The Impact of Online Banking on Global Markets Finance Essay

Online banking has been shaping and shaking the financial sector world wide. But sustainability depend on proper understanding of consumer, there demand and the way they use it. The main objective of this report is to focus on technology (especially IT) use in banking sectors. It also focuses on Limited Purpose Bank and Credit Card system. Thus objectives of the study are to: Changes of future banking sector and impact of information systems. Limited purpose bank and use of technology in facilitating special purpose. Consumer banking and various consumer facilities provided by bank using information systems. Understand and suggest the online bank on the basis findings. Credit card banks, sub-prime lenders, and Internet primary banks [Mahboob, 2001]

Future Of Banking Sector

Consolidation of the banking industry: What are the prospects for, and implications of, further consolidation of the banking industry, particularly relating to safety and soundness, market concentration, and small business credit? Combinations of commerce and banking: In future the questions may arise concerning the pros and cons of allowing common ownership and the options for regulating combinations. Supervisory issues: The implications for bank supervision for the growing complexity of large banking organizations may be other questions. Governance issues: There are many corporate scandals that have led to efforts to hold our corporate management and directors to a higher level of standard 

Limited Purpose Bank

Limited-purpose banks are institutions that specialize in relatively narrow business lines. Making a certain type of loan, serving as a subset of consumers and offering different innovative products some limited-purpose banks create their market. They focus niche marketing concerning limited set of activities these banking institutions can develop expertise in particular business lines and can become efficient producers. Specialization may have been promoted by technological innovations. Credit card banks offer their customers both convenience and liquidity by providing a financial product that can be used as a means of payment and a source of instant credit. Some banks provide banking services through internet are known as primary banks[American Banker,1996]

Credit Card Bank

The credit card banks provide their customers with both convenience and liquidity by offering a product that can be used as a payment device and as an open-end revolving credit. There is no fixed duration to allow credit card loans that complicates the measurement of interest- rate risk. It creates the problems of adverse selection because of mass marketing of credit cards, small average balances on individual accounts. High interest rates results in high profitability of credit card loans, fee income, securitization, successful use of technology, and scale economies in operations. We can expect that the prosperity of credit card banks will continue [Ashust, 1996]. Benefits and Costs for Participants in the Credit Card Type of Participant Function Benefits Costs Cardholder Purchases goods and services Convenience of making purchases Without carrying cash Ability to time payments to match cash flows Access to credit Access to float Use of bonus features Interest rates and fees Difficulty managing credit Merchants Sells goods and services Access to large number of consumers Ability to sell to consumer needing credit without carrying credit risk Guaranty of payment Need to pay interchange fees on sales to cardholders Loss of private credit accounts (customer loyalty, marketing information, interest income) Issuing Bank Collects payments from cardholders Extends credit to cardholders Distributes cards Finances receivables Authorizes transactions Ability to collect on interest rate spreads Ability to collect fees from cardholders Ability to share in interchange fees from merchants Ability to crosssell to consumers OperationaI costs Some fraud risk Card Association Promotes the brand Establishes rules, standards and protocols governing participation in network Sets interchange fee structure Collects transaction fees Collects assessment fees Marketing costs Cost of fraud reduction programs Operational costs of maintaining network.

Technological improvements have played an important role in the growth of limited-purpose banks as well as in the broader financial services industry. Some people think that specialization in financial institution comes from improvements in technology. Banking sector is going to get fully technology based. Most valuable reasons are the huge task conducted by business firms. Banks are giving consumer service and getting more consumers oriented such as ATM service, Internet Banking, SME Loan, Priority Banking and so on.Banks are now competitive because of combination of banks and commerce. So they have to provide quick service such as check funding, quick withdrawal, fund transfer, LC opening etc. For various purposes data-mining techniques are used in the financial industry. Credit scoring is the most mentionable example of the use. To produce a score to summarize a credit risk, credit scoring uses statistical techniques and historical data. Credit scoring is used to speed up credit decision to attract new customers, institutions use data-mining techniques to identify potential customers.

In today's financial services industry electronic payment systems are important innovations having methods of transferring funds electronically. Because of having less physical branches these banks rely on ATMs to give their customers access to their cash and on the automated clearing house (ACH) to transfer fund. Credit card banks can process the payments within short time and having no physical existence of branches because of the development of technology. This dramatically reduces the cost of credit card banks. This development benefitted the credit card card banks as well as customers. Credit card banks take the traditional notion of banking as challenge and they have unique product mixes and business models to attract considerable attention f the customers [Basel, June, 1996]

Banking Technology

Banking Kiosk Cheque Deposit: A unique feature of the Versa Banker is its cheque deposit capability. It issues a receipt to deposit a cheque with a scanned image of the cheque. If a cheque is endorsed at the back detail transaction report is generated for the department of MIS of the bank. Personal Enquiries: The Versa banker allows you to check your account balance, print a mini statement and make cheque book requests. Internet Banking: Connect to the internet and carry out transactions through e-banking, with the help of Versa Banker. It is asked by the bank to view details of one's account and after that to make transactions online. ATM TMs were originally developed as just cash dispensers; they have evolved to include many other bank-related functions. ATMs include many functions which are not directly related to the management of one's own bank account, such as: Updating passbooks Paying routine bills, fees, and taxes (utilities, phone bills, social security, legal fees, taxes, etc.) Deposit currency recognition, acceptance, and recycling.

Loading monetary value into stored value cards Printing bank statements Purchasing Concert tickets Postage stamps Shopping mall gift certificates Lottery tickets Train tickets Movie tickets Donating to charities Adding pre-paid cell phone credit. Cheque Processing Module Games and promotional features ELectronic Funds Transfer Electronic funds transfer or EFT refers to the computer-based systems used to perform financial transactions electronically. There is a number of different concepts that use this term: A cardholder makes use of payment card Direct deposit payroll payments for a business to its employees, possibly via a payroll services company Direct debit payments from customer to business, where the transaction is initiated by the business with customer permission Electronic bill payment in online banking, which may be delivered by EFT or paper check Wire transfer via an international banking network (generally carries a higher fee) Electronic Benefit Transfer MICR Check The MICR stands for Magnetic Ink Character Recognition. This technology is unique and uses magnetically chargeable ink and/or toner to print the special characters or numbers on the bottom of the checks. E-13B: CMC-7: United States of America France Canada Spain Australia United Kingdom Other Mediterranean Countries Japan South America (except Colombia) India

After printing, the documents are then processed mechanically and electronically through a reader-sorter machine. BANKS in Bangladesh Using Information Technology The Two main technology based bank in bangladesh are- Dutch Bangla Bank Ltd (DBBL) Eastern Bank Ltd (EBL) Dutch-Bangla Bank offers a complete electronic banking facility for your company around the clock. Most multi-nationals use this service because it is advanced, secure and affordable. DBBL creates a custom banking service to suit any business of any size. The services have a wide range that includes cash flow services, distribution banking and salary accounts. If a company knows what type of custom and tailored banking service they need, DBBL can provide it instantly and at minimal cost (usually free of charge). For example for your starting point, DBBL has created Employee Banking program which allows: Providing employees with timely salary payments Transactions are properly logged for your easy reference Seamless and error free distribution of salaries Highly secure way of distributing money Lower manpower needed Reduces cash theft and misappropriation No cash at hand in the office, all cash finally distributed through the largest ATM network in Bangladesh DEBIT / CREDIT CARDS Dutch-Bangla Bank family, always believe that, as in everything else, you deserve the best in banking too. We are here to assist you 365 days round the clock through our Customer Care Center.Normal cards use a magnetic strip at the back of the card. The information and security on that magnetic strip is stationary and does not change. Hence it can be easily duplicated. But NexusEMV's processor uses its processor to fully digitally lock all the information. It prevents the information from being copied as the processor 'generates' security codes rather than store it. It is a form of encryption.

Internet Banking DBBL allows you to do seamless internet banking. This allows you to review your account, statements, paying bills as well as making some transactions. Because of local banking regulations, DBBL is not allowed to provide some types of transactions even though it is fully capable. Additional Internet Banking Features for Corporate Banking: Letter of Credit Bank Guarantee Limits Query SMS/Mobile Banking DBBL pioneered Mobile Banking in Bangladesh. It was the first bank to offer banking facilties through a wide range of mobile phones. SMS (Short Messaging System) is an extremely unsecure method to do mobile banking. The mobile phone networks are unsecure and there is nothing DBBL can do but to take precautionary steps. To make the most of this unsecure scenario, DBBL issues you a mobile PIN number which is different from the DBBL pin number for your mobile transactions. Not under any circumstances is the DBBL PIN number to be used in mobile banking. A different PIN number and a mobile transaction limit imposed by DBBL provide some security (but not all) over the unsecure phone network. Clients should be aware and cautious that although DBBL does its best, it cannot guarantee full security over a phone network it has no control over.

EBL Internet Banking

EBL Internet banking application addresses the needs of small, individual and corporate account holders of the bank. List of Transactions: Fund Transfers and Payments: The customer can choose to transfer funds by selecting different mode of transfers. The user also has the right to select source and destination accounts depending upon his rights. Utility Bill Payment: The customer can make Utility Bill Payments to utility companies as set up by the Bank by transferring funds from his/her Savings or checking accounts. Deposits: Maintain Deposits The user can view all the deposits maintained by the corporate. Request for rollover of deposits The user can request for a rollover of a deposit upon maturity. Request for premature closure of deposits The customer can redeem/encash a deposit prior to matuity. Session Summary: The customer will be able to view a log of the transactions performed in a session.

Security Mechanisms

Encryption Encryption is the usual way to meet the data confidentiality requirements and although using a symmetric algorithm (symmetric or asymmetric) could be used, there are good reasons for using symmetric [Financial times, November 8, 1996]. Message Authentication A Message Authentication Code (MAC) is a cryptographic checksum, calculated using a symmetric algorithm, which is appended to a message and which can be verified by the recipient of the message. The use of MAC is one method of providing the integrity and authentication services, but it is not appropriate for meeting the requirements for no repudiation. Digital Signature A digital signature is a checksum, calculated using the private key of an asymmetric key pair, which is appended to a message and which can be verified by anyone with access to the corresponding public key. The digital signature is dependent on the complete message, so any change to the message will be detected. The real difference between MAC and digital signature is that as well as providing integrity and authentication, the later also provide non-repudiation.

Algorithms and Cryptographic Mechanisms The constraint linked with each cryptographic algorithm (computation resources, time to compute, key management, algorithm capability and design…) limits their use for only a given number of security services. The following table lists the main security services and states whether RSA or DES (Data Encryption Standard) can address them [Denny, 1998]

Conclusion

The present status of e-banking is not satisfactory in case of virtual banking, call center and SMS banking. But all banks under study have their connectivity with SWIFT channel. Major reason is that security concern. One study in Europe reported that there is 2.6% increase in establishment of Bank branches. That means that E-Banking is declining in Europe. The main concern is security. So, data confidentiality, integrity, proof of origin, peer entity authentication, non-repudiation must be ensured. A few problems have been experienced by the IT heads in the Banks such as withdrawal of money beyond the limit. This has taken place at ATM booths because there is agreement between Banks regarding networking sharing. Gigantic fraud does not take place because there is limit in ATM Debit and Credit card to withdraw money from the booths [Barbara, 1997]

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