1. ONLINE BANKING – Challenges and
Opportunities
RESEARCH PROJECT REPORT
Submitted to Punjab Technical University in partial fulfillment of the
requirements for the degree
Of
MASTER OF BUSINESS ADMINISTRATION
(Specialization: Finance)
SUBMITTED BY:
VIPUL SHARMA
(104512248289)
Gian Jyoti Institute of Management & Technology
Mohali
(2010-2012)

2. “ONLINE BANKING – Challenges and
Opportunities”
RESEARCH PROJECT REPORT
Submitted to Punjab Technical University in partial fulfillment of the
requirements for the degree
Of
MASTER OF BUSINESS ADMINISTRATION
SUBMITTED BY:
VIPUL SHARMA
(104512248289)
Gian Jyoti Institute of Management & Technology
Mohali
(2010-2012)

3. ACKNOWLEDGEMENT
“Expression of Gratitude is the least one
Can do in response to the favours received.”
I take this opportunity to express my deep sense of gratitude to all those who have
contributed significantly by sharing their knowledge and experience in the completion of
this project work.
At the outset I wish to express my sincere gratitude to Dr. Vimal K. Aggarwal
(Director, GJIMT) for encouraging me to take initiative in a totally new field and
continuously guiding me throughout the project.
I would also like to express my indebtedness to my revered and learned faculty Advisor
Prof. Pawan who helped me through the completion of the project and were a constant
source of reference for me and showed full interest at each and every step of my
project.
Finally, I would also like to thank all my dear friends for their kind cooperation, advice
and encouragement during the long and arduous task of preparing this report and
carrying out the project.
At last but not the least, who are always at the top of my heart, my dear family members
whose blessings, inspiration and encouragement have resulted in the successful
completion of the project.
VIPUL SHARMA

4. CERTIFICATE-I
This is to certify that the thesis entitled “ONLINE BANKING – Challenges and
Opportunities” submitted for the degree of MBA in the subject of Finance (Minor-
Marketing) for the Punjab Technical University, Jalandhar, is a bonafide research
work carried out by VIPUL SHARMA under my supervision and that no part of this
thesis have been submitted for any other degree.
This assistance and help received during the course of investigation have been fully
acknowledged.
Advisor
Prof. Pawan

5. CERTIFICATE II
This is to certify that the thesis entitled “ONLINE BANKING – Challenges and
Opportunities” submitted by Vipul Sharma to the Punjab Technical University,
Jalandhar in partial fulfillment of the requirements of the degree of MBA in a subject of
Finance (Minor-Marketing) has been approved by the student‘s Advisory Committee
after an oral examination on the same, in collaboration with an External Examiner.
(Prof. Pawan) External Examiner
Advisor

6. DECLARATION
I, "Vipul Sharma”, hereby declare that the work presented herein is genuine work done
by me and has not been published or submitted elsewhere for the requirement of a
degree programme. I have not submitted this project for the award of any other degree,
diploma, fellowship or any other similar title or prize.
I undertake responsibility for the contents of this report.
Vipul Sharma

7. EXECUTIVE SUMMARY
Technological developments have been growing at an alarming speed in the
international arena. Internet is proudly one of the best in those. So, the banking sector is
also making the best utilization of it. In this study based on ONLINE BANKING, it has
been observed that the development of online banking has increased by leaps and
bounds during the past few years. Concentrating on the Indian economy, the use of
online banking is still in the developing stage.
Today in India the scope of online banking is growing by a good decent rise in its usage.
The rise in the usage of the Internet is the main criteria for development of online
banking.
This project helps us understand the how the online banking came into existence and its
need in the modern world. It shows us the insights of the online banking in India. It helps
us understand the opportunities and the challenges associated with the online banking
in India.

8. Title of thesis: “ONLINE BANKING – Challenges and Opportunities‖
Name of Student: Vipul Sharma
Roll No 104512248289
Major Subject: Finance
Minor Subject: Marketing
Name of Major advisor Prof. Pawan
Degree to be awarded: MBA
Year of award of Degree: 2010-2012
Total pages in thesis: 65

9. TABLE OF CONTENTS
Chapter Topics Page No.
1. 1.1 Introduction to Online Banking
1.1.1 Online Banking - an overview 1-5
1.1.2 What is online banking? 6-12
1.1.3 How does online banking work and its structure 13-14
1.1.4 Opportunities in Online Banking 15-20
1.1.5 Challenges in Online Banking 21-31
1.1.6 Solutions 32-35
1.1.7 Case Studies 36-37
1.1.8 ICICI Bank 38
2. 2.1 Review of literature 39-47
3. 3.1 Objectives, Limits and Research Methodology 48
3.1.1 Objectives and limits of Study 49
3.1.2 Research Methodology 50
4. 4.1 Data Analysis 51-57
5. 5.1 Findings & Conclusion 58-59
6. 6.1 Recommendations &Suggestions 60-61
7. 7.1 Annexure 62
7.1.1 Questionnaire 63-64
7.1.2 Bibliography 65

10. CHAPTER- 1
INTRODUCTION
TO
ONLINE BANKING

11. 1.1.1 ONLINE BANKING- AN OVERVIEW
Online banking is a process that has evolved because of the development of technology
over the years. So before going into detail on the online we should have a overview of it
birth.
 INFORMATION TECHNOLOGY
Information technology (IT) is the acquisition, processing, storage and dissemination of
vocal, pictorial, textual and numerical information by a microelectronics - based
combination of computing and telecommunications. IT (information technology) is a
term that encompasses all forms of technology used to create, store, exchange, and
use information in its various forms (business data, voice conversations, still images,
motion pictures, multimedia presentations, and other forms, including those not yet
conceived). It's a convenient term for including both telephony and computer technology
in the same word. It is the technology that is driving what has often been called "the
information revolution."
IT is the area of managing technology and spans wide variety of areas that include but
are not limited to things such as processes, computer software, information
systems, computer hardware, programming languages, and data constructs. In short,
anything that renders data, information or perceived knowledge in any visual format
whatsoever, via any multimedia distribution mechanism, is considered part of the
domain space known as Information Technology (IT). IT provides businesses with four
sets of core services to help execute the business strategy. These four core services
are broken into business process automation, providing information, connecting with
customers, and productivity tools.
IT professionals perform a variety of functions (IT Disciplines/Competencies) that
ranges from installing applications to designing complex computer networks and
information databases. A few of the duties that IT professionals perform may
include data management, networking, engineering computer hardware, database and
software design, as well as management and administration of entire systems.
Information technology is starting to spread further than the conventional personal
1

12. computer and network technologies, and more into integrations of other technologies
such as the use of cell phones, televisions, automobiles, and more, which is increasing
the demand for such jobs.
 TECHNOLOGY in Banking
Many of the largest and most successful banks in the world emerged from the technical
changes that they are able to recognize at an early stage. India‘s banking sector has a
long way to go before it can compete globally. Situation is especially maintained in the
late introduction of ICT in India banks. Our information technology is designed to
compete with information technology in the world, and when we are in the area very
quickly, it can be difficult for us to benefit from liberalization.
Bank with the right technology to provide timely information to increase productivity and
thus see a competitive advantage. Compete in the economy, which has been opened, it
is certainly the Indian banks to comply with the latest technology and adapt to its
surroundings. Except that the banks need much improved use of technology to
customer-friendly, efficient and competitive in the current authorities and businesses,
they also need the technology to newer products and newer forms of service and the
increasingly dynamic global environment to offer. Information technology allows banks
to build new systems, which bite the needs of many customers that cannot be
considered today.
On-line banking, for example, promises customers to conduct banking transactions in a
direct access to the core of the bank customer account works. Customers to verify all
information, all so far, all the checks, all credit card information.
In the future, the banks freed from the constraints of a delivery channel. They can
create, package, market and product niches, and because the tumbling price of the
technology, they can do so cost-effectively.
Technology gives banks the opportunity to be closer to customers, to a broader range of
services at lower costs, streamline the March belang systems so that all information in
one place where it can be used for the trends that can quickly lead into new products.
2

13. Electronic banking data can be gathered and analyzed. Interactivity allows the
consumer to save the settings, directing the development of truly new products.
The development of I.T has helped the boom of E – Commerce. So it is also important
to know the concept of E – Commerce.
 E-COMMERCE
Electronic commerce, commonly known as e-commerce, eCommerce or e-commerce,
refers to the buying and selling of products or services over electronic systems such as
the Internet and other computer networks. However, the term may refer to more than
just buying and selling products online. It also includes the entire online process of
developing, marketing, selling, delivering, servicing and paying for products and
services. The amount of trade conducted electronically has grown extraordinarily with
widespread Internet usage. The use of commerce is conducted in this way, spurring and
drawing on innovations in electronic funds transfer, supply chain management, Internet
marketing, online transaction processing, electronic data interchange (EDI), inventory
management systems, and automated data collection systems. Modern electronic
commerce typically uses the World Wide Web at least at one point in the transaction's
life-cycle, although it may encompass a wider range of technologies such as e-mail,
mobile devices and telephones as well.
A large percentage of electronic commerce is conducted entirely in electronic form
for virtual items such as access to premium content on a website, but mostly electronic
commerce involves the transportation of physical items in some way. Online retailers
are sometimes known as e-tailers and online retail is sometimes known as e-tail. Almost
all big retailers are now electronically present on the World Wide Web.
Electronic commerce that takes place between businesses is referred to as business-to-
business or B2B. B2B can be open to all interested parties (e.g. commodity exchange)
or limited to specific, pre-qualified participants (private electronic market). Electronic
commerce that takes place between businesses and consumers, on the other hand, is
referred to as business-to-consumer or B2C. This is the type of electronic commerce
conducted by companies such as Amazon.com. Online shopping is a form of electronic
3

14. commerce where the buyer is directly online to the seller's computer usually via the
internet. There is no intermediary service involved. The sale or purchase transaction is
completed electronically and interactively in real-time such as in Amazon.com for new
books. However in some cases, an intermediary may be present in a sale or purchase
transaction such as the transactions on eBay.com.
Electronic commerce is generally considered to be the sales aspect of e-business. It
also consists of the exchange of data to facilitate the financing and payment aspects of
business transactions.
Business applications of ecommerce
Some common applications related to electronic commerce are the following:
Email
Enterprise content management
Instant messaging
Newsgroups
Online shopping and order tracking
Online banking
Online office suites
Domestic and international payment systems
Shopping cart software
Teleconferencing
Electronic tickets
 E-COMMERCE APPLICATION IN BANKING INDUSTRY
New information technologies and emerging business forces have triggered a new wave
of financial innovation – electronic banking (e-banking). The banking and financial
industry is transforming itself in unpredictable ways (Crane and Bodie 1996), powered in
an important way by advances in information technology (Holland and Westwood 2001).
Since the 1980s, commercial banking has continuously innovated through technology-
enhanced products and services, such as multi-function ATM, tele-banking, electronic
transfers and electronic cash cards. Over the past decade, the Internet has clearly
played a critical role in providing online services and giving rise to a completely new
4

15. channel. In the internet age, the extension of commercial banking to the cyberspace is
an inevitable development (Liao and Cheung 2003).
E-banking creates unprecedented opportunities for the banks in the ways they organize
financial product development, delivery and marketing via the internet. While it offers
new opportunities to banks, it also poses many challenges such as the innovation of IT
applications, the blurring of market boundaries, the breaching of industrial barriers, the
entrance of new competitors and the emergence of new business models (Saatcioglu et
al. 2001, Liao and Cheung 2003). Now the speed and scale of the challenge are rapidly
increasing with the pervasiveness of the internet and the extension of information
economy (Holland and Westwood 2001).
Globally, e-commerce growth has been led by the popularity of online shopping portals
like amazon.com and ebay.com but in India that has not been the case. It is mainly
driven by the online travel industry and banking sector. For instance, 29% of Indian
Internet users book airline tickets online and the figure is expected to touch 46% next
year. Online rail ticket booking stands at 39% of the total bookings. As far as banking is
concerned, there are 4.6 million online banking users in India. This figure is expected to
go up to over 16 million by 2007-08 that will include both internet and mobile banking
users. According to the Internet and Mobile Association of India (IAMAI), the e-
commerce industry in India is expected to grow to a size of Rs. 2,300 crore by 2007
against the Rs.1,200 crore. The total number of internet users which right now is 38.5
million is expected to reach 100 million by 2008.
5

16. 1.1.2 WHAT IS ONLINE BANKING?
If you're like most people, you've heard a lot about online banking but probably haven't
tried it yourself. You still pay your bills by mail and deposit checks at your bank branch,
much the way your parents did. You might shop online for a loan, life insurance or a
home mortgage, but when it comes time to commit, you feel more comfortable working
with your banker or an agent you know and trust.
Online banking isn't out to change your money habits. Instead, it uses today's computer
technology to give you the option of bypassing the time-consuming, paper-based
aspects of traditional banking in order to manage your finances more quickly and
efficiently.
 Origin of online banking
The advent of the Internet and the popularity of personal computers presented both an
opportunity and a challenge for the banking industry.
For years, financial institutions have used powerful computer networks to automate
millions of daily transactions; today, often the only paper record is the customer's receipt
at the point of sale. Now that its customers are connected to the Internet via personal
computers, banks envision similar economic advantages by adapting those same
internal electronic processes to home use.
Banks view online banking as a powerful "value added" tool to attract and retain new
customers while helping to eliminate costly paper handling and teller interactions in an
increasingly competitive banking environment.
 Brick-to-click banks
Today, most large national banks, many regional banks and even smaller banks and
credit unions offer some form of online banking, variously known as PC banking, home
banking, electronic banking or Internet banking. Those that do are sometimes referred
6

17. to as "brick-to-click" banks, both to distinguish them from brick-and-mortar banks that
have yet to offer online banking, as well as from online or "virtual" banks that have no
physical branches or tellers whatsoever.
The challenge for the banking industry has been to design this new service channel in
such a way that its customers will readily learn to use and trust it. After all, banks have
spent generations earning our trust; they aren't about to risk that on a Web site that is
frustrating, confusing or less than secure.
Most of the large banks now offer fully secure, fully functional online banking for free or
for a small fee. Some smaller banks offer limited access or functionality; for instance,
you may be able to view your account balance and history but not initiate transactions
online. As more banks succeed online and more customers use their sites, fully
functional online banking likely will become as commonplace as automated teller
machines.
 Understanding Online Banking Services
Online banking is a great convenience for many people. Whether people use it to
manage traditional accounts or switch all of their banking to an online-only firm, it is a
wonderful improvement over the days when everything had to be done face-to-face.
No matter what kind of banking is done online, it starts with a secure web site. Usually,
the bank will have certain requirements to ensure password strength as well. This and
other security measures ensure that online accounts are safe from tampering. From
there, all of the necessary services can be accessed.
Online banking is quite simple once the basics are understood. Depositing money is
simple, and can be done in a number of ways. The most popular method is likely direct
deposit. Many employers offer direct deposit of paychecks, and by providing them with
your online bank account number, your checks will go right into that account. Other
ways of depositing money include bank and wire transfers. Some accounts even allow
customers to mail their checks in.
7

18. Paper checks are typically provided with online checking accounts. This, however, is not
likely to be the most common way a customer will access funds. Online bill payment
allows users to pay their bills without mailing checks, and those who use web-based
accounts typically prefer this and other electronic payment methods. Most types of bills
can be paid via a debit card or electronic checks, as well. This makes it easy to
eliminate the need for paper checks entirely. Still, many find it useful to have a few
checks on hand for those few companies that haven‘t quite reached the modern age.
The management of traditional accounts is another common use for online banking.
Most banks offer online access to accounts, and all customers need to do to make use
of the service is sign up through their bank‘s site. Once this is done, checking your
balance, seeing which payments have cleared, and other common banking operations
can be done from the computer. This eliminates the need to call or visit the bank for
simple account maintenance needs.
Every online banking interface is slightly different, but all banks try to make things easy
and intuitive for users. It won‘t take long for a new user to figure out exactly how
everything works. Sign up for an online bank account or online access to your current
one, and soon you‘ll wonder how you could have lived without it.
 FEATURES OF ONLINE BANKING
We need to be able to manage our finances from anywhere in the world. Rich online
banking services are much more important than a physical location. Since I have been
doing all of my banking online with quite a few different online banks as I looked for the
best solution, I‘ve had a chance to really experiment with what works and what doesn‘t
work for us.
Here is a checklist of things to look for in an online bank. Some items you may be
familiar with. Others might be new to you if it isn‘t something your current bank offers.
8

19. 1. Bill Pay Service - One of the biggest reasons for going with an online bank is to get
really good bill payment services. Different banks handle bill payment different ways.
Here are some things to think about:
A. How many bills are you allowed to pay per month?
B. What are the fees for going over the limit?
C. Can the bill payment send physical checks to merchants who aren‘t set up to take
electronic payments?
D. Do checks come from your account or from a third party service? For privacy
reasons, it might be better to be able to pay someone without giving them your bank
account number on the check. On the other hand, if the checks actually come from your
account, the money doesn‘t get taken out until the check is cashed.
E. Can you set up reoccurring payments?
2. Electronic Bill Notification – With electronic bills, your merchant (Credit Card
Company, gas company, electric company, etc.) sends an electronic bill to your bank.
You can set it up to pay automatically or notify you for approval. This can be particularly
good for people who are on the road because it reduces the amount of physical mail you
have to somehow get read or forwarded to you.
3. Online Check Images – Most banks will show you an image of the check, which
makes it really easy to balance your account if you can‘t remember what a particular
payment was for. (Ideally, you should minimize the number of physical checks you write
to reduce fraud.)
4. Online Deposit Slip Images – Most banks just record the total with no image. It will
let you see an image of each deposit slip. Having the images available can be very
helpful if you ever have to prove something for tax purposes or need to remember where
that $2581 deposit came from.
9

20. 5. Reporting Tools – Most banks offer basic reporting tools that will let you see how
much you have spent in each category you‘ve created. This may not be an issue if you
use desktop money management software, but it still can be handy if you are traveling
and want to see how much you‘ve paid on your mortgage over the past 12 months.
6. Linked Accounts – Can you link your bank account with a brokerage account? Can
you add your minor children as custodial accounts and manage them all centrally? If you
and your spouse both set them up IRAs, is it easy to view them both along side the rest
of your finances, or do you have to have a separate login for each IRA to keep them on
separate SSNs? These are small things that many banks don‘t support, but it starts
getting really complicated when you have to manage a bunch of accounts instead of
having a single place to manage all of your money.
7. Convenient Deposit Methods - Since you may not be anywhere near the physical
location of your bank, make sure you understand how to deposit money. Payroll can be
set up on direct deposit, but there will be times when you need to deposit checks. Does
the bank provide postage paid envelopes and deposit slips? Some banks work with
FedEx or UPS stores to allow you to send in a deposit overnight for free.
8. Low ATM Fees and Convenient Locations – If you need to get cash, will the bank
refund the ATM fees? Are there only certain ATMs that are free, and if so, are they
located near places you normally go? Are the ATMs available nationwide so you can use
them on vacation? What are the fees for using the ATM internationally and how is the
exchange rate handled?
9. Integration with Desktop Software – If you use Microsoft Money, Quicken or
something similar, you‘ll want to make sure your bank supports it. Make sure you
understand if downloading transactions require you to login and manually download a
file, or if your money management software can directly connect and download new
10

21. transactions. If you are using Quicken on a Mac, make sure the bank is paying Quickens
extortion fee so the files will work with Mac users.
10. Many Account Types – Some banks only offer basic checking and savings
accounts. Ideally you want a bank that makes it easy to open money market accounts,
IRAs, health savings accounts, etc. If you have to go to another institution to open a
different type of account, it is more difficult to manage–especially if you are on the road.
You want to be able to easily open a CD to take advantage of a higher interest rate,
easily open an IRA to help reduce your tax liability, etc.
11. Free Money Transfers – Be sure to consider how easy it is to move money in and
out of the account. You should be able to set up links with your accounts from other
institutions to transfer money back and forth as necessary. Make sure you understand
what types of fees are associated with these transfers. Good banks should allow a
certain number of transfers per month with no fee.
12. Security Balanced with Convenience - Some banks spend so much effort trying to
keep things secure that you‘ll find yourself automatically logged out of their website while
you try to balance your account. You want security but you don‘t want it to get in the way
of you doing your banking. Also check into what type of additional security features are
available. For example, some banks will offer you an RSA keychain with a number that
changes every 60 seconds. In addition to your password, you will need the number from
that key in order to get access to your account.
13. Ease of Use – This is something that most banks seem to struggle with. Right now I
have my personal account with one online bank and my business accounts with another.
I dread using the business accounts and I absolutely love using my personal account. At
first I thought I was just more familiar with the bank where my personal accounts are, but
I finally realize that it comes down to the ease of use. One is ok and the other is superb,
but it makes a big difference.
11

22.  Advantages of online banking:
Convenience: Unlike your corner bank, online banking sites never close; they're
available 24 hours a day, seven days a week and they're only a mouse click away.
Ubiquity: If you're out of state or even out of the country when a money problem
arises, you can log on instantly to your online bank and take care of business, 24/7.
Transaction speed: Online bank sites generally execute and confirm transactions at
or quicker than ATM processing speeds.
Efficiency: You can access and manage all of your bank accounts, including IRAs,
CDs, even securities, from one secure site.
Effectiveness: Many online banking sites now offer sophisticated tools, including
account aggregation, stock quotes, rate alerts and portfolio managing programs to
help you manage all of your assets more effectively. Most are also compatible with
money managing programs such as Quicken and Microsoft Money.
 Disadvantages of online banking:
Start-up may take time: In order to register for your bank's online program, you will
probably have to provide ID and sign a form at a bank branch. If you and your
spouse wish to view and manage your assets together online, one of you may have
to sign a durable power of attorney before the bank will display all of your holdings
together.
Learning curve: Banking sites can be difficult to navigate at first. Plan to invest
some time and/or read the tutorials in order to become comfortable in your virtual
lobby.
Bank site changes: Even the largest banks periodically upgrade their online
programs, adding new features in unfamiliar places. In some cases, you may have to
re-enter account information.
The trust thing: For many people, the biggest hurdle to online banking is learning to
trust it. Did my transaction go through? Did I push the transfer button once or twice?
Best bet: always print the transaction receipt and keep it with your bank records until
it shows up on your personal site and/or your bank statement.
12

23. 1.1.3 How Does Online Banking Work?
Online banking provides many identical services that a traditional bank does with the
biggest difference is in teller availability: Human tellers leave; electronic tellers—the
websites—are available virtually all day, everyday—weekends and holidays, included.
Online Banking Structure:
Online banking mirrors traditional banking procedures in many instances, and in some,
actually improves security and reduces both banks‘ and customer‘s costs.
In electronic form, online banking still allows:
1. Deposits to the account, whether via payroll deposits or funds transfers.
2. Bill payments via automatic payment schedules or individually ordered payments.
Most bill pay users opt for the bank-generated checks, but payments can be ordered in
a one off situation or scheduled regularly.
3. Statement formats can be electronic or paper; most who prefer online banking
choose the electronic statements for convenience and reduced paper use.
4. Wire transfers to accounts within and without the bank‘s structure, though some
banks charge additional transaction fees for wire transfers.
5. Differing services depending on the individual financial institute.
Online Actions
All online banking transactions are initiated by creating an online account identity.
Account login name and password creation is followed by choosing and answering
security questions. It‘s not recommended that security questions and answers be
common or known by others; they should have unique answers, whether historically
true or not.
13

24. For example, if a user chooses a security question, ―What is the name your first
elementary school,‖ choose an answer that is not the actual name or the actual
elementary school. Use instead the name of another school or anything else that is
easily remembered.
Provide an email address that is not tied to an Internet Service Provider. If the user
changes ISPs, that email address will be lost. Instead, use a free email address that can
last for as long as the user chooses.
Once the security aspects are in place and verified, look around the bank‘s website and
note important areas, such as:
1. Account activity
2. Statement delivery change areas
3. Customer Service options
4. Bill pay procedures, if any
5. And any other area provided on the website.
Online banking often reduces funds availability delays and hastens resolution to
disputes and inquiries. While some complaints and problems do require human
intervention, Customer Service Agents are available for longer during a calendar day
than local branch personnel are.
Online banking differs from traditional banking when physical checks or cash is
deposited; human interaction via a drive thru lane or at the counter is required. Cashier
checks, traveler checks, and money orders cannot be purchased from the institution via
online banking, but because all transactions allowed are electronic, tracking and
accountability are easily provided.
14

25. 1.1.4 OPPORTUNITIES IN ONLINE BANKING
 Is There a Future in Online Banking?
By this point, no one can dismiss online banking as a fad. However, it is worth
considering whether the trend towards online financial transactions is going to slow or
reverse in the years to come. There will continue to be people who resist online banking
in favor of offline transactions just as there are people who prefer to keep their money in
mattresses instead of putting it in banks. Whether these people will exert serious
influence on the movement towards online banking can be examined by looking at the
needs of modern consumers, and the interests of the banks themselves.
 The Move to Online Business
The global connectivity provided by the internet, combined with the fallout from the
global financial crisis has encouraged a growing number of entrepreneurs to start their
own businesses online. As an increasing number of people look to save themselves
from unemployment or augment otherwise insufficient salaries by finding new ways to
make money online, they will require new ways to send, receive, and invest their online
funds.
 The Rise of Mobile Banking
As handheld mobile devices become more sophisticated, users are experimenting with
more sophisticated transactions. Moving beyond ringtone downloads; consumers can
now shop online and purchase software upgrades and augmentations through app
stores. In addition to this buying and selling, anyone with a web browser on their phone
can access their bank‘s online banking site to move and manage their money in more
locations than ever before.
 Staffing Solutions
As banks consolidate and grow larger, they are looking for more ways to cut costs, and
reducing the number of full-time employees on their payroll is an attractive option.
Encouraging customers to do their banking online allows banks to close smaller
15

26. branches in outlying locations and use economies of scale to develop customer
assistance centers in locations where the labor market is more favorable.
 Physical Footprints
Online banking is also more attractive to banks because a reduced physical footprint
means reduced costs in other areas. In addition to saving the money that would
normally be associated with operating and maintaining physical branches, no longer
having to print and mail paper statements to customers would be a huge savings for
banks. As an added bonus, banks have been able to take advantage of current pro-
environment sentiment by marketing online banking as a ―green‖ alternative.
By appealing to more mobile customers and more cost-conscious financial service
providers alike, online banking continues to be an attractive option for everyone
involved. However, when discussing the internet it is dangerous to assume that
everything is going to be moved online; there will always be individuals, industries, and
transactions that are grounded in the real world with no desire to change the way they
do business.
 Growth of Internet
The increase in the growth of internet usage will definitely help the cause of growth of
online banking in India. The following chart shows the growth of internet in India during
the past decade or so:
YEAR Users Population % Penetration
2000 1,400,000 1,094,870,677 0.1 %
2001 2,800,000 1,094,870,677 0.3 %
2002 5,500,000 1,094,870,677 0.5 %
2003 7,000,000 1,094,870,677 0.7 %
2004 16,500,000 1,094,870,677 1.6 %
2005 22,500,000 1,094,870,677 2.1 %
2006 39,200,000 1,094,870,677 3.6 %
2007 50,600,000 1,112,225,812 4.5 %
2008 40,000,000 1,112,225,812 3.6 %
16

27. 2009 42,000,000 1,129,667,528 3.7 %
2010 81,000,000 1,156,897,766 7.0 %
2011 100,000,000 1,173,108,018 8.5 %
Why Banks Encourage Online Banking?
 OVERVIEW
Online banking has enjoyed increased popularity, and some banks actually require it.
From standard, brick-and-mortar institutions to cloud managed institutions, online
banking offers flexibility and convenience for all involved.
 BANK ADVANTAGES:
Each visit to a bank costs the institution money, whether in bank teller wages and
benefits to security costs to maintenance costs. Online banking reduces those
costs and increases the bank‘s profit margin.
Online banking reduces the need for the number of physical locations and
services offered within each. Because Customer Service Departments are united
into fewer locations, asset sharing within those locations further reduce bank
costs.
 CUSTOMER ADVANTAGES:
Online security of financial data has evolved tremendously since the early days
of online banking, and often transactions can be even more secure than those
conducted in a drive thru lane.
Online banking transactions require not only a secure login but also require
secured password entry. In-person transactions are based on account
information and a photo ID, both of which can be obtained ―under the
radar.‖Online banking transactions also track the Internet Protocol (IP) address of
the computer used in the transaction. The IP can be traced to the method or
mode of Internet access, often through an Internet Service Provider who always
17

28. notes activity, computer, and actions performed under that IP address assigned
to the ISP account holder. Whether a dynamic or changing IP address or a static
or unchanging IP address is used, the ISP always records what IP address is
assigned to what ISP account at any time.
Comprehensive Help sections on banks‘ websites often reduce on-location
inquiries, further reducing overhead costs for banking institutions. Additional
service enrollment or dis-enrollment, address updates, and account status and
verification are all time saving activities for both the bank and the banking
customer.
Online Bill Pay processes reduce stolen or counterfeit checks which cost banks
billions of dollars every month. Each online bill pay transaction allows for a grace
period from the payment order date to the actual check delivery date, which also
allows the account holder additional time to preview activity and account status.
 DEVELOPMENT:
Increasingly, more and more people are switching to electronic platforms for executing
financial transactions. The wider usage of cell phone and internet certainly seems to be
playing a role in blurring physical boundaries, and unlocking a whole new world of
opportunities for banks in tapping newer customer segments and in recording greater
volume of transactions.
If latest RBI data on retail electronic payment systems is anything to go by, electronic
banking is set to become the catalyst for change in the way money moves. Provisional
data show that in FY09 to January, a total of 5,587.85 lakh transactions were executed
through the electronic channel, a rise of 234.76 lakh transactions over the previous
fiscal.
This growth was facilitated by the introduction of real-time gross transfer (RTGS) and
national electronic funds transfer (NEFT), which enabled fund transfers among account
holders of the same bank as well as inter-bank transfers.
18

29. The growth has also been aided by banks' efforts to offer innovative services and
tighten security measures, and the increase in awareness of services available. RBI
outlining guidelines on mobile banking, setting up of the National Payments Corporation
of India and passage of the Payments and Settlement Act too have given a positive
thrust to the growth in electronic payments. The impact of all these measures is likely to
be felt in the current fiscal, which may well mean FY10 could become a watershed year
for e-banking. While opinions of industry players differ on whether FY10 will indeed
prove to be a tipping point, there seems to be consensus that the year would mark a
critical phase in the evolution of the payments and settlement systems in India. "FY10
will certainly herald an important phase for electronic banking in India and an upsurge in
internet and ATM transactions," says Ashvin Parekh, partner and national industry
leader, financial services, Ernst & Young. "At the same time, traditional fund transfer will
continue to hold its own. We are going to witness a co-existence of these two systems.
In the regulatory space, there will be huge changes. As and when India Pay, which will
eventually settle credit card and ATM transactions, comes into the picture, we could
witness a gradual shift away from Visa and MasterCard." The implementation of core
banking solutions by all public sector banks has not only helped banks rationalise their
costs, but has also allowed them to explore new ways of optimally utilising their
resources. Core banking, which facilitates linking up of a bank's branches across the
country, has enabled banks to improve their efficiency.
"Now, decisions can be taken remotely and the activities too can be undertaken in a
centralised location. This means that branches need not spend time on processing
transactions and other back office operations, and rather utilise the time and resources
to function as selling outlets. Centralised operations benefit from economies of scale
and help in reducing bank costs," explains Janmejaya Sinha, managing director of India
operations, Boston Consulting Group.
19

30.  Opportunities in e-banking: ARE WE READY?
It has always been a chicken-and-egg dilemma in business. Either firm waits for the
market to mature until customers are ready for the products and services. Or, firms can
go ahead and offer the products and services, hoping that their customers will catch on
soon.
The same is true for new products and services that have emerged and continue to
emerge in the world of electronic banking (e-banking). Banking executives interviewed
by BusinessWorld Online have different ways of resolving the issue. Some would go
ahead with new ideas, wanting to take the first-mover advantage. Others would wait in
the sidelines, but armed nevertheless just in the case the market takes up suddenly
increases.
Whether first-movers or latecomers, there is one partner in the e-banking game that is
not waiting for the chicken to lay the egg, or wait for the egg to hatch into a chick.
Technology providers are always up on their toes, like chicken ready to catch the early
worm.
20

31. 1.1.5 Challenges in Online Banking
Information technology analyst firm, the Meta Group, recently reported that "financial
institutions who don't offer home banking by the year 2000 will become marginalized."
By the year of 2002, a large sophisticated and highly competitive Internet Banking
Market will develop which will be driven by
Demand side pressure due to increasing access to low cost electronic services.
Emergence of open standards for banking functionality.
Growing customer awareness and need of transparency.
Global players in the fray
Close integration of bank services with web based E-commerce or even
disintermediation of services through direct electronic payments (E- Cash).
More convenient international transactions due to the fact that the Internet along
with general deregulation trends, eliminate geographic boundaries.
Move from one stop shopping to 'Banking Portfolio' i.e. unbundled product
purchases.
Certainly some existing brick and mortar banks will go out of business. But that's
because they fail to respond to the challenge of the Internet. The Internet and it's
underlying technologies will change and transform not just banking, but all aspects of
finance and commerce. It represents much more than a new distribution opportunity. It
will enable nimble players to leverage their brick and mortar presence to improve
customer satisfaction and gain share. It will force lethargic players who are struck with
legacy cost basis, out of business-since they are unable to bring to play in the new
context.
 MAIN CONCERNS IN INTERNET BANKING:
In a survey conducted by the Online Banking Association, member institutions rated
security as the most important issue of online banking. There is a dual requirement to
protect customers' privacy and protect against fraud. Banking Securely: Online Banking
21

32. via the World Wide Web provides an overview of Internet commerce and how one
company handles secure banking for its financial institution clients and their customers.
Some basic information on the transmission of confidential data is presented in Security
and Encryption on the Web. PC Magazine Online also offers a primer: How Encryption
Works. A multi-layered security architecture comprising firewalls, filtering routers,
encryption and digital certification ensures that your account information is protected
from unauthorised access:
Firewalls and filtering routers ensure that only the legitimate Internet users are
allowed to access the system.
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.
Digital certification procedures provide the assurance that the data you receive is
from the Infinity system.
Security concerns:
Security fears have served as deterrents to online growth. Of particular concern are
threats of pharming and phishing. Phishing is an internet fraud, through which innocent
people are enticed to divulge their personal information like user ID and passwords,
which are later on used by scammers in unauthorized ways.
The most common method of phishing is sending emails claiming to be from your bank
or other financial institutions which are dealing that already has your personal
information and you will be asked to confirm the details by clicking a particular link
(URL) provided in this fake email. This URL will take you to a fake website which will be
similar to your genuine website, and the information provided by the customer in the
forms provided in the fake website will be gathered and used for committing fraud in
their accounts or withdraw funds unauthorizedly from these accounts.
Pharming is another internet fraud, whereby as many as users as possible are
redirected before they reach the legitimate online banking websites they intend to visit
22

33. and they are lead to malicious ones. The bogus sites to which victims are redirected
without their knowledge or consent, will likely looks the same as genuine site. But when
users enter their login name or password, the information is captured by criminals.
FURTHER PROBLEMS RELATING TO NET BANKING IN INDIA
Given that India is the IT and tech services outsourcing hotspot of the world, it's
surprising that Internet banking has not really taken off. Despite the advent of a very
tech-savvy and vast consumer class in recent years, a mix of industry issues and
unique challenges continue to thwart the expansion of net banking in India. Technology
challenges, IT practices, certain cultural issues, industry lethargy, and workplace
constraints have affected widespread acceptance of Internet banking.
 Low Broadband Internet Penetration
India has one of the lowest broadband connectivity penetration rates in Asia as
compared to Japan, Taiwan, Korea and Singapore. While the bigger cities such as
Mumbai, Delhi, Chennai, and Bangalore have relatively better broadband penetration
rates, PC users in smaller cities and towns still use dial-up options to connect to the
Internet. Slow connectivity speeds often dampen the online banking experience for
many customers eager to use such services.
 Banks' Ambivalent Commitment Levels
Internet banking did take off in India at the turn of the millennium but soon faltered due
to lack of takers. In the middle of this decade, multinational and domestic private banks
started offering net banking services as a competitive differentiator. Only recently, state-
owned and public sector banks have started doing likewise. However, banks'
ambivalent commitment levels and their reluctance to allocate huge budgets for net
banking branding initiatives, as well as a lack of industry advocacy efforts, have resulted
in poor acceptance levels of Internet banking by customers.
 Customers' Preference for Traditional Branches
There are thousands of highly active traditional bank branches in India's crowded cities
and major towns. Office workers take longer lunch breaks to finish banking activities
23

34. and transactions at these branches rather than conduct them online. Most customers
prefer the personal touch and customized service offered by staff in brick-and-mortar
bank branches. Many Indians are also averse to calling call centers and banks'
customer contact lines to address issues related to online bank accounts.
 Fear of Online Threats/Scams
Ubiquitous and prevalent online threats about hackers, identity theft, stolen passwords,
viruses, worms and spyware tend to make customers wary just like in any other country.
Conservative Indian bank customers used to years of saving in an erstwhile mixed-
socialist economy are always fearful of losing hard-earned savings in online scams.
These customers are also not sure about the efficacy of banks' websites and their
commitment to allocate funds for reliable encryption mechanisms and robust back-end
technologies and systems.
 Other Problems
Workplace constraints and corporate policies about using external websites or pursing
personal activities such as online banking have affected its expected fast-paced
acceptance among the growing affluent class in India. Cultural issues, such as parents
giving priority use of the home PC to their children rather than using it themselves, stifle
the potential growth of home access to Internet banking services. Public sector banks
with vast customer bases also don't tend to invest money in training personnel for e-
banking initiatives, resulting in poor customer service levels.
 Internet Banking in India – Guidelines
Reserve Bank of India had set up a ‗Working Group on Internet Banking‘ to examine
different aspects of Internet Banking (I-banking). The Group had focused on three major
areas of I-banking, i.e. (i) technology and security issues, (ii) legal issues and (iii)
regulatory and supervisory issues. RBI has accepted the recommendations of the
Group to be implemented in a phased manner. Accordingly, the following guidelines are
issued for implementation by banks. Banks are also advised that they may be guided by
the original report, for a detailed guidance on different issues.
24

35. I. Technology and Security Standards:
a. Banks should designate a network and database administrator with clearly
defined roles as indicated in the Group‘s report.
b. Banks should have a security policy duly approved by the Board of Directors.
There should be a segregation of duty of Security Officer / Group dealing
exclusively with information systems security and Information Technology
Division which actually implements the computer systems. Further, Information
Systems Auditor will audit the information systems.
c. Banks should introduce logical access controls to data, systems, application
software, utilities, telecommunication lines, libraries, system software, etc.
Logical access control techniques may include user-ids, passwords, smart cards
or other biometric technologies.
d. At the minimum, banks should use the proxy server type of firewall so that there
is no direct connection between the Internet and the bank‘s system. It facilitates a
high level of control and in-depth monitoring using logging and auditing tools. For
sensitive systems, a state full inspection firewall is recommended which
thoroughly inspects all packets of information, and past and present transactions
are compared. These generally include a real time security alert.
e. All the systems supporting dial up services through modem on the same LAN as
the application server should be isolated to prevent intrusions into the network as
this may bypass the proxy server.
f. PKI (Public Key Infrastructure) is the most favoured technology for secure
Internet banking services. However, as it is not yet commonly available, banks
should use the following alternative system during the transition, until the PKI is
put in place:
1. Usage of SSL (Secured Socket Layer), which ensures server
authentication and use of client side certificates issued by the banks
themselves using a Certificate Server.
25

36. 2. The use of at least 128-bit SSL for securing browser to web server
communications and, in addition, encryption of sensitive data like
passwords in transit within the enterprise itself. (Para 6.4.5)
g. It is also recommended that all unnecessary services on the application server
such as FTP (File Transfer Protocol), telnet should be disabled. The application
server should be isolated from the e-mail server. (Para 6.4.6)
h. All computer accesses, including messages received, should be logged. Security
violations (suspected or attempted) should be reported and follow up action
taken should be kept in mind while framing future policy. Banks should acquire
tools for monitoring systems and the networks against intrusions and attacks.
These tools should be used regularly to avoid security breaches. The banks
should review their security infrastructure and security policies regularly and
optimize them in the light of their own experiences and changing technologies.
They should educate their security personnel and also the end-users on a
continuous basis.
i. The information security officer and the information system auditor should
undertake periodic penetration tests of the system, which should include:
1. Attempting to guess passwords using password-cracking tools.
2. Search for back door traps in the programs.
3. Attempt to overload the system using DDoS (Distributed Denial of Service)
& DoS (Denial of Service) attacks.
4. Check if commonly known holes in the software, especially the browser
and the e-mail software exist.
j. The penetration testing may also be carried out by engaging outside experts
(often called ‗Ethical Hackers‘).
k. Physical access controls should be strictly enforced. Physical security should
cover all the information systems and sites where they are housed, both against
internal and external threats.
l. Banks should have proper infrastructure and schedules for backing up data. The
backed-up data should be periodically tested to ensure recovery without loss of
transactions in a time frame as given out in the bank‘s security policy. Business
26

37. continuity should be ensured by setting up disaster recovery sites. These
facilities should also be tested periodically.
m. All applications of banks should have proper record keeping facilities for legal
purposes. It may be necessary to keep all received and sent messages both in
encrypted and decrypted form.
n. Security infrastructure should be properly tested before using the systems and
applications for normal operations. Banks should upgrade the systems by
installing patches released by developers to remove bugs and loopholes, and
upgrade to newer versions which give better security and control.
II. Legal Issues
a. Considering the legal position prevalent, there is an obligation on the part of
banks not only to establish the identity but also to make enquiries about integrity
and reputation of the prospective customer. Therefore, even though request for
opening account can be accepted over Internet, accounts should be opened only
after proper introduction and physical verification of the identity of the customer.
b. From a legal perspective, security procedure adopted by banks for authenticating
users needs to be recognized by law as a substitute for signature. In India, the
Information Technology Act, 2000, in Section 3(2) provides for a particular
technology (viz., the asymmetric crypto system and hash function) as a means of
authenticating electronic record. Any other method used by banks for
authentication should be recognized as a source of legal risk.
c. Under the present regime there is an obligation on banks to maintain secrecy
and confidentiality of customers‗ accounts. In the Internet banking scenario, the
risk of banks not meeting the above obligation is high on account of several
factors. Despite all reasonable precautions, banks may be exposed to enhanced
risk of liability to customers on account of breach of secrecy, denial of service
etc., because of hacking/ other technological failures. The banks should,
therefore, institute adequate risk control measures to manage such risks.
d. In Internet banking scenario there is very little scope for the banks to act on stop-
payment instructions from the customers. Hence, banks should clearly notify to
27

38. the customers the timeframe and the circumstances in which any stop-payment
instructions could be accepted.
e. The Consumer Protection Act, 1986 defines the rights of consumers in India and
is applicable to banking services as well. Currently, the rights and liabilities of
customers availing of Internet banking services are being determined by bilateral
agreements between the banks and customers. Considering the banking practice
and rights enjoyed by customers in traditional banking, banks‘ liability to the
customers on account of unauthorized transfer through hacking, denial of service
on account of technological failure etc. needs to be assessed and banks
providing Internet banking should insure themselves against such risks.
III. Regulatory and Supervisory Issues:
As recommended by the Group, the existing regulatory framework over banks will be
extended to Internet banking also. In this regard, it is advised that:
1. Only such banks which are licensed and supervised in India and have a physical
presence in India will be permitted to offer Internet banking products to residents
of India. Thus, both banks and virtual banks incorporated outside the country and
having no physical presence in India will not, for the present, be permitted to offer
Internet banking services to Indian residents.
2. The products should be restricted to account holders only and should not be
offered in other jurisdictions.
3. The services should only include local currency products.
4. The ‗in-out‘ scenario where customers in cross border jurisdictions are offered
banking services by Indian banks (or branches of foreign banks in India) and the
‗out-in‘ scenario where Indian residents are offered banking services by banks
operating in cross-border jurisdictions are generally not permitted and this
approach will apply to Internet banking also. The existing exceptions for limited
purposes under FEMA i.e. where resident Indians have been permitted to
continue to maintain their accounts with overseas banks etc. will, however, be
permitted.
28

39. 5. Overseas branches of Indian banks will be permitted to offer Internet banking
services to their overseas customers subject to their satisfying, in addition to the
host supervisor, the home supervisor.
Given the regulatory approach as above, banks are advised to follow the following
instructions:
a. All banks, who propose to offer transactional services on the Internet should
obtain prior approval from RBI. Bank‘s application for such permission should
indicate its business plan, analysis of cost and benefit, operational arrangements
like technology adopted, business partners, third party service providers and
systems and control procedures the bank proposes to adopt for managing risks.
The bank should also submit a security policy covering recommendations made
in this circular and a certificate from an independent auditor that the minimum
requirements prescribed have been met. After the initial approval the banks will
be obliged to inform RBI any material changes in the services / products offered
by them.
b. Banks will report to RBI every breach or failure of security systems and
procedure and the latter, at its discretion, may decide to commission special
audit / inspection of such banks.
c. The guidelines issued by RBI on ‗Risks and Controls in Computers and
Telecommunications‘ vide circular DBS.CO.ITC.BC. 10/ 31.09.001/ 97-98 dated
4th February 1998 will equally apply to Internet banking. The RBI as supervisor
will cover the entire risks associated with electronic banking as a part of its
regular inspections of banks.
d. Banks should develop outsourcing guidelines to manage risks arising out of third
party service providers, such as, disruption in service, defective services and
personnel of service providers gaining intimate knowledge of banks‘ systems and
misutilizing the same, etc., effectively.
e. With the increasing popularity of e-commerce, it has become necessary to set up
‗Inter-bank Payment Gateways‘ for settlement of such transactions. The protocol
for transactions between the customer, the bank and the portal and the
29

40. framework for setting up of payment gateways as recommended by the Group
should be adopted.
f. Only institutions who are members of the cheque clearing system in the country
will be permitted to participate in Inter-bank payment gateways for Internet
payment. Each gateway must nominate a bank as the clearing bank to settle all
transactions. Payments effected using credit cards, payments arising out of cross
border e-commerce transactions and all intra-bank payments (i.e., transactions
involving only one bank) should be excluded for settlement through an inter-bank
payment gateway.
g. Inter-bank payment gateways must have capabilities for both net and gross
settlement. All settlement should be intra-day and as far as possible, in real time.
h. Connectivity between the gateway and the computer system of the member bank
should be achieved using a leased line network (not through Internet) with
appropriate data encryption standard. All transactions must be authenticated.
Once, the regulatory framework is in place, the transactions should be digitally
certified by any licensed certifying agency. SSL / 128 bit encryption must be used
as minimum level of security. Reserve Bank may get the security of the entire
infrastructure both at the payment gateway‘s end and the participating
institutions‘ end certified prior to making the facility available for customers use.
i. Bilateral contracts between the payee and payee‘s bank, the participating banks
and service provider and the banks themselves will form the legal basis for such
transactions. The rights and obligations of each party must be clearly defined and
should be valid in a court of law.
j. Banks must make mandatory disclosures of risks, responsibilities and liabilities of
the customers in doing business through Internet through a disclosure template.
The banks should also provide their latest published financial results over the
net.
k. Hyperlinks from banks‘ websites, often raise the issue of reputational risk. Such
links should not mislead the customers into believing that banks sponsor any
particular product or any business unrelated to banking. Hyperlinks from a banks‘
websites should be confined to only those portals with which they have a
30

41. payment arrangement or sites of their subsidiaries or principals. Hyperlinks to
banks‘ websites from other portals are normally meant for passing on information
relating to purchases made by banks‘ customers in the portal. Banks must follow
the minimum recommended security precautions while dealing with request
received from other websites, relating to customers‘ purchases.
2. The Reserve Bank of India have decided that the Group‘s recommendations as
detailed in this circulars should be adopted by all banks offering Internet banking
services, with immediate effect. Even though the recommendations have been made in
the context of Internet banking, these are applicable, in general, to all forms of
electronic banking and banks offering any form of electronic banking should adopt the
same to the extent relevant.
3. All banks offering Internet banking are advised to make a review of their systems in
the light of this circular and report to Reserve Bank the types of services offered, extent
of their compliance with the recommendations, deviations and their proposal indicating
a time frame for compliance. The first such report must reach us within one month from
the date of this circular. Banks not offering any kind of I-banking may submit a ‗nil‘
report.
4. Banks who are already offering any kind of transactional service are advised to
report, in addition to those mentioned in paragraph above, their business models with
projections of cost / benefits etc. and seek our post-facto approval.
31

42. 1.1.6 Solutions
Here are some simple tips to prevent you from falling into the trap of cyber criminals.
Remember, a simple ignorance or oversight can make a huge dent in your hard- earned
savings.
 Securing your account: Avoid online banking on unsecured wifi systems and
operate only from PCs at home. Never reveal password to anyone. Do not even
write it on a piece of paper on diary. Just memorise it. It should be alphanumeric
and change it frequently.
Never reply to queries from bank online about account or personal details. The personal
information should not be kept in a public computer or in emails.
 Phishing: A person's personal details are obtained by fraudsters posing as
bankers, who float a site similar to that of the person's bank. They are asked to
provide all personal information about themselves and their account to the bank
on the pretext of database upgradation. The number and password are then
used to carry out transactions on their behalf without their knowledge.
Phishing involves using a form of spam to fraudulently gain access to people's online
banking details. As well as targeting online banking customers, phishing emails may
target online auction sites or other online payment facilities. Typically, a phishing email
will ask an online banking customer to follow a link in order to update personal bank
account details. If the link is followed, the victim downloads a program which captures
his or her banking login details and sends them to a third party.
 Spam: Spam is an electronic 'junk mail' or unwanted messages sent to your
email account or mobile phone. These messages vary, but are essentially
commercial and often annoying in their sheer volume. They may try to persuade
you to buy a product or service, or visit a website where you can make
purchases; or they may attempt to trick you into divulging your bank account or
credit card details.
32

43.  Nigerian Scam: Nigerian or Frauds 409 or 419 are basically the lottery scam in
which some overseas persons are involved to cheat innocent persons or
organizations by promising to give a good amount of money at nominal fee
charges. Their intention is to steal money in the form of fee against the lottery
prize.
 Spyware: Spyware such as Trojan horse is generally considered to be software
that is secretly installed on a computer and takes things from it without the
permission or knowledge of the user. Spyware may take personal information,
business information, bandwidth; or processing capacity and secretly gives it to
someone else.
"Trojan Horse" scheme unfolds when malicious software (malware) embeds to a
consumer's computer without the consumer being aware of it. Trojans often come in
links or as attachments from unknown email senders. After installation the software
detects when a person accesses online banking sites and records the username and
password to transmit to the offender. People using public computers, in places like
Internet cafes, are often susceptible to Trojans like malware or spyware.
 Check sites URL: Always check the URL of your bank's web site. Fraudsters
can lure you to enter your user ID and password at a fake website that resembles
your bank. If you see anything other than the bank's genuine URL, it has to be
fake.
Never enter your user ID or password or such sensitive information without ascertaining
that you are on the right website. Always type the Web address of your bank into the
browser address space. Never click on the link in the email.
 Fool-proof password: Change your online banking password at regular
intervals. Also, avoid easy-to-guess passwords, like first names, birthdays, kid's
or spouse's name and telephone numbers. Try to have an alpha-numeric
password, one that combines alphabets and numbers.
33

44. If you have several bank accounts, never use the same online banking password for all.
Never select the option on browser that stores or retains user name and password. As it
can easily be cracked by cyber criminals. Also, never paste your password, always type
it in. This little amount of `finger exercise' will go a long way in safety.
 Always check 'last logged': Most banks have a 'last logged in' panel on their
websites. If your bank has it, check the panel whenever you log in. If you notice
irregularities (like you are logging in after two days, but the panel says you
logged in that morning!), report the matter immediately to your bank and change
your password right away.
Always log out when you exit the online banking portal. Close the browser to ensure
that your secure session is terminated. Never exit simply by closing the browser.
 Keep your system up to date: Regularly check for security updates for your
computer operating system. Most security updates are aimed at reducing risks to
your computer, these may be data-related or otherwise. Make sure that your
operating system and browser have the latest security patches installed. And,
always install these only from trusted websites.
Install a personal firewall to prevent hackers from gaining unauthorised access to your
computer, especially if you connect to the Internet through a cable or a DSL modem.
 Public access can be injurious: Don't leave the PC unattended after keying in
information while transacting on the website. Avoid accessing your bank online at
cyber cafes or on a share or public computer. Also, avoid locations that offer
online connections through wireless networks (Wi-Fi), where privacy and security
are minimal.
 Follow Bank instructions: Banks say that appropriate upgradations are carried
out from time to time by their IT departments for risk mitigation. They issue
instructions to the customers to manage their accounts through virtual keyboards
by way of which the characters typed by them are not identified by hackers. SMS
34

45. alerts are also an important tool since any transaction carried out on account is
reported to the account holder through an SMS.
 Protection: Learn the ways to protect yourself from online banking fraud
schemes. Detect Trojans that appear on your PC in the form of viruses, spyware
or malware through Antivirus Software, anti Spyware, and Adware. Also, learn
to keep your cards, documents and passwords safe, and monitor your accounts
to safeguard yourself from bank fraud committed through identity theft.
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46. 1.1.7 Case Studies
1. Email password Hacking-
One day a lady came to cyber cell office and reported that she and her brothers e-mail
ID‘S had been hacked by someone she suspected him to be her husband. The lady had
already lodged a case against him for dowry and was pending for trial in Bhopal court.
The suspect had hacked lady‘s and her brother e-mail ID account and copied all the
information to his e-mail and produced selected e-mails to claim that . she was happy
with him and case of dowry is a false one .
To malign the image of her brother the suspect sent a copy of FIR lodged against him at
police station Habibganj. This indicated that the husband of the lady was behind the
whole affair but police had not any evidence against him.
Cyber cell started enquiry by an order of IGP and obtained the login logs from rediff.com
The logs indicated that the email IDs password were changed and anonymous emails
were sent from the house of lady‘s husband and sent from his.
Cyber cell registered a case under section 66 IT act and submitted Challan has been
filed against the suspect and trial is over.
Court has hold the conviction against the suspect Sabrish Pillai but found that the
matter came before the court as Sabrish was having family dispute with his wife and
the, act of hacking was not against the society at large, Hence let him free after
warning.
2. Internet Lottery Fraud :
MP Cyber police has investigated several case of cheating through Internet lottery offer
which is commonly known as Nigerian 419 scam. In this kind of cheating the culprits
used to send bulk emails, bulk SMS to millions of users using software, stating that the
receiver has won lottery worth thousands of pounds or dollars which comes out to be
crores of Indian rupees, in a lucky draw. They used to create fake lottery winning
certificate using logo and text from original website, which seems to be original at a
glance. This kind of sending bulk emails or SMS is an act of commonly known as
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47. Phishing attack. Those who are lured by such offer often tempted to contact them. The
culprits then ask the target to fill a form and thus receive all the personal information of
the target and ask him to deposit token money in various names to earn the lottery
prize. The target who is hoping to earn huge amount of money finds these charges to
be minimal. The culprit asks the target to deposit money in the name yellow tag, custom
clearance UN anti terrorism certificate, RBI charges or any other name they feel it to
suitable to convince the target. The culprits ask the target to deposit in various bank
accounts and once the money is deposited by the target it is withdrawn same day by the
suspect.
After losing lakhs of amount people come to know that they are being cheated. In this
kind of cheating the contact number are usually taken in the fake names or in the other
Indian guys name, account are being opened in the fake names or acquired on the
basis of commission by fooling the account holders.
Mp cyber police has investigated the case of Internet lottery fraud and arrested Nigerian
national Gods power from Meharauli Delhi with the suspected mobile used for
communication, one laptop, printer and box used for black dollar scam.
Mp cyber police has investigated the case of Internet lottery fraud Crime no 07/09
420,468,34 IPC and crime no 05/10 420,468,34 AIPC and arrested Nigerian national
Idiiogbe Joseph from Mumbai with the suspected mobile used for communication,
laptop, fake Income tax certificate and seals.
Apart from the above MPCP is investigating two more such cases in which suspects
are being monitored and efforts are being made to arrest them.
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48. 1.1.8 ICICI BANK
ICICI bank (formerly known as Industrial Credit and Investment Corporation of India) is
the largest private sector bank in India. ICICI is the first bank to introduce Internet
banking in India.
ICICI bank offers various online banking services to its customers under the name ICICI
Net Banking. The ICICI net banking system allows you to access your bank account
any time of the day from the privacy of your home or office. Moreover, you can transfer
funds to any bank account across India instantly using ICICI net banking facility.
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49. CHAPTER- 2
LITERATURE REVIEW
39

50. 2.1 REVIEW OF LITERATURE
Malhotra, Pooja & Singh, B. (2010) this study is an attempt to present the present
Status of online banking in India and the extent of online banking services offered by
banks. In addition, it seeks to examine the factors affecting the extent of online banking
services. The data for this study are based on a survey of bank websites explored
during July 2008. The sample consists of 82 banks operating in India at 31 March 2007.
Multiple regression technique is employed to explore the determinants of the extent of
Online banking services. The results show that the private and foreign online banks
have performed well in offering a wider range and more advanced services of online
banking in comparison with public sector banks. Among the determinants affecting the
extent of Online banking services, size of the bank, experience of the bank in offering
Online banking, financing pattern and ownership of the bank are found to be significant.
The primary limitation of the study is the scope and size of its sample as well as other
variables (e.g. market, environmental, regulatory etc) which may have an effect on the
decision of the banks to offer a wide range of Online banking services. The purpose of
the study is to help fill significant gaps in knowledge about the Online banking
landscape in India. The findings are expected to be of great use to the government,
regulators, commercial banks, and other financial institutions, e.g. co-operative banks
planning to offer Online banking, bank customers and researchers. The bankers as well
as society at large will come to know where the banks lag in terms of adoption of online
banking and in providing different products and services. An understanding of the
factors affecting the extent of Online banking services is essential both for economists
studying the determinants of growth and for the creators and producers of such
technologies. Moreover, this paper contributes to the empirical literature on diffusion of
financial innovations, particularly online banking, in a developing country, i.e. India.
Polaris Software Lab (2010) In this study Polaris Software Lab Limited (POLS.BO), a
leading Financial Technology Company, launched Intellect(TM) PRIVACY based on
state-of-the-art technology and four patents filed by the Indian Institute of Technology
Madras. IndusInd Bank has become the first bank in India to implement Intellect(TM)
PRIVACY, an online and Online banking security card, for its Online banking customers.
The technology will protect customers and banks from practically all kinds of phishing
attacks, viz. deceptive e-mail, key/screen logger, brute force/dictionary attacks and
Trojans, etc. Intellect PRIVACY uses multi factor, dynamic authentication technology
providing for authorizing online banking transactions, in a completely secure platform.
Commenting on the innovation, Professor L S Ganesh, Coordinator of the programmer,
said, "At IIT Madras, the Department of Computer Science and Engineering and the
Department of Management Studies got particularly interested in designing an online
security technology that is cost efficient and easy to use in a rapidly growing e-
commerce scenario, and transferring it commercially. We chose the Cost-Usability-
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51. Security (CUS) approach to arrive at a solution and Polaris Software created an
eminently usable application for the banking industry. IndusInd Bank, which was looking
for providing greater security for web based transactions, became the first organization
to adopt it." Intellect PRIVACY is a simple plastic card that customers can use to
generate a one-time password (OTP) for carrying out any kind of online banking
transaction including the sign on. Banks can issue booklets containing a desired
number of cards that would last many transactions. The card has no pilferage value by
itself and customers can easily manage its life cycle, including making a request for a
new booklet and reporting loss of cards through online banking.
Azouzi, D. (2009) this paper aims to check if the current and prompt technological
revolution altering the whole world has crucial impacts on the Tunisian banking sector.
Particularly, this study seeks some clues on which we can rely in order to understand
the customers' behavior regarding the adoption of online banking. To achieve this
purpose, an empirical research is carried out in Tunisia and it reveals that panoply of
factors is affecting the customers-attitude toward online banking. For instance; age,
gender and educational qualifications seem to be important and they split up the group
into electronic banking adopters and traditional banking defenders and so, they have
significant influence on the customers' adoption of online banking. Furthermore, this
study shows that despite the presidential incentives and in spite of being fully aware of
the online banking's benefits, numerous respondents are still using the conventional
banking. It is worthy to mention that the fear of loss because of transactions errors or
hackers plays a significant role in alienating Tunisian customers from online banking.
B. Dizon, J.A. (2009) In this study they have founded that while big banks still conduct
the bulk of their business in brick and mortar bank branches, the finance sector has
been increasingly investing on Online banking facilities to offer 24-hour, queue free
services to their regular clients, whether through ATM machines, mobile phones.
"Online Banking's appeal is primarily its convenience. Clients nowadays want instant
results; they don't want to wait anymore," said Francisco M. Caparros, Jr., senior vice-
president of Asia United Bank and president of Banc Net. It's also turned out to be a
more efficient way to process transactions, as online banking does away with most of
the paperwork that clients have to accomplish. "A lot of people don't like filling forms,"
Mr. Caparros added. "Online banking, in particular, relies on user names and
passwords which need to be protected," said Ferdinand G. La Chica, first vice-
president and marketing group head for Sterling Bank of Asia. These anti- theft barriers
are at times supplemented by transaction passwords and "tokens", often a keychain-like
device that is issued to the client and generates random, one-time passwords to enable
him to log into his account online. Last year, the Rural Bank Association of the
Philippines announced that its members are looking to appoint local merchants like sari-
sari stores as third party agents where consumers can open new accounts and make
41

52. large payments. Such informal outlets will enable banks to reach out to small-income
businesses and individuals, particularly those in the agrarian sector, most of who are
based outside the city center.
Uppal, R.K. & Chawla, R. (2009) this study highlights customer perceptions regarding
online banking services. A survey of 1,200 respondents was conducted in October 2008
in Ludhiana district, Punjab. The respondents were equally divided among three bank
groups namely, public sector, private sector and foreign banks. The present study
investigates the perceptions of the bank customers regarding necessity of Online
banking services, quality of online banking services, bank frauds, future of online
banking, preference of bank customers regarding banks, comparative study of banking
services in various bank groups, preferences regarding use of online channels and
problems faced by online bank customers. The major finding of this study is that
customers of all bank groups are interested in online banking services, but at the same
time are facing problems like, inadequate knowledge, poor network, lack of
infrastructure, unsuitable location, misuse of ATM cards and difficulty to open an
account. Keeping in mind these problems faced by bank customers, this paper frames
some strategies like customer education, seminars/meetings, proper network and
infrastructure facilities, online shopping facilities, proper working and installation of ATM
machines, etc., to enhance Online banking services. Majority of professionals and
business class customers as well as highly educated and less educated customers also
feel that online banking has improved the quality of customer services in banks.
Reeti, Sanjay, and Malhotra, A. (2009) Stated about the Customer‘s perspectives
regarding online banking in an emerging economy. So that, the author determining
various factors affecting customer perception and attitude towards and satisfaction with
online banking is an essential part of a bank's strategy formulation process in an
emerging economy like India. To gain this understanding in respect of Indian customers,
the study was conducted on respondents taken from the northern part of India. The
major findings depict that customers are influenced in their usage of online banking
services by the kind of account they hold, their age and profession, attach highest
degree of usefulness to balance enquiry service among Online banking services,
consider security & trust most important in affecting their satisfaction level and find slow
transaction speed the most frequently faced problem while using online banking.
Hsun, K.S. (2008) this study considers the coherence of the financial service sector and
adopts different observational variables to identify innovation capital (training and R&D
density) and process capital (IT system sufficiency). The results show that human
capital has a direct impact on both innovation capital and process capital, which in turn
affect customer capital; while finally, customer capital affects business performance. In
addition, there is a negative relationship between process capital and customer capital
in the financial service sector. It suggests that in the financial service sector, customer
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53. satisfaction relies on a sufficient degree of training and R&D density. Intemperate
investment on the support of online banking operation systems may not be a good
answer.
Laukkanen, P., Sinkkonen, S. & Laukkanen, T. (2008) The purpose of this paper is to
further the understanding of innovation resistance by dividing online banking non-
adopters into three groups based on their intentions to use the innovation. Thereafter,
the aim is to identify how the resistance differs in these customer groups. This study
identifies three groups of Online banking non-adopters, namely postponers, opponents
and rejectors. The data were collected by conducting an extensive postal survey among
the retail banking customers in Finland who had not adopted online banking. The
measurement development was based on consumer resistance theory and the earlier
literature on online banking. Principal component analysis was used to classify the
resistance items into five adoption barriers derived from the earlier literature. Thereafter,
analysis of variance was used to analyze the statistical differences in resistance to
online banking between the three groups. Significant differences were identified
between the groups explored. The resistance of the rejectors is much more intense and
diverse than that of the opponents, while the postponers show only slight resistance.
The results also indicate that psychological barriers are even higher determinants of
resistance than usage and value, which are constructs related to ease-of-use and
usefulness determining acceptance in the traditional technology acceptance model.
Moreover, the findings highlight the role of self-efficacy in bank customers' risk
perceptions to online banking. This study provides further understanding of what inhibits
online banking adoption by comparing three non-adopter groups with respect to their
resistance to online banking. It also has implications for management in overcoming
non-adopters' resistance to the innovation.
Routray (2008) the study describes that Mobile and Wireless communication devices
are becoming enablers for organizations to conduct business more effectively and
efficiently. One of the most effective applications is mobile banking (m-banking). For any
application to gain recognition technological advancements play a vital role. To make m-
banking application a success bandwidth management is an important issue. The
increased flexibility and mobility feature of wireless ATM and its bandwidth on demand
function is motivating a large number of carriers towards deployment of the WATM
networks. But there are certain issues which are required to be addressed in WATM.
The issues are cost effective planning of network, location management and handover
management. In this paper we have suggested and evaluated a technological
framework for the m-banking application using wireless ATM which optimizes the
bandwidth usage and provides an effective handover management. Simulation results
show that the resultant framework is very effective in handling the bandwidth and the
handover issue in wireless ATM and provides an effective WATM framework model.
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54. Malhotra, P. & Singh, B. (2007) Stated about this research tells us that the larger
banks, banks with younger age, private ownership, higher expenses for fixed assets,
higher deposits and lower branch intensity evidence a higher probability of adoption of
this new technology. Banks with lower market share also see the Online banking
technology as a means to increase the market share by attracting more and more
customers through this new channel of delivery. Further, the adoption of Online banking
by other banks increases the probability that a decision to adopt will be made. An
understanding of the factors affecting this choice is essential both for economists
studying the determinants of growth and for the creators and producers of such
technologies. From this perspective, understanding the factors determining the adoption
of technology becomes highly relevant from the policy point of view. Moreover, the
studies on the adoption of financial innovations are related to developed markets, e.g.
US or European banking markets. Hence, this paper contributes to the empirical
literature on diffusion of financial innovations, particularly online banking, in a
developing country.
Shah and Braganza (2007) this survey indicates the Critical Success Factors in online
banking and the author suggest in this article that the organizational factors, which are
critical to the success of online banking, are investigated. Different pieces of literature
report different factors as key to success and generally based on subjective, perceptual
data. A synthesis of existing literature is a basis for survey questions. The data was
collected from UK based financial sector organizations who are offering their services
on electronic channels, using postal questionnaires. The top factors found to be most
critical for the success in online banking are: quick responsive products/services,
organizational flexibility, services expansion, systems integration and enhanced
customer service. An important lesson from this research is that organizations need to
view the online banking initiative as a business critical area rather than just a technical
issue. They need to give attention to internal integration, which may include channels,
technology and business process integration, and improving the overall services to their
customers.
Awamleh (2006) this study analyses the Online banking channels and service
preferences of educated banking consumers in the UAE and examines the factors
influencing the intention to adopt or to continue the use of online banking among both
users and non users of online banking. It is shown that although the banking sector in
the UAE is a regional leader, Online banking in the UAE is yet to be properly utilized as
a real added value tool to improve customer relationship and to attain cost advantages.
The Technology Acceptance Model (TAM) was used to identify factors influencing the
intention to adopt and continued use of online banking customers. Data was collected
from online banking users and potential users in the United Arab Emirates and factor
analyses and multiple regression analyses were conducted to examine the data.
44