Internet banking on ambition growth path

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
banking.

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
any.

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

priyak@cybermedia.co.in