View of ELECTRONIC BANKING: IMPACT, RISK AND SECURITY ISSUES

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ACCENT JOURNAL OF ECONOMICS ECOLOGY & ENGINEERING

Peer Reviewed and Refereed Journal, IMPACT FACTOR: 2.104, (INTERNATIONAL JOURNAL), UGC APPROVED NO. 48767, ISSN NO. 2456-1037

Vol. 03, Issue 03, March 2018 Available Online: www.ajeee.co.in/index.php/AJEEE

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ELECTRONIC BANKING: IMPACT, RISK AND SECURITY ISSUES Dr. Bharat Singh,

Associate Professor (Deptt. of Commerce),

Pt. LMS Govt. PG College, Rishikesh, Dehradun, Uttarakhand

Abstract:- The introduction of electronic banking in banking sector is to bring customer satisfaction, there by enhance the bank‟s profitability. Electronic banking is flapping with banking services. It provides various benefits to consumers in terms of the ease, simplicity and cost of transactions. E-banking improves the bank‟s efficiency and competitiveness, so existing and potential customers can benefit from a greater degree of convenience in effecting transactions. But it also has new challenges to banking entities and authorities in regulating and supervising the financial system and in designing and implementing macroeconomic policy. The online banking is a demand of today‟s customers, but the adoption of e-banking by commercial banks increases security and different types of risks.

The increasing popularity of e-banking has attracted the attention of both lawful and unlawful banking practices, thereby, exposing customers to fraud, thefts and various other threats of similar nature. The objectives of this study are to study the impact of e-Banking on the banking performance, to know the various risks and security challenges in e- banking that will help the bankers to understand the risk and security aspect of various e- banking services. It will help the banks to deliver a secure e-banking system that ultimately, will assist the bankers to retain the existing bank customer andCompetition and the constant changes in technology and lifestyles have changed the face of banking. Now a day‟s, banks are seeking alternative ways to provide and differentiate amongst their varied services. Customers are no longer willing to queue in banks or wait on the phone, for the most basic of services. With the number of computers increasing every year, the electronics delivery of banking services is becoming the ideal way for banks to meet their client expectations.

Keyword:- Credit Risk, Business Risk, Operational Risk and Reputation Risk etc.

1. INTRODUCTION

E-banking can be defined as online systems which allow customers to plug into a host of banking services from a personal computer by connecting with the banks over the telephonic wires. E- banking includes the systems that enable financial institution customers, individuals or businesses, to access accounts, transact business or obtain information on financial products and services through a public or private network. Customer access e-banking services using an intelligent electronic device such as Personal Computer, Automated Teller Machine etc.

1.1 Objective of the Study

The primary objective of the research paper is to get the knowledge of the internet banking and its impact on traditional services. And to know the various risks involved and security challenges in E-banking.

2. E- BANKING RISKS

Internet banking risks consists of risk associated with credit, internet rate,

transaction etc. Online banking has become an essential necessity these days.

It has many benefits but along with these benefits are also some problems. The biggest issue is to safeguard the customers from phishing attacks and online frauds.

Cyber Security of internet banking infrastructure of India is the need of the hour. Theft of money through hacking of accounts of the account holders as well as by misleading them through phishing attacks are fast.

Risk associated with E-banking can be classified under following heads:-

1. Credit Risk 2. Business Risk 3. Operational Risk 4. Reputation Risk

5. Liquidity, Interest Rate and Market Risk

2.1 Credit Risk

Credit Risk is the risk arising from a borrower‟s failure to meet the terms of credit contract with the bank.

Management should consider additional

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2 precautions when originating and approving loans electronically. If it is not properly managed, these aspects can increase the credit risk.

a) Collecting loans from individuals over a potentially wider geographic area.

b) Verifying the customer‟s identity for online credit applications and executing an enforceable contrast.

c) Monitoring and controlling the growth, pricing, underwriting standards and ongoing.

3. BUSINESS RISKS

Business risks are also significant. Given the newness of e-banking, nobody knows much about whether e-banking customers will have different characteristics from the traditional banking customers. They may well have different characteristics

3.1 Operational Risk

Operational risk arises from fraud, processing errors, system disruptions, or other unanticipated events resulting in the institution‟s inability to deliver products or services. This risk exists in each product and service offered. The level of transaction risk is affected by the structure of the institution‟s processing environment, including the types of services offered and the complexity of the processes and supporting technology.

In most instances, e-banking activities will increase the complexity of the institution‟s activities and the quantity of its transaction/operations risk, especially if the institution is offering innovative services that have not been standardized. Since customers expect e- banking services to be available 24 hours a day, 7 days a week, financial institutions should ensure their e- banking infrastructures contain sufficient capacity and redundancy to ensure reliable service availability.

3.2 Reputational Risks

This is considerably heightened for banks using the Internet. For example, the Internet allows for the rapid dissemination of information which means that any incident, either good or bad, is common knowledge within a short space of time. The speed of the Internet considerably cuts the optimal response

times for both banks and regulators to any incident. Any problems encountered by one firm in this new environment may affect the business of another, as it may affect confidence in the Internet as a whole.

There is therefore a risk that one rogue e-bank could cause significant problems for all banks providing services via the Internet. This is a new type of systemic risk and is causing concern to E-banking providers. Overall, the Internet puts an emphasis on reputational risks.

Banks need to be sure those customers‟

rights and information needs are adequately safeguarded and provided for.

3.3 Liquidity, Market and Interest Risk Funding and investment-related risks could increase with an institution‟s e- banking initiatives depending on the volatility and pricing of the acquired deposits. The Internet provides institutions with the ability to market their products and services globally.

Internet-based advertising programs can effectively match yield-focused investors with potentially high-yielding deposits.

But Internet-originated deposits have the potential to attract customers who focus exclusively on rates and may provide a funding source with risk characteristics similar to brokered deposits. An institution can control this potential volatility and expanded geographic reach through its deposit contract and account opening practices, which might involve face-to-face meetings or the exchange of paper correspondence.

4. SECURITY ISSUES IN E-BANKING E-banking increases security risks, potentially exposing hitherto isolated systems to open and risky environments.

Security breaches essentially fall into three categories; breaches with serious criminal intent (fraud, theft of commercially sensitive or financial information), breaches by „casual hackers‟

(defacement of web sites or „denial of service‟ - causing web sites to crash), and flaws in systems design and/or set up leading to security breaches (genuine users seeing/being able to transact on other users‟ accounts).

All of these threats have potentially serious financial, legal and reputational implications. Many banks

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3 are finding that their systems are being probed for weaknesses hundreds of times a day but damage/losses arising from security breaches have so far tended to be minor. However, some banks could develop more sensitive "burglar alarms", so that they are better aware of the nature and frequency of unsuccessful attempts to break into their system.

It is easy to overemphasisthe security risks in e-banking. It must be remembered that the Internet could remove some errors introduced by manual processing (by increasing the degree of straight through processing from the customer through banks‟ systems). This reduces risks to the integrity of transaction data (although the risk of customer‟s incorrectly inputting data remains). As e-banking advances, focusing general attention on security risks, there could be large security gains.

5. CONCLUSION

Internet banking has some inherent risks due to its nature. Legal system is still notvery well defined across the globe, internet is prone to hackers and hence fraudulentrisks are always there. The factor that technology is designed, driven and controlled by outside non-bank people is a constant threat. The rapid pace of change ofinformation technology presents the banks with the risk of system obsolescence andhence huge costs.

In spite of the hardware and software technologies like firewalls, encryption andauthentication there is risk perception in transactions particularly of high value. The legal position regarding information technology actions and crimes is still notvery sound. Though after amending various exiting laws the IT Act 2000 was passedbut soon after the debate started and an amendment came in 2006 which was passedin a new Act in 2008.

Again, there is a feeling that the laws around the globe areneither complete nor in perfect harmony as they should be as internet is a global medium.

There is a risk of non-bank organization emerging as banks through internet and startoffering more lucrative facilities or virtual banks may come up without any physical presence.

REFERENCES

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(2007) “The future of Internet Banking in India”, Academic Open Internet Journal, Vol. 20. Available online at:www.acadjournal.com

3. Dasgupta, P. (2002), Future of E banking in India, • available at

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“Determinants of internet banking adoption by banks in India”, Internet Research, Vol.

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