ONLINE BANKING IN MULTINATIONAL BANKS IN BANGLADESH:

A CASE OF HSBC & STANDARD CHARTERED BANK

1.0 INTRODUCTION

Over the last few years introduction of computer technology has introduced revolutionary changes to the way communicate, share information and do business. In the banking sector computerization has also had its positive impact such as speedy transactions, 24 hours availability to banking services and increased control over ones financial resources.

1.1 Origin of the Report

The report originated when our Business Communication (BC) course instructor, Ms. Mahjabeen Ahmed, asked us to submit a suitable topic to write formal report. The task was originated orally in the classroom.

1.2 Problem and Purpose

The problem of the study is to understand the Online Banking Services available to the customers. The primary purpose of the study is to meet the partial requirements for the fulfillment of BC course. The study aims to present the scenario and prospects of online banking in Bangladesh and give some recommendations.

1.3 Scope

The study is concentrated on online banking and its perspective in Bangladesh. For the convenience of work we concentrated on the cases of two multinational banks operating in Bangladesh, namely Hongkong Shanghai Banking Corporation (HSBC) and Standard Chartered Grindlays Bank.

1.4 Limitations

Pertaining to reasons of security and confidentiality, the bank personnel did not provide all the statistical information about their customers who use online services Due to scarcity in relevant printed matter and publication on online banking, we had to rely mostly on direct interview with bank personnel.

1.5 Background

Bangladesh, like many other developing nations, looks towards IT industry as an important vehicle for economic and social development. All segments of the society are today, specially the educated youths; follow the developments in this industry

with keen interest. Though in Bangladesh a large portion of the population, specially the rural and uneducated are still on the darker side of the digital divide overall, Bangladesh has come a long way in the last ten years and IT industry has made significant contributions in this sector. Realizing the immense use of on-line banking, the leading multi-national banks in Bangladesh introduced Automated Teller Machine (ATM) and phone link in 1994. Standard Chartered Bank Ltd. and HSBC are two of them. Standard Chartered Bank Ltd. introduced its on-line customer service from March 1994. In the same year HSBC started on-line customer service.

1.6 Sources & Methodology

Information was obtained from both primary and secondary sources. The primary sources are the technical personnel and management in the respective banks. The secondary sources include leaflets and flyers of different banks, reports and magazines. The Internet was also used as a source of information. The report is exploratory in nature. The interview method was used in gathering primary data. However structured questionnaire was not used. The secondary data gathered through study of related journals, magazines, flyers and web sites.

1.7 Definitions & Acronyms

Hexagon: Hexagon is the HSBC Groups global electronic banking that gives direct access from a PC to ones accounts 24 hours a day, 365days a year, from anywhere in the world.

ATM: Automated Teller Machine is a 24 hours service provided machine by which a customer can withdraw cash using a special card. PIN: Personal Identification Number is a secret identification number provided by the bank personnel. It is used to identify the customers for its validity of the account. PBN: Phone Banking Number is also a number provided by the bank personnel to use the Phone banking service. Phone Banking: Automated banking service by which customers transactions information is provided by the bank personnel through phone contact.

1.8 Plan of Presentation

With a view to familiarize the reader with the topic, the report firstly looks into the concepts of online banking. This covers the various dimensions of online banking such as ATM, Phone banking and Internet banking. The following part attempts to shed some light on the implications of this online banking technology in the context of Bangladesh. Aspects looked upon here include the providers of this service in Bangladesh, the impediments faced and the advantages offered. Finally a conclusive opinion has been developed in view of the preceding study.

2.0 CONCEPTS OF ONLINE BANKING

The concept of online banking has revolutionized the traditional banking process by cutting out all the tediousness and hassles of paper transactions. As such online banking is gaining increased popularity all over the world.

2.1 What Is Online Banking?

Online banking is banking beyond banks. This is basically the process of simplifying the laborious conventional banking transactions using computerized mechanism. This results saving time, improving accessibility and reducing hassle. It also facilitates doing business 24 hours a day and the automated order of processing systems reduces paper works and human intervention, resulting in more efficient banking.

2.2 Dimensions of Online Banking

Basically computerized banking has been made accessible to the user in the following forms: ATM Phone Banking Internet Banking 2.2.1 ATM The concept of self-service banking has been developed to meet the needs in todays rapidly changing environment. The extensive network of automated teller machines gives the customers a convenient versatile and reliable means of managing her/his

money. ATMs are safe and easy to use. The customer alone has access to using her/his personal identification number with an ATM card for the service. 2.2.1.1 Features of ATM. Features of ATM are: Access ones account 24 hours a day through local ATMs Withdraw cash Deposit ones cash or checks Transfer funds between ones account Check ones account balance Take statement of ones account (up to last 8 transactions) Change ones personal identification numbers (PIN) Request for statements or a check book Operate up to 3 accounts with one ATM card 2.2.1.2 Operations of ATM. The following are the ways to operate the ATM: Insert card into the slot on the machine indicated by a sticker. Key in four-digit PIN The first menu to appear on the full color display screen is flash Cash. Various amounts will appear next to buttons on the machine. At the touch of a button the machine will dispense the corresponding amount. The last item on the menu, on the lower right-hand corner of the screen is Other. If the next button is pressed the next menu will appear. The next menu has the header Select Service. The items on this menu are Balance Inquiry, Mini-statement, Statement request and Chequebook request, PIN change Account transfer, Cash withdrawal, and other. If one presses the button next to the other option, the next menu will appear.

 Select desired service. Follow step-by-step instructions that appear on the screen.

2.2.2 Phone Banking Phone banking is 24 hour automated telephone banking service. It allows one access to his/her accounts through a touch-tone telephone from any convenient location. Phone banking is easy to use fast, convenient and secure. 2.2.2.1 Features of Phone Banking. Using this service one can: Control ones money at the touch of a button Use phone banking at times that suit one Check the balances on ones primary and linked accounts Transfer money between ones accounts Hear details of ones last five transactions Order a statement Order a Cheque book Pay bills to pre-designated third parties in local currency Inquire about time deposit interest rates Open or renew a time deposit Report an ATM card lost or stolen Inquire about foreign exchange rates 2.2.2.2 Accessories Needed. To avail the phone banking system, one should have access to the followings: A digital phone number A phone banking number (PBN) A personal identification number (PIN)

2.2.2.3 Operations of Phone Banking. How to use the Phone banking service: Dial the Phone link center of your bank Select the version of your choice: Press 1 for Bangla, or 2 for English Press 1 for account related services Press your Account and TIN numbers If you press 0, you will be assigned a Call Serial Number Inform the phone banker of your Call Serial Number so that your call can be checked for authenticity The phone banker will record all the necessary details for the requested service The requested service will be ready for collection from the branch on the next working day. You may also send your representative to collect it along with an authorization letter signed by you. 2.2.3 Internet Banking Hexagon is the HSBC Groups global electronic banking that gives direct access from a PC to ones accounts 24 hours a day, 365days a year, from anywhere in the world. 2.2.3.1 Features of Hexagon. Hexagon has many benefits. After one has installed hexagon she/he can get the following services: 2.2.3.1.1 Cash management service offers complete, simple to use and highly secured system to providing timely and accurate portfolio information. This system gives a person total control over her/his finances. The service gives the following facilities: Easy monitoring of ones global cash position Hexagon provides an end of day balance position, including laser balance, available balance, credit facilities, funds held and clearing items. Intra-day balances and real

time balances are also available. Balances can be reviewed and reported in a variety of ways-by account, bank, currency and location.

Efficient reconciliation Reconciliation and monitoring of ones accounts is simplified by instant screen access to ones credit and debit transaction details Simple payment and transfer facility One can transfers funds to third parties and move money between ones own accounts. Payments and transfers can be made individually or in bulk, and repetitive instructions can be stored within the system and called back as required. Flexible Reporting Hexagon allows the user to download information periodically to his/her personal computer/LAN. Back-office integration Hexagon can also be fully integrated with the users back-office automation system, allowing updates of internal systems through direct data interface. Euro functionality Hexagon offers full Euro functionality and is year 2000 compliant. Dynamic funds allocation: An instant review of time deposit and savings account details, including interest accrued and paid and maturity dates allows the user to maximize the use of short-term cash. Up-to-date deposit rates from HSBC can also be accessed.

2.2.3.1.2 Data security features help the companys financial information to keep completely confidential. This features provides the following services:

Data encryption All data travelling between ones personal computer/LAN and the HSBC group computer is scrambled using the latest encryption technology. Online audit trail A number of levels of security safeguard all the information transmitted over the banks private data network. Audit trails can also be activated to track all activities performed on the system. Customized delegation control The users system supervisor can customize the manner in which each member of staff can use the system. The management control function allows senior executives to delegate routine activities while retaining control over the authorization process. Authorization The system can hold transactions in a queue to await the appropriate authorizations once the user has entered them. Managers can then call back these transactions for authorization. 2.2.3.1.3 EDI services offered under the Hexagon umbrella, Hexagon Trade Related Services (ETRS), allows the user to automate completely the exchange of documents and data in the trading cycle by electronic communication with suppliers, clients and relevant government bodies. This features provides the following services: Electronic Data Interchange Improves Trading Efficiency The service (ETRS) enables all paper-based trade documentation to be sent, received and acknowledged by all parties electronically. This includes purchase orders,

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packing lists and shipping documents based on purchase order data, letters of credit and invoices.

Fast and secure Hexagon can be fully integrated with the users back-office computer system so that different document can be sent to all the trading partners automatically. However is the user does not have a back-up computer system, the bank can provide a PC frontend system for this purpose. ETRS also eliminates repetitive paperwork by placing generic information into relevant documents based on original purchase order. This reduces the opportunity for errors, and saves time and resources. Open connectivity Through interconnection with third-party network providers, ETRS users can exchange EDI messages with trading partners using the EDI services. These include British Telecom, MCI, GE, IBM, AT&T and many others. International Message Standards ERTS takes on the role of translator and messenger. All electronic documentation is automatically translated into the International message standard (UN/EDIFACT) developed by the United Nations. Greater flexibility and control with the combined benefits of Hexagon and ETRS As a Hexagon user with ETRS, one can issue electronically letters of credit as well as transfer funds and make payments. Therefore by integrating ETRS with ones backoffice system, one can automate the entire trade cycle from initial purchase order to final payment and delivery of goods. Data processed through the system is protected on three levels

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Firstly, one unique, pre-programmed contact number for each participating party. Secondly, an exclusive management operation and finally, data encryption (within the Hexagon network only). 2.2.3.1.4 Offline services minimizes ones time spent on online along with the associated costs in the Windows environment. The offline services include field help and user-friendly screens that enables the user to review account balance/statement information easily, and prepare secure and accurate payment /transfer instructions. This features provides the following services: Instant Account information With Hexagons Account Information Enquiry Service, one can instantly review his/her account balance and transaction information. Customized payment instruction screens One can transfer funds worldwide in many currencies. Customized payment and transfer screens simplify payment instructions and minimize data-entry errors. Repetitive instructions can be stored for future use to reduce data-entry time. File sending/receiving The file service enables the user to prepare instructions and receive reports with minimal time spent online. Security A security module is available to control access to the offline system, supplementing the online security system. This features password controls, and enables the user to set up customized delegate profiles defining access rights. Flexible Reporting

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This unattended operation service enables the user to specify in advance a time when his/her PC will automatically link up with the banks system to download pre-defined reports in the users absence.

Maximize liquidity Hexagons Poling/Cash Concentration service allows the user to actively manage the interest accrued to his/her group accounts and maximize overall interest income. 2.2.3.1.5 Batch payment service enables one to make range of automated low value payments and collection such as salary, bonus, insurance premiums, free collections, loan installments etc. from the convenience of ones office. This features provides the following services: Easy to use, convenient and time saving With batch payment you no longer need to provide payment/collection instructions in the form of paper lists, floppy discs or tapes to specific bank branches. One can effect instructions electronically as often as required; directly from ones back-office thereby avoiding time-consuming receptions and errors. Wide ranges of attractive benefits are: 1. Extended dead line 2. Greater efficiency saves ones time and money 3. Increased confidentiality and improved controls 4. Immediate notification and input errors 5. No need to visit the bank 6. Bank office integration 2.2.3.1.6 Information services are essential if one is to remain competitive in todays fast moving markets. Hexagon provides a wide range of market information prepared

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by experts around the world, enhancing ones opportunities for profit. One can access stock market and forex information and, through Viewtext, a textual opinion comprising in-depth economics and investment management reports. This features provides the following services:

Spot rates Intra-day spot rates are provided from centers around the world for all currencies . Forex commentary This provided by experienced dealers and analysts in trading centers around the world, including London, Tokyo and New York. Closing gold price exchange of these countries are indicated, along with prices of different localized gold products supplied by HSBC Group. Stock price and index values One has access to official closing and daily closing index values on major securities traded, from stock exchanges around the globe. Announcements on dividends, bonuses and rights issues, etc., from most Asia-Pacific markets are also available. 2.2.3.1.7 Securities services provides round-the-clock, online, real time access to ones portfolio, allowing one to monitor transactions continuously and benefit from strong administrative controls. The Hexagon securities module allows customers more off-line facilities, providing users with a streamlined, flexible and cost effective way of managing their business. This features provides the following services: Instruction Placement Purchase, delivery, receipt and sales instructions can be placed in over 20 countries. Instructions can be input directly into ones PC and uploaded to hexagon as required for immediate processing.

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 Information Information is updated online and real-time. Hexagon gives customers status information on 1. Transactions, e.g. trades settled, trades pending 2. Corporate announcements and corporate action receivables and receipts 3. Portfolio holdings, e.g. amount of stocks held registrations and availability status 4. Stock prices and holding values 5. Account statements Customized search criteria Hexagon has the flexibility to allow one to easily customize ones search criteria, extract only the information required and sort it into designated categories, e.g. by country, by trade over a certain limit, etc. The information can then be produced in the most convenient format-on paper, on screen or as a PC file for use ones own system. Customized reports The service enables one to prepare instructions, messages and customizes reports on ones PC and then uploads them to the HSBC Groups host computer. The service also includes a template facility, allowing one to store skeleton instructions for future reference. Information can be imported from ones own back office system directly into a document, report or template and up-to-date information on brokers and stocks can be easily down loaded to ones PC as required. Report Writer software is also incorporated which enables one to create reports in ones own format or to select a standard securities report format for holding inquiries, instruction inquiries, statements, conversions etc. 2.2.3.1.8 Report writer service is a powerful and easy-to-use tool for accessing and manipulating ones account, import/export and securities information. Report Writer

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offers a wide range of pre-formatted reports as well as the ability to customize reports to meet ones own requirements. The comprehensive export facility allows one to integrate ones reports with many other software packages. This features provides the following services:

Accurate and up-to-date report writing Report Writer allows one to format ones account, import/export and securities information in a wide variety of ways, providing one with a fast and convenient method for preparing customized reports. Control and flexibility: Report Writer offers various sorting and processing options, which are easy to select and amend offering one complete control and flexibility. One can prepare ones reports so they fit his/her companys standard format, projecting a professional image with minimal administrative effort. 2.2.3.1.9 Trade services significantly reduced the paper documentation and physical delivery, which results in both faster and more accurate processing and administration. This features provides the following services: Simple opening and amending of documentary credits The documentary credit screen has been tailored to simplify applications preparation. It enables one to streamline ones communication with the bank. Using the Hexagon offline function, purchase order can be improved from your back office system to quickly create documentary credit application. Easy monitoring of ones trade position The system enables one to ascertain ones outstanding trade position, import/export loans or shipping guarantee on your designated accounts. User also has the option to

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settle/accept/reject import bills presented under documentary credit or on a collection basis. Reduce data entry and related errors One can store documentary credits, which he/she uses frequently in a template, and recall them back as needed. He/she can also create and store beneficiaries names and addresses, additional conditions, and goods descriptions relating to ones own trade practices. Monitoring of forex and deposit rate information Hexagon keeps the user informed of currency movements affecting his/her global trading. One can also review and monitor ones outstanding forex contracts, plus profit/loss on each contract obtained by revaluing against daily rates. 2.2.3.2 Accessories Needed To use Hexagon, one will need the MS Windows version of the following equipment: IBM compatible PC with floppy disc/ CD-ROM drove, hard disc and mouse that can run MS windows. For the efficient running of Hexagon, a minimum 486DX processor is recommended. 50 megabytes of free hard drive space A color monitor MS Windows 3.1 or higher or Windows 95 or Windows NT Hayes compatible modem with a baud rate of 4800 or higher.

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3.0 BANGLADESH PERSPECTIVE

Online banking is a reputed jargon in banking sectors in developed countries. This is a new banking concept in Bangladesh. In developed countries, online banking facilities are wide spread. In those countries, each and every bank is equipped with online facilities. The customers in developed countries use online banking for many reasons. They pay their taxes, utility bills through Internet. Such facilities have not been common in Bangladesh until recently. Over the past three year, there has been an increasing trend to use Computers in the banking sectors of Bangladesh. This increase in trends reflected upon by the following figures: Figure: 1 Growth of computerization of Banks

Growth of Computerization of Banks

50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 1984-86 1987-89 1990-92 1993-95 1996-98 1998-00 Years

Source: Tech Bangla IT Research Cell, survey 2000

Figure: 2 Degree of computerization in the banking sector:

Percentage of growth

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Multinational Banks

97.00% 38.00%

P rivate Banks

Government Banks

19.00%

Source: Tech Bangla IT Research Cell, survey 2000

3.1 Introduction of Online Banking

Realizing the immense potential of online banking, Standard Chartered Bank Ltd. introduced its online customer service in March 1994. In the same year HSBC started online customer service.

3.2 Available Online Banking Facilities

Standard Chartered Bank Ltd. and HSBC launched their online customer service with three main dimensions. These are: 1. 2. 3. Automated Teller Machine (ATM) Phone-link Internet Banking

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Among the three dimensions, Internet banking has not been introduced with pace. Automated Teller Machine (ATM) and Phone-link are widely available in these two banks in their different branches in different places in Bangladesh.

3.3 Available Places with Online Facilities

Standard Chartered Bank Ltd. and HSBC provide online customer service in their different branches in Bangladesh. The following table introduces these facilities: Table: 1 A table of comparison between Standard Chartered Bank Ltd. and HSBC
Name of the Services HSBC 1.Introduced as ATM 2.Maximum withdrawal limit Tk. 20000. 3.ATM access link: a . Dhanmondi b. Motijheel c. Gulshan d. Uttara e. Chittagong 4.Services provided: a. Withdrawals b. Fund transfer c. Cash / check deposits d d. Request check books e. Balance inquiry f. Account activity inquiry g. Make payments to other HSBC accounts h. PIN changes. 1.Introduced as Phone banking 2. Services provided: a. 24-hour access. b. Balance inquiry as primary and linked accounts c. Transfer funds between accounts. d. Order statement e. Order checkbook f. Pay bills to pre designated parties. Standard Chartered Bank Ltd. 1.Introduced as Money link . 2. Maximum withdrawal limit Tk. 20000. 3.ATM access link: a . Dhanmondi b.Motijheel c.Banani d. Sylhet e.Chittagong 4.Services provided: a. Withdrawals b. Fund transfer c. Cash / check deposits e d. Request check books f. Statement request. g. Pay utility bills . 1. 2. Introduced as Phone Link Services provided a. 24-hour access. b. Balance inquiry c. Transfer funds between accounts. d. Change of PIN. e. Request checkbooks f. Statement request. g. Inquire about foreign currency exchange rates

ATM

Phone Banking

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Internet Banking

Inquire about deposit rates. Report lost / stole ATM cards. Inquire about foreign currency exchange rates 1.Introduced as HEXAGON 2.Services provided: a. Report Writer services. b. Cash management services. c. Trade services. d. Security services. e. Information services. f. Bank payment services. g. ETRS (Electronic Trade Related Service) h. Offline services.

g. h. i.

Not- offered

The above branches serve the prospective customer with all their existing facilities. But still there are some inconveniences that customers face.

3.4 Barriers to Online Banking

Although there are advantages, several contextual barriers exist. 3.4.1 Barriers to Automated Teller Machine (ATM) There is a limit of Tk.20, 000 that can be drawn within a 24-hour period. If withdrawal amount exceeds Tk.20, 000, it must be done manually through paper check. There is a limit of 15 seconds within which all instructional operations must be completed. In many cases, failure to comply with the time limit results in cancellation of the transactions. No further transactions can be made because the machine captures the card. For the common user who is not acquainted with such speedy operations is an impediment. 3.4.2. Barriers to Phone Banking

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 Since the entire concept is to access the account using the phone, poor conditions of local telephone services is a serious constraint This banking system doesnt allow for withdrawals. It only allows informational services such as, balance and credit, fund transfer.

3.4.3. Barriers to Internet Banking It is only available for corporate users and it is not open for personalized banking. Since, it can only be used through the Internet, inefficient and frequent disruptions of local ISP results in serious transactional operations. Sometimes, the users use the satellite to get continuous Internet access, which tends to be unbearably expensive. It is not a free service unlike ATM and phone banking. The user must pay a period for to avail the service

4.0 CONCLUSION
Modern banking system is changing very swiftly. To provide more facilities Banks are trying to improve their system of operation .In this era of E-commerce customers

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can do their necessary shopping just by clicking a mouse. With such privilege at their disposal, the desire to physically travel to the bank is becoming fast obsolete. In response to this view, modern banks have introduced online banking. This online banking system is a challenge to our conventional banking system. We have to take this challenge otherwise we cannot survive in 21st century. In addition to phone banking and ATM services, online banking now introduces Internet banking. Internet banking connects the customers not only with the banks but also with the whole world. It brings globalization in the banking system. However, there are some impediments that must be combated to ensure the success of Internet Banking. Security of password, hacking are two major drawbacks. Both banks and their customers should be cautious to eradicate this pitfall. Another problem is unavailability of necessary fund to promote the use of this facility. Govt. and top businessmen should patronize this banking system. A sophisticated telecommunication system is also a prerequisite of online banking and in this regard too the Govt. should take necessary steps.

5.0 RECOMMENDATION:
The success of Banking depends largely on the efficiency and ease of executing transactions. For this reason, all banks are trying to adopt a unique user-friendly banking system, one that enables swift and easy global exchange of financial data. Only online banking is able to do that. But only willingness is not enough to introduce online banking. Beside this the banks need to have following backups: Ability to provide security Banking software for internet banking

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 Option of training for bank personnel Sophisticated infrastructure. Apart from these we recommend the followings for better customer services: To evaluate the customers financial condition bank should provide professional help. To connect customers online account with stock exchange and insurance agents. To inform customers by e-mail and pagers if their accounts decrease or increase. To provide palmtop computer for VIP customers so that they can perform banking transactions from any place To apprise customers about tax system and help them in paying taxes. To bring loan facilities under Internet coverage.

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