The Risks Involved In Online Banking Systems Information Technology Essay

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Recent trends show that most banks are shifting from a product-centric model to a customer-centric model as they develop their new e-banking capabilities. They have, over a long time, been using electronic and telecommunication networks for delivering a wide range of value added products and services. The delivery channels include direct dial up connections, private networks, public networks etc and the devices include telephone, Personal Computers including the Automated Teller Machines, etc. With the popularity of PCs, easy access to Internet and worldwide web (www), banks increasingly use Internet 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. (RBI 2001)

As the times are changing the usage of internet has increased significantly, the age of internet has made a lot of contribution in the living standards of the people of earth. The change is so big that these days one can get anything whatever they can think of while sitting at home and using internet to their doorsteps with just few mouse clicks. This is one of the major advantages of using the internet. Everything from house held accessories to beauty and health products, brands, services, consultancy, console and pc gaming to online selling are done with the use of internet. With just a key word one can get million results about the different options and choices available. Same is the situation with the banking sector.

These days all the banks almost are offering the online banking solutions which includes opening of account, getting credit cards, getting and paying loans/debts and offering costumers to shop online and pay either online or via credit card without physically being present. Many banks also offer the option to withdraw cash from the account and pay bills online. This is a true revolution as the online baking is the one of the best part of internet usage, online banking makes you feel secure by just being at home still able to do all the cash based transactions without even visiting banks over and over again, by just logging into the web site of your bank and entering the account password one can access all the offers being provided by the bank and the costumer can choose whatever service he wants to use giving exactly the same benefit as physically being at the banks branch.

Some banks offer even more to their customers, at times the account holder can have an issue accessing their account and at the same time cannot visit the branch, many international and local banks offer services as automatic bill payment before the due dates, the money is deducted from the account and the user gets a stament at the end of the month about all the transactions that happened even if he is out of the country the bank takes care and this solves many problems instantly.

This clearly shows that online services solve many problems a costumer can face on day to day basis, one just have to login from home and because of this very reason more and more users are using the available online services because they are easy to access and one don't have to personally face the worries of waiting in the long queues rather they can have the fastest possible transaction with just few clicks. That is why the online banking concept is gaining popularity day by day.

Rational for the Research

Internet banking provides many worthy features to the costumers however there are huge risks involved too, as any online transaction involves the activity of cash and in case of a problem the costumer loose the amount and bank loose its reputation. For the reason banks that are involved in internet banking must have effective and reliable methods of authentication of their account holders. A secure system is required to safeguard the important costumer information and to withstand against any money laundering or terrorist financial activity to eliminate the threat of fraud. For this reason doing business with not properly identified costumers in an online banking system can result in money loss, corrupt data, loosing account holder information or damaged institution reputation.

Motivation for the Research

The motivation behind this research is to identify the potential risks and threats available and associated with the internet banking function, to know about the types of existing risks and how they affect a normal costumer. To study deeply about the history of online frauds and how the institutions have dealt with it.

This research will focus on how banks, their account associations, and vendors are working to make an online payment system to help make e-commerce more secure. There is significant increase in the use of the Internet for the purchase of goods and services and electronic data interchange. The banking system also focuses that the Internet must be a safe environment to maintain high confidence levels with both consumers and businesses.

Importance of Proposed Work

In today's world, where uncertainty and instability are dominant market factors, to safeguard the interests of costumer, lenders and borrowers a sound and transparent banking system is needed. The online banking system that started from the ATM and now the internet are benefiting people in their way of life, so it is important that costumers may know about the risks and negative aspects of this area which can effect and disclose their personal information.

The main aim of this research study is to collect and provide information regarding the role of Information Technology in the financial institutions. To study the work flow, form of security implemented in these financial institutions.

Authors Contribution/ Originality to Existing Knowledge On The Topic

This thesis focuses on studying the level of security prevalent in online banking system. For this purpose, a detailed survey will be conducted to verify how many banks comply with International Requirements. And a detailed survey will show that are people happy and satisfied or vice versa with the online banking solutions.

Literature Review

One of the major forces behind the changes happening to business today is technology, which is creating new products, services market opportunities and developing more information and system oriented business and management processes (Liao & Cheung, 2002). According to Yudkin (1995), there are as many definitions of the Internet as there are researchers. Chaffy (2000) explains it as a physical network that links computers across the globe.

Electronic commerce refers to the use of electronic means and technologies to conduct commerce in various settings, such as business-to-business (B2B) and business-to-consumer (B2C). The enabling technologies, of course, are also used for non-commercial activities such as entertainment, communication, filing and paying taxes, managing personal finance, research and education, which may still include the services of online companies. E-commerce is the application of information technology to facilitate business exchanges among different parties. (Rayport and Jaworski, 52)

Banking is one of the most information intensive sectors and is an ideal domain for the successful development of E-Commerce (Kardaras and Papathanassiou 2001). Internet banking refers to the use of the Internet as a remote delivery channel for banking services (Furst et al., 2002; Suganthi et al., 2001; Dannenerg and Kellner, 1998; Zineldin, 1995). For banks, technology has emerged as a strategic resource for achieving higher efficiency, control of operations, productivity and profitability. For customers, it is the understanding of their anywhere, anytime, anyway banking dream. This has prompted the banks to embrace technology to meet the increasing customer expectation and face the tough competition. Internet banking would help banks present a potentially low cost alternative to brick and mortar branch banking. Internet banking services are crucial for long-term survival of banks in the world of electronic commerce. (Burnham 1996) The market for Internet banking is forecasted to grow sharply in the next few years, affecting the competitive advantage enjoyed by traditional branch banks (Duclaux 1996; Liao et al. 1999). Indeed, it also was estimated that financial institutions that failed to respond to the need for Internet banking services would likely lose more than 10% of their customers base by the year 2000. (Orr ,1998)

There are two ways to offer Internet banking. First, an existing bank with physical offices can establish a web site and offer Internet banking in addition to its traditional delivery channels. Second, a bank may be established as a branchless, Internet only or virtual bank. Broadly the levels of banking services offered through Internet can be categorized in three types: (i) The Basic Level Services use the banks websites which disseminate information on different products and services offered to customers and members of public in general. It may receive and reply to customers queries through e-mail (ii) In the next level are Simple Transactional Websites which allow customers to submit their instructions, applications for different services, queries on their account balances, etc, but do not permit any fund-based transactions on their accounts (iii) The third level of Internet banking services are offered by Fully Transactional Websites which allow the customers to operate on their accounts for transfer of funds, payment of different bills, subscribing to other products of the bank and to transact purchase and sale of securities, etc. Most of the banks providing Internet banking products and services offer, to a large extent, an identical and standard package of banking services and transactional capabilities. (RBI, 2001)

Internet banking involves consumers using the Internet to access their bank account and to undertake banking transactions. At the basic level, Internet banking can mean the setting up of a web page by a bank to give information about its product and services. At an advance level, it involves provision of facilities such as accessing accounts, funds transfer, and buying financial products or services online. This is called "transactional'' online banking (Sathye, 1999). It is reported that more than 35 million consumers in the USA used on-line PC banking by the end of 2003 (Barto, 1999), some seven percent of UK customers used PC based Internet banking and this was expected to rise to twenty eight per cent by 2004 (Gandy, 1999), these figures being similar to those of Sweden, Norway and Germany (Bons, 1999). The proportion of people in Finland who have adopted online banking is higher than anywhere else in the world. As early as 2000, almost forty per cent of all retail banking transactions in Finland was made over the Internet. All Finish banks offer a full range of Internet banking services (Mattila et al. 2003).

Internet Banking Risks

It's been a long since internet banking is being introduced to costumers; people still have major concerns regarding the security associated with the internet banking. Its not very easy for customers to accept change specially who are not into technology and internet stuff, it does takes time for people to accordingly adjust. Online security is risk, but at the same time it's managed and calculated risk. Many people avoid internet banking as they (normally perceive wrongly) think it being too vulnerable to fraud. The security implemented by any bank is not fully secure, but in real the number of fraudulent victims due to internet banking is not in large numbers rather very small. Electronic banking user interfaces with usually secure websites (generally employing the https protocols) and traffic of information - including the given password - is encrypted thus making it literally impossible for a third party to get a clue to modify or change the information being sent/received. However, its not just the encryption alone that rule out the possibility of the access a hacker can gain to a vulnerable home PC and further intercepting the password as they are stored in (key loggs). There is also the danger of password hacks and cracks as hackers all around the world develop special programs that can hack in even most secure firewalls and physical theft of passwords that are written down by users carelessly is also a very common mistake.

For these reasons many internet banking services have therefore imposed a second security layer. Their strategies differ but a typical common method is to use a transaction numbers, or TAN (Transaction authentication number) ie a single time use password another method is to use two passwords means only random part of both passwords are entered at the start of online session, this is however less secure then TAN, a third popular option is to provide costumers a unique chip that generates unique password every time for that specific user's chip card. Another option is using digitalized certificates that digitally authenticate the transaction by connecting them to a physical device (e.g. computer, handheld, mobile phone, etc). Biometrics are also being used in some banks to securely login required costumers. These days, the security is less about viruses or attacks, and more about spyware, malware, phishing and social engineering-these tools are created to extract personal information from the users to provide financial gain for hackers or in simple words internet thieves.

Benefits of online banking

Humans always complaint about the little availability of time they have to do all the things they want to do and banking in this matter is often pushed in the back of the list, even though its very important to ensure that the finances are in order. But with the introduction of electronic banking systems costumers no longer have the excuse of not attending the banks more often, the online system is very convenient and it truly enhances the quality of long as one have internet access banking is possible from anywhere even if a costumer is fishing along a lake side because technology actually does make the world your oyster. Being in control of your finances is a great thing at a push of a button while keeping eye on your accounts any given of the day. Discrepancies are monitored more quickly and dealt swiftly. The need of access paperwork is also eliminated and the account history is accessible online whenever needed, banking has now become more hands on for the account holders, as there are no more lengthy queues or long drives to visit your branch.

Benefits to the Bank

Electronic banking would help banks to demonstrate a potentially low cost substitute to conventional brick and mortar branch banking. New technologies have given banking a facelift. Real time online banking 24 hours a day, both the bank and their clients can now have more control. International banking opportunities have made it further possible to generate business on a global scale. The market ratio for the online banking is expected to increase sharply in the next coming years, that will affect the competitive advantage that traditional banks are enjoying. Indeed, a recent estimation shows that the banks that do not look into the importance internet banking services would probably be losing more than 10% of their customers base on annual bassis. Moreover People all over the world have become more and more aware of how fragile the current environment is and what measures must be taken to greatly protect it. Online banking has definitely contributed to the success of this mission, because paper waste is reduced greatly.

Research Question

The research questions relevant to our scope are,

To identified problems regarding internet banking

To identified the customer activities regarding internet banking

To identified the customer's problems which they face while interacting with internet.

To identified the customer attitude which they show about online banking

This project begins with the a background covering the internet, e- commerce and specially internet banking

To show the future of the online banking

To show how the bank's online environment can be describes as well as customers services within this online.

Research Objective

This report is helpful to identify the typical problem regarding the online banking and its benefits. However my research is going to be a benefit for both customers and the banks itself, this is helpful for the banks that they will follow the rules and avoids problems identified and starts online banking so that they survive in the market. This report is helpful for the banks those are already online they become familiar with the internet problems and their solutions. For customers who are hesitant of going for online solutions this report will address the security concerns and proposed solutions and ways to do transactions securely.

Research Methodology

For this purpose I will visit 3 or 4 banks that are good with online banking solutions and will gather information about the gaining trends and security issues faced locally. Moreover rest of information sources and research instuments will be:

Various Banks websites

Financial statements


Search for the information on the internet

Articles from books and journals

Interview with industry people

Information from other research papers

Expected Outcomes

To see common and prevailing problems banking industry face regarding online banking and to propose possible solutions and recommendations, similarly despite being very easy and mostly secure a typical bank costumer is still reluctant to choose online solutions, this study will help costumers gain confidence as it will briefly address the solutions to above problems and to make them aware how banks are implementing new security techniques to safeguard the personal information of the costumers.


With the amount of data available for use coupled with the able supervision of my supervisor, God-willing I will be able to complete and submit my dissertation within 35 to 45 days.