rouble banking project

8/3/2019 Rouble Banking Project

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nline banking on icici bankPROJECT REPORT

Under the guidance of Mr. S.P. Dwibedi

______________________________

Submitted by

Rouble Paul

REG. NO.521052477

__________________________________________

In partial fulfilment of the requirement

for the award of the degreeOf

MASTERSINBUSINESSADMINISTRATION

IN BANKING

AUGUST 2011


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DECLARATION

I hereby declare that the project report entitled A Project on

Online Banking Submitted in partial fulfilment of the

requirements of the Degree of Master of Business

Administration to Sikkim Manipal University, India, is my

original work and not submitted for the award of any other

degree, diploma, fellowship or any other similar title or prizes.

Rouble Paul

REG. NO. 521052477

DATE: 1-12-2011Place: Siliguri (W.B.)


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BONAFIDE CERTIFICATE

Certified that this project report titled Online Banking is the

bonafide work of Rouble Paulwho carried out the project work

under my supervision.

SIGNATURE

.

HEAD OF THE DEPARTMENT

Management StudiesSmartAcademyL.C Code 01721

Siliguri

SIGNATURE

FACULTY IN CHARGEM.B.A

Department of ManagementStudies

SmartAcademyL.C Code 01721

Siliguri


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ACKNOWLEDGEMENT

I feel it a pleasure to acknowledge my deemed sense of gratitude

to Mr. SUBHA PRASAD DWIBEDI (Head of the department

Department of Management Studies of Smart Academy,

Siliguri), for giving us the privileged opportunity to do this project

work under his continuous advice and guidance that we have

always received. They took time off to offer us his invaluable

suggestions and supervision.

I would also like to give my sincere thanks to Mr. Sujit Dhanuka

(Director, Smart Academy, Siliguri) which made this research

project become a reality. This project would be impossible withouthis guidance and kind suggestions. I would also like to thanks

other faculties of Smart Academy and my friends for their help

when I was wrongly on my project.

I take on this opportunity to extend our hearties gratitude all

mighty as he has been strength for me not only during this

project preparation but whos of our student life till today, and off

course to my dear parents for their constant support and

encouragement during and my project.At the end I extent my big thanks to SIKKIM MANIPAL

UNIVERSITYfor keeping such a beautiful module in our course,

which help us to integrate all the theoretical knowledge learned

during the semester and the previous semesters & practical

organizational problems and search skills in us.

I am also thankful to SMART ACADEMY for providing me withthe opportunity to complete my project report and guidance tocomplete it by time.

Rouble PaulREG. NO. 521052477SMART ACADEMY (01721)


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SUMMARY

Technological developments have been growing at an alarming speed in the

international arena. Internet is proudly one of the best in those. So, the

banking sector is also making the best utilization of it. In this study based on

ONLINE BANKING, it has been observed that the development of online

banking has increased by leaps and bounds during the past few years.

Concentrating on the Indian economy, the use of online banking is still in the

developing stage.

Today in India the scope of online banking is growing by a good decent rise

in its usage. The rise in the usage of the Internet is the main criteria for

development of online banking.

This project helps us understand the how the online banking came into

existence and its need in the modern world. It shows us the insights of theonline banking in India. It helps us understand the opportunities and the

challenges associated with the online banking in India.


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CONTENTS

SR.NO TOPIC PAGE

NO

I

1.

CHAPTER IINTRODUCTION

Development of Online Banking through Evolution of

Information Technology & E-Commerce

1 - 42

16

2. What is online banking?

Features

Advantages

Disadvantages

614

3. How does online banking work and its structure. 1516

4. Opportunities in Online Banking:

Is there a future in online banking? Changes in trend

Why banks encourage online banking?

1723

5. Challenges in Online Banking:

Main concerns

Related Problems

Adherences to guidelines

2336

6. Solutions 3640

7. Case Studies 40

42

8. ICICI Bank 42


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II

1.

CHAPTER IIRESEARCH METHODOLOGY

Objectives of the study

43

2. Limits of the study

3. Methodology used

III CHAPTER IIIDATA ANALYSIS 4447

IV CHAPTER IVRECOMMENDATION & CONCLUSION 4849

V CHAPTER VBIBLIOGRAPHY 5051


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CHAPTER I


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INTRODUCTION

Online banking is a process that has evolved because of the development of

technology over the years. So before going into detail on the online we should

have a overview of it birth.

INFORMATION TECHNOLOGY

Information technology (IT) is the acquisition, processing, storage and

dissemination of vocal, pictorial, textual and numerical information by

amicroelectronics - based combination ofcomputingandtelecommunications.

IT (information technology) is a term that encompasses all forms of technology

used to create, store, exchange, and useinformationin its various forms

(business data, voice conversations, still images, motion pictures, multimedia

presentations, and other forms, including those not yet conceived). It's a

convenient term for including both telephony and computer technology in the

same word. It is the technology that is driving what has often been called "the

information revolution."
http://en.wikipedia.org/wiki/Microelectronicshttp://en.wikipedia.org/wiki/Microelectronicshttp://en.wikipedia.org/wiki/Microelectronicshttp://en.wikipedia.org/wiki/Computinghttp://en.wikipedia.org/wiki/Computinghttp://en.wikipedia.org/wiki/Computinghttp://en.wikipedia.org/wiki/Telecommunicationshttp://en.wikipedia.org/wiki/Telecommunicationshttp://en.wikipedia.org/wiki/Telecommunicationshttp://searchsqlserver.techtarget.com/sDefinition/0,,sid87_gci212343,00.htmlhttp://searchsqlserver.techtarget.com/sDefinition/0,,sid87_gci212343,00.htmlhttp://searchsqlserver.techtarget.com/sDefinition/0,,sid87_gci212343,00.htmlhttp://searchsqlserver.techtarget.com/sDefinition/0,,sid87_gci212343,00.htmlhttp://en.wikipedia.org/wiki/Telecommunicationshttp://en.wikipedia.org/wiki/Computinghttp://en.wikipedia.org/wiki/Microelectronics


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IT is the area of managing technology and spans wide variety of areas that

include but are not limited to things such as processes, computer

software,information systems,computer hardware, programming languages,

and data constructs. In short, anything that renders data, information or

perceived knowledge in any visual format whatsoever, via any multimedia

distribution mechanism, is considered part of the domain space known as

Information Technology (IT). IT provides businesses with four sets of core

services to help execute the business strategy. These four core services are

broken into business process automation, providing information, connecting

with customers, and productivity tools.

IT professionals perform a variety of functions (IT

Disciplines/Competencies) that ranges from installingapplicationsto designing

complexcomputer networksand informationdatabases.A few of the duties that

IT professionals perform may includedata management, networking,

engineeringcomputer hardware, database and software design, as well as

management and administration of entire systems. Information technology is

starting to spread further than the conventionalpersonal computerand network

technologies, and more into integrations of other technologies such as the use of

cell phones, televisions, automobiles, and more, which is increasing the demand

for such jobs.
http://en.wikipedia.org/wiki/Computer_softwarehttp://en.wikipedia.org/wiki/Computer_softwarehttp://en.wikipedia.org/wiki/Computer_softwarehttp://en.wikipedia.org/wiki/Information_systemshttp://en.wikipedia.org/wiki/Information_systemshttp://en.wikipedia.org/wiki/Information_systemshttp://en.wikipedia.org/wiki/Computer_hardwarehttp://en.wikipedia.org/wiki/Computer_hardwarehttp://en.wikipedia.org/wiki/Computer_hardwarehttp://en.wikipedia.org/wiki/Programming_languagehttp://en.wikipedia.org/wiki/Programming_languagehttp://en.wikipedia.org/wiki/Application_softwarehttp://en.wikipedia.org/wiki/Application_softwarehttp://en.wikipedia.org/wiki/Application_softwarehttp://en.wikipedia.org/wiki/Computer_networkhttp://en.wikipedia.org/wiki/Computer_networkhttp://en.wikipedia.org/wiki/Computer_networkhttp://en.wikipedia.org/wiki/Databasehttp://en.wikipedia.org/wiki/Databasehttp://en.wikipedia.org/wiki/Databasehttp://en.wikipedia.org/wiki/Data_managementhttp://en.wikipedia.org/wiki/Data_managementhttp://en.wikipedia.org/wiki/Data_managementhttp://en.wikipedia.org/wiki/Computer_hardwarehttp://en.wikipedia.org/wiki/Computer_hardwarehttp://en.wikipedia.org/wiki/Computer_hardwarehttp://en.wikipedia.org/wiki/Personal_computerhttp://en.wikipedia.org/wiki/Personal_computerhttp://en.wikipedia.org/wiki/Personal_computerhttp://en.wikipedia.org/wiki/Personal_computerhttp://en.wikipedia.org/wiki/Computer_hardwarehttp://en.wikipedia.org/wiki/Data_managementhttp://en.wikipedia.org/wiki/Databasehttp://en.wikipedia.org/wiki/Computer_networkhttp://en.wikipedia.org/wiki/Application_softwarehttp://en.wikipedia.org/wiki/Programming_languagehttp://en.wikipedia.org/wiki/Computer_hardwarehttp://en.wikipedia.org/wiki/Information_systemshttp://en.wikipedia.org/wiki/Computer_softwarehttp://en.wikipedia.org/wiki/Computer_software


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TECHNOLOGY in Banking

Many of the largest and most successful banks in the world emerged from the

technical changes that they are able to recognize at an early stage. Indias

banking sector has a long way to go before it can compete globally. Situation is

especially maintained in the late introduction of ICT in India banks. Our

information technology is designed to compete with information technology in

the world, and when we are in the area very quickly, it can be difficult for us to

benefit from liberalization.

Bank, with the right technology to provide timely information to increase

productivity and thus see a competitive advantage. Compete in the economy,

which has been opened, it is certainly the Indian banks to comply with the latest

technology and adapt to its surroundings. Except that the banks need much

improved use of technology to customer-friendly, efficient and competitive in

the current authorities and businesses, they also need the technology to newer

products and newer forms of service and the increasingly dynamic global

environment to offer. Information technology allows banks to build new

systems, which bite the needs of many customers that cannot be considered

today.

On-line banking, for example, promises customers to conduct banking

transactions in a direct access to the core of the bank customer account works.


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Customers to verify all information, all so far, all the checks, all credit card

information.

In the future, the banks freed from the constraints of a delivery channel. They

can create, package, market and product niches, and because the tumbling price

of the technology, they can do so cost-effectively.

Technology gives banks the opportunity to be closer to customers, to a

broader range of services at lower costs, streamline the March baling systems so

that all information in one place where it can be used for the trends that can

quickly lead into new products. Electronic banking data can be gathered and

analyzed. Interactivity allows the consumer to save the settings, directing the

development of truly new products.

The development of I.T has helped the boom of E Commerce. So it is also

important to know the concept of ECommerce.


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E-COMMERCE

Electronic commerce, commonly known ase-commerce, refers to the buying

and selling ofproductsorservicesover electronic systems such as the Internet

and other computer networks.However, the term may refer to more than just

buying and selling products online. It also includes the entire online process of

developing, marketing, selling, delivering, servicing and paying for products and

services. The amount of trade conducted electronically has grown

extraordinarily with widespread Internet usage. The use of commerce is

conducted in this way, spurring and drawing on innovations in electronic funds

transfer,supply chain management,Internet marketing,online transaction

processing,electronic data interchange(EDI),inventory managementsystems,

and automated data collection systems. Modern electronic commerce typically

uses theWorld Wide Webat least at one point in the transaction's life-cycle,

although it may encompass a wider range of technologies such ase-mail,mobile

devices and telephones as well.

A large percentage of electronic commerce is conducted entirely in electronic

form forvirtualitems such as access to premium content on a website, but

mostly electronic commerce involves the transportation of physical items in

some way. Online retailers are sometimes known ase-tailersand online retail is

sometimes known as e-tail. Almost all big retailers are now electronically

present on theWorld Wide Web.
http://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/Computer_networkhttp://en.wikipedia.org/wiki/Computer_networkhttp://en.wikipedia.org/wiki/Electronic_funds_transferhttp://en.wikipedia.org/wiki/Electronic_funds_transferhttp://en.wikipedia.org/wiki/Electronic_funds_transferhttp://en.wikipedia.org/wiki/Electronic_funds_transferhttp://en.wikipedia.org/wiki/Supply_chain_managementhttp://en.wikipedia.org/wiki/Supply_chain_managementhttp://en.wikipedia.org/wiki/Supply_chain_managementhttp://en.wikipedia.org/wiki/Internet_marketinghttp://en.wikipedia.org/wiki/Internet_marketinghttp://en.wikipedia.org/wiki/Internet_marketinghttp://en.wikipedia.org/wiki/Online_transaction_processinghttp://en.wikipedia.org/wiki/Online_transaction_processinghttp://en.wikipedia.org/wiki/Online_transaction_processinghttp://en.wikipedia.org/wiki/Online_transaction_processinghttp://en.wikipedia.org/wiki/Electronic_data_interchangehttp://en.wikipedia.org/wiki/Electronic_data_interchangehttp://en.wikipedia.org/wiki/Electronic_data_interchangehttp://en.wikipedia.org/wiki/Inventory_managementhttp://en.wikipedia.org/wiki/Inventory_managementhttp://en.wikipedia.org/wiki/Inventory_managementhttp://en.wikipedia.org/wiki/World_Wide_Webhttp://en.wikipedia.org/wiki/World_Wide_Webhttp://en.wikipedia.org/wiki/World_Wide_Webhttp://en.wikipedia.org/wiki/E-mailhttp://en.wikipedia.org/wiki/E-mailhttp://en.wikipedia.org/wiki/E-mailhttp://en.wikipedia.org/wiki/Virtualhttp://en.wikipedia.org/wiki/Virtualhttp://en.wikipedia.org/wiki/Virtualhttp://en.wikipedia.org/wiki/E-tailerhttp://en.wikipedia.org/wiki/E-tailerhttp://en.wikipedia.org/wiki/E-tailerhttp://en.wikipedia.org/wiki/World_Wide_Webhttp://en.wikipedia.org/wiki/World_Wide_Webhttp://en.wikipedia.org/wiki/World_Wide_Webhttp://en.wikipedia.org/wiki/World_Wide_Webhttp://en.wikipedia.org/wiki/E-tailerhttp://en.wikipedia.org/wiki/Virtualhttp://en.wikipedia.org/wiki/E-mailhttp://en.wikipedia.org/wiki/World_Wide_Webhttp://en.wikipedia.org/wiki/Inventory_managementhttp://en.wikipedia.org/wiki/Electronic_data_interchangehttp://en.wikipedia.org/wiki/Online_transaction_processinghttp://en.wikipedia.org/wiki/Online_transaction_processinghttp://en.wikipedia.org/wiki/Internet_marketinghttp://en.wikipedia.org/wiki/Supply_chain_managementhttp://en.wikipedia.org/wiki/Electronic_funds_transferhttp://en.wikipedia.org/wiki/Electronic_funds_transferhttp://en.wikipedia.org/wiki/Computer_networkhttp://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/Product_(business)


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Electronic commerce that takes place between businesses is referred to

asbusiness-to-businessor B2B. B2B can be open to all interested parties

(e.g.commodity exchange) or limited to specific, pre-qualified participants

(private electronic market). Electronic commerce that takes place between

businesses and consumers, on the other hand, is referred to asbusiness-to-

consumerorB2C. This is the type of electronic commerce conducted by

companies such asAmazon.com.Online shoppingis a form of electronic

commerce where the buyer is directly online to the seller's computer usually via

the internet. There is no intermediary service involved. The sale or purchase

transaction is completed electronically and interactively in real-time such as in

Amazon.com for new books. However in some cases, an intermediary may be

present in a sale or purchase transaction such as the transactions oneBay.com.

Electronic commerce is generally considered to be the sales aspect ofe-

business.It also consists of the exchange of data to facilitate the financing and

payment aspects of business transactions.

Business applications of ecommerce

Some common applications related to electronic commerce are the following:

Email

Enterprise content management
http://en.wikipedia.org/wiki/Business-to-businesshttp://en.wikipedia.org/wiki/Business-to-businesshttp://en.wikipedia.org/wiki/Business-to-businesshttp://en.wikipedia.org/wiki/Commodity_exchangehttp://en.wikipedia.org/wiki/Commodity_exchangehttp://en.wikipedia.org/wiki/Commodity_exchangehttp://en.wikipedia.org/wiki/Private_electronic_markethttp://en.wikipedia.org/wiki/Private_electronic_markethttp://en.wikipedia.org/wiki/Private_electronic_markethttp://en.wikipedia.org/wiki/Business-to-consumerhttp://en.wikipedia.org/wiki/Business-to-consumerhttp://en.wikipedia.org/wiki/Business-to-consumerhttp://en.wikipedia.org/wiki/Business-to-consumerhttp://en.wikipedia.org/wiki/B2Chttp://en.wikipedia.org/wiki/B2Chttp://en.wikipedia.org/wiki/B2Chttp://en.wikipedia.org/wiki/Amazon.comhttp://en.wikipedia.org/wiki/Amazon.comhttp://en.wikipedia.org/wiki/Amazon.comhttp://en.wikipedia.org/wiki/Online_shoppinghttp://en.wikipedia.org/wiki/Online_shoppinghttp://en.wikipedia.org/wiki/Online_shoppinghttp://en.wikipedia.org/wiki/EBay.comhttp://en.wikipedia.org/wiki/EBay.comhttp://en.wikipedia.org/wiki/EBay.comhttp://en.wikipedia.org/wiki/E-businesshttp://en.wikipedia.org/wiki/E-businesshttp://en.wikipedia.org/wiki/E-businesshttp://en.wikipedia.org/wiki/E-businesshttp://en.wikipedia.org/wiki/Emailhttp://en.wikipedia.org/wiki/Enterprise_content_managementhttp://en.wikipedia.org/wiki/Enterprise_content_managementhttp://en.wikipedia.org/wiki/Emailhttp://en.wikipedia.org/wiki/E-businesshttp://en.wikipedia.org/wiki/E-businesshttp://en.wikipedia.org/wiki/EBay.comhttp://en.wikipedia.org/wiki/Online_shoppinghttp://en.wikipedia.org/wiki/Amazon.comhttp://en.wikipedia.org/wiki/B2Chttp://en.wikipedia.org/wiki/Business-to-consumerhttp://en.wikipedia.org/wiki/Business-to-consumerhttp://en.wikipedia.org/wiki/Private_electronic_markethttp://en.wikipedia.org/wiki/Commodity_exchangehttp://en.wikipedia.org/wiki/Business-to-business


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Instant messaging

Newsgroups

Online shopping and order tracking

Online banking

Online office suites

Domestic and internationalpayment systems

Shopping cart software

Teleconferencing

Electronic tickets
http://en.wikipedia.org/wiki/Instant_messaginghttp://en.wikipedia.org/wiki/Newsgroupshttp://en.wikipedia.org/wiki/Online_shoppinghttp://en.wikipedia.org/wiki/Online_bankinghttp://en.wikipedia.org/wiki/Online_office_suitehttp://en.wikipedia.org/wiki/Payment_systemhttp://en.wikipedia.org/wiki/Shopping_cart_softwarehttp://en.wikipedia.org/wiki/Teleconferencinghttp://en.wikipedia.org/wiki/Electronic_tickethttp://en.wikipedia.org/wiki/Electronic_tickethttp://en.wikipedia.org/wiki/Teleconferencinghttp://en.wikipedia.org/wiki/Shopping_cart_softwarehttp://en.wikipedia.org/wiki/Payment_systemhttp://en.wikipedia.org/wiki/Online_office_suitehttp://en.wikipedia.org/wiki/Online_bankinghttp://en.wikipedia.org/wiki/Online_shoppinghttp://en.wikipedia.org/wiki/Newsgroupshttp://en.wikipedia.org/wiki/Instant_messaging


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E-COMMERCE APPLICATION IN BANKING INDUSTRY

New information technologies and emerging business forces have triggered a

new wave of financial innovationelectronic banking (e-banking). The banking

and financial industry is transforming itself in unpredictable ways (Crane and

Bodie 1996), powered in an important way by advances in information

technology (Holland and Westwood 2001). Since the 1980s, commercial

banking has continuously innovated through technology-enhanced products and

services, such as multi-function ATM, tele-banking, electronic transfers andelectronic cash cards. Over the past decade, the Internet has clearly played a

critical role in providing online services and giving rise to a completely new

channel. In the internet age, the extension of commercial banking to the

cyberspace is an inevitable development (Liao and Cheung 2003).

E-banking creates unprecedented opportunities for the banks in the ways they

organize financial product development, delivery and marketing via the internet.

While it offers new opportunities to banks, it also poses many challenges such as

the innovation of IT applications, the blurring of market boundaries, the

breaching of industrial barriers, the entrance of new competitors and the

emergence of new business models (Saatcioglu et al. 2001, Liao and Cheung

2003). Now the speed and scale of the challenge are rapidly increasing with the

pervasiveness of the internet and the extension of information economy

(Holland and Westwood 2001).


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Globally, e-commerce growth has been led by the popularity of online

shopping portals like amazon.com and ebay.com but in India that has not been

the case. It is mainly driven by the online travel industry and banking sector. For

instance, 29% of Indian Internet users book airline tickets online and the figure

is expected to touch 46% next year. Online rail ticket booking stands at 39% of

the total bookings. As far as banking is concerned, there are 4.6 million online

banking users in India. This figure is expected to go up to over 16 million by

2007-08 that will include both internet and mobile banking users. According to

the Internet and Mobile Association of India (IAMAI), the e-commerce industry

in India is expected to grow to a size of Rs. 2,300 crore by 2007 against the

Rs.1,200 crore. The total number of internet users which right now is 38.5

million is expected to reach 100 million by 2008.


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WHAT IS ONLINE BANKING?

If you're like most people, you've heard a lot about online banking but

probably haven't tried it yourself. You still pay your bills by mail and deposit

checks at your bank branch, much the way your parents did. You might shop

online for a loan, life insurance or a home mortgage, but when it comes time to

commit, you feel more comfortable working with your banker or an agent you

know and trust.

Online banking isn't out to change your money habits. Instead, it uses today's

computer technology to give you the option of bypassing the time-consuming,

paper-based aspects of traditional banking in order to manage your finances

more quickly and efficiently.

Origin of online banking

The advent of the Internet and the popularity of personal computers presented

both an opportunity and a challenge for the banking industry.

For years, financial institutions have used powerful computer networks to

automate millions of daily transactions; today, often the only paper record is the

customer's receipt at the point of sale. Now that its customers are connected to


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the Internet via personal computers, banks envision similar economic

advantages by adapting those same internal electronic processes to home use.

Banks view online banking as a powerful "value added" tool to attract and

retain new customers while helping to eliminate costly paper handling and teller

interactions in an increasingly competitive banking environment.

Brick-to-click banks

Today, most large national banks, many regional banks and even smaller

banks and credit unions offer some form of online banking, variously known as

PC banking, home banking, electronic banking or Internet banking. Those that

do are sometimes referred to as "brick-to-click" banks, both to distinguish themfrom brick-and-mortar banks that have yet to offer online banking, as well as

from online or "virtual" banks that have no physical branches or tellers

whatsoever.

The challenge for the banking industry has been to design this new service

channel in such a way that its customers will readily learn to use and trust it.

After all, banks have spent generations earning our trust; they aren't about to risk

that on a Web site that is frustrating, confusing or less than secure.


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Most of the large banks now offer fully secure, fully functional online

banking for free or for a small fee. Some smaller banks offer limited access or

functionality; for instance, you may be able to view your account balance and

history but not initiate transactions online. As more banks succeed online and

more customers use their sites, fully functional online banking likely will

become as commonplace as automated teller machines.

Understanding Online Banking Services

Online banking is a great convenience for many people. Whether people use

it to manage traditional accounts or switch all of their banking to an online-only

firm, it is a wonderful improvement over the days when everything had to be

done face-to-face.

No matter what kind of banking is done online, it starts with a secure web

site. Usually, the bank will have certain requirements to ensure password

strength as well. This and other security measures ensure that online accounts

are safe from tampering. From there, all of the necessary services can be

accessed.

Online banking is quite simple once the basics are understood. Depositing

money is simple, and can be done in a number of ways. The most popular


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method is likely direct deposit. Many employers offer direct deposit of

paychecks, and by providing them with your online bank account number, your

checks will go right into that account. Other ways of depositing money include

bank and wire transfers. Some accounts even allow customers to mail their

checks in.

Paper checks are typically provided with online checking accounts. This,

however, is not likely to be the most common way a customer will access funds.

Online bill payment allows users to pay their bills without mailing checks, and

those who use web-based accounts typically prefer this and other electronic

payment methods. Most types of bills can be paid via a debit card or electronic

checks, as well. This makes it easy to eliminate the need for paper checks

entirely. Still, many find it useful to have a few checks on hand for those few

companies that havent quite reached the modern age.

The management of traditional accounts is another common use for online

banking. Most banks offer online access to accounts, and all customers need to

do to make use of the service is sign up through their banks site. Once this is

done, checking your balance, seeing which payments have cleared, and other

common banking operations can be done from the computer. This eliminates the

need to call or visit the bank for simple account maintenance needs.


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Every online banking interface is slightly different, but all banks try to make

things easy and intuitive for users. It wont take long for a new user to figure out

exactly how everything works. Sign up for an online bank account or online

access to your current one, and soon youll wonder how you could have lived

without it.


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FEATURES OF ONLINE BANKING

We need to be able to manage our finances from anywhere in the world. Rich

online banking services are much more important than a physical location. Since

I have been doing all of my banking online with quite a few different online

banks as I looked for the best solution, Ive had a chance to really experiment

with what works and what doesnt work for us.

Here is a checklist of things to look for in an online bank. Some items you may

be familiar with. Others might be new to you if it isnt something your current

bank offers.

1. Bill Pay Service

One of the biggest reasons for going with an online bank is to get really good

bill payment services. Different banks handle bill payment different ways. Here

are some things to think about:

A.How many bills are you allowed to pay per month?

B.What are the fees for going over the limit?


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C.Can the bill payment send physical checks to merchants who arent set up to

take electronic payments?

D. Do checks come from your account or from a third party service? For privacy

reasons, it might be better to be able to pay someone without giving them your

bank account number on the check. On the other hand, if the checks actually

come from your account, the money doesnt get taken out until the check is

cashed.

E.Can you set up reoccurring payments?

2. Electronic Bill Notification

With electronic bills, your merchant (credit card company, gas company,

electric company, etc.) sends an electronic bill to your bank. You can set it up to

pay automatically or notify you for approval. This can be particularly good for

people who are on the road because it reduces the amount of physical mail you

have to somehow get read or forwarded to you.


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3. Online Check Images

Most banks will show you an image of the check, which makes it really easy

to balance your account if you cant remember what a particular payment was

for. (Ideally, you should minimize the number of physical checks you write to

reduce fraud.)

4. Online Deposit Slip Images

Most banks just record the total with no image. It will let you see an image of

each deposit slip. Having the images available can be very helpful if you ever

have to prove something for tax purposes or need to remember where that $2581

deposit came from.

5. Reporting Tools

Most banks offer basic reporting tools that will let you see how much you

have spent in each category youve created. This may not be an issue if you use

desktop money management software, but it still can be handy if you are

travelling and want to see how much youve paid on your mortgage over the

past 12 months.


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6. Linked Accounts

Can you link your bank account with a brokerage account? Can you add your

minor children as custodial accounts and manage them all centrally? If you and

your spouse both set them up IRAs, is it easy to view them both alongside the

rest of your finances, or do you have to have a separate login for each IRA to

keep them on separate SSNs? These are small things that many banks dont

support, but it starts getting really complicated when you have to manage a

bunch of accounts instead of having a single place to manage all of your money.

7. Convenient Deposit Methods

Since you may not be anywhere near the physical location of your bank, make

sure you understand how to deposit money. Payroll can be set up on direct

deposit, but there will be times when you need to deposit checks. Does the bank

provide postage paid envelopes and deposit slips? Some banks work with FedEx

or UPS stores to allow you to send in a deposit overnight for free.

8. Low ATM Fees and Convenient Locations

If you need to get cash, will the bank refund the ATM fees? Are there only

certain ATMs that are free, and if so, are they located near places you normally go?


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Are the ATMs available nation wide so you can use them on vacation? What are

the fees for using the ATM internationally and how is the exchange rate handled?

9. Integration with Desktop Software

If you use Microsoft Money, Quicken or something similar, youll want to

make sure your bank supports it. Make sure you understand if downloading

transactions require you to login and manually download a file, or if your money

management software can directly connect and download new transactions. If

you are using Quicken on a Mac, make sure the bank is paying Quickens

extortion fee so the files will work with Mac users.

10.Many Account Types

Some banks only offer basic checking and savings accounts. Ideally you want

a bank that makes it easy to open money market accounts, IRAs, health savings

accounts, etc. If you have to go to another institution to open a different type of

account, it is more difficult to manageespecially if you are on the road. You

want to be able to easily open a CD to take advantage of a higher interest rate,

easily open an IRA to help reduce your tax liability, etc.


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11.Free Money Transfers

Be sure to consider how easy it is to move money in and out of the account.

You should be able to set up links with your accounts from other institutions to

transfer money back and forth as necessary. Make sure you understand what

type of fees are associated with these transfers. Good banks should allow a

certain number of transfers per month with no fee.

12.Security Balanced with Convenience

Some banks spend so much effort trying to keep things secure that youll find

yourself automatically logged out of their website while you try to balance your

account. You want security but you dont want it to get in the way of you doing

your banking. Also check into what type of additional security features are

available. For example, some banks will offer you an RSA keychain with a

number that changes every 60 seconds. In addition to your password, you will

need the number from that key in order to get access to your account.

13.Ease of Use

This is something that most banks seem to struggle with. Right now I have

my personal account with one online bank and my business accounts with


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another. I dread using the business accounts and I absolutely love using my

personal account. At first I thought I was just more familiar with the bank where

my personal accounts are, but I finally realize that it comes down to the ease of

use. One is ok and the other is superb, but it makes a big difference.

Advantages of online banking:

Convenience:

Unlike your corner bank, online banking sites never close; they're available

24 hours a day, seven days a week, and they're only a mouse click away.

Ubiquity:

If you're out of state or even out of the country when a money problem arises,

you can log on instantly to your online bank and take care of business, 24/7.

Transaction speed:

Online bank sites generally execute and confirm transactions at or quicker

than ATM processing speeds.


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Efficiency:

You can access and manage all of your bank accounts, including IRAs, CDs,

even securities, from one secure site.

Effectiveness:

Many online banking sites now offer sophisticated tools, including account

aggregation, stock quotes, rate alerts and portfolio managing programs to help

you manage all of your assets more effectively. Most are also compatible with

money managing programs such as Quicken and Microsoft Money.

Disadvantages of online banking:

Start-up may take time:

In order to register for your bank's online program, you will probably have

to provide ID and sign a form at a bank branch. If you and your spouse wish to

view and manage your assets together online, one of you may have to sign a

durable power of attorney before the bank will display all of your holdings

together.


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Learning curve:

Banking sites can be difficult to navigate at first. Plan to invest some time

and/or read the tutorials in order to become comfortable in your virtual lobby.

Bank site changes:

Even the largest banks periodically upgrade their online programs, adding

new features in unfamiliar places. In some cases, you may have to re-enter

account information.

The trust thing:

For many people, the biggest hurdle to online banking is learning to trust it.

Did my transaction go through? Did I push the transfer button once or twice?

Best bet: always print the transaction receipt and keep it with your bank records

until it shows up on your personal site and/or your bank statement.

How Does Online Banking Work?

Online banking provides many identical services that a traditional bank does

with the biggest difference is in teller availability: Human tellers leave;

electronic tellersthe websitesare available virtually all day, everyday

weekends and holidays, included.


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Online Banking Structure:

Online banking mirrors traditional banking procedures in many instances,and in some, actually improves security and reduces both banks and customers

costs.

In electronic form, online banking still allows:

1. Deposits to the account, whether via payroll deposits or funds transfers.

2. Bill payments via automatic payment schedules or individually ordered

payments. Most bill pay users opt for the bank-generated checks, but payments

can be ordered in a one off situation or scheduled regularly.

3. Statement formats can be electronic or paper; most who prefer online banking

choose the electronic statements for convenience and reduced paper use.

4. Wire transfers to accounts within and without the banks structure, though

some banks charge additional transaction fees for wire transfers.

5. Differing services depending on the individual financial institute.

Online Actions

All online banking transactions are initiated by creating an online account

identity. Account login name and password creation is followed by choosing and


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answering security questions. Its not recommended that security questions and

answers be common or known by others; they should have unique answers,

whether historically true or not.

For example, if a user chooses a security question, What is the name

your first elementary school, choose an answer that isnotthe actual name or

the actual elementary school. Use instead the name of another school or

anything else that is easily remembered.

Provide an email address that is not tied to an Internet Service Provider. If

the user changes ISPs, that email address will be lost. Instead, use a free email

address that can last for as long as the user chooses.

Once the security aspects are in place and verified, look around the banks

website and note important areas, such as:

1. Account activity

2. Statement delivery change areas

3. Customer Service options

4. Bill pay procedures, if any

5. And any other area provided on the website.


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Online banking often reduces funds availability delays and hastens

resolution to disputes and inquiries. While some complaints and problems do

require human intervention, Customer Service Agents are available for longer

during a calendar day than local branch personnel are.

Online banking differs from traditional banking when physical checks or

cash is deposited; human interaction via a drive thru lane or at the counter is

required. Cashier checks, traveler checks, and money orders cannot be

purchased from the institution via online banking, but because all transactions

allowed are electronic, tracking and accountability are easily provided.


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OPPORTUNITIES IN ONLINE BANKING:

Is There a Future in Online Banking?

By this point, no one can dismiss online banking as a fad. However, it is

worth considering whether the trend towards online financial transactions is

going to slow or reverse in the years to come. There will continue to be people

who resist online banking in favor of offline transactions just as there are peoplewho prefer to keep their money in mattresses instead of putting it in banks.

Whether these people will exert serious influence on the movement towards

online banking can be examined by looking at the needs of modern consumers,

and the interests of the banks themselves.

The Move to Online Business

The global connectivity provided by the internet, combined with the fallout

from the global financial crisis has encouraged a growing number of

entrepreneurs to start their own businesses online. As an increasing number of

people look to save themselves from unemployment or augment otherwise

insufficient salaries by finding new ways to make money online, they will

require new ways to send, receive, and invest their online funds.


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The Rise of Mobile Banking

As handheld mobile devices become more sophisticated, users are

experimenting with more sophisticated transactions. Moving beyond ringtone

downloads; consumers can now shop online and purchase software upgrades and

augmentations through app stores. In addition to this buying and selling, anyone

with a web browser on their phone can access their banks online banking site to

move and manage their money in more locations than ever before.

Staffing Solutions

As banks consolidate and grow larger, they are looking for more ways to cut

costs, and reducing the number of full-time employees on their payroll is an

attractive option. Encouraging customers to do their banking online allows

banks to close smaller branches in outlying locations and use economies of scale

to develop customer assistance centers in locations where the labor market is

more favorable.

Physical Footprints

Online banking is also more attractive to banks because a reduced physical

footprint means reduced costs in other areas. In addition to saving the money

that would normally be associated with operating and maintaining physical

branches, no longer having to print and mail paper statements to customers

would be a huge savings for banks. As an added bonus, banks have been able to


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take advantage of current pro-environment sentiment by marketing online

banking as a green alternative.

By appealing to more mobile customers and more cost-conscious financial

service providers alike, online banking continues to be an attractive option for

everyone involved. However, when discussing the internet it is dangerous to

assume that everything is going to be moved online; there will always be

individuals, industries, and transactions that are grounded in the real world with

no desire to change the way they do business.


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Growth of Internet

The increase in the growth of internet usage will definitely help the cause of

growth of online banking in India. The following chart shows the growth of

internet in India during the past decade or so:

YEAR Users Population % Penetration

1998 1,400,000 1,094,870,677 0.1 %

1999 2,800,000 1,094,870,677 0.3 %

2000 5,500,000 1,094,870,677 0.5 %

2001 7,000,000 1,094,870,677 0.7 %

2002 16,500,000 1,094,870,677 1.6 %

2003 22,500,000 1,094,870,677 2.1 %

2004 39,200,000 1,094,870,677 3.6 %

2005 50,600,000 1,112,225,812 4.5 %

2006 40,000,000 1,112,225,812 3.6 %

2007 42,000,000 1,129,667,528 3.7 %

2009 81,000,000 1,156,897,766 7.0 %

2010 100,000,000 1,173,108,018 8.5 %


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Why Banks Encourage Online Banking?

OVERVIEW

Online banking has enjoyed increased popularity, and some banks actually

require it. From standard, brick-and-mortar institutions to cloud managed

institutions, online banking offers flexibility and convenience for all involved.

BANK ADVANTAGES:

Each visit to a bank costs the institution money, whether in bank teller wages

and benefits to security costs to maintenance costs. Online banking reduces

those costs and increases the banks profit margin.

Online banking reduces the need for the number of physical locations and

services offered within each. Because Customer Service Departments are

united into fewer locations, asset sharing within those locations further reduce

bank costs.


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CUSTOMER ADVANTAGES:

Online security of financial data has evolved tremendously since the early days

of online banking, and often transactions can be even more secure than those

conducted in a drive thru lane.

Online banking transactions require not only a secure login but also require

secured password entry. In-person transactions are based on account information

and a photo ID, both of which can be obtained under the radar.Online banking

transactions also track the Internet Protocol (IP) address of the computer used in

the transaction. The IP can be traced to the method or mode of Internet access,

often through an Internet Service Provider who always notes activity, computer,

and actions performed under that IP address assigned to the ISP account holder.

Whether a dynamic or changing IP address or a static or unchanging IP address

is used, the ISP always records what IP address is assigned to what ISP account

at any time.

Comprehensive Help sections on banks websites often reduce on -location

inquiries, further reducing overhead costs for banking institutions. Additional

service enrollment or dis-enrollment, address updates, and account status and

verification are all time saving activities for both the bank and the banking

customer.


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Online Bill Pay processes reduce stolen or counterfeit checks which cost banks

billions of dollars every month. Each online bill pay transaction allows for a

grace period from the payment order date to the actual check delivery date,

which also allows the account holder additional time to preview activity and

account status.


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DEVELOPMENT:

Increasingly, more and more people are switching to electronic platforms

for executing financial transactions. The wider usage of cell phone and internet

certainly seems to be playing a role in blurring physical boundaries, and

unlocking a whole new world of opportunities for banks in tapping newer

customer segments and in recording greater volume of transactions.

If latest RBI data on retail electronic payment systems is anything to go

by, electronic banking is set to become the catalyst for change in the way

money moves. Provisional data show that in FY09 to January, a total of

5,587.85 lakh transactions were executed through the electronic channel, a rise

of 234.76 lakh transactions over the previous fiscal.

This growth was facilitated by the introduction of real-time gross transfer

(RTGS) and national electronic funds transfer (NEFT), which enabled fund

transfers among account holders of the same bank as well as inter-bank

transfers.

The growth has also been aided by banks' efforts to offer innovative

services and tighten security measures, and the increase in awareness of

services available. RBI outlining guidelines on mobile banking, setting up of the

National Payments Corporation of India and passage of the Payments and


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Settlement Act too have given a positive thrust to the growth in electronic

payments. The impact of all these measures is likely to be felt in the current

fiscal, which may well mean FY10 could become a watershed year for e-

banking. While opinions of industry players differ on whether FY10 will indeed

prove to be a tipping point, there seems to be consensus that the year would

mark a critical phase in the evolution of the payments and settlement systems

in India. "FY10 will certainly herald an important phase for electronic banking in

India and an upsurge in internet and ATM transactions," says Ashvin Parekh,

partner and national industry leader, financial services, Ernst & Young. "At the

same time, traditional fund transfer will continue to hold its own. We are going

to witness a co-existence of these two systems. In the regulatory space, there

will be huge changes. As and when India Pay, which will eventually settle credit

card and ATM transactions, comes into the picture, we could witness a gradual

shift away from Visa and MasterCard." The implementation of core banking

solutions by all public sector banks has not only helped banks rationalise their

costs, but has also allowed them to explore new ways of optimally utilising

their resources. Core banking, which facilitates linking up of a bank's branches

across the country, has enabled banks to improve their efficiency.

"Now, decisions can be taken remotely and the activities too can be

undertaken in a centralised location. This means that branches need not spend

time on processing transactions and other back office operations, and rather

utilise the time and resources to function as selling outlets. Centralised

operations benefit from economies of scale and help in reducing bank costs,"


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explains Janmejaya Sinha, managing director of India operations, Boston

Consulting Group.

Opportunities in e-banking: ARE WE READY?

It has always been a chicken-and-egg dilemma in business. Either firms

wait for the market to mature until customers are ready for the products and

services. Or, firms can go ahead and offer the products and services, hoping that

their customers will catch on soon.

The same is true for new products and services that have emerged and

continue to emerge in the world of electronic banking (e-banking). Banking

executives interviewed by Business World Online have different ways ofresolving the issue. Some would go ahead with new ideas, wanting to take the

first-mover advantage. Others would wait in the sidelines, but armed

nevertheless just in the case the market takes up suddenly increases.

Whether first-movers or latecomers, there is one partner in the e-banking

game that is not waiting for the chicken to lay the egg, or wait for the egg to

hatch into a chick. Technology providers are always up on their toes, like

chicken ready to catch the early worm.
http://www.bworldonline.com/OnlineExclusives/ebank/strategy.htmlhttp://www.bworldonline.com/OnlineExclusives/ebank/strategy.htmlhttp://www.bworldonline.com/OnlineExclusives/ebank/strategy.htmlhttp://www.bworldonline.com/OnlineExclusives/ebank/strategy.html


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CHALLENGES OF ONLINE BANKING

Information technology analyst firm, the Meta Group, recently reported that

"financial institutions who don't offer home banking by the year 2000 will

become marginalized." By the year of 2002, a large sophisticated and highly

competitive Internet Banking Market will develop which will be driven by

Demand side pressure due to increasing access to low cost electronic services.

Emergence of open standards for banking functionality.

Growing customer awareness and need of transparency.

Global players in the fray

Close integration of bank services with web based E-commerce or even

disintermediation of services through direct electronic payments (E- Cash).


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More convenient international transactions due to the fact that the Internet along

with general deregulation trends eliminates geographic boundaries.

Move from one stop shopping to 'Banking Portfolio' i.e. unbundled product

purchases.

Certainly some existing brick and mortar banks will go out of business. But

that's because they fail to respond to the challenge of the Internet. The Internet

and it's underlying technologies will change and transform not just banking, but

all aspects of finance and commerce. It represents much more than a new

distribution opportunity. It will enable nimble players to leverage their brick and

mortar presence to improve customer satisfaction and gain share. It will force

lethargic players who are struck with legacy cost basis, out of business-since

they are unable to bring to play in the new context.


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MAIN CONCERNS IN INTERNET BANKING:

In a survey conducted by the Online Banking Association, member

institutions rated security as the most important issue of online banking. There is

a dual requirement to protect customers' privacy and protect against fraud.

Banking Securely: Online Banking via the World Wide Web provides an

overview of Internet commerce and how one company handles secure banking

for its financial institution clients and their customers. Some basic information

on the transmission of confidential data is presented in Security and Encryptionon the Web. PC Magazine Online also offers a primer: How Encryption Works.

A multi-layered security architecture comprising firewalls, filtering routers,

encryption and digital certification ensures that your account information is

protected from unauthorised access:

Firewalls and filtering routers ensure that only the legitimate Internet users are

allowed to access the system.

Encryption techniques used by the bank (including the sophisticated public key

encryption) would ensure that privacy of data flowing between the browser and

the Infinity system is protected.


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Digital certification procedures provide the assurance that the data you receive is

from the Infinity system.

Security concerns:

Security fears have served as deterrents to online growth. Of particular

concern are threats of pharming and phishing. Phishing is an internet fraud,

through which innocent people are enticed to divulge their personal information

like user ID and passwords, which are later on used by scammers in

unauthorized ways.

The most common method of phishing is sending emails claiming to be

from your bank or other financial institutions which are dealing that already has

your personal information and you will be asked to confirm the details by

clicking a particular link (URL) provided in this fake email. This URL will take

you to a fake website which will be similar to your genuine website, and the

information provided by the customer in the forms provided in the fake website

will be gathered and used for committing fraud in their accounts or withdraw

funds unauthorizedly from these accounts.

Pharming is another internet fraud, whereby as many as users as possible are

redirected before they reach the legitimate online banking websites they intend

to visit and they are lead to malicious ones. The bogus sites to which victims are


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redirected without their knowledge or consent, will likely looks the same as

genuine site. But when users enter their login name or password, the information

is captured by criminals.

FURTHER PROBLEMS RELATING TO NET BANKING IN INDIA

Given that India is the IT and tech services outsourcing hotspot of the world,

it's surprising that Internet banking has not really taken off. Despite the adventof a very tech-savvy and vast consumer class in recent years, a mix of industry

issues and unique challenges continue to thwart the expansion of net banking in

India. Technology challenges, IT practices, certain cultural issues, industry

lethargy, and workplace constraints have affected widespread acceptance of

Internet banking.

Low Broadband Internet Penetration

India has one of the lowest broadband connectivity penetration rates in Asia

as compared to Japan, Taiwan, Korea and Singapore. While the bigger cities

such as Mumbai, Delhi, Chennai, and Bangalore have relatively better

broadband penetration rates, PC users in smaller cities and towns still use dial-

up options to connect to the Internet. Slow connectivity speeds often dampen the

online banking experience for many customers eager to use such services.


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Banks' Ambivalent Commitment Levels

Internet banking did take off in India at the turn of the millennium but soon

faltered due to lack of takers. In the middle of this decade, multinational and

domestic private banks started offering net banking services as a competitive

differentiator. Only recently, state-owned and public sector banks have started

doing likewise. However, banks' ambivalent commitment levels and their

reluctance to allocate huge budgets for net banking branding initiatives, as well

as a lack of industry advocacy efforts, have resulted in poor acceptance levels of

Internet banking by customers.

Customers' Preference for Traditional Branches

There are thousands of highly active traditional bank branches in India's

crowded cities and major towns. Office workers take longer lunch breaks to

finish banking activities and transactions at these branches rather than conduct

them online. Most customers prefer the personal touch and customized service

offered by staff in brick-and-mortar bank branches. Many Indians are also

averse to calling call centers and banks' customer contact lines to address issues

related to online bank accounts.


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Fear of Online Threats/Scams

Ubiquitous and prevalent online threats about hackers, identity theft, stolen

passwords, viruses, worms and spyware tend to make customers wary just like

in any other country. Conservative Indian bank customers used to years of

saving in an erstwhile mixed-socialist economy are always fearful of losing

hard-earned savings in online scams. These customers are also not sure about the

efficacy of banks' websites and their commitment to allocate funds for reliable

encryption mechanisms and robust back-end technologies and systems.

Other Problems

Workplace constraints and corporate policies about using external websites

or pursing personal activities such as online banking have affected its expected

fast-paced acceptance among the growing affluent class in India. Cultural issues,

such as parents giving priority use of the home PC to their children rather than

using it themselves, stifle the potential growth of home access to Internet

banking services. Public sector banks with vast customer bases also don't tend to

invest money in training personnel for e-banking initiatives, resulting in poor

customer service levels.


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Internet Banking in IndiaGuidelines

Reserve Bank of India had set up a Working Group on Internet Banking to

examine different aspects of Internet Banking (I-banking). The Group had

focused on three major areas of I-banking, i.e.

(i) technology and security issues,

(ii) Legal issues and

(iii) regulatory and supervisory issues. RBI has accepted the

recommendations of the Group to be implemented in a phased

manner. Accordingly, the following guidelines are issued for

implementation by banks. Banks are also advised that they may be

guided by the original report, for a detailed guidance on different

issues.


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II. Technology and Security Standards:

a. Banks should designate a network and database administrator with clearly

defined roles as indicated in the Groups report.

b. Banks should have a security policy duly approved by the Board of Directors.

There should be a segregation of duty of Security Officer / Group dealing

exclusively with information systems security and Information Technology

Division which actually implements the computer systems. Further, Information

Systems Auditor will audit the information systems.

c. Banks should introduce logical access controls to data, systems, application

software, utilities, telecommunication lines, libraries, system software, etc.Logical access control techniques may include user-ids, passwords, smart cards

or other biometric technologies.

d. At the minimum, banks should use the proxy server type of firewall so that there

is no direct connection between the Internet and the banks system. It facilitates

a high level of control and in-depth monitoring using logging and auditing tools.

For sensitive systems, a state full inspection firewall is recommended which

thoroughly inspects all packets of information, and past and present transactions

are compared. These generally include a real time security alert.


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e. All the systems supporting dial up services through modem on the same LAN as

the application server should be isolated to prevent intrusions into the network

as this may bypass the proxy server.

f. PKI (Public Key Infrastructure) is the most favoured technology for secure

Internet banking services. However, as it is not yet commonly available, banks

should use the following alternative system during the transition, until the PKI is

put in place:

1. Usage of SSL (Secured Socket Layer), which ensures server authentication and

use of client side certificates issued by the banks themselves using a Certificate

Server.

2. The use of at least 128-bit SSL for securing browser to web server

communications and, in addition, encryption of sensitive data like passwords in

transit within the enterprise itself. (Para 6.4.5)

g. It is also recommended that all unnecessary services on the application server

such as FTP (File Transfer Protocol), telnet should be disabled. The application

server should be isolated from the e-mail server. (Para 6.4.6)


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h. All computer accesses, including messages received, should be logged. Security

violations (suspected or attempted) should be reported and follow up action

taken should be kept in mind while framing future policy. Banks should acquire

tools for monitoring systems and the networks against intrusions and attacks.

These tools should be used regularly to avoid security breaches. The banks

should review their security infrastructure and security policies regularly and

optimize them in the light of their own experiences and changing technologies.

They should educate their security personnel and also the end-users on a

continuous basis.

i. The information security officer and the information system auditor should

undertake periodic penetration tests of the system, which should include:

1. Attempting to guess passwords using password-cracking tools.

2. Search for back door traps in the programs.

3. Attempt to overload the system using DDoS (Distributed Denial of Service) &

DoS (Denial of Service) attacks.


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4. Check if commonly known holes in the software, especially the browser and the

e-mail software exist.

j. The penetration testing may also be carried out by engaging outside experts

(often called Ethical Hackers).

k. Physical access controls should be strictly enforced. Physical security should

cover all the information systems and sites where they are housed, both against

internal and external threats.

l. Banks should have proper infrastructure and schedules for backing up data. The

backed-up data should be periodically tested to ensure recovery without loss of

transactions in a time frame as given out in the banks security policy. Businesscontinuity should be ensured by setting up disaster recovery sites. These

facilities should also be tested periodically.

m.All applications of banks should have proper record keeping facilities for legal

purposes. It may be necessary to keep all received and sent messages both in

encrypted and decrypted form.


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n. Security infrastructure should be properly tested before using the systems and

applications for normal operations. Banks should upgrade the systems by

installing patches released by developers to remove bugs and loopholes, and

upgrade to newer versions which give better security and control.

II. Legal Issues

a. Considering the legal position prevalent, there is an obligation on the part of

banks not only to establish the identity but also to make enquiries about integrity

and reputation of the prospective customer. Therefore, even though request for

opening account can be accepted over Internet, accounts should be opened only

after proper introduction and physical verification of the identity of the

customer.

b. From a legal perspective, security procedure adopted by banks for authenticating

users needs to be recognized by law as a substitute for signature. In India, the

Information Technology Act, 2000, in Section 3(2) provides for a particulartechnology (viz., the asymmetric crypto system and hash function) as a means of

authenticating electronic record. Any other method used by banks for

authentication should be recognized as a source of legal risk.


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c. Under the present regime there is an obligation on banks to maintain secrecy and

confidentiality of customersaccounts. In the Internet banking scenario, the risk

of banks not meeting the above obligation is high on account of several factors.

Despite all reasonable precautions, banks may be exposed to enhanced risk of

liability to customers on account of breach of secrecy, denial of service etc.,

because of hacking/ other technological failures. The banks should, therefore,

institute adequate risk control measures to manage such risks.

d. In Internet banking scenario there is very little scope for the banks to act onstop-payment instructions from the customers. Hence, banks should clearly

notify to the customers the timeframe and the circumstances in which any stop-

payment instructions could be accepted.

e. The Consumer Protection Act, 1986 defines the rights of consumers in India and

is applicable to banking services as well. Currently, the rights and liabilities of

customers availing of Internet banking services are being determined by bilateral

agreements between the banks and customers. Considering the banking practice

and rights enjoyed by customers in traditional banking, banks liability to the

customers on account of unauthorized transfer through hacking, denial of service

on account of technological failure etc. needs to be assessed and banks providing

Internet banking should insure themselves against such risks.


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III. Regulatory and Supervisory Issues:

As recommended by the Group, the existing regulatory framework over

banks will be extended to Internet banking also. In this regard, it is advised that:

1. Only such banks which are licensed and supervised in India and have a physical

presence in India will be permitted to offer Internet banking products to

residents of India. Thus, both banks and virtual banks incorporated outside the

country and having no physical presence in India will not, for the present, be

permitted to offer Internet banking services to Indian residents.

2. The products should be restricted to account holders only and should not be

offered in other jurisdictions.

3. The services should only include local currency products.

4. The in-out scenario where customers in cross border jurisdictions are offeredbanking services by Indian banks (or branches of foreign banks in India) and the

out-in scenario where Indian residents are offered banking services by banks

operating in cross-border jurisdictions are generally not permitted and this

approach will apply to Internet banking also. The existing exceptions for limited


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purposes under FEMA i.e. where resident Indians have been permitted to

continue to maintain their accounts with overseas banks etc. will, however, be

permitted.

5. Overseas branches of Indian banks will be permitted to offer Internet banking

services to their overseas customers subject to their satisfying, in addition to the

host supervisor, the home supervisor.

Given the regulatory approach as above, banks are advised to follow the

following instructions:

a. All banks, who propose to offer transactional services on the Internet should

obtain prior approval from RBI. Banks application for such permission should

indicate its business plan, analysis of cost and benefit, operational arrangements

like technology adopted, business partners, third party service providers and

systems and control procedures the bank proposes to adopt for managing risks.

The bank should also submit a security policy covering recommendations made

in this circular and a certificate from an independent auditor that the minimum

requirements prescribed have been met. After the initial approval the banks will

be obliged to inform RBI any material changes in the services / products offeredby them.


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b. Banks will report to RBI every breach or failure of security systems and

procedure and the latter, at its discretion, may decide to commission special

audit / inspection of such banks.

c. The guidelines issued by RBI on Risks and Controls in Computers and

Telecommunications vide circular DBS.CO.ITC.BC. 10/ 31.09.001/ 97-98

dated 4thFebruary 1998 will equally apply to Internet banking. The RBI as

supervisor will cover the entire risks associated with electronic banking as a part

of its regular inspections of banks.

d. Banks should develop outsourcing guidelines to manage risks arising out of third

party service providers, such as, disruption in service, defective services and

personnel of service providers gaining intimate knowledge of banks systems

and misutilizing the same, etc., effectively.

e. With the increasing popularity of e-commerce, it has become necessary to set up

Inter-bank Payment Gateways for settlement of such transactions. The protocol

for transactions between the customer, the bank and the portal and the

framework for setting up of payment gateways as recommended by the Group

should be adopted.


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f. Only institutions who are members of the cheque clearing system in the country

will be permitted to participate in Inter-bank payment gateways for Internet

payment. Each gateway must nominate a bank as the clearing bank to settle all

transactions. Payments effected using credit cards, payments arising out of cross

border e-commerce transactions and all intra-bank payments (i.e., transactions

involving only one bank) should be excluded for settlement through an inter-

bank payment gateway.

g. Inter-bank payment gateways must have capabilities for both net and grosssettlement. All settlement should be intra-day and as far as possible, in real time.

h. Connectivity between the gateway and the computer system of the member bank

should be achieved using a leased line network (not through Internet) with

appropriate data encryption standard. All transactions must be authenticated.

Once, the regulatory framework is in place, the transactions should be digitally

certified by any licensed certifying agency. SSL / 128 bit encryption must be

used as minimum level of security. Reserve Bank may get the security of the

entire infrastructure both at the payment gateways end and the participating

institutions end certified prior to making the facility available for customers

use.

i. Bilateral contracts between the payee and payees bank, the participating banks

and service provider and the banks themselves will form the legal basis for such


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transactions. The rights and obligations of each party must be clearly defined

and should be valid in a court of law.

j. Banks must make mandatory disclosures of risks, responsibilities and liabilities

of the customers in doing business through Internet through a disclosure

template. The banks should also provide their latest published financial results

over the net.

k. Hyperlinks from banks websites often raise the issue of reputational risk. Such

links should not mislead the customers into believing that banks sponsor any

particular product or any business unrelated to banking. Hyperlinks from banks

websites should be confined to only those portals with which they have a

payment arrangement or sites of their subsidiaries or principals. Hyperlinks to

banks websites from other portals are normally meant for passing on

information relating to purchases made by banks customers in the portal. Banks

must follow the minimum recommended security precautions while dealing with

request received from other websites, relating to customers purchases.

2. The Reserve Bank of India has decided that the Groups recommendations as

detailed in this circular should be adopted by all banks offering Internet banking

services, with immediate effect. Even though the recommendations have been

made in the context of Internet banking, these are applicable, in general, to all


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forms of electronic banking and banks offering any form of electronic banking

should adopt the same to the extent relevant.

3. All banks offering Internet banking are advised to make a review of their

systems in the light of this circular and report to Reserve Bank the types of

services offered, extent of their compliance with the recommendations,

deviations and their proposal indicating a time frame for compliance. The first

such report must reach us within one month from the date of this circular. Banks

not offering any kind of I-banking may submit a nil report.

4. Banks who are already offering any kind of transactional service are advised

to report, in addition to those mentioned in paragraph above, their business

models with projections of cost / benefits etc. and seek our post-facto approval.


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SOLUTIONS:

Here are some simple tips to prevent you from falling into the trap of

cyber criminals. Remember, a simple ignorance or oversight can make a huge

dent in your hard- earned savings.

Securing your account:

Avoid online banking on unsecured wifi systems and operate only from

PCs at home. Never reveal password to anyone. Do not even write it on a piece

of paper on diary. Just memorise it. It should be alphanumeric and change it

frequently.

Never reply to queries from bank online about account or personal details.

The personal information should not be kept in a public computer or in emails.

Phishing:

A person's personal details are obtained by fraudsters posing as bankers,

who float a site similar to that of the person's bank. They are asked to provide all


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personal information about themselves and their account to the bank on the

pretext of database upgradation. The number and password are then used to

carry out transactions on their behalf without their knowledge.

Phishing involves using a form of spam to fraudulently gain access to

people's online banking details. As well as targeting online banking customers,

phishing emails may target online auction sites or other online payment

facilities. Typically, a phishing email will ask an online banking customer to

follow a link in order to update personal bank account details. If the link isfollowed, the victim downloads a program which captures his or her banking

login details and sends them to a third party.

Spam:

Spam is an electronic 'junk mail' or unwanted messages sent to your

email account or mobile phone. These messages vary, but are essentially

commercial and often annoying in their sheer volume. They may try to persuade

you to buy a product or service, or visit a website where you can make

purchases; or they may attempt to trick you into divulging your bank account or

credit card details.


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Nigerian Scam:

Nigerian or Frauds 409 or 419 are basically the lottery scam in which

some overseas persons are involved to cheat innocent persons or organizations by

promising to give a good amount of money at nominal fee charges. Their intention

is to steal money in the form of fee against the lottery prize.

Spyware:

Spyware such as Trojan horse is generally considered to be software

that is secretly installed on a computer and takes things from it without the

permission or knowledge of the user. Spyware may take personal information,

business information, bandwidth; or processing capacity and secretly gives it to

someone else.

"Trojan Horse" scheme unfolds when malicious software (malware)

embeds to a consumer's computer without the consumer being aware of it.

Trojans often come in links or as attachments from unknown email senders.

After installation the software detects when a person accesses online banking

sites and records the username and password to transmit to the offender. People

using public computers, in places like Internet cafes, are often susceptible to

Trojans like malware or spyware.


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Check sites Url:

Always check the URL of your bank's web site. Fraudsters can lure

you to enter your user ID and password at a fake website that resembles your

bank. If you see anything other than the bank's genuine URL, it has to be fake.

Never enter your user ID or password or such sensitive information

without ascertaining that you are on the right website. Always type the Web

address of your bank into the browser address space. Never click on the link in

the email.

Full-proof password:

Change your online banking password at regular intervals. Also, avoid

easy-to-guess passwords, like first names, birthdays, kid's or spouse's name and

telephone numbers. Try to have an alpha-numeric password, one that combines

alphabets and numbers.

If you have several bank accounts, never use the same online banking

password for all. Never select the option on browser that stores or retains user


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name and password. As it can easily be cracked by cyber criminals. Also, never

paste your password, always type it in. This little amount of `finger exercise'

will go a long way in safety.

Always check 'last logged':

Most banks have a 'last logged in' panel on their websites. If your bank

has it, check the panel whenever you log in. If you notice irregularities (like you

are logging in after two days, but the panel says you logged in that morning!),

report the matter immediately to your bank and change your password right

away.

Always log out when you exit the online banking portal. Close thebrowser to ensure that your secure session is terminated. Never exit simply by

closing the browser.

Keep your system up to date:

Regularly check for security updates for your computer operating

system. Most security updates are aimed at reducing risks to your computer,

these may be data-related or otherwise. Make sure that your operating system


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and browser have the latest security patches installed. And, always install these

only from trusted websites.

Install a personal firewall to prevent hackers from gaining

unauthorised access to your computer, especially if you connect to the Internet

through a cable or a DSL modem.

Public access can be injurious:

Don't leave the PC unattended after keying in information while

transacting on the website. Avoid accessing your bank online at cyber cafes or

on a share or public computer. Also, avoid locations that offer online

connections through wireless networks (Wi-Fi), where privacy and security areminimal.

Follow Bank instructions:

Banks say that appropriate up gradations are carried out from time

to time by their IT departments for risk mitigation. They issue instructions to the

customers to manage their accounts through virtual keyboards by way of which

the characters typed by them are not identified by hackers. SMS alerts are also


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an important tool since any transaction carried out on account is reported to the

account holder through an SMS.

Protection:

Learn the ways to protect yourself from online banking fraud

schemes. Detect Trojans that appear on your PC in the form of viruses, spyware

or malware through Antivirus Software, anti Spyware, and Adware. Also, learnto keep your cards, documents and passwords safe, and monitor your accounts to

safeguard yourself from bank fraud committed through identity theft.


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CASE STUDIES:

1. Email password Hacking-

One day a lady came to cyber cell office and reported that she and her

brothers e-mail IDS had been hacked by someone she suspected him to be her

husband. The lady had already lodged a case against him for dowry and was

pending for trial in Bhopal court.

The suspect had hacked ladys and her brother e-mail ID account and

copied all the information to his e-mail and produced selected e-mails to claim

that . she was happy with him and case of dowry is a false one .

To malign the image of her brother the suspect sent a copy of FIR lodged

against him at police station Habibganj. This indicated that the husband of the

lady was behind the whole affair but police had not any evidence against him.

Cyber cell started enquiry by an order of IGP and obtained the login logs

from rediff.com .The logs indicated that the email IDs password were changed

and anonymous emails were sent from the house of ladys husband and sent

from his.


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Cyber cell registered a case under se

rouble banking project

Documents