Project Report On
Digital Banking
at HDFC Bank Submitted in partial fulfillment of the requirement of award of Degree in Bachelor of Business Administration of MDU, Rohtak Session : 2015-18
Submitted To:
Submitted By:
Controller of Examination
Sahil Gurwal
MDU, Rohtak
BBA 3rd Sem. Roll No. ………… Regn. No. ……………
CHAPTER 2 COMPANY PROFILE
Executive Summary Digital Banking utilizes technology to allow a bank's customers and other stakeholders to interact and transact with the bank effortlessly through a variety of channels such as the Internet, wireless devices, ATMs and physical branches. Internet banking is one component of a wide-ranging Digital banking offering. Digital banking has exploded onto the web and the Internet is a powerful and cost effective medium for business to interact with and service their customers. The number of online banking services to customers continues to grow and the Internet offers enormous opportunities for banks, and other financial services to fundamentally reshape their organizations. Banks can generate revenue through increased account, access fees and benefit from promotional opportunity to cross sell products such as credit cards and loans Internet enables banks to offer low cost, high value added financial services. It can be said that finally banks are finding that a comprehensive online banking strategy is essential for success in the increasingly competitive financial services market. Competition and changes in technology and lifestyles have changed the face of banking and banks in the present environment are seeking alternative way to provide and differentiate their services. For success in the increasingly competitive financial services market, banks are finding that a comprehensive online banking strategy is essential which also provides the essential security requirements. Security policy should include management commitment, technological support and effective disseminations of the policy and the security awareness of all users. Security measures should be taken very seriously by the banks because the standard for secure electronic transactions on the Internet and its widespread adoption including security measures like encryption, digital authentication, and verification of on-line identity, increase consumer confidence. Such advances in Internet security can surely put banks in perspective again as financial intermediaries and facilitators of complete commercial transaction via electronic networks.
The opportunities for banks in the Internet arena are varied as they can become technology providers by spinning off technology resources to start up new business stream, become content providers for information regarding products, indices, etc and enablers by providing back bone systems to support multiple payment system alternatives. Also, consumers are increasingly looking for services they can access from a singly entry point.
COMPANY PROFILE COMPANY PROFILE :
HISTORY HDFC Bank was incorporated in 1994 by Housing Development Finance Corporation Limited (HDFC), India's largest housing finance company. It was among the first companies to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector. The Bank started operations as a scheduled commercial bank in January 1995 under the RBI's liberalisation policies. Times Bank Limited (owned by Bennett, Coleman & Co. / Times Group) was merged with HDFC Bank Ltd., in 2000. This was the first merger of two private banks in India. Shareholders of Times Bank received 1 share of HDFC Bank for every 5.75 shares of Times Bank. In 2008 HDFC Bank acquired Centurion Bank of Punjab taking its total branches to more than 1,000. The amalgamated bank emerged with a base of about Rs. 1,22,000 crore and net advances of about Rs.89,000 crore. The balance sheet size of the combined entity is more than Rs. 1,63,000 crore FOUNDER OF HDFC
If ever there was a man with a mission it was Hasmukhbhai Parekh, HDFC Founder and Chairman-Emeritus, who left this earthly abode on November 18, 1994. Born in a traditional banking family in Surat, Gujarat, Mr. Parekh started his financial career at Harkisandass Lukhmidass – a leading stock broking firm. The firm closed down in the late seventies, but, long before that, he went on to become a towering figure on the Indian financial scene. In 1956 he began his lifelong financial affair with the economic world, as General Manager of the newly-formed Industrial Credit and Investment Corporation of India (HDFC). He rose to become Chairman and continued so till his retirement in 1972.At the ripe age of 60, Hasmukhbhai started his second dynamic life, even more illustrious than his first. His vision for mortgage finance for housing gave birth to the Housing Development Finance Corporation – it was a trend-setter for housing finance in the whole Asian continent. He was a true development banker. His building up HDFC without any government assistance is itself a brilliant chapter in financial history. His wisdom and warmth drew people from all walks of life to him, for advice, guidance and inspiration. A soft spoken man of few words, Mr. Parekh nevertheless held strong and definite views with a quiet conviction. He was always concerned with building bridges, improving and encouraging communication between people.He was also a writer in his own right. There are over 200 published articles by him, full of incisive comments on finance and economics. In 1953 he brought out a volume called: The Bombay Money Market. It detailed the intricate working of the Indian money market. His works in Gujarati – Hirane Patro, Hirane Vadhu Patro – occupy pride of place in Gujarati literature. In 1992, the Government of India honoured him with the Padma Bhushan Award. The London School of Economics & Political Science conferred on him an Honorary Fellowship.But there was much more to the man than his financial genius. In his own unassuming way, Hasmukhbhai devoted all his life to raising resources for philanthropic causes. He was one of the Founder Members of the Centre for Advancement of Philanthropy, and it’s Chairman till 1993. He took active interest in the Bombay Community Public Trust, designed specifically to serve the needs of the city’s underprivileged citizens. When Mr. Deepak Parekh took over as Chairman from Hasmukhbhai, he said: “Taking over from H.T. Parekh is a formidable task; his vision… brought about not only an institution, but an entire concept which has proved itself to be of lasting importance.”In his last years,
developments in the financial sector brought him some measure of satisfaction. Says HDFC Chairman, N. Vaghul: “The most gratifying aspect about his life is that values he cherished all his life, came into reality in the last years… opening up the financial sector, and deregulation of lending rates were issues he stood for all his life, and this happened before he passed away.”Farewell dear Hasmukhbhai! All of us will miss not only H.T. Parekh the financial wizard, but much more so, the man. The only and best tribute we can pay to such an individual is to try and follow in his footsteps, keeping in mind his high ideals and philanthropic outlook.
OBJECTIVE Housing Finance Sector Against the milieu of rapid urbanisation and a changing socio-economic scenario, the demand for housing has grown explosively. The importance of the housing sector in the economy can be illustrated by a few key statistics. According to the National Building Organization (NBO), the total demand for housing is estimated at 2 million units per year and the total housing shortfall is estimated to be 19.4 million units, of which 12.76 million units is from rural areas and 6.64 million units from urban areas. The housing industry is the second largest employment generator in the country. It is estimated that the budgeted 2 million units would lead to the creation of an additional 10 million man-years of direct employment
and
another
15
million
man-years
of
indirect
employment.
Having identified housing as a priority area in the Ninth Five Year Plan (2005-2014), the National Housing Policy has envisaged an investment target of Rs. 1,500 billion for this sector. In order to achieve this investment target, the Government needs to make low cost funds easily available and enforce legal and regulatory reforms.
Business Objectives The primary objective of HDFC is to enhance residential housing stock in the country through the provision of housing finance in a systematic and professional manner, and to
promote home ownership. Another objective is to increase the flow of resources to the housing sector by integrating the housing finance sector with the overall domestic financial markets.
Organizational Goals HDFC’s main goals are to a) develop close relationships with individual households, b) maintain its position as the premier housing finance institution in the country, c) transform ideas into viable and creative solutions, d) provide consistently high returns to shareholders, and e) to grow through diversification by leveraging off the existing client base. Business focus HDFC Bank deals with three key business segments. - Wholesale Banking Services, Retail Banking Services, Treasury. It has entered the banking consortia of over 50 corporates for providing working capital finance, trade services, corporate finance, and merchant banking. It is also providing sophisticated product structures in areas of foreign exchange and derivatives, money markets and debt trading and equity research.
Wholesale banking services Blue-chip manufacturing companies in the Indian corp to small & mid-sized corporates and agri-based businesses. For these customers, the Bank provides a wide range of commercial and transactional banking services, including working capital finance, trade services, transactional services, cash management, etc. The bank is also a leading provider of for its to corporate customers, mutual funds, stock exchange members and banks.
Retail banking services HDFC Bank was the first bank in India to launch an International Debit Card in association with VISA (VISA Electron) and issues the Mastercard Maestro debit card as well. The Bank launched its credit card business in late 2001. By March 2014, the bank had
a total card base (debit and credit cards) of over 13 million. The Bank is also one of the leading players in the “merchant acquiring” business with over 70,000 Point-of-sale (POS) terminals for debit / credit cards acceptance at merchant establishments. The Bank is positioned in various net based B2C opportunities including a wide range of internet banking services for Fixed Deposits, Loans, Bill Payments, etc.
Treasury Within this business, the bank has three main product areas - Foreign Exchange and Derivatives, Local Currency Money Market & Debt Securities, and Equities. These services are provided through the bank's Treasury team. To comply with statutory reserve requirements, the bank is required to hold 25% of its deposits in government securities. The Treasury business is responsible for managing the returns and market risk on this investment portfolio. Distribution network HDFC Bank is headquartered in Mumbai. The Bank has an nationwide network of 2000 branches spread in 996 towns and cities across India. All branches are linked on an online real-time basis. Customers in over 500 locations are also serviced through Telephone Banking. The Bank has a presence in all major industrial and commercial centres across the country. Being a clearing/settlement bank to various leading stock exchanges, the Bank has branches in the centres where the NSE/BSE have a member base. The Bank also has 5,998 networked ATMs across these towns and cities. Moreover, HDFC Bank's ATM network can be accessed by all domestic and international Visa/MasterCard, Visa Electron/Maestro, Plus/Cirrus and American Express Credit/Charge cardholders.
SOCIAL INITIATIVES OF HDFC The social responsibility function at HDFC is not just restricted to a few specialists or narrowly defined set of activities packaged somewhere out of sight. It is a daily part of what
the company strives to be: responsive, imaginative and sensitive in the way HDFC treat his customers, business associates, shareholders, employees and the wider world in which HDFC operates. The brief accounts of select grants from the Shelter Assistance Reserve and other initiatives described in the following pages are suggestive of his approach.
The year 2013-14 marked a decade of HDFC’s varied initiatives in the area of microfinance with continued bulk-lending operations towards micro-enterprises and low-income housing. The year also saw India facing a terrible succession of natural calamities, from the floods in Mumbai and other parts of Maharashtra to the earthquake in the Himalayan region of Kashmir. HDFC joined hands with local level organizations to provide relief to the victims in the affected areas. In each case, the spirit and response of the people involved was characteristically generous and inspiring.
`Shelter Assistance Reserve During the year, HDFC extended support towards several social causes resulting in an overall utilization of Rs. 476.56 lacs from the Shelter Assistance Reserve. This involved the funding of numerous development initiatives by way of grants to over 150 partners NGOs. The segment-wise break-up of the utilization is highlighted in the chart below. Cited below are a few examples of projects funded by way of grant support out of the Shelter Assistance Reserve during 2013-14: Ramakrishna Mission Students’ Home The Students’ Home – Chennai which was established in 1905, is one of the oldest social service organizations in India and is a part of the Ramakrishna Mission, West Bengal.
Originally the Mission had started a centre in Chennai to cater to the needs of orphaned and destitute boys. Free boarding and lodging was provided to the children but as the numbers grew the Mission decided to set up a Residential High School. Along with academic training the school also started providing vocational training and has now developed into a Residential Technical Institute. Currently the Home provides boarding, lodging and education to 400 orphaned /destitute boys in the age bracket of 10-19.As part of its centenary, the school wants to add two new courses to the existing syllabus- Mechanical Engineering and Computer Technology. With the increase in the number of students attending the courses, the Home is building additional hostel facilities. HDFC has taken up the boarding and lodging expenses of the new students for a period of two years.
Aids Walk for Life 13 States 300 cities Over 6,000 Kms 36 exemplary individuals Over 2 million educated on an oft-misunderstood and stigma associated disease After covering 6,800 Kms across thirteen states in the country, “The AIDS Walk for Life” reached its pinnacle in New Delhi. Today, more than 5 million people in India are infected with HIV/AIDS. Yet, very little is known about the disease. On December 1, 2005 – World AIDS Day, our HDFC Delhi team joined the 36 heroes in propagating awareness creation for combating HIV/AIDS. The Walk is a unique and theatrical way of spreading awareness in the interiors of the country where conventional awareness campaigns may not penetrate. HDFC is proud to be associated with Project Concern India as a corporate sponsor supporting the cause of AIDS awareness. RESPONDING TO NATURAL CALAMITIES Terrible Tuesday
Mumbai – the financial capital of the country, the city that never stops nor sleeps – and yet the metro was thrown into complete chaos on July 26, 2005. Heavy and incessant rains set off floods and landslides battering normal life and forcing rail, road and air traffic to a virtual standstill. Millions of citizens were affected – stranded for hours, even days at railway platforms, offices, in traffic jams –while others waded through chest-deepwater to reach their destinations. The record 944 mm of rains that lashed the metropolis took the death toll to over 1000. The city’s low-income working class, living in slums and shanties, watched helplessly as their homes disappeared under water. In spite of this catastrophe, the Mumbaikar spirit was clearly visible in every nook and corner of the city with people coming out to aid those stranded on the road through the night. HDFC partnered with famous singer Ms. Usha Uthup to capture this never-say-die spirit of Mumbai through the video’ Mumbai Meri Hai’. The song encapsulates the Mumbaikar spirit of reaching out in times of need and rising back with full zeal and enthusiasm in spite of the adversities. Not to be left behind was our Mumbai region staff. A collection drive for relief material was organized immediately after the disaster through our Church gate, Parel and Vashi offices. Our staff donated wholeheartedly to this cause. The relief material was distributed to floodaffected families in the slums of Mumbai and Navi Mumbai through local NGOs having a strong community presence. HDFC was also able to obtain medicines from GlaxoSmithKline, which were distributed among NGOs conducting health camps in various slums and low-income neighborhoods in the city. Further, HDFC extended grants to several NGOs coordinating relief and rehabilitation efforts in various parts of Mumbai and NaviMumbai. The relief process included provision of dry ration, potable water, emergency medical aid, provision of blankets and plastic sheets etc. HDFC partnered with the Sir Ness Wadia Foundation and The Bombay Community Public Trust to provide education material (specifically note books, uniforms and stationery) to municipal school children in the severely affected areas.
Kashmir Earthquake
An earthquake of magnitude 7.6 struck the Himalayan region of Kashmir on October 8, 2005 resulting in colossal loss of life and property in Pakistan as well as India. On the Indian side, it is reported that the disaster left more than 1300 people dead and some 2500 injured, while over 1500 were missing. Through our Jammu, Ludhiana and Chandigarh offices, HDFC provided relief material in the form of blankets, pulloversand milk powder for the immediate needs of the victims of the earthquake. In this initiative, HDFC partnered with Childline India Foundation (CIF) and their partner organization Youth Technical Training Society (YTTS), Srinagar. YTTS worked very closely with the Indian Army in planning and carrying out the relief measures. The packaged relief material was transferred from Ludhiana to Chandigarh from where it was airlifted to Jammu. HDFC also partnered with The SOS Children’s Villages of India, who had already started emergency relief work for families with a primary focus on children. SOS has offered (with the willingness of the J&KGovt.) to undertake long-term care of 100 orphaned children from this tragedy through their existing SOS village in Srinagar.Contribution from HDFC’s employees and a matching grant from HDFC have helped further SOS’s commitment for long-term rehabilitation of orphaned children in Kashmir.
CAREERS WITA HDFC "HDFC's finest investment is in its Human Resources. It draws its personnel from many disciplines. They are the building blocks on which the company's performance & productivity is based". HDFC most valuable assets are his Human Resources and it is his constant endeavour to continuously develop them by laying strong emphasis on their Training & Development. HDFC focus on our employees' career development so that their aspirations can meet his goals. HDFC are truly proud that today we have a highly motivated team of professionals and that we have the lowest employee turnover rate in the Industry. Since our inception in 1977 HDFC have maintained his position as the premier Housing Finance Institution in the country. His consistently high growth rate over the past 25 years
has provided challenging career opportunities for young professionals ….many of who have grown to become functional heads, regional managers, branch managers and service center heads.
Organizational Culture & Values HDFC have an open and informal culture. HDFCs value integrity, commitment, teamwork and excellence in customer service. HDFC adopt a policy of "Learning by Doing" which encourages decision making as well as learning from doing.
FUTURE OF HDFC HDFC has always been market-oriented and dynamic with respect to resource mobilization as well as its lending programme. This renders it more than capable to meet the new challenges that have emerged. Over the years, HDFC has developed a vast client base of borrowers, depositors, shareholders and agents, and it hopes to capitalise on this loyal and satisfied client base for future growth. Internal systems have been developed to be robust and agile, to take into account changes in the volatile external environment. HDFC has developed a network of institutions through partnerships with some of the best institutions in the world, for providing specialised financial services. Each institution is being fine-tuned for a specific market, while offering the entire HDFC customer base the highest standards of quality in product design, facilities and service.
AWARDS & ACCOLADES Awards:2014 HDFC ranked 3rd amongst the Asian Banking and Finance Sector for ‘Highest Return on Equity’ by Asia money
The FICCI Ladies Organization (FLO) has adjudged our Executive Director, Ms Renu Sud Karnad, as one of the Women Achievers of 2007. The Women Achiever's Awards, one of the prestigious awards for women achievers, was held in Mumbai with much glitz and style. At the glittering ceremony, amidst prominent guests Ms R S Karnad was felicitated for her role at HDFC.
The Women Achiever's Awards recognizes eminent women personalities for their outstanding contributions in their respective area of expertise. Various fields are taken into account, such as entrepreneurship, social service, advertising, education and political leadership. Other personalities felicitated at this year’s award ceremony include the likes of Ms Anu Aga (Former Chairperson and Mentor, Thermax Ltd.), Ms Sangeeta Singh (Senior VP, WIPRO), Dr. Ketayun Dinshaw (Director, Tata Memorial Centre), Ms Saira Banu (well known female actor of yester years), amongst others. Awards:2013 The International jury of Asian Centre for Corporate Governance awarded our Chairman, Mr Deepak Parekh, with the ‘Best Non Executive Director 2006’ title in recognition of the leadership role played by him as an independent director on the board of several large companies. He is the first recipient of this award.A sought after industry consultant, Mr Parekh is on the Board of several companies including Castrol BP India; Hindustan Lever; MICO, Mahindra & Mahindra, Indian Hotels Company and WNS. He is also the Non-Executive Chairman of Infrastructure Development Finance Company Ltd, GlaxoSmithKline Pharmaceuticals Ltd. Siemens India Ltd., Lafarge India amongst others. The Jury for the award comprised of eminent mix of International and Indian professionals chaired by Mr Mervyn King, author of famous King’s Committee Report on Corporate Governance. KPMG and Mahendra & Ardneham Consulting were the knowledge partners for designing the award criteria. Asian Centre For Corporate Governance (ACCG) is promoted by Mahendra & Young Knowledge Foundation, a non-profit Public Charitable Trust. The mission ACCG is to promote Global Corporate Governance principles of Transparency, Accountability &
Equity and aims to become a Catalytic Institution to bring about qualitative improvements in the Corporate Governance ‘Processes & Practices’ of Asian Companies for optimizing the shareholder’s as well as stake holder’s value, in a balanced manner.
HDFC won the award for 'Investment Management in India' at the EUROMONEY 2013 Real Estate Awards.
Zee Business Pinnacle Awards The first Zee Business Pinnacle Awards, instituted by one of India’s leading Hindi business news channels - Zee Business, was held in Delhi on October 7, 2006. Amidst the blitz of corporate glitterati, HDFC was pronounced the winner for the “Best Home Loan Provider” title. Mr. Prabhat Rao, Regional Manager (UP, Uttaranchal & Vidharba) received the award on behalf of HDFC. Mr. Jaipal Reddy, Minister of Urban Development, attended the award presentation ceremony as the Guest of Honour to share the illustrious moment of the real estate industry. Other winners of the evening included prominent builder K Raheja Corp., Asian Paints, Steel Authority of India Ltd (SAIL), Dr E Sreedharan, MD - Delhi Metro Rail Corporation for his Life Time Achievement, amongst others. The award has been instituted to recognize excellence in the real estate, construction and allied industries. The 23 award categories were evaluated by a jury of experts drawn from fields, which are diverse, yet relevant to the construction and real estate sector. It recognized talents for their contribution in technical, creative and individual achievements. The awards aim at becoming an annual event highlighting the glory of India’s fast growing real estate business.
WINNERS ALL Financial Express on Sunday raises a toast to Padma award winning industry captains - Vijaypat Singhania, Nandan Nilekani, Deepak Parekh, S Ramadorai, Suresh Krishna and Shahnaz Husain. The chairman of HDFC, Deepak Parekh, can add another tag to his name - Padma Bhushan. Parekh is not just the best-known name in housing finance in the country; he is almost always the first choice of both government and industry on business matters of the highest importance. He has stood up for liberal real estate and housing policies both at the Central and State levels. Parekh heads Housing Development Finance Corporation (HDFC), India's first and largest mortgage finance company, which has now grown into a large financial conglomerate. HDFC Bank was the first of nine private banks set up in the mid1990s to showcase India's liberalisation and economic reform. Parekh, who trained as a chartered accountant in London and worked with Chase Manhattan Bank early in his career, has helped in a general insurance joint venture with Chubb and a tie-up with Standard Life, UK, for asset management and life insurance. He has advised various governments on high-powered, governmentappointed panels to lay out the blueprint for reform in the banking, insurance and housing sectors. This has meant telling the government to take hard decisions. Parekh is the non-executive chairman of HDFC Asset Management Company Ltd, HDFC Standard Life Insurance Company Ltd and HDFC Chubb General Insurance Ltd. Before this, he has won awards.
CHAPTER 1 INTRODUCTION TO TOPIC
Digital Banking Digital Banking (or Digital banking) means any user with a personal computer and a browser can get connected to his bank -s website to perform any of the virtual banking functions. In internet banking system the bank has a centralized database that is web-enabled. All the services that the bank has permitted on the internet are displayed in menu. Any service can be selected and further interaction is dictated by the nature of service. Once the branch offices of bank are interconnected through terrestrial or satellite links, there would be no physical identity for any branch. It would a borderless entity permitting anytime, anywhere and anyhow banking. The delivery channels include direct dialup connections, private networks, public networks, etc. with the popularity of computers, 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.
Meaning of Digital Banking or Digital banking E-bank is the electronic bank that provides the financial service for the individual client by means of Internet.
INDIAN BANKING INDUSTRY
Banking falls under credit market and in India it is mainly governed by the Banking Regulation Act, 1949 and RBI Act, 1934. The Reserve Bank of India and the Government of India exercise control over banks from the opening of banks to their winding up by virtue of the powers conferred under these statutes. The business of Banking: 1] Definition: Banking is defined in section 5(b) of Banking Regulation Act, 1949 as the acceptance of deposits from public for the purpose of lending or investment. Such deposits may be repayable on demand or for a period of time as agreed by the banker and the customer. 2] Acceptance of deposits by Non-Banking entities: There are also non-banking companies, firms and other unincorporated associations of persons and individuals who accept deposit from the public. Acceptance of deposits by nonbanking financial companies is regulated by the Reserve Bank of India under the directions issued by it under chapter 111B of the Reserve Bank of India Act. Other companies are regulated by the central government under the companies (acceptance of deposits) rules, issued under section 58A of the Companies Act. 3] License for banking: In India, it is necessary to have a license from the Reserve Bank of India under section 22 of the Banking Regulation Act for commencing or carrying on the business of Banking. Every banking company has to use the word “Bank” as a part of its name and no company other a banking company can use the words, “Bank”, “Banker”, “Banking” as a part of its name. 4] Permitted Business: Although, traditionally the main business of the banks is, acceptance of deposits and lending, the banks have now spread their wings far and wide into many allied and even unrelated activities. Some of the important forms of business permissible are:
borrowing, raising, or taking up of money lending or advancing of money either upon security or without security drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hundis, promissory notes, coupons, drafts, bills of lading, railway receipts, warrants, debentures, certificates, scrips and other instruments and securities whether transferable or negotiable or not providing of safe deposit vaults collecting and transmitting of money and securities nd other businesses as permissible under section 6(1). 5] Prohibited Business: Section 8 of the Banking Regulation Act prohibits Banking Company from engaging directly or indirectly in trading activities and under taking trading risks. Buying or selling or bartering of goods directly or indirectly is prohibited.
SWOT Analysis Strengths •
Right strategy products.
for
•
Superior customer competitors.
•
Great Brand Image
•
High degree satisfaction.
•
Good place to work
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Lower response time with efficient and effective service.
•
Dedicated workforce aiming at making a long-term career in the field.
of
the service
right vs.
customer
Weaknesses
•
Some gaps in range for certain sectors.
•
Customer service staff needs training.
•
Processes and systems, etc
•
Management cover insufficient.
•
Sectoral growth is constrained by low unemployment levels and competition for staff
Opportunities Threats
•
Profit margins will be good.
•
Could extend to overseas broadly.
•
Great risk involved
•
New specialist applications.
•
•
Could seek better customer deals.
Very high competition prevailing in the industry.
•
Fast-track career development opportunities on an industry-wide basis.
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Vulnerable to reactive attack by major competitors.
•
Lack of infrastructure in rural areas could constrain investment.
•
High volume/low cost intensely competitive.
•
An applied research centre to create opportunities for developing techniques to provide added-value services
market
is
DEFINITION OF DIGITAL BANKING OR DIGITAL BANKING Electronic banking, also known as electronic funds transfer (EFT), is simply the use of electronic means to transfer funds directly from one account to another, rather than by cheque or cash. Digital banking means any user with a personal computer can get connected to his bank’s website to perform any of the virtual banking functions. You can use electronic funds transfer to: •
Have your paycheck deposited directly into your bank or credit union checking account.
•
Withdraw money from your checking account from an ATM machine with a personal identification number (PIN), at your convenience, day or night.
•
Instruct your bank or credit union to automatically pay certain monthly bills from your account, such as your auto loan or your mortgage payment.
•
Have the bank or credit union transfer funds each month from your checking account to your mutual fund account.
•
Have your government social security benefits check or your tax refund deposited directly into your checking account.
•
Buy groceries, gasoline and other purchases at the point-of-sale, using a check card rather than cash, credit or a personal check.
•
Use a smart card with a prepaid amount of money embedded in it for use instead of cash at a pay phone, expressway road toll, or on college campuses at the library's photocopy machine or bookstores.
•
Use your computer and personal finance software to coordinate your total personal financial management process, integrating data and activities related to your income,
spending, saving, investing, recordkeeping, bill-paying and taxes, along with basic financial analysis and decision making.
In simple terms, it means banking without involving any physical exchange of money, instead carrying on transactions electronically, from one account to another, using the internet. Digital banking can also be defined as the automated delivery of new and traditional banking products and services directly to customers through electronic, interactive communication channels.
Digital banking includes the systems that enable financial
institution customers, individuals or businesses, to access accounts, transact business, or obtain information on financial products and services through a public or private network, including the internet. Customers access Digital banking services using an intelligent electronic device, such as a personal computer (PC), personal digital assistant (PDA), automated teller machine (ATM), kiosk, or Touch Tone Telephone.
Electronic banking is conducted by using Automatic Teller Machines (ATMs), telephones (not via the Internet) or debit cards. Debit cards look like a credit card. But unlike a credit card, using a debit card removes funds from your bank account immediately. Some electronic banking services are ATMs, direct deposit and withdrawal services, pay by phone systems, point-of-sale transfer terminals, Web banking or PC banking services, even banking from your mobile phone. Electronic banking makes use of electronic currency. Check cards or debit cards, smart cards or stored-value cards, digital cash and digital cheques are the different types of electronic currency. If you use a check card to make purchases, the funds are transferred immediately from your account to the store's account. Smart cards have a specific amount of credit embedded in it. The chip in the card contains both personal and financial information. Digital cash is one way of allowing consumers make purchases over the Internet instead of using a credit card. Digital checks are used with electronic bill paying services. Consumers can use personal finance software packages or they can use software provided by a bank. Electronic banking, including online banking may also be an important factor while analyzing the competitive implications of U.S. bank mergers and acquisitions. On line banking or PC banking offers a wider outreach for smaller institutions. Larger institutions may be able to manage the technical overhead and security concerns over Internet banking. Electronic banking offers consumers the convenience of accessing and transferring funds between their accounts, paying their bills and other purchases, twenty four hours a day, seven days a week. On-line banking is a service provided by many banks, thrifts, and credit unions that allows you to conduct banking transactions over the Internet using a personal computer, mobile telephone, or handheld computer (such as a "personal digital assistant").
User may be able to: •
Access accounts round-the-clock, even on weekends
•
See balances on-line and find out whether checks or deposits have cleared
•
Transfer funds between accounts
•
Download information directly into personal finance software
•
Receive and pay bills on-line (without check writing, envelopes, or stamps).
Various Products and Services provided by Digital banking PRODUCTS
SERVICES
ATMs
Bill Payment Services
Credit Cards
Fund Transfer
Debit Cards
Railway Pass
Smart Cards
Investing through Digital banking
E-Cheques
Recharging prepaid phones Shopping Online Movie Tickets
PRODUCTS
Automated Teller Machines (ATM) An unattended electronic machine in a public place, connected to a data system and related equipment and activated by a bank customer to obtain cash withdrawals and other banking services. It is also called cash machine, money machine.
An automated teller machine or automatic teller machine (ATM) is an electronic computerized telecommunications device that allows a financial institution's customers to directly use a secure method of communication to access their bank accounts, order or make cash withdrawals (or cash advances using a credit card) and check their account balances without the need for a human bank teller (or cashier in the UK). Many ATMs also allow people to deposit cash or cheques, transfer money between their bank accounts, top up their mobile phones' pre-paid accounts or even buy postage stamps.
On most modern ATMs, the customer identifies him or herself by inserting a plastic card with a magnetic stripe or a plastic smartcard with a chip, that contains his or her account number. The customer then verifies their identity by entering a pass code, often referred to as a PIN (Personal Identification Number) of four or more digits. Upon successful entry of the PIN, the customer may perform a transaction.
If the number is entered incorrectly several times in a row (usually three attempts per card insertion), some ATMs will attempt retain the card as a security precaution to prevent an unauthorised user from discovering the PIN by guesswork. Captured cards are often destroyed if the ATM owner is not the card issuing bank, as non-customer's identities cannot be reliably confirmed.
The Indian market today has approximately more than 17,000 ATM’s. Credit Cards
The plastic credit card with a magnetic strip many people carry in their wallets or purses is the end result of a complex banking process. Holders of a valid credit card have the authorization to purchase goods and services up to a predetermined amount, called a credit limit. The vendor receives essential credit card information from the cardholder, the bank issuing the card actually reimburses the vendor, and eventually the cardholder repays the bank through regular monthly payments. If the entire balance is not paid in full, the credit card issuer can legally charge interest fees on the unpaid portion.
Individual banking institutions have their own policies when it comes to credit card applications. Customers may seek either a secured or unsecured credit card, depending on their individual repayment histories (credit rating). A secured credit card requires the applicant to deposit an amount of cash equivalent to the credit limit desired.
An unsecured credit card, on the other hand, is generally issued to those who have a good credit history and have demonstrated an ability to repay the accrued debt on time. Credit limits are determined on an individual basis, and may be raised or lowered based on performance. An unsecured credit card is essentially a pre-approved loan, with interest rates higher than a similar personal bank loan. The main benefit of any credit card is instant access to more cash than you may have on hand.
Credit card use often becomes problematic when the holder accrues more debt than a regular monthly payment can cover. The issuing bank does allow credit card users to carry over balances every month (revolving credit), but significant interest rates may also accrue on those balances. Missing a scheduled payment can also prompt the bank to raise interest rates on a delinquent account. If a credit card holder can only afford to pay the minimal amount due every month, he or she will not be reducing the actual debt incurred. The minimal payments may only apply to the accrued interest. This is a financial spiral many credit card users may experience if they don't use proper spending restraint. A credit card does give the holder an immediate credibility for services such as hotel reservations, car rentals and airline ticket reservations. Those without a credit card often
have to guarantee their reservations with cash deposits or several forms of identification. Many credit card plans also include insurance coverage for theft or fraud. If a credit card is reported stolen and then used illegally, the cardholder would not be held responsible for unauthorized charges. A credit card holder can authorize other people to use the card for purchases or services, however. Ultimately, the primary cardholder is responsible for all charges placed on his or her account.
A credit card is not a requirement for successful living, but even those who only pay for goods or services with available cash often find a credit card to be a convenient form of identification and instant credibility. In order to avoid excessive credit card debt, the holder must decide if the goods or services are worth the added expenses.
Types of Credit Cards •
Platinum, Gold, Silver and Blue Cards: Ranging from the highest credit limit and fees to the lowest credit limit and fees.
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Co-branded Cards: Co- branded cards, reward points on which can be redeemed at petrol pumps for free petrol and fuel purchases. Do not attract an additional tax on fuel.
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Insurance Cards: The payment of insurance premium is possible through the card.
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Travel Cards: Medical, legal, personal and travel payments are also possible across the globe.
Debit Card A debit card is a plastic card issued by banks to customers. The card allows instant purchase, removing the correct balance from the user’s attached bank account. Debit cards are distinct from credit cards in that they allow purchase based on available funds in the account to be deducted immediately, instead of by using a line of credit that can be repaid at a later time.
Debit cards have the ability to purchase items at stores that have automated debit or credit card machines.
Most forms of debit card require a personal identification number (PIN) as a security feature. In online purchases, the PIN is usually not required, but users will often need to enter the three or four digit security code listed on the back of the card. Additional safety measures common for debit cards include a photograph of the card’s owner on the front, or an electronically reproduced customer signature imprinted on the card.
While the security features hold up well for in-person transactions, they leave debit card users vulnerable for online theft. If a thief steals your wallet, they will likely have all of the information they need to use your debit card for Internet transactions. If you have a dual credit/debit card, they may also be able to use it in stores that do not require a PIN for credit use. If you discover your card missing, or notice suspicious charges to your account, contact your bank immediately. Another peril debit card users face is accidental charges. If you have a two or more linked bank accounts, such as checking and savings, you may sign up to have money transferred from one to the other in case of overdrawing your account. Rules regarding the use of debit cards vary from country to country and can impact their popularity. In India, the merchant can be charged for each transaction involving a debit purpose, leading to many shops banning their use.
Smart Cards
A smart card is any card that has an integrated circuit on it. A smart card lacks batteries, as the size of a card is too small to mount all but the smallest of special-purpose batteries, which are currently too expensive. Because it has no power on its own, a smart card must be introduced to a smart card reader to temporarily give it power for the purpose of reading the data contained therein. The smart card has a variety of applications, including payment cards, identification cards, access-control cards, cards for public transit, insurance cards, and the SIM cards found in cell phones. A smart card usually contains an embedded 8-bit microprocessor (a kind of computer chip). The microprocessor is under a contact pad on one side of the card. Think of the microprocessor as replacing the usual magnetic stripe present on a credit card or debit card. The microprocessor on the smart card is there for security. The host computer and card reader actually "talk" to the microprocessor. The microprocessor enforces access to the data on the card. The chips in these cards are capable of many kinds of transactions. For example, a person could make purchases from their credit account, debit account or from a stored account value that's reload able. The enhanced memory and processing capacity of the smart card is many times that of traditional magnetic-stripe cards and can accommodate several different applications on a single card. It can also hold identification information, which means no more shuffling through cards in the wallet to find the right one -- the Smart Card will be the only one needed. Usually smart cards come with an associated PIN number, which has to be inputted by the user for all but the smallest transactions. This seriously cuts back on fraud.
E-Cheques
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An E-Cheque is the electronic version or representation of paper cheque.
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The Information and Legal Framework on the E-Cheque is the same as that of the paper cheque’s. It can now be used in place of paper cheques to do any and all remote transactions. An E-cheque work the same way a cheque does, the cheque writer "writes" the eCheque using one of many types of electronic devices and "gives" the e-Cheque to the payee electronically. The payee "deposits" the Electronic Cheque receives credit, and the payee's bank "clears" the e-Cheque to the paying bank. The paying bank validates the e-Cheque and then "charges" the check writer's account for the check
SERVICES PROVIDED BY DIGITAL BANKING 1. Bill payment service You can facilitate payment of electricity and telephone bills, mobile phone, credit card and insurance premium bills as each bank has tie-ups with various utility companies, service providers and insurance companies, across the country. To pay your bills, all you need to do is complete a simple one-time registration for each biller. You can also set up standing instructions online to pay your recurring bills, automatically. Generally, the Bank does not charge customers for online bill payment. 2. Fund transfer You can transfer any amount from one account to another of the same or any another bank. Customers can send money anywhere in India. Once you login to your account, you need to mention the payees’ account number, his bank and the branch. The transfer will take place in a day or so, whereas in a traditional method, it takes about three working days. HDFC Bank says that online bill payment service and fund transfer facility have been their most popular online services.
3. Credit card Customers
With Internet banking, customers can not only pay their credit card bills online but also get a loan on their cards. If you lose your credit card, you can report lost card online. 4. Railway pass This is something that would interest all the aam janta. Indian Railways has tied up with HDFC bank and one can now make his/her railway pass for local trains online. The pass will be delivered to you at his doorstep. But the facility is limited to Mumbai, Thane, Nasik, Surat and Pune. 5. Investing through Internet banking You can now open an FD online through funds transfer. Now investors with interlinked Demat account and bank account can easily trade in the stock market and the amount will be automatically debited from their respective bank accounts and the shares will be credited in their Demat account. Moreover, some banks even give you the facility to purchase mutual funds directly from the online banking system. Nowadays, most leading banks offer both online banking and Demat account. However if you have your Demat account with independent share brokers, then you need to sign a special form, which will link your two accounts. 6. Recharging your prepaid phone Now just top-up your prepaid mobile cards by logging in to Internet banking. By just selecting your operator's name, entering your mobile number and the amount for recharge, your phone is again back in action within few minutes. 7. Shopping With a range of all kind of products, you can shop online and the payment is also made conveniently through your account. You can also buy railway and air tickets through Internet banking.
BENEFITS/CONCERNS OF DIGITAL BANKING
BENEFITS OF DIGITAL BANKING For Banks •
Price- In the long run a bank can save on money by not paying for tellers or for managing branches. Plus, it's cheaper to make transactions over the Internet.
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Customer Base- the Internet allows banks to reach a whole new market- and a well off one too, because there are no geographic boundaries with the Internet. The Internet also provides a level playing field for small banks who want to add to their customer base.
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Efficiency- Banks can become more efficient than they already are by providing Internet access for their customers. The Internet provides the bank with an almost paper less system.
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Customer Service and Satisfaction- Banking on the Internet not only allow the customer to have a full range of services available to them but it also allows them some services not offered at any of the branches. The person does not have to go to a branch where that service may or may not be offer. A person can print of information, forms, and applications via the Internet and be able to search for information efficiently instead of waiting in line and asking a teller. With more better and faster options a bank will surely be able to create better customer relations and satisfaction.
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Image- A bank seems more state of the art to a customer if they offer Internet access. A person may not want to use Internet banking but having the service available gives a person the feeling that their bank is on the cutting image.
For Customers
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Bill Pay- Bill Pay is a service offered through Internet banking that allows the customer to set up bill payments to just about anyone. Customer can select the person or company whom he wants to make a payment and Bill Pay will withdraw the money from his account and send the payee a paper check or an electronic payment
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Other Important Facilities- E- banking gives customer the control over nearly every aspect of managing his bank accounts. Besides the Customers can, Buy and Sell Securities, Check Stock Market Information, Check Currency Rates, Check Balances, See which checks are cleared, Transfer Money, View Transaction History and avoid going to an actual bank. The best benefit is that Internet banking is free. At many banks the customer doesn't have to maintain a required minimum balance. The second big benefit is better interest rates for the customer. CONCERNS WITH DIGITAL BANKING As with any new technology new problems are faced.
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Customer support - Banks will have to create a whole new customer relations department to help customers. Banks have to make sure that the customers receive assistance quickly if they need help. Any major problems or disastrous can destroy the banks reputation quickly an easily. By showing the customer that the Internet is reliable you are able to get the customer to trust online banking more and more.
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Laws - While Internet banking does not have national or state boundaries, the law does. Companies will have to make sure that they have software in place software market, creating a monopoly.
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Security - Customer always worries about their protection and security or accuracy. There are always questions whether or not something took place.
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Other challenges - Lack of knowledge from customers end, sit changes by the banks, etc
DIGITAL BANKING GLOBAL PERSPECTIVE The advent of Internet has initiated an electronic revolution in the global banking sector. The dynamic and flexible nature of this communication channel as well as its ubiquitous reach has helped in leveraging a variety of banking activities. New banking intermediaries offering entirely new types of banking services have emerged as a result of innovative ebusiness models. The Internet has emerged as one of the major distribution channels of banking products and services, for the banks in US and in the European countries. Initially, banks promoted their core capabilities i.e., products, services and advice through Internet. Then, they entered the e-commerce market as providers/distributors of their own products and services. More recently, due to advances in Internet security and the advent of relevant protocols, banks have discovered that they can play their primary role as financial intermediators and facilitators of complete commercial transactions via electronic networks especially through the Internet. Some banks have chosen a route of establishing a direct web presence while others have opted for either being an owner of financial services centric electronic marketplace or being participants of a non-financial services centric electronic marketplace. The trend towards electronic delivery of banking products and services is occurring partly as a result of consumer demand and partly because of the increasing competitive environment in the global banking industry. The Internet has changed the customers' behaviours who are demanding more customized products/services at a lower price. Moreover, new competition from pure online banks has put the profitability of even established brick and mortar banks under pressure. However, very few banks have been successful in developing effective strategies for fully exploiting the opportunities offered by the Internet. For traditional banks to define what niche markets to serve and decide what
products/services to offer there is a need for a clear and concise Internet commerce strategy. Banking transactions had already started taking place through the Internet way back in 1995. The Internet promised an ideal platform for commercial exchange, helping banks to achieve new levels of efficiency in financial transactions by strengthening customer relationship, promoting price discovery and spend aggregation and increasing the reach. Electronic finance offered considerable opportunities for banks to expand their client base and rationalize their business while the customers received value in the form of savings in time and money. Global Digital banking industry is covered by the following four sections: •
Digital banking Scenario: It discusses the actual state, prospects, and issues related to Digital banking in Asia with a focus on India, US and Europe. It also deals with the impact of Digital banking on the banking industry structure.
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Digital banking Strategies: It reveals the key strategies that banks must implement to derive maximum value through the online channel. It also brings guidance for those banks, which are planning to build online businesses.
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Digital banking Transactions: It discusses how Internet has radically transformed banking transactions. The section focuses on cross border transactions, B2B transactions, electronic bill payment and presentment and mobile payments. In spite of all the hype, Digital banking has been a non-starter in several countries.
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Digital banking Trends: It discusses the innovation of new technologies in banks.
DIGITAL BANKING STRATEGIES
Though Digital banking offers vast opportunities, yet even less than one in three banks have an Digital banking strategy in place. According to a study, less than 15 percent of banks with transactional websites will realize profits directly attributable to those sites. Hence, banks must recognize the seriousness of the challenge ahead and develop a strategy that will enable them to leverage the opportunities presented by the Internet. No single Digital banking strategy is right for every banking company. But whether they adopt an offensive or a defensive posture, they must constantly re-evaluate their strategy. In the fast-paced e-economy, banks have to keep up with the constantly evolving business models and technology innovations of the Internet space. Early e-business adopter like Wells Fargo not only entered the Digital banking industry first but also showed flexibility to change as the market developed. Not many banks have been as e-business-savvy. But the pressure is now building for all banks to develop sound e-business strategies that will attract and retain increasingly discriminating customers. The major problem with the banks, which have already invested huge amounts in their online initiatives, is that their online offerings remain unprofitable. Though banks have enrolled some existing customers in their online programs, they are not getting customers in large numbers. This has made banks wonder whether there is any value in the online channel. Just enrolling customers for online banking may not be sufficient until and unless they use the site actively. Banks must make efforts to increase their site usage by customers and effectively co-ordinate the online channel with branches and call centers. Then only they will be able to derive maximum value that includes cost reduction, cross-selling opportunities, and higher customer retention. Customers have some rational reasons for staying offline. Some of these reasons include usability features of the site, concerns about security and frequent complaints that signing up is complicated and time-consuming. Banks can solve these problems by refocusing investment on improving the site's basic functionality and user-friendliness, and avoiding advanced features that most customers neither understand nor value. Developing advanced features that appeal to a relatively small numbers of customers, creates far less value than strengthening core capabilities and getting customers to use them. Banks must make
efforts to familiarize customers with their sites and show them how easy and efficient the online channel is to use. Integrating the online channel with the rest of the bank is another important issue that banks must focus upon. This is important because nearly all the value of the online channel is realized offline _ in cross sales completed in other channels and in cost reductions. An actively used online channel should also serve as a medium to sell banking services for the branch staff, the call center, and the relationship manager. Integrated channels working together are far more effective than a group of channels working without any coordination. To facilitate this integration, banks must formulate paths that people in various customer segments are likely to take among the channels. The interactions in each channel can then be worked around these paths. For example, a call center representative must work out which channel(s) the customer used before coming to her, and which channel(s) the customer is likely to visit next. Each channel must have entry and exit points that must welcome customers and then send to other channels. Hence, the overall goal of banks is to create a seamless multichannel experience. On the other hand, those banks that are planning to build their online businesses will have to understand several strategic issues like do they have the right business model for Digital banking? How should they price their Digital banking products and services? Bankers planning to move into Digital banking have to explore different options make investments and have to develop a variety of partnerships. They have to put their time and efforts to identify the best opportunities. In the case of traditional banks, if they are too aggressive in using price incentives to build their e-business, they risk the profitability of their traditional business. However, if they do not offer sufficient price incentives for customers to bank online, their efforts to build a sound e- banking business may not fructify. Banks have to be creative in rethinking organizational structures and management processes. Traditional banks that are conservative in nature may find it difficult to attract and retain online talent. Moreover, getting people in the traditional business to help build an e-enterprise would not be an easy task. To make all this happen, requires a major revision of incentive systems, planning and budgeting processes, and management roles.
Banks can exploit the opportunities provided by the Internet if they demonstrate courage, use their imagination, and take decisive action. While most of the banks have started focusing on Digital banking activities, a new challenge in the form of mobile banking has emerged. M-Banking is both an additional opportunity for banks to offer their online services and an additional channel from which to access new customers and cross-sell to existing customers. Rapidly changing lifestyles of customers and their demand for more speed and convenience has subdued the role of branch banking to a certain extent. With the proliferation of new technologies, disintermediation of traditional channels is being witnessed. Banks can go beyond their traditional role as a channel for banking/financial services and can become providers of personalized information. They can successfully leverage m-banking to: •
Provide personalized products and services to specific customers and thus increase customer loyalty.
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Exploit additional sources of revenue from subscriptions, transactions and third-party referrals.
DIGITAL BANKING TRANSACTIONS The introduction of new technologies has radically transformed banking transactions. In the past, customers had to come physically into the bank branch to do banking transactions including transfers, deposits and withdrawals. Banks had to employ several tellers to physically make all those transactions. Automatic Teller Machines (ATMs) were then introduced which allowed people to do their banking on their own, practically anytime and anywhere. This helped the banks cut down on the number of tellers and focus on managing money. The Internet then brought another venue with which customers could do banking, reducing the need for ATMs. Online banking allowed customers to do financial transactions from their PCs at home via Internet. Now, with the emergence of Wireless Application Protocol (WAP) technology, banks can use the infrastructure and applications developed for the Internet and move it to mobile phones. Now people no longer have to be tied to a desktop PC to do their banking. The WAP interface is much faster and convenient
than the Internet, allowing customers to see account details, transaction details, make bill payments, and even check credit card balance. The cost of the average payment transaction on the Internet is minimum. Several studies found that the estimated transaction cost through mobile phone is16 cents, a fully computerized bank using its own software is 26 cents, a telephone bank is 54 cents, a bank branch, $1.27, an ATM, 27 cents, and on the Internet it costs just 13 cents. As a result, the use of the Internet for commercial transactions started to gain momentum in 1995. More than 2,000 banks in the world now have transactional websites and the growth of online lending solutions is making them more cost efficient. Recent developments are now encouraging banks to target small businesses as a separate lending category online. Banks are increasingly building payment infrastructure with various security mechanisms (SSL, SET) because there is tremendous potential for profit, as more and more payments will pass through the Internet. However, the challenge for banks is to offer a payments back-bone system that will be open enough to support multiple payment instruments (credit cards, debit cards, direct debit to accounts, e-checks, digital money etc.) and scalable enough to allow for a stable service regardless of the workload. The market for Electronic Bill Presentment and Payment (EBPP) is growing. According to a study, 18 million households in the US are expected to pay their bills online by 2003 compared to 2 million households in 2001. As more number of bill payers are getting online, several banks are making efforts to find ways to meet the growing needs of EBPP. Established banks can emerge as key online integrators of customer bills and can capitalize on this high potential market. Growing with the popularity of EBPP is also the paying of multiple bills at a single site known as bill aggregation. Offering online bill payment and aggregation will increase the competitiveness and attractiveness of Digital banking services and will allow banks to generate service-fee income from the billers.
Observation of Study For this booklet, Digital banking is defined as the automated delivery of new and traditional banking products and services directly to customers through electronic, interactive communication channels. Digital banking includes the systems that enable financial institution customers, individuals or businesses, to access accounts, transact business, or obtain information on financial products and services through a public or private network, including the Internet. Customers access Digital banking services using an intelligent electronic device, such as a personal computer (PC), personal digital assistant (PDA), automated teller machine (ATM), kiosk, or Touch Tone telephone. While the risks and controls are similar for the various Digital banking access channels, this booklet focuses specifically on Internet-based services due to the Internet’s widely accessible public network. Accordingly, this booklet begins with a discussion of the two primary types of Internet websites: informational and transactional. DIGITAL BANKING SUPPORT SERVICES WEBLINKING A large number of financial institutions maintains sites on the World Wide Web. Some websites are strictly informational, while others also offer customers the ability to perform financial transactions, such as paying bills or transferring funds between accounts. WIRELESS DIGITAL BANKING Wireless banking is a delivery channel that can extend the reach and enhance the convenience of Internet banking products and services. Wireless banking occurs when customers access a financial institution's network(s) using cellular phones, pagers, and personal digital assistants (or similar devices) through telecommunication companies’ wireless networks. Wireless banking services in the United States typically supplement a financial institution's Digital banking products and services.
Person-to-Person Payments Electronic person-to-person payments, also known as e-mail money, permit consumers to send “money” to any person or business with an e-mail address. Under this scenario, a consumer electronically instructs the person-to-person payment service to transfer funds to another individual. The payment service then sends an e-mail notifying the individual that the funds are available and informs him or her of the methods available to access the funds including requesting a check, transferring the funds to an account at an insured financial institution, or retransmitting the funds to someone else. Person-to-person payments are typically funded by credit card charges transfer from the consumer’s account at a financial institution. Since neither the payee nor the payer in the transaction has to have an account with the payment service, such services may be offered by an insured financial institution, but are frequently offered by other businesses as well. Banking Services through Internet: 1. The Basic Level Service is the banks’ web sites which disseminate information on different products and services offered to customers and members of public in general. It may receive and reply to customer’s queries through e-mail; 2. In the next level are Simple Transactional Web sites which allows customers to submit their instructions, applications for different services, queries in their account balances, etc. but do not permit any fund-based transactions on their accounts; 3. The third level of Internet banking service are offered by Fully Transactional Web sites 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 service the customer or by new banks, who deliver banking service 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 physical presence in a country despite offering different banking services.
The Indian Scenario:
• Internet banking, both as a medium of delivery of banking services and as a strategic tool for business development.
• At present, the total internet users in the country are estimated at 9 lakh. However, this is expected to grow exponentially to 90 lakh by 2015. Only about 1 percent of Internet users did banking online in 1998. This is increased to 16.7 percent in March 2013. • Cost of banking service through the Internet from a fraction of costs through conventional methods. Rough estimates assume teller cost at Re.1 per transaction, ATM transaction cost at 45 paise, phone banking at 35 paise, debit cards at 20 paise and Internet banking at 10 paise per transaction.
Plastic Cards as Media for Payment: There are four types of plastic cards being used as media for making payments. These are: 1. Credit Card 2. Debit Card 3. Smart Card 4. ATM Card 1. Credit Cards: The credit card enables the cardholders to: Purchase any item like clothes, jewellery, railway/air tickets, etc. Pay bills for dining in a restaurant or boarding and lodging in hotel Avail of any service like car rental, etc.
2. Debit Cards: A debit card is issued on payment of a specified amount by the issuing company like a telephone company to a customer on cash payment or on debiting his account by a bank. Thus it is like an electronic purse, which can be read and debited by the required amount. It may be noted that while through a credit card, the customer first makes a purchase or avails service and pays later on, but for getting the debit card, a customer has to first pay the due amount and then make a purchase or avail the service. For this reason, debit card are not as popular as credit cards.
3. Smart Cards: Smart Cards have a built-in microcomputer chip, which can be used for storing and processing information. For example, a person can have a smart card from a bank with the specified amount stored electronically on it. As he goes on making transactions with the help of the card, the balance keeps on reducing electronically. When the specified amount is utilized by the customer, he can approach the bank to get his card validated for a further specified amount. Such cards are used for paying small amounts like telephone calls, petrol bills, etc.
4. ATM Cards: The card contains a PIN (Personal Identification Number) which is selected by the customer or conveyed to the customer and enables him to withdraw cash up to the transaction limit for the day. He can also deposit cash or cheque.
A new review by Tower group of 10 top US e- banking web sites evaluated several aspects of core online banking components. Group found that there is difference in terms of actual functionality and usability. Among different banks and their services. The UK's first home online banking services were set up by the Nottingham Building Society (NBS) in 1983 ("History of the Nottingham". Retrieved on 2007-12-14.). The system used was based on the UK's Prestel system and used a computer, such as the BBC Micro, or keyboard (Tan data Td1400) connected to the telephone system and television set. The system (known as 'Home link') 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 Home link system. An American study conducted last year by Booz-Allen projects that by the year 2000, 16 million US households will be using Internet banking. While these numbers do not appear to be significant as compared to the total population, each Internet user is projected to be 50-250% more profitable than the average banking customer. It is expected that these Internet customers will be some of the banking system's most profitable customers representing close to 30% of all retail banking profits. The study projects that by 1999, 1,500 banks will have Internet Web sites and at least 500 of these banks will be offering full-fledged Internet banking services. In 2001 Micro banker send detailed questionnaire to the leading vendors of internet banking software27 companies responded with information on thirty programs the aggregate outcome of the outcome was that almost all the companies have developed functions for internet banking and have inbuilt feature to aid with one to one marketing on the web. HDFC Bank HDFC Bank Online Banking Services provide the largest private bank in India right here at your desktops. Banking becomes a pleasure as the transactions and services become instant with HDFC Bank online Internet banking. The services provided are
totally secure and unique. These cover online account transactions and operations, credit card and account applications and payments, share trading and investments through mutual funds, bill payments, statement generation and a virtual demo of each service. See in brief in final report.
Role of customer when using Digital banking
You can access HDFCBank.com only by using your User ID and Password. During the first login attempt, it is mandatory to change both passwords - login and transaction – which would have been mailed to you by the bank.
If you forget your password, you will have written to us using the "Email Us" option. The Bank will then issue a new password and send it to your mailing address as per our records. Kindly check with your branch that this address is updated...
Make sure no one can see the account login name or password you are entering when you log on to HDFCBank.com.
Logout of HDFCBank.com before moving on to other Websites.
Before leaving the PC please "close" the browser.
Do not write your HDFCBank.com login name or password anywhere.
Do not leave your login name and password such that someone sitting at your computer could see them.
Never reveal your HDFCBank.com login name and password to anyone (no representative of HDFC Bank will ever ask you for your HDFCBank.com password).
Notify HDFC Bank immediately if you notice any unusual account activity.
Keep all documents that include your account information in a secure location.
When you login you can view the date and time of your last log in.
Features offered by HDFC bank for internet banking
Balance enquiry and statement
Transfer fund online
Card to card fund transfer
Use debit card online
Prepaid mobile recharge
Subscribe for mobile banking
Link bank account to ATM
Lock / activate debit cards /ATM
Request a cheque book
Stop payment
Net Banking is HDFC Bank's Internet Banking service. Providing up-to-the-second account information, Net Banking lets you manage your account from the comfort of your mouse - anytime, anywhere. Features offered by HDFC bank for internet banking
View account balances and statements
Transfer funds between accounts
Request stop payments
Pay bills
Create fixed deposit online
Order cheque books
USE OF DIGITAL BANKING IN INDIA FEOM LAST FEW YEARS Year 2007 Incr.% 9
2007
2008 12
2009 15
2008
2009
2010 20
2010
2011 25
2011
2012 32
2012
2013
2013 40
2014
Finding In 2007-2014 the user of the Digital banking is increase in more in every year.
2014 50
THE INDIAN EXPERIENCE India is still in the early stages of Digital banking growth and development. Competition and changes in technology and lifestyle in the last five years have changed the face of banking. The changes that have taken place impose on banks tough standards of competition and compliance. The issue here is – 'Where does India stand in the scheme of Digital banking.' Digital banking is likely to bring a host of opportunities as well as unprecedented risks to the fundamental nature of banking in India. The impact of E- Banking in India is not yet apparent. Many global research companies believe that Digital banking adoption in India in the near future would be slow compared to other major Asian countries. Indian Digital banking is still nascent, although it is fast becoming a strategic necessity for most commercial banks, as competition increases from private banks and non banking financial institutions. Despite the global economic challenges facing the IT software and services sector, the outlook for the Indian industry remains optimistic. The Reserve Bank of India has also set up a "Working Group on Digital banking to examine different aspects of Digital banking. The group focused on three major areas of Digital banking i.e. (1) Technology and Security issues (2) Legal issues and (3) Regulatory and Supervisory issues. RBI has accepted the guidelines of the group and they provide a good insight into the security requirements of Digital banking.
The importance of the impact of technology and information security cannot be doubted. Technological developments have been one of the key drivers of the global economy and represent an instrument that if exploited well can boost the efficiency and competitively of the banking sector. However, the rapid growth of the Internet has introduced a completely new level of security related problems. The problem here is that since the Internet is not a regulated technology and it is readily accessible to millions of people, there will always be people who want to use it to make illicit gains. The security issue can be addressed at three levels. The first is the security of customer information as it is sent from the customer's PC to the Web server. The second is the security of the environment in which the Internet banking server and customer information database reside. Third, security measures must be in place to prevent unauthorized users from attempting to long into the online banking section of the website. From a legal perspective, security procedure adopted by banks for authenticating users needs to be recognized by law as a substitute for signature. In India, the Information Technology Act, 2000, in section 3(2) provides for a particular technology (viz., the asymmetric crypto system and hash function) as a means of authenticating electronic record. Any other method used by banks for authentication should be recognized as a source of legal risk.. Regarding the regulatory and supervisory issues, only such banks which are licensed and supervised and have a physical presence in India will be permitted to offer Digital banking products to residents of India. With institutions becoming more and more global and complex, the nature of risks in the international financial system has changed. The Regulators themselves who will now be paying much more attention to the qualitative aspects of risk management have recognized this. Though the Indian Government has announced cyber laws, most corporate are not clear about them, and feel they are insufficient for the growth of E-commerce. Lack of consumer
protection laws is another issue that needs to be tackled, if people have to feel more comfortable about transacting online. Taxation of E-commerce transaction has been one of the most debated issues that are yet to be resolved by India and most other countries. The explosive growth of e-commerce has led many executives to question how their companies can properly administer taxes on Internet sales. Without sales tax, online sellers get a price advantage over brick and mortar companies. While e-commerce has been causing loss of tax revenues to the Government, many politicians continue to insist that the Net must remain tax-free to ensure continued growth, and that collecting sales taxes on Net commerce could restrict its expansion. A permanent ban on custom duties on electronic transmissions, international tax rules that are neutral, simple and certain and simplification of state and local sales taxes. The Central Board of Direct Taxes, which submitted its report in September 2001, recommended that ecommerce transaction should be taxed just like traditional commerce. Also RBI is about to become the first Government owned digital signature certifying Authority (CA) in India. The move is expected to initiate the electronic transaction process in the banking sector and will have far reaching results in terms of cost and speed of transactions between government- owned banks. Thus efficiency, growth and the need to satisfy a growing tech-survey consumer base are three clear rationales for implementing Digital banking in India. The four forcescustomers, technology, convergence and globalization have the most important effect on the Indian financial sector and these changes are forcing banks to Redefine their business models and integrate technology into all aspect of operation.
CHALLENGES OF THE "DIGITAL BANKING REVOLUTION"
Electronic banking is the wave of the future. It provides enormous benefits to consumers in terms of the ease and cost of transactions. But it also poses new challenges for country authorities in regulating and supervising the financial system and in designing and implementing macroeconomic policy. Electronic banking has been around for some time in the form of automatic teller machines and telephone transactions. More recently, it has been transformed by the Internet, a new delivery channel for banking services that benefits both customers and banks. Access is fast, convenient, and available around the clock, whatever the customer's location (see illustration above). Plus, banks can provide services more efficiently and at substantially lower costs. For example, a typical customer transaction costing about $1 in a traditional "brick and mortar" bank branch or $0.60 through a phone call costs only about $0.02 online. Electronic banking also makes it easier for customers to compare banks' services and products, can increase competition among banks, and allows banks to penetrate new markets and thus expand their geographical reach. Some even see electronic banking as an opportunity
for
countries
with
underdeveloped
financial
systems
to
leapfrog
developmental stages. Customers in such countries can access services more easily from banks abroad and through wireless communication systems, which are developing more rapidly than traditional "wired" communication networks. The flip side of this technological boom is that electronic banking is not only susceptible to, but may exacerbate, some of the same risks—particularly governance, legal, operational, and reputational—inherent in traditional banking. In addition, it poses new challenges. In response, many national regulators have already modified their regulations to achieve their main objectives: ensuring the safety and soundness of the domestic banking system, promoting market discipline, and protecting customer rights and the public trust in the banking system. Policymakers are also becoming increasingly aware of the greater potential impact of macroeconomic policy on capital movements. Internet banking in India
The Reserve Bank of India constituted a working group on Internet Banking. The group divided the internet banking products in India into 3 types based on the levels of access granted. They are: i) Information Only System: General purpose information like interest rates, branch location, bank products and their features, loan and deposit calculations are provided in the banks website. There exist facilities for downloading various types of application forms. The communication is normally done through e-mail. There is no interaction between the customer and bank's application system. No identification of the customer is done. In this system, there is no possibility of any unauthorized person getting into production systems of
the
bank
ii) Electronic Information Transfer System:
through
internet.
The system provides customer- specific
information in the form of account balances, transaction details, and statement of accounts. The information is still largely of the 'read only' format. Identification and authentication of the customer is through password. The information is fetched from the bank's application system either in batch mode or off-line. The application systems cannot directly access through the internet.
iii) Fully Electronic Transactional System: This system allows bi-directional capabilities. Transactions can be submitted by the customer for online update. This system requires high degree of security and control. In this environment, web server and application systems are linked over secure infrastructure. It comprises technology covering computerization, networking and security, inter-bank payment gateway and legal infrastructure.
RESEARCH METHODOLOGY RESARCH METHODLOGY Research is a systematic and continuous method of defining a problem, collecting the facts and analyzing them and reaching conclusions forming generalizations. Research methodology is a way to systematically solve the problem. It may be understood has a science of studying how research is done scientifically. In it we study the various steps that all generally adopted by a researcher in studying his research problem along with logic behind them. Meaning of research Research is defined as an “a scientific & systematic search for pertinent information on a specific topic”. Research is an art of scientific investigation. Research is a systematized effort to gain new knowledge. The search for knowledge through objective and systematic method of finding solution to a problem is a research.
According to Advanced learner’s dictionary of current English: “Research is defined as a careful investigation or inquiry especially through search for new facts in any branch of knowledge”
CHAPTER 3 REVIEW OF LITERATURE
OBJECTIVE OF THE STUDY To study the present scenario of Digital Banking in HDFC BANK. To study the various services provided by Digital Banking. To find out the level of satisfaction of the customers (Faridabad city) regarding Digital Banking. Find the customer satisfaction relating to Digital banking service. To study the awareness of internet banking among the customers of HDFC and HDFC banks.
SCOPE OF THE STUDY Respondents from Faridabad City were questioned to get the first hand information
DATA COLLECTION
Primary Data – Respondents from Faridabad City were questioned to get the first hand information. Secondary Data - Secondary data was collected from the Internet and journals. SAMPLE SIZE Sample size is 50 individuals SAMPLE UNIT Individuals who are availing the E- Banking Services.
TYPE OF STUDY The study is both exploratory and descriptive in nature.
•
EXPLORATORY RESEARCH
The researcher formulates the problem for more precise investigation or for developing the working hypothesis from an operational point of view. The main purpose of study is to discover new ideas and insights. •
DESCRIPTIVE RESEARCH
This research is used in this study, as the main aim is to describe characteristics of the phenomenon or a situation.
Need of study
To know the customers perception toward the Digital banking service. I am interested in DIGITAL BANKING that I am taken this topic.
Benefits of study 1) Organizing Educational Campaign To Create Goodwill Of Company. 2) Services It Effectively valuable to Create Place in the Minds of Customer. 3) Availability should be increased by using various services Strategy. 4) Company should make service equal to or better than Competitive Brands By All Means.
Limitation of Study
Banks are not giving me all information about Digital banking services. They do not permit to meet any of the employees in their bank.
CHAPTER- 5 Data Analysis & Interpretation
1) Users of Digital banking
Yes
65%
No
35%
2)
No. of user of the banks
ICICI
20%
Sbi
30%
Sbh
20%
Axis
10%
Union
8%
Hdfc
12%
3) PREFERENCE FOR ONLINE BILL PAYMENT SERVICES
Yes
60%
No
40%
4) PREFERENCE FOR ONLINE SHOPPING
Yes
70%
No
30%
5) PREFERENCE FOR ONLINE FUND TRANSFAR `
Yes
35%
No
65%
6) SATISFIED CUSTOMERS
Yes
65%
No
35%
7) PERFERRED MODE OF PAYMENT (TO BANK)
CHEQUE
50
CASH
25
DIGITAL BANKING
25
8) SPEND PER BILL FOR ON LINE BILL PAYMENT
ABOVE Rs.10
21
BETWEEN RS.5-10
11
BELOW RS.5
32
NOTHING
36
CHAPTER 6 CONCLUSION AND SUGGESTIONS
Conclusion The basic objective of my research was to analyze the awareness among customers for internet banking in INDIA. It gives direction to research tools, research types and techniques. Although the findings reveal that people know about the services but still many people are unaware and many of them are non – users so the bank should by promotion try to retain the customers. Banks should look forward to have some tie – ups with other financial institutions to increase the service base.
Digital banking has become a necessary survival weapon and is fundamentally changing the banking industry worldwide. No country today has a choice-whether to implement Digital banking or not given the global and competitive nature of the economy. Banks have to upgrade and constantly think of new innovative customized packages and services to remain competitive. The invasion of banking by technology has created an information age and commoditization of banking services. Banks have come to realize that survival in the new e-economy depends on delivering some or all of their banking services on the Internet while continuing to support their traditional infrastructure. The rise of Digital banking is redefining business relationships and the most successful banks will be those that can truly strengthen their relationship with their customers. Without any doubt, the international scope of Digital banking provides new growth perspectives and Internet business is a catalyst for new technologies and new business processes. With rapid advances in telecommunication systems and digital technology, Digital banking has become a strategic weapon for banks to remain profitable. It has been transformed beyond what anyone could have foreseen 25 years ago. However, banks are uncertain about the regulatory framework for conducting E-business and the regulatory and taxation issues for governing cyberspace presents formidable problems. Developing such a system is not easy as the Internet is not organized geographically and it is almost meaningless to refer to a website as national or local. Any successful attempt at governing cyberspace will involve significant international cooperation. The Indian experience of Digital banking is gradually merging with its international counterparts. While the private sector and foreign banks have been fast in adopting Internet technology in client servicing, there is a gradual trend for the major public sectors and numerous cooperative units to move in the same direction. A mix of policy support and security assurance should propel further Digital banking adoption in India.
Findings of the Study In the users ratio of internet banking 65% of customers are using this service. More banks are connecting to the any software co. to running the Digital banking service. In these services the Sbi banks is top in service of Digital banking.
The services that are mostly used by maximum customers are transactions, online trading, bill payment, shopping etc. The mode of the cash deposit in bank is for use to online truncation cash, cheque & Digital banking. Different banks different charge for online service. With increased developments, we expect to see the demand for branch networks diminishing, while that of internet based service takes the central role. The customers are mainly using Cards (Debit cards, credit cards & ATMs) as a major channel of Digital banking because of the convenience, lower cost, time saving and anywhere anytime banking. Internet banking, Mobile banking and Phone banking are very less popular among the customers. Customers use these types upto some extent because for the Internet Banking, a PC is must with the Internet Connection which all the customers cannot afford. 60% of the respondents faced using the ATM faced no problem in using the ATM while 40% of the respondents faced a problem while using the ATM. The major problem faced by the respondents while availing ATM card facility was that the ATM was not working and the second common problem was that the card got withheld in the machine.
Suggestions To prevent online banking from remaining customers to prompt this service through advertising co.
After repairing this basic deficiency, banks must ensure that there services is competitive. Banks is not take more charge from there customers.
•
Secure PC Install and Update Anti-Virus Software - We should always protect the computer by using up-to-date anti-virus software that is capable of scanning files and email messages for viruses. This will prevent files from being corrupted or lost and also prevent PC from getting infected with the virus
•
Change Passwords Periodically – It is recommended that one should change passwords regularly, at least every 30 days or so.
•
Keep Internet Banking Passwords Confidential.
•
If one has lost/misplaced his Internet Banking User ID/passwords, it is advisable to inform the concerned bank and they will disable the same to prevent unauthorized usage. Passwords can also be re-issued upon request.
•
In case a person is unable to provide the correct user Id and password, he will not be granted access. After 5 unsuccessful login attempts, his user Id will be blocked automatically by the system. To re-enable Internet Banking User ID, he can contact his bank.
•
It was found that the customers are mainly using ATM as a major channel of Digital banking because of the convenience, time saving and anywhere anytime banking. Thus, the banks should take these into consideration and should install more ATM's at strategic points.
Limitations of the Study Though every effort was made to make the report authentic in every sense, yet there are few factors which might have their influence on the final report.
•
Due to time constraints, the size of the sample was restricted. It may not be possible to generalize the results on the basis of such small sample size.
•
Sometimes respondents did not respond well to all the questions in the questionnaire.
•
Best efforts were made to incorporate all-important variables in study, yet chances of some of variables not appearing in study are not ruled out.
•
Resistance to change sometimes affects view of respondents.
CHAPTER 7
Bibliography
Book:-
Digital banking in India
Banking service operation (ICFAI) Indian Banking Money & Banking Links Visited www.google.com www.hdfcbank.com www.wikipedia.com
ANNEXURE
Questionnaire 1. Name of the customer:-
2. Do you like Digital banking a. Yes b. No 3. Why this bank a. Service is good b. They provide security c. Cheaper service fees. 4. Which type of service mostly you use? a. Balance and transaction history search b. Transfer fund online c. Card to card fund transfer d. Open FD e. Lock / activate debit cards /ATM f. Request a cheque book g. Stop payment h. Railway pass / ticket i. Shopping j. Share payment 5. Services of the bank are…. a. poor b. good c. Very good
6. Are you satisfied with the using of Digital banking? a. Yes b. No
