BANKING INFORMATION SYSTEMSLECTURE 6

Problematic Issues in E-BankingManagement

1.  Technology related problems

2.  Management problems

Technology Related Problems

1.  IT and telecommunication infrastructureissues

2.  Capacity/scalability problems

3.  Availability and systems integration

4.  Web site design and operationalfunctionality

1. IT and TelecommunicationInfrastructure Issues•  Many developing countries do not have thenecessary telecommunications, banking,commercial, bureaucratic and legalinfrastructures to support e banking.‐

•  Access to the Internet is a major problem inthe developing world, and presents anobstacle to the growth of e banking.‐

2. Capacity/Scalability Problems•  Scalability problems can give rise to a slowing down of the

website, or even a web- site crash (temporary unavailability).

•  This can cause many reputation problems and financial damage.

•  Some of the ways of addressing this problem are:-  Undertake market research to predict demand

-  Adopt systems with adequate capacity and scalability-  Undertake proportionate advertising campaigns-  Ensure adequate staff coverage and develop a suitable business

continuity plan

•  A number of other technical solutions are also available to addressthis problem but owing to the high cost associated with them,some banks do not implement them.

3. Availability and Systems Integration

•  A basic requirements of e-banking services is their 24 hour availability.‐

•  This often requires e-banking applications’ integration with legacysystems, which were designed to provide services during only specifiedperiods, often with suspension of services at other times for variousreasons such as data backups and end of day processing.‐ ‐

•  Usual legacy systems are accounting, banking, payroll, customerinformation, product management (such as current accounts or savingsaccounts), and inventory systems. The new business applications areoften not built from scratch and they normally rely on the functionalityof the existing legacy applications.

•  Incompatibility between e-banking applications and legacy systemsmeans that most banks require middleware to integrate these systems,which can be expensive and may bring its own set of problems.

4. Web Site Design and OperationalFunctionality•  There is considerable weight attached to the appropriate design

of e-banking web-sites.

•  Poor design of website has been estimated to result in the loss ofup to 50 percent of potential repeat visits.

•  Poor design may include:-  Use of inappropriate colors, contrast, font or navigation functions.-  Lack of proper functionality.

-  Excessive use of graphic.

•  Poor website design can also result in decreased trust in usingonline financial services as look and feel often creates a lastingimpression.

4. Web Site Design and OperationalFunctionality•  Web usage barriers can also be attributed to vision,

cognition, and physical impairments associated with thenormal aging process.

•  Vision changes include a decline in visual acuity resultingin inability to see objects on a screen clearly, decreasedcapacity to focus at close range, or increased sensitivity toglare from light reflecting or shining into the eye.

•  There are people who might need the online servicesmost due to mobility issues.

Management Problems

1.  Regulatory issues2.  Information management

3.  Outsourcing problems4.  Security

5.  Loss of personal relationship6.  Organizational structures and resistance

7.  Trust issues8.  Adoption/acceptance issues

9.  Clash with other services delivery channels10.  Change management issues

11.  Ethical issues

1. Regulatory Issues•  As the Internet is a global medium, it creates opportunities for trading on an

international basis, but every country has its own laws and regulationsconcerning the provision of financial services.

•  The issue of preventing money laundering, which is considered to be the mainsource of finance for terrorism and other related criminal activities, has furthercomplicated the situation .

•  This is one of the major problems in expansion of e banking services on a global‐basis.

•  The Internet is a major source of consumer intelligence (personal information,buying patterns and behavior) which raises a number of privacy, security anddata protection issues which regulators must address effectively.

•  New regulations must be put in place more quickly than in the past, leading toconstant changes in laws and regulations, and complicating compliance; again amajor obstacle to the growth of e banking.‐

2. Information Management•  Good information management enables organizations to become

more effective in their operations as it provides the informationemployees need to analyze and conceptualize information,thereby adding to the firm’s store of knowledge and making theirjobs more meaningful and efficient.

•  This gives employees an opportunity to add value to theorganization’s products and services.

•  In online services operations, good information can be a vitaldifference between success and failure.

•  Effective e banking requires that management has up to date and‐ ‐ ‐timely information in an understandable format. Anyimprovements in this area can lead to significant benefits inoperations and the marketing of e services.‐

3. Outsourcing Problems

•  Development or implementation of e banking‐systems and other technical tasks such as upgradingand integrating existing legacy systems are verycomplex.

•  They require very high levels of technical and projectmanagement competence to carry out withoutoutside help. Even the best companies need torecognize the limitations of their expertise and whento outsource certain e Commerce functions.‐

•  Many banks outsource all or part of e banking related‐operations owing to a lack of in house expertise or‐simply to cut costs.

3. Outsourcing Problems

•  Some aspects of outsourcing, for example the typeand number of partners, can present particularmanagement challenges.

•  Outsourcing works in some cases but can create a riskof the bank losing control of its critical functions.

•  For this reason, if a bank needs to outsource its e‐banking operations, it should do so with dueconsideration to outsourcing risks. General goodpractice in planning, negotiating and actualoutsourcing is applicable here.

Outsource vs. In house‐

4. Security•  Security related issues are a major source of concern for everyone

both inside and outside the banking industry.

•  E banking increases security risks, potentially exposing‐traditionally isolated systems to the open and risky world ofInternet.

•  Security problems can mainly be categorized as:-  Hacking with criminal intent (e.g. fraud),

-  Hacking by ‘casual hackers’ (e.g. defacement of web sites or ‘denialof service’ causing web sites to slow or crash),‐

-  Flaws in systems providing opportunities for security breaches (e.g. ausers is able to transact on other users’ accounts).

•  These threats have potentially serious financial, legal andreputational risks associated with them.

Security Threats

1.  Login detail disclosure:

•  This is most basic threat to the financial system.

•  Using a number of means, criminals acquire logindetails, such as a customer number, pin, and useit to access the account and steal money from it.

Security Threats2.  Computer spy viruses:

•  These are computer programs which are circulated through email orother means.

•  Once a customer opens a malicious email a program is automaticallyinstalled in his/her computer.

•  These programs collect login id or other financial information whichis used to conduct a range of criminal activities such as credit cardcloning or unauthorized funds transfer.

•  Spyware are small programs which discreetly install themselves oncomputers and send details of a user’s activities to anothercomputer.

Security Threats

3.  Dummy sites:•  Customers are lured to the dummy or look alike

website.

•  These website look very similar to a bank’s

website, and when login details are entered,

these are recorded and used for criminal

activities.

Problems associated withImplementing Security Procedures

1.  Customer resentment against several layersof security which might lead to loss ofcustomers.

2.  High cost associated with them; mostsophisticated systems can be implementedonly for the highest value parts of e banking‐systems.

Security Approaches•  A strategic approach to security, building best practice security

initiatives into systems and networks as they are developed.

•  A proactive approach to security, involving active testing ofsecurity systems, controls (e.g. penetration testing), planningresponse to new threats and vulnerabilities and regular reviews ofinternal as well as external threats. Advice from financialregulators can be sought on how to do it.

•  Sufficient staff with security expertise and responsibilities.

•  Regular use of system based security and monitoring tools. Thismay include use of digital signatures or Public Key Infrastructure.

•  Continuity plans to deal with aftermaths of any security breaches.

5. Loss of Personal Relationship

•  Another key barrier in e banking is a lack of personal‐contact between customers and banks.

•  E-channels erode a direct relationship with customersas compared with traditional over the counter‐ ‐banking: e-banking does not offer face to face‐ ‐contact in what is essentially a one to one service‐ ‐relationship.

•  To compensate, e banks must deliver higher quality‐services in order to compete with other servicedelivery channels.

5. Loss of Personal Relationship

•  Another factor in the loss of personal relationships is theconvenience of Internet shopping: it is much easier nowto compare products and switch between differentproviders.

•  This creates the need for offering high value products andto cut operational costs to remain competitive, which inturn may further erode the avenues for building personalrelationships with customers.

•  The solution to these problems appears to be offering amulti channel experience which is better than directcompetitors.