E-Banking

Electronic banking has many names like e banking, virtual banking, online banking, or internet banking. It is simply the use of electronic and telecommunications network for delivering various banking products and services. Through e-banking, a customer can access his account and conduct many transactions using his computer or mobile phone.

Types of Electronic Banking

Banks offer various types of services through electronic banking platforms. These are of three types:-

Level 1: This is the basic level of service that banks offer through their websites. Through this service, the bank offers information about its products and services to customers. Further, some banks may receive and reply to queries through e-mail too.

Level 2: In this level, banks allow their customers to submit instructions or applications for different services, check their account balance, etc. However, banks do not permit their customers to do any fund-based transactions on their accounts.

Level 3: In the third level, banks allow their customers to operate their accounts for funds transfer, bill payments, and purchase and redeem securities, etc.

Most traditional banks offer e-banking services as an additional method of providing service. Further, many new banks deliver banking services primarily through the internet or other electronic delivery channels. Also, some banks are ‘internet only’ banks without any physical branch anywhere in the country.

Importance of e-banking

We will look at the importance of electronic banking for banks, individual customers, and businesses separately.

For Banks

• Lesser transaction costs: electronic transactions are the cheapest modes of transaction
• A reduced margin for human error: since the information is relayed electronically, there is no room for human error
• Lesser paperwork: digital records reduce paperwork and make the process easier to handle. Also, it is environment-friendly.
• Reduced fixed costs: A lesser need for branches which translates into a lower fixed cost.
• More loyal customers: since e-banking services are customer-friendly, banks experience higher loyalty from its customers.

For Customers

• Convenience: a customer can access his account and transact from anywhere 24x7x365.
• Lower cost per transaction: since the customer does not have to visit the branch for every transaction, it saves him both time and money.
• No geographical barriers: In traditional banking systems, geographical distances could hamper certain banking transactions. However, with e-banking, geographical barriers are reduced.

For Businesses

• Account reviews: Business owners and designated staff members can access the accounts quickly using an online banking interface. This allows them to review the account activity and also ensure the smooth functioning of the account.
• Better productivity: Electronic banking improves productivity. It allows the automation of regular monthly payments and a host of other features to enhance the productivity of the business.
• Lower costs: Usually, costs in banking relationships are based on the resources utilized. If a certain business requires more assistance with wire transfers, deposits, etc., then the bank charges it higher fees. With online banking, these expenses are minimized.
• Lesser errors: Electronic banking helps reduce errors in regular banking transactions. Bad handwriting, mistaken information, etc. can cause errors which can prove costly. Also, easy review of the account activity enhances the accuracy of financial transactions.
• Reduced fraud: Electronic banking provides a digital footprint for all employees who have the right to modify banking activities. Therefore, the business has better visibility into its transactions making it difficult for any fraudsters to play mischief.

E-banking in India

In India, since 1997, when the ICICI Bank first offered internet banking services, today, most new-generation banks offer the same to their customers. In fact, all major banks provide e-banking services to their customers.

Popular services under e-banking in India

• ATMs (Automated Teller Machines)
• Telephone Banking
• Electronic Clearing Cards
• Smart Cards
• EFT (Electronic Funds Transfer) System
• ECS (Electronic Clearing Services)
• Mobile Banking
• Internet Banking
• Telebanking
• Door-step Banking

Further, under Internet banking, the following services are available in India:

1. Bill payment

Every bank has a tie-up with different utility companies, service providers, insurance companies, etc. across the country. The banks use these tie-ups to offer online payment of bills (electricity, telephone, mobile phone, etc.). Also, most banks charge a nominal one-time registration fee for this service. Further, the customer can create a standing instruction to pay recurring bills automatically every month.

2. Funds transfer

A customer can transfer funds from his account to another with the same bank or even a different bank, anywhere in India. He needs to log in to his account, specify the payee’s name, account number, his bank, and branch along with the transfer amount. The transfer is effected within a day or so.

3. Investing

Through electronic banking, a customer can open a fixed deposit with the bank online through funds transfer. Further, if a customer has a demat account and a linked bank account and trading account, he can buy or sell shares online too. Additionally, some banks allow customers to purchase and redeem mutual fund units from their online platforms as well.

4. Shopping

With an e-banking service, a customer can purchase goods or services online and also pay for them using his account.

Advantages of Internet Banking

• The customers get permanent access to his/her bank anytime and anywhere.
• Transactions are safe and highly secure.
• Immediate funds transfer helps the user in time of urgent need.
• It saves valuable time of the users.

Security of Internet Banking

The financial information of a customer is important. This is the reason a customer trusts financial institutions. The financial institutions keep it on a high priority that the security of customers’ accounts shouldn’t face a breach. The financial institutions are using two types of security methods to make internet banking safe and secure:

Use of PIN/TANs: Under this system, a PIN is used to login and TANs are used to conduct transactions. TANs are one time passwords. TAN is sent to the customer via SMS on registered mobile number that corresponds with the login user id. It is valid for a short time frame.

Internet banking is conducted using web browsers with SSL enabled websites, so encryption is not an important issue. It also uses signature verification as a base. Under this method, the transactions done by the customer are signed and encrypted digitally. The smart cards or any other memory storable medium can be used to store keys for signature generation and encryption.

The facility of e-banking provided by the banks to their customers uses the internet as a medium. The services under this facility include funds transfer, payment of bills, opening bank accounts online, and much more.

There are mainly two methods to deliver e-banking to the customers:

• Banks with physical presence offering electronic transaction
• Virtual banks offering transaction services

Most of the banks have a physical presence and offer banking facility online. But, there are some banks that don’t have any physical presence anywhere. They are virtual banks.

Features of e-Banking

1. ATMs

ATM is shot form of Automated Teller Machines. These machines are actually electronic terminals which provide the customers to bank anytime. The ATM machines take inputs from the ATM that the banks provide to its customers. To make use of ATM, the user must have a password. Banks charge a nominal fee from the customers on every transaction made after crossing the specified limit of free transactions, if the transaction is done from any other bank’s ATM machine.

2. Deposit and Withdraws (Direct)

This service under e-banking offers the customer a facility to approve paycheques regularly to the account. The customer can give the bank an authority to deduct funds from his/her account to pay bills, instalments of any kind, insurance payments, and many more.

3. Pay by Phone Systems

This service allows the customer to contact his/her bank to request them for any bill payment or to transfer funds to some other account.

4. Point-of-Sale Transfer Terminals

This service allows customers to pay for purchase through a debit/credit card instantly.

Forms of e-Banking

• Internet Banking: The customer uses electronic devices like computer or mobile to conduct transactions using the internet.
• ATM machines: The customers can withdraw cash, deposit cash, transfer funds using ATMs.
• E-cheque: The customer can transfer money using PayPal or other e-service providers.