Online banking (or Internet banking) allows customers to conduct financial transactions on a secure website operated by their retail or virtual bank, credit union or building society.
One of the world's first home online banking services was set up by the Nottingham Building Society (NBS) in 1983. The system used was based on the UK's Prestel system and used a computer, such as the BBC Micro, or keyboard connected to the telephone system and television set. The system (known as 'Homelink') allowed on-line viewing of statements, bank transfers and bill payments. In order to make bank transfers and bill payments, a written instruction giving details of the intended recipient had to be sent to the NBS who set the details up on the Homelink system. Typical recipients were gas, electricity and telephone companies and accounts with other banks. Details of payments to be made were input into the NBS system by the account holder via Prestel. A cheque was then sent by NBS to the payee and an advice giving details of the payment was sent to the account holder. BACS was used later to transfer the payment directly. The Bank of Scotland introduced the system in 1985.
Stanford Federal Credit Union was the first financial institution to offer online internet banking services to all of its members in Oct, 1994.
Kinds Of Internet Banking
Currently, there are three basic kinds of Internet banking that are being employed in the marketplace:
- Information: This is the most basic level of Internet banking. The bank has marketing information about its products and services on a stand-alone server. This level of Internet banking service can be provided by the bank itself or by sourcing it out. Since the server or Web site may be vulnerable to alteration, appropriate controls must therefore be in place to prevent unauthorized alterations to data in the server or web site.
- Communication: This type of Internet banking allows interaction between the bank's systems and the customer. It may be limited to electronic mail, account inquiry, loan applications. The risk is higher with this configuration than with the earlier system and therefore appropriate controls need to be in place to prevent, monitor, and alert management of any unauthorized attempt to access bank's internal network and computer systems. Under this system the client makes a request to which the bank subsequently responds. Works on the same principle as the e-mail.
- Transaction: Under this system of Internet banking customers are allowed to execute transactions. Relative to the information and communication types of Internet banking, this system possesses the highest level of risk architecture and must have the strongest controls. Customer transactions can include accessing accounts, paying bills, transferring funds, etc. These possibilities demand very stringent security.
Forces for growth in Internet Banking
- The Transaction Multiplier Effect: The myriad possibilities of settling bills, transferring funds (inter/intra bank etc) and trading in securities; all done online, has further encouraged customers to patronize the online system. The increasing numbers of patrons and the consequent rise in revenues have further spurred financial institutions to establish ever expanding infrastructures to support more online activities.
- Faster Launch Cycles: The development of Internet banking encourages financial institutions to frequently launch new programs in response to customer preferences and technology innovations. Among the popular enhancements to Internet banking services include improved navigation, integrating multiple services into single systems, viewing of returned checks, onsite purchase of retail goods, seamless integration with e-commerce retail sites. Such potential tends to further encourage participation.
- Poaching of High Net-Worth Customers and Competition: Online brokerage firms are beginning to poach high-net-worth customers from online banks. Such customers are a segment of the banking population, which includes more than six million U.S. households with a net worth of more than US$1 billion. This segment is growing at a rate of 13 percent annually (Internet Banking Solution, 2001). This kind of intense competition further pushes financial institutions to improve their systems which results in attracting more customers.
- Geographical Reach: A brick and mortar bank is limited by its geographical reach but the same cannot be said of Internet banks. Internet banking by its very nature is borderless. This new delivery channel can now reach out to areas and regions which have hitherto remained unexplored.
- Branding Possibilities: Internet banking technology and products can provide a means for banks to develop and maintain an ongoing relationship with their customers by offering easy access to a broad array of products and services. The results of these efforts are enhanced by capitalizing on brand identification and providing a broad range of financial services, which tends to build customer loyalty, cross-sell, and enhance repeat business.
The 'Boon' Side of Internet Banking
- Perfect Information
- Perfect Competition
The 'Bane' of Internet Banking
- There are always two sides to a coin. Similarly Internet banking too has a 'bane' side to it. The bane lies in its inexorable slide towards higher risk from various facets of bank operations. Risk is the potential that unexpected events may have an adverse impact on the banks earnings. Internet banking risks consists of risk associated with credit, interest rate, transaction, etc. These risks are not mutually exclusive but invariably all of these are associated with Internet banking
- Credit Risk
- Interest Rate Risk
- Liquidity Risk
- Transaction Risk
- Total Reliability Risk
Opportunities for Internet Banking
- Opportunities for Internet -Only (virtual) Banks
- Invoice Payment Management
- Online Credit Card Payments
- Electronic Cheques for B2B Payments
- Online Mortgage Applications
- Person-to-Person E-mail Payments
Features/services offered under online Banking
- Credit card Payment Pay your HDFC Bank Credit card dues through this option.
- Statement Download You can download your account statement onto your PC for the period of 5 months from the given date.
- Change Customer profile You can update your mailing address and all your communication from bank will go to this new address.
- Funds Transfer Transfer funds between your accounts, even if they are in different branches/cities. You can also transfer funds to any person having an HDFC Bank account anytime, anywhere, using our Third Party Funds Transfer option.
- New Fixed Deposit Request Open a Fixed Deposit Account on the Internet. Just give details regarding the account from which you want to transfer funds, the amount and terms for the Fixed Deposit, the branch and the relevant maturity instructions.
- Fixed Deposit Inquiry Access details of your Fixed Deposit Account such as Principal Balance, Term of Deposit, Rate of Interest, Maturity Date, Maturity Amount and Instructions for Payment.
- Demand Draft Request Issue a DD from your account at special rates. Just select the account to be debited from and give us details of the amount, location and beneficiary. We will even have the Demand Draft couriered to you at your mailing address. (DDs will be issued only where the bank has a branch or has an arrangement with a local bank).
- Demand Draft Request at Beneficiary's address Net Banking offers a new facility to all its customers. Issue a Demand Draft on the Beneficiary's name and address of your choice. Just select the account to be debited from and give us the details of the amount and beneficiary's name & address where you want the Demand Draft to be delivered. The Demand Drafts would only be delivered within India. (DDs will be issued only where the Bank has a branch or has an arrangement with a local Bank).
- TDS Inquiry Access information on Tax Deducted at Source for all your deposits for the current or previous financial year.
- Stop Payment Request Request Stop Payment on a cheque or series of cheques online by just entering the cheque number and the reason for stopping payment.
- Cheque Status Inquiry View the status of a specific cheque issued on any of your accounts.
- Cheque Book Request Request for a new cheque book online. Your cheque book will be couriered to the address on our records.
- Account Balance Inquiry Check your savings or current account balance, including information regarding Uncleared Funds, Ledger Balances, Overdraft Limits.
- Account Statement Inquiry View all the transactions on your account for either the current period (i.e. from date of last statement mailed to you), or a specific period determined by you. You can also request your statement via mail (mailing address will be as per bank records).
- Customer Support You can use this option to communicate with the Bank for requests, instructions and queries.
- Demat on the NET If you also hold a Demat Account with us, you can now access your account online. Through Demat on the Internet, you can see your holdings as on the close of the last business day. View your transactions for the last 7 days. Check the status of the shares submitted for Demat in the last one month.
- Direct Pay An option exclusively for HDFC Bank Net Banking customers, which allows online purchases in a safe and secure environment. Shop online at websites, which offer our Direct Pay facility. Through Direct Pay, your account would be debited and the merchant's/ website's account gets credited instantaneously.
- Bill Pay Pay your mobile phone, electricity and telephone bills through the Internet. A bill is a document demanding payment for an order previously supplied. Presentation of a bill is common practice on the part of credit card companies, utilities, and other service providers.
- Security With Net Banking, you can carry out all your banking and shopping transactions safely and with total confidentiality. The entire system is secured, using the whole gamut of security architecture including firewalls, filtering routers, 128-bit encryption and digital certification. So you are absolutely sure that all your online transactions are safe and protected.
Net Banking uses 128-bit encryption Secure Socket Layer (SSL) technology, one of the most secure forms of transacting and the highest level of security commercially available on the Internet. The site authenticity and security is certified by VeriSign, an independent international authority.
- Up-to-the-second account balance/statement inquiry Request for a new Fixed Deposit, make a Fixed Deposit inquiry or even make a TDS inquiry on your Fixed Deposits.
- Request for a cheque book, enquire about the status of a cheque issued or stop cheque payment request in an emergency.
- Request for Demand Draft This will be delivered to your mailing address. Free Online Third-Party Transfer facility instantly transfers funds between your accounts and to a third party who has an account with the bank.
- Demat on the NET helps you view your Demat Account, account holdings, transactions in the account company-wise, and get details regarding pay-in, pay-out dates, etc.
Internet banking is on the rise. When viewed as another channel, its benefits are modest. However, when integrated with other channels, Internet banking becomes a powerful tool for improving customer satisfaction and increasing cross-selling opportunities. But at the same time banks must keep in mind that, every electronic channel including the Internet has its short falls which can have major consequences. Keeping track of the ever changing banking industry and the latest update in Internet technology, banks need to equip themselves for the competition. Even though there are enormous opportunities and virtual banks are on the rise 'brick and mortar' banks and transactions should not be neglected or relegated to the sidelines. This is because there are numerous aspects of banking which cannot be currently accomplished by electronic impulses.
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