DISSERTATION On "E-banking vs Conventional Banking in India" By Saurabh Chawla Enroll. No. - A0101910209 MBA Class of 2012 Under the Supervision of Mr. Vaibhav Gupta Professor Department of Finance In Partial Fulfilment of Award of Master of Business Administration AMITY BUSINESS SCHOOL AMITY UNIVERSITY UTTAR PRADESH
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DISSERTATION
On
"E-banking vs Conventional Banking in India"
BySaurabh Chawla
Enroll. No. - A0101910209MBA Class of 2012
Under the Supervision ofMr. Vaibhav Gupta
ProfessorDepartment of Finance
In Partial Fulfilment of Award of Master of Business Administration
AMITY BUSINESS SCHOOLAMITY UNIVERSITY UTTAR PRADESH
SECTOR 125, NOIDA - 201303, UTTAR PRADESH, INDIA
AMITY BUSINESS SCHOOL
DECLARATION
Title of Project Report - E-banking vs Conventional banking in India
I declare
(a)That the work presented for assessment in this dissertation Report is my own, that it
has not previously been presented for another assessment and that my debts (for words,
data, arguments and ideas) have been appropriately acknowledged.
(b)That the work conforms to the guidelines for presentation and style set out in the
relevant documentation.
Date: 20th March, 2012. Saurabh Chawla
A0101910209
MBA - Class of 2012.
AMITY UNIVERSITY UTTAR PRADESH
AMITY BUSINESS SCHOOL
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CERTIFICATE
I Mr. Vaibhav Gupta hereby certify that Saurabh Chawla student of Masters of
Business Administration at Amity Business School, Amity University Uttar Pradesh is
doing the Project Report on “E-banking vs Conventional banking in India" under my
guidance.
Mr. Vaibhav Gupta
Professor
Department of Finance
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ACKNOWLEDGEMENT
I owe a great many thanks to a great many people who helped and supported me during
the making of this project report. I would like to thank Mr Vaibhav Gupta, faculty,
Amity Business School, for her guidance throughout the project.
I would also like to thank my Industry mentor Mr. Samik Dasgupta ( Sr. AVP, IFCI
Ltd), who inspired me greatly to work on this project. I would like to thank him for
guiding me with some examples that are related to the topic of the project, for suggesting
alternative solutions & sharing his valuable experience & knowledge with me, and also
for facilitating me in gaining practical knowledge.
FIGURE I: E-BANKING PRINCIPLE...........................................................................2FIGURE II: ELECTRONIC BANKING & ITS COMPONENTS...............................3FIGURE III: TRANSITION FROM TRADITIONAL TO E-BANKING...................4FIGURE IV: E-BANKING TRANSACTION MECHANISM......................................5FIGURE V: E-BANKING IN VARIOUS COUNTRIES.............................................27FIGURE VI: BAR CHART ON AGE GROUP............................................................36FIGURE VII: BAR CHART ON GENDER DISTRIBUTION...................................37FIGURE VIII: BAR CHART ON BANK VISITS PER MONTH..............................39FIGURE IX: PIE CHART ON E-BANKING FACILITIES BANK SHOULD PROVIDE.........................................................................................................................40FIGURE X: PIE CHART ON REASON FOR VISITING BRANCH........................42FIGURE XI: BAR CHART ON EXISTENCE OF INTERNET BANKING ACCOUNT.......................................................................................................................45FIGURE XII: PIE CHART ON USAGE OF E-BANKING SERVICES USED BY CONSUMERS..................................................................................................................47FIGURE XIII: PIE CHART ON CHOICE OF BANK...............................................48FIGURE XIV: BAR CHART ON REASONS FOR OPENING INTERNET BANK ACCOUNT.......................................................................................................................50FIGURE XV: BAR CHART ON IMPORTANCE OF FACTORS RELATING TO E-BANKING....................................................................................................................52FIGURE XVI: PIE CHART ON REASONS FOR NOT OPENING AN E-BANKING ACCOUNT...................................................................................................53
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LIST OF TABLES
TABLE I: LIST OF SOME BANKS OPERATING E-BANKING IN INDIA & THEIR TECHNOLOGY VENDORS........................................................................................13
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EXECUTIVE SUMMARY
“E-banking” means the execution of financial services via internet, reducing cost and increase in
convenience for the customer to access the transaction. E-banking is an umbrella term for the
process by which a customer may perform banking transactions electronically without visiting a
brick-and-mortar institution. The following terms all refer to one form or another of electronic
banking: personal computer (PC) banking, Internet banking, virtual banking, online banking,
home banking, remote electronic banking, and phone banking. PC banking and Internet or online
banking is the most frequently used designations. It should be noted, however, that the terms
used to describe the various types of electronic banking are often used interchangeably.
The ever increasing speed of internet enabled phones & PDA’s, made the transformation of
banking application to mobile devices, this creates a new subset of electronic banking i.e. mobile
banking.
This study tries to analyze the differences in risk perceptions between bank customers using E-
Banking and those not using E-Banking and it shows that risk perceptions in terms of financial,
psychological and safety risks among non-users was more meaningful than those using it.
Customers not preferring to use E-banking thought that they would be swindled when using this
service, and therefore, are particularly careful about high risk expectation during money transfers
from and between accounts.
Although many major banks have started offering E-banking services, the slow pace will
continue until the mass awareness is created.
Private and foreign banks are trying to turn more and more customer towards the usage of
internet for the banking transaction. This study is basically to know the relation of various
independent variables on the customer usage of internet for banking.
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Bank
Information technology
Customer
CHAPTER 1: INTRODUCTION
Electronic banking is one of the truly widespread avatars of E-commerce the world over.
Various authors define E-Banking differently but the most definition depicting the meaning and
features of E-Banking are as follows:
1. Banking is a combination of two, Electronic technology and Banking.
2. Electronic Banking is a process by which a customer performs banking
Transactions electronically without visiting a brick-and-mortar institutions.
3. E-Banking denotes the provision of banking and related service through
Extensive use of information technology without direct recourse to the bank by the customer.
FIGURE I: E-BANKING PRINCIPLE
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NEED FOR E-BANKING
One has to approach the branch in person, to withdraw cash or deposit a cheque or request a
statement of accounts. In true Internet banking, any inquiry or transaction is processed online
without any reference to the branch (anywhere banking) at any time. Providing Internet banking
is increasingly becoming a "need to have" than a "nice to have" service. The net banking, thus,
now is more of a norm rather than an exception in many developed countries due to the fact that
it is the cheapest way of providing banking services.
Banks have traditionally been in the forefront of harnessing technology to improve their
products, services and efficiency. They have, over a long time, been using electronic and
telecommunication networks for delivering a wide range of value added products and services.
The delivery channels include direct dial – up connections, private networks, public networks etc
and the devices include telephone, Personal Computers including the Automated Teller
Machines, etc. With the popularity of PCs, easy access to Internet and World Wide Web
(WWW), Internet is increasingly used by banks as a channel for receiving instructions and
delivering their products and services to their customers. This form of banking is generally
referred to as Internet Banking, although the range of products and services offered by different
banks vary widely both in their content and sophistication.
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FIGURE II: ELECTRONIC BANKING & ITS COMPONENTS
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Traditional bankingGunpowder
Personalized services, time consuming, limited access
Virtual or E-bankingNuclear charged
Real time transactions, integrated platform, all time
access
EVOLUTION OF E-BANKING
The story of technology in banking started with the use of punched card machines like
Accounting Machines or Ledger Posting Machines. The use of technology, at that time, was
limited to keeping books of the bank. It further developed with the birth of online real time
system and vast improvement in telecommunications during late 1970’s and 1980’s.it resulted in
a revolution in the field of banking with “convenience banking” as a buzzword. Through
Convenience banking, the bank is carried to the doorstep of the customer.
The 1990’s saw the birth of distributed computing technologies and Relational Data Base
Management System. The banking industry was simply waiting for these technologies. Now with
distribution technologies, one could configure dedicated machines called front-end machines for
customer service and risk control while communication in the batch mode without hampering the
response time on the front-end machine.
FIGURE III: TRANSITION FROM TRADITIONAL TO E-BANKING
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Intense competition has forced banks to rethink the way they operated their business. They had
to reinvent and improve their products and services to make them more beneficial and cost
effective. Technology in the form of E-banking has made it possible to find alternate banking
practices at lower costs.
More and more people are using electronic banking products and services because large section
of the banks future customer base will be made up of computer literate customer, the banks must
be able to offer these customer products and services that allow them to do their banking by
electronic means. If they fail to do this will, simply, not survive. New products and services are
emerging that are set to change the way we look at money and the monetary system.
FIGURE IV: E-BANKING TRANSACTION MECHANISM
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E-BANKING PRODUCTS
Automated Teller Machine (ATM):
These are cash dispensing machine, which are frequently seen at banks and other locations such
as shopping centers and building societies. Their main purpose is to allow customer to draw cash
at any time and to provide banking services where it would not have been viable to open another
branch e.g. on university campus. An automated teller machine or automatic teller machine
(ATM) is a computerized telecommunications device that provides a financial institution’s
customers a method of financial\ transactions in a public space without the need for a human
clerk or bank teller. On most modern ATMs, the customer identifies him or herself by inserting a
plastic ATM card with a magnetic stripe or a plastic smartcard with a chip that contains his or
her card number and some security information, such as an expiration date or CVC (CVV).
Security is provided by the customer entering a personal identification number (PIN).
Using an ATM, customers can access their bank accounts in order to make cash withdrawals (or
credit card cash advances) and check their account balances. Many ATMs also allow people to
deposit cash or checks, transfer money between their bank accounts, pay bills, or purchase goods
and services.
Some of the advantages of ATM to customers are:-
1. Ability to draw cash after normal banking hours
2. Quicker than normal cashier service
3. Complete security as only the card holder knows the PIN
4. Does not just operate as a medium of obtaining cash.
5. Customer can sometimes use the services of other bank ATM’s.
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Telebanking or Phone Banking:
Telephone banking is relatively new Electronic Banking Product. However it is fastly becoming
one of the most popular products. Customer can perform a number of transactions from the
convenience of their own home or office; in fact from anywhere they have access to phone.
Customers can do following:-
1. Check balances and statement information
2. Transfer funds from one account to another
3. Pay certain bills
4. Order statements or cheque books
5. Demand draft request
This facility is available with the help of Voice Response System (VRS). This
system basically, accepts only TONE dialed input. Like the ATM customer has to follow
particular process, initially account number and telephone PIN are fed for the process to start.
Also the VRS system provides the users within additional facilities such as changing existing
password with the new desired, information about new products, current interest rates etc.
Mobile Banking:
Mobile banking comes in as a part of the banks initiative to offer multiple channel banking
providing convenience for its customer. A versatile multifunctional, free service that is
accessible and viewable on the monitor of mobile phone. Mobile phones are playing great role in
Indian banking- both directly and indirectly. They are being used both as banking and other
channels.
Internet 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 million of daily transactions; today, often the only
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paper record is the customer’s receipt at the point of sale. Now that their customers are
connected to the Internet via personal computers, banks envision similar advantages by adopting
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. In India first one to move into this area was ICICI Bank. They
started web based banking as early as august 1997.
TYPES OF INTERNET BANKING OR E-BANKING:
Understanding the various types of Internet banking will help examiners assess the risks
involved. Currently, the following three basic kinds of Internet banking are being employed in
the marketplace.
1. Informational- this is the basic level of Internet banking. Typically, the bank has
marketing information about the bank’s products and services on a stand-alone server. The risk is
relatively low, as informational systems typically have no path between the server and the bank’s
internal network. This level of Internet banking can be provided by the banks or outsourced.
While the risk to a bank is relatively low, the server or web site may be vulnerable to alteration.
Appropriate controls therefore must be in place to prevent unauthorized alterations to the bank’s
server or web site.
2. Communicative- this type of Internet banking systems and the customer. The interaction
between the bank’s system and the customer. The interaction may be limited to electronic mail,
account enquiry, loan applications, or static file updates (name and address change). Because
these servers may have a path to the bank’s internal networks, the risk is higher with this
configuration than with informational systems. Appropriate controls need to be in the place to
prevent, monitor, and alert management of any unauthorized attempt to access the bank’s
internal networks and computer systems. Virus controls also become much more critical in this
environment.
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3. Transactional- this level of Internet banking allows customers to execute transactions.
Since a path typically exists between the server and the bank or outsourcer’s internal network,
this is the highest risk architecture and must have the strongest controls. Customer transactions
can include accessing accounts, paying bills, transferring funds etc.
DANGERS IN E-BANKING
Using the internet in banking is frought with security and customer trust issues. It looks at the
potential risks associated with the provision of retail banking services via electronic channels. It
summarizes the current state of play , and discusses the risks and the options that are available
for dealing with them. It will provide you with an insight into competitor strategies and an
informed view on the world of e-risk, allowing you to take informed decisions on this critical
subject with confidence.
Dangers in E-banking can help you to reduce the level of risks to a minimal level whilst ensuring
that your business is not left behind in the race to retain and win new electronic customers. It
does this in three main ways:
It identifies the major risks which have been encountered so far and pinpoints areas which
are to become big risks for e-bankers in the future - which means that you are informed of the
dangers before you take your decisions
It reveals how some of the banks which have been quick off the mark have approached risk
issues, and what kinds of risk measurement and management techniques have been applied -
allowing you to examine best practice and employ the lessons learned
It reviews the current range of risk mitigation tool and methodologies, such as business
continuity management and insurance market solutions, and looks into the future - ensuring that
you are informed on what is possible now in terms of risk prevention, and allowing you to
develop future strategies too.
Dangers in E-Banking is packed with helpful and informative practical advice and is compiled
using up-to-date research and analysis and informative case studies - an essential guide for
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management within retail banks and other financial institutions which provide or are planning to
provide e-services.
This is intended to be a strategy document for senior management within retail banks and
building societies that provide financial services and information via internet web sites and
email. It will be of particular interest to risk managers, IT managers, marketing managers, chief
executives, sales directors, finance directors, consultants, business development directors,
compliance officers, strategic planners, directors with international responsibility, new product
development managers, e-commerce managers and research and development managers.
Dangers in E-Banking, in a nutshell, will give you a map of existing and potential e-risks,
combined with practical information to help you organise your business to combat the risks. To
help you take decisions more confidently, it also provides you with the current position as
regards internet law and provides you with analysis and examples of how organisations are
currently approaching e-risks. If you are using internet technology in your financial organisation,
make sure that you are taking the most informed decisions - order your copy of Dangers in E-
Banking right now.
ADVANTAGES OF INTERNET 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 IRA’s, CDs,
even securities, from one secure site.
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Effectiveness- Many online banking sites now offer sophisticated tools, including
account aggregation, stock quotes, rate alert and portfolio managing program to help you manage
all of your assets more effectively.
DISADVANTAGES OF INTERNET 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 their 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 curves- 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.
E- BANKING SERVICES
1. Online bill payment service:
Each bank has tie-ups with various utility companies, service providers and insurance
companies, across the country. It facilitates the payment of electricity and telephone bills, mobile
phone, credit card and insurance premium bills.
To pay bills, a simple one-time registration for each biller is to be completed. Standing
instructions can be set, online to pay recurring bills, automatically. One-time standing instruction
will ensure that bill payments do not get delayed due to lack of time. Most interestingly, the bank
does not charge customers for online bill payment.
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2. Fund transfer:
Any amount can be transferred from one account to another of the same or any another bank.
Customers can send money anywhere in India. Payee’s account number, his bank and the branch
is needed to be mentioned after logging in the account. The transfer will take place in a day or
so, whereas in a traditional method, it takes about three working days. ICICI Bank says that
online bill payment service and fund transfer facility have been their most popular online
services.
3. Credit card customers:
Credit card users have a lot in store. With Internet banking, customers can not only pay their
credit card bills online but also get a loan on their cards. Not just this, they can also apply for an
additional card, request a credit line increase and God forbid if you lose your credit card, you can
report lost card online.
4. Investing through Internet banking:
Opening a fixed deposit account cannot get easier than this. An FD can be opened online
through funds transfer. Online banking can also be a great friend for lazy investors.
Now investors with interlinked demat account and bank account can easily trade in the stock
market and the amount will be automatically debited from their respective bank accounts and the
shares will be credited in their demat account.
Moreover, some banks even give the facility to purchase mutual funds directly from the online
banking system.
So it removes the worry about filling those big forms for mutual funds, they will now be just a
few clicks away. Nowadays, most leading banks offer both online banking and demat account.
However if the customer have there demat account with independent share brokers, then need to
sign a special form, which will link your two accounts.
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5. Recharging your prepaid phone:
Now there is no need to rush to the vendor to recharge the prepaid phone, every time the talk
time runs out. Just top-up the prepaid mobile cards by logging in to Internet banking. By just
selecting the operator's name, entering the mobile number and the amount for recharge, the
phone is again back in action within few minutes.
6. Shopping at your fingertips:
Leading banks have tie ups with various shopping websites. With a range of all kind of products,
one can shop online and the payment is also made conveniently through the account. One can
also buy railway and air tickets through Internet banking.
TABLE I: LIST OF SOME BANKS OPERATING E-BANKING IN INDIA & THEIR
TECHNOLOGY VENDORS
Bank Name Technology Vendor Service offeringABN AMRO Bank Infosys (Bank Away) NetBankingAbu Dhabi Commercial Bank Infosys (Bank Away) ADCB NetLinkBank of India I-flex BOIonlineCitibank Orbitech (now Polaris) Citibank OnlineCorporation Bank I-flex CorpNetDeutsche Bank db directFederal Bank Sanchez FedNetGlobal Trust Bank Infosys (BankAway) ibank@gtbHDFC Bank i-flex/ Satyam NetBankingHSBC Online@hsbcICICI Bank Infosys, ICICI Infotech InfinityIDBI Bank Infosys (Bank Away) i-net bankingIndusInd Bank CR2 IndusNetPunjab National Bank Infosys (Bank Away) Internet Banking Standard Chartered Bank In-House Me Standard Chartered OnlineState Bank of India Satyam/Broadvision onlinesbi.comUTI Bank Infosys (Bank Away) I connect