Internet banking on ambition growth path

DQW Bureau
New Update


Though modern age banking in India has its roots in the British legacy, its

journey so far has been charted by sheer Indian prudence. Post independence,

India saw new age nationalized banks emerging with an aim to reach out to the

largely un-banked population. Though slow and steady, the Indian banking

industry did emerge from the doldrums of debt and instability to drive the

country's financial revolution.

With the IT revolution, the Indian banking and financial sector became the

undisputed leader in adopting cutting edge technologies. And so began another

phase of India's banking journey. The '90s saw the banking industry embrace

technology massively, led in particular by the private and multi-national banks.

Among all technology innovations, Internet banking for retail customers was a

concept that changed the way banking had been perceived over the past decades.

Not only did it generate a great deal of interest within the industry, it was

adopted at a time when the Internet as a medium was slow to take-off.

Slow and Steady

So, while technology uptake was gradually taking place, the Internet also

came to be used by banks. After private and foreign banks had adopted this

technology, the public sector banks also began to latch on to the bandwagon.

With the core banking system (CBS) being adopted by all nationalized banks over

the last 4 years, the transition to alternative banking channels such as the

Internet, and now mobile has proved to be rather convenient and cost effective.

Most nationalized banks are going a step further, using the Internet to increase

its customer's convenience, and at the same time extend it as a medium by which

the government can create financial inclusion.


A couple of years ago, almost 12percent of 38.5 million Internet users in

India were banking online and the figure is estimated to rise to 16 mn by

2008-end, according to a survey by IAMAI. Already, an estimated 4.6 million

users transfer funds online, including mobile banking figures, according to

IAMAI. This clearly indicates the rise in the number of Internet banking users

and the growing popularity of the medium.

Nevertheless, we still have a long way to go, especially with the Internet

penetration in the country being just over two percent, and limited to the

metros and large cities. This, in comparison to Singapore and Korea, which have

more than 14 percent of the population banking over the Internet, shows where we

stand compared to our Asian counterparts. Though today, more and more users are

adapting to the online mode for the sheer comfort of the service. Banks are also

enjoying this transition, as they believe that in the long term it will prove to

be a huge cost saver, and also help realize the objective of de-paperized



The Cost Advantage

Banks have also realised the cost advantages of Internet banking. Comparing

the transaction costs between manual and electronic transactions, Kalyansunder

says, “Manual transaction involving cash withdrawal at a branch costs about Rs

50. The same cash withdrawal transaction done at an ATM will cost about Rs

14-15. On the other hand, Internet transactions cost less than a rupee.”

Seconding this view, Sehgal says, “Only the cost of infrastructure and

maintenance is high. But the cost per transaction comes down to a few rupees

compared to the Rs 50 for a manual transaction. These benefits can be extended

to the customers. Today, retail customers can make large value transactions upto

Rs 50,000 electronically without paying any additional cost to the bank.

Earlier, a demand draft of Rs 100 made at a branch used to cost customers a

minimum of Rs 15-20.”

Apart from cost advantages to the retail customer, HDFC's Jaggia says that

the convenience factor is equally important. He says, “For the customer it not

only results in saving of time but also ensures that all his needs are quickly

catered to. For corporate customers, Internet banking offers integration between

their internal ERP systems and HDFC Bank's system, removing inefficiencies in

managing vendors and dealers.”

Security concerns

Security was always a concern for online banking systems. But RBI's

stringent security standards for banks have resolved a majority of the issues.

Banks such as SBI have robust security practices. SBI was the first bank to have

a documented security policy. Apart from this, SBI also takes consultation from

external bodies, expert panels, and conducts regular security audits.


Another bank leading in security practices is HDFC. The bank has taken

proactive steps and has implemented solutions and monitoring tools with RSA for

catering to negative IP and related risky access. The bank is also in the

process of implementing a solution for financial transactions in net banking,

where based on the risk scoring and rule engine, transactions would be assigned

weightages, and a subsequent workflow for second level authentication would be

triggered. This is expected to go live in the next 3 months.

Axis Bank, too, has been actively ramping up security standards across its

entire network in India. The bank deals with phishing attacks, through customer

awareness campaigns, where it actively reaches out to customers and educates

them on the security measures for online banking. Axis Bank is also implementing

the 2-Factor Authentication solution, which will add another security layer to

the existing online banking function. This month, the RBI will also come up with

a regulatory report where it may stipulate security audit guidelines for net

banking services. This, according to the banking industry, will further

streamline the regulatory process and deal with all pre-existing loopholes, if


Future Scope

Internet banking usage and transactions is set to grow, and there is a

combination of reasons for this. Some of them being increased transaction sets

for end users; optimum channel availability; higher broadband penetration;

decreasing prices of PC; and heightened awareness from an end customer's

viewpoint. Internet banking will soon become one of the key fulcrums in ensuring

that a customer is engaged with the bank and in touch with the changing

environment. From the bank's point of view, Internet banking will become

important since it is a window to reach out to customers, irrespective of their

geographical location.

Priya Kekre