Abstract:
The advent of the Internet has revolutionized the way financial institutions conduct business, giving rise to Internet banking systems. This research paper provides a comprehensive analysis of Internet banking systems, exploring their evolution, benefits, challenges, and impact on the banking industry. By examining the historical context, technological advancements, security concerns, and consumer behaviour, this paper seeks to shed light on the transformational role of Internet banking systems in modern finance.
Introduction
Internet banking, also known as online banking or e-banking, has become an integral part of the modern banking landscape. It enables customers to conduct various financial transactions and manage their accounts through secure online platforms. The proliferation of the Internet and advancements in technology have significantly influenced the development and adoption of Internet banking systems. This research paper aims to provide a comprehensive understanding of Internet banking systems by delving into their evolution, benefits, challenges, and impact on the banking industry.
Historical Evolution of Internet Banking
E-banking’s Development in India
Banks used the traditional banking model rather than branch banking up until the 1990s. The banking industry also observed the creative movement of banking services following financial reforms. Since 1993, the Indian banking industry has adopted computerization, mostly out of sheer necessity and pressure to deal with the growing overload and incompatibility of the manual system to support further expansion. The employees’ association of Indian banks (IBA) and bank management reached a pact in 1993 regarding the implementation of computerised banking applications. The introduction of electronic applications and the growth of communication networks in banks were significantly aided by this agreement. However, the ground-breaking reports of the two committees led by Dr. C. Rangarajan, a former governor of the RBI. Both investigations made a solid case for computerising banking processes at different levels and proposed the right architecture.
A committee headed by W. S. Saraf was established by the Reserve Bank of India in 1994, and it strongly advocated the use of electronic fund transfers (EFT), the introduction of electronic clearing services, and the expansion of magnetic ink character recognition (MICR) outside of major cities and branches. By launching online banking services in branches, Industrial Credit and Investment Corporation of India became the country’s first bank to employ electronic banking in 1996. Following its lead, HDFC Bank, IndusInd Bank, and Citibank began offering online banking services in 1999. Indian Reserve Bank and The Indian government has taken a number of actions to promote the growth and efficient operation of electronic banking in India. The IT Act, 2000 was passed by the Indian government, giving electronic transactions and electronic commerce legal recognition.
The following key technical advancements are seen in India’s new generation payment structures:
1. The introduction of debit and credit cards between 1980 and 1990
2. Banks began using computers between 1984 and 1988, and MICR checks were implemented.
3. In 1987, HSBC was the first bank in India to adopt the idea of an ATM.
4. The RBI implemented the ECS payment in India in 1990.
5. India became a member of the Society for Global Interbank Financial Telecommunication in 1991.
6. A shared payment network system was established in 1997.
7. In 1999, the Reserve Bank of India, the IIT in Mumbai, and the IDRBT in Hyderabad collaborated on a Smart card pilot project.
The Information Technology Act was passed in 2000, and SMS banking was used to launch mobile banking in India in 2002.
10. In 2003, special electronic fund transfers were introduced.
11. In 2004 Real-time gross settlement was introduced.
12. The launch of national electronic funds transfers and the adoption of core banking technologies affected 11 percent of public sector banks’ branches overall in 2005.
The Payment and Settlement System Act of 2007 was passed in 2007.
14. The Cheque Truncation System was introduced in 2008, and operational instructions for mobile banking transactions were published.
15. Free ATM cash withdrawals in 2009.
16. In 2010 – Immediate payment service launched
17. The Bharat Bill Payment System and the Unified Payments Interface are implemented in banks as of 2016.
18. In 2016, National Payments Corporation of India (NPCI) created the Bharat Interface for Money (BHIM) smartphone app, which is based on the Unified Payment Interface (UPI).
Modern Banking Vs. Internet banking
Traditional banking requires consumers to physically visit the branches to conduct transactions, however electronic banking allows users to do transactions while sitting at home or at work using a computer or laptop.
Customers must spend money to travel to bank offices, whereas internet banking makes banking activities available around-the-clock, easier, faster, and more conveniently regardless of the customer’s location. Employee service is limited in traditional banking; however, with electronic that is not the case. For some bank transactions, the customer does not need to wait in queue India’s Electronic Banking Products
Many banking services have recently moved from traditional banking to online banking. The current study focuses on the key elements of electronic banking, including mobile banking, RTGS, ATMs, and debit and credit cards.
Key elements of electronic banking
Automated teller machine
An automated teller machine, or ATM, allows users to conduct financial transactions without involving a bank personnel.
The customer must receive an ATM card or debit card from his bank in order to use an ATM. A consumer can use an ATM to access a variety of services, including cash withdrawals, deposits, balance enquiries, and more. The ATMs are useful for customers who frequently go abroad as well. The system is known as “Any Time Money” or “Anywhere Money” since it enables customers to withdraw money from the bank at any of its ATMs without any time restrictions. They have access to cash in other countries. The exchange rate used by the banking institution will be used to convert the currency. It is considered one of the most convenient modes of money transfer.
Debit Cards
When we make purchases, we can use a debit card instead of cash because it is a plastic card. Customers can use their cards to withdraw cash and make purchases rather than carrying paper money with them. The majority of banks in India give out debit cards to customers who open savings accounts. The customer can use their debit card to withdraw money as and when they need it. Customers can also utilise ATMs thanks to it. If the customer has money, he can withdraw it.
He had enough money in his bank account. There are numerous different types of debit cards, even though most are of the Rupay, Visa, or Mastercard variety. each recognised solely in the respective nation. Customers should exercise the utmost caution when they are carrying out transactions.
Credit Cards
A credit card, sometimes known as plastic money, enables its user to make credit-based purchases of products and services. Banks provide credit cards, and when users use them to make purchases, the customer is granted a line of credit, allowing him to make purchases on credit that must be paid back to the bank later. A credit card transaction is frequently more secure than traditional payment methods like cash or checks. Customers are reluctant to use credit cards since they can result in irrational expenditure. Additionally, there was a significant risk of fraud in the event that the card was lost or the information was unintentionally leaked.
National Electronic Fund Transfer
A nationwide payment system that allows for one-to-one fund transfers is called national electronic fund transfer. Individuals and corporations can electronically transfer payments under this system from any bank branch to any other bank branch in the country that is a participant in the scheme. A bank branch must support national electronic fund transfers in order to participate in the NEFT funds transfer network. Customers must have an account with a bank branch that supports NEFT in order to transfer or receive money through the NEFT scheme. This applies to both individuals and businesses that have saving bank accounts with a bank branch.
Success Factors for E-Banking
India has very few electronic banking practises when compared to western nations. In recent years, banks have made an effort to build an information infrastructure to improve e-banking. The following are a few of the elements that have an impact on the use of electronic banking:
1. Channel convenience is an important aspect in the adoption of internet banking, since it enables clients to access it around-the-clock and saves them time.
2. E-banking offers customers improved services like banks continually investing in new online products and having access to interactive customer care mode to quickly resolve issues.
3. Because internet banking is more affordable than branch banking, and because there has been substantial marketing and advertising about it, the customer is encouraged to conduct the transaction online.
4. Having prior internet experience and knowledge of internet banking enables the user to conduct financial transactions quickly and securely.
5. In today’s world, banks reassure their customers about security and privacy, fostering client confidence by maintaining customer information safely and secretly.
Challenges in adopting E-Banking System
Electronic banking is now more commonplace than unusual for banks. The introduction of electronic banking is fraught with difficulties for clients despite the fact that it offers a variety of assistances to make banking simple and convenient. Here are a few of the difficulties:
1. Customers are reluctant to utilise electronic banking services due to security risks. Frauds involving electronic banking, such as spyware, phishing, internet theft, spam, and others, are still quite common.
2. Due to technological issues, customers face the risk of losing confidential information.
3. Lack of understanding of how to use electronic banking as well as a lack of readiness on the part of banks and customers to accept new technology.
4. A lack of adequate infrastructure
5. The introduction of E-banking presents a number of difficulties for the bank’s management, supervisor, and governing bodies.
6. Because there is a chance that consumers’ financial information will be shared with third parties, customers are concerned about their privacy.
7. Since trust may be diminished to some extent, online communication may not be the greatest foundation for bank and customer relations.
Legal Challenges in E banking system
The concerns raised regarding security, privacy, and legal issues in the context of E-Banking in India are indeed significant and have been a subject of discussion and debate in the financial and legal sectors.
Security and Privacy Risks in Cloud Computing for E-Banking:
The study conducted in 2012 highlighting weak and unsecured technology for E-Banking services is a valid concern. Security is crucial in E-Banking to protect customer data and financial transactions.
- Cloud computing, while offering benefits like scalability and cost-efficiency, does introduce security and privacy challenges. It’s essential for banks to implement robust security measures, including encryption, access controls, and regular security audits.
- Customer vulnerability to banking frauds and E-Banking scams is a legitimate concern. To address this, banks should continually update their security protocols and educate customers on safe online banking practices.
Legal Issues and Cyber Crime:
- The increase in cybercrimes despite specific statutes like the Information Technology Act, 2000, and the Indian Penal Code, 1860, highlights the evolving nature of cyber threats. Cybercriminals adapt to new technologies and exploit vulnerabilities.
- While there are laws in place, enforcement and the legal system’s capacity to deal with cybercrimes remain challenges. Cybercrime investigation and prosecution require specialized skills and resources.
E-Banking in the Indian Regulatory Framework:
- E-Banking is indeed an essential part of the modern banking ecosystem. The regulatory framework in India, including the Banking Regulation Act, 1949, and the Reserve Bank of India Act, 1934, plays a vital role in overseeing and regulating these services.
- The Information Technology Act, 2000, governs electronic records and systems, offering a legal framework for online transactions and security.
Suggestions and Measures
The Banking System is the life-blood of a Country and its Economy, therefore after analyzing the above issues in Indian E-Banking System, the suggestions and measures in this reference are as follows:
1. The duty which is imposed on the Banks and NBFC’s to maintain the secrecy and confidentiality for the sensitive information of the customers must be statutorily recognized for giving it a legal status and imposing penalty on the Banking Authorities on it’s violation, so that it’s enforcement can be ensured more stringently than it is there presently.
2. The Internal Auditing or the Statutory Auditing like it is their for the Government Companies by the Auditor appointed with the instructions of Comptroller and Auditor General of India must be made compulsory for all the Banks in India, at beginning we will face some teething issues but at last, it will result in maintaining the transparency in Internal Affairs of the Bank, which will ultimately serve the interests of the consumers and will result in their benefit at large.
3. Some concrete measures like Biometric Authentication at the ATM Machines, or before logging in the E-Banking Website Portal which has started being opted by certain Banks in the Country must be made mandatory for all Banks by the Reserve Bank of India.
4. Each Banks should incorporate one In-House Cyber Grievance Redressal Cell, who could directly deal with the Banking Frauds happening in their Banks, they must analyze their functions and affairs annually and send their Annual Report to the concerned State Cyber Cell or the District Cyber Cell for their Expert Advice and Guidance in this reference.
Conclusion
Banks are encouraged to offer high-quality services by using information technology thanks to virtual banking. With the aid of digitalization, we are edging closer to a cashless world, which will improve bank performance. Now that banks are aware that a financial system cannot succeed without information technology, the banking sector’s contribution to the economy has increased. With the use of electronic banking, all banking transactions may now be handled swiftly and conveniently. From the data provided above, it is clear that there has been increase in recent years in all areas, including the deployment of ATMs, the issuance of debit and credit cards, and NEFT, RTGS, and mobile banking transactions (values and volumes). Our new generation has embraced the changes brought upon by
Internet banking systems have evolved from experimental prototypes to an integral part of the banking industry. They offer numerous benefits, including convenience, cost-efficiency, and enhanced services. However, they also face challenges such as security concerns and the digital divide. The impact on the banking industry is profound, leading to transformations in operations, competition, and customer behavior. As technology continues to advance, the future of Internet banking holds exciting possibilities, including AI, blockchain, and enhanced authentication methods.
This research paper provides a comprehensive overview of Internet banking, shedding light on its evolution and the profound changes it has brought to the financial sector. As the industry continues to evolve, stakeholders must remain adaptive and innovative to meet the evolving needs of customers in the digital age.
References
1. E banking system https://s3-ap-southeast-1.amazonaws.com/ijmer/pdf/volume10/volume10-issue11(3)/11.pdf
2. A brief history of digital banking https://cointelegraph.com/news/a-brief-history-of-digital-banking
3. Issues and challenges in Online Banking system https://blog.inboundfintech.com/5-issues-and-challenges-in-the-online-banking-sector
4. Factors affecting E banking system in India https://upg-bulletin-se.ro/old_site/archive/2013-1/2.Mohammed.pdf
5. Legal Challenges in the E banking system https://blog.ipleaders.in/major-legal-issues-indian-e-banking-system/
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