role of ebanking
TRANSCRIPT
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Chapter-1- Introduction
1.1 Background
1.1.1Banks have traditionally been in the forefront of harnessing
technology to improve their
products, services and efficiency. They have, over a long time,
been using electronic
and telecommunication networks for delivering a wide range of
value added products
and services. The delivery channels include direct dial - up
connections, private
networks, public networks etc and the devices include
telephone, Personal Computers
including the utomated Teller !achines, etc. "ith the
popularity of PCs, easy access
to #nternet and "orld "ide "eb $"""%, #nternet is
increasingly used by banks as a
channel for receiving instructions and delivering their products
and services to their
customers. This form of banking is generally referred to as
#nternet Banking, although
the range of products and services offered by different banks
vary widely both in their
content and sophistication.
1.1.2 Broadly, the levels of banking services offered through
#&T'(&'T can be categori)ed
in to three types* $i% The Basic +evel ervice is the banks
websites which disseminate information on different products
and services offered to customers and members of
public in general. #t may receive and reply to customers ueries
through e-mail, $ii% #n
the ne/t level are imple Transactional "ebsites which allow
customers to submit their
instructions, applications for different services, ueries on their
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account balances, etc,
but do not permit any fund-based transactions on their accounts,
$iii% The third level of
#nternet banking services are offered by 0ully Transactional
"ebsites which allow the
customers to operate on their accounts for transfer of funds,
payment of different bills,
subscribing to other products of the bank and to transact
purchase and sale of
securities, etc. The above forms of #nternet banking services are
offered by traditional
banks, as an additional method of serving the customer or bynew banks, who deliver
banking services primarily through #nternet or other electronic
delivery channels as the
value added services. ome of these banks are known as
virtual banks or #nternet-
only banks and may not have any physical presence in a
country despite offering
different banking services.
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1.1.3 0rom the perspective of banking products and
services being offered through #nternet,
#nternet banking is nothing more than traditional
banking services delivered through an
electronic communication backbone, vi), #nternet.
But, in the process it has thrown
open issues which have ramifications beyond
what a new delivery channel would
normally envisage and, hence, has compelled
regulators world over to take note of this
emerging channel. ome of the distinctive features
of i-banking are*
1. #t removes the traditional geographical barriers
as it could reach out to customers
of different countries 2 legal 3urisdiction. Thishas raised the uestion of 3urisdiction
of law 2 supervisory system to which such
transactions should be sub3ected,
4. #t has added a new dimension to different kinds
of risks traditionally associated with
banking, heightening some of them and
throwing new risk control challenges,
5. ecurity of banking transactions, validity of
electronic contract, customers privacy,
etc., which have all along been concerns of
both bankers and supervisors have
assumed different dimensions given that
#nternet is a public domain, not sub3ect to
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control by any single authority or group of
users,
6. new form of competition has emerged both from the e/isting
players and new
players of the market who are not strictly banks.
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.
1.1.4 The (egulatory and upervisory concerns in
i-banking arise mainly out of the
distinctive features outlined above. These
concerns can be broadly addressed under
three broad categories, vi), $i% +egal and regulatory
issues, $ii% ecurity and technology
issues and $iii% upervisory and operational issues.
+egal issues cover those relating to
the 3urisdiction of law, validity of electronic
contract including the uestion of
repudiation, gaps in the legal 2 regulatory
environment for electronic commerce. 7n the
uestion of 3urisdiction the issue is whether to
apply the law of the area where access to
#nternet has been made or where the transaction has
finally taken place. llied to this is
the uestion where the income has been generated
and who should ta/ such income.
There are still no definite answers to these issues.
1.1.5 ecurity of i-banking transactions is one of the
most important areas of concerns to the
regulators. ecurity issues include uestions of
adopting internationally accepted state-
of-the art minimum technology standards for
access control, encryption 2 decryption $
minimum key length etc%, firewalls, verification
of digital signature, Public 8ey
#nfrastructure $P8#% etc. The regulator is eually
concerned about the security policy
for the banking industry, security awareness and
education.
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1.1.6 The supervisory and operational issues include
risk control measures, advance warning
system, #nformation technology audit and re-
engineering of operational procedures.
The regulator would also be concerned with
whether the nature of products and
services offered are within the regulatory
framework and whether the transactions do
not camouflage money-laundering operations.
1.1.7 The Central Bank may have its concern about
the impact of #nternet banking on its
monetary and credit policies. s long as #nternet is
used only as a medium for delivery of
banking services and facilitator of normal payment
transactions, perhaps, it may not
impact monetary policy. 9owever, when it
assumes a stage where private sector
initiative produces electronic substitution of money
like e-cheue, account based cards
and digital coins, its likely impact on monetary
system can not be overlooked. 'ven
countries where i-banking has been uite
developed, its impact on monetary policy has
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1.1.8 The world over, central bankers and regulators
have been addressing themselves to
meet the new challenges thrown open by this form
of banking. everal studies have
pointed to the fact that the cost of delivery of
banking service through #nternet is
several times less than the traditional delivery
methods. This alone is enough reason for
banks to flock to #nternet and to deliver more
and more of their services through
#nternet and as soon as possible. &ot adopting this
new technology in time has the risk
of banks getting edged out of competition. #n such
a scenario, the thrust of regulatory
thinking has been to ensure that while the banks
remain efficient and cost effective, they
must be aware of the risks involved and have
proper built-in safeguards, machinery and
systems to manage the emerging risks. #t is not
enough for banks to have systems in
place, but the systems must be constantly
upgraded to changing and well-testedtechnologies, which is a much bigger
challenge. The other aspect is to provide
conducive regulatory environment for orderly
growth of such form of banking. Central
Banks of many countries have put in place broad
regulatory framework for i-banking.
1.1.9 #n #ndia, too i-banking has taken roots.
number of banks have set up banking
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portals allowing their customers to access facilities
like obtaining information, uerying
on their accounts, etc. oon, still higher level of
online services will be made available.
7ther banks will sooner than later, take to
#nternet banking. The #ndian scenario is
discussed in detail in Chapter-6 of this report.
1.2 Constitution of the Working Group
1.2.1 #n the above background (eserve Bank of
#ndia constituted a "orking :roup to
e/amine different issues relating to i-banking and
recommend technology, security,
legal standards and operational standards
keeping in view the international best
practices. The :roup is headed by the Chief
:eneral !anager-in-Charge of the
;epartment of #nformation Technology and
comprised e/perts from the fields of
banking regulation and supervision, commercial
banking, law and technology. The
Bank also constituted an 7perational :roup under
its '/ecutive ;irector comprising
officers from different disciplines in the bank, who
would guide implementation of the
recommendations.
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1.2.2 Terms of reference
The "orking :roup, as its terms of reference,
was to e/amine different aspects of
#nternet banking from regulatory and
supervisory perspective and recommend
appropriate standards for adoption in #ndia,
particularly with reference to the
following*
1. (isks to the organi)ation and banking system,
associated with #nternet banking and
methods of adopting #nternational best practices
for managing such risks.
4. #dentifying gaps in supervisory and legal
framework with reference to the e/isting
banking and financial regulations, #T
regulations, ta/ laws, depositor protection,
consumer protection, criminal laws, money
laundering and other cross border issues
and suggesting improvements in them.
5. #dentifying international best practices on
operational and internal control issues, and
suggesting suitable ways for adopting the same
in #ndia.
6. (ecommending minimum technology and
security standards, in conformity with
international standards and addressing issues
like system vulnerability, digital
signature ,information system audit etc.
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. ny other matter, which the "orking :roup
may think as of relevance to #nternet
banking in #ndia.
1.3. Approch of the Group*
1.3.1 The first meeting of the "orking :roup was
held on ?uly 1@, 4AAA. #t was decided
that members of both "orking :roup and
7perational :roup would participate in all
meetings and deliberations. The :roup, in its
first meeting identified the broad
parameters within which it would focus its
deliberations.
1.3.2 The :roup agreed that #nternet banking is a
part of the electronic banking $e-
banking%, the main difference being that in i-
banking the delivery channel was
#nternet, a public domain.lthough the concerns
of e-banking and i-banking have
many things in common, the fact that #nternet is a
public domain called for additional
security measures. #t was agreed that the :roup
would primarily focus its attention
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on # - banking and to the e/tent there were
commonality between i-banking and e-
banking, its recommendation would also apply to
e-banking.
1.3.3 The :roup further held that i-banking did not
mean any basic change in the nature of
banking and the associated risks and returns. ll
the same, being a public domain and
a highly cost effective delivery channel, it
does impact both the dimension and
magnitude of traditional banking risks. #n fact, it
adds new kinds of risk to banking.
ome of the concerns of the (egulatory
uthority in i-banking relate to technology
standards including the level of security and
uncertainties of legal 3urisdiction etc. #ts
cost effective character provides opportunities
for efficient delivery of banking
services and higher profitability and a threat to
those who fail to harness it.
1.3.4 The :roup decided to focus on above three
ma3or areas, where supervisory attention
was needed. ccordingly, three sub-groups
were formed for looking into three
specific areas* $i% technology and security
aspects, $ii% legal aspects and $iii%
regulatory and supervisory issues. The sub-
groups could seek help of e/ternal e/perts
in the relevant fields, if needed.
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1.4 !"out of the #eport$
1.4.1. The views of the :roup were crystalli)ed
after several rounds of deliberations of
members of both the "orking :roup and the
7perational :roup. The reports
prepared by the three sub-groups were
discussed and assimilated in to this report.
The report is presented in nine chapters.
Chapter-1, the introductory chapter, gives
the background leading to the formation of the
:roup, its composition, terms of
reference and the approach adopted by the :roup
in finali)ing its recommendations.
1.4.2. The basic structure of #nternet and its
characteristics are described in Chapter-4 in
order to e/plain the nature of concerns
addressed in the chapters to follow. lso
e/plained in the chapter is the growth of #nternet
banking and different products and
different e-commerce concepts.
1.4.3. Chapter-5 describes #nternational e/perience in
i-banking, particularly with reference
to , nited 8ingdom and other
candinavian countries, who are pioneers in this
form of banking. Chapter- 6 looks at the #ndian
scenario as it prevails now.
1.4.4. Chapter-< discusses different types of risks
associated with banking in general and i-
banking in particular. 'mphasis is given on
normal risks associated with banking
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which gets accentuated when the services are
delivered through #nternet. (isks relating to
money laundering and other cross border
transactions are discussed.
1.4.5. Technology and security standards are core
concerns for (egulatory uthorities in
relation to #nternet banking. separate sub-
group looked in to these issues, which
are discussed in detail in Chapter->. 'mphasis is
given on technology and security
standards and policy issues rather than on
products and technical tools.
1.4.6 nother important regulatory concern is the
legal environment in which i-banking
transactions are carried out. #t is of
importance to identify gaps in the e/isting
framework and to suggest changes reuired. The
legal sub-group had made a detailed
analysis of legal uestions involved, which are
discussed in Chapter - .
1.4.7 Chapter-D deals with various control measures
reuired to be adopted by banks to
manage risks discussed in earlier chapters.
7perational aspects like internal control,
early detection system, #T audit, technical
manpower, etc are also discussed. The
impact of i-banking on clearing and settlement
arrangements has also been addressed.
The sub-group on (egulatory and upervisory
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issues had addressed the above
uestions.
1.4.8 Chapter-@ contains recommendations of the
"orking :roup. hri . 9. Bho3ani had
disagreement with some of the observations 2
recommendations by the :roup and a
note of dissent is appended as nne/ure-1.
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Chpter%2% &nternet 'nking % ne( me)ium
2.1 &nternet % its *sic structure n) topo+og"
2.1.1 #nternet is a vast network of individual computers
and computer networks connected to
and communicate with each other using the same
communication protocol - TCP2#P
$Transmission Control Protocol 2 #nternet
Protocol%. "hen two or more computers are
connected a network is created= connecting two
or more networks create inter-
network or #nternet. The #nternet, as commonly
understood, is the largest e/ample of
such a system. #nternet is often and aptly
described as #nformation uperhighway, a
means to reach innumerable potential destinations.
The destination can be any one of
the connected networks and host computers.
2.1.2 #nternet has evolved to its present state out of a
;epartment of ;efence pro3ect
(P&et $dvanced (esearch Pro3ect
dministration &etwork%, developed in the late
1@>As and early 1@As as an e/periment in wide
area networking. ma3or perceived
advantage of (P&et was that the network
would continue to operate even if a
segment of it is lost or destroyed since its operation
did not depend on operation of any
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single computer. Though originally designed as a
defence network, over the years it
was used predominantly in areas of scientific
research and communication. By the
1@DAs, it moved out of Pentagons control and
more independent networks from
and outside got connected to it. #n 1@D>, the
&ational cience 0oundation $&0%
established a national network based on (P
protocol using commercial telephone
lines for connectivity. The &0&et was
accessible by a much larger scientific
community, commercial networks and general
users and the number of host computers
grew rapidly. 'ventually, &0&et became the
framework of todays #nternet.
(P&et was officially decommissioned in 1@@A.
2.1.3 #t has become possible for innumerable
computers operating on different platforms to
communicate with each other over #nternet
because they adopt the same
communication protocol, vi), TCP2#P. The latter,
which stands for Transmission
Control Protocol 2 #nternet Protocol, is a set of
rules which define how computers
communicate with each other. #n order to access
#nternet one must have an account in
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a host computer, set up by any one of the #Ps
$#nternet ervice Providers%. The
accounts can be +#P $erial +ine #nternet
Protocol% or PPP $Point to Point Protocol%
account. These accounts allow creating
temporary TCP2#P sessions with the host,
thereby allowing the computer to 3oin the #nternet
and directly establish communication
with any other computer in the #nternet. Through
this type of connection, the client
computer does not merely act as a remote terminal
of the host, but can run whatever
programs are available on the web. #t can also run
several programs simultaneously,
sub3ect to limitations of speed and memory of the
client computer and modem. TCP2#P
protocol uses a uniue addressing scheme
through which each computer on the
network is identified.
2.1.4 TCP 2 #P protocol is insecure because data
packets flowing through TCP 2 #P networks
are not normally encrypted. Thus, any one who
interrupts communication between two
machines will have a clear view of the data,
passwords and the like. This has been
addressed through ecured ocket +ayer$+%, a
Transport +ayer ecurity $T+%
system which involves an encrypted session
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between the client browser and the web
server.
2.1.5 0TP or 0ile Transfer Protocol is a mechanism for
transferring files between computers
on the #nternet. #t is possible to transfer a file to
and from a computer $ftp site% without
having an account in that machine. ny
organi)ation intending to make available to
public its documents would normally set up a ftp
site from which any one can access
the documents for download. Certain ftp sites are
available to validated users with an
account #; and password.
2.1.6 e-mail:The most common and basic use of
#nternet is the e/change of e-mail
$electronic mail%. #t is an e/tremely powerful and
revolutionary result of #nternet, which
has facilitated almost instantaneous
communication with people in any part of the
globe. "ith enhancements like attachment of
documents, audio, video and voice mail,
this segment of #nternet is fast e/panding as the
most used communication medium for
the whole world. !any websites offer e-mail as a
free facility to individuals. !any
corporates have interfaced their private networks
with #nternet in order to make their e-
mail accessible from outside their corporate
network.
2.1.7 World Wide Web (WWW)
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2.1.7.1 #nternet encompasses any electronic
communication between computers using
TCP2#P protocol, such as e-mail, file transfers etc.
""" is a segment of #nternet,
which uses 9yper Te/t !arkup +anguage
$9T!+% to link together files containing
te/t, rich te/t, sound, graphics, video etc. and
offers a very convenient means of
navigating through the net. #t uses hyperte/t
transfer protocol $9TTP% for
communication between computers. "eb
documents, which are referred to as pages,
can contain links to other related documents and
so on, in a tree like structure. The
person browsing one document can access any
other linked page. The web documents
and the web browsers which are the application
programs to access them, are designed
to be platform independent. Thus any web
document can be accessed irrespective of the
platform of the computer accessing the document
and that of the host computer. The
programming capabilities and platform
independence of ?ava and ?ava applets have
further enriched the web. The point and click
method of browsing is e/tremely simple
for any lay user of the net. #n fact, the introduction
of web since early 1@@A has made
#nternet an e/tremely popular medium and its
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use in business has been enhanced
dramatically.
2.1.7.2The ne/t in the 9T!+ genre is the '/tensible
!arkup +anguage $E!+%, which
allows automated two-way information flow
between data stores and browser screens.
E!+ documents provide both the raw content of
data and the data structure and is
pro3ected by its proponents as taking the web
technology beyond the limits of 9T!+.
2.1.8 Wireless Application Protocol (WAP):
"P is the latest industry standard which provides
wireless access to #nternet through
handheld devices like a cellular telephone. This is
an open standard promoted by "P
forum and has been adopted by worlds all ma3or
handset manufacturers. "P is
supplemented by "ireless pplication
'nvironment $"'%, which provides industry
wise standard for developing applications and
services for wireless communication
networks. This is based on """ technology and
provides for application for small
screens, with interactive capabilities and
adeuate security. "ireless Transaction
Protocol $"TP%, which is the euivalent of TCP,
sets the communication rules and
"ireless Transport +ayer ecurity $"T+%
provides the reuired security by
encrypting all the session data. "P is set to
revolutioni)e the commercial use of net.
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2.1.9 Security:
7ne of the biggest attractions of #nternet as an
electronic medium is its openness and
freedom. #t is a public domain and there is no
restriction on who can use it as long as
one adheres to its technical parameters. This has
also given rise to concerns over the
security of data and information transfer and
privacy. These concerns are common to
any network including closed user group
networks. But over the #nternet, the
dimensions of risk are larger while the control
measures are relatively fewer. These
issues are discussed in detail in Chapter-< and
Chapter-> of the report. #t will be
sufficient to say here that the key components of
such concern are, $i% authentication,
vi)., assurance of identity of the person in a deal,
$ii% authori)ation, vi)., a party doing a
transaction is authori)ed to do so, $iii% the
privacy or confidentiality of data,
information relating to any deal, $iv% data integrity,
vi)., assurance that the data has not
been altered and $v% non repudiation, vi)., a
party to the deal can not deny that it
originated the communication or data.
2.2 ,%Commerce$
2.2.1 'ven though started as network primarily for
use by researchers in defence and
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scientific community, with the introduction of
""" in early 1@@As, use of #nternet for
commerce has grown tremendously. '-commerce
involves individuals and business
organi)ations e/changing business information and
instructions over electronic media
using computers, telephones and other
telecommunication euipments. uch form of
doing business has been in e/istence ever since
electronic mode of data 2 information
e/change was developed, but its scope was
limited only as a medium of e/change of
information between entities with a pre-established
contractual relationship. 9owever,
#nternet has changed the approach to e-commerce=
it is no longer the same business
with an additional channel for information
e/change, but one with new strategy and
models.
2.2.2 business model generally focuses on $i% where
the business operates, that is, the
market, the competitors and the customers, $ii%
what it sells, that is, its products and
services $iii% the channels of distribution, that is,
the medium for sale and distribution of
its products and $iv% the sources of revenue and
e/penditure and how these are
affected. #nternet has influenced all the four
components of business model and thus has
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come to influence the business strategy in a
profound way. The si)e of the market has grown
enormously as technically, one can access the
products and services from any part of the world.
o does the potential competition. The methods
of reaching out to customers, receiving the
response and offering services have a new,
simpler and efficient alternative, now, that is,
#nternet. The cost of advertisement, offer and
delivery of services through #nternet has reduced
considerably, forcing most companies to rework
their strategies to remain in competition.
2.2.3 research note by Paul Timmers of 'uropean
commission had identified eleven
business models, which have been commercially
implemented. These are e-shop, e-
procurement, e-auction, e-mall, Third-party market
place, Firtual communities, Falue
chain service providers, Falue chain
integrators, Collaboration platforms and
#nformation brokers. 9e classified business models
along two dimensions, i.e, degree of
innovation and e/tent of integration of functions.
The innovation ranged from the
electronic version of a traditional way of doing
business $e-shop% to more innovative
ways by offering functions that did not e/ist
before. The second dimension, i.e, e/tent
of integration ranges from a single function
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business model $like e-shop% to fully
integrated functionality $value chain integrator%. #n
the top end of the graph are models,
which cannot be implemented in a traditional way
and are critically dependent upon
information technology and creating value from
information flow. Business models, in
between these two limits are a combination of both
dimensions in different degrees and
have some degree of analogy in traditional firms.
2.2.4There are two types of e-commerce ventures in
operation* the old brick and mortar
companies, who have adopted electronic
medium, particularly #nternet, to enhance
their e/isting products and services, and 2 or to
offer new products and services and
the pure e-ventures who have no visible physical
presence. This difference has wider
ramifications than mere visibility when it comes
to issues like customers trust, brand
euity, ability to service the customers,
adopting new business culture and cost.
These aspects of e-commerce will be touched
upon in the following discussions.
2.2.5nother wayof classifying the e-commerce is by
the targeted counterpart of a business,
vi), whether the counterpart is a final consumer or
another business in the distribution
chain. ccordingly, the two broad categories are*
Business-to-Consumer $B4C% and
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Business-to-Business $B4B%.
2.2.6Business-to-Consumers (B2C):
2.2.6.1 #n the B4C category are included single e-
shops, shopping malls, e-broking, e-
auction, e-banking, service providers like travel
related services, financial services etc.,
education, entertainment and any other form of
business targeted at the final consumer.
ome of the features, opportunities and concerns
common to this category of business
irrespective of the business segment, are the
following.
2.2.6.2 Opportunities:
2.2.6.2.1 #nternet provides an ever-growing market
both in terms of number of potential
customers and geographical reach. Technological
development has made access to
#nternet both cheaper and faster. !ore and more
people across the globe are accessing
the net either through PCs or other devices. The
purchasing power and need for uality
service of this segment of consumers are
considerable. nybody accessing #nternet is a
potential customer irrespective of his or her
location. Thus, any business targeting final
consumers cannot ignore the business potential of
#nternet.
2.2.6.2.2 #nternet offers a uniue opportunity to
register business presence in a global market.
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#ts effectiveness in disseminating information
about ones business at a relatively cost
effective manner is tremendous. Time sensitive
information can be updated faster than
any other media. properly designed website can
convey a more accurate and focussed
image of a product or service than any other media.
se of multimedia capabilities, i.e.,
sound, picture, movies etc., has made #nternet as
an ideal medium for information
dissemination. 9owever, help of other media is
necessary to draw the potential
customers to the web site.
2.2.6.2.3 The uality of service is a key feature of any
e-commerce venture. The ability to sell
ones product at anytime and anywhere to the
satisfaction of customers is essential for
e-business to succeed. #nternet offers such
opportunity, since the business presence is
not restricted by time )one and geographical
limitations. (eplying to customers
ueries through e-mail, setting up $0reuently
sked Guestions% 0G pages for
anticipated ueries, offering interactive help line,
accepting customers complaints
online 46 hours a day and attending to the same,
etc. are some of the features of e-
business which enhance the uality of service to
the customers. #t is of crucial
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importance for an e-venture to reali)e that 3ust as
it is easier to approach a customer through
#nternet, it is eually easy to lose him. The
customer has the same facility to move over to
another site.
2.2.6.2.4 Cost is an important issue in an e-venture. #t
is generally accepted that the cost of
overhead, servicing and distribution, etc.
through #nternet is less compared to the
traditional way of doing business. lthough
the magnitude of difference varies
depending on the type of business and the
estimates made, but there is unanimity that
#nternet provides a substantial cost advantage
and this, in fact, is one of the ma3or
driving forces for more number of traditional
business adopting to e-commerce and
pure e-commerce firms to sprout.
2.2.6.2.5 Cost of communication through """ is the
least compared to any other medium.
!any a time ones presence in the web may bring
in international enuiries, which the
business might not have targeted. The business
should have proper plans to address
such opportunities.
2.2.6.3 Concerns:
2.2.6.3.1 There are a number of obstacles, which an e-
commerce venture needs to overcome.
Trust of customers in a web venture is an
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important concern. !any customers hesitate
to deal with a web venture as they are not sure of
the type of products and services
they will receive. This is particularly true in a
B4C venture like e-shop, e-mall or e-
auction site. Traditional business with well
established brands and goodwill and having
a physical presence face less resistance from
customers in this regard than a pure e-
venture.
2.2.6.3.2 !any B4C ventures have ultimately to
deliver a product or service in physical form
to the customer for a deal contracted through
#nternet. This needs proper logistics, an
efficient distribution network, and control over
uality of product or service delivered.
These issues are not technology related and any
let off in this area can drive the
customer away to the competitor or from e-
commerce.
2.2.6.3.3 The privacy of information on the
customers preferences, credit card and bank
account details etc. and customers faith in a
system where such privacy is stated to be
ensured are important issues to be addressed. These
are mainly technological issues, but
human factor is important both at the business and
at the customers end and also in
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building the trust in the system.
2.2.6.3.4 ecurity of a transaction, authenticity of a
deal, identification of a customer etc. are
important technological and systems issues, which
are ma3or sources of concern to e-
commerce. 'ually important are uestions of
repudiation of a deal, applicability of
law, 3urisdiction of ta/ laws etc. These are
important to all forms of e-commerce,
whether B4C or B4B and all segments of
business, i.e, manufacturing, services and
finance and are addressed in different chapters of
this report.
2.2.6.3.5 ccessibility to #nternet by the consumers is
an important issue in B4C domain.
This is particularly so in countries like #ndia
where penetration of PCs and other
devices to households for access to #nternet is
minimal. lso important are availability
of bandwidth and other infrastructure for faster
and easier access. Considering that e-
commerce aims at global market, deficiencies of
these kinds in the developing world are
no longer concerns confined to these areas, but are
global e-commerce concerns.
2.2.7 Business to Business (B2B)
2.2.7.1 s opposed to B4C e-commerce, in B4B
domain, the parties to a deal are at different
points of the product supply chain. Typically, in a
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B4B type domain, a company, its
suppliers, dealers and bankers to all the parties are
networked to finali)e and settle all
aspects of a deal, online. Perhaps, only the goods
in different stages of processing
physically move from the supplier to the dealer.
This scenario can be e/tended to
include the shipper, providers of different ancillary
services, #T service provider and the
payment system gateway, etc., depending on
the degree of sophistication of the
available systems.
2.2.7.2 nother important feature of a B4B domain, as
distinct from B4C, is that business
information 2 data is integrated to the back office
systems of parties to a deal and the
state of straight through processing $TP% or
near TP is achieved. This is a very
significant aspect of B4B model of e-commerce,
which results in improved profits
through lowering cost and reducing inventories.
2.2.7.3 0or e/ample, in a B4B environment, typically,
the back office system of a company
controls inventory reuirement with reference to
the order book position updated
regularly on the basis of orders received from
dealers through #nternet. t the optimum
level of inventory it raises a purchase order with
the supplier, whose system in turn,
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processes the order and confirms supply.
Buyer companys system issues debit
instructions on its bank account for payment to the
supplier. The buyers bank credits
sellers bank with the cost of sale though a payment
gateway or through (T: system.
imilar series of transaction processes are also
initiated between the company and its
dealers and their respective banks. 7nce e-
commerce relationship is established
between the firms, the transactions of the type
shown above can be processed with
minimal human intervention and on 46 hours a day and day aweek basis.
2.2.7.4&ew business models are emerging in B4Bdomain. There are portals which offer a
meeting ground to buyers and sellers of different
products in supply chain, more like a
buyer-seller meet in international business.
This has enabled relatively smaller
companies to enter the global market. Banks in
the portal offer financial services fordeals settled through the portal.
2.2.7.5 Technology and networking are important
constituents of a B4B type of business
domain. 'arlier, only large firms could have
access to such technology and they used
private networks with interface to each other for
information flow and transaction
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processing. ma3or concern used to be
compatibility of ';# platforms across different
B4B partners. #nternet with """ and other
standard technology have offered
opportunity to relatively smaller and medium si)ed
firms to integrate their operations in
B4B model and take advantage of the
benefits it offers. #t has also led to
standardi)ation of software platforms.
2.2.7.6 7ther new forms of business models in
B4B domain are pplication ervice
Providers $P% and ervice #ntegrators. Ps
offer application software online to e-
commerce companies who pay for the same
according to the use without owning it.
7ften entire back office processing is taken
care of by Ps and other service
integrators. 9owever, the utility of such service
providers will to a large e/tent depend
on the business strategy of the e-venture.
2.2.7.7 The concerns of B4B e-commerce are similar to
those of B4C, discussed earlier. The
security issues are more pronounced because of
high value transfers taking place
through the net. o also are the issues relating to
privacy of information, law, ta/
repudiation etc. The other issues of importance
to a B4B firm are the choice of
appropriate technology, the issue of build or
outsource, maintenance and training of
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personnel, etc., since they involve large investments and arecritical to success.
2.2.7.8 everal studies have attempted to assess the
relative importance of B4B and B4C
business domains. There is wide difference in
estimates of volume of business
transacted over #nternet and its components
under B4C and B4B. 9owever, moststudies agree that volume of transactions in B4B
domain far e/ceeds that in B4C. This
is e/pected result. There is also a growing opinion
that the future of e-business lies in
B4B domain, as compared to B4C. This has
several reasons some of which are
already discussed earlier, like low penetration ofPCs to households, low bandwidth
availability etc., in a large part of the world. The
success of B4C ventures depends to
a large e/tent on the shopping habits of people
in different parts of the world.
survey sponsored 3ointly by Confederation of
#ndian #ndustries and #nfrastructure+easing and 0inancial ervices on e-commerce
in #ndia in 1@@@ made the following
observations. >4H of PC owners and
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varying between (s. 4
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online transactions are put through. These aspects
have been dealt with in brief in the
introductory chapter and again detailed products
and services are discussed in chapters
5 and 6. 9ence, in the following paragraphs #-
banking concerns in B4B domain are
discussed.
2.3.2 Considering the volume of business e-commerce,
particularly in B4B domain, has been
generating, it is natural that banking would
position itself in an intermediary role in
settling the transactions and offering other trade
related services. This is true both in
respect of B4C and B4B domains. Besides, the
traditional role of financial intermediary
and settlement agents, banks have also e/ploited
new opportunities offered by #nternet
in the fields of integrated service providers,
payment gateway services, etc. 9owever,
the process is still evolving and banks are
repositioning themselves based on new
emerging e-commerce business models.
2.3.3 #n B4B scenario, a new form of e-commerce
market place is emerging where various
players in the production and distribution chain
are positioning themselves and are
achieving a kind of integration in business
information flow and processing $TP or
near TP% leading to efficiencies in the entire
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supply chain and across industries. Banks
are positioning themselves in such a market in
order to be a part of the financial
settlements arising out of transactions of this
market and providing wholesale financial
services. This needs integration of business
information flow not only across the players
in the supply chain, but with the banks as well.
2.3.4 "ith the integration of business information flow
and higher degree of transparency, the
banks and other financial services institutions
have lost some of the information
advantage they used to en3oy and factor in to
pricing of their products. 9owever, such
institutions have the advantage of long standing
relationships, goodwill and brand,
which are important sources of assurance in a
virtual market. Banks are in fact,
converting this goodwill into a business
component in e-commerce scenario in
providing settlement and other financial services.
ome banks have also moved to
providing digital certificates for transactions
through e-markets.
2.3.5 Banks strategies in B4B market are responses to
different business models emerging in
e-commerce. recent study by rthur ndersen
shows that banks and financial service
institutions generally adopt one of three business
models to respond to e-business
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challenges. #n the first place, they treat it as an
e/tension of e/isting business without
any significant changes other than procedural
and what technology demands. The
second strategy takes the same approach as the
first but introduces structural changes
to the underlying business. #n the third approach
banks launch e-business platform as a
different business from the e/isting core business
and as a different brand of product.
There is no definite answer as to which approach is
appropriate. Perhaps it depends on
the type of market the bank is operating, its
e/isting competencies and the legal and
regulatory environment. #t is, however, sure that
e-banking is evolving beyond the
traditional limits of banking and many new
products 2 services are likely to emerge as e-
commerce matures.
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Chpter%3 % &nterntion+ e-perience
3.1 #nternet banking has presented regulators and
supervisors worldwide with new
challenges. The #nternet, by its very nature,
reaches across borders and is, for this
reason, engaging the attention of regulatory and
supervisory authorities all over the
world. The e/perience of various countries, as far
as #nternet banking is concerned, is
outlined in this chapter.
3.2 ./.A.
3.2.1 #n the , the number of thrift institutions and commercial
banks with transactionalweb-sites is 14< or 14H of all banks and thrifts. ppro/imately
DH of all
commercial banks with more than I< billion in
assets, 65H of banks with I
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Presentment and Payment $'BPP%, handheld
access devices such as Personal ;igital
ssistants $P;s%, #nternet Telephone and
"ireless Communication channels and
phones are emerging in the market. few
banks have become #nternet ervice
Providers $#Ps%, and banks may become
#nternet portal sites and online service
providers in the near future. (eliance on third
party vendors is a common feature of
electronic banking ventures of all si)es and
degrees of sophistication in the .
Currently, payments made over the #nternet are
almost e/clusively conducted through
e/isting payment instruments and networks. 0or
retail e-commerce in the , most
payments made over the #nternet are currently
completed with credit cards and are
cleared and settled through e/isting credit card
clearing and settlement systems.
'fforts are under way to make it easier to use debit
cards, cheues and the utomated
Clearing 9ouse $C9% to make payments over
the #nternet. Fersions of e-money,
smart cards, e-cheues and other innovations are
being e/perimented with to support
retail payments over the #nternet.
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3.2.2 There is a matri/ of legislation and regulations
within the that specificallycodifies
the use of and rights associated with the #nternet
and e-commerce in general, and
electronic banking and #nternet banking activities
in particular. 0ederal and state laws,
regulations, and court decisions, and self-
regulation among industries groups provide
the legal and operational framework for #nternet
commerce and banking in the .
The international model laws promulgated by the
nited &ations Commission on
#nternational Trade +aw $&C#T(+% provide the
guidance to the member nations on
the necessity for revising e/isting legal
structures to accommodate electronic
transactions. ome important laws of general
application to commercial activity over
the #nternet within the are the
niformCommercial Code $CC%, the niform
'lectronic Transaction ct $'T% $which
provides that electronic documents and
contracts should not be disualified as legal
documents particularly because of their
electronic form%, various state laws and
regulations on digital signatures and national
encryption standards and e/port regulations. !any
states already have digital signature
and other legislation to enable e-commerce. tate
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laws in this area differ but the trend
is towards creating legislation, which is technology
neutral. The '-sign ct, a new
law that took effect on 7ctober 1, 4AAA, validates
contracts concluded by electronic
signatures and euates them to those signed
with ink on paper. nder the ct,
electronic signatures using touch-tones $on a
telephone%, retinal scans and voice
recognition are also acceptable ways of entering
into agreements. The '-sign ct takes
a technological neutral approach and does not
favor the use of any particular
technology to validate an electronic document.
The ct however does not address
issues relating to which states laws would
govern an online transaction and which
states code would have 3urisdiction over a dispute.
3.2.3 The :ramm - +each - Bliley $:+B% ct has substantially easedrestrictions on the
ability of banks to provide other financial services.
#t has established new rules for the
protection of consumer financial information.
The #nter-agency tatement on
'lectronic 0inancial ervices and ConsumerCompliance $?uly 1@@D% addresses
consumer protection laws and describe how they
can be met in the conte/t of electronic
delivery. #n addition, the 0ederal (eserve Board
has issued a reuest for comment on
revised proposals that would permit electronic
delivery of federally mandated
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disclosures under the five consumer protection
regulations of the 0(B $(egulations B, ;;, ', !
J K%.
3.2.4 The #nterpretive (uling of the 7ffice of the
Comptroller of Currency $7CC% authori)es
a national bank to perform, provide or deliver
through electronic means and facilities
any activity, functions, product or service that it is
otherwise authori)ed to perform,
provide or deliver. The concerns of the 0ederal
(eserve are limited to ensuring that
#nternet banking and other electronic banking
services are implemented with proper
attention to security, the safety and soundness of
the bank, and the protection of the
banks customers. Currently, all banks, whether
they are #nternet only or traditional
banks must apply for a charter according to
e/isting guidelines. The five federal
agencies - 0ederal ;eposit #nsurance Corporation
$0;#C%, 0ederal (eserve ystem
$0(%, 7ffice of the Comptroller of Currency
$7CC%, 7ffice of Thrift upervision
$7T% and the &ational Credit nion ssociation
$&C% supervise more than 4A,AAA
institutions. #n addition, each state has a
supervisory agency for the banks that it
charters. !ost financial institutions in the
face no prereuisite conditions or
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notification reuirements for an e/isting banking
institution to begin electronic banking
activities. 0or these banks, supervisors gather
information on electronic banking during
routine annual e/amination. &ewly chartered
#nternet banks are sub3ect to the standard
chartering procedures. 0or thrift institutions,
however, 7T has instituted a 5A-day
advance notification reuirement for thrift
institutions that plan to establish a
transactional web site. few tate banking
departments have instituted a similar
notification reuirement for transactional #nternet
banking web sites.
3.2.5 upervisory policy, licensing, legal reuirements
and consumer protection are generally
similar for electronic banking and traditional
banking activities. #nternet banks are also
sub3ect to the same rules, regulations and
policy statement as traditional banks.
9owever, in response to the risks posed by
electronic banking, federal banking agencies
have begun to issue supervisory guidelines and
e/amination procedures for e/aminers
who review and inspect electronic banking
applications. lthough speciali)ed banking
procedures are used in some areas of #nternet
banking activities, the e/isting
information technology e/amination framework
that addresses access controls,
information security, business recovery and other
risk areas generally continues to be
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applicable. To assist supervisors in monitoring the
e/pansion of #nternet banking, state
chartered and national banks have been
reuired since ?une 1@@@ to report their
websites niform (esource +ocators $(+% in
the Guarterly (eports of 0inancial
Condition that are submitted to supervisors. #n
addition, e/aminers review the potential
for reputational risk associated with web-site
information or activities, the potential
impact of various #nternet strategies on an
institutions financial condition, and the need
to monitor and manage outsourcing relationships.
To address these risks, the 7CC is
developing specific guidance for establishing
#nternet only banks within the . The
Banking #ndustry Technology ecretariat
recently announced the formation of a
security lab to test and validate the security of
software and hardware used by banking
organi)ations. #f a bank is relying on a third party
provider, it is accepted that it should
be able to understand the provided information
security programme to effectively
evaluate the security systems ability to protect
bank and customer data. '/amination
of service providers operations, where necessary,
is conducted by one or more 0ederal
banking agencies pursuant to the Bank ervices
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Company ct, solely to support
supervision of banking organi)ations.
3.2.6 The 0ederal 0inancial #nstitutions '/amination Council
$00#'C% introduced the
#nformation ystems $#% rating system to be used
by federal and state regulators to
assess uniformly financial and service provider
risks introduced by information
technology and to identify those institutions and
service providers reuiring special
supervisor attention. The 00#'C has recently
renamed the system as niform (ating ystem for
#T $(#T%, which has enhanced the audit
function. The importance of risk management
procedure has been reinforced under the revised
system.
3.2.7 ome characteristics of e-money products such
as their relative lack of physical bulk,
their potential anonymity and the possibility of
effecting fast and remote transfers make
them more susceptible than traditional systems to
money laundering activities. The
7CC guidelines lay down an effective know your
customer policy. 0ederal financial
institutions, regulators, ociety for "orldwide
#nterbank 0inancial Telecommunications
$"#0T% and Clearing 9ouse #nterbank
Payment ystem $C9#P% have issued
statements encouraging participants to include
information on originators and
beneficiaries.
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3.3 .0.
3.3.1 !ost banks in .8. are offering transactional
services through a wider range of
channels including "ireless pplication Protocol
$"P%, mobile phone and T.F.
number of non-banks have approached the
0inancial ervices uthority $0% about
charters for virtual banks or clicks and mortar
operations. There is a move towards
banks establishing portals.
3.3.2 The 0inancial ervices uthority $0% is
neutral on regulations of electronic banks.
The current legislation, vi). the Banking ct
1@D and the Building ocieties ct,
provides it with the necessary powers and the
current range of supervisory tools.
new legislation, the 0inancial ervices and !arket
Bill, offers a significant addition in
the form of an ob3ective reuiring the 0 to
promote public understanding of the
financial system. There is, therefore, no special
regime for electronic banks. draft
'lectronic Banking :uidance for supervisors has,
however, been developed. guide
to Bank Policy has also been published by the
0 which is technology neutral, but
specifically covers outsourcing and fraud. The 0
also maintains bilateral discussions
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with other national supervisors and monitors
developments in the 'uropean nion
$'% including discussions by the Banking
dvisory Committee and :roup de Contract.
&ew legislation on money laundering has been
proposed and both the British Bankers ssociation
and the 0 have issued guidance papers in this
regard.
3.3.3The 0 is actively involved in the Basle
Committee e-banking group which has
identified authori)ation, prudential standards,
transparency, privacy, money laundering
and cross border provision as issues where there is
need for further work. The 0 has
also been supporting the efforts of the : 0inancial
tability 0orum, which is e/ploring
common standards for financial market, which is
particularly relevant to the #nternet,
which reaches across all borders.
3.3.4 The 0inancial ervices and !arkets Bill will
replace current powers under the 1@D
Banking ct giving the 0 statutory authority for
consumer protection and promotion
of consumer awareness. Consumer compliance is
reuired to be ensured via desk based
and on site supervision. The 0 has an
uthori)ation and 'nforcement ;ivision,
which sees if web sites referred to them are in
violation of .8. laws.
3.3.5 The 0 has issued guidelines on advertising in .8. bybanks for deposits,
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investments and other securities, which apply to
#nternet banking also. The guidelines
include an ppendi/ on #nternet banking. The
0s supervisory policy and powers in
relation to breaches in the advertising code $vi).
invitation by any authori)ed person to
take a deposit within .8., fraudulent
inducements to make a deposit, illegal use of
banking names and descriptions, etc.% are the same
for #nternet banking as they are for
conventional banking. The 0 does not regard a
bank authori)ed overseas, which is
targeting potential depositors in its home market or
in third countries as falling within
.8. regulatory reuirements solely by reason of
its web site being accessible to
#nternet users within the .8., as the
advertisements are not aimed at potential .8.
depositors.
3.4 /cn)ini
3.4.1 wedish and 0innish markets lead the world in
terms of #nternet penetration and the
range and uality of their online services.
!erita&ordbanken $!(B% $now &ordic
Bank 9olding, a merger between 0inlands !erita
and &ordbanker of weden% leads in
Llog-ins per monthM with 1.4 million #nternet
customers, and its penetration rate in
0inland $around 6
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the world for a bank of brick and
mortar origin. tandinaviska'askildaBanken
$'B% was wedens first #nternet
bank, having gone on-line in ;ecember 1@@>. #t
has 1,AAA corporate clients for its
Trading tation - an #nternet based trading
mechanism for fore/ dealing, stock-inde/
futures and wedish treasury bills and government
bonds. wedbank, is another large-
si)ed #nternet bank. lmost all of the
appro/imately 1
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gives each transaction a uniue code, and has so far
proved safe. ome banks use even more
sophisticated versions of the same techniue. #t is
not a common practice to use third party vendors
for services.
3.4.3 #n weden, no formal guidance has been given to
e/aminers by the verigesbank on e-
banking. :eneral guidelines apply eually to
#nternet banking activities. Contractual
regulari)ation between customers and the bank is a
concern for regulators and is being
looked into by the authorities.
3.4.4 The role of the Bank of 0inland $uomenParkki%
has been, as part of general oversight
of financial markets in 0inland, mainly to monitor
the ongoing development of #nternet
banking without active participation. &umerous
issues concerning #nternet banking
have, however, been e/amined by the Bank of
0inland.
3.4.5ll #nternet banking operating from a &orwegian
platform are sub3ect to all regular
banking regulations, 3ust as any other bank. s
part of the standard regulation, there is
also a specific regulation on the banks use of #T.
This regulation dates from 1@@4
when #nternet banking was not the main issue, but
it covers all #T systems, including
#nternet banking. The regulation secures that
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banks purchase, development, use and
phase out of #T systems is conducted in a safe and
controlled manner. n ct relating
to Payment systems defines payment systems as
those which are based on standardi)ed
terms for transfer of funds from or between
customer accounts in banks2financial
undertakings when the transfer is based on use of
payment cards, numeric codes or any
other form of independent user identification.
#nternet banking is covered by this
regulation. The Banking, #nsurance and
ecurities Commission may order for
implementation of measures to remedy the situation
if there is a violation of provisions.
3.4.6#n addition to their national laws, countries in
'urope are also e/pected to implement
'uropean nion $'% directives. #n 1@@
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3.5 ther Countries
3.5.1Australia:
3.5.1.1 #nternet Banking in ustralia is offered in two
forms* web-based and through the
provision of proprietary software. #nitial web-
based products have focused on personal
banking whereas the provision of proprietary
software has been targeted at the
business2corporate sector. !ost ustralian-owned
banks and some foreign subsidiaries
of banks have transactional or interactive web-
sites. 7nline banking services range
from 0#s websites providing information on
financial products to enabling account
management and financial transactions.
Customer services offered online include
account monitoring $electronic statements, real-
time account balances%, account
management $bill payments, funds transfers,
applying for products on-line% and financial
transactions $securities trading, foreign currency
transactions%. 'lectronic Bill
Presentment and Payment $'BPP% is at an early
stage. 0eatures offered in proprietary
software products $enabling business and
corporation customers to connect to the
financial institutions $via dial-up2leased
line2e/tranet% include account reporting,
improved reconciliation, direct payments,
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payroll functionality and funds transfer
between accounts held at their own or other
banks. part from closed payment
systems $involving a single payment-provider%,
#nternet banking and e-commerce
transactions in ustralia are conducted using long-
standing payment instruments and
are cleared and settled through e/isting clearing
and settlement system. Banks rely on
third party vendors or are involved with outside
providers for a range of products and
services including e-banking. :enerally, there are
no virtual banks licensed to operate
in ustralia.
3.5.1.2 The 'lectronic Transactions ct, 1@@@
provides certainty about the legal status of
electronic transactions and allows for
ustralians to use the #nternet to provide
Commonwealth ;epartments and agencies with
documents which have the same legal
status as traditional paperwork. The
ustralian ecurities and #nvestments
Commission $#C% is the ustralian regulator with
responsibility for consumer aspects
of banking, insurance and superannuation and as
such, it is responsible for developing
policy on consumer protection issues relating to
the #nternet and e-commerce. #C
currently has a draft proposal to e/pand the
e/isting 'lectronic 0unds Transfer Code of
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Conduct $a voluntary code that deals with
transactions initiated using a card and a P#&% to
cover all forms of consumer technologies,
including stored value cards and other new
electronic payment products. ustralias anti-
money laundering regulator is the ustralian
Transaction (eports and nalysis Centre
$T(C%.
3.5.1.3 (esponsibility for prudential supervisory
matters lies with the ustralian Prudential
(egulation uthority $P(%. P( does not
have any #nternet specific legislation,
regulations or policy, and banks are e/pected to
comply with the established legislation
and prudential standards. P(s approach to
the supervision of e-commerce
activities, like the products and services
themselves, is at an early stage and is still
evolving. P(s approach is to visit institutions
to discuss their #nternet banking
initiatives. 9owever, P( is undertaking a
survey of e-commerce activities of all
regulated financial institutions. The growing
reliance on third party or outside providers
of e-banking is an area on which P( is
increasingly focusing.
3.5.2 &e! 'ealand:
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3.5.2.1 !a3or banks offer #nternet banking service to
customers, operate as a division of the
bank rather than as a separate legal entity.
3.5.2.2 (eserve Bank of &ew Kealand applies the
same approach to the regulation of both
#nternet banking activities and traditional
banking activities. There are however,
banking supervision regulations that apply only to
#nternet banking. upervision is
based on public disclosure of information rather
than application of detailed prudential
rules. These disclosure rules apply to #nternet
banking activity also.
3.5.3Sin%apore:
3.5.3.1 The !onetary uthority of ingapore $!%
has reviewed its current framework for
licensing, and for prudential regulation and
supervision of banks, to ensure its relevance
in the light of developments in #nternet banking,
either as an additional channel or in the
form of a speciali)ed division, or as stand-alone
entities $#nternet 7nly Banks%, owned
either by e/isting banks or by new players entering
the banking industry. The e/isting
policy of ! already allows all banks licensed
in ingapore to use the #nternet to
provide banking services. ! is sub3ecting
#nternet banking, including #7Bs, to the
same prudential standards as traditional banking.
#t will be granting new licences to
banking groups incorporated in ingapore to set
up bank subsidiaries if they wish to
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pursue new business models and give them
fle/ibility to decide whether to engage in #nternet
banking through a subsidiary or within the bank
$where no additional licence is reuired%. ! also
will be admitting branches of foreign incorporated
#7Bs within the e/isting framework of admission
of foreign banks.
3.5.3.2 s certain types of risk are accentuated in
#nternet banking, a risk - based supervisory
approach, tailored to individual banks
circumstances and strategies, is considered more
appropriate by ! than Lone-si)e-fits-allM
regulation. ! reuires public
disclosures of such undertakings, as part of its
reuirement for all banks and enhance
disclosure of their risk management systems. #t is
issuing a consultative document on
#nternet banking security and technology risk
management. #n their risk management
initiatives for #nternet banking relating to security
and technology related risks, banks
should $a% implement appropriate workflow,
authenticated process and control
procedures surrounding physical and system
access $b% develop, test, implement and
maintain disaster recovery and business
contingency plans $c% appoint an independent
third party specialist to assess its security and
operations $d% clearly communicate to
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customers their policies with reference to rights
and responsibilities of the bank and
customer, particularly issues arising from
errors in security systems and related
procedures. 0or liuidity risk, banks, especially
#7Bs, should establish robust liuidity
contingency plans and appropriate sset-+iability
!anagement systems. s regards
operational risk, banks should carefully manage
outsourcing of operations, and maintain
comprehensive audit trails of all such operations.
s far as business risk is concerned,
#7Bs should maintain and continually update a
detailed system of performance
measurement.
3.5.3.3 ! encourages financial institutions and
industry associations such as the
ssociations of Banks in ingapore $B% to
play a proactive role in educating
consumers on benefits and risks on new financial
products and services offered by
banks, including #nternet banking services.
3.5.4on% on%:
3.5.4.1 There has been a spate of activity in #nternet
banking in 9ong 8ong. Two virtual
banks are being planned. #t is estimated that
almost 1
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services. Banks are participating in strategic
alliances for e-commerce ventures and are forming
alliances for #nternet banking services delivered
through ?etco$a bank consortium operating an
T! network in 9ong 8ong%. few banks have
launched transactional mobile phone banking
earlier for retail customers.
3.5.4.2 The 9ong 8ong !onetary uthority $98!%
reuires that banks must discuss their
business plans and risk management measures
before launching a transactional website.
98! has the right to carry out inspections of
security controls and obtain reports
from the home supervisor, e/ternal auditors or
e/perts commissioned to produce
reports. 98! is developing specific guidance
on information security with the
guiding principle that security should be Lfit for
purposeM. 98! reuires that risks in
#nternet banking system should be properly
controlled. The onus of maintaining
adeuate systems of control including those in
respect of #nternet banking ultimately
lies with the institution itself. nder the eventh
chedule to the Banking ordinance,
one of the authori)ation criteria is the reuirement
to maintain adeuate accounting
system and adeuate systems control. Banks
should continue to acuire state-of-the art
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technologies and to keep pace with developments
in security measures. The 98!s
supervisory approach is to hold discussions with
individual institutions who wish to
embark on #nternet banking to allow them to
demonstrate how they have properly
addressed the security systems before starting to
provide such services, particularly in
respect of the following - $i% encryption by
industry proven techniues of data
accessible by outsiders, $ii% preventive measures
for unauthori)ed access to the banks
internal computer systems, $iii% set of
comprehensive security policies and procedures,
$iv% reporting to 98! all security incidents and
adeuacy of security measures on a timely basis.
t present, it has not been considered necessary
to codify security ob3ectives and reuirements
into a guideline. The general security ob3ectives
for institutions intending to offer #nternet banking
services should have been considered and
addressed by such institutions.
3.5.4.3 98! has issued guidelines on
uthori)ation of Firtual Banks under ection
1>$1A% of the Banking 7rdinance under which $i%
the 98! will not ob3ect to the
establishment of virtual banks in 9ong 8ong
provided they can satisfy the same
prudential criteria that apply to conventional
banks, $ii% a virtual bank which wishes to
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DIGITAL MONEY
The massive adoption of plastic money and internet have
been driving the Digital Payment Industry for last few years. In 2014,however, India is going to take down a barrier ofdigital payment
industrys growthrate of 40% and the industry will touch a mark of INR
120,120 Crore( US$ 20.02 billion). Last year the industry outgrew to INR
85,800 Crore (US$ 14.3 billion), according to the latest IAMAI report
titledINR 85,800 Crore Digital Money.
The internet in India has become a viable source to do many
things including transactions pertaining to payments. In todays fast moving
world, people tend to transact on internet than triggering the traditional
styled offline transaction. The explosive adoption of smartphone and mobile
internet in India has fuelled the growth of digital payment industry further.
http://iamai.in/PRelease_detail.aspx?nid=3348&NMonth=5&NYear=2014http://iamai.in/PRelease_detail.aspx?nid=3348&NMonth=5&NYear=2014 -
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In accordance to the report that is constructed by IMRB International,
Payment Council of India and Internet and Mobile Association of India
on Digital Payments of India, country has gained a Compound Annual
Growth Rate (CAGR) of 10 percent in digital payments since 2010 till2013 year-end.
Payments on electronic media have increased because of explosive
growth in Etailing sites, online Travel sites for tickets and
accommodation in hotels and resorts, financial services for paying
fees, rents and other needed transactions. These transactions are
now done through internet to reduce time wastage. The transitionmodes mainly are through card transactions, mobile wallet, cash/ cash
on delivery, transfers through net banking, but do not include
remittance.
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TRANSACTION
National Electronic fund Transfer (NEFT):
,T fci+ittes on+ine trnsfer of fun)s from one *nkccount to nother *nk ccount. The +imit of trnsferring fun) is2%. &n &n)i,T s"stem +ies (ith eect from 21 oem*er 25. ,T (ssent to coer ++ *nks(hich (ere prticipting in the speci+e+ectronic fun)s trnsfer ,T: c+ering. ,T (sm)e on thestructure) ;nnci+ messging so+ution /
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Volume of Electronic Transactions of Scheduled Commercial
Banks(Volume in Millions)
ertrnsction
,C/ cre)it ,C/ )e*it ,T
o+ume G# D!