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Page 1: A Study on Customer Perception about Online Banking Service_Full Paper

“A Study on Customer Perception about Online Banking Service”

BY

RAGHU RAM KAPPAGANTULA

BE, MBA

Relationship Manager-Preferred Banking

HDFC BANK LTD

#56 G N Chetty Road

T Nagar

Chennai-600017

Mobile Phone: 9381438431

Email- [email protected]

CHITTA VIJAYA NISHIKANTH,

B.E, MBA (IB)

Manager- Global Business Development

Tegra Premedia Private Limited

1-1-60/5, Fourth Floor

RTC Cross Roads

Hyderabad

Mobile Phone : 9959199666

Email: [email protected]

Page 2: A Study on Customer Perception about Online Banking Service_Full Paper

Table of Contents

Abstract....................................................................................................................................................4

Objectives...............................................................................................................................................5

Primary Objective................................................................................................................................5

Secondary Objectives..........................................................................................................................5

Review of Literature..............................................................................................................................6

Assumptions.........................................................................................................................................6

Introduction............................................................................................................................................7

Meaning of Online Banking................................................................................................................7

Features of Online Banking.................................................................................................................7

Features commonly unique to business banking include.....................................................................7

Features commonly unique to Internet banking include......................................................................7

History.................................................................................................................................................8

Security................................................................................................................................................9

Countermeasures..................................................................................................................................9

Attacks.................................................................................................................................................9

Benefits of Online Banking.................................................................................................................11

Functions of Online Banking.............................................................................................................11

Disadvantages of online banking – The Security Concern................................................................12

Importance of Online Banking from a Bank perspective..................................................................13

Importance of Online Banking from a customer’s perspective.........................................................15

Survey Results and Interpretation.....................................................................................................16

Conclusion............................................................................................................................................18

References.............................................................................................................................................19

Page 3: A Study on Customer Perception about Online Banking Service_Full Paper

Table of Figures

Figure 1 - Customers diverted to direct banking channels......................................................................8

Figure 2 - Usage of Online Banking Services.......................................................................................14

Figure 3 - Awareness about Online Banking.........................................................................................15

Page 4: A Study on Customer Perception about Online Banking Service_Full Paper

AbstractOnline banking or Internet banking is one of the most widely accepted and appreciated

services that banks are offering to their customers. With the growing popularity of secure

internet networks, computer usage and digital literacy, online banking as a service is

experiencing a definitive trend. This initiative is proving to be the best choice in terms of

time and cost savings. In addition customers started to appreciate the fact that heavy financial

transactions are possible at a single click of the mouse. Research indicates that there is an

increased usage of online banking within corporate employees, working professionals and

business men. This paper tries to encapsulate the perception of various customer groups about

online banking as a service.

The paper will initially define online banking and the various available features. It will

elucidate the benefits, limitations and risks involved in online banking. The paper will

categorize the customers into various categories based on demographics, computer literacy

levels and profession. The paper will finally analyse and derive the perception of various

customer groups about online banking as a service. The paper will conclude after making

some recommendations to improve the service. The scope of the paper is online banking and

all other online transaction services are out of scope. The researchers will use the findings of

a survey conducted among the banking customers as primary data. Print, web resources, case

studies, published interview excerpts and finally corporate experience of the authors will be

used as secondary data. This paper will be true guiding force to banking organizations who

wish to acquire more customers for online banking.

Page 5: A Study on Customer Perception about Online Banking Service_Full Paper

ObjectivesPrimary Objective

To study and analyse customer perception about online banking service

Secondary Objectives

Understand the meaning of online banking, features, benefits and limitations of online

banking

Understand the various customer groups based on age, computer literacy levels

Survey and gather the perception of the respondents

Analyse the perception of various groups of customers about online banking

Make appropriate recommendations to the banks and the customers

Page 6: A Study on Customer Perception about Online Banking Service_Full Paper

Review of LiteratureResearch reports, Newspaper articles, research articles published in various journals have

been reviewed. An attempt has been made to identify the benefits and risks associated with

online banking in the financial services industry segment. Literature pertaining to online

banking and other direct banking channels has been reviewed. Scope for further research has

been arrived at and the study has been conducted. It has been found that there is no study

existing which elucidates the customer perception based on the age group and computer

literacy.

The gaps have been identified and the study has been conducted.

No study has been conducted with respect to online banking based on the age group

No study had been conducted to elucidate perception of banking customers about

online banking

The research under study covers the online banking perception based on age and

computer literacy. There is further scope to extend the same to other direct banking

channels

Assumptions

This paper is being submitted with the following assumptions:

The study is specific to online banking services and all other direct banking channels

are treated to be out of scope

The study is specific to customer perception based on age group and computer

literacy and all other parameters are out of scope

This study is a conglomerate of the experience of the authors, their discussions and

brainstorming with executives of banks, consumers and corporate professionals

Page 7: A Study on Customer Perception about Online Banking Service_Full Paper

IntroductionMeaning of Online Banking

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.

Features of Online Banking

Online banking solutions have many features and capabilities in common, but traditionally

also have some that are application specific. The common features fall broadly into several

categories

Transactional (e.g., performing a financial transaction such as an account to account

transfer, paying a bill, wire transfer... and applications... apply for a loan, new

account, etc.)

Electronic bill presentment and payment - EBPP

Funds transfer between a customer's own checking and savings accounts, or to

another customer's account

Investment purchase or sale

Loan applications and transactions, such as repayments

Non-transactional (e.g., online statements, check links, cobrowsing, chat)

Bank statements

Financial Institution Administration - features allowing the financial institution to

manage the online experience of their end users

ASP/Hosting Administration - features allowing the hosting company to administer

the solution across financial institutions

Features commonly unique to business banking include

Support of multiple users having varying levels of authority

Transaction approval process

Wire transfer

Features commonly unique to Internet banking include

Personal financial management support, such as importing data into personal accounting

software. Some online banking platforms support account aggregation to allow the customers

to monitor all of their accounts in one place whether they are with their main bank or with

other institutions.

Page 8: A Study on Customer Perception about Online Banking Service_Full Paper

A recent report by the HDFC bank stated that a large number of customers were diverted to

the various direct banking channels. The below pie diagram depicts that atleast 36% of the

customers started using online banking or net banking (NB)

Figure 1 - Customers diverted to direct banking channels

History

The precursor for the modern home online banking services were the distance banking

services over electronic media from the early '80s. The term online became popular in the late

'80s and referred to the use of a terminal, keyboard and TV (or monitor) to access the banking

system using a phone line. ‘Home banking’ can also refer to the use of a numeric keypad to

send tones down a phone line with instructions to the bank. Online services started in New

York in 1981 when four of the city’s major banks (Citibank, Chase Manhattan, Chemical and

Manufacturers Hanover) offered home banking services[1] using the videotex system.

Because of the commercial failure of videotex these banking services never became popular

except in France where the use of videotex (Minitel) was subsidised by the telecom provider

and the UK, where the Prestel system was used. The UK’s first home online banking

services[2] 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 (Tandata Td1400) 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

Page 9: A Study on Customer Perception about Online Banking Service_Full Paper

giving details of the payment was sent to the account holder. BACS was later used to transfer

the payment directly.

Stanford Federal Credit Union was the first financial institution to offer online internet

banking services to all of its members in Oct, 1994

Security

Protection through single password authentication, as is the case in most secure Internet

shopping sites, is not considered secure enough for personal online banking applications in

some countries. Basically there exist two different security methods for online banking.

The PIN/TAN system where the PIN represents a password, used for the login and TANs

representing one-time passwords to authenticate transactions. TANs can be distributed in

different ways, the most popular one is to send a list of TANs to the online banking user by

postal letter. The most secure way of using TANs is to generate them by need using a security

token. These token generated TANs depend on the time and a unique secret, stored in the

security token (this is called two-factor authentication or 2FA). Usually online banking with

PIN/TAN is done via a web browser using SSL secured connections, so that there is no

additional encryption needed.

Signature based online banking where all transactions are signed and encrypted digitally. The

Keys for the signature generation and encryption can be stored on smartcards or any memory

medium, depending on the concrete implementation.

Countermeasures

There exist several countermeasures which try to avoid attacks. Digital certificates are used

against phishing and pharming, the use of class-3 card readers is a measure to avoid

manipulation of transactions by the software in signature based online banking variants. To

protect their systems against Trojan horses, users should use virus scanners and be careful

with downloaded software or e-mail attachments.

In 2001 the FFIEC issued guidance for multifactor authentication (MFA) and then required to

be in place by the end of 2006.

Attacks

Most of the attacks on online banking used today are based on deceiving the user to steal

login data and valid TANs. Two well known examples for those attacks are phishing and

pharming. Cross-site scripting and keylogger/Trojan horses can also be used to steal login

information.

Page 10: A Study on Customer Perception about Online Banking Service_Full Paper

A method to attack signature based online banking methods is to manipulate the used

software in a way, that correct transactions are shown on the screen and faked transactions

are signed in the background.

A recent FDIC Technology Incident Report, compiled from suspicious activity reports banks

file quarterly, lists 536 cases of computer intrusion, with an average loss per incident of

$30,000. That adds up to a nearly $16-million loss in the second quarter of 2007. Computer

intrusions increased by 150 percent between the first quarter of 2007 and the second. In 80

percent of the cases, the source of the intrusion is unknown but it occurred during online

banking, the report states

The most recent kind of attack is the so-called Man in the Browser attack, where a Trojan

horses permits a remote attacker to modify the destination account number and also the

amount.

Page 11: A Study on Customer Perception about Online Banking Service_Full Paper

Benefits of Online BankingGone are those days when one has to come in person to the bank in order to make any

banking transaction, request or satisfy their query. In present scenario where world is

dynamic & fast changing, at the same time technology making its presence felt in all spheres

of one’s life, and so the banks are also moving at fast pace to meet the satisfaction &

requirements of its customers. And with Change being felt, online banking will have a greater

role to play in near future with respect to banking services. The following are some of the

benefits of the Online Banking

Customers can perform banking transaction sitting any place.

Possible for customers to take advantage of services electronically without the need to

visit the bank personally

Customized applications have been designed to suit different types of clients

depending on their specific requirements.

Helps in saving lot of time as well as money for both the Bank & its customers

Less of paper work involved with an added benefit that all documents are

electronically stored.

Online banking is not only related to performing of banking transaction but also

placing any request to the bank without stepping into the bank.

o Request like Cheque book request, Credit Card Payments, etc.

Providing up-to-the-second account information, online banking lets the customer’s

access & manages their accounts from anywhere and anytime using internet.

Safe banking channel where double levels of Security are maintained for safety of the

customers Accounts.

Functions of Online Banking

View account balances & statements: the online banking users can see the balances in

their respective Accounts & also view the statements of their accounts of various

periods.

Transfer funds between accounts: the Bank customers through online banking can

transfer funds between two accounts within the same and also transfer funds with

between different banks. All these can be done without even stepping into the bank.

Create Fixed Deposits online: Earlier if one has to open a fixed deposits one has to

come into the bank, but now with online banking one can create Fixed Deposits

online through online banking.

Page 12: A Study on Customer Perception about Online Banking Service_Full Paper

Order a cheque book: now with online banking one need not to drop the request in the

bank, rather one can place the request of a new Cheque book through online banking.

Payment of credit card amount: If the customer’s credit card is linked to ones account

then through online banking one can make the payment of his credit card sitting there

itself.

Disadvantages of online banking – The Security Concern

Certain factors should be kept in mind while using online banking to ensure its safe use.

These are as following:-

Fraudsters can lure you to enter your user ID and password at a fake web site that

resembles your bank.

Always check the URL of your bank's web site. If you see anything other than the

bank's genuine URL, you know it is fake.

Never enter your user ID or password or such sensitive information without

ascertaining that you are on the right web site.

Keep changing your password at least once a month. Try to use alphanumeric

password & remember it!

Keep your operating system and browser up-to-date with the latest security patches.

Install these only from a trusted web site.

Always log out when you exit the online banking portal. Close the browser to ensure

that your secure session is terminated.

Never exit simply by closing the browser.

Install a personal firewall to help prevent hackers from gaining unauthorized access to

your home computer, especially if you connect to the Internet through a cable or a

DSL modem.

Of course, your anti-virus software should be updated every day.

Bank has a 'last logged in' panel on its website. Check the panel whenever you log in.

If you notice irregularities (like you are logging in after two days, but the panel says

you logged in that morning!), report the matter at once to the bank and change your

password immediately.

]Don't use the embedded links in any e-mail to get to any web page. Type the link

address (URL) in your web browser.

Don't open, run, install or use programs or files obtained from a person or

organization you do not know or from someone who is not a reputed vendor.

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Don't leave the PC unattended after keying in information while transacting on the

web site.

Don't fill out forms in e-mail messages that ask for personal financial information,

like account or credit card numbers.

Don't, in response to any e-mail, provide your online banking user ID, passwords,

credit and debit card numbers.

Don't select the option on browser that stores or retains user name and password (i.e.

Auto Complete).

If you have several bank accounts, avoid using the same online banking password for

all.

Importance of Online Banking from a Bank perspective

With the implementation of online banking, both the customers & the Bank are benefitted.

It’s a win- win situation for both the bank & its customers. There are various aspects which

show that with the more and more usage of online banking both the bank & its customers are

immensely benefitted.

Reduction in Operating cost: There is a charge associated with every walk-in

customer to the branch. Bank has to bear those charges. So, if the number of walk-in

customers decreases the operating cost will also reduce.

It also minimises the paper work which is a major factor of operating cost. If the

number of customers using online banking, it will be beneficial for the bank since it

will reduce the spending amount on technology per customer. And thus the objective

of optimum utilization of these channels can be achieved.

Reduction of Work load: By usage of online banking the workload of the bank

employee decreases. Thereby the employees can be utilized in some other purposes.

E.g.: Creating an online fixed deposit by stepping into the bank will take some of the

time of the employee which can be saved if the same crated through net banking.

For knowing the status of a cheque deposited, if a customer comes to bank, it’ll take

some 3 minutes. But in whole day some 10 customers come it will take some 30mins

in total for all of them, so thus 30mins can be saved.

Optimum utilization of Human resources: Optimum utilization of human resources

results in increased productivity. And productivity can be increased only when the

work load would be less. With decreased no. of walk-in customers, employees can

utilize their time in other works like cross selling of other products, giving better

Page 14: A Study on Customer Perception about Online Banking Service_Full Paper

consultation to costumers and listening to their grievances. It will improve the

customer – bank relationship.

E.g. –Time that got saved due to usage of online banking by customers one can sell

some of the Bank customers either to the walk-in customers or other existing

customers through phone.

Help in providing better & quicker services: By the introduction of online banking,

the customers are availing better & quality services at a very nominal or no cost at all.

Moreover the services are faster than the physical ones. So the customers are happy &

as a result it builds a good image in the minds of the people.

Reduction in Opportunity cost - Suppose customers who wish to withdraw money

crowd in the queue, it will hinder services to the other customers. If these customers

move to the online banking than services to the other customers can be expedited.

A recent report released by HDFC bank stated that 1/3 rd of the customers are using the

online banking services for various transactions and around 40% people mentioned that they

are aware of the online banking services, but not interested in using them.

Figure 2 - Usage of Online Banking Services

Importance of Online Banking from a customer’s perspective

Saves Time & Money: With the usage of online banking, the customers can do lot of

their banking transactions without steeping into the bank, by which they save the time

of coming into the bank & also money at the same time. Thereby saving both Time &

money of the customers

Page 15: A Study on Customer Perception about Online Banking Service_Full Paper

Provides Global connectivity the bank- With the usage of online banking, a person

can remain connected with Bank form anywhere in the world. With these channels

one can access bank sites & view other things from anywhere any time.

Convenient & easy to use: Using the Online Banking is very easy to use & also very

user friendly. And if a customer faces any sort of confusion or difficulty in using the

different Channels, he/she can see the demo of how to use it, by visiting the official

website of the bank.

Round the clock Banking: Unlike the bank which has fixed banking hours after which

the bank is closed, but using online banking one can make banking transaction round

the clock at anytime anywhere. There is no fixed timing of using these channels.

Wider accessibility: With the use of online banking by the customers can access their

Bank accounts & does transactions pertaining to that account sitting anywhere. One

can not only access their accounts in the home country but also from abroad, as a

result providing wider accessibility to their accounts.

A recent report by the HDFC bank stated that a large number of customers were aware of

online banking service and its advantages. The pie diagram is a depiction of the same.

Figure 3 - Awareness about Online Banking

Page 16: A Study on Customer Perception about Online Banking Service_Full Paper

Survey Results and InterpretationA survey was conducted among a respondent base of 300 banking customers. The survey was

conducted by circulating a questionnaire which was circulated in emails. Here are the results

of the survey

About 65% of the respondents were of the age group of 20-30 years, 30% were of the

age group 30-40 and the rest of them were above 40.

Around 80% of the respondents were corporate professionals, 3% were business

owners and the rest 17% belonged to other professions such as free lancers, part time

job holders etc.

Around 90% of them owned personal computers and rest of them were provided

computers by office

Around 80% of the respondents used internet at office. Around 60% used internet at

home. However there were a few cases where people used internet both at home and

office.

Around 80% of the internet usage was for emails, a 30% user base was using for

online banking and around 85% people also used it for general browsing and chatting

Our respondents fall in the basic and middle level expertise of internet literacy.

Though some professional knew coding and programming techniques, most of the

others were equipped with basic knowledge of browsing, online purchases and so on.

Around 80% of the users expressed that internet is the fastest means of information

transfer. 45% people liked internet because of the volume of information available,

60% of the people responded saying that usage of internet was easy for them.

Around 40% of the respondents use online banking and the rest 60% do not use.

Out of the people who use online banking, around 60% constituted people of age

group 20-30 and the rest were 30-40. No one above 40 was using online banking

service.

Around 72% people used online banking for checking account balance and online

funds transfer. It may be noted that all these respondents were of the age group 20-30.

A small percentage of 12 used online banking for the above said purposes and they

fall in the age group of 30-40.

Security is the major concern for 40% of the people. 23% of the people expressed that

they forget their passwords frequently. Some respondents mentioned in their

comments that retrieval of a new password from the bank is a cumbersome process.

Page 17: A Study on Customer Perception about Online Banking Service_Full Paper

90% of the people of the age group above 40 expressed that they were comfortable

going to the bank and transacting.

66% of the people expressed their willingness to use online banking if provided

proper training and if explained about the advantages. Out of these 54% constituted

people of age group 20-30, 20% constituted people above the age of 40.

It was observed that most of the respondents who fell into middle and advanced level

of internet literacy were using online banking for online funds transfer, payment of

credit card bills etc.

Page 18: A Study on Customer Perception about Online Banking Service_Full Paper

ConclusionThe following may be said to be the conclusions of this paper

Online banking is witnessing a definitive trend in terms of usage. However this trend is being

limited to mostly corporate professionals. While it is widely accepted that internet does

improve the speed of transactions, the security is an issue of concern. Another important

observation is that people who do not use online banking were mostly people of the age

group above 40. The yesteryear generations have still yet to welcome this paperless banking

service. Internet literacy levels also played a major role in the usage of online. People who

are used to the basic functions of the internet might find online banking a little cumbersome.

However the welcoming aspect here is the large number of respondents who have expressed

their willingness to learn if taught. The authors recommend banks to set up online banking

kiosks at the various branches. While it can be observed that the highest numbers of

professionals who use the online banking service do so from their office due to the high

bandwidth facilities. There are a very few or no respondents who access their online banks

via kiosks. Incumbency is another major parameter to be taken into consideration. This can

be observed in the customers of age group of above 40 who are comfortable going to the

bank rather than perform transactions online. Another interesting observation in the survey is

majority of the people who used internet from office was using online banking. The rest were

using a laptop which let them connect to WIFI networks at any corner of the world.

Suggestions to customers

The authors have the following suggestions to the customers

It is quite important to understand the benefits online banking can offer as against the

traditional banking mechanisms. With the growing popularity of internet and related security

measures, it is imperative to use online banking as a practice rather than as an alternative. It is

important to understand the security measures such as virtual keyboard in your online

banking portals and adhere to the same.

Suggestions to the banks

Banks now need to build an awareness camp for the customers. It has to be noted that most of

the customers don’t use online banking because of non familiarity and security. Banks should

designate personnel who can train the customers on the usage. They may conduct free

training sessions / lab sessions for customers to learn the usage of the systems. In addition

bank officers must spend substantial time in face to face talks rather than providing the

customers with literature.

Page 19: A Study on Customer Perception about Online Banking Service_Full Paper

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