INTRODUCTION

Online banking, also known as internet banking, e-banking or virtual banking, is an electronic
payment system that enables customers of a bank or other financial institution to conduct a range
of financial transactions through the financial institution's website. The online banking system
will typically connect to or be part of the core banking system operated by a bank and is in
contrast to branch banking which was the traditional way customers accessed banking services.
Fundamentally and in mechanism, online banking, internet banking and e-banking are the same
thing.
To access a financial institution's online banking facility, a customer with internet access would
need to register with the institution for the service, and set up a password and other credentials
for customer verification. The credentials for online banking is normally not the same as for
telephone or mobile banking. Financial institutions now routinely allocate customers numbers,
whether or not customers have indicated an intention to access their online banking facility.
Customers' numbers are normally not the same as account numbers, because a number of
customer accounts can be linked to the one customer number. The customer number can be
linked to any account that the customer controls, such as cheque, savings, loan, credit card and
other accounts.
The customer visits the financial institution's secure website, and enters the online banking
facility using the customer number and credentials previously set up. The types of financial
transactions which a customer may transact through online banking usually includes obtaining
account balances, lists of the latest transactions, electronic bill payments and funds transfers
between a customer's or another's accounts. INDIAN BANKING SYSTEM
The banks in India’s are in many shapes and forms that can be categorized on the basis of
ownership, functions and operations. The Indian banking system is regulated by the Reserve
Bank of India (RBI) that comprises of scheduled and nonscheduled banks and these are classified
in various sub-categories as follows:-
SCHEDULED BANKS:
“Scheduled Banks in India are those banks which have been included in the SecondSchedule of
Reserve Bank of India (RBI) Act, 1934.” As on 30th June, 1999, there were 300 scheduled banks
in India having a totalnetwork of 64,918 branches and till March 31, 2002, this figure is
increased 418banks in India with its wide network of all over India. The following are the
Scheduled Banks in India:
FUNCTIONS OF MODERN BANKS:
Modern banks not only deal in money and credit but they also perform various functions,
namely, agency functions, management of foreign trade, finance, etc. The meaning of modern
banks is used in narrow sense of the term as commercial banks. The various functions of
commercial banks can be seen from the following chart:
INTRODUCTION OF INTERNET BANKING
A number of authors and experts have defined e-banking services as a contemporary facility that
provides conventional bank products and services through a new medium i.e. IT.
It is entirely automated facility based on IT delivery mechanism to conventional banking users’
products and services. It provides online medium of conducting and providing various banking
services, such as, online accessibility of bank account, online fund transfer facility, online bills
paying facility etc. The benefits provided by e-banking medium have resulted into swift growth
of banking sector worldwide.
The internet facility has transformed the business world in terms of managing business.
According to Abu Shanab et al. (2010), internet has transformed the entire business pattern for
people as well as for businesses. Although, technological advancements are happening everyday
but not every advancement has been welcomed and adapted by financial sector; but financial
sector that enjoying advantages of this new mode of service delivery, has adapted the e-banking
phenomenon from its introduction only. Originally it was used for online banking promotional
activities of their products and services; but as the e-banking concept developed, banks have
started enjoying its various other advantages, such as, reduced per transaction cost, enhanced
customer service, raised long term returns by providing ‘anytime anywhere’ banking to the
banking customers.
Advancement in technology provides fast innovative changes in people’s routine life. The most
significant recent technical advancement that drastically transformed the entire scenario of
providing services is the use of internet facility in service delivery. Number of people that are
adapted this technological advancement for online transaction such as, online shopping, is
increasing tremendously. Gradually, more business organizations realized that it can be utilized
to facilitate growth through its advantages of easy accessibility to information and technology
transfer. The cut throat competitive environment and demanding customers compelled banks to
adapt e- banking concept.
Most of the business organizations have swiftly adapting the advancement in technology and
internet facility. Adopting new internet applications have resulted in enhancement of efficiency
and quality of service provided as well as attracting prospecting customers. Thus, evolution of
internet facility had transformed entire business world around the globe and same happened in
banking sector. Banking sector have always been on the top in using ICT in banking business.
Challenges faced by banking sector such as, increase in competition, catering variety of demand
of heterogeneous customers, decreasing revenue margin and advantages provided by technology
, have compelled banks to process new human resource management system. To successfully
face all these challenges banks have adapted new technological advancements as earliestas
possible. Other driving forces that worked for banks to adapt technological advancements are the
challenges of meeting varied customer expectations, new regulation and entering into new
geographical areas and requirement of new products and services.
Technological advancement specifically, in IT is always seen as the main source of changes
taking place around the globe. The entire banking industry has entered into an unparalleled
Competitive form facilitated by new ICT infrastructure, because of universal and gradual
development of ICT.
The latest buzzword for corporate is e-commerce due to increase in awareness of utilization of
computer and internet facility and increased use of these facility resulted into development of e-
commerce. Today, internet facility has become the main medium of financial, commercial and
banking transactions and advancement in ICT have become the top concern for banks. The
growth of modern financial software applications has changed the business relationship and
service provision with very fast pace. The development in ICT more or less impacted entire
business world. Today, e- banking has been extensively used in developed nations and is swiftly
escalating in the developing nations as well. Now, e-banking has become a global concept.
The most recent technological advancement is the evolution of e-banking. Various alternative
modes of providing banking products are evolved and gained popularity in recent past, such as,
tele-banking, Automated Teller Machines, e-banking, credit & debit cards. The most recent one
is e-banking that has major impact on the financial market. Banks got the sense that internet
facility will open up new horizons for banks and will help them to adapt globalization
effectively. According to Thulani et.al, 2009 and Henry, 2000, “Internet banking refers to
systems that enable bank customers to get access to their accounts and general information on
bank products and services through the use of bank’s website, without the intervention or
inconvenience of sending letters, faxes, original signatures and telephone confirmations”.
HISTORY OF E-BANKING
The evolution process of latest service delivery mechanism through internet i.e. e-banking started
from the early 1980s. In late 1980s, the term online got popularized and it was referred to a
banking medium of using a terminal, keyboard and monitor to access the banking system
through a phone line. Another term used for this was ‘Home Banking’ and in it, customers were
using a numeric keypad to send tones down a phone line with instructions to the bank. In 1981,
e- banking has started in New York with offering home banking service using videotext system
by Citibank, Chase Manhattan Bank, Chemical bank and manufacturers Hanover bank. Although
due to failure of videotext system, Home Banking was not able to gain popularity except in
France and UK.
In 1983, Bank of Scotland provided UK’s first home online banking service to the banking
customers of Nottingham Building Society. This online banking service was based on Prestel
system of UK and used a computer like BBC Micro or keyboard connected to the telephone and
television system. This system was called Home link and it enabled customers to view their bank
statements online, online fund transfer and online bill payment. To pay bills or transfer funds,
customers need to send a written instruction having details of intended transaction to Nottingham
Building Society who set the details upon the Home link system. The usual recipients of this
service were electric company, Gas Company, telephone companies and other banks. The
account holder has to provide details of the payment through Pestle into Nottingham Building
Society system. Then, a cheque of payment amount has to be send by Nottingham Building
Society to the payee and an instruction giving details of the payment was send to the account
holder. Later, BACS was used to directly transfer the payment.
In Oct. 1994, Stanford Federal Credit Union was the first financial institution that provided
internet banking facility to its all members
In 1995, Wells Fargo was the first U.S. bank to add account services to its website, with other
banks quickly following suit. That same year, Presidential became the first U.S. bank to open
bank accounts over the internet. According to research by Online Banking Report, at the end of
1999 less than 0.4% of households in the U.S. were using online banking. At the beginning of
2004, some 33 million U.S. households (31%) were using some form of online banking. Five
years later, 47% of Americans used online banking, according to a survey by Gartner Group.
Meanwhile, in the UK online banking grew from 63% to 70% of internet users between 2011
and 2012.
The early 2000s saw the rise of the branch-less banks as internet only institutions. These Web-
based banks incur lower overhead costs than their brick-and-mortar counterparts.

TYPES OF INTERNET BANKING

Informational Websites - Such services are known as first level of e-banking. Through such
services bank provides marketing information regarding banking products and services on a
standalone server. It has very low degree of risk as there is no connection between server and
bank.
Communicative Websites – In this system there is very less scope of communication between
banking system and e-banking users. This communication is only to the extent of e-mail, account
balance enquiry, loan application or static file updates. This system is not having fund transfer
facility.
Advanced Transactional Websites - A bank customer can perform non-transactional tasks
through online banking, including
Viewing account balances
 Viewing recent transactions
 Downloading bank statements, for example in PDF format
 Viewing images of paid cheques
 Ordering cheque books
 Download periodic account statements
 Downloading applications for M-banking, E-banking etc.
 Bank customers can transact banking tasks through online banking, including –
 Funds transfers between the customer's linked accounts
 Paying third parties, including bill payments (see, e.g., BPAY) and third party fund transfers
(see, e.g., FAST)
 Investment purchase or sale
 Loan applications and transactions, such as repayments of enrollments
 Credit card applications
 Register utility billers and make bill payments
 Financial institution administration
  Management of multiple users having varying levels of authority
 Transaction approval process
Some financial institutions offer special internet banking services, for example:
ADVANTAGES OF E-BANKING
1. There are some advantages on using e-banking both for banks and customers:
The prime advantage of e-banking system is reduction in operating cost per transaction.
According to Sarel & Mamorstein, 2003 and Nath et al., 2001, the estimate cost of per e-banking
transaction is $0.01, whereas, estimate cost of per fully service branch transaction is $1.07,
which is very high comparatively to the e-banking transaction cost.
2. Providing e-banking services is the only way to reduce the operating cost without reducing
existing service levels. These advantages lead to banks to take e-banking as the most preferable
mode of service delivery. Now, banks can deeply analyze all the information gathered from bank
customer interactions with the help of information technology. Therefore, to have effective
Customer Relationship Management (CRM) system become key issue in internet banking
services. The effective CRM system enables banks to gain better customer intelligence, precision
in customization and better managed customer relationships through their virtual presence.
3. But from a business point of view, integration of traditional physical branch banking and
modern virtual e-banking system creates win- win situation for the banks. As e-banking
enables banks transfer some of its transaction processing tasks directly to their banking
customers. To enjoy these benefits of e-banking system, banks are encouraging their customers
to adapt e-banking system and manage their own banking through ATMs and online banking.
4. Technological innovations are having significant importance in human general and
professional life. This era can safely be attributed as technology revolution. The quick
expansion of information technology has imbibed into the lives of millions of people. Rapid
technology advancements have introduced major changes in the worldwide economic and
business atmosphere.
5. Information technology developments in the banking sector have sped up communication and
transactions for clients (Booz et al, 1997). Online banking is also one of the technologies which
are fastest growing banking practices nowadays. It is vital to extend this new banking feature
to clients for maximizing the advantages to enhance its operating efficiency and providing
better banking products and services, bank has always been the pioneer in adapting the latest
technological advancements.
6. 6. Banks adopted electronic and telecommunication distribution channels for providing various
financial services long back. As banks’ focus has shifted from product centric model, they have
developed their own e-banking system. Now, banks view e-banking which helped in reducing
operating cost as an important value added feature to attract and maintain existing and
prospecting banking clients.
7. In India the number of internet users is increasing with very fast pace that eventually increase
the opportunity to increase the number of e-banking users as well. But the success of e-banking
largely depends on the technological adaptation rate of Indian retail and corporate banking
customers. Therefore, the driving forces that influence the adaptation of e-banking system in
India will definitely be a critical issue to banks as well as to regulators of the banking industry.
Although the main factor that effect success of e-banking as a delivery medium of banking
services and products is the adaptation rate of the both kind of banking customers by retail and
corporate customers as well to e-banking services.
 Permanent access to the bank
 Lower transaction costs / general cost reductions
 Access anywhere
BENEFITS TO CONSUMERS:
General consumers have been significantly affected in a positive manner by E-banking. Many of
the ordinary tasks have now been fully automated resulting in greater ease and comfort.
 Customer’s account is extremely accesses able with an online account.
 Customer can withdraw can at any time through ATMs that are now widely available
throughout the country.
 Besides withdrawing cash customers can also have mini banks statements, balance inquiry at
these ATM.
 Through Internet Banking customer can operate his account while sitting in his office or
home. There is no need to go to the bank in person for such matter.
 E banking has also greatly helped in payment of utility bill. Now there is no need to stand in
long queues outside banks for his purpose.
 All services that are usually available from the local bank can be found on a single website.
 The Growth of credit card usage also owes greatly to E-banking. Now a customer can shop
worldwide without any need of carrying paper money with him.
 Banks are available 24 hours a day, seven days a week and they are only a mouse click away.
 BENEFITS TO BANKING INDUSTRY:
Banking industry has also received numerous benefits due to growth of E-Banking infrastructure.
There are highlighted below:
 The growth of E-banking has greatly helped the banks in controlling their overheads and
operating cost.
 Many repetitive and tedious tasks have now been fully automated resulting in greater
efficiency, better time usage and enhanced control.The rise of E-banking has made banks
more competitive. It has also led to expansion of the banking industry, opening of new
avenues for banking operations.
 Electronic banking has greatly helped the banking industry to reduce paper work, thus
helping them to move the paper less environment.
 Electronic banking has also helped bank in proper documentation of their records and
transactions.
 The reach and delivery capabilities of computer networks, such as the Internet, are far better
than any branch network
ECONOMICAL BENEFITS
E-banking served so many benefits not only to the bank itself, but also to the society as a whole.
E-banking made finance economically possible:
(i) Lower operational costs of banks
(ii) Automated process
(iii) Accelerated credit decisions
(iv) Lowered minimum loan size to be profitable
FUNCTIONS OF E-BANKING
At present, the personal e-bank system provides the following services: -
A. INQUIRY ABOUT THE INFORMATION OF ACCOUNT
 The client inquiries about the details of his own account information such as the card’s /
account’s balance and the detailed historical records of the account and downloads the report list.
B. CARD ACCOUNTS’ TRANSFER
 The client can achieve the fund to another person’s Credit Card in the same city.
C. BANK-SECURITIES ACCOUNTS TRANSFER
 The client can achieve the fund transfer between his own bank savings accounts of his own
Credit Card account and his own capital account in the securities company. Moreover, the client
can inquire about the present balance at real time.
D. THE TRANSACTION OF FOREIGN EXCHANGE
 The client can trade the foreign exchange, cancel orders and inquire about the information of the
transaction of foreign exchange according to the exchange rate given by our bank on net.
E. THE B2C DISBURSEMENT ON NET
 The client can do the real-time transfer and get the feedback information about payment from our
bank when the client does shopping in the appointed web-site.
F. CLIENT SERVICE
 The client can modify the login password, information of the Credit Card and the client
information in e-bank on net.
G. ACCOUNT MANAGEMENT
The client can modify his own limits of right and state of the registered account in the personal e-
bank, such as modifying his own login password, freezing or deleting some cards and so on.
H. REPORTING THE LOSS IF THE ACCOUNT
 The client can report the loss in the local area (not nationwide) when the client’s Credit Card
or passbook is missing or stolen
CHALLENGES OF INTERNET BANKING
Indian internet banking sector is still prevailing in its primary level of growth. Only some banks
are providing certain basic services only. Only limited number of private sector banks like
HDFC & ICICI Bank is fully computerized and they are providing all services through the use of
internet. One of the major factors responsible other Indian banks upgrading technology and
competing with other competitors is liberalization of the economy.Challenges of E- Banking are
as follows:
1. Demand side pressure due to increasing access to low cost electronic services.
2. Emergence of open standards for banking functionality
3. Global players in the fray
4. Dual responsibility, to protect customer’s privacy and protect against fraud.
(a) Proper understanding of customer: Bank should adequately and properly identify customers’
requirements and wants. To identify the customers exact needs bank should conduct a research
survey.
(b) Due to significant increase in customers’ awareness, the need of maintaining transparency
has increased significantly.
© Breach of privacy: While customers conducting banking transactions online, it directly enters
into banking records that reveal the identity of customers. Therefore, no one can easily transfer
black money.
(d) Bandwidth: Although, internet facility providers claim to provide speedy and high
bandwidth, still the problem of high speed internet prevails. E-Banking can popularize more only
with adequate infrastructure comprising telecommunication and bandwidth.
(e) The level of computer literacy is still very low in India and it works as a bottleneck in the fast
acceptance of e-banking.
(f) The attitude of customers is required to be transformed in India.
(g) Bank should have proper security measures to protect its customers against “net – jacked” or
from fraud