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1. Electronic bankingElectronic banking,ore-banking,isthetermthat describes alltransactionsthattake place among

companies,organizations, and individuals and theirbankinginstitutions.

Electronic banking usescomputer and electronictechnology as a substitute forchecks and other

paper transactions. E-banking are initiated through devices like cards orcodes that let you, orthose you authorize, access your account. Many financial institutions use ATM or debit cardsand Personal Identification Numbers (PINs) forthis purpose.

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( picture 1, formsofe-banking)

2. History of electronic bankingFirst conceptualized in the mid-1970s, some banks offered customers electronic banking in

1980s. Online banking was first introduced in the early 1980s when four New York banks--

Citibank, Chase Manhattan, Chemical and Manufacturers Hanover--offered home banking

services. The systems were quite difficult to use and did not prove to be very popular. In the

U.K.,it was Nottingham Building Societythatin 1983 offered the firstelectronichome banking

system.

E-Commerce

Conducting businessthroughelectronicnetworks

E-Finance

Providing financialservicesthroughelectronicchannels

E-Banking

Providing banking products and servicesthroughelectronic deliverychannels

Internet banking

Telephone banking

Otherelectronicdeliverychannels

Other financial services and products

Insurance,online banking,etc.

E-Money

Stored valueof prepaid paymentmechanisms.

The difference between e-money and e-

banking is that, withe-money, balances are

n tke tin financial acc unt with ank .

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The lackofinternet users, and costs associated with usingonline banking,stunted growth. The

internet explosion in the late-1990s made people more comfortable with making transactions

overthe web. Despitethe dot-comcrash,e-bankinggrew alongsidetheinternet.

While financial institutions tooksteps to implement

e-banking services in the mid-1990s, many

consumers were hesitant to conduct monetary

transactions over the web. It took widespread

adoption of electronic commerce, based on

trailblazing companies such as America Online,

Amazon.com and eBay, tomake the idea of paying

foritemsonline widespread. By2000, 80 percentof

U.S. banks offered e-banking. Customer use grew

slowly. At bank of America, for example, it took 10 years to acquire 2 million e-bankingcustomers. However, a significantculturalchangetookplace afterthe Y2Kscareended.

In2001, Bankof America becamethe first banktotop 3 milliononline bankingcustomers,more

than 20 percent of its customer base. In comparison, larger national institutions, such as

Citigroup claimed 2.2milliononlinerelationshipsglobally, while J.P. MorganChaseestimated it

had more than 750,000 online bankingcustomers. Wells Fargohad 2.5 milliononline banking

customers,includingsmall businesses.

Online customers proved more loyal and profitable than regular customers. In October2001,

Bankof America customersexecuted a record 3.1 millionelectronic bill payments,totalingmore

than $1 billion. In2009, a report by Gartner Group estimated that 47 percentof U.S. adults and

30 percentinthe United Kingdom bankonline.

3. Forms of electronic bankingElectronic banking can be divided on the basis of the instruments used: telephone connection,

personalcomputers,meansof payment (bankcards) and self-servicezones.

3.1 Electronic banking using a telephone connection:Telephone banking and the first banking services using classic telephone lines for

communication date back to the turn of the sixties and seventies, of the last century. These

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servicesgrow veryrapidly and atthecloseofthe20thcenturymobile phones alsostarted to be

used in banking with the development of information and communication technologies. In this

period, banks started with to communicating with their clients by SMS messages, with GSM

bankinglaterbecoming a naturalcomponentofelectronic banking.

A mobile phonecan be used tocommunicate with a so-called telephone bankeror an automatedtelephonesystem, just as well as a fixed line. However,opportunities formobile phone usagein

communication with a bank are much greater. Mobile phone use represents a direct

communication channel that spread on a massive scale trough which clients have immediate

access to typing a bank operation, ordering services or working with accounts. Electronic

banking using a telephoneconnectioncan be divided into phone banking (ATS,client advisor)

and mobile banking (SMS banking, GSM SIM Toolkit and WAP). Here is described some

electronic banking with a telephoneconnection:

3.2 Phone banking:Phone bankingisthe provisionof bankingservices using a classictelephoneline. A bankclient

canobtainthenecessaryinformationof dialingoftelephonenumberspecified in advance. Before

requested banking service information is provided the

clients identity is determined usingcontractually agreed

terms. Usingthis bankingservicesenables bankclientsto

obtain concerning active and passive banking products,

but a client can also actively use the bank payment

system and request, for example, a payment order or a

collection order, open or cancel a term deposit or acurrent account. In this case a fax connected to the

telephoneserves as anoutputcommunicationchannel.

3.3 Automated Telephone Systems ( ATS ):Automated telephonesystems allow bankcustomersto access accountinformation and services

24 hours a day,seven days a week. An automated telephonesystem worksonthe basisof a menu

trough which clients can move around using buttonsortelephone. Theservicemenu is usually designed to

besimplesothat a choice doesnttaketoolong. Bank

customers wishing to use the automated telephone

system need a touch-tone telephone line to

communicate with the banks computer. After

entering bankaccountnumbers and otherinformation

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used toverify identity, bankcustomerscancheck account balances,transfer funds, find service

locations, and performotherroutinetasks.

Securecommunication forthissystemcan be arranged intwoelementary ways:

1. END TO END security - the wholecommunicationchain issecured by a verbalcode.Thisisverysecure, but alsoexpensive and only used in public administration and army.2. Usingsocalled access rights- atthestarttheclientmust documenthis authorizationto

communicate with bank.

3.4 SMS banking:SMS banking usesshorttextmessagessenttroughtheclientsmobile phone. SMS textmessage

can be used for both passive and activeoperationssimilary as withclassictelephone banking. A

clientcan be automaticallyrecieveinformation abouthis account balance: an SMS issenttotheclientimmediately after a certainoperationis performed,oronrequest: a clientsendsthe banka

correctly formatted message which processesit and answerstheclientsrequest bymessage.

3.4.1GSM SMS ToolkitThe GSM SMS Toolkit service can only be used from a mobile phone supporting this

technology. GSM SIM Toolkit is a software interface that enables arbitrary changes to the

mobile phonemenu. Operatorssupportingthistechnologycan useitto personalizemobile phone

menus. This means that only functions activated and paid will appear on the user menu. This

technology dates back to 1998. Among the first companies to use it in banking applications

based on the GSM SMS Toolkit standard were RadioMobil and Expandia Bank in the Czech

Republic.

3.5 Wireless e-banking:Wireless bankingis a deliverychannelthatcanextend thereach and enhancetheconvenienceof

Internet banking products and services. Wireless banking occurs when customers access a

financialinstitution'snetwork(s) usingcellularphones, pagers, and personal digital assistants (or

similar devices) through telecommunication companies wireless networks. Wireless bankingservicesinthe United Statestypicallysupplement a financialinstitution'se-banking products and

services.

Wireless devices have limitations that increase thesecurityrisksof wireless-based transactions

and that may adversely affect customer acceptance rates. Device limitations include reduced

processing speeds, limited battery life, smaller screen sizes, different data entry formats, and

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limited capabilities to transfer stored records. These limitations combine to make the most

recognized Internet language, Hypertext Markup Language (HTML), ineffective for delivering

content to wireless devices. Wireless Markup Language (WML) has emerged as one of a few

common language standards for developing wireless device content. Wireless Application

Protocol (WAP)hasemerged as a data transmissionstandard to deliverWML content.

3.6 Electronic banking using personal computerAlong withsignificantgrowth in the usageofmobile phones

in banking practice, personalcomputershave alsocometothe

fore, whichto anevengreaterextent facilitate and modernize

banking service provision. In an information society this

communication instrument plays an irreplaceable role and is

indispensable forthe present day bankingsphere. The area of

electronic bankingrealized trough personalcomputerscan bedivided into home banking, internet banking and mail

banking.

3.6.1 Home bankingHome banking is a servicethatenables a bankclienttohandlehis accounts fromcomputer from

a place selected in advance, at home or in the office. A home banking system is multi user

application,meaningthatseveraloftheclientsemployeescan workit,in particular:

a) administrator-can definenew employees,changerights,b) sender-ensurescommunication withthe bankand transmissionof prepared data,c) accountant-cantype paymentorders and orders forcollectiond) viewer-can browsethroughstatements and announcementsreceived.

3.6.2 Mail bankingMail bankingiselectronic bankingservicethatmakes possibletocommunicate withthe bankby

electronic mail or e-mail. The most frequently used service is sending account statements at

agreed periodicitytotheclientsmailbox.E-mailisnot used formoreexampleoperations.

3.6.3 Internet bankingInternet banking allowscustomersto accesstheirbankaccounts from anycomputerwith Internet

access.Customers wishingto use Internet bankingmust first apply attheirlocal bank for access

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Revenue processingsystem

(13)Data processing

totheencrypted network. In additionto allowing basic functionslike account balancechecking,

Internet banking usually allowscustomersto pay bills and makeelectronic fund transfers.

3.7 Payment instruments and self-service zonesApart those already mentioned, there are other moreor less widely known forms ofelectronicbankingincluding a paymentcard, anelectronic wallet and a self-servicezone.

3.7.1 Payment cardIscurrentlyoneofthe most widely used payment instruments designated to authorized holders

trough which they can perform non-cash payments or cash withdrawals from an extensive

networkof automated tellermachine.

3.7.2 Electronic walletRepresents a chip card similarto a paymentcard thatcontains a record of a financialsumthatis

availabletoitsowner.

3.7.3 Self-service zoneIs a fully automated alternative work placeof a bankwithterminals and devicesthatclientscan

usetogetvarious bankservices. Itenables active and passiveoperationsoffered bythe bank be

made withoutthe presenceof a bankemployee.

Serversof

ministries and

agencies' Web

sites

Ministries and

a encies

OnlineGovernment

ServicesApplicationProcessing

Server

(15)Confirmation

of payment

(4) ID number.

Amountof payment

The Ministryof Finance

AccountingCenter

The bankof Japan and itsagent banks

(12) Payment

data

The Bank of Japan

(14) Report

Agent banks (private

finansialinstitutions)

Govt'scollections

(10)

Payment

Payer's A/C

Multi-Payment

Network

(7) Amountof

payment

(6) ID number

(1) Acces

to website

(2)

Application

(3)Application

(4)

(16)

Governmentservices

Internet(5) ID number

(8) Amount

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(picture2, formsofe-banking)

4. Electronic banking componentsE-banking systems can vary significantly in their configuration depending on a number of

factors. Financial institutions should choose their e-banking system configuration, including

outsourcingrelationships, based on fourfactors:

Strategicobjectives fore-banking;

Scope,scale, and complexityofequipment,systems, and activities;

Technologyexpertise; and

Security and internalcontrolrequirements.

Financial institutions may choose to support their e-banking services internally. Alternatively,

financial institutions can outsource any aspect of their e-banking systems to third parties. The

following entities could provide or host (i.e., allow applications to reside on their servers) e-

banking-related services forfinancialinstitutions:

Anotherfinancialinstitution,

Internetservice provider,

Internet bankingsoftwarevendoror processor,

Core bankingvendororprocessor,

(11) Notice

on payment

Payment channels

Internet

banking Telephone

banking

Mobile

banking

ATM (automatic

tellermachine)

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Managed securityservice provider,

Bill payment provider,

Credit bureau, and

Creditscoringcompany.

E-banking systems rely on a number ofcommon components or processes. The following list

includesmanyofthe potentialcomponents and processesseenin a typicalinstitution:

Website design and hosting,

Firewallconfiguration and management,

Intrusion detectionsystemorIDS (networkand host-based),

Networkadministration,

Securitymanagement,

Internet bankingserver,

E-commerce applications (e.g., bill payment,lending, brokerage),

Internalnetworkservers,

Core processingsystem,

Programmingsupport, and

Automated decisionsupportsystems.

These components work together to deliver e-banking services. Each component represents a

control pointtoconsider.

Through a combinationofinternal and outsourced solutions,managementhasmany alternatives

when determiningtheoverallsystemconfiguration forthevariouscomponentsof ane-banking

system. However, for the sake of simplicity, this booklet presents only two basic variations.

First,oneormoretechnologyservice providerscanhostthee-banking application and numerous

network components as illustrated in the following diagram. In this configuration, the

institutionsservice providerhoststheinstitutions website, Internet bankingserver, firewall, and

intrusion detection system. While the institution does not have to manage the daily

administration of these component systems, its management and board remain responsible for

thecontent, performance, and securityofthee-bankingsystem.

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5. The advantage of electronic banking5.1

Ease of useElectronic banking allowsyou toconvenientlyconductyour banking activitiesonline. You can

view you account balances and statuses fromyourhomecomputer. In addition,you don'thaveto

deal withlines atthe bankorhaveconversations with bankersin frontofotherpeople.

Withe-banking allyou need is an accountnumber and a password. You don'tneed toknow how

tooperate anycomplicated software programorbankingsystem. You don'tneed any paperwork.

Just sign in from any secure computer and a good e-banking site will clearly indicate how to

access your personal banking information. To prove your identity, you may need to answer

secret questionsthatyou havechosen whenyou set up youraccount.

5.2 ConvenienceWithe-banking you can manage your accounts from the privacyofyourownhome. You don't

need to go to the bank and stand in line. You don't have to keep deposit or withdrawal slips

handy. You cansaveyour financial activityonline,soyou can print bankstatementsifyou need

them instead ofhandling paper copies. All you need is an Internetconnection and youronline

bankwill dotherest.

5.3Speed

Ifyou bankonline,you cantransfer funds, withdraw moneyormake paymentsinseconds. You

can access your accounts and handle your financial affairs quickly. All banks have different

policies and the rules governing the availability of funds can vary by financial institution, but

completingtransactionsonlineis fast and easy.

5.4 AccesOnline banks are open24 hours a day, seven days a week. You can sign in and access your

accountlong afteryour brickand mortarbankcloses. You can accessyouronline bankvirtually

any time you need to, from anywhere in the world. Since most banks offer the option to bankonline,you'llneverbe faraway fromyourbank,nomatterwhereyou are.

5.5 OptionsSome e-banking sites allow you to purchase and manage other financial instruments such as

mortgages, personalloans and linesofcredit. Someofferan automatic bill-payingsystemsoyou

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can pay bills usingyour bank account. You caneven directyour bankto pay billsonspecified

dateseachmonth,soyou don'thavetoremember whenthey're due. Ifyou usethisoption,you

won'thaveto writechecksorbuystampstomail bills.

6. The disadvantages of electronic bankingNowadays, almostevery bankingtransaction---thatoncehad to be donein person---can be done

overthe internet. Despitethe advantagesofonline banking,such assavingtripsto a local bank

and avoidinglonglines, a considerablenumberof peoplestill preferthemoretraditional formof

banking in person. Often, thereasonsstem from disadvantages that are incurred when banking

online. Here arethe disadvantagesofe-banking:

6.2 Internet connectionNoteveryoneenjoys the luxuryofhaving a stable and fast Internetconnection athome. Aside

from having a personal computer or laptop, having stable internet access at home is a basic

prerequisite to performing electronic banking. Of course, people can always use a public

computerwithinternet access;however,thesecurityof publiccomputersis always a concern.

6.3 Computer know-howConducting a successful electronic banking transaction, like paying billsonline, requires basiccomputer skills and knowing your way around the Internet. Being computer-literate is notcommon toeveryone---especiallyseniors who mightnothavegrown up usingcomputers---andthisis a majordisadvantagetoelectronic banking.

6.4 Delayed statementsWhen performingonline bankingthere isnot a standard at which paymentsmade willshow up

onyouronline bankstatements;theymightshow up twotothree dayslater, depending uponthe

bank. When bankingin person,you cangenerallygettheexactstatusofyourbankaccount.

6.5 Security concernsOneofthe biggest disadvantagesof doingelectronic bankingisthe questionofsecurity. Withthe

prevalence of keyloggers, phishing emails, trojans and other online threats, it is natural for

people to be concerned with the security of their identity, funds and electronic banking

transactions. Using antivirus and similarprogramsisnot full-proof. People worrythattheirbank

accountscan behacked and accessed withouttheirknowledgeorthatthe fundstheytransfermay

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notreachtheintended recipients. Althoughitisrarenowadays withenhanced securitymeasures,

thesethreatsstillexist.

6.6 Lose of human touchSome people still value talking and interacting with bank tellers, managers and other bankclients. Electronic banking takes the majority of these "human interactions" away, leaving the

bankingexperience as a veryhands-off,impersonal process.

7. Features of electronic bankingElectronic bankingexistsinthreemain forms.Online banking wasintroduced inthemid-90s andchanged the way of banking. From mobile banking to ATM's, banking works on a customer'sschedule. There are three main kinds of electronic banking: automated, phone and onlinebanking.Eachis different, but ultimately worksthesame way.

7.1 AlertsMobile and online bankingoffersecurity alertssoyou know what activity isoccurringonyour

account. Alerts aresent directlytoyourcell phoneoremail whencreditor debittransactions are

completed onthe account. You can alsoreceive daily alertsofyourbankaccount balance.

7.2 LocationElectronic banking allows you to conduct most types of banking transactions without leaving

home.Evenifyou areonvacation halfway acrossthe world you canconduct banking aslong as

you have a computer and internet access. ATM's allow you to deposit or withdraw money

withoutstepping footin a bank. Whenyou areonvacationoroutshopping,you can accessyour

money at ATMs as well.

7.3 BillsYou can paymost billsonline bysigning

up your different billing accountssothat

they are paid from your bank account.

Thislinkismadethroughonline banking

where you can then set up automatic

payments that debit the money directly

from your account. Over the phone, you

(picture 3)

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can also useelectronicchecksora debitcard to arrange paymentsorpay bills.

8.Benefits of electronic banking

Electronic banking oronline banking is now the most popular formofe-commerce for people

around world. Mostmainstream banks and evencredit unionsnow offer a hostof products and

servicesovertheinternet. Investment by banksinsecure-transactiontechnologies and robust IT

practiceshasmadeelectronic bankingmorereliable and popular.

8.1 ConvenienceYou canshop, pay bills, buyitems at auction, and transfermoney from anywhere at anytime.

8.2 FeaturesElectronic bankingcan becarried out at anytimeofthe dayornight aslong asonehas accessto

a PC (orotherhand-held device) and Internetconnectivity.

8.3 Attractive Rates and IncentivesBanks offer attractive interest rates for CDs that are opened online. Many others also offer

incentives,giveaways and specialofferstocustomers foropening accountsonline.

8.4 Consolidated Portfolio Interface:Most banksoffera seamless and consolidated interfacetocustomers formanagingtheirdebt and

credit accounts,mortgages,investment portfolio and otherfinancial assets.

8.5 Time Savings:Time saved from traveling to brick-and-mortar bank branches for conducting banking

transactions and otherkey banking activitiescan be used productively forotherpursuits.

9. E - banking technologies

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Electronic bankingencompasses a broad rangeoftechnologies. Some are frontend products

and servicesthatconsumersopen for (ATM cards and computer banking),others are backend

technologies used by financial institutions, merchants, and other service providers (electronic

check conversion).Some are related, and some are unrelated to a bank accounts instead store

monetaryvaluein a databaseordirectlyon a card.

9.1 Products related to bank accountsa) Direct deposit: A form of payment by which an organization (such as an employer or

government agency) pays funds (such as payor benefits) via anelectronic transfer. The funds

aretransferred directlyinto a consumers bankaccount.

b) ATM cards or automated teller machines: An electronic terminal provided by financial

institutions and other firms that permitsconsumers to withdraw cash from their bank accounts,

make deposits,checkbalances, and transferfunds.

c) Debit cards: A card used at an ATM ora point-of-sale (POS)terminalthatenablesconsumer

tohave funds directly debited from hisrher bank account (usually a checking account). Some

financial service providers (such as check cashers and currency exchanges) may market a so-

called debitcard thatisnottied to a deposit account butinstead functions as a stored valuecard.

d) Preauthorized debits: A form of payment that allows a consumer to authorize automatic

payment ofregular, recurring bill from his or her account an a specific date, and usually for a

specific amount (for example, car payments, housing payments, and budget-plan utility

bills).The funds are electronically transferred from the consumers account to the creditorsaccount.

e) Computer banking: Banking services that consumers can access, by using an Internet

connectionto a bankscomputercenter,inorderto perform bankingtasks,receive and pay bills,

and so forth. Manyotherfinancialservicescan be accessed via the Internet (forexample, paying

credit car bills on a credit card issuers web site), but those services may not be classified as

computerbanking.

9.2 Products not related to bank accounts:a) Payroll card: A typeofstored-valuecard issued by anemployerinstead of a paycheckthat

enables anemployeeto accesshisorherpay at ATMsor point-of-saleterminals. Theemployer

addsthevalueoftheemployees paytothecard electronically.

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b) Smart card: A typeofstored-valuecard in whichoneormorechipsormicroprocessors are

embedded, making the card capable of storing data, performing calculations, or performing

special-purpose processing (tovalidate personalidentificationnumbers, authorize purchases).

10. Use and users of e-bankingThe look in depth at who is usinge-banking products and services,this analysis focusesonthe

use and users ofthree specific technologies debit cards, preauthorized, debits, and computer

banking. The three were chosen to represent different types of e-banking technologies at

different stages in their development and are technologies that might attract different types of

users.

Debitcards: representthenextgenerationof anexisting and familiar technology. Theyoperate

as anextensionofthe widely used ATM card, by allowingconsumersto pay forgoods at a point

ofsale by directly debiting a designated bankaccount (usually a checking account).

Preauthorized debits: represent a passive technology; once consumers sign up for automatic

paymentof a particular bill,theyneed dolittlemorethanensurethat funds areinthe account by

the debit date.

Computer banking: calls for perhapsthemostconsumer involvement, as itrequiresthe user to

maintain and regular interact with additional technology (a computer and an internet

connection).

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(picture 4)

10.1 Consumer perception and the use of e-banking

Data(1999-2003) fromthe SurveyofConsumer Finances and the SurveysofConsumersshow a

consistent increase over the past eight years in the proportion ofconsumers using a variety of

electronic banking technologies, from such long-available products and services at ATM cards

and direct deposittosuchnewertechnologies as debitcards and computer banking. The useof

some products, particularly debitcards,has becomemore democratized overtime, but it isstill

thecasethatmoste-banking productstend to be used byhigher income,higher asset,younger,

and bettereducated households.

Inlightofthegrowthinthe proportionofconsumers usinge-bankingtechnologies,itmaynot be

surprisingthatthe annualvolumeofchecks forthe firsttime in2003.However,not all banking

services may be adaptable toelectronic delivery. For a varietyofreasons,somerelated tothe

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product and otherstoconsumerpreferences, deliverychannels forsome products will probably

remainmoretraditional.

For example, although the number of online mortgage applications has risen in recent years,

consumersmay preferpersonalcontact with financialinstitutionstaff whenengagingincomplex

transactionssuch asmortgages.

E-bankingtechnologies arecontinuingtoevolve, and manynew products and services areonthe

horizon. The Departmentofthe Treasury, forexample, whichismovingtoward an all-electronic

Treasury,hasseveralnew programsin placeorin planningstages. Forexample,it providesthe

U.S. DebitCard, a mechanism for deliveringnonrecurring paymentstoindividuals and enabling

federalgovernmentemployeesto accesscash as partoftheirofficial duties. The Treasuryis also

replacingcoin and currencyincirculationonmilitary bases,ships, and otherlocations worldwide

with stored-value cards. In addition, the Treasury is considering a plan to stop issuing paper

savings bond certificates and to instead issue electronic savings bonds. Consumers would

purchase the savings bonds online instead of at financial institutions, and the bonds would bestored electronically, as Treasury bills,notes, and bonds arecurrently.

E-bankingtechnologieshold the promiseofhelping familiesmanagetheir money, paytheirbills

on time, and avoid overextending themselves with credit. To take full advantage of these

technologies, consumers need to be very of the evolving array of e-banking technologies

available to them and to understand how different technologies fit with their financial

managementneeds.Financial planners and financialinstitutions,canhelp this promise become a

reality.

10.1.1 Survey of Consumer Finances:ThesurveyofConsumerFinances (SCF)is a triennialsurveyof U.S. families(defined as primary

economic units, as noted above) sponsored by the Federal Reserve, in cooperation with the

Internal Revenue Service, Statistics of Income Division, and conducted by NORC, a national

organization forresearch atthe UniversityofChicago.

The survey provides detailed information on U.S. families balance sheets, use of financial

services, demographics, and labor force participation. The great majority of interviewers were

allowed to conduct telephone interviews if that was more convenient for the respondent.

Interviewers used a program running on laptop computers to administer the survey and collectthe data. Respondents were encouraged to consult their records as necessary during the

interviews.

To gather information that is both representative of the U.S. population and reliable for those

assets concentrated in affluent households, the SCF employs a dual-frame sample design

consisting of a standard, geographically based random sample and an oversample of affluent

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households. Weights are used to combine data from the two samples so that the data from the

sample familiesrepresentthe populationof all families.

10.1.2 Surveys of Consumers:The Surveys of Consumers, initiated in the late 1940s by the Survey Research Center at theUniversityof Michigan,measureschangesinconsumerattitudes and expectations withregard to

consumerfinance decisions.Eachmonthlysurveyof about 500 householdsincludes a setofcore

questions. For the October and November 1999 and June and July2003 surveys, the Federal

Reserve Board commissioned additional questionsconcerning households use and perceptions

ofelectronic bankingtechnologies. Someofthese additional questions were based on questions

inthe SurveyofConsumerFinanceto allow forcomparisonofresponsestothetwosurveys.

Interviews wereconduct bytelephone, withtelephonenumbers drawn from a clustersampleof

residential numbers. The sample was chosen to be broadly representative of the four main

regions of country-Northeast, Midwest, South, and West-in proportion to their populations.Alaska and Hawaii werenotincluded. Foreachtelephonenumber drawn, an adultinthe family

wasrandomlyselected astherespondent.

11. Risk management for electronic bankingThe Committeehas identified fourteen Risk Management Principles for Electronic Banking to

help bankinginstitutionsexpand theirexistingriskoversight policies and processestocovertheir

e-banking activities.

These Risk Management Principles are not put forth as absolute requirements or even "best

practice." TheCommittee believesthatsetting detailed riskmanagementrequirementsinthe area

of e-banking might be counter-productive, if only because these would be likely to become

rapidly outdated becauseofthe speed ofchange related to technological and customer service

innovation. The Committee has therefore preferred to express supervisory expectations and

guidance inthe formof Risk Management Principles inorderto promotesafety and soundness

fore-banking activities, while preservingthenecessary flexibilityinimplementationthat derives

in part fromthespeed ofchangeinthis area. Further,theCommitteerecognizesthateach bank's

risk profile is different and requires a tailored riskmitigation approach appropriate forthescale

ofthee-bankingoperations,thematerialityoftherisks present, and the willingness and abilityof

theinstitutiontomanagetheserisks. Thisimpliesthat a "onesize fits all" approachtoe-banking

riskmanagementissuesmaynot be appropriate.

Fora similarreason,the RiskManagement Principlesissued bytheCommittee donot attemptto

setspecific technicalsolutionsorstandardsrelating toe-banking. Technicalsolutions are to be

addressed by institutions and standard setting bodies as technology evolves. However, this

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Internet users, with up toone-third of bankcustomers in Finland and Swedentaking advantage

ofe-banking.

( picture 5 )

Inthe United States, Internet banking isstillconcentrated inthe largest banks. Inmid-2001, 44

percent ofnational banks maintained transactional web sites, almost double the number in the

third quarterof 1999.

To date,most banks havecombined thenew electronic deliverychannels with traditional brick

and mortarbranches ("brickand click" banks), but a smallnumberhaveemerged thatoffertheir

products and services predominantly, or only, through electronic distribution channels. These

"virtual" or Internet-only banks do not have a branch network but might have a physical

presence.

12.2 New challenges for regulatory:This changing financial landscape brings with it new challenges for bank management and

regulatory and supervisory authorities. Regulatoryrisk: Because the Internet allowsservices to

be provided from anywhereinthe world,thereis a dangerthat banks willtryto avoid regulation

and supervision. Whatcanregulators do? Theycanrequireeven banksthat providetheirservices

from a remote location through the Internet to be licensed. Licensing would be particularly

appropriate where supervision is weak and cooperation between a virtual bank and the home

supervisorisnot adequate.

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Legal risk: Electronic banking carries heightened legal risks for banks. Banks can potentially

expand the geographical scope oftheir services faster through electronic banking than through

traditional banks. Insomecases,however,theymightnot be fullyversed in a jurisdiction'slocal

laws and regulations beforethey begintoofferservicesthere,either with a licenseor without a

license ifone is not required. When a license is not required, a virtual banklacking contact

with its hostcountry supervisormay find it even more difficult tostay abreast ofregulatory

changes. As a consequence,virtual bankscould unknowingly violatecustomer protection laws,

includingon data collection and privacy, and regulationsonsoliciting. In doingso,theyexpose

themselvestolossesthroughlawsuitsorcrimesthat arenot prosecuted becauseof jurisdictional

disputes.

Money laundering is an age-old criminal activitythathas beengreatly facilitated byelectronic

banking becauseofthe anonymityit affords. Once a customeropens an account,itisimpossible

for banks to identify whether the nominal account holder is conducting a transaction or even

wherethetransactionistaking place.

Operationalrisk: Therelianceonnew technologyto provideservicesmakessecurity and system

availability the central operational risk of electronic banking. Security threats can come from

insideoroutsidethesystem,

Banks'security practicesshould beregularly tested and reviewed byoutsideexperts to analyze

network vulnerabilities and recovery preparedness. Capacity planning to address increasing

transactionvolumes and new technological developmentsshould take accountofthe budgetary

impactofnew investments,the abilityto attractstaff withthenecessaryexpertise, and potential

dependenceonexternalservice providers.

Reputationalrisk: Breachesofsecurity and disruptionstothesystem's availabilitycan damage a

bank's reputation. The more a bank relies on electronic delivery channels, the greater the

potential forreputationalrisks. Ifoneelectronic bankencounters problemsthatcausecustomers

toloseconfidenceinelectronic deliverychannels as a wholeortoview bank failures assystem

widesupervisory deficiencies,these problemscan potentially affectotherprovidersofelectronic

bankingservices.

Reputationalrisks alsostem fromcustomermisuseofsecurity precautionsorignorance aboutthe

need forsuch precautions. Securityriskscan be amplified and mayresultin a lossofconfidence

in electronic delivery channels. The solution is consumer educationa process in whichregulators and supervisorscan assist.

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12.3 Regulatory tools

There are fourkeytoolsthatregulatorsneed to focusonto addressthenew challenges posed by

the arrivalofe-banking.

Adaptation:

Inlightofhow rapidlytechnologyischanging and whatthechangesmean forbanking activities,

keeping regulations up to date has been, and continues to be, a far-reaching, time-consuming,

and complex task. In May 2001, the Bank for International Settlements issued its "Risk

Management Principles for Electronic Banking," which discusses how to extend, adapt, and

tailortheexistingrisk-management frameworktotheelectronic bankingsetting.

Legalization:

New methods for conducting transactions, new instruments, and new service providers willrequire legal definition, recognition, and permission. Existing legal definitions and

permissionssuch as the legal definitionof a bank and theconceptof a national borderwill

alsoneed to berethought.

Harmonization:

Internationalharmonizationofelectronic bankingregulationmust be a top priority. Thismeans

intensifyingcross-bordercooperation betweensupervisors and coordinatinglaws and regulatory

practices internationally and domestically across different regulatory agencies. The problem of

jurisdictionthat arises from "borderless" transactionsis, asofthis writing,inlimbo.

Integration:This is the process of including information technology issues and their accompanying

operationalrisksin banksupervisors'safety and soundnessevaluations.

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13. Transactional websitesTransactional websites provide customers with the ability to conduct transactions through the

financialinstitutions website byinitiating bankingtransactionsor buying products and services.

Bankingtransactionscanrange fromsomething as basic as a retail account balanceinquiryto a

large business-to-business fundstransfer.E-bankingservices, likethose delivered throughother

delivery channels, are typically classified based on the type of customer they support. The

following table lists some of the common retail and wholesale e-banking services offered by

financialinstitutions.

Table 1: CommonE-Banking Services

Retail Services Wholesale Services

Accountmanagement Accountmanagement

Bill payment and presentment Cashmanagement

New accountopeningSmall businessloan applications,

approvals,oradvancesConsumerwiretransfers

Investment/Brokerageservices Commercial wiretransfers

Loan application and approval Business-to-business payments

Account aggregation Employee benefits/pension

administration

Since transactional websites typically enable the electronic exchange ofconfidential customer

information and the transfer of funds, services provided through these websites expose a

financial institution to higher risk than basic informational websites. Wholesale e-banking

systems typically expose financial institutions to the highest risk per transaction, since

commercial transactions usually involve larger dollar amounts. In addition to the risk issues

associated with informational websites, examiners reviewing transactional e-banking services

should considerthe followingissues:

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Securitycontrols forsafeguardingcustomerinformation;

Authentication processes necessary to initially verify the identity of new customers and

authenticateexistingcustomers who accesse-bankingservices;

Liability forunauthorized transactions;

Losses from fraud if the institution fails to verify the identity of individuals or businesses

applying fornew accountsorcrediton-line;

Possible violations of laws or regulations pertaining to consumer privacy, anti-money

laundering, anti-terrorism, or the content, timing, or delivery of required consumer

disclosures; and

Negative public perception, customer dissatisfaction, and potential liability resulting from

failure to process third-party payments as directed or within specified time frames, lack ofavailability ofon-line services, or unauthorized access to confidential customer information

duringtransmissionorstorage.

14. Examples for electronic bankingElectronic bankingencompasses a broad rangeofestablished and emergingtechnologies. Some

are frontend products and servicesthatconsumersopt for,such as ATM cards and computerbanking;others are backend technologies used by financialinstitutions,merchants, and other

service providersto processtransactions,such aselectroniccheckconversion.

Some are tied to a consumer bank account; others are unrelated to a bank account but instead

storemonetaryvaluein databaseordirectlyon a card.

For many people today, electronic banking provides the ultimate in convenience and control.

Whether usingyourhomecomputer, a debitcard orthetelephone,managingyour financeshas

neverbeeneasier. Now,havingcontroloveryourfinancesis assimple asclicking a mouse.

We found someinformation about banks around the world that useselectronic banking. Someof

these banks are Raiffaisen bank , The bank of Georgia, The international bank of

Azerbaijan, Effinity bank, N.A., and a lotofothers banks.

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The Raiffaisen Bank:

The Raiffaisen bank offer to a clients fast, efficient and reliable system of e-banking for

accessingtotheiraccounts withtheir bankthroughthe Internet as well as allservices available.

This bankenablestoitsclients instantlyconduct and review/financialtransactions as well asto

checktheirstatements inthemodern way,2

4 hours a day, 7 days a week. Thesystemhas beendesigned insuch a mannerthattheymaychoosethemostconvenientchannel (web,off-line and

SMS) to obtain the desired information. The Raiffaisen bank offers its clients to conduct

paymenttransactions (local and inothermaincurrencies), based onstate-of-the-arttechnological

solutions.

The Effinity Bank, N.A.

This Internet-primary bank will deliver products and services to its retail customers through a

varietyofelectronic deliverychannels including the Internet, automated teller machines and/or

remote service units. The bank may solicit "affinity" relationships with other groups and

commercial entities to establish a private-label clientele. The bank will offer its products andservices to customers or members of the affinity group under a private label. The bank will

establishindividual divisionsto provide products and servicesspecifictotheneedsexpressed by

affinitygroups.

The CIBC National Bank

Canadian Imperial BankofCommerce, Toronto, Ontario,Canada (CIBC),received approvalto

establish a new full-service national bank in Maitland, Florida. The bank will not have any

traditional bankingoffices but will deliver products and servicesthrough a varietyofelectronic

delivery channels. Customers will conduct transactions through ATMs, Internet via atransactional Web site, and via a toll free customer service line. These delivery channels are

available at kiosks located on the premises of retail stores for which the bank has a joint

marketing arrangement. The bank will operate under a brand name associated with the retail

store partner.

The Compu Bank

Approved in August20, 1997,CompuBank, NA, Houston, TX,isthe firstnational bankcharter

approved to deliver products and services tocustomers primarily throughelectronic means and

designated a limited-purpose bank. It willnothave anytraditional bankingoffices. In additionto

using the mail, customers will conduct their banking transactions by personal computer or by

telephoning the automated voice response system or customer service line. It will focus

exclusivelyonchecking and savings accounts and electronic bill paymentservices.

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The International Bank ofAzerbaijan (IBA)

(IBA)has signed an agreement withConnect telecommunicationscompany to make paymentsfor theservicesvia cards issued by the bank, IBA hassaid. The IBA spokesman Rauf Agayevsaid thatthe bankcontinuesto develop services and theinfrastructureofelectronic banking.

One of the most popular electronic banking services are payments for utilities andtelecommunicationservices,hesaid.Connect joined thenumberofcompanies whosecustomerscan carry out such payments, a few days ago. More than 10 companies, including Azercell,Bakcell, Narmobile, Bakielektrikshebeke, Azeronline, Elcell, and International InsuranceCompany useelectronic bankingservices.

Agayev said that there is great demand for e-banking services. Roughly 243,800 transactionsamounting to 4.88 million manat wereconducted this way in2007. The numberof all typesoftransactions amounted to 366,300 (an increase of 33.4 percent) and their total sum to 7.97millionmanat (an increaseof 38.8 percent) in2008. Positive dynamics were preserved in2009

withroughly 498,700 transactions amounting to 13.6million manat. Thenumberofoperationsexceeded 264,000 and the total sum was 8.3 million manat in the first and second quarters of2010.

Inthecontinueoftheexamplesofthe banksthat useselectronic banking werepresentto You thetop 10 banksinelectronic banking.

Table2 (top 10 e-banking):

Rank/site Score Transferfunds to

other

banks

Receivebills

online

Low-balance e-

mail alert

ReceiveWeb-only

statements

Stoppayment

on a check

1. Wellsfargo.com 80 x x x x

2.Citibank.com 79 x x x x

3.Bankofamerica.com 77 x x x x

4. Bankus.etrade.com 74 x x x

5. Huntington.com 69 x x

6. Firstnational.com 68 x x

7.Hsbc.com 68 x x x

8.Usbank.com 68 x x

9.Chase.com 67 x x10. Wachovia.com 67 x x

Watchfire GmezPro, an Internet research firm, ranked the to p 10 online banks based on the

features that consumers find most important. Competition is stiff, and that's caused a rough

parityinservices. Allofthe banks providethekeyservicesthatcustomers wantmost,including

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guarantees against computer fraud and late bill payments, according to Watchfire. Among the

top five,in particular,the differences areminor.

Wells Fargoisranked first,in part becauseofits Quicken-styletools forviewingyourspending

habits. Then again,second-placeCitibankis betterthan Wellsorthird-place Bankof America at

"moneymovement" --the abilityto funnel fundsto anotheraccount, useror bank. Fourth-placeE*Trade Bankprovidesexcellent alerts (such aslettingyou know whenyourbalanceislow), but

it doesn't allow you tostop paymentsonchecks. Reversethat forfifth-place Huntington: nolow-

balance alerts, but it will letyou stop payments.E*Trade also does anexcellent job integrating

its online banking and brokerage services.( Information as of July 2005. Source: WatchfireGmezPro)

15. E-banking in payment system of Bosnia and HerzegovinaThe Internet was introduced in BH in 1995 through the university line UTIC (University Tele-

Information Centre). Several months later, BH PTT offered the service for its users. All IPS

(inches persecond) Themeasurementofthespeed oftape passing by a read/writehead or paper

passingthrough a pen plotter.

(IPS) (intrusion preventions are in the state-owned PTT monopoly. Today, in BH 41 licensed

Internet services providers exist (BH's Communication Regulatory Agency, 2005). The

developmentofe-banking in banksof BH is linked on introducing tocredit and debitcards in

BH. 33 banks wereoperated in BH banking system on the end of2004; from that number 32commercial banks are included in payment system. Five years ago, the first ATM has been

installed in payment system of BH. Using ofe-banking in payment system of BH started with

openingnational bankingsystemto foreign banksthrough processof privatization.

Using Internet made payment simple. Twenty one banks in BH operate with credit cards.

Betweenthem 14 madecard businessoperation withinternationalcards. Incomparisonto2003 a

same number of BH's banks works with international cards, but 4 more included in theirs

business domesticcard.

Some of the banks in Bosnia and Herzegovina which uses electronic banking are: The Bor

bank , NLB Tuzlans bank , The Postbank , The Procredit bank , The Sparkasse bank ,

The Volksvagen bank , and theothers.

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16. Mani forward-Thinking Companies Offer Online Bill PayingStudents athundredsofeducational institutions across North America are already usingonlinebill payingtoreceive and paytheirtuition billsavoidingthehassleofreceiving paperbills and

paying bymail, while alsosavingtheirschoolshundredsofthousandsof dollars a yearin paper,postage and administrativecosts.

Forward-thinkingcompanies alreadyoffering theircustomerssimilaronline bill payingoptionsinclude Bankof America, BellSouth,Citibank, Qwest, SouthCarolina Electric & Gas, SouthernCalifornia Edison, T-Mobile, Verizon Wireless, Wells Fargo and Washington Mutual, amongmanyothers.

BellSouthoffers e-bills thatyou can printout anytime but donthaveto. Withtheclickof amouseyou canview yourbill, access details and billinghistory, and makesecure payments. Youcan pre-schedule so that each monthly bill gets paid on time, or set it up so that funds are

remitted only when you authorize it. SouthernCalifornia Edisons Online Billing and Paymentservice involves the same routine, with no paper exchange needed between company andconsumer, and no need to print out your bills. Both companies send e-mail notices to let youknow eachtime a new billhas beentendered.

16.1 Why Is Electronic Banking More Convenient Than Checks?Theconvenienceofelectronic bankinghasslowly phased many peopleoffof writingtraditional

checks. Althoughsome peoplerefusetorelyonelectronic banking,there are a varietyof benefits

to usingelectronic bankingovertraditional pen and paper.

Types:

Electronic banking includes ATMs, phone service and online banking. It includes credit, debit

and electronicchecks.

Benefits:

Electronic banking allowsyou to bankonyourtime. Thismeansyou donothavetorushtothe

bank to cash a check while the bank is open. When you use electronic banking, the money is

taken directly fromyouraccount.

Use:

Debitcardscan be used in lieu of a check with a PIN number. Thesecardscan also be used as

credit with a signature.Cardscan pay forservices and goods bothonline and in person.

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Time Frame:

Electronic banking is more convenient to business and customers. The money is automatically

transferred, whichismuch quickerthancashing a check.

Misconceptions:

Some people feel electronic banking is not safe. There are scams and hackers that cause

problems with online banking, but most ATM and online sites are secure. Never give your

informationto anyoneoverthe phoneoremail--a bankwillneveraskthisofyou.