E-banking is an electronic payment method, which is also termed as online banking and internet banking. This system enables customers of a financial institution to conduct financial transactions using their institute’s website.
Using E-banking, an individual can make payments to merchants, send money to relatives and friends, check the balance in their account. To use the e-banking services of a bank, a customer must register oneself on the financial institution’s website and create a password for customer verification. The customer then enters his credentials and the password previously set on the institution’s website to use the E-banking services. Many banks now also provide facilities where customers can download bank statements from their premises. Also, a customer can now place the order for various financial books such as chequebook, statements through the online portal of the financial institutions. Customers can even report a loss of their debit card and perform other routine activities through such portals.G1 G2 G3 G4 G5 G6
Now, many banks are operating online only. They are known as virtual banks. Biggest examples of such banks in India are Paytm payments bank and Airtel payments bank. They have no physical locations for operating. They only operate through their websites or mobile applications. They incur very fewer costs and provide numerous other benefits to customers compared to other physical G7 G8 banks which make E-banking an emerging trend in our country.G9 G10
Evolution of E-banking Services
It started in 1980’s. It began with the use of phone line to carry on banking services in 1981G11 (Dhananjay, B 2015 August 01) in New York which connected four major banks of that time. From New York, it first went to France. While in India it evolved in 2000 with introduction of Information Technology Act. Online banking has evolved from a basic level of creating a page showing the services offered by the bank to the advanced level, which includes providing access to services like fund transfer, accessing accounts, a summary of transactions and other online payments without even visiting the bank physically.G12 G13
Three functions of Internet Banking have been defined by Thulani et al; these are informational, communicative and transactional. Under first, the banks provide details about the services offered by it. In the second, there is an interaction between band and its customers. The third one is risky as it involves the threat of frauds and hacking while consumers carry out their transactions electronicallyG14 G15 (Thulani, D: Tofara, C: Langton, R 2009).
Growth and Current Position of E-banking Services
Huge Developments have taken place in the Banking Sector of India. The main factor responsible for these changes is the introduction of technology and its advancement. Traditional Banking is now implemented with services like online banking, ATMs, cards and mobile banking. Though being a developing nation, it still has a long way to go in this. For example, usage of digital banking in developed countries is more than 90 percent and diffusion of digital channels in developing countries range from 11 percent to 25 percent (Dhananjay, B 2015 August 01).
Now customers are finding it beneficial in comparison to traditional banking as it is more convenient though it is insecure as chances of frauds are more. A major contribution to this field is the formation of NCPI, i.e. National Payments Corporation of India, which looks upon the retails payments and acts a regulator of the same. There is a huge difference in the number of transactions before and after its formation.
Below image shows the change in volume of non- cash transactions issued by RBI which shows a huge growth in electronic payment: (Hans, Pritam P: Kamath, Sowmya 2013 January)
The number of ATMs in India has doubled in the past three years. Currently, there are more than 100,000 ATMs; around 70% of them in urban locations (see New Age Banking). Global research firm Celent expects the number of ATMs to double by 2016, with more than 50% being set up in small towns (Hans, Pritam P: Kamath, Sowmya 2013 January).
During 2011-12, the volume of online fund transfers through NEFT (National Electronic Funds Transfer, used for low-value transactions) and RTGS (Real Time Gross Settlement, used for the high-value transaction) grew by 71% and 11.7 %, respectively, according to RBI data.G16 Though cheque is still the dominant mode of payment, the value of cheque-based transactions has been on a gradual decline between 2007-8 and 2011-12. Paper-based payments accounted for 52.4% of non-cash transactions in terms of volume, but it accounted for only 8.4% in terms of value(Hans, Pritam P: Kamath, Sowmya 2013 January).
Below is the volume of G17 non-cash transactions (in billions) projected to be done in various financial years and an increasing trend can be seen through (Chakrovarti, Bhaskar 2016, December 06)G18 G19
Nowadays, virtual banks are playing the major role in shaping the demand for E-banking services as these banks only operate online. They are boosting demand for online transactions in India where customers have started to use these banks very often for their routine activities. Virtual banks provide many benefits to their customers in the form of cash back, discounts on third-party products. This makes these virtual banks better over their physical bank counterparts.G20 G21 G22 G23
Future Prospects of E-Banking Services
E-Banking services in India as compared to abroad have a long way to go because till now it has not reached the masses. For the successful implementation of these services, the country needs to have two things – sufficient users and sufficient infrastructure to support those users. One more thing that is necessary for E-banking services to flourish is Security of Private Information. There is no official organization in India to look upon this. Apart from this, other security options which need to be looked upon are encryption, digital certificates, recovery sites, random pop-ups, automatic signoffs, firewalls, branch connection encryptionG24 G25 . Due to lack of an official authority, there is lack of Consumer Confidence in E-banking and thus the growth is not as projected.G26
One more reason which discourages Domestic Users to use Internet Banking Services is that to enter into a contractual agreement to use such services, one need to fill an online form and send it to the bank through the mail. Thus, the situation is that the terms and guidelines of use are with one party only, i.e. bank. So domestic users which have easy access to ATMs, banks, telebanking prefers to avoid using online banking services. Though for Non-Indian Residents, it has been proved as a great mechanism to save both time and cost.G27 G28
Another thing that can promote the use of such services is having a proper and strict Legal Framework in the country to safeguard against Cyber Crime which is a major threat that restricts consumers from opting for e-banking. Indian Government has introduced a billG29 G30 G31 Information Technology Bill which was implemented in October 2000. Section 72 of the Information Technology Act, 2000 casts an obligation of confidentiality against disclosure of any electronic record, register, correspondence, and information, except for certain purposes and violation of this provision is a criminal offence. (University College, Mangalore 2016)G32 G33 G34
Not only Government but Banks themselves have started taking initiatives which would encourage the use of online services in the future. They are planning to introduce a Credit Information Bureau online which would have all the details of the lending institutions. They are advancing their IT branches to give their full support to the customers.
Another service that supplements the growth of e-banking in future is the role of banks as Depository Participants as the banks not only keep their savings account but also maintain their Demat Accounts. In this, the bank acts as a payment bank for the transfer to occur.
The concept of E-banking services is still evolving. It helps in enhancing banking services, both in speed and cost. Initiatives of both Reserve Bank of India and Indian Government G35 are improving the infrastructure for e-banking services.G36
Dhananjay, B (2015 August 01)
Evolution of E-banking statistics. Retrieved from http://www.icommercecentral.com/open-access/the-electronic-banking-revolution-in-india.php?aid=59261#2
Thulani, D: Tofara, C: Langton, R (2009)
The functional level of E-banking. Retrieved from G37 http://connection.ebscohost.com/c/articles/42735205/adoption-use-internet-banking-zimbabwe-exploratory-studyG38
Hans, Pritam P: Kamath, Sowmya (2013 January)
Change in volume of Non-cash transactions and growth. Retrieved from http://www.businesstoday.in/moneytoday/banking/india-e-banking-mobile-banking-popular-branch-banking-stays/story/191073.html
Chakrovarti, Bhaskar (2016)
The volume of Non-cash transactions and their projections. Retrieved from G39 https://www.weforum.org/agenda/2016/12/going-cashless-is-india-ready-for-digitalG40
Basavarajappa, M.T. (2016)
Future Prospects of E-banking. Retrieved from https://www.academia.edu/5337192/_E-BANKING_IN_INDIA_AND_ITS_PRESENT_SCENARIO_AND_FUTURE_PROSPECTS_