SHRI RAM COLLEGE OF COMMERCE

TOPIC

A PROJECT SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR DEGREE OF B.COM (H)

UNIVERSITY OF DELHIPAPER – CH6.3 (B)

BYNAOREM BORIS SINGH

14BC26314072204344

M-64POPULARITY OF INTERNET BANKING

2016-17

UNDER THE SUPERVISION OF SUDHANSHU

DECLARATION

This is to cerify that the material embodied in this study entitled “Popularity of Internet banking” is based on my own research work and my indebtedness to other work/publications has been acknowlwdged at the revelant places.

This study has been submitted elsewhere either wholly or in part for award of any degree.

Naorem Boris Singh

This is to cerify that the project titled “popularity of internet banking” done by “Naorem Boris Singh” is a part of his/her academic curriculum for the degree of B.Com(H). It has no commercial implication and is done only for academic purpose.

SUDHANSHU

Dept. of Commerce

Index

Executive Summary

Research Methodology

1. History of Banking in India2. Internet Bankng

2.1 Introduction2.2 Features2.3 Role and Significance

3. Internet Banking in India3.1 The Indian Scenario3.2 Projects and Services Offered

3.2.1 Internet Banking 3.2.2 Bill Payment 3.2.3 Business banking3.2.4 Lending 3.2.5 Imaging3.2.6 Account Alerts3.2.7 Account to Account Transfers3.2.8 Account Opening and Funding3.2.9 Secure Messaging

3.3 Future Scenario

4. Pros and cons of Internet Banking4.1 Pros of Internet Banking4.2 Cons of Internet Banking

5. Case Study on State Bank of India5.1 SBI Bank 5.2 E-Mail fraud

5.3 Online fruad 5.4 Suggestions

6. Banking in the Next Century7. Conlusion8. Bibliography

Executive Summary

Internet is increasingly used by banks as a channel for receiving instructions and delivering their products and services to their customers. Different banks follow deiiferent levels of providing services on internet. Compared to banks abroad, India banks offering online services still have a long way to go in terms of number of users and sufficient infrastructure in place.

Various security options are in place or are being looked at; however, Certification Authority is still misssing in India. Also there are various risks associated with internet banking such as Operational Risk, Security Risk, Cross Border Risks, Legal Risk, etc.

The Basel Committee’s Electronic Banking Group (EBG) in late 1999, tried to delelop risk management guidance for internet banking that will guide bankers and promote effective and consistent bank supervision around the world.

The use of Information Technology in banking enables the banks to provide Any Time Banking, Customer Service, Telebanking, Home Banking, Plastic Card Services, etc., facilities. However, these facilities along with certain advantages these facilities along with certain advantages these have certain disadvantages too.

A successful internet banking solution offers:-

Exceptional rates on saving, cash deposits, free bill payments and rebates on ATM surcharges.

Credit cards with low rates. Easy online application for all accounts,including personal loans and mortages 24 hours account access.

Concluding this, India is on threshold of a major banking revolution with the invasion of net banking and with the concept of payment gateway coming in; banks are vying with one another for the lion’s share in the market.

In this report, I attempt to enlist the various products and services offered by different banks in India, risks and challenges involved in internet banking, different uses of information technology such as Shared Payment Network System (SPNS). ATM, Any Time Banking, Electronic Funds Transfer, Telebanking etc., banks controls, main issues concerning online banking and the scope for online banking in the near future

Research Methodology

Primary Data

Case study on State Bank of India

Visiting internet banking services websites

Secondary Data

College Library

Internet Website

1. History of Banking in India

Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors.

For the past three decades India’s banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reasons of India’s growth process.

The government’s regular policy for Indian bank since 1969 has paid rich dividends with the nationalisation of 14 major privade banks of India. Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today, he

has a choice. Gone are days when the most efficient bank transferred money from one branch to other in two days. Now it is simple as instant messaging or dial a pizza. Money has become the order of the day.

The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of internet banking system can be segregated into three distinct phases. They are as mentioned below:

Early phase from 1786 to 1969 of Indian Banks.

Nationalisation of Indian Banks and up to 1991 prior to Indian banking sector Reforms.

New phase of Indian Banking System with the advent of Indian Financial and Banking Sector reforms after 1991.

1. Internet Banking

2.1 Introduction

The precursor for the modern home online baking services were the distance banking service over electronic media from the early ‘80s and referred to the use of a terminal, keyboard and TV( or monitor) to access the banking system using a phone line. “Home banking” can also refer to the use of a numeric keypad to send tones down a phone line with instructions to the banks. Online services started in New York in 1981 when four of the city’s major banks (Citibanks, Chase Manhattan, Chemical and Manufactures Hanover) offered home banking services using the videotext system. Because of the commercial failure of videotext these banking services never became popular except in France where the use of videotext (Minitel) was subsidized by the telecom provider and the UK, where the Prestel system was used.

With cybercafe’s and kiosks springing up in different cities access to the Net is going to be easy. Internet banking (also referred as e-banking) is the latest in this series of technological wonders in the recent past involving use of Internet for banking products and services.

Internet banking is changing the banking industry and is having the major effects on banking relationships. Banking is no longer confined to the branches were one has to approach the branch in person, to withdraw cash or deposit a cheque or request a statement of accounts. In true Internet Banking, any inquiry or transaction is processed online without any reference to the branch( anywhere banking) at any time. Providing Internet banking is increasingly becoming a “need to have” than to “nice to have” service. The net banking, thus, now is more of a norm rather than an exception in many developed countries due to the fact that is the cheapest way of providing banking services.

Online banking ( or Internet banking) allows customers to conduct financial transactions on a secure websites operated by their retial or virtual bank, credit union or building society.

2.2 Features

Online banking solutions have many features and capabiities in common, but traditionally also have some that are application specific.

The common features fall broadly into several categories

Transactional Electronic bill presentment and payment. Funds transfer between a customer’s own checking and saving accounts, or to

another customer’s account. Investment purchase or sale. Loan application and transactions, such as repayment.

Non-transactional Bank statements.

Financial Institution Administration. Support of multiple users having varying levels of authority. Transacton approval process. Wire transfer.

A feature commonly unique to Internet banking is Personal financial management support, such as importing data into personal accounting software. Some online banking platforms support account aggregation to allow the customers to monitor all of their accounts in one place whether they are with their main bank or with other institutions.

2.3 Role and Significance

Internet banking has transformed the financial industry. Banking customers can perform most transactions by themselves on their own computer at hours that work for them. No longer do

customers have to wait in lines at the bank or rush to get to their bank before it closes. They can withdraw cash, perform transfers and make ppayments with the click of a mouse.

Internet banking is convenient for those who are working from home, have limited time or want to keep track of their finances 24 hours a day. Internet banking allows account holders to transfer funds, pay bills, keep a more accurate balance ledger, and report fruadulent transactions and more. Anyone who has a laptop or desktop computer with Internet access may do their banking from anywhere in the world.

Banks now have come under great pressure to reduce operational costs to safeguard their bottom lines. With banking tuning more and more customer-centric with every passing day, technology as an enabler has helped banks to launch a whole arrey of customer-centric products such as ATMs, Debit Cards, 24 hour Anywhere Banking. Customer Relations Management is now a very potential concept. Internet Banking also has a role to play in ensuring a fair return to shareholders, by facilitating in ensuring greater profits to the banking sector. The recent emerging trends in self-service channels, namely ATMs, Call-centers, Internet and Mobile Banking would increase the use of E-banking as this offer the twin benefit i.e. convenience to the customers and reduction and cost of operation to the banks. The popularity of internet banking likely depends upon inclucating in customers about their security and personal privacy of their money and assets.

2. Internet Banking in India

3.1 The Indian Scenario

The Interenet banking is changing the banking industry and is having the major effects on banking relationships. Internet banking involves use of Internet for delivery of banking products and services. A successful Inetrnet banking solution offers

Exceptional rates on savings, CDs and IRAs Checking with no monthly fee, free bill payment and rebates of ATM surcharges Credit cards with low rates Easy online applications for all accounts, including personal loadns and mortages’24

hour account access Quality customer service with personal attention

Internet banking, both as a medium of delivery of banking services and as a strategic tool for business development. At present, the total internet users in the country are estimated at 9 lakh. However, this is expected to grow exponentially to 90 lakh by 2030. Only about I percent of internet users did banking in 1998. This is increased to 16.7 percent in march 2000.

-(india Reserce, May 29, 2000, Kotak Securities)

Cost of banking service through the internet from a fraction of costs tthrough conventional methods. Rough estimates assume teller cost at Re 1 per transaction. ATM transaction cost at 45 paisa, phone banking at 35 paisa, debit cards at 20 paisa and internet banking at 10 paisa per transaction. The banking industry in India is facing unprecendented competition from non-traditional banking institutions, which now offer banking and financial services over the internet. The deregulation of the banking industry coupled with the emergence of new technologies, are enabling new compititors to enter the financial services market quikly and efficiently.

Indian banks are going for the retial banking is a big way. However, much is still to be achieved. This study which was conducted by students of IIML shows some interesting facts:

Throughout the country, the Internet Banking is in the nascent stage of development( only 50 banks are offering varied kind of Internet banking services).

In general, these Internet sites offer only the most basic services. 55% are so called ‘entry level’ sites, offering little more than company information and basic marketing materials. Only 8% offer ‘advanced transactions’ such as online funds transfer, transactions and cash management services.

Foreign and Private Banks are much advanced in trems of the number of sites and their level of development.

2.2 Products and Services offered

Meet customer demands for both convenience and financial independence. Every online transaction drives more traffic to your websites. By integreting the website and online services, customers will see important news and promotions they may have otherwise missed. Internet Banking solutions include:

2.2.1 Internet Banking

Show customers you are there for them anytime, anyplace. Make it easy to give customers 24/7 access to their accounts and other valued information.

2.2.2 Bill Payment

Give customers convenient, safe, and reliable, access to pay their bills online – 24/7. Bill Payment can be integreted with Internet Banking platform, providing a seamless single-sign-on user experience, or it can be offered independent of any Internet banking product or data host.

Choose to offer customers good funds or risk-based settlement from a variety of third-party disbursement partners.

2.2.3 Business Banking

Provide a wide range of online tools specially designed for your customer’s small business needs.

2.2.4 Lending

Offer customers the ability to apply for loans online.

2.2.5 Imaging

Provide customers, fast, easy and secure electronic access to their check images ans staements when it is convenient for them from home or office.

2.2.6 Account Alerts

Give the financial institution the opportitunity to notify customers with real-time email account alerts.

2.2.7 Account to Account Transfer

With Account to Account Transfer solution, one can offer account holders the ability to move money between any institution and accounts at other financial institution.

2.2.8 Account Opening and Funding

Provide an automated online account opening and funding process for new accounts.

2.2.9 Secure Messaging

Customers can send a secure SSL-encrypted message that can be stored and answered in your Internet Banking administrative site, enabling customers to send a financial institution questions and other communications containing sensitive data, such as account number and balances.

2.3 Future Scenario

These is no doubt that potential for net banking in India is immense considering the rising penetration levels of the World Wide Web in Indian homes and offices. When one takes a look at what is available worldwide, one sees that net banking is more of a norm rather than an exception in many developed countries. In India, however, there may arise problems with nationalized banks, which have in the past opposed computerization. However, the fact

remains that given a choice, customers would like to bank via the net and the next decade could well see virtual banking becoming a reality.

Compared to banks abroad, India banks offering online services still have a long way to go. For online banking to reach a critical mass, there has to be sufficient number of users and the sufficient infrastructure in place.

Reserve Bank of India has constituted a group to examine different issues relating to I-banking and recommend technology, security legal standards and operational standards keeping in view the international best practics. In the following paragraphs a generic set of risks discusssed as the basis for formulating general risk control guidelines.

The future of banking would be in terms of integretion. This is already becoming a reality with new-age banks such YES Bank, and others too adopting a single-PIN. Geography will no longer be an inhibitor. Technology will prove to be the differentiate or in the short-term but the dynamic environment will soon lead to its saturation and what will ultimately be the key to success will be a better relationship management.

3. Pros and Cons of Internet Banking

Many people are turning to online banking to meet their banking needs. Online banking is less expensive for the banks because of the lack of paper and postage involved, so they encourage their customers to transition to online banking. Many customers continue to resist this push, feeling uncomfortable with handling their banking needs over a computer.Online banking comes with both advantages and disadvantages, which are outlined below.

4.1 Pros of Internet Banking

24/7 availability of banking services and flexibility are the acknowledged advantages pf online banking. Better interest rates on CDs and saving accounts that are opened online, wider array of financial products and services for customers are other attractive features of online banking. The advantages of online banking are obvious. Business people can access their personal and business account information while saving a trip to the bank. You can check your balance whenever you need to, even if the bank is closed. Not only that, but you can pay bills online as well, which saves both time and money on poatage.

Another advantages of Internet banking is the ability to easily compare services offered by different banks. You can buy financial products and apply for loan online, and in doing so, you can compare your options to ensure that you get the best posssible services. You can even buy insurance online through Internet banking services. Stocks and bonds and other investment can be managed with online banking from your home or office independent of a financial intermediary like a stockbroker.

3.2 Cons of Internet Banking

Intrenet banking or electronic banking allows customers to access their accounts at any time from any computer or smart phone. This banking style has a lot of advantages,including 24-hour account monitoring, the ability to bank from anywhere and fast transaction. However, this system has some distinct disadvantages, too.

Limited Access Fees Security Concerns Identity Confirmation Customer service Accessibility

4. Case Study: State Bank of India

5.1 SBI Bank

The State Bank of India is the oldest and largest bank in India, with more than $250 billion (USD) in assets. It is the second-largest bank in the world in number of branches; it opened its 10,000th

branch in 2008. The bank has 84 international branches located in 32 countries and approximately 8,500 ATMs. Additionally, SBI has controlling or complete interest in a number of affiliate banks, resulting in the availability of banking services at more than 14,600 branches and nearly 10,000 ATMs.SBI traces its heritage to the 1806 formation of the Bank of Calcutta. The bank was renamed the Bank of Bengal in 1809 and operated as one of the three premier "presidency" banks (the presidency banks had the exclusive rights to manage and circulate currency and were provided capital to establish branch networks). In 1921, the government consolidated the three presidency banks into the Imperial Bank of India. The Imperial Bank of India continued until 1955, when India's central bank, the Reserve Bank of India, acquired the majority interest in the bank and changed its name to the State Bank of India (SBI).In 1959, the Indian government passed the State Bank of India Act, resulting in the acquisition (majority shareholding) of eight state-affiliated banks and the creation of the State Bank of India Group (SBI Group). The SBI itself is now majority owned by the Indian government, which purchased the shares held by the Reserve Bank of India. The State Bank of India and its affiliate banks are profiled in Exhibit 1.

Exhibit 1Profile of the State Bank of India and Associate Banks (May 2008)Source: State Bank of India Group

Unlike private-sector banks, SBI has a dual role of earning a profit and expanding banking services to the population throughout India. Therefore, the bank built an extensive branch network in India that included many branches in low-income rural areas that were unprofitable to the bank. Nonetheless, the branches in these rural areas bought banking services to tens of millions of Indians who otherwise would have lacked access to financial services. This tradition of "banking inclusion" recently led India's Finance Minister P. Chidambaram to comment, "The State Bank of India is owned by the people of India."A lack of reliable communications and power (particularly in rural areas) hindered theimplementation of computerization at Indian banks throughout the 1970s and 1980s. During this period, account information was typically maintained at the local branches with either semiautomated or manual ledger card processing. During the 1990s, the Indian economy began a period of rapid growth as the country's low labor costs, intellectual capital, and improving telecommunications technology allowed India to offer its commercial services on a global basis.This growth was also aided by the government's decision to allow the creation of private-sector banks (they had been nationalized in the 1960s). The private-sector banks, such as ICICI Bank and HDFC Bank, altered the banking landscape in India. They implemented modern centralized core banking systems and electronic delivery channels that allowed them to introduce new

products and provide greater convenience to customers. As a result, the private-sector banks attracted middle and upper-class customers at the expense of the public-sector banks. Additionally, foreign banks such as Standard Chartered Bank and Citigroup used their advanced automation capabilities to gain market share in the corporate and high-net-worth markets.

The SBI Internet Banking is one of its kind is many regards. The login and transaction on the website is so easy that even first-time users can access their account and perform the transaction functions with ease. The value added service enable us to make the payments of our telephone Bills, Electricity Bills etc online and this reflects the reach of the State Bank of India to make our daily chores easy.Availing the Internet banking services, you can do the following normal banking transactions online:

Self-account funds transfer across India. Third party transfers in the same branch. New account opening. Demand draft requests. Standing instruction. New Cheque-book request and much more.

Apart from these, the other salient value-added features available are: Railway tickets booking. Utility bill payments. LIC and other insurance premia payments. SBI Mutual funds investments. Remit Subscription to PPF account. Credit card dues payments. Deposits your taxes. Donations to your religious inspirations. Donations to Red Cross and such other organisation. Setting up SMS alerts for transaction information.

4.2 E-Mail Fraud

Online fruadsters targeted SBI customers through spam mail that asked them to disclose passwords and other information, but the bank said no financial loss was reported so far.E-mails with the subject ‘Important information from State Bank of India’ and ‘Official information from State Bank of India’ started circulating from Monday. Once opened, the mail asked customers to click on a link.“For security purposes your account has been rendomly chosen for verification. To verify your account information we are asking you to provide us with all the data we are requesting. Otherwise we will not be able to verify your identity and access to your account will be denied. Please click on the link below to get to the SBI secure page and verify your account details. Thank you” the e-mail said.The ingenuity of the e-mail is striking as when clicked on the link, it opens a Web page that is an exact replica of SBI’s and simultaneously open the bank Web site.

Customers were asked to key in their identification number, login and fund transfer passwords. The link, however, did not work on Wednesday. An SBI spokesman said so far no financial loss was reported because of the fruad. “It’s not easy to say how many of our customers have got it. First, we felt it will be a large number. But now our assesment is it’s a small number,” the spokesman said.

4.3Online fruad

CBD Belapur resident Vishal Sharma suffered a loss of Rs 95,000, which was transferred through 19 phone bank transactions in just two minutes.The police have so far booked Bhavin Thakur of Chira Bazaar Mumbai. That is because Sharma’s money was transferred into Thakur’s account on june 2. But Sharma has alleged that the loss occurred because SBI Bank failed to protect his account.

4.4Suggestions

To prevent online banking from remaining an expensive additional channel that does little to retain footloose customers, banks must act quickly.

The first and most obvious step they should take is to see to it that the basic problem fuelling dissatisfaction has been addressed.

After repairing these basic deficiency, banks must ensure that their services are compititive.

Obviously, it should include checking, savings and brokerage services, which anchor customers to the institution.

In addition, to meet the challenge of online brokerage and other new entrants, banks would need to add “supermarkets” selling products such as mortage funds and insurance.

5. Banking in the next century

More and more non banking institutions are going to provide the banking functions than the designated banks in the coming century. Banks are going to be vanished from its existing strong positions. Financial liberalization, internationalization, and technological advancement are going to further pressurize the banks to make their struggle for existence. If a bank overcome all these pressures survival of the fittest comes again because of the technological innovation and the type of compitition in the banking industry.Banks also need to revitalize their fee income flows to supplement and supplant is necessary their net interest margin for which they are required to reemphasis risk management on a daily

basis. Banks are focused to give up isolated approaches to the challenges of compitition profitably and risks management. Strategic planning has superseded the isolated approaches. The need for sound conceptual and technical skills has been seared into every bankers mind. For banks to survive profitable they have to improve the operational methods with latest hi-tech financial modeling content.

6. Conclusion

Technology innovation and fierce compitition among existing banks have enable a wide array of banking productrs and services, being made available to retial and wholesale customer through an electronic distribution channel, collectively referred to as e-banking. The integretion of e-banking application with legacy system implies an integreted risk management approach for all banking activitiesof a banking institution. Latest recommendations of Basel Committee recognize that each bank’s risk profile is different and required a tailored risk mitigation approach appropriate for the scale of e-banking operations, the materiality of the risks present and the willingness and ability of the institution to manage their risks. This implies that a “one scale fits all” approach to e-banking risk management issues may not be appropriate.

Banks have traditionally been in the forefront of hamessing technology to improve product and efficiency. Technology is altering the relationships between banks and its internal and external customers. Technology has also eroded the entry barriers faced by many industries. With one time investment, technology has brought about superior products and channel management with a special focus on customer relationship. The incremental costs incurred for expansion and diversification are also more beneficial.

The major driving force behind the rapid spread of e-banking is its acceptance as a extremely cost effective delivery channel. But on the flipside, it is associated with risks such as reputation risk, security risk, cross-border risk and strategic risk, which are unique to e-banking. Banks need to have an effective disaster recovery plan along with comprehensive risk management tool is significant not only to the bank but also to the banking system as a whole. All these issues underscore the importance of sound supervisory policies and high level of international co-operation among the bank regulators. The Basel Committee on banking Supervision has taken the lead in this area through the creation of its Electronic Banking Group – a group comprising of 17 central banks and bank supervisory agencies in the late 1999. The main focus of this group has been to develop sound risk management practices.

Internet has created plenty of opportunities for players in the banking sector. While the new entrants have the advantage of latest technology, the goodwill of the established banks gives them a special opportunity to lead the online world. By merely putting existing service online won’t help the banks in holding their customer close. Instead, banks must learn to capitalize their customer’s different online financial-services relationships. The article “Will Banks Control Online Banking?” focuses on how banks have to reinvent their to remain as their customers’ preferred bank.

Coming home, India is on threshold of a mojor banking revolution with the invasion of net banking. With the concept of payment gateway coming in, banks are vying with one another for the lion’s share in the market. Highlighting the benefits of payment gateway over the open-loop payment mechanism, the article “Banking in the Cyber worlds” gives a brief report of the tug of war between the major Indian e-banking players.

6. Bibliography

Primary Data Case study through Questionnaire Visiting internet banking services websites http/www.tcs.com/sitecollectiondocuments/case%20studies/bancs_case_sbi.pdf

Secondary Data College Library Internet Websites