Online Banking

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Internet Banking
Table of Contents

Chapter–1– Introduction0
Chapter–2– Internet Banking a new medium7
Chapter--3 - International experience19
Chapter -4 -The Indian Scenario33
Chapter- 5- Types of risks associated with Internet banking41 Chapter- 6- Technology And Security Standards For Internet - Banking49 Chapter -7 - Legal Issues involved in Internet Banking74
Chapter- 8- Regulatory and supervisory concerns84
Chapter–9 - Recommendations98
Annexure 1111
Annexure 2112
Annexure 3113
Annexure 4115

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 Automated Teller Machines, etc. With the popularity of PCs, easy access to Internet and World Wide Web (WWW), Internet 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 Internet 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 INTERNET can be categorized in to three types: (i) The Basic Level Service is the banks’ websites which disseminate information on different products and services offered to customers and members of public in general. It may receive and reply to customers’ queries through e-mail, (ii) In the next level are Simple Transactional Websites which allow customers to submit their instructions, applications for different services, queries on their account balances, etc, but do not permit any fund-based transactions on their accounts, (iii) The third level of Internet banking services are offered by Fully Transactional Websites 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 Internet banking services are offered by traditional banks, as an additional method of serving the customer or by new banks, who deliver banking services primarily through Internet or other electronic delivery channels as the value added services. Some of these banks are known as ‘virtual’ banks or ‘Internet-only’ banks and may not have any physical presence in a country despite offering different banking services. 1.1.3 From the perspective of banking products and services being offered through delivered through an electronic communication backbone, viz, Internet. But, in the process it has thrown open issues which have ramifications beyond what a new delivery Internet, Internet banking is nothing more than traditional banking services channel would normally envisage and, hence, has compelled regulators world over to take note of this emerging channel. Some of the distinctive features of i-banking are: 1.It removes the traditional geographical barriers as it could reach out to customers of different countries / legal jurisdiction. This has raised the question of jurisdiction of law / supervisory system to which such transactions should be subjected, 2.It has added a new dimension to different kinds of risks traditionally associated with banking, heightening some of them and throwing new risk control challenges, 3.Security 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 Internet is a public domain, not subject to control by any single...
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