E-BANKING: ADVANTAGES, CHALLENGES AND OPPORTUNITIES IN THE
INDIAN CONTEXT
Rameesha Kalra1
Bhagyashree Narayan2
Abstract
There has been an extensive expansion of the Indian financial system, out of which the banking
sector is considered as the most significant component. Banks are the lifeline of any economy
and are indispensable in a modern society. Today banks have expanded their purview of
activities and are getting into new range of products and services like e-banking services,
investment banking, mutual funds, general insurance, credit cards, demat services and so on. Due
to liberalization, the financial system has a greater role to play than in the past and thus one
cannot afford to ignore the importance of existence of a strong Indian banking sector. Increasing
levels of competition and information age environment have exposed banks to a variety of
challenges like technology, customer service, Basel III norms, new accounting standards,
transparency, disclosure and corporate governance. The present study is an attempt to study the
status of e-banking in India, growth in e-banking transactions, advantages and risks associated,
challenges ahead, opportunities and managerial implications arising out the study.
Keywords: E-Banking, Challenges, Risks, Opportunities, Managerial Implications.
Introduction
Banking is the lifeline of an economy. They are considered as vital for the growth and
development of the financial system of a country. In the past decade, the overall economy has
undergone a phenomenal change in terms of technological updations. With the advent of
technology, the banking sector is also not left behind. Online/e-banking/virtual banking has
become an important aspect in today’s lives. Internet plays vital role between banks and
customers to receive and deliver information, this form of banking is described as internet
banking.(Reserve Bank of India’2001).Internet banking refers to a system where individual
customers are allowed to perform banking activities 24*7 at off-shore sites such as home, office
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2
Research Scholar, Banasthali Vidpyaith, Rajasthan, rameesha.kalra@gmail.com
Assistant Professor, YMT College of Management, Kharghar, Navi Mumbai, narayan.bhagyashree@gmail.com
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or any other locations via internet based secured networks. Online
banking
enables
bank
customers to get access to their accounts and general information on bank products and services
through the medium of bank’s website without the intervention of sending letters, faxes, original
signatures and telephonic confirmation (Thulaniet al.2009).
With the changing times, branch banking is being replaced by Internet banking. It has led to
reduction in transaction costs for banks as it allows them to reach to masses without the
requirement of branch networks and staff. Banks are thus able to succeed in reducing queues,
paper work and per transactions costs. As customers become more and more demanding and
knowledgeable, it has become imperative for banks to consider the use of technology effectively
in order to respond to their changing requirements.
Internet Banking in India
E-banking came into being in UK and US in 1980s. However, in India, e-banking is still at
nascent stage. ICICI was the first bank to introduce internet banking services in India followed
by Citibank and HDFC. The Government of India and Reserve Bank are working together to
strengthen and develop e-banking in India. IT Act’2002 was enacted by the Government to
provide legal recognition to electronic transactions. Most of the public and private banks have
started providing Internet banking services to their customers. Indian banks offer the following ebanking services to their customers:
a) Automatic Teller Machines (ATMs)
b) Internet Banking
c) Mobile Banking
d) Phone banking
e) Debit and credit cards
f) NEFT and RTGS transactions
g) Smart cards
Growth in ATMs
‘The Indian banks are trying to increase their penetration with the total number of ATMs
reaching 0.18 million. The public sector banks had a major share i.e. around 70% in the total
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number of ATMs. The share of off-site ATMs in total ATMs increased to 50.9% in 2015 as
compared to 47.9% in 2014. (Source: RBI, Report on trends and progress in India)
Debit cards and Credit cards:
Debit cards remain the most preferred way of carrying out transactions as compared to credit
cards. As on 31st March’ 2015, “Approximately 83% of the debit cards were issued by public
sector banks and around 80% of the credit cards were issued by private sector banks.” (Source:
RBI, Report on trends and progress in India)
NEFT and RTGS transactions:
In the year 2016, total NEFT transactions were Rs.10226 billion, RTGS valued Rs. 100045
billion, mobile banking transactions were valued Rs. 572 billion. In comparison, in the year
2015, NEFT transactions were valued Rs. 7173 billion, RTGS Rs. 87421 billion and mobile
banking transactions were valued at 169 billion.
The enhanced transactions in 2015 as compared to previous year 2014 are an indicator of
increased usage of e-banking services by consumers.
Literature Review
Chavan (2013) described the benefits and challenges of Internet banking in an emerging
economy. It observed that online banking is now replacing the traditional banking practice. It
showed that online banking has a lot of benefits which add value to customers’ satisfaction in
terms of better quality of service offerings and at the same time enable the banks gain advantage
over the competitors. It also discussed some challenges in an emerging economy. Haq& Khan
(2013) analysed the challenges and opportunities in the Indian Banking sector. The study showed
that only 28 per cent banking clients were using internet banking after evaluating the population
characteristics. It observed that qualification in terms of education and income of the respondents
were playing the role in the acceptance of online banking. The study suggested that it is the need
of time that financial literacy of the users should be increased through various programs which
should be run by banks to increase the awareness of internet banking. Gupta & Mishra (2012)
examined the new emerging trends of E-banking in Indian banking industry. The study found
that there are many challenges faced by banks in E-banking and there are many opportunities
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available with the banks. It concluded that banking sector will need to master a new business
model by building management and customer services. Srivastava (2007) analysed the
customer’s perception on usage of internet banking. It also focused on what are the drivers that
drive consumers, how consumers have accepted internet banking and how to improve the usage
rate.The study revealed inhibitory factors like trust, gender, education, culture, religion, security,
price can have minimal effect on consumer mind set towards internet banking.
Objectives of the Study
1) To study and analyse the progress made by Indian banking sector towards adoption of ebanking services.
2) To study the advantages and limitations in using e-banking services.
3) To make recommendations as to how to improve e-banking usage.
Research Methodology
The study is based entirely on secondary data and is analytical in nature. Data has been extracted
from RBI and respective websites of banks. For the purpose of analysis, simple growth rate,
percentages and averages are used.
Advantages of E-banking
E-banking facilitates customers to avail banking services from anywhere anytime as per their
convenience through electronic channels. It is beneficial both to the consumers as well as banks.
In the view of current demonetisation drived by Government, e-banking has gained more
relevance.
To the banks:
a) Lower costs and increased profitability: Usage of e-banking as compared to branch
banking helps to increase profitability.Investment in e-banking increases the banks’ profit
margins as it helps in reducing costs. E-banking has quite low cost per transaction as
compared to the human teller banking. Banks also earn certain amount of
commission/interest on products and services rendered through electronic means thereby
enhancing their earnings.
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b) Paper less based banking system: In order to sustain in the tough, globalized and highly
competitive environment, banks are nowhere behind in using Information Technology.
Banks have altered their services from being a paper based banking solution providers to
the latest of technologies like Internet banking, mobile banking, NEFT transactions and
so on.
c) Reduced requirement of staff: E-banking, as a medium of service channel, provides self
service channel to the customers which helps them to cut their workforce to a certain
extent. Many research articles have proved that e-banking has led to reduction in
operating and administrative costs for banks.
d) Geographical reach: Through e-banking mechanism, banks can even reach at
places/areas where there is no branch, thereby expanding its geographical reach
and
customer base.
e) Easy access to services: E-banking provides an easy access to consumers by offering
easy and convenient access anywhere anytime.Several research studies have proved
positive association of increase in customer satisfaction as a result of adoption of ebanking services.
f) Reduced investment on development of infrastructure: Banks are no longer required to
spend substantial amount of money upon developing their infrastructure/ maintaining
buildings as traditional system of branch banking is being replaced by e-banking.
To the consumers:
a) Saving of time: One of the major benefits of e-banking is saving of time, accuracy and
fast speed/efficiency with which the transactions are processed and consequently enhance
the performance of banks. There is no longer requirement to stand in queues at a bank
branch.
b) Increased accessibility: Customers get the banking services more speedily and
consistently than ever before, thus increasing the accessibility and customer base.
c) 24*7 services: With the advent of technological upgradations, banking is now available
24*7. Customers can perform their tasks from anywhere and at anytime, even when the
bank is closed or on holidays.
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d) Ease and Convenience: Transacting via internet/mobile banking system have become
much simpler on internet. It allows customers to avail banking services without
physically visiting the branch. They can keep an eye on their transactions, request cheque
book, updating information and opening RD/FD accounts from anywhere they feel
convenient.
e) Saves time and money:As customers are not required to visit bank branch if they are
transacting online, it saves a lot of time, effort and cost.
A major driving force behind the popularity/increased acceptance of e-banking all over the
country is its cost effective mode of delivery of products and services in comparison to the
existing channels. However, along with the benefits that it has brought to the consumers and
bankers, it has also exposed them to various risks.
a) Operational risk: Also referred to as transactional risk. It occurs due to inaccurate
processing of transactions, weaknesses in design, unauthorized access to bank’s systems
or human factors like hacking, fraudulent activity of employees, negligence by customers
and do on.
b) Security risk: Any breach in security can result in financial loss to the bank. “Data
residing in web servers or even banks’ internal systems are susceptible to corruption if
not properly isolated through firewalls from Internet.Unless specifically protected, all
data / information transfer over the Internet can be monitored or read by unauthorized
persons.” (Source: RBI). Similarly, hackers operating via net can access, retrieve and thus
use the customer’s confidential information like account number, passwords, card
numbers etc.
c) Money Laundering risk: Money laundering is the process of conversion of criminal
proceeds into a legal form of money so as to appear the source of money as ‘legitimate.’
E-banking transactions, as we all know, are conducted remotely, so banks may find it to
track and prevent undesirable transactions.
d) Reputational Risk:It is the risk of getting negative opinion of the public/losing public
confidence which may result in financial loss to the banks. The main reason for this risk
is deficiencies in the working of the system, not working as per customers’ expectations,
major problems with communication networks, security breach and so on.
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e) Legal Risk: Legal risk arises from violation/non compliance with rules, regulations and
laws. If the customer is not made aware of his rights and obligations in using e-banking
services, he may not take precautions in availing them which might lead to unwanted
suits/cases against the bank.
These risks must be carefully managed by the banks/banking system so that this
innovative channel of delivery reaches out to maximum customers without much
hassles and security threats.
Challenges in E-banking
1) People’s trust: Most consumers prefer conventional/branch banking for most of their
transactions because of their lack of trust on online system. People perceive that
online system of banking is risky/unsafebecause of security concerns. Sometimes,
amount is deducted from their account while initiating transactions without actual
processing of thattransaction.
2) Knowledge about E-banking: Most of the customers are unaware as to how to use
e-banking system of carrying out transactions. In the Indian context, awareness
among consumers is pretty low. They do not have proper knowledge about the use,
benefits and facilities offered by e-banking system.
3) Safety and security of transactions: E-banking transactions may not be safe and
secure everytime. There is a risk of loss of data or hacking due to technical defaults.
4) Lack of adequate infrastructure for installation of e-delivery channels: Some of
the banks lack the adequate infrastructure required for the set up of e-delivery
channels. Developing the right technology, using it optimally and leveraging it to the
best is essential to ensure costeffective delivery standards.
5) Customer awareness and satisfaction: In today’s competitive world, satisfying
customers is a major challenge for services sector, especially banking, because banks
offer undifferentiated products and services. Competition in the sector brings various
challenges before the banks such as positioning of their products, targeting
customer’s requirements, cross selling, minimize their NPAs andmanage their assets
carefully.
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Opportunities related to E-banking
Opportunities in e-banking are immense but the only need is to explore them effectively.
Banking services have now moved from a product centric view to customer centric view.
In view of this, it is essential to understand customers’ requirements and accordingly
design their services. Bankers should instil greater confidence among users of e-banking
services and promote e-banking culture across the country. A good thing about e-banking
system is that banks use SMS and e-mail alertsthe moment customer logs into his
account. Few other recommendations that can help e-banking penetrate among the
masses are:
1) Government to provide easy finance at concessional rates to the banks so that they
can develop their infrastructure in order to meet e-banking requirements.
2) Regular trainings to employees so as to enhance their technical/inter-personal skills
so that they are well versed with technological innovations and that will further help
them train their customers.
3) Installation of both on-site as well as off-site ATMs at different places to as to have
maximum geographicalreach.
4) Spreading of awareness among customers with respect to usage of e-banking services
through advertisements/demo/seminars/workshops. Banks should issue instructions to
the customers to manage their accounts through virtual keyboards which cannot be
identified by hackers.
5) Regular customer feedbacks will help bank managers to improve upon their quality of
services.
6) Computer literacy is a must to enable customers to use e-banking services. Internet
users are increasing day by day and banks can encash this opportunity to attract more
and more users to adopt/use e-banking services.
7) Bankers must ensure safety and security of the customers’ transactions by enhancing
security features, which will ultimately boost up customer confidence in using eservices. Customers should change their online passwords more often and should
never use e-banking facilities on an unsecured wifi network.
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8) Exploring rural untapped market in India is also a major opportunity with the banking
sector to expand their reach and customer base.
Managerial Implications:
The discussion in the paper about the benefits, risks and challenges will help bank managers to
consider the areas where they are lacking and how to devise effective strategies to tap the
untapped.
Banks must act as an advisor in helping customers use e-banking services. Young customers are
generally less risk averse than elder ones, so banks must target more of youngsters for e-banking
services. Tapping of those segments that do not use e-banking facilities muse be done. Banks
must assure customers that the information provided by them online would not in anyways
misused and its privacy will be maintained. Online systems must be pre-tested before
implementation and back-up system to be in place to meet contingencies. Banking researchers
will need to focus on customer’s needs, attitudes and behavior in the adoption of e-banking.
Regular feedback/monitoring system should be in place to know the areas where service quality
can be enhanced.
Conclusion:
The study aims to identify the benefits, risks, opportunities and suggestions to overcome the
challenges associated with e-banking services. If more and more customers will switch to ebanking as a medium of carrying out their banking transactions, banks will experience lower cost
of operations and customers will get these services 2*7 which they can avail as per their time and
convenience. The use of e-banking is still confined to a limited customer segments which is
again an opportunity for banks to tap upon. Banks must develop suitable strategies to leverage
the opportunities/benefits provided by e-banking.Considering the challenges and risk related to
e-banking, the Reserve Bank of India and Government is initiating efforts to make ebanking more safe, secure and reliable for customers.
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3. Chavan, J. (2013). Internet banking- Benefits and challenges in an emerging economy.
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