E-Banking is a branch of E-Commerce that deals with the implementation of Information and Communication Technology in Business Financial Management. E-banking has come a very long way with millions spent on preparation of technological change just to make banking services accessible to their customers from anywhere, at anytime by just a click of the mouse.
“E-commerce offers a level playing ground for large businesses, as well as small and medium-scale enterprises (SMEs) to operate in the global market-place; and for regional businesses and communities to participate in social, economic and cultural networks seamlessly across international boundaries (Mary-Anne, 1998)”
E-banking is a remote delivery channel for banking services ranging from opening an account, transferring funds to more complex form of online transactions like financial product sale, like insurance and brokerage to bill payments and direct debits.
Making payments for goods and services in cash or non-cash forms as well as depositing money in financial institutions and managing these resources are an inherent constituent of economic life. Banks serve as important intermediates. In recent years, with the development of technologies and techniques, options for communication with banks are expanding for clients. New services are originating such as home banking, phone banking, internet banking and others.
Electronic communication means are particularly coming to the forefront. These are more convenient, faster, and often cheaper for clients. Banking experience shows it is suitable to use combinations of several communication means, depending on individual segments, clients, and types of operations, products and situations. Electronic banking is a service that specifically uses electronic communication forms.
Table of Content
Forms of E-banking
Automated Teller Machine
Types of Internet Websites
Benefits of E-Banking
Merits to the Customers
Merits to the Banking Organisation
Merits to the General Economy
Global vectors of E-banking
Trends in E-banking
Traditional Banking VS Online Banking
Merits and Demerits of Online Banking
Merits and Demerits of Traditional Banking
Problems with Computerization
E-Banking in Nigeria: A Case Study
Concerns of E-banking In Nigeria
Adoption of E-banking In Nigeria
Efforts of the Nigerian Government and the Regulatory Authorities.
E-banking can be defined as an electronically automated delivery of modified banking product and services via the use of the internet, World Wide Web, technological devices and interactive communicational channels. E-banking consists of systems that enable financial firm customers, individual and businesses, to transact business; access accounts possess financial product services and information through the internet and the web as a whole. E-Banking can also be referred to as Electronic Fund Transfer (EFT) which simply implies the transfer or funds from one account to another. Electronic banking focuses on the use of ICT to enable the external activities and financial relationships of group of individuals and inter-organisational affairs easy.
E-Banking enables financial and non-financial organisations link their internal and external finance system more efficiently, flexibly and effectively, to work closely and build more sustainable relation with suppliers, customers and partners as well as satisfy their expectations.
Banking customers gain access to e-banking product and services with the aid of an intelligent technological device ranging from Personal Digital Assistant (PDA), Touch Tone Telephone, Smartphone, pocket surfer, Automated teller machine (ATM) to the mostly used personal Computer (PC).
There are various use of E-Banking, this includes:
Payment checks: checking if a payment is deposited in an account.
Fund Withdrawal from account with the use of an ATM machine which requires a mode of authorisation for security reasons.
Setting up Direct debit/automatic payment setup for paying a company or a person.
Account monitoring: 24/7 monitoring of what goes on in your account.
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
The Electronic banking system can remarkably vary in their configuration pending on several factors. Financial institutions should carefully select and choose their electronic banking system configuration without excluding their outsourcing relationships based of four distinctive factors namely:
The strategic aim for electronic banking
The system complexity, scale and scope, equipments and activities; and
The internal control and security requirements.
The support of internal electronic banking services may be selected optionally by financial organisation but alternatively, organisations may outsource any aspect of their electronic banking systems to third parties. Firms that could host electronic banking-related services for financial organisations are:
ISP (internet Service providers)
A managed security service provider
An internet banking software processor and a core banking vendor
Other financial institution
Credit sorting firm and a credit bureau
A bill payment service provider
These elements work together in harmony to deliver a great achievement in electronic banking services and each element representing a considerable point of control.
Through a combination of both internal and external solutions, management has various options when shaping the overall system formation for the various elements of an e-banking system. Nevertheless, putting simplicity into consideration, one or more technology service provider can host the e-banking application and various network components. The organisation’s ISP hosts the organisation’s internet banking server, firewall, website and all necessary security detection system.
There are some processes e-banking rely on in order to work as expected and some, if not all of the processes can be seen in operation anytime e-banking is in services and operation where each element represent a considerable control point. Some of these processes seen in a typical e-banking system include:
Internal network server
A core processing system
Website design and hosting
Firewall configuration and management
E-business application (e.g. lending, bill/goods payment)
FORMS OF E-BANKING:
Automated Teller Machine (ATM)
A stand-alone electronic machine in an open area for public use which is connected to a data system and components and then operated by a financial organisations customer to withdraw cash and other account balance and services via a very secure mode of communication. Most ATMs in the UK allow interbank use sometimes for free or charged a’ a fixed amount and the machines offers cash withdrawal, balance enquiry with printed receipt, money transfer between accounts, mobile top-up as well as fund deposit either in cash or cheques.
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Every customer belonging to a banking organisation is issued a plastic smartcard which has a chip on it and the chip contains the customer’s account details and a PIN (personal Identification Number) is issued with the smartcard as a mode of security for the user to access the account. The PIN gives the user authorisation into the account but the PIN has to be matched with that in the record of the card before access is granted and if upon three unsuccessful trials, the account is locked and has to be reactivated but the authority of the banking organisation.
As the name suggests, it’s an electronic cheque. Basically, it’s the electronic version of a paper cheque which possesses the information and framework as its counterpart and functions exactly as the paper cheque works.
This enables account users handle various banking activities via the use of the internet on their personal computer. These activities ranges from 24/7 account monitoring, balance checks, funds transfer and paying bills.
To gain access to internet banking, the user must have to sign-up for this feature and in return, the banking organisation issues the customer some authorisation and security measures only to be known to the account user.
An account number
A security question (as an account confirmation if account number and password matches)
A security answer.
This enables the possibility for customer to communicate with their banks by electronic mail and the most used of this service is sending bank statements to account holders at an agreed period to the client’s mailbox.
SMS Banking (short message service banking)
This feature allows customers to request for information either from their banks department or for their account balance information with the aid of a text message sent from the client’s mobile phone which as well, can be used as both passive and active operation similar to the classic telephone baking.
Information sent on request is mostly about current interest rate or exchange rate sent by the bank and this feature is convenient by the bank due to its simplicity and less-protection involved but a password is used.
TYPES OF INTERNET WEBSITES
Before the web as a whole was opened to members of the public, research and educational organisations and government agencies were able to view and gain available information to each other by the use of text-only websites but since the embrace of the World Wide Web, there has been more website than ever.
There are various types of websites namely:
Community Building website
Online Business Brochure
Photo Sharing Websites
But in this course, two primary types of financial websites will be viewed: informational website and transactional website.
As the name suggests informational from “information” provides numerous customers access to information about a financial organisation products and services. These websites are unique because it allows visitors contribution to readymade articles and journals for editing information to be shared or sold. A business could setup a website to list product, specification, instructions and review about a certain item. This will serve as a lead for people to discover assistant and essence and this site can be linked to an e-business site for better customer experience and even expose the usefulness of your sites existence.
An example of informational websites includes google.com and Wikipedia.org, the online encyclopaedia.
There are certain risk issues that has to be examined and reviewed due to the nature of information stored and retrieved in informational websites which include:
There is a potential access to private and confidential financial/customer information if the website isn’t isolated from the financial organisations internal network.
There is a huge risk in spreading virus and other malicious programming code to computers communicating with the organisations website
Potential customer violations and liability for wrong and insufficient information about products and services and price listing presented on the website; and
A negative public view if the organisation’s on-line website services are defaced.
These website provide customers with the ability to process transactions through a financial organisation’s website by initiating banking transactions or buying products and services. Banking transactions can range from basic retail account balance inquiry to a large intra-business funds transfer. E-banking services can be classified based on the type of customer and services they support.
Common e-banking retail and wholesale services mostly offered by financial institutions are listed in the table below.
Bill payment and Presentment
New account opening
Small business loan applications, approvals, or advances
Customer Wire transfer
Commercial wire transfers
Loan application and approval
Employee benefits/pension administration
Common E-Banking services
Due to the nature of transactional websites which enables the electronic exchange and transfer of sensitive customer information and funds transfer, these website expose the services of financial organisations to higher risk than any other type of website. Wholesale e-banking systems typically expose financial organisations to the highest level of risk during each transaction, since commercial transactions usually involve larger currency amounts. The following issues should be considered when reviewing transactional e-banking services:
Liability for unauthorized transactions;
Verification of both new and existing customers accessing e-banking services with the process of authentication;
Law violations, customer privacy, anti-terrorism, anti-money laundering;
Security control for safeguarding customer information;
Fraud loss due to disproval of individuals identity or business applying for new accounts; and
Customer dissatisfaction, negative public view and potential liability resulting from failure to process third-party payments as directed or unauthorized access to confidential customer information during storage.
BENEFITS OF E-BANKING
Since the introduction of e-banking, there has been a rapid spread in its daily use either to the financial organisation or for the customers all around the globe. All financial organisations are making greater use of the facilities provided by e-banking to better the services and to have an edge in the competitive market. The following points summarize the merits of e-banking.
Merits to customers:
Customers generally, have been distinctively affected in a positive way by E-banking. Ordinary tasks have now been replaced automatically which results in comfort and stress free. The merits include:
With the use of ATMs, customers have access to their account to withdraw funds at any time of the day at any ATM cash point throughout the country.
Transactions can be done at any time of the day, seven days a week by just a mouse click away.
Increase in the usage of smartcards in different format which is widely used across the globe i.e. credit cards and debit cards.
Online banking made easy to customers with an online account.
Services available in a banks local branch can all be accessed in the banks website.
The customer hardly needs to visit the local bank branch only if necessary due to the flexibility provided by the online service.
Attractive interest rates and many incentives given out when accounts are opened online.
Consolidated portfolio Interface for customers managing their debit, credit, mortgages and other financial assets.
Merits to banking organisation
When the use of ICT is been incorporated into any business, there are advantages engraved in it due to the growth of E-banking infrastructure and these are sighted below:
The wide reach and delivery capabilities of computer network such as the internet are better off than any other branch network.
Enormous paper work in the banking sector has been reduced due to the implementation of e-banking.
Financial organisation has become highly competitive amongst each other as a result of increase in e-banking.
E-banking has helped the banks in controlling their overheads and operating cost.
Huge data warehouse for documentation, storage and retrieval of records, transactions and customer details has been sorted out by e-banking.
Banks save money in the long run by not paying for tellers or managing branches.
Efficiency and customer satisfaction is improved.
Huge customer attraction due to online services offered (see image below).
Source: Aspen Analytics, The E-Bill Effect: The Impact on Customer Attrition from Banks that Offer E-Bill, Nov. 2007
Merits to the general economy:
The invention of the internet and the World Wide Web has triggered an electronic/automatic revolution in the financial banking sector with its flexibility and dynamic nature aided in balancing numerous services of banking activities.
The adoption and delivery of electronic banking products and services is existing partly as a product of customer demand and because of the rise in competition within the banking sector but many few banks have succeeded in deploying effective strategies for fully utilize the services of the internet.
GLOBAL VECTORS OF E-BANKING
E-banking has widely serviced both the members of the public as well as the financial organisation which created a creation of a better enabling society that supports growth and development, productivity and prosperity. Setting aside its benefits in form of cost reduction, delivery time saving, high efficiency, waste reduction, electronically controlled e-banking and thoroughly environment monitoring discourage many illegal and illegimate conducts associated with banking industry like frauds, money laundering and embezzlements. Customer database been closely monitored by e-banking. E-banking has also helped in documentation of the economic activity of the masses.
Global E-banking organisation is covered by four primary sections namely:
E-banking Strategies: key strategies that all banks must utilise to achieve peak value through the electronic channel.
E-banking Transactions: this sector deals with cross border transactions, mobile payment, B2B transactions and E-billing system.
E-banking Scenario: the state, prospects and issues relating to e-banking and the impact of e-banking on the banking organisation structure.
Trends in E-banking: this section focuses on the creation of new technologies in banks.
A study revealed that less than 15 percent of banks with transactional website will reap profits directly as a result to those sites. Therefore, financial organisation must acknowledge the seriousness of the challenge ahead and come up with a strategy that will enable leverage chances presented by the World Wide Web.
E-banking relies on the development of new business strategies based on networks. The world has become increasingly inter-connected through telecommunication networks and computers. These offer fast, flexible, and cost-effective ways of doing business.
There is no set appropriate strategy in E-banking that is suitable for every banking industry but whether they embark on a defensive or an offensive strategy, they still have to be up to date with the business trends and technological evolution of the Web space although, not every business has been e-business understood. Like Wells Fargo, early electronic businesses espouse, who firstly- not only entered the electronic banking sector but showed flexibility to change as the market expands.
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The level of e-banking should be well considered by the financial organisation that will provide numerous customer segments based on their needs and risk management assessment. An approved strategic e-banking broad should be consulted before reaching an agreement or final decision should be made with considerations to the customer demands, expertise, expense implementation, maintenance cost, competition and capital support. Financial organisations often consider the most appropriate mode of overall business strategy in terms of publishing its products and services on informational websites or transactional websites which can sometimes used to determine organisational success and to ensure the delivery of those product and services; the financial organisation may possess multiple pages within a website for different business functions.
E-banking is a remote delivery channel for banking services ranging from opening an account, transferring funds to more complex form of online transactions like financial product sale, like insurance and brokerage to bill payments and direct debits.
Although internet banking is still the most influential and most widely used, a new challenge has emerged in the form of mobile banking which is an additional opportunity for banks to offer basic urgent request for their new and existing customers. Mobile banking allows financial organisations extend their customer relationship and personalized information with the use of new technologies to their valued customers.
With the increasing cost of banking transactions, providing numerous customers with cost effective services; huge volume of e-banking transactions are been processed everyday and this is becoming increasingly popular as the number and value of e-banking transactions in the country have shown a rather impressive growth in years. This is achieved with the aid of new technologies which transformed traditional banking transactions. The traditional means of banking involves physically going to the bank to execute all banking operations from the simplest to the complex transactions which the banks had to employ several staffs to attend to the customers enquiries.
Electronic Fund Transfers got introduced and this minimised the average customer waiting times by allowing customers to carry out banking transactions on their own and at anytime. There are several practical services offered by Electronic fund Transfers and this includes:
The use of Automated Teller Machines – otherwise known as ATM or 24-hour tellers are electronic terminals that allows banking almost at anytime of the day. These machines enable bank customers to make deposits, withdraw cash, or transfer funds between accounts. To use this service, account holders make use of a plastic card with chip and a PIN (Personal identification Number) to access the account and carry out necessary actions in the account. Unauthorized users are declined and the card can be block to avoid fraud. Some ATMs are free and some charge a little access fee.
E-check conversion converts a paper check into an e-payment in a store or when a firm receives check in the mail. Using the e-check in stores, the cashier runs the e-check through an electronic system that captures the banking details and amount details on the check and stores the record. Thereafter, a receipt is issued as a confirmation of acceptance for the customer’s record. The e-check functions exactly as the paper check and all terms and conditions are applied equally.
Direct deposit enable authorization of specific deposits such as Social Security checks, pay checks to your account on a regular basis. Pre-authorize withdrawals may also be set up so as to pay recurring bills such as insurance premium, mortgages and utility bills, paid automatically.
Phone banking allows instant contact with the bank society to authorize certain payment, transfers, account balance request and transactional acknowledgements to be sent to the account holder over the phone. Agreement has to be made with the banking organisations to use this feature and is sometimes charged at a stated fee.
Bank account information is very sensitive and hence, special care should be taken into consideration when giving out details of debit card or credit card either on the internet or over the phone. Financial organisations should be contacted about any protections offered for these transactional cards.
E-banking is mostly used in the financial sectors across the globe and it tends to be the lead master in E-business but studies revealed that e-banking still has a lot to offer. E-banking is adopted mostly in developed nations as a mode of working ethics through the availability of the internet as an online bank branch while the developing nations make use of the internet as information dissemination.
E-banking started in the early 1980s in New York, US. According to “Banking and Finance on the Internet”, which was edited by Mary J. Cronin, distinctive banks offered home banking services to individuals and small-businesses to maintain e-check book registers, check account balances and fund transfers between accounts. Although e-banking was introduced in the mid-1970s so as to reduce back-office check-processing costs, the banks which embarked on the system failed to attract enough customers to break even and were deserted in 1989.
In 2001, over 50 percent of the banks were offering E-banking services in the US but however, small banking organisations had no competitive merit over huge banks in terms of services rendered although internet business strategies was been implemented.
In the 1990s, large banks awaken to the vast popularity and opportunities of the internet to advertise their products and services heavily. According to a research carried out by Online Banking Report, at the end of 1999, less than 0.4 percent of households in the U.S. were using online banking. Later in early 2004, some 33 million U.S. households (equivalent to 31% of the market) were using a form of e-banking or another and five years after, according to Gartner Group Survey, 47 percent of the Americans bank online. The FDIC statistics published revealed that only 40 percent of US banks offer e-banking facilities worth mentioning. The others may possess an online presence but don’t have website transactions to prove their existence on the internet.
Hence, the internet was used as a brochure without physical interaction to the customers. This offered entry and expansion opportunities that small banks traditionally lack.
E-banking arrived in the UK almost simultaneously with the US. It was introduces by the Nottingham Building Society in 1983 which introduced UK’s first home banking service via a computerised information service owned by British telecom. Approximately 60 percent of the UK financial industry was centralised in e-business in early 2001 and with the anticipated 10-fold surge of the e-business market in 2005 in UK, the share of the financial services will further increase. Some bank customers turn to internet banking due to dismay with normal procedures, policies and practices. The total cut of human intervention tends to appeal to some people and some people switch to internet banking for security reasons and convenience. This arises because of the assurance banks give to safe guard transactions and better security.
The internet is accelerating hard to reset the banking organisation into three divisions namely: production, distribution and advice. This is due to the combined effect of internet drive:
New technological equipments to reduce transactional cost and physical bank relationship
The adoption of new and more focused business models
High degree of uncertainty posed by new entrants on business models.
E-banking in Europe as well as the rest of the world is still at the evolutionary stage, it’s obvious that a huge impact is been felt on the traditional way of banking. Large banks in parts of the developed world will surely have a competitive advantage over small banks due to the competence to implement new technologies but are still not prepared. Hence, medium-sized and small banks have a significant role on the electronic banking front end if strict measures can be implemented rapidly and effectively.
TRENDS IN E-BANKING
The trends in e-baking varies from time to time although e-banking is gaining huge ground from banks operating through websites enabling customers not only to request account checks, interest rates but also to explore a whole wide range of transactional product and services.
Internet banking data seems to be scarce and definitional differences make comparison difficult in cross-countries. Internet banking has gained muck popularity in Korea, Spain, Austria, and Switzerland, where all banks offers up to 75 percent on internet services.
According to a research carried out by yStats.com, a research company founded in 2005 for the research of objective, demand-based and up-to-date data on markets and competitors for top managers, made key findings on the global use of online payments. The Quantitative information on different payment methods used in B2C E-Commerce markets worldwide quotes:
In the US, “Credit Card” (67%) was the preferred payment method for holiday online shopping in 2009, followed by “Debit Card” (36%).
While German men use credit cards for more than 40% of online purchases, women continue to use the traditional direct debit method.
“Sella” (31%) was Italy’s preferred online payment company in 2009, followed by “Cartasi” (19%) and “PayPal” (15%).
Furthermore, “iDeal” was the most accepted payment method in the Netherlands in 2009, with 89% of merchants accepting it.
“Money Transfer” (43%) was the preferred payment method of B2C E-Commerce consumers in China in 2009.
TRADITIONAL BANKING VS ONLINE BANKING
There are several differences between traditional banking and online banking although some people are still sceptical about the safety of sensitive information when using online banking so therefore, they stick with their old way of banking.
The distinctive feature between both is that one is physical and the other is virtual but they both offer the same products and services. The major difference lies in the convenience opportune by online banking specifically when it deals to making payments, obtaining
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