SEMESTER PROJECT REPORT ON Customer Satisfaction Regarding Online Internet Banking Submitted in the Partial Fulfilment of the Requirements

of Master in Business Administration

Submitted By: Salman Hussain MBA II Sem, Under the guidance of Mr. Anis Ur Rehman Senior Lecturer Department of Business Management

INTEGRAL UNIVERSITY, LUCKNOW

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INTEGRAL UNIVERSITY, LUCKNOW

GUIDE CERTIFICATE Salman Hussain

This is to certify that

MR

of Master of Business

Administration session 2012-2013 has completed his Research Report on the Topic Customer Satisfaction Regarding Online Internet Banking for partial fulfillment for award of Master of Business Administration. The Report submitted by him is a genuine work done by him and the same is being submitted for evaluation.

(Mr. Anis Ur Rehman ) Senior Lecturer

Place: Lucknow Date:

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ACKNOWLEDGEMENT.

A Project report is an assessment of ones great skill and aptitude. One needs to devote in immense patience, time and brains for the compilation of one such rewarding outcome of true efforts. With great pleasure I express my gratitude to our Dean Mrs Prof. Dr. Zeeshan Amir (Department of Business Management) without his help this would not have been completed. I am greatly thankful to Mr. Anis Ur Rehman (Senior Lecturer) for assigning an innovative project that developed a feeling of fully practical work. Never the last I would take the opportunity to thank the concerned bank officials for providing me with the necessary and relevant information. A word of thanks to the customers for giving in their invaluable time and being a part of the survey.

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INDEX

Chapter I : Conceptual description of topic

Chapter II : Literature Review

Chapter III: Research Methodology Objective Research Design Chapter IV : Analysis and Interpretation

Chapter V Findings, Conclusion and Suggestion References

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Executive Summary

An analysis of the differences in risk perceptions between bank customers using Internet Banking and those not using Internet Banking was done and it showed that risk perceptions in terms of financial, psychological and safety risks among customer not using the internet was more meaningful than those using internet banking. Customers not preferring to use internet banking thought that they would be swindled when using this service, and therefore, are particularly careful about high risk expectation during money transfers from and between accounts. Only 37% of Indian Internet users come from Top 10 cities i.e. Mumbai, Bangalore, Delhi, Calcutta, Chennai, Pune, Hyderabad, Ahmedabad, Surat and Nagpur. Another day and another number. As per IAMAI and I-cube, the number of active Internet user (i.e. ones who logon to Internet atleast once a month) is now 32 million and numbers who have used Internet atleast once stands at 46 million. Maximum of the person who are going on for internet banking lies in the age bracket of 26-35. but the rise in the age the level of users become low. Approximately 17% of female use internet banking. This a matter of concern for a banks what are the causes why this is happening. Although many major banks have started offering i-banking services, the slow pace will continue until the critical mass is achieved for PC, internet connections and telephones. However, the upsurge of IT professionals with growing demands is pressuring the government and bureaucracy in the country to support and develop 5|Page

new initiatives for a faster spread of i-banking. But then to there is a fear in mind of customer using internet as a medium for the banking transaction.

Private and foreign banks are trying to turn more and more customer towards the usage if internet for the banking transaction. This study is basically to know the relation of various independent variables on the customer usage of internet for banking.

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CHAPTER I : CONCEPTUAL DESCRIPTION OF TOPIC

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INTRODUCTION

What is bank? A banker or bank is a financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money. It is an institution for receiving, keeping, and lending money. What is online banking? Online banking (or Internet banking) allows customers to conduct financial transactions on a secure website operated by their retail or virtual bank, credit union. Need for internet banking: O ne 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 a "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 it is the cheapest way of providing banking services

Banks have traditionally been in the forefront of harnessing technology to improve their products, services and efficiency. They have, over a long time, been using electronic and telecommunication networks for delivering a wide range of value added products and services. The delivery channels include direct dial up connections, private networks, public networks etc and the devices include telephone, Personal Computers including the Automated Teller Machines, etc. With the

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popularity of PCs, easy access to Internet and World Wide Web (WWW), Internet is increasingly used by banks as a channel for receiving instructions and delivering their products and services to their customers. This form of banking is generally referred to as Internet Banking, although the range of products and services offered by different banks vary widely both in their content and sophistication.

Indias banking sector is growing at a fast pace. India has become one of the most preferred banking destinations in the world. The reasons are numerous: the economy is growing at a rate of 8%, Bank credit is growing at 30% per annum and there is an ever-expanding middle class of between 250 and 300 million people (larger than the population of the US) in need of financial services. All this enables double-digit returns on most asset classes which is not so in a majority of other countries. Foreign banks in India achieving a return on assets (ROA) of 3%, their keen interest in expanding their businesses is understandable even more so when compared with the measly 1% average ROA for the Top 1000 banks in the world.

From the perspective of banking products and services being offered through Internet, Internet banking is nothing more than traditional banking services delivered through an electronic communication backbone, viz, Internet. But, in the process it has thrown open issues which have ramifications beyond what a new delivery channel would normally envisage and, hence, has compelled regulators world over to take note of this emerging channel. Some of the distinctive features of i-banking are:

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1. It removes the traditional geographical barriers as it could reach out to customers of different countries / legal jurisdiction. This has raised the question of jurisdiction of law / supervisory system to which such transactions should be subjected, 2. It has added a new dimension to different kinds of risks traditionally associated with banking, heightening some of them and throwing new risk control challenges, 3. Security of banking transactions, validity of electronic contract, customers privacy, etc., which have all along been concerns of both bankers and supervisors have assumed different dimensions given that Internet is a public domain, not subject to control by any single authority or group of users, 4. It poses a strategic risk of loss of business to those banks who do not respond in time, to this new technology, being the efficient and cost effective delivery mechanism of banking services, 5. A new form of competition has emerged both from the existing players and new players of the market who are not strictly banks.

Why this research: An analysis of the differences in risk perceptions between bank customers using Internet Banking and those not using Internet Banking was done and it showed that risk perceptions in terms of financial, psychological and safety risks among customer not using the internet was more meaningful than those using internet banking. Customers not preferring to use internet banking thought that they would be swindled when using this service, and therefore, are particularly careful about high risk expectation during money transfers from and between accounts. Only 37% of Indian Internet users come from Top 10 cities i.e. Mumbai, Bangalore, Delhi,

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Calcutta, Chennai, Pune, Hyderabad, Ahmedabad, Surat and Nagpur. Another day and another number. As per IAMAI and I-cube, the number of active Internet user (i.e. ones who logon to Internet atleast once a month) is now 32 million and numbers who have used Internet atleast once stands at 46 million. Maximum of the person who are going on for internet banking lies in the age bracket of 26-35. but the rise in the age the level of users become low. Approximately 17% of female use internet banking. This a matter of concern for a banks what are the causes why this is happening. Although many major banks have started offering i-banking services, the slow pace will continue until the critical mass is achieved for PC, internet connections and telephones. However, the upsurge of IT professionals with growing demands is pressuring the government and bureaucracy in the country to support and develop new initiatives for a faster spread of i-banking. But then to there is a fear in mind of customer using internet as a medium for the banking transaction. Private and foreign banks are trying to turn more and more customer towards the usage if internet for the banking transaction. This study is basically to know the relation of various independent variables on the customer usage of internet for banking.

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LIBERALISATION

Liberalization (or liberalisation) refers to a relaxation of previous government restrictions, usually in areas of social or economic policy. In some contexts this process or concept is often, but not always, referred to as deregulation. Liberalization of autocratic regimes may precede democratization. In the arena of social policy it may refer to a relaxation of laws restricting. In the banking sector, which dominates Indias financial system, the financial liberalization has involved three major sets of initiatives. First, those aimed at increasing the credit creating capacity of banks through reductions in the statutory liquidity and cash reserve ratio, while offering them greater leeway in using the resulting liquidity by drastically pruning priority sector lending targets. The second was to increase competition through structural changes in the financial sector. While the existing nationalized banks were permitted to sell equity to the private sector, private investors were permitted to enter the banking area. In addition, foreign banks were given greater access to the domestic market, both as subsidiaries and branches, subject to the maintaining of a minimal assigned capital and being subject to the same rule as domestic banks. Further, a degree of broad
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banding of financial services was permitted, with development finance institutions being allowed to set up mutual funds and commercial banks, and banks themselves permitted to diversify their activity into a host of related areas. The broad trend is towards a form of universal banking. Thirdly, to render this competition effective in influencing bank functioning, banks have been provided with greater freedom in determining their asset portfolios. They were permitted to cross the firewall that separated the banking sector from the stock market and invest in equities, provide advances against equity provided as collateral, and offer guarantees to the broking community. THE IMPACT All these initiative had an immediate impact on the functioning of banks, which choose to modify their credit portfolio and diversify out of their overwhelmingly dominant role as credit-providing

intermediaries. To start with, non-food credit itself was increasingly being diverted away from the priority sectors (such as agriculture and small scale sector), industry and the wholesale trade, to other areas such as provision of loans to individuals for purchases of consumer durables and investment in housing, and towards lending against real estate and commodities. While this shift increased the interest incomes that could be
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garnered by the banks, it also increased their exposure to the euphemistically-termed sensitive sectors, where speculation is rife and returns volatile. Secondly, investment in securities of various kinds gained in importance, bringing in its wake a greater exposure to stock markets. This was indeed a part of the reform effect. As an RBI-SEBI joint committee on bank exposures to the stock market noted: Globally, there is a shift in the asset portfolio of banks from credit to investments keeping in view the fact that investments are liquid and augment the earnings of banks. The committee feels that banks participation would also promote stability and orderly growth of the stock market. The impact of this on scheduled commercial banks in India is visible from a rise in investments by banks, which to a significant extent is due to bank preference for credit substitutes. Initially, the investments were in large government and other approved securities, but over the last few years there has been a sharp increase in investments in non-SLR securities wit the share within such investments accounted for by loans to corporate against shares, investments in private equity and in private bonds, debentures and preference shares also increasing over time. These trends however are
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based on aggregate and average figures that conceal the differential distribution of such exposure across different kinds of banks. Such differentials have been substantial. Consider, for example, bank lending to sensitive sectors such as commodities, the real estate and the capital market. While, the sum total of such lending is small, there are some segments of the banking sector especially the old and new private sector banks that are characterized on average by a much higher degree of such exposure. Taking the exposure of banks to the stock market alone, it can be seen to occur I three forms: First, it takes the form of direct investment in shares, in which case the impact of stock price fluctuations directly impinge on the value of the banks assets; Secondly, it takes the form of advances against shares, to both individuals and stock brokers. Any fall in stock market indices reduces, in the first instance, the value of the collateral. It could also undermine the ability of the borrower to clear his dues. To cover the risk involved in such activity banks stipulate a margin, between the value of the collateral and the amounts advanced, set largely according to their discretion.

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Third, it takes the form of non-fund based facilities, particularly guarantees to brokers, which renders the bank liable I case the broking entity does not fulfill its obligation.

Processes of Banking Reform The processes adopted for bringing about the reforms in India may be of some interest to this audience. Recalling some features of financial sector reforms in India would be in order, before narrating the processes. First, financial sector reform was undertaken early in the reform-cycle in India. Second, the financial sector was not driven by any crisis and the reforms have not been an outcome of multilateral aid. Third, the design and detail of the reform were evolved by domestic expertise, though international experience is always kept in view. Fourth, the government preferred that public sector banks manage the over-hang problems of the past rather than cleanup the balance sheets with support of the government. Fifth, it was felt that there is enough room for growth and healthy competition for public and private sector banks as well as foreign and domestic banks. The twin governing principles are nondisruptive progress and consultative process.

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In order to ensure timely and effective implementation of the measures, RBI has been adopting a consultative approach before introducing policy measures. Suitable mechanisms have been instituted to deliberate upon various issues so that the benefits of financial efficiency and stability percolate to the common person and services of the Indian financial system can be benchmarked against international best standards in a transparent manner. Let me give a brief account of these mechanisms. First, on all important issues, workings group are constituted or technical reports are prepared, generally encompassing a review of the international practices, options available and way forward. The group membership may be internal or external to the RBI or mixed. Draft reports are often placed in public domain and final reports take account of inputs, in particular from industry associations and self-regulatory organizations. The reform-measures emanate out of such a series of reports, the pioneering ones being: Report of the committee on the financial system in 1991; Report of the high level committee on balance of payments in 1992; and the report of the committee on banking sector reforms in 1998.

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Second, resource management discussions meetings are held by the RBI with select commercial banks, prior to the policy announcements. These meetings not only focus on perception and outlook of the bankers on the economy, liquidity conditions, credit flow, development of different markets and directions of interest rates, but also on issues relating to developmental aspects of banking operations. Third, they have formed a Technical Advisory Committee on Money, Foreign Exchange and Government Securities Market (TAC). It has emerged a key consultative mechanism amongst the regulators and various market players including banks. The committee has been crystallizing the synergies of experts across various fields of the financial market and thereby acting as a facilitator for the RBI in steering reforms in money, government securities and foreign exchange markets. Fourth, in order to strengthen the consultative process in the regulatory domain and to place such a process on a continuing basis, the RBI has constituted a Standing Technical Advisory Committee on Financial Regulation on the lines similar to the TAC. The committee consists of experts drawn from academic, financial markets, banks, nonbank financial institutions and credit rating agencies. The committee examines the issues referred to it and advises the RBI on desirable
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regulatory framework on an on-going basis of banks, non-bank financial institutions and other market participants. Fifth, for ensuring periodic formal interaction, amongst the regulators, there is a High Level Co-ordination Committee on financial and Capital Markets (HLCCFCM) with the governor, RBI as the chairman, and the heads of the securities market and insurance regulators, and the secretary of the Finance Ministry as the members. This Coordination Committee has authorized constitution of several standing committees to ensure co-ordination in regulatory frameworks at an operational level. Sixth, more recently a Standing Advisory Committee on Urban Co-operative Banks (UCBs) has been activated to advise on structural, regulatory and supervisory issues relating to UCBs and to facilitate the process of formulating future approaches for this sector. Similar mechanisms are being worked out for non-banking financial companies. Seventh, the RBI has also instituted a mechanism of placing draft versions of important guidelines for comments of the public at large before finalization of the guidelines. To further this consultative process and with a specific goal of making the regulatory guidelines more userfriendly, a users consultative panel has been constituted comprising the
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representatives of select banks and market participants. The panel provides feedback on regulatory instructions at the formulation stage to avoid any subsequent ambiguities and operational glitches. Eighth, an extensive and transparent communication system has been evolved. The annual policy statements and their mid-term reviews communicate the RBIs stance on monetary policy in the immediate fixture of six months to one year. Over the years, the reports of various working groups and committees have emerged as another plank of twoway communication from RBI. An important feature of the RBIs communication policy is the almost real time dissemination of information through its website. The auction results under Liquidity Adjustment Facility (LAF) of the day are posted on the website by 12.30 pm the same day, while by 2.30 pm the reference rates of select foreign currencies are also placed on the website. By the next day morning, the press release on money market operations is issued. Every Saturday, by 12 noon, the weekly statistical supplement is placed on the website providing a fairly detailed recent database on the RBI and the financial sector. All the regulatory and administrative circulars of different departments of the RBI are placed on the website within half an hour of their finalization.
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Ninth, an important feature of the Indian Financial System has been the intent of the authorities to align the regulatory framework with international best practices keeping in view the developmental needs of the country and domestic factors. Towards this end, a Standing Committee on International Financial Standards and Codes was constituted in 1999. The standing committee had set up ten Advisory groups in key areas of the financial sector whose reports are available on the RBI website. The recommendations contained in these reports have either been implemented or are in the process of implementation. I would like to draw your attention to two reports in particular, which have a direct bearing on the banking system, viz., Advisory Group on Banking Supervision and advisory Group on Corporate Governance.

Subsequently, in 2004, we conducted a review of the recommendations of the Advisory Groups and reported the progress and agenda ahead.

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Table 1: TOP 20 COUNTRIES WITH HIGHEST NUMBER OF INTERNET USERS % Country or Population, # Region 2009 Est Latest Data (Penetration) 2009 Users 1,500.0 26.9 % 20.8 % % 74.1 % 75,5 % 7.0 % 138.8 % 13.1 % 103.9 % 5.5 % 1,520.0 4.7 % % 1,250.2 3.9 % % 126.0 % 3.1 % 203.1 % 2.7 % 1,359.7 8 Russia 9 France Korea 10 South 11 Iran 140,041,247 62,150,775 48,508,972 66,429,284 45,250,000 43,100,134 37,475,800 32,200,000 32.3 % 69.3 % 77.3 % 48.5 % 2.6 % % 407.1 % 2.5 % 96.8 % 2.2 % Users Population 2000World Growth % of

1 China United 2 States 3 Japan 4 India

1,338,612,968 360,000,000

307,212,123 127,078,679

227,719,000 95,979,000

1,156,897,766 81,000,000

5 Brazil 6 Germany United 7 Kingdom

198,739,269 82,329,758 61,113,205

67,510,400 54,229,325 46,683,900

34.0 % 65.9 % 76.4 %

12,780.0 1.9 %
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12 Italy

58,126,212

30,026,400 30,000,000 29,093,984 27,600,000 26,500,000 25,086,000 24,000,000

51.7 % 12.5 % 71.8 % 24.8 % 34.5 % 74.9 % 24.5 %

13 Indonesia 240,271,522 14 Spain 15 Mexico 16 Turkey 17 Canada 40,525,002 111,211,789 76,805,524 33,487,208

18 Philippines 97,976,603

19 Vietnem 20 Poland TOP 20 Countries Rest of the

88,576,758 38,482,919

21,963,117 20,020,362

24.8 % 52.0 %

% 127.5 % 1.7 % 1,400.0 1.7 % % 440.0 % 1.7 % 917.5 % 1.6 % 1,225.0 1.5 % % 97.5 % 1.4 % 1,100.0 1.4 % % 10,881.6 1.3 % % 615.0 % 1.2 % 359.9 % 76.4 %

4,374,577,583 1,325,437,422 30.3 %

2,393,227,625 408,556,319 World Total World -

17.1 %

461.5 % 23.6 % 100.0

6,767,805,208 1,733,993,741 25.6 % Users

380.3 % %

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Development of i-banking in India The financial reforms that were initiated in the early 1990s and the globalization and liberalization measures brought in a completely new operating environment to the banks. The bankers are now offering innovative and attractive technology-based services and products such as Anywhere Anytime Banking, Tele-Banking, Internet Banking, Web Banking, etc. to their customers to cope with the competition. The process started in the early 1980s when Reserve Bank of India (RBI) set up two committees in quick succession to accelerate the pace of automation of operations in the banking sector. A high-level committee was formed under the chairmanship of Dr. C. Rangarajan, then Governor of RBI, to draw up a phased plan for computerization and mechanization in the banking industry over a five-year time frame of 19851989. The focus by this time was on customer service and two models of branch automation were developed and implemented. Having gained experience in the earlier mode of computerization, the second Rangarajan committee constituted in 1988 drew up a detailed perspective plan for computerization of banks and for extension of automation to other areas such as funds transfer, e-mail, BANKNET, SWIFT, ATMs, i-banking, etc. The Government of India enacted the Information Technology Act, 2000
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(generally known as IT Act, 2000), with effect from 17 October 2000 to provide legal recognition to electronic transactions and other means of electronic commerce. RBI had set up a Working Group on i-banking to examine different aspects of i-banking. The Group had focused on three major areas of i-banking such as (1) Technology and security issues, (2) Legal issues and (3) Regulatory and supervisory issues. RBI had accepted the recommendations of the Working Group, and accordingly issued guidelines on internet banking in India for implementation by banks. The Working Group has also issued a report on i-banking covering different aspects of i-banking. Internet banking in India is currently at a nascent stage. While there are scores of companies specializing in developing i-banking software, security software and website designing and maintenance, there are few online financial service providers. ICICI bank is the first one to have introduced i-banking for a limited range of services such as access to account information, correspondence and, recently, funds transfer between its branches. ICICI is also getting into e-trading, thus offering a
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broader range of integrated services to the customer. Several finance portals for provision of non-banking financial services, e-trading and ebroking have come up. Commercial applications such as Electronic Bill Presentment (EBP) and Procurement systems may not be introduced in India immediately, but are likely to have a greater impact than the retail applications. The corporate sector is adequately computerized and has already recognized the important role of e-commerce in future. Increasingly, companies are setting up websites even where there are no immediate tangible benefits to them from doing so.

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Status of i-banking in India In Indian context, many publications throw light over the importance of i-banking and also its prospects for the Indian banking industry. Unnithan and Swatman (2001) studied the drivers for change in the evolution of the banking sector, and the move towards electronic banking by focusing on two economies, Australia and India. The study found that Australia is a country with internet-ready infrastructure as far as telecommunication; secure protocols, PC penetration and consumers literacy are concerned. India, by comparison, is overwhelmed by weak infrastructure, low PC penetration, developing security protocols and consumer reluctance in rural sector. Although many major banks have started offering i-banking services, the slow pace will continue until the critical mass is achieved for PC, internet connections and telephones. However, the upsurge of IT professionals with growing demands is pressuring the government and bureaucracy in the country to support and develop new initiatives for a faster spread of i-banking. For online banking to reach a critical mass, there has to be sufficient number of users and the sufficient infrastructure in place. Various authors have found that i-banking is fast becoming popular in India. However, it is still in its evolutionary stage. By the year 2006
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2007, a large sophisticated and highly competitive i-banking market will develop. Almost all the banks operating in India are having their websites, but only a few banks provide transactional i-banking. In India, comparatively less number of studies have been conducted on the current status of i-banking and customer satisfaction compared to other countries. Thus, there is a lot of scope for the research to present new ideas concerning i-banking in India which may be useful to the Indian banking industry. There are a series of papers that observe that i-banking has revolutionized the banking industry and the banking industry is under pressure to offer new products and services. However, to succeed in todays electronic markets a strategic and focused approach is required. Service quality in the context of i-banking The definition of quality is contextual one and differs from person to person. In general, the quality is basically classified into five categories, viz. transcendent, product led, process or supply led, customer led and value led. The definition of service quality is based on customerled quality definition where quality is defined as satisfying customers requirements, relying on the ability of the organization to determine customers requirements and then meet these requirements.
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Basically, service quality in i-banking can be viewed from two perspectives: Customer perspective Bank perspective Customer perspective From the perspective of the customer, the service quality differentiates sought quality and perceived quality. Sought quality is the level of quality customers explicitly or implicitly demand and expect from service providers. The sought quality (customer expectations) is created due to several factors primarily, the expectations are formed during a previous personal experience of a customer with a service, and the customer is influenced by the experiences of the other users and by the image of an organization. Perceived quality means the overall impression a customer has and experiences about the level of quality after service realization. The potential difference between the sought quality and the perceived quality gives the service provider an opportunity to measure customer satisfaction based on formulating the precise and actual criteria according to which the customers are assessing the services.

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Providers perspective From the provider perspective, there are target quality and delivered quality. The focus of process- or supply-led quality definition is rather internal than external, and it is defined as conformance to requirements. It lays emphasis on the importance of the management and the supply-side quality, and there is an important role of the process in determining the quality of outcome. Achieving the quality of conformance between the planned (target) quality level and the real quality delivered to customers depends on the service quality management system in an organization. Growth in Internet Banking Numerous factors including competitive cost customer service and demographic considerations are motivating banks to evaluate their technology and assess their electronic commerce and Internet banking strategies. Many researchers expect rapid growth in customers using online banking products and services. The challenge for national banks is to make sure
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the savings from Internet banking technology more than offset the costs and risks associated with conducting business in cyberspace. Marketing strategies will vary as national banks seek to expand their markets and employ lower cost delivery channels. Examiners will need to understand the strategies used and technologies employed on a bank-by-bank basis to assess the risk. Evaluating a banks data on the use of their Web sites may help examiners determine the banks strategic objectives, how well the bank is meeting its Internet banking product plan, and whether the business is expected to be profitable. Some of the market factors that may drive a bank s strategy include the following: Competition Studies show that competitive pressure is the chief driving force behind increasing use of Internet banking technology, ranking ahead of cost reduction and revenue enhancement, in second and third place respectively. Banks see Internet banking as a way to keep existing customers and attract new ones to the bank. Cost Efficiencies National banks can deliver banking services on the Internet at transaction costs far lower than traditional brick-and-mortar branches. The actual costs to execute a transaction will vary depending on the delivery channel used.
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Geographical Reach Internet banking allows expanded customer contact through increased geographical reach and lower cost delivery channels. In fact some banks are doing business exclusively via the Internet they do not have traditional banking offices and only reach their customers online. Other financial institutions are using the Internet as an alternative delivery channel to reach existing customers and attract new customers. Branding Relationship building is a strategic priority for many national banks. Internet banking technology and products can provide a means for national banks to develop and maintain an ongoing relationship with their customers by offering easy access to a broad array of products and services. By capitalizing on brand identification and by providing a broad array of financial services, banks hope to build customer loyalty, crosssell, and enhance repeat business. Customer Demographics Internet banking allows national banks to offer a wide array of options to their banking customers. Some customers will rely on traditional branches to conduct their banking business. For
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many, this is the most comfortable way for them to transact their banking business. Those customers place a premium on person-to-person contact. Other customers are early adopters of new technologies that arrive in the marketplace. These customers were the first to obtain PCs and the first to employ them in conducting their banking business. The demographics of banking customers will continue to change. The challenge to national banks is to understand their customer base and find the right mix of delivery channels to deliver products and services profitably to their various market segments. Types of Internet Banking Understanding the various types of Internet banking products will help examiners assess the risks involved. Currently, the following three basic kinds of Internet banking are being employed in the marketplace: Informational This is the basic level of Internet banking. Typically, the bank has marketing information about the banks products and services on a stand-alone server. The risk is relatively low, as informational systems typically have no path between the server and the banks internal network. This level of Internet banking can be provided by the bank or outsourced. While the risk to a bank is relatively low, the
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server or Web site may be vulnerable to alteration. Appropriate controls therefore must be in place to prevent unauthorized alterations to the banks server or Web site. Communicative this type of Internet banking system allows some interaction between the banks systems and the customer. The interaction may be limited to electronic mail; account inquiry, loan applications, or static file updates (name and address changes). Because these servers may have a path to the banks internal networks, the risk is higher with this configuration than with informational systems. Appropriate controls need to be in place to prevent, monitor, and alert management of any unauthorized attempt to access the banks internal networks and computer systems. Virus controls also become much more critical in this environment. Transactional This level of Internet banking allows customers to execute transactions. Since a path typically exists between the server and the banks or outsourcers internal network, this is the highest risk architecture and must have the strongest controls. Customer transactions can include accessing accounts, paying bills, transferring funds, etc.

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Internet Banking Risks Internet banking creates new risk control challenges for national banks. From a supervisory perspective, risk is the potential that events, expected or unexpected, may have an adverse impact on the banks earnings or capital. The OCC has defined nine categories of risk for bank supervision purposes. The risks are credit, interest rate, liquidity, price, foreign exchange, transaction, compliance, strategic, and reputation. These categories are not mutually exclusive and all of these risks are associated with Internet banking.

Credit Risk Credit risk is the risk to earnings or capital arising from an obligors failure to meet the terms of any contract with the bank or otherwise to perform as agreed. Credit risk is found in all activities where success depends on counterparty, issuer, or borrower performance. It arises any time bank funds are extended, committed, invested, or otherwise exposed through actual or implied contractual agreements, whether on or off the banks balance sheet.

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Interest Rate Risk Interest rate risk is the risk to earnings or capital arising from movements in interest rates. From an economic perspective, a bank focuses on the sensitivity of the value of its assets, liabilities and revenues to changes in interest rates. Interest rate risk arises from differences between the timing of rate changes and the timing of cash flows (reprising risk); from changing rate relationships among different yield curves affecting bank activities (basis risk); from changing rate relationships across the spectrum of maturities (yield curve risk); and from interest-related options embedded in bank products (options risk). Evaluation of interest rate risk must consider the impact of complex, illiquid hedging strategies or products, and also the potential impact that changes in interest rates will have on fee income. Liquidity Risk Liquidity risk is the risk to earnings or capital arising from a banks inability to meet its obligations when they come due, without incurring unacceptable losses. Liquidity risk includes the inability to manage unplanned changes in funding sources. Liquidity risk also arises from the failure to recognize or address changes in market conditions

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affecting the ability of the bank to liquidate assets quickly and with minimal loss in value. Price Risk Price risk is the risk to earnings or capital arising from changes in the value of traded portfolios of financial instruments. This risk arises from market making, dealing, and position taking in interest rate, foreign exchange, equity, and commodities markets. Banks may be exposed to price risk if they create or expand deposit brokering, loan sales, or securitization programs as a result of Internet banking activities. Appropriate management systems should be maintained to monitor, measure, and manage price risk if assets are actively traded. Foreign Exchange Risk Foreign exchange risk is present when a loan or portfolio of loans is denominated in a foreign currency or is funded by borrowings in another currency. In some cases, banks will enter into multi-currency credit commitments that permit borrowers to select the currency they prefer to use in each rollover period. Foreign exchange risk can be intensified by political, social, or economic developments. The consequences can be unfavorable if one of the currencies involved
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becomes subject to stringent exchange controls or is subject to wide exchange-rate fluctuations. Transaction Risk Transaction risk is the current and prospective risk to earnings and capital arising from fraud, error, and the inability to deliver products or services, maintain a competitive position, and manage information. Transaction risk is evident in each product and service offered and encompasses product development and delivery, transaction processing, systems development, computing systems, complexity of products and services, and the internal control environment. Compliance Risk Compliance risk is the risk to earnings or capital arising from violations of, or nonconformance with, laws, rules, regulations, prescribed practices, or ethical standards. Compliance risk also arises in situations where the laws or rules governing certain bank products or activities of the banks clients may be ambiguous or untested. Compliance risk exposes the institution to fines, civil money penalties, payment of damages, and the voiding of contracts.

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Compliance risk can lead to a diminished reputation, reduced franchise value, limited business opportunities, reduced expansion potential, and lack of contract enforceability. Strategic Risk Strategic risk is the current and prospective impact on earnings or capital arising from adverse business decisions, improper

implementation of decisions, or lack of responsiveness to industry changes. This risk is a function of the compatibility of an organizations strategic goals, the business strategies developed to achieve those goals, the resources deployed against these goals, and the quality of implementation. The resources needed to carry out business strategies are both tangible and intangible. They include communication channels, operating systems, delivery networks, and managerial capacities and capabilities. The organizations internal characteristics must be evaluated against the impact of economic, technological, competitive, regulatory, and other environmental changes.

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Reputation Risk Reputation risk is the current and prospective impact on earnings and capital arising from negative public opinion. This affects the institutions ability to establish new relationships or services or continue servicing existing relationships. This risk may expose the institution to litigation, financial loss, or a decline in its customer base. Reputation risk exposure is present throughout the organization and includes the responsibility to exercise an abundance of caution in dealing with customers and the community. Issues in Internet Banking Financial institutions, their card associations, and vendors are working to develop an Internet payment infrastructure to help make electronic commerce secure. Many in the banking industry expect significant growth in the use of the Internet for the purchase of goods and services and electronic data interchange. The banking industry also recognizes that the Internet must be secure to achieve a high level of confidence with both consumers and businesses. Sound management of banking products and services, especially those provided over the Internet, is fundamental to maintaining

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a high level of public confidence not only in the individual bank and its brand name but also in the banking system as a whole. Key components that will help maintain a high level of public confidence in an open network environment include: Security Authentication Trust Non repudiation Privacy Security is an issue in Internet banking systems. The OCC expects national banks to provide a level of logical and physical security commensurate with the sensitivity of the information and the individual banks risk tolerance. Some national banks allow for direct dial-in access to their systems over a private network while others provide network access through the Internet. Although the publicly accessible Internet generally may be less secure, both types of connections are vulnerable to interception and alteration. For example, hardware or software sniffers can obtain

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passwords, account numbers, credit card numbers, etc. without regard to the means of access. Authentication is another issue in a Internet banking system. Transactions on the Internet or any other telecommunication network must be secure to achieve a high level of public confidence. In cyberspace, as in the physical world, customers, banks, and merchants need assurances that they will receive the service as ordered or the merchandise as requested, and that they know the identity of the person they are dealing with. Banks typically use symmetric (private key) encryption technology to secure messages and asymmetric (public/private key) cryptography to authenticate parties. Asymmetric cryptography employs two keys a public key and a private key. These two keys are mathematically tied but one key cannot be deduced from the other.

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Trust is another issue in Internet banking systems. As noted in the previous discussion, public and private key cryptographic systems can be used to secure information and authenticate parties in transactions in cyberspace. A trusted third party is a necessary part of the process. That third party is the certificate authority. Non repudiation is the undeniable proof of participation by both the sender and receiver in a transaction. It is the reason public key encryption was developed, i.e., to authenticate electronic messages and prevent denial or repudiation by the sender or receiver. Although technology has provided an answer to non repudiation, state laws are not uniform in the treatment of electronic authentication and digital signatures. Privacy is a consumer issue of increasing importance. National banks that recognize and respond to privacy issues in a proactive way make this a positive attribute for the bank and a benefit for its customers. Public concerns over the proper versus improper accumulation and use of personal information are likely to increase with the continued growth of electronic commerce and the Internet. Providers who are sensitive to these concerns have an advantage over those who do not.
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Availability is another component in maintaining a high level of public confidence in a network environment. All of the previous components are of little value if the network is not available and convenient to customers. Users of a network expect access to systems 24 hours per day, seven days a week.

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LITERATURE REVIEW

In India still there is lack of users for internet as a medium for banking purpose, but the banking system are upgrading and bringing many electronic banking medium for customers so that banking can be made more convenient.

Joseph et al. (1999) investigated the influence of internet on the delivery of

banking services. They found six underlying dimensions of e-banking service quality such as convenience and accuracy, feedback and complaint management, efficiency, queue management, accessibility and customization. Jun and Cai (2001) identified 17 service quality dimensions of i-banking service quality. These are reliability, responsiveness, competence, courtesy, credibility, access, communication,

understanding the customer, collaboration, continuous improvement, content, accuracy, ease of use, timeliness, aesthetics, security and divers features. They also suggested that some dimensions such as responsiveness, reliability and access are critical for both traditional and internet banks. Jayawardhena (2004) transforms the original SERVQUAL scale to the internet context and develops a battery of 21 items to assess service quality in e-banking. By means of an Exploratory Factor Analysis (EFA) and a Confirmatory Factor Analysis (CFA), these 21 items are condensed to five quality dimensions: access, website interface, trust, attention and credibility.

From the provider perspective, there are target quality and delivered quality. The focus of process- or supply-led quality definition is rather internal than external, and 46 | P a g e

it is defined as conformance to requirements. It lays emphasis on the importance of the management and the supply-side quality, and there is an important role of the process in determining the quality of outcome (Ghobadian, 1994). Achieving the quality of conformance between the planned (target) quality level and the real quality delivered to customers depends on the service quality management system in an organization.

IAMAI report on online banking 2006. 43% of online banking user havent
started online financial transaction because of security reasons, 39% havent started because they prefer face to face, 22% havent started because they dont know how to use, for 10% sites are not user friendly and for 2% banks are not providing the facility of internet banking. According to research 68% of the customers can not say that when they will be starting the financial transactions through internet. Maximum numbers of online banking users are male and maximum of them are in age the group of 25-35. Numbers of female users are very less i.e. 17% only. More than 60% of the people who are having account with have accounts in 3-4 banks. Only 37% of Indian Internet users come from Top 10 cities i.e. Mumbai, Bangalore, Delhi, Calcutta, Chennai, Pune, Hyderabad, Ahmedabad, Surat and Nagpur. Another day and another number. As per IAMAI and I-cube, the number of active Internet user (i.e. ones who logon to Internet atleast once a month) is now 32 million and numbers who have used Internet atleast once stands at 46 million.

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[3] The Indian Internet Banking Journey In 2001, a Reserve Bank of India survey revealed that of 46 major banks operating in India, around 50% were either offering Internet banking services at various levels or planned to in the near future. According to a research report,( India Research, Kotak Securities, May 2000.) while in 2001, India's Internet user base was an estimated 9 lakh; it was expected to reach 90 lakh by 2003. Also, while only 1% of these Internet users utilized the Internet banking services in 1998, the Internet banking user base increased to 16.7% by mid- 2000.

Meuter et al. (2000) have identified critical incidents of customer

satisfaction and dissatisfaction with technology-based service encounters. Given that business-to-business transactions are the fastest growing segment of technologydriven services (Hof, 1999); Meuter and his colleagues (2000) suggested investigating what drives business customer satisfaction or dissatisfaction with technologydriven services. According to Gnroos (1982), customers distinguish the quality of customer interactions that take place during service delivery (functional quality) and the quality of the outcome the customer receives in the service encounter (technical quality).

Customers perceive the quality of services of Internet banking based on the performance of online delivery systems not on the processes in which the delivered service is developed and produced. Because customers perceive Internet banking service quality based on relatively standardized outcomes determined by online

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systems, customer attitudes toward that outcome reflect overall quality of services delivered

Customers usually perceive risks in conducting transactions electronically and particularly if the transactions involve money. Risk perception can be of six different types: time risk, finacial risk, performance risk, psychological risk and safety/confidentiality risk. It is generally considered that risk perception could be higher for electronic banking services. This study aims to understand extent to which whether this is consideration is valid as well as to determine the levels of risk perception differences among those using Internet Banking and those not using it.

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RESEARCH METHODOLOGY

OBJECTIVE OF THE STUDY

Perceptual mapping of internet banking users. To know the cause why customers are not using internet banking To know which age group of customers is using different e-banking facilities.

RESEARCH DESIGN

A research design encompasses the methodology and procedures employed to conduct scientific research. The design of a study defines the study type (descriptive, correlational, semi-experimental,

experimental, review, meta-analytic) and sub-type (e.g., descriptivelongitudinal case study), research question, hypotheses, independent and dependent variables, experimental design, and, if applicable, data collection methods and a statistical analysis plan. s
RESEARCH TYPE Exploratory research is a form of research conducted for a problem that has not been clearly defined. Exploratory research helps determine the

best research design, data collection method and selection of subjects. It should draw

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definitive conclusions only with extreme caution. Given its fundamental nature, exploratory research often concludes that a perceived problem does not actually exist. Exploratory research often relies on secondary research such as reviewing available literature and/or data, or qualitative approaches such as informal discussions with consumers, employees, management or competitors, and more formal approaches through in-depth interviews, focus groups, projective methods, case studies or pilot studies. The Internet allows for research methods that are more interactive in nature. For example, RSS feeds efficiently supply researchers with up-to-date information; major search engine search results may be sent by email to researchers by services such as Google Alerts; comprehensive search results are tracked over lengthy periods of time by services such as Google Trends; and websites may be created to attract worldwide feedback on any subject. When the purpose of research is to gain familiarity with a phenomenon or acquire new insight into it in order to formulate a more precise problem or develop hypothesis, the exploratory studies ( also known as formulative research ) come in handy. If the theory happens to be too general or too specific, a hypothesis cannot to be formulated. Therefore a need for an exploratory research is felt to gain experience that will be helpful in formulative relevant hypothesis for more definite investigation.

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 procedure

Statement of the problem Identification of information needed to solve the problem Selection or development of instruments for gathering the information Identification of target population and determination of sampling

Design of procedure for information collection Collection of information Analysis of information Generalizations and/or predictions

Primary DataThe primary data is collected to direct to (face to face) respondent. This is more suitable or good or faithful for any research. In the primary data use the different type of questionnaire or interview methods.

The source of Primary data Questionnaire

In my research project I have used Questionnaire as a source to collect primary data.

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DATA COLLECTION Primary Data: Structured Questionnaire Secondary Data: Online Database, Journals, Surveys

SAMPLING We have used convenience sampling technique. It is also called haphazard or accidental sampling. Members of the population are chosen based on their relative ease of access. To sample friends, co-workers, or shoppers at a single mall, are all examples of convenience sampling. Sometimes called grab or opportunity sampling, this is the method of choosing items arbitrarily and in an unstructured manner from the frame. Though almost impossible to treat rigorously, it is the method most commonly employed in many practical situations.

Sample Technique: Convenient sampling Sample Area: Lucknow Sample Size: 100

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DATA ANALYSIS AND INTERPRETATION

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CONCLUSION AND RECOMMENDATIONS

There is still a lot needed for the banking system to make reforms and train there customers for using internet for there banking account. Going through the survey the main problem lies that still customer have a fear of hacking of accounts and thus do not go on for internet banking. Banks are trying there level best by providing the best security options to the customers but then to there is lot of factors which betrays a customer from opening an internet bank account.

Banks are providing free internet banking services also so that the customers can be attracted. By asking the bank employs we came to know that maximum numbers of internet bank account holders are youth, business man and HNIs.

If proper training should be given to customer by the bank employs to open an account will be beneficial secondly the website should be made friendlier from where the first time customers can directly make and access there accounts.

We can see the time is changing and we he passage of time people are accepting technology there is still a lot of perceptual blocking which hampers the growth its the normal tendency of a human not to have changes work on the old track, thats also one of the reason for the slow acceptance of internet banking accounts. Give proper training to customers for using i-banking Create a trust in mind of customers towards security of there accounts 55 | P a g e

Provide a platform from where the customers can access different accounts at single time without extra charge.

Make there sites more users friendly. Customers should be motivated to use I banking facilities more.

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REFERENCES

BOOKS 1) Marketing research by BERRY G.C 2) Marketing Research by Malhotra N.K. , fifth edition SITES (http://www.icmrindia.org/free%20resources/casestudies/banking1.htm#b1 www.hdfcbank.com/ www.hsbc.co.in/ www.icicibank.com/ www.yesbank.in/ www.db.com en.wikipedia.org/wiki/Perceptual_mapping www.rocw.raifoundation.org/fashion/BAfashion-mktg/brandpositioning/lecturenotes/lecture-04.pd en.wikipedia.org/wiki/Multidimensional_scaling

REFRENCES 1. Khan, M.S., Mahapatra, S.S. and Sreekumar (2009) Service quality evaluation in internet banking: an empirical study in India, Int. J. Indian Culture and Business Management, Vol. 2, No. 1, pp.3046.

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