Internet Banking is Gaining Popularity Finance Essay

Internet banking is gaining popularity in the banking industry and the regulatory community. This is due to the reflection of internet as a tool for commercial activity. This can also take place due to a strong potential that banking along with other financial services, provides an environment for the development of e-commerce. At its core, banking involves the collection, storage, transfer and processing of information assets and the Internet is a powerful and efficient tool for handling these information processes. Banking through internet has emerged as a strategic resource for achieving higher efficiency, control of operations and reduction of cost by replacing paper based and labour intensive methods with automated processes thus leading to higher productivity and profitability.

In India, a wider array of financial products and services has become available over the Internet which has thus become an important distribution channel for a number of banks. Banks boost technology investment spending strongly to address revenue, cost and competitiveness concerns. For some activities, banks hope to see a near-term impact on profitability. Other investments are motivated more by a desire to establish a competitive position or avoid falling behind the competition.

DEFINITION

Electronic banking, also known as e-banking, virtual banking and online banking, is a service that allows customers to access their bank information, conduct financial transactions, make deposits, withdrawals and pay bills through the Internet without having to physically visit their bank. It provides the convenience of accessing banking facilities from the comfort of their home or office.

Internet banking is the facility for the customers to use the Internet, a decentralized electronic network with worldwide access, to obtain account/ custody account information and place payment and securities orders. Safe data transmission channels protect the confidentiality of the information conveyed. Internet banking is one form of Home banking.A 

INTERNET BANKING SERVICES PROVIDED BY BANKS

View

Your own accounts and your related ones

Credit and Debit cards

Funds

Time deposit, Saving certificates

Loans

Treasury bonds

Latest transactions of current month

View, print and save your monthly statements

Transfer

Funds between your accounts

To another bank account (Digital signature required)

To your credit card

To another banks credit card (Digital Signature required)

Request

Cheque book

To change your mailing address

To inquire or complain

To add related accountA  (Power of attorney, parent/child or account with different customer number)

To make External transfer ( Digital signature required )

Digital Signature registration

Also

Stop your credit card

Subscribe in Alerts service (SMS /E mail)

1.2 GENESIS OF THE PROBLEM

Pure online banking, the development of internet websites as a delivery channel, or traditional banking does not have the same implications. Internet may be exploited as a new delivery channel by the financial services industry to completely re-organize the structure of banks. The new challenges of the delivery channel is been explored through this research.

1.3 NEED FOR THE STUDY

Internet banking is receiving great attention in the banking industry and the community. Internet banking has been looked upon from customers' point of view and the risks involved in the implementation of internet banking. This research aims at studying the bankers' point of view and the challenges faced by them, with reference to the market developments.

1.4 OVERVIEW OF THE STUDY

Internet banking has become the new bloom in the banking industry and the community. The research focuses on bankers' perspective of internet banking and the impact it has created on the banks. Also the challenges the employees have faced in due respect with the implementation of internet banking in their banks. The research also studies the financial impact on the banks performance and the growth over the years.

CHAPTER 2- REVIEW OF LITERATURE

2.1 IMPORTANCE OF REVIEW OF RELATED LITERATURE

The study which I am taking as a part of this project is descriptive in nature and most of the studies concentrate only on the customers' point of view of internet banking. This research will highlight the bankers' point of view of internet banking and the various benefits it has provided and supported them in their operations. Literature review describes how the proposed research is related to prior research and determines the originality and relevance of the proposed research.

2.2 HOW THE REVIEW HAS BEEN DONE

The review of literature has been extracted from research papers in similar fields of the topic and includes study of research papers from Proquest and online resources. The research papers were examined and an understanding of the paper was undertaken to highlight the findings of various researchers and scholars.

2.3 STUDIES CONDUCTED

1. The Impact of Internet Banking on Bank Performance and Risk- The Indian Experience- By PoojaMalhotra and Balwinder Singh

The study reveals that out of 85 scheduled commercial banks, only 57% i.e. 48 banks, use net banking in their organizations. A univariate analysis was used which showed that large banks use internet banking and they have better operating ratios and profitability as compared to the non- internet banks. These banks rely on their core deposits as a basis of funding. Another tool used in the study was the multiple regression analysis which revealed that profitability and offering of internet banking doesn't have any impact on each other. Rather internet banking has a negative impact on profitability with the risk involved. Also internet banking affects positively the performance of foreign banks in terms of Return on Equity. Thus the study concludes that internet banking has helped the banks in reducing the risk profile with the advent of internet banking.

2. Online Banking Customers: Insights from Germany- By Sven Christian Berger and Sonja Gensler

The research is studied based on interviews with German banking customers belonging to private households in Germany. The study includes factors such as demographics, product interest and use, risk aversion, direct banking affinity and bank use. The study reveals that online banking customers are willing to accept risks in exchange for higher interest rates and have high demand for banking products. For retail banks, profitable online banking customers are among the most promising customer segments and need to be given a top priority.

3.Internet Banking in Europe: a comparative analysis- By Francesca Arnaboldi1 and Peter Claeys

According to the research conducted technological innovation boosts internet banking. The strategy of the banks to incorporate internet banking is to have a competitive edge on their business models. Researchers give importance to internet banking an effective and innovative delivery channel which represents new challenges in the financial sector. They are of the view that internet banking to the banks is a complementary product and not a substitute product for physical branches. It gives an insight into the market competitiveness and the overall expenditure involved including the R&D expenditure. Taking due consideration of all the expenditures involved, the study revealed that internet banking has led to an increase in the return on assets and equity and also reduces operating costs. Increased internet access has enhanced network building with prospective clients and thus boosts the profit potential for the banks.

4. Changing Face of Banks and the Evaluation of Internet Banking in Turkey- By Bora Aktan and EdipTeker

The study states the in today's competitive world with growing importance of technology and internet, banks need to adopt internet banking in order to keep in pace with client- banker service relationship and to attract prospective clients. Commercial banks are slowly becoming aware of the need and importance of the adoption of internet in their business operations. Internet banking is an emerging market with its growing potentiality and thus a key competitive field for future financial services among its young population.

5. Internet banking in Sweden- An exploratory study on its Symbiotic Benefits- By Solomon Okhiria

The study highlighted the growing importance of use of internet banking by banks with their clients that lead to a number of additions and deductions on the value creation. The study was conducted in lieu of the statement that internet banking provides value to both the bank and its customers. The results provide an insight on the high rate of adoption of internet banking and the values the banks and their customers have benefitted from. Internet banking is a value adding process to make the customers life easier and banking much faster. Also internet banking is beneficial for the huge attention and investments that it has attracted, making it a profitable venture. To conclude the results, internet banking has also reduced the cost of delivery of service than the traditional methods of banking.

6. Internet banking in India: Emerging risks and new dimensions- By R. K.Uppal

The study examines that private sector banks are on the top in providing the internet banking services to their customers. The research analyzed as to how technology is affecting the employees' productivity. In India, the public sector banks will need to use technology in order to improve their operating efficiency and services. Technology will be used to add value to customer services, to develop new products, strengthen risk management, etc. Also it revealed that technology has transformed the delivery channels in banks banking business. The study has explored the challenges that the banking industry has faced, the extent of usage of internet banking by the customers and the various strategies to be adopted for internet banking services in India. The study strongly concludes on the note that technology and internet banking is the only tool to achieve a bank's goal.

7. Acceptance of E-banking among Adult Customers- An Empirical Investigation in India- By Neha Dixit and Dr. Sarok K. Datta

The study examines the change in the usage of banking services with a switch from traditional banking services to advanced self-service technology. The customers are able to interact with their bank accounts and transact virtually from anywhere without time restrictions. Internet banking establishes its basis on the expectations of accuracy, security, network speed, user-friendliness, user involvement, privacy, trust, familiarity and convenience. Adult customers always prefer advanced technology but sometimes lack knowledge to access such technologies (internet banking services). The fact that customers have positive perceptions of internet banking should be considered as important and needs to be valued, if not one bad experience can result in losses, dissatisfaction and disbelief in technology.

8. Technology policy and change in developing economies- Advancing a banking strategy for world developments- By M. O. Mahdi and Patrick Dawson

The research paper highlights the recent developments in the international economy, namely liberalization, globalization and the application of Basel Committee recommendations in order to promote the adoption of internet banking. The study examines the technology policy and change in the banking industry. It focuses on developing economies that aim at development and growth with the advent of internet banking and the use of new technology. It states the various investments made, such as comprehensive IT training programmers for new personnel's, modification of systems to accommodate the modes of internet banking practice, etc. Priority should be given to such investments as they bring out new dimensions of delivery channels and help in the development of the banks and the economy.

9. The Transformation of Banking and Its Impact on Consumers and Small Businesses- By William R. Keeton

The study held there are three parameters for transformation in banking sector, mainly- Consolidation, internet banking and financial integration.

Consolidation means the acquisition of assets in bank mergers. It has significantly increased from 1980's of 10 million dollars to 650 million dollars in 1998. The biggest change was in the importance of the megabanks who hold more than $100 billion of assets. There were around eight megabanks and together they accounted for 30% of domestic bank deposits at the end of 1999.

Internet banking enabled commitment from large banks and there were about 3500 banks using the technology. The main benefit of internet banking to consumers is lower fees for banking services or higher rates on deposits. Also it provided greater convenience for payment of bills known as bill presentment. Internet banking from the bankers point of view benefits the bank to acquire overall financial condition of their online consumers thus to provide higher quality service, determine which products would best serve each customer's financial goals and make those products available online.

Internet banking is also beneficial to the small businesses in order to view their balances in real time, transfer money between accounts and originate wire transfers. Small firms could also get help from their banks in conducting business-to-business (B2B) commerce over the Internet-for example, in setting up automated systems for ordering and paying for new supplies when inventories fall below a critical level.

Financial Integration made two major changes. First, it allowed bank holding companies to merge with insurance and securities companies and cross-sell their products. Second, it allowed bank holding companies that did not merge with other firms to offer new financial services on their own-for example, underwriting securities, selling or underwriting insurance, and making equity investments in business firms.

On the whole, consumers appear to be benefiting from the changes. Consolidation has not been beneficial enough in reducing the competition as the mergers that were seen were not in the same city or country. Internet banking reduces the time and inconvenience of banking transactions and by providing access to the small communities that might otherwise be unavailable. It also provides the benefit of one-stop shopping. Combining these services would result in information gathering at lower prices.

10. How Has the Adoption of Internet Banking Affected Performance and Risk in Banks? By- Richard J. Sullivan

The study provides an insight on internet banking where in a bank website provides insight into the branch locations and product descriptions. They also provide information on a number of interactive services such as financial calculators, loan or deposit application, and access to account balances and bill payment. Banks are divided into four types- Community banks, large community banks, Regional banks and Large Regional banks. All these categories of banks are assessed on their demographic and market characteristics, funding income and lending characteristics and financial risk and performance. A bank can generate a large number of Internet transactions if it has a sizeable customer base, a high participation rate among its customers, and customers who actively use the system. Banks offering Internet banking are taking a risk by adopting the technology at an early stage of the products life cycle. Results show that Internet banking has been introduced into markets with characteristics such as a highly educated population that may increase customer acceptance. Also the business strategy of banks is consistent with the type of functions offered on their Web sites. Overall though there is high risk involved, the bank's performance has improved substantially and would reap benefits soon in the near future.

2.4 RESEARCH GAP

In all the studies conducted by various researchers it is noticed that most of the research is based on the customers' point of view. Bankers' point of view is not taken into consideration. Internet banking has created significant impact on a bank employee by reducing their work load transaction, increase in the productivity, increase in knowledge, reduction in processing time, etc. Hence, this research is conducted to consider a bank and its employees' point of view of internet banking. Also, most of the studies conducted are based in countries outside India. Hence this research focuses on impact of bankers in Bangalore, India.

2.5 HOW THE REVIEW WAS USEFUL

The review helped in an in-depth understanding of the concept of internet banking and the various concepts related to internet banking. Also it helped in analyzing how internet banking has become a new delivery channel in the banking industry and community. The advantages and challenges involved in the implementation of internet banking and the implications on the bank's performance were also highlighted. The various factors and risks associated with internet banking were also studied and analyzed.

CHAPTER 3- DESIGN AND METHOD OF STUDY

3.1 STATEMENT OF THE PROBLEM

"A study on the impact of internet banking on the bank and its employees"

3.2 OPERATIONAL DEFINITIONS

1. Electronic banking- E-banking can be defined as the use of electronic delivery channels for banking products and services, and is a subset of electronic finance. The most important electronic delivery channels are the Internet, wireless communication networks, automatic teller machines and telephone banking. Internet banking is a subset of e-banking that is primarily carried out by means of the internet.

2. Brick and mortar banking- AA branch,A banking centerA orA financial centerA is aA retailA location where aA bank,A credit union, or otherA financial institutionA (and by extension,A brokerage firms) offers a wide array ofA face-to-face services to its customers. These are typically stand alone branches of a financial institution that often are contained in its own building. These branches typically offer full service banking including safe deposit boxes. They may include access to drive-through teller windows.

3. Brick and click banking- It is the buying and selling of product or service over electronic systems such as the Internet and other computer networks. Electronic commerce draws on such technologies asA electronic funds transfer,A supply chain management,A Internet marketing,A online transaction processing,A electronic data interchangeA (EDI),A inventory management systems, and automatedA data collectionA systems. Modern electronic commerce typically uses the World Wide Web at least at one point in the transaction's life-cycle, although it may encompass a wider range of technologies such as e-mail,A mobile devicesA and telephones as well.

4. Electronic money- It isA moneyA or scripA that is only exchangedA electronically. Generally this involves the use ofA computer networks, theA internetA andA digital stored valueA systems.A Electronic funds transferA (EFT), direct deposit,A digital gold currencyA andA virtual currenciesA are all examples of electronic money.A 

5. Transactional Website- A transactional web site is an internet website of a bank that allows the customer, at minimum, to initiate inter-account transfers.

3.3 VARIABLES OF THE STUDY

The purpose of the research is to understand the effect of internet banking revolution on the bank and its employees. Various variables to be studied under this research are-

Primary Research-

Impact on workload

Personal development

Processing time

Convenience

Benefits of internet banking

Improvement of internet banking

Electronic data interchange

Real time gross settlement

Secondary Research-

Deposit growth

Efficiency Ratio

Capital Adequacy Ratio

Return on Equity

Cost to Income Ratio

3.4 OBJECTIVES OF THE STUDY

The Research is being conducted for the following reasons:

To determine the bank performance on advent and incorporation of internet banking.

To determine the impact internet banking has on the employees of the firm.

To quantify the economic impact of internet banking.

3.5 HYPOTHESIS

The hypothesis to be studied under the research are defined as follows-

1. H0- "Internet banking has not created significant impact on the bank and its employees."

H1- "Internet banking has created a significant impact on the bank and its employees."

2. H0- "Internet banking has not increased the productivity of the bank and its employees."

H1- "Internet banking has increased the productivity of the bank and its employees."

3. H0- "Internet banking has not reduced the time taken for processing of transactions of the bank and its employees."

H1- "Internet banking has reduced the time taken for processing of transactions of the bank and its employees."

4. H0- "Internet banking has not been cost effective on the bank and its employees."

H1- "Internet banking has been cost effective on the bank and its employees."

5. H0- "Internet banking has not helped in the knowledge up gradation of the bank and its employees."

H1- "Internet banking has helped in the knowledge up gradation of the bank and its employees."

3.6 SAMPLING PROCEDURE

1. Target Population- Bank employees in Bangalore, with more emphasis given on the areas like Sanjaynagar and surrounding areas, where the possibility of getting information is high.

2. Sampling Element- Questionnaire will be administered to the individual's. Also it will be administered to both male & female employees.

3. Sampling Frame- Individual employees working in the bank.

4. Sampling Method- A survey with a well framed questionnaire will be done with the respective target segment which fulfils the required objectives of the research. An in-depth interview will be conducted for the respondents.

5. Sample Size- Approximately 30 and above respondents.

6. Sampling Administration- Survey questionnaire will be administered to the specific target population between the hours 2:00 P.M - 4:00 P.M on weekdays. On weekends, the survey can be conducted till afternoon only keeping in the work timings of the banks.

3.7 TOOLS USED IN THE STUDY

PRIMARY RESEARCH-

The primary data will be collected through survey method. A survey will be conducted with the help of a well-designed questionnaire and would be addressed to the respondents coming under our sampling frame. The questions contained in the questionnaire are Close-Ended Questions.

SECONDARY RESEARCH-

The secondary research will be done on the data collected from some organizations and internet.

3.8 STATISTICAL ANALYSIS

The techniques to be used for doing the analysis are as follows:

1. Frequency distribution- A representation, either in a graphical or tabular format, which displays the number of observationsA within a givenA interval. The intervals must be mutually exclusive and exhaustive.

2. Cross-tabulation- Cross tabulation is a method used when creating graphs which display how different items inter-relate. This allows those creating and reviewing the graphs to see where two or more pieces of data directly relate to or affect one another. It will help to search for patterns of interaction. If certain cells contain disproportionately large (or small) numbers of cases, then this suggests that there might be a pattern of interaction.

3. Hypothesis testing- AA statistical hypothesisA is an assumption about a populationA parameter. This assumption may or may not be true.A Hypothesis testingA refers to the formal procedures used by statisticians to accept or reject statistical hypotheses.

There are two types of statistical hypotheses.

Null hypothesis. The null hypothesis, denoted by H0, is usually the hypothesis that sample observations result purely from chance.A 

Alternative hypothesis. The alternative hypothesis, denoted by H1A or Ha, is the hypothesis that sample observations are influenced by some non-random cause.

4. Anova- A statistical analysis tool that separates the total variability found within a data set into two components: random and systematic factors. The random factors do notA have any statisticalA influence on the given data set, while the systematic factors do. The ANOVA test is used to determine the impactA independent variables have on the dependent variable in a regression analysis.

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