E – Banking – Problems and Prospects in
A.Devamohan*
Background
of the Study:
Now – a – days Modern Technology is being introduced
in all the fields and it changes the world with full of innovations. In Banking
also electronic devices play a dominant role in order to satisfy the growing
needs of the customers. The traditional banking activities are modernized by
using the Electronic – Banking system (E – Banking). These changes are being
made due to the influence of Information Technology and the developments in the
technology of Telecommunications and Electronic Data Processing. Information
Technology which implies the integration of information system with
communication technology has altered the traditional ways of doing banking and
allowed banks to wipe out the differences in time as well as distance. The
wings of changes are started blowing in Ethiopia with a view to integrating the
economy to the global economy.
In
this contest, this paper attempts to trace the present status of E – Banking in
Objectives
of the Study:
The general
objective is to study the problems and prospects of E-Banking in
Overview
of E – Banking:
Banking
system is the backbone of the economy and Information Technology in turn has
become the backbone of banking activities.
*
A. Devamohan is working as a Lecturer in Banking
& Insurance, Faculty of Business & Economics,
The IT developments bring the customers closer to the
banks and banks are able to offer multiple products/ services under
“Single-Window” concept. The hi-tech multiple service channels and delivery
mechanism provide a great opportunity to reach and inform the customers with
much ease. The technology has its own role to play in branch banking activities
with variety of options and innovative services
The
E – Banking concepts become popular when the banking activities and information
technology are merged. The banking transactions become ease after the
introduction of computers in banking sector. The banks are enabled to automate
the accounting process and back office functions like maintenance of deposits,
calculation of interest and maintenance of general ledgers. The automation of
front-office functions improves the customer service with reduction in
processing time. When the internet
facilities enter into the banking sector, the inter-bank activities are linked
through internet and the concept of “Anywhere Banking or Net Banking” is also
introduced. Internet banking enables a
customer to do banking transactions through the bank’s website in the internet.
It is more or less like bringing the bank to customer’s computer, at the place
and time of customer’s choice.
Concept
of E – Banking:
Electronic
Banking or e – banking is a web-based service the enables a bank’s customer
access their account. It allows the customers to log on to the bank’s website
with the help of a bank-issued identification and a personal identification
number. The banking system verifies the user and provides access to the
required services. The range of services and products offered by each bank
differs widely in their content.
The other aspect of e-banking is e-payment. Payment
is generally known as a transfer of funds from the payer to the payee. The
Electronic payment or e-payment is a payment carried out electronically. That
is, the payment that is initiated, processed and received electronically is
known as e-payment. In e-payment funds are held, processed and received in the
form of digital information and their transaction is initiated via electronic
instrument like ATM card.
The concepts of e-banking and internet banking are
used as synonymous in the banking industry, though in reality banking
activities carried out through the internet just constitute a part of the whole
gamut of e-banking.
The
most significant benefit of e-banking is the ready accessibility of bank
accounts at all times. The inconvenience of visiting and waiting at the banks
is also eliminated. E-payment greatly increases payment efficiency by reducing
transaction costs. It will enhance the customer satisfaction and increase the
customer base. From bankers’ point of view, e-banking considerably reduces
transaction costs for the banks.
Review
of e-banking services:
Information
and Communication technology has made the world a global village and removed
the time and geographical barriers. With the use of electronic network,
billions of dollars can move across borders by click of a computer key and this
creates tremendous impact on the economy. The banks can provide e-banking
services by using this electronic network. The following are the some of the
services coming under e-banking:
1.
Electronic Data Interchange (EDI):
EDI is a technique used to communicate
business, financial and transaction information between computer systems of
different organizations and their business partners. Unlike email, it is
structured communication and sent in machine processable
form. EDI was first used in
In
banks, Financial EDI (FEDI) is mostly used to settle the bills with the
objective of ‘making the right financial resources available at the right
time’. Banks can play a vital role in
FEDI for the payments in real time. Banks have to interact with the systems of
customers on one side and the service providers on the other side. It enables
the customers to view/ download account details. EDI implementation in banks results
in reduced cost, improved efficiency and customer satisfaction resulting in
improved growth and profitability. In
2.
Automated Teller Machine (ATM):
ATM
is a device that allows customers who have an ATM Card to perform routine
banking transactions without interacting with the human teller. The ATM card
holder can do most of the banking transactions like withdrawals, deposits of
cash and cheque, balance enquiry, etc. Even railway
and airway tickets can be blocked with the use of ATMs. The origin of ATMs can
be traced back to June 1967 when Barclays Bank installed the first cash
dispenser in
With
the use of ATMs, the banks are providing ‘Any Where and Any Time Banking’ to
their customers. That is the customer can have access to ATMs at any where
within the country or throughout the world at any time. It also reduces the
transactions time. The banks can use these ATMs as media for publicity by
displaying products on the screen. And the cost of setting up ATMs is much
lesser than the branch.
3. Electronic Clearing Service (ECS):
the primary goal of any national payment system is to enable
the circulation of money in its country. The payment system should be efficient
and secure. The ECS is created to establish safe, secure, sound and efficient
payment and settlement systems for the country. It can be divided into two
categories namely, Credit Clearing and Debit Clearing. The ECS credit clearing
is a mode of payment electronically instead of paper warrants. Through this ECS
credit clearing, an institution makes a large number of payments like salaries,
pension, interest, dividend to a large number of
employees/ex-employees/investors/share holders.
The
ECS debit clearing is a mode of payments whereby an institution receives
payments from a large number of customers/consumers. This method helps utility
institutions, insurance companies, credit card companies and finance companies
to collect the proceeds of telephone/electricity bills, insurance premiums or
periodical installments, etc. on due date based on the instructions.
For
ECS, the Central Bank of the country has to open centralized clearing centres throughout the country. The transactions will be
settled on the next day of submission of data to the clearing house. Banks can
act as clearing houses. The advantage of this method is faster collection of
bills by companies and automatic debiting/creating to the accounts.
4. Plastic
Card Currency:
Plastic cards also known as plastic currency involving electronic device
in their functioning is gaining popular as a convenient mode of payme nt. By using these plastic card, financial exchanges
takes place on line between buyers and sellers. This exchange is in the form of
digital financial instrument such as credit card numbers and debit card numbers
backed by a bank or an intermediary. Recently several innovations helped to
simplify consumer payment which includes Credit Cards, Debit Cards, ATM Cards
and Smart Cards.
Credit Card:
Credit
Card can be called as an equivalent of a loan sanctioned by the bank to its
customers. Credit card facilitates and makes it possible to “Use First and Pay
Later” the specified amount of credit as per the agreed terms of sanction.
Before issuing the card, the bank would like to know and be sure the
identification, age, level and source of income and repaying capacity. This card facilitates the cardholder to
purchase goods and services from the merchant establishments and shops through
the collaborating credit card companies like VISA, MasterCard, Maestro, and
Cirrus. Interest will be charged by the bank on monthly basis for the credit
provided through the card. And service charges also will be collected from the
cardholder for the transaction and processing.
Debit Card:
A
Debit Card provides for online electronic payment like Credit Card but from
savings or current accounts of the cardholder for purchases. This card is a
deposit access product where cardholder uses his own money in his bank account
through the debit card on the principle of “Pay First and Use Later”. Debit
card can be used to make purchase at retail shops and merchant establishments
in the same way as the credit card is used. But in order to use the debit card,
the cardholder must have sufficient balance in his/her account. Debit card
contains the symbol or hologram of collaborating company such as VISA,
MasterCard, Maestro and Cirrus etc.
ATM card:
As
mentioned earlier, ATM Card can be used to withdraw money, deposit money,
balance enquires, deposit bills in the account. The cardholder must maintain a
savings bank account or current account with the bank. On issuance of card, the
cardholder is intimated a four digit secret Personal Identification Number
(PIN). The cardholder is always required to maintain safely the PIN to prevent
fraudulent activity.
ATM
Card-cum-Debit Card:
ATM
Card-cum-Debit Card can be used both as an ATM card and Debit card as a method
of payment when purchasing goods and services in
Smart Card:
The
smart card is an amazing piece of technology. It is the size of a regular ATM
card but is capable of storing over a 1000 times more data. The data can be
encrypted and hence the card is completely temper-proof. The card can also be
personalized to the holder by printing personal and other details on the card
face. Mart card is issued to the formers to provide adequate and timely credit
support for their cultivation needs including all purchases. The formers can
use this card wherever they needs. The loan amount sanctioned to the former
will be recorded in the card. The merchants can sell the goods to the former
based on the card and they can collect the amount from the local branch of the
issued bank or any other bank.
5.
E-payments:
Payment is generally understood as a transfer of fund
from the one person (payer to other person (Payee). In E-payments, the funds are transferred through electronic mode.
The following are coming under the E-payment system.
Banknet:
Banknet is a communication backbone connecting various centres of a country to facilitate the transfer of inter-bank
or inter-branch messages. Most of the centres of a
country are being brought on the network. The main objective of the Banknet is to speedup the process of transfer of funds from
one bank to another bank and one branch to another branch.
SWIFT:
The
society for Worldwide Inter-bank Financial Telecommunication (SWIFT) provides
reliable, secured and expeditious telecommunication facilities for exchange of
financial messages all over the world. It operates 24 hours on all days. The
banks have to become the member of International Financial Messages
Communication Network. The banks can do foreign exchange business safely and
secured mode. We can say, the foreign exchange
business which the banks are conducting today would not have been possible
without SWIFT.
Electronic Fund
Transfer (EFT):
EFT
system permits transfer of funds from any account at any branch of any member
bank in any city to any other account at any branch of any member bank in any
other city. This system utilizes the Service Branches of the member banks. It
facilitates the transfer of funds from one place to another place within the
country quickly and safely. Banks collect service charges from the customers.
Importance of
E-Banking:
The
importance of e-banking can be discussed in the following ways:
Customers’
Point of View:
E-Banking
offers substantial advantages to the customers in the form of convenience,
timesaving and easy access to the banking services. The customers can transact
in their account at any time and any where throughout the country or outside
the country. There is no time and place restriction. The customers need not
visit the branch for each and every transaction and no need to wait in the big queue.
By this they can save the time. The customers can avail 24*7 access
to the banking services at any where. With the help of e-banking, the easy
access to the banks will be another advantage to the customers. Thus the
e-banking provides sophisticated services to the customers.
Banks’
Point of View:
In this competitive world, E-banking helps the banks
to attract more number of customers and tackle the competition from other
banks. The banks can enhance the customer satisfaction through sophisticated
services. By providing secured e-banking services, the banks can avoid fraudulent
activities. With the help of e-banking, banks can save time and hence they can
increase the number of transactions and business.
Challenges
of E-Banking:
1.
Security:
Security is first and foremost requirement of E-banking as the internet
is inherently unsecured. Securing the process in e-banking involves
authenticating both customer and banker and protecting the information to be
transmitted from interception. This authentication can be done using user ID
and passwords. Banks should take effective steps for the interests of customers
from data tampering and hacking. Software failures can also destroy entire
portions of a network and bring huge losses. In e-banking system there are many
ways in which private information may be accesses by attackers. And this
information could be used to make fraudulent transactions that could lead to a
loss of money.
2.
Standardization:
One
of the major issues in E-banking is the standardization of software which is
necessary to offer e-banking services. Proven high quality software is a must
for high-tech banking services. For the sophisticated services, the
standardization of operating systems, systems software and application software
throughout the banking industry is a necessary condition, which may have to be
pursued.
3. Legislative
and Regulatory Issues:
National,
regional and international laws, rules and regulations are important
prerequisites for successful implementation of e-banking. Legal or Legislative
support is essential for protecting the interests of customers and banks in
various areas relating to e-banking and payment systems. Some of the main
issues like liability for loss in case of fraud, allocation of loss in case of
insolvency, cheque truncation, evidence and burden of
proof, preservation of records, prevention of fraud, etc. are to be cleared in
the legislation. This can be done by adopting model laws at global level such
as UNCITRAL Model Law on E-commerce and UNCITRAL Model Law on E-signature.
4.
Infrastructure:
The
other challenge for e-banking is well developed infrastructure. For effective
deployment of e-banking services, it is necessary to have a reliable and cost
effective infrastructure that can be accessible to the majority of the population.
The base communication infrastructure for e-banking is computer network with
internet facility. Most of the transactions use internet to communicate with
the customers. Automating the banking services is another prerequisite for
e-banking. Close financial links between banks and other financial institutions
is necessary. This link is used for clearing and payment systems among these
institutions.
5. Heavy
Investment Costs:
In
order to offer e-banking services, banks have to invest huge amount of money.
They have to incur heavy maintenance costs also. This may not be the problem
for well established banks. But in case of new and small banks, they have to
face financial problems at the initial stage. Banks in developed countries have
already deployed huge amount of investments for e-banking services. For banks
in developing and underdeveloped countries, this may create financial crisis.
6.
Socio-Cultural Challenges:
Normally
customer’s confidence and trust in traditional banking system will make
customers less likely to adopt new technologies. New technologies will not be
successful until customers are satisfied with privacy and security aspects. It
also requires some time to earn confidence among the customers even it is
easier and cheaper than the traditional methods.
E-Banking
in
The
Ethiopian banking industry is consisting of three public and seven private
sector banks under the control of National Bank of Ethiopia (NBE), the central
bank of the country. The NBE is having full control over the commercial banks
in the country. The Commercial Bank of Ethiopia (CBE), a public sector bank, is
playing major role in the industry with 184 branches. The banking systems in
Traditional
Banking System:
The
commercial banks in
Basically
the Ethiopian banks are following the American way of banking system. Accepting
deposits from the public, lending money to the borrowers and transferring funds
from one place to another, etc. are the basic banking activities of commercial
banks in
NBE
has authorized Ethiopian Birr to be used as a legal tender throughout the
country. Birr is representing the values and used as major instrument of
payment. The second major instrument of payment is cheque.
The customers who have checking account can use cheques
to make payments and for other uses. Cheques are typically used for large transactions. Drafts
are also used to send money or to make payments to another place. Mail
Transfers and Telegraphic Transfers are used to transfer money form one account
to another account.
E-Banking
System:
The
banks in
1. SWIFT:
SWIFT
provides a messaging service that enables to settle majority of high value
payments internationally. Banks in
2. Western
Union Money Transfer:
Western
union is the world’s largest money transfer network with morethan
212,000 agents in over 195 countries. In Ethiopia, Commercial Bank of
3. Credit Card:
Currently, there is no issue of local and international credit cards in
4.
Automated Teller Machine (ATM):
In
In
order to use ATM, the customers need ATM cards and secrete PIN codes which are
given by the bank for the purpose of security.
Challenges
of E-banking in
E-banking
in
1.
Infrastructure:
Information
and Communication Technology (ICT) infrastructure is prior most to offer and to
implement e-banking services. Communication infrastructure such as Internet,
WAN, Telephone lines must be adequate for e-banking. In
Another
major problem is frequent Electric Power disruption. This will create lot of
problems in e-banking activities which are basically depending on power supply.
It will force the banks to depend on generators results in high operational
cost.
These
problems are considered as obstacles for the expansion of e-banking services in
the country.
2.
Establishment Expenses:
Initially,
banks have to invest huge amount of money in order to provide e-banking
services. They have to buy and install the required systems and facilities
which lead increased establishment expense. For well-established banks like
Commercial Bank of
3. Lack of
Skilled Manpower:
In order to offer and maintain e-banking services without any fault,
banks need skilled manpower. But in
4. Legal
Framework:
Legal
framework is plying a crucial role in facilitating e-banking system and in its
growth. Instead of strict regulation, the country should make some amendments
in order to coincide with the e-banking practices.
The
National Bank of
Another
reason for nonexistence of legal framework may be the banks, which provide some
of the e-banking services, might have not faced any major problem regarding the
regulatory aspects.
5.
Socio-Cultural Aspects:
The banks in
Conclusion
and Recommendations
Conclusion:
This
study is aimed to review the literature related to e-banking, to identify the
problems or challenges of e-banking in
v
Lack of
Infrastructure facilities
v
Unbearable
establishment cost
v
Lack of skilled
man-power
v
Unavailability
of comprehensive legal framework
v
Socio-Cultural
aspects
Recommendations:
The
recommendations part gives the valuable suggestions to increase the e-banking
services with the consideration of prospects of e-banking in
1.
In Ethiopia ICT infrastructure facilities are not well developed. Due to this,
banks are not in a position to extent the e-banking services. But the efforts
taken by ETC to develop ITC infrastructure is encouraging. The National ITC
draft policy has given great emphasis on the expansion of ITC infrastructure.
The government’s effort to establish nation wide network such as WerdaNet and RevenueNet need to
be encouraged and expanded.
2.
Another constrain in ITC is high cost structure. For e-banking services the
banks need 24 hours internet service. But in
3. In
order to establish e-banking, banks must go for automation of banking services
with in the bank. That is banks have to create links between all branches of
the bank by using financial network system. Here the banks are facing problem
relating to the reliable electric power supply. In
4.
Most of the banks, especially small banks, in
5.
The Ethiopian banks are lacking in skilled man-power which is necessary to
extent e-banking services. Some times the banks may face resistant from the
staff members to establish these services. First of all, the banks have to
create awareness among the employees and then they have to provide proper
training to them.
6. The
regulatory and legal framework for ITC is essential to create reliable
environment for e-banking. It plays a crucial role in developing the e-banking.
The Ethiopian Civil Code is not enough to make adequate changes in the legal
framework. Still
7.
In order to overcome the problems relating to socio-cultural aspects, the banks
have to create public awareness about the benefits of new technologies and its
impact. Schools, Higher Institutions and Media should give due attention to
achieve the above. The banks should be bold enough to face these types of problems.
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