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“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]
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
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
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.
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
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
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.
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
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.
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.
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.
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.
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
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
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
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.
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.
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.
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