5% to 6%. In general, Internet banking

accounted for less than 0.1% of these customers’ banking transactions, as it did in 1999. The

Internet is more commonly used for opening new accounts but the numbers are negligible as less

than 0.3% of respondents used it for that purpose, except in China and the Philippines where the

figures climbed to 0.7 and 1.0%, respectively. This slow uptake cannot be attributed to limited

access to the Internet since 42% of respondents said they had access to computers and 7% said

they had access to the Internet. The chief obstacle in Asia and throughout emerging markets is

security. This is the main reason for not opening online banking or investment accounts.

Apparently, there is also a preference for personal contact with banks. Access to high-quality

products is also a concern. Most Asian banks are in the early stages of Internet banking services,

and many of the services are very basic.

What are the trends and prospects for e-banking in these countries?

There is a potential for increased uptake of e-banking in Asia. Respondents of the McKinsey

survey gave the following indications:

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• Lead users: 38% of respondents indicated their intention to open an online account in the

near future. These lead users undertake one-third more transactions a month than do other

users, and they tend to employ all banking channels more often.

• Followers: An additional 20% showed an inclination to eventually open an online

account, if their primary institution were to offer it and if there would be no additional

bank charges.

• Rejecters: 42% (compared to the aggregate figure of 58% for lead users and followers)

indicated no interest in or an aversion to Internet banking. It is important to note that

these respondents also preferred consolidation and simplicity, i.e., owning fewer banking

products and dealing with fewer financial institutions. Less than 13% of the lead users

and followers indicated some interest in conducting complex activities over the Internet,

such as trading securities or applying for insurance, credit cards, and loans. About a third

of lead users and followers showed an inclination to undertake only the basic banking

functions, like ascertaining account balances and transferring money between accounts,

over the Internet.22

RECOMMENDATIONS AND CONCLUSION:-

E-Banking, the latest generation of electronic banking transactions, has opened up new window

of opportunity to the existing banks and financial institutions. It permits business process re-

engineering, serving borderless market, to achieve zero latency leading to improvements in

customer service levels and better risk management because of real-time settlement. Since its

evolution in preceding decade, it is having unprecedented growth. The growth rate is higher in

developed Countries, and comparatively lower in LDCs countries. The E-Banking sector is

highly prohibitive for the new entrants although the inception cost is lower with high growth

rate. The brand preference of the customer, existing network, physical existence, security and

safety, supplier bargaining power, substitute product of non-banking sectors have made the way

thorny. However, new comer with innovative idea and strategy definitely can make position in

this sector. The analysis of the evolution and present status of E-Banking make some room to

22McKinsey survey, 2007. Mckinsey quarterly, “A survey regarding the position of E-banking in Asia.”

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analyze the problem for the government, new entrants and existing e-banks for effective

utilization of the opportunity to accelerate the economic growth.

Recommendations regarding Legal Position of E-banking in India

In India, there are very few legal provisions ensuring fair dealing of E-banking in India.

The very few provisions dealing with E-banking are not very specific.

Thus we are in a dare need of enactment of the new well defined and well developed

legal provisions in Indian Statutes which can ensure not only the proper functioning of E-

banking in India but the security of the transactions in E-banking in the Country.

Other Recommendations regarding E-banking23:-

Internet penetration is a major factor for the growth of E-Banking. A research by OECD

indicated that there is a strong positive correlation between Internet usage and E-Banking

usage. The trend is usually logarithmic and is the take-off phase for Internet banking

which needs at least 30% Internet usage among the population.24 However, Internet

penetration alone does not guarantee online banking penetration. In this situation, like

Mexico, companies can give incentives, subsidizing the surfing cost, free training,

multiple access facility (web, telephone, ATM etc.), motivation programs to the user and

the population as a whole. So, the Indian Banking scenario has to take the internet

penetration by subsidizing the whole process for better perforation of the technology for

faster and reliable E-banking services.

Standard and Mature technology is always a problem in this Hi-tech age. In Finland, for

example, there are multiple technological standards for some E-Banking services that

complicate fast spreading of these innovations25

23 Kar,S.K., Electronic Banking and Payment System, Reading Material, Prepared by, Member of Faculty, RBSC 24 Christiansen, H., 2001. Electronic Finance: Economics and Institutional Factors. OECD Financial Affair Division Occasional Paper No. 2, 25 Kerem K., O. Luštšik, M. Sõrg, V. Vensel, 2002. E-Banking In Estonia: Development, Driving Factors and Effects. Vienna: 10th Annual Conference on Marketing and Business Strategies for Central & Eastern Europe,. Unpublished

. Setting up electronic banking requires

substantial investments and it is very complicated to move from old technologies to new

ones. Thus, Indian banks can cooperate closely in the field of developing standards to

offer services to third parties.

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E-Banks must take aggressive marketing effort. It has been seen that the marketing

efforts made to promote Estonian Internet banking have been continuous and aggressive

in different media channels and in bank branches.26 Indian Banking sector have to make a

comprehensive research for finding innovative products, which would then promoted

extensively, have a higher chance of success in the market than similar products without

the communications support.

All of the efforts to establish an ‘internet only’ model E-Banking of business has not been

succeed yet. Thus there must be a physical existence of the bank and E-Banking could be

an extent to that operation. It will give the customers an impression of security and

safety.

Using State-of -Art technology enables the organizations to avoid problems of legacy

systems and any inefficiency. For example, rapid adoption of new technologies has

helped the Estonian banks to leapfrog some of the traps that have slowed down the

process of development in countries with better starting position.

E-Banks must try to expand their network as soon as possible. Most of the customers use

E-Banking facility to pay bills, shopping etc. As more and more third parties are involved

in the network, we need to have strong legislation for the E-banking to prevent loss to the

customers.

Governments’ main role is enhancing the enabling environment, as it is known that the

direct intervention into financial markets may have poor results. In general, the Estonian

government has taken a laissez faire approach to the regulation and supervision of the

economic policy27. Indian government should use ICT to generate positive publicity,

which would foster positive attitudes nationwide.

Last but not least, the e-banks must try to achieve critical mass. Achieving critical mass is

key success factor in electronic banking development. This can be achieved when there is

substantial Internet penetration and banks are able to provide services, which have very

broad demand.

26 Avlonitis, G. J, Papastathopoulou, P, 2000. Marketing communications and product performance: innovative vs. non-innovative new retail financial products millennium . International Journal of Bank Marketing, 18/1 pp 27-41 27 Kalkun, Mari and Tarmo Kalvet, 2002 eds. Digital Divide In Estonia and How to Bridge It, Tallinn: Emor and PRAXIS Centre for Policy Studies,

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Adoption and Use of Internet Banking in Zimbabwe: An Exploratory Study, Journal of Internet

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Barczak G.E, Scholder P. & Piling B.K.T.,1997. Developing typologies of consumer motivation

for use of technologically based banking services, Journal of Business Research 38 (2), 131-40.

Black N.J. Lockett A., Ennew C. & Winklhofer H., 2001. Adoption of Internet banking, a

qualitative study. International, Journal of Retail & Distribution Management 29 (8), 390-8.

Gupta S.N., 1999. “The Banking Law in Theory & Practice”.,Universal Law publication Co. Pvt.

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banking. Journal of Internet Banking and Commerce. Vol. 13, no.2

Kamath, Nandan, 2005. Law relating to Computers, Internet & E-Commerce. Delhi: Universal

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Evolution, Status and Prospects, The Cost and Management.Vol. 35 No. pp. 36-48

Mukherjee T.K., 1999.“Banking Law and practice”.Allahabad: Premier Publishing Company, Vol.1 McKinsey survey, 2007. Mckinsey Quarterly., “A survey regarding the position of E-banking in Asia.” Paul Anning and others, 2003. E-Finance Law and Regulation. U.K.: Lexis Nexis

RBI Guidelines on E-Banking. Internet Banking in India – Guidelines DBOD.COMP.BC.No. 130 / 07.03.23/ 2000-01 June 14, 2001 United Nations, 2002. E-commerce and development report, New York and Geneva.

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