Tactful Management Research Journal Vol. 2 | Issue. 10 | July 2014 ISSN :2319-7943
Impact Factor : 1.5326 (UIF) ORIGINAL ARTICLE
INTERNET-BANKING, SO ATTRACTATIVE BUT WITH VARIOUS RISKS BLEND WITHIN Rajni Asst. Professor, Department of Commerce Kalindi College, University of Delhi, Delhi. Abstract: Internet banking and other modes of e-banking have been a blessing for banking as far asspeed, convenience and cost of delivery is concerned, but alongside it has brought manyrisks. It has also brought about a new orientation to risks and even new forms of risks.Technology plays a significant part both as source and tool for control of risks. Because ofrapid changes in information technology, there is no finality either in the types of risks ortheir control measures. E- Banking may soon convert from a complementary to the mainprovider of financial services and products. Consequently, a possible failure of a bankentering this sector can have various consequences on its future position in the market. Thebank's strategy should be readjusted so that it meets the new challenges with risk balance. The delivery channels include direct dialup connections, private networks, public networks, etc. with the popularity of computers, 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. KEYWORDS: E – banking, risks, operational, money laundering, cross borders, firewalls,customer education, auditing. OBJECTIVES OF THE STUDY The various research objectives of the study are: To understand the concept of Internet Banking and its importance, to banks as well as customers. To become aware of various aspects of net banking. To build up SWOT Analysis of Internet Banking METHODOLOGY My study is based purely on secondary data. Secondary data refers to the Collection of information from different kind of books, the data of the company what they maintained. Scope of study As the study contains the 360 degree information regarding various threats in internet banking, Hence the study will lead to new ways to tackle the problems of internet banking by the way of SWOT analysis. Please cite this Article as : Rajni , “INTERNET-BANKING, SO ATTRACTATIVE BUT WITH VARIOUS RISKS BLEND WITHIN” : Tactful Management Research Journal (July ; 2014)
INTERNET-BANKING, SO ATTRACTATIVE BUT WITH VARIOUS RISKS BLEND WITHIN
Need of the Study This study is needed to find out the working of Internet Banking and its importance to customer as well as to bank. Banking Services through Internet: i.The Basic Level Service is the banks' web sites which disseminate information on different products and services offered to customers and members of public in general. It may receive and reply to customer's queries through e-mail. ii.In the next level are Simple Transactional Web sites which allows customers to submit their instructions, applications for different services, queries in their account balances, etc. but do not permit any fund-based transactions on their accounts. iii.The third level of Internet banking service are offered by Fully Transactional Web sites which allow the customers to operate on their accounts for transfer of funds, payment of different bills, subscribing to other products of the bank and to transact purchase and sale of securities, etc. The above forms of Internet banking service the customer or by new banks, who deliver banking service primarily through Internet or other electronic delivery channels as the value added services. Some of these banks are known as 'Virtual' banks or 'Internet only' banks and may not have physical presence in a country despite offering different banking services. The Indian Scenario:The entry of India banks into Net Banking. Internet banking, both as a medium of delivery of banking services and as a strategic tool for business development. At present, the total internet users in the country are estimated at 29 crore. However, this is expected to grow exponentially to 50 crore by 2014. Only about 1 % of Internet users did banking online in 1998. This was increased to 16.7 % in March 2000 (India Research, May 29, 2000, Kotak Securities)and reached to 50 % by 2016. Cost of banking service through the Internet from a fraction of costs through conventional methods. Rough estimates assume teller cost at Re.1 per transaction, ATM transaction cost at 45 paisa, phone banking at 35 paisa, debit cards at 20 paisa and Internet banking at 10 paisa per transaction. The Future Scenario: Compared to banks abroad, India banks offering online services still have a long way to go. For online banking to reach a critical mass there has to be sufficient number of users and the sufficient infrastructure. · Various security options like line encryption, branch connection encryption, firewalls, digital certificates, automatic sign-offs, random pop-ups and disaster recovery sites are is in place or are being looked at, there is as yet no Certification Authority in India offering Public Key Infrastructure, which is absolutely necessary for online banking. · The communication bandwidth available today in India is also not enough to meet the needs of high priority services like online banking and trading. · Banks offering online facilities also need to calculate their downtime losses, because even a few minutes of downtime in a week could mean substantial losses. · Users of Internet Banking Services are required to fill up the application forms online and send a copy of the same by mail or fax to the bank. · A contractual agreement is entered into by the customer with the bank for using the Internet banking services. · Domestic customers, for whom other access Domestic customers, for whom other access points such as ATMs, telebanking, personal contact, etc. are available, are often hesitant to use the Internet banking services offered by Indian banks. Internet Banking, as an additional delivery channel, may, therefore, be attractive/ appealing as a value added service to domestic customers. Non-resident Indians, for whom, it is expensive and time consuming to access their bank accounts maintained in India find net banking very convenient and useful. · Cyber-crimes are, therefore, difficult to be identified and controlled. Tactful Management Research Journal | Volume 2 | Issue 10 | July 2014
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INTERNET-BANKING, SO ATTRACTATIVE BUT WITH VARIOUS RISKS BLEND WITHIN
· In order to promote Internet banking services, it is necessary that the proper legal infrastructure is in place. · The Department of Telecommunications (DoT) is moving fast to make available additional bandwidth, with the result that internet access will become much faster in the future. · Reserve Bank of India has constituted a group to examine different issues relating to i-banking and recommend technology, security legal standards and operational standards keeping in view the international best practices. In the following paragraphs a generic set of risks discussed as the basis for formulating general risk control guidelines. RISK & REWARDS: 1.Operational Risk: Operational risk, also referred to as transactional risk is the most common form of risk associated with ibanking. It takes them from of inaccurate processing of transactions, non-enforceability of contracts, compromises in data integrity, data privacy and confidentiality, unauthorized access / intrusion to bank's systems and transaction, etc. Such risks can arise out of weaknesses in design, implementation and monitoring of banks information system. Besides inadequacies in technology, human factors like negligence by customers and employees, fraudulent activity of employees and crackers/ hackers, etc. can become potential source of operational risk. 2. Security Risk: Security risk arises on account of unauthorized access to a bank's critical information stores like accounting system, risk management system, portfolio management system, etc. Other related risks are loss of reputation, infringing customers' privacy and its legal implications, etc. Attackers could be hackers, unscrupulous vendors, disgruntled employee or even pure thrill seekers. In addition to external attacks banks are exposed to security risk from internal sources e.g. employee fraud. Employee being familiar with different systems and their weaknesses become potential security threats in a loosely controlled environment. They can manage to acquire the authentication data in order to access the customer accounts causing losses to the bank. Unless specifically protected, all data/ information transfer over the internet can be monitored or read by unauthorized persons. 3. Reputational Risk: Reputational risk is the risks of getting significant negative public opinion, which may result in a critical loss of funding or customers. Such risks arise from actions which cause major loss of the public confidence in the banks' ability to perform critical functions or impair bank-customer relationship. It may be due to banks' own action or due to third parties action. The main reasons for this risk may be system or product not working to the expectations of the customers, significant security breach (both due to internal and external attack), inadequate information to customers about product use and problem resolution procedures, significant problems with communication networks that impair customers' access to their funds or account information especially if, there are, no alternative means of account access. 4. Legal Risk: Legal risk arises from violation of, or non-conformance with laws, rules, regulations, or prescribed practices, or when the legal rights and obligations of parties to a transaction are not well established. A customer inadequately informed about his rights and obligations, may not take proper precautions in using Internet banking products or services, leading to disputed transactions, unwanted suits against the bank or other regulatory sanction.
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5. Money Laundering Risk: · As internet banking transactions are conducted remotely banks may find it difficult to apply traditional method for detecting and preventing undesirable criminal activities. Application of money laundering rules may also be inappropriate for some forms of electronic payments. · To avoid this, banks need to design proper customer identification and screening techniques, develop audit trails, conduct periodic compliance reviews, and frame policies in internet transactions. 6. Cross-Border Risks: · Internet banking is based on technology that, by its very nature, is designed to extend the geographic reach of banks and customers. Such market expansion can extend beyond national borders. This causes various risks. · Such considerations may expose banks to legal risks associated with non-compliance of different national laws and regulations, including consumer protection laws, record keeping and reporting requirements, privacy rules and money laundering laws. · The foreign-based service provider or foreign participants in internet banking are sources of country risk to the extent that foreign parties become unable to fulfil their obligations due to economic, social or political factors. 7. Strategic Risk: · For reducing such risk, banks need to conduct proper survey, consult experts from various fields, establish achievable goals and monitor performance. · Also they need to analyse the availability and cost of additional resources, provision of adequate supporting staff, proper training of staff and adequate insurance coverage. 8. Other Risk: Traditional banking risks such as credit risk, liquidity risk, interest rate risk and market risk are also present in internet banking. These risks get intensified due to the very nature of internet banking on account of use of electronic channels as well as absence of geographical limits. Credit risk: Is the risk that a counterparty will not settle an obligation for full value, either when due or at any time thereafter. Banks may not be able to properly evaluate the creditworthiness of the customer while extending credit through remote banking procedures, which could enhance the credit risk. Another facility of internet banking is electronic money. It brings various types of risks associated with it. If a bank purchases e-money from an issuer in order to resell it to a customer, it exposes itself to credit risk in the event of the issuer defaulting on its obligation to redeem electronic money. Liquidity risk: It is important for a bank engaged in electronic money transfer activities that it ensures that funds are adequate to cover redemption and settlement demands at any particular time. Failure to do so, besides exposing the bank to liquidity risk, may even give rise to legal action and reputational risk. 9. Risk of unfair competition: Internet banking is going to intensify the competition among various banks. The open nature of internet may induce a few banks to use unfair practices to take advantage over rivals. Any leaks at network connection or operating system, etc. may allow them to interfere in a rival bank's system. Thus, one can find that along with the benefits internet banking carries various risks for bank itself as well as banking system as a whole. CONCLUSIONS Internet banking is clearly the way forward to provide comfort to customers at the same time it provides cost cutting to banks by eliminating physical documentation. Internet banking saves time of bank as well as those of customers. Study states that internet banking provides greater reach to customers. Feedback can be obtained easily as internet is virtual in nature. Customer loyalty can be gain. Personal attention can be given by bank to customer also quality service can be served. Bank should know that No system is perfect, however a Tactful Management Research Journal | Volume 2 | Issue 10 | July 2014
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system of such a type will need to be very secure. This is a system which holds account details and customers wealth. If such a system was not trusted and not reliable, then banks would face serious laws and would lose business. After studying the SWOT analysis, we came to know various strengths of banks such as quality customer service, greater reach, customer loyalty, easy access to information, 24 hours access, easy online applications etc. Banks should put efforts to multiply the number of strengths. In terms of weakness I come to know some of the major weaknesses they are lack of awareness of internet banking among the customers, obsolesce of technology related to security, complicated procedures of availing internet banking facilities, lack of knowledge among the employees of banks. Banks should concentrate on the weaknesses and reduce them to zero. In the third segment of SWOT analysis of internet banking we dealt with opportunities like 95 % market of internet market is untapped, SBI's path to become first virtual bank. By en-cashing such opportunities banks can become the leader in banking sector of India. In the last segment I come to know about various challenges which are in front of banks, like sameness in IT infrastructure within various banks, need of various vendor supports for complex technology, maintaining secured IT infrastructure, alternative mechanism in case of failure of present security system. The company can take the advantage of the reputation it has created in the market for itself and become more competitive and earn profit. BIBLIOGRAPHY Books :Training guide for internet banking 1.Cronin, Mary J. (1997). Banking and Finance on the Internet, John Wiley and Sons.Retrieved 2008-0710. 2.Security Flaws in Online Banking Sites Found to be WidespreadNewswise, Retrieved on July 23, 2008. 3."Computer Giants Giving a Major Boost to Increased Use of Corporate Videotex". Communications News. 1984. Retrieved 2008-07-10. 4.Malhotra, P. and Singh, B. (2006, October–December) „The impact of internetbanking on bank?s performance: the Indian experience?, South Asian Journal of 5.Management, Vol. 13, No. 4. 6.Reserve Bank of India (2001), Report on Internet Banking, at www.rbi.org.in. WEBSITES:1.www.bankofindia.com 2.www.onlinesbi.com 3.www.wikipedia.com 4.www.google.com
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