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Transcript of Internet Banking
Electronic copy available at: http://ssrn.com/abstract=2074321
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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]
Electronic copy available at: http://ssrn.com/abstract=2074321
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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]
Electronic copy available at: http://ssrn.com/abstract=2074321
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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]
16 | P a g e
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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