Contents:

1. Essay on the Meaning of Internet Banking

2. Essay on the Objectives and Drivers of Internet Banking
3. Essay on the Trends of Internet Banking in India
4. Essay on the Facilities Available under Internet Banking in india
5. Essay on the Emerging Challenges of Internet Banking in India
6. Essay on the Main Concerns in Internet Banking
7. Essay on the Strategies to be Adopted by Indian Banks for Introducing Internet Banking

Essay # 1. Meaning of Internet Banking:

With the growth of internet and wireless communication technologies, telecommunications etc.
in recent years, the structure and nature of banking and financial services have gone for a sea
change. Internet banking or e-banking is the latest in this series of technological wonders in the
recent past which involves use of internet for delivery of banking products and services.

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Even the Morgan Stanley Dean Witter Internet Research emphasised that web is more important
for retail financial services than that for many other industries. Internet banking or e-banking is
changing the banking and its structure and is having major effects on banking relationships.

Banking activity is now no longer confined to the branches where a customer has to approach the
branch in person, for withdrawing cash or deposit a cheque or request for a statement of
Accounts.

In accessing a true internet banking, any inquiry or transaction is processed online without any
reference to the branch (anywhere banking) at any time. Thus providing Internet banking is
gradually becoming a “need to have” than a “nice to have” service.

The net banking is, therefore, more of a norm rather than an exception in many developed
countries because it is the cheapest way of providing banking services. Under this system, online
banking is possible where every bank customer is provided with a personal identification number
(PIN) for making online transactions with the bank through internet connections.

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Internet banking or e-banking falls into four main categories, from Level 1—minimum
functionality sites that offer only access to deposit account data—to level 4 sites highly
sophisticated offering, enabling integrated sales of additional products and access to other
financial services—such as investment and insurance.

In other works, a successful internet banking solution offers:

1. Exceptional rates on savings, CDs and IRAs.

2. Checking Account with no monthly fee, free bill payment and rebates on ATM surcharges.

3. Credit card facilities with low rates.

4. Easy online applications for all accounts including personal loans and mortgages.

5. 24-hour account access.

6. Quality customary service with personal attention.

Essay # 2. Objectives and Drivers of Internet Banking:

The internet has developed level playing field and thereby afforded open access to customers in
the global market-place. Internet banking is a cost-effective delivery channel for the modernized
financial institutions.

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In this system, consumers are embracing many benefits of e-banking. To have access to one’s
accounts at any time and from any location through world wide web (www) is a convenient
practice, which was unknown a short time ago.

Thus, a bank’s internet presence transforms from ‘brochure/ware’ status to ‘internet banking’
status once the bank goes through a technology integration effort so as to enable its customer to
access information about his or her specific account details.

Following are the six primary objectives or drivers of internet banking:

1. To improve customer access.

2. To facilitate the offering of more services.

3. To increase customer loyalty.

4. To attract large number of customers.

5. To provide cost-effective services offered by competitors.

6. To reduce customer attrition.

Keeping objectives in mind, the internet banking facilities has been progressing at a rapid pace
throughout the world.
Essay # 3. Trends of Internet Banking in India:

In India, initially a beginning was made in internet banking only in some big cities which was
just in rudimentary stage. After getting initial success, the internet banking facility is gradually
being expanded in all cities and towns to make the system popular.

The banking industry in India is also facing unprecedented competition from non-traditional
banking institutions which are now a day’s offering banking and financial services over the
Internet. The deregulation of the banking industry along with emergence of new technologies are
enabling the new competitors in the banking sector to enter the financial services market quite
efficiently and quickly.

Core or Anywhere Banking:

In order to support internet banking facilities another new concept of banking i.e., core or
anywhere banking is introduced. Initially introduced by the foreign banks, the same concept in
new increasingly adopted by public sector banks and also the private sector banks.

Under this concept of banking, bank customers who have an account with any select branch can
easily operate his account from different designated branches on the bank spread throughout the
country.

Under this system, a customer can avail cash withdrawal, cash deposit, transfer of funds, inter-
city and intra-city transactions, collection of draft and cheques etc. facilities from any of such
designated branches conveniently irrespective of its locations.

Core banking concept has improved the standard of the banking services with the help of modern
technology. In present times, most of the public sector banks have already adopted this concept
and started extending these facilities to its customers gradually by including more and more of its
important branches under this category.

Progress of Internet Banking:

In India, internet banking is gradually being developed throughout the country.

As per the recent study it is observed that:

(a) A number of banks have already adopted internet banking and are offering varied kind of
services through it,

(b) These internet sites generally offer only most of the basic services. Only 50 per cent are
known as ‘entry level’ sites offering little more than company information’s and basic marketing
materials and 10 per cent are offering ‘advanced transactions’ such as online funds transfer,
transactions and cash management services etc.; and
(c) Most of the foreign and private banks in India are much advanced in terms of the number of
sites and their level of development in terms of rendering advanced technology linked services to
its customers. Recently, an authority of ICICI Bank observed, “Our Internet banking base has
been growing at an exponential pace over the last few years. Currently around 78 per cent of the
bank’s customer base is registered for Internet banking.”

Security Precautions:

In order to make their bank account safe, one should follow certain security precautions.
Customer should never share personal information like PIN number, passwords etc. with anyone,
including employees of the bank. It is important that documents that contain confidential
information are safeguarded. PIN or password should be changed immediately and memorized
before destroying the mailers.

Customers are also advised not to provide sensitive account-related information over unsecured
e-mails or over the phone. He must take simple precautions like changing the ATM, PIN and
online login and transaction passwords on a regular basis. It is also important to ensure that the
logged in session is properly signed out.

Essay # 4. Facilities Available Under Internet Banking in India:

Following facilities are made available for customers under internet banking in India:

(i) Bill Payment Service:

Bill payment service is a utility service of internet banking. Accordingly, each bank has tie-ups
with various utility companies, service providers, insurance companies across the country. Such
tie-ups can facilitate online payment of bills of electricity, telephone, mobile phone, credit card,
insurance premium bills etc.

In order to make online payment of bills, a simple one-time registration for each bills has to be
made and a standing instruction has to be made to make online payment of recurring bills
automatically. Most interestingly, the bank usually does not charge customers for such online bill
payment.

(ii) Fund Transfer:

Internet banking has made provision for transfer of any amount of fund from one account to
another of the same or any other bank. Accordingly, customers can send money anywhere in
India. Once a customer logs in his account, he needs to mention the payee’s account number, his
bank and the branch. The transfer will take place in a day or so, whereas in a traditional method
it takes about three to four working days. ICICI Bank recently reported that its online bill
payment and fund transfer facility have been most popular online services.
(iii) Credit Card Customers:

Internet banking provides the facility of credit card to its customers. With internet banking,
customers can not only pay their credit card bills online but also gets a loan on their cards. Not
just this, they can also apply for an additional card, request a credit line increase and in case the
card is lost, one can report lost card online.

(iv) Railway Pass and Online Booking:

Through Internet banking facility to issue Railway pass is also available. Indian Railways has
tied up with ICICI bank for this purpose and one can now make railway pass for local trains
online. The pass can be delivered to the customer at his doorstep. Initially, the facility was
limited to Mumbai, Thane, Nashik, Surat and Pune. The bank would just charge Rs 10 + 12.24
per cent of service tax. Moreover, online booking of e-tickets of Railways, Airlines etc. can also
be made with some arrangement with banks through Internet banking.

(v) Investing through Internet Banking:

Through Internet banking, opening a fixed deposit account has become easier. A customer can
now open an FD account online through funds transfer. Online banking can also be a great friend
for lazy investors. Moreover, investors with interlinked de-mat account and bank account can
easily trade in the stock market and the amount will be automatically debited from their
respective bank accounts and the shares will be credited in their de-mat account.

Besides, some banks provide its customers the facility to purchase mutual funds directly from the
online banking system. Nowadays, most leading banks offer both online banking and de-mat
account facilities. However, if a customer is having his de-mat account with independent share
brokers, then he needs to sign a special form, which will link his two accounts.

(vi) Recharging Prepaid Phone:

Through Internet banking, recharging of prepaid phone has also become possible. It is no longer
needed to rush to the vendor to recharge prepaid phones as and when talk time runs out. Here the
customer just tops-up his prepaid mobile cards by logging in to Internet banking. By just
selecting operator’s name, entering mobile number and the amount of recharge, the prepared
phone of the customer is again back in action within few minutes.

(vii) Shopping at Fingertips:

Internet banking provides facility of shopping at fingertips. Leading banks have tied-up with
various shopping websites. With a range of all kind of products. One can shop online and the
payment is also made conveniently through his account. One can also buy railway and air tickets
through Internet banking.
Essay # 5. Emerging Challenges of Internet Banking in India:

In India, a large sophisticated and highly competitive Internet Banking Market is

gradually being developed with market pressure and is subjected to the following emerging
challenges:

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

2. Emergence of open standards for banking functionally.

3. Growing customer awareness and need for transparency.

4. Global players in the fray.

5. Close integration of bank services with web based E-commerce or even disintermediation of
service through direct electronic payments (E-cash).

6. More convenient international transactions due to the fact that the Internet along the general
deregulation trends, eliminate geographic boundaries.

7. Move from one stop shopping to ‘Banking Portfolio’, i.e., unbundled product purchases.

The Internet and its underlying technologies have been changing and transforming not just
banking but all aspects of finance and commerce. It usually represents much more than a new
distribution opportunity. Internet banking will also enable nimble players to leverage their
traditional brick and mortar presence for improving customer satisfaction and gain share.

Essay # 6. Main Concerns in Internet Banking:

Internet banking in India has its areas of concern. In the mean time, a number of cases related to
fraud and cheating of banks and customers by unscrupulous persons have already been lodged in
India with this type of banking facilities. Irrespective of that attempts have been made by the
RBI and the banking authorities for promoting safety and soundness of online and e-banking
facilities in the country by issuing necessary guidelines.

In a recent survey conducted by the Online Banking Association, member institutions rated
security as the most important issue of online banking. Thus there is a dual requirement to
protect customers privacy and product against fraud.

Banking Securely:

Online Banking provides an overview of Internet Commerce and how one company can handle
secure banking practices for its financial institution clients and their customers. Moreover, some
basic information on the transmission of confidential data is presented in Security and
Encryption on the web. In this respect, PC Magazine Online also offers a primer as to how
encryption works.

Besides, a multi-layered security architecture comprising firewalls, filtering routers,

encryption and digital certification ensures that customers account information is
protected fully from un-authorised access in the following manner:

(i) Firewalls and filtering routers ensure that only the legitimate Internet users are usually
allowed to access the system.

(ii) 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.

(iii) Digital certification procedures provide the assurance that the data a customer receive is
from the infinity system.

Essay # 7. Strategies to be Adopted by Indian Banks for Introducing Internet

Banking:

In present times, Internet banking has no alternatives. Indian banking is gradually getting more
and more access of Internet banking. Thus, Internet banking would drive us into an age of
creative destruction due to non-physical exchange; complete transparency is also giving rise to
perfectly electronic market place and customer supremacy.

At this moment, the question may be asked “what the Indian Banks should do under the present
circumstances?” Whatever is the strategy chosen and options adopted, certain key parameters
would largely determine the success of banks on web.

In order to attain long term success, in respect of Internet banking, a bank may follow:

(i) Adopting a webs mindset.

(ii) Catching on the first mover’s advantage.

(iii) Recognising the core competencies.

(iv) Enabling handling multiplicity with simplicity.

(v) Initiating senior management to transform the organisation from inward to outward looking.

(vi) Aligning roles and value propositions with customers segments.

(vii) Redesigning optimal channel port-folio.

(viii) Acquiring new capabilities through strategic alliances.

However, the above mentioned steps can be implemented by following four steps
mentioned below:

(i) In the first phase, the customer be familiarized to new environment by demo version of
software on banks, website. This will enable users to give suggestions for improvements, which
can be incorporated in its later versions wherever possible.

(ii) The second phase provides various services such as account information and balances,
statement of account, transaction tracking, mail box, check book issue, stop payment, financial
and customized information.

(iii) The third phase may include additional multi-utility services like fund transfers, DD issue,
standing instructions, opening fixed deposits and intimation of loss of ATM cards.

(iv) The final phase should include advanced corporate banking services like third party
payments, utility bill payments, establishment of L/Cs, Cash Management Services etc.
Enhanced plan for the customers in future may include requests for demand drafts and pay orders
and many more to bring in the ultimate in banking convenience.

Thus by following the above mentioned strategies, it will help banks to translate their
traditional business model into a Internet banking one, falling into the following three main
categories:

(i) One-stop shop.

(ii) Virtual one stop shop.

(iii) Best of Breed Supplier.

Thus by following the above steps, the Indian bankers can pave the way for the successful
introduction and popularizing the new concept of Internet banking on a large scale.