CS648: Home Work-1

E – BANKING
(E-Commerce Application)

P. Nagendra Kumar
CS06B032
 INTRODUCTION
Online banking or Internet banking allows customers to conduct banking, financial and insurance
transactions on a secure and protected website operated by their retail or virtual bank.

Normally the customer would have to make a trip to the bank to do these transactions, but with the
advent of internet banking the ease of account operation for customers has gone up. All the customer
requires is a PC with an internet connection and internet banking login id and password to use this
facility.

FACTORS: Some of the major factors that have driven the bank’s strategy for Internet Banking
include:

1. Competitive Pressure.
2. Cost Efficiencies (Cost Reduction).
3. Expand customer contact through increased geographical reach & lower cost delivery channels.
4. Branding.
5. Customer Demographics & Loyalty.

BFSI: Banking, Financial Services and Insurance (also known as BFSI) is an industry name. This term is
commonly used by IT/ITES/BPO companies to refer to the services they offer to companies in these
domains. Banking may include core banking, retail, private, corporate, investment, cards and the like.
Financial Services may include stock-broking, payment gateways, mutual funds etc. Insurance covers
both life and non-life. A lot of data processing, application testing and software development activities
are outsourced to companies that specialize in this domain.

SERVICES: Some of the features which can be availed through E-Banking around the globe are:
1. Banking: Fund Transfer, Bill Payment, Account Enquiry, Time Deposit, Foreign Currency/Gold,
Currency Switching, e-Statement/e-Advice.
2. Investment: Securities, IPO, Investment Fund, Equity Linked Investment, Forex/Gold Margin,
Capital Protected Investment Deposits, Maxi Interest Deposits, e-Invest Advice.
3. Insurance: Travelsure, Home Care, Full-time / Part-time Domestic Helper, Hospital Cash,
Personal Accident, Credit Care.
4. Wealth Management: Financial Planning, Investment Portfolio Management.
5. Personal Credit: Instalment Loan, Revolving Loan, Tax Comforter, Overdraft Facility.
6. Mortgage: Valuation, Mortgage Loan.
7. Credit Card: Credit Card Application, Cash Dollars Gift Parade, Low Interest/Instalment Offer,
Card Security Services.
8. Others: Buy Railway & Air tickets, Prepaid Mobile recharge, Order Cheque Book, ORSO
(Occupational Retirement Scheme Ordinance), MPF (Mandatory Provident Fund).
Many a times, the banking facilities related to Small & Medium Enterprises (SMEs) are also provided through
Online Banking by many banks.

PRODUCTS: The Reserve Bank of India (RBI) constituted a working group on Internet Banking which
divided the internet banking products in India into 3 types based on the levels of access granted. They
are:

1. Information Only System: General purpose information like interest rates, branch location,
bank products and their features, loan and deposit calculations are provided in the banks
website. There exist facilities for downloading various types of application forms. The
communication is normally done through e-mail. There is no interaction between the customer
and bank's application system. No identification of the customer is done. In this system, there is
no possibility of any unauthorized person getting into production systems of the bank through
internet.
2. Electronic Information Transfer System: The system provides customer- specific information
in the form of account balances, transaction details and statement of accounts. The information
is still largely of the 'read only' format. Identification and authentication of the customer is
through password. The information is fetched from the bank's application system either in batch
mode or off-line. The application systems cannot directly access through the internet.
3. Fully Electronic Transactional System: This system allows bi-directional capabilities.
Transactions can be submitted by the customer for online update. This system requires high
degree of security and control. In this environment, web server and application systems are
linked over secure infrastructure. It comprises technology covering computerization, networking
and security, inter-bank payment gateway and legal infrastructure.

BUSINESS MODELS
A Business Model is the method of doing business by which a company can sustain itself - that is,
generate revenue. The business model spells-out how a company makes money by specifying where it is
positioned in the value chain. Internet commerce gave rise to new kinds of business models. For
Example, AUCTIONS which are one of the oldest forms of brokering have been widely used throughout
the world to set prices for such items as agricultural commodities, financial instruments, and unique
items like fine art and antiquities. The Web has popularized the auction model and broadened its
applicability to a wide array of goods and services.

Business models have been defined and categorized in many different ways and hence, a firm may
combine several different models as part of its overall Internet business strategy. Discussed below are
two Business Models:
BROKERAGE MODEL: Brokers are market-makers - they bring buyers and sellers together and
facilitate transactions. Brokers play a frequent role in business-to-business (B2B), business-to-consumer
(B2C), or consumer-to-consumer (C2C) markets. Usually a broker charges a fee or commission for each
transaction it enables. The formula for fees can vary. Brokerage models include:

1. Marketplace Exchange -- Offers a full range of services covering the transaction process, from
market assessment to negotiation and fulfillment. Exchanges operate independently or are
backed by an industry consortium. (Orbitz, ChemConnect)
2. Buy/Sell Fulfillment -- Takes customer orders to buy or sell a product or service, including
terms like price and delivery. (CarsDirect, Respond)
3. Demand Collection System -- The patented "name-your-price" model pioneered by
www.Priceline.com. Prospective buyer makes a final (binding) bid for a specified good or
service, and the broker arranges fulfillment.
4. Auction Broker -- Conducts auctions for sellers (individuals or merchants). Broker charges the
seller a listing fee and commission scaled with the value of the transaction. Auctions vary widely
in terms of the offering and bidding rules. (Amazon)
5. Transaction Broker -- Provides a third-party payment mechanism for buyers and sellers to
settle a transaction. (PayPal, Escrow)
6. Distributor -- Is a catalog operation that connects a large number of product manufacturers
with volume and retail buyers. Broker facilitates business transactions between franchised
distributors and their trading partners.
7. Search Agent -- A software agent or "robot" used to search-out the price and availability for a
good or service specified by the buyer, or to locate hard to find information.
8. Virtual Marketplace -- Or virtual mall, a hosting service for online merchants that charges
setup, monthly listing, and/or transaction fees. May also provide automated transaction and
relationship marketing services. (zShops and Merchant Services at Amazon)

BASIC BANKING MODEL: In this model, customers are allowed to perform any of the various
Banking services or functions available online. The basic business model for this application would be:

1. The Customer requests for the initiation of a connection by entering into the Bank Website.
2. The Bank then provides the relevant information to the customers and if he wants to enter into
his personal banking page, asks him to authenticate with his unique Username & Password.
3. The Customer then provides the necessary secure information for authentication.
4. The Bank confirms the authentication of the customer and directs him into his personal home
page where he could avail a variety of services and functions provided by the bank to him.
5. The Customer requests for a particular service/function to be processed and completed.
6. The Bank processes the customer’s request and delivers the status of the request to the
customer. In some cases, the customer will be given a Token ID through which he can monitor
the status and duration of the transaction process.
The main point to be noted is that there is an Internal medium between the customer and the bank
which does not come into picture in the business model. This medium is assumed to support a safe,
confidential and a secure way of transfer between the customer and the bank and is also supposed to
be timely (Synchronize the events orderly).

The below model can be depicted as an Interaction Model (as discussed in the class)

In this basic model, we have 3 pairs of interactions between the bank and the customer. The basic
model is more or less the same for all services or functions of Banking, Financial Services and Insurance.
Only the number of transactions would vary based on the complexity of the service or function being
used.

E-COMMERCE MODEL
(Of Basic Banking)
As discussed in the class, the E-banking applications may have different properties like Dissemination,
Transaction, Multiple Actions & Distribution.

1. BANKING involves “Dissemination + Transaction”. The customer only looks to carry out the
transactions needed for him with the banking system.
 2. FINANCIAL SERVICES involve “Distribution + Multiple Action + Dissemination + Transaction”.
Customers request the bank to buy shares distributed between various companies. This not only
involves the banking system but also the company’s or stock exchange system (For example,
whether the share is available at that price). So the bank needs to interact with the company or
Stock exchange to complete the process without the customer coming again in between which
in fact involves Multiple Actions.
3. INSURANCE involves “Distribution + Dissemination + Transaction”. The customer makes claims
at different systems individually.

The E-Commerce model for Banking can be viewed as a 3 Tier model: Customer, Bank &
Interconnectivity (An Interaction model which in the case of E-Banking is Internet)

The 3 pairs of interaction steps mentioned in the Basic Banking Business Model are carried out by the
Internet medium here, which is the basis for Interaction & Delivery.

In the case of Financial Services, the customer needs to interact with the bank, which then interacts with
the Company or Stock Exchange for the financial transactions and then delivers the information
regarding the end result of the transaction to the customer (Multiple Actions). We can consider here the
trading system (Company or Stock Exchange) as a third party.

Insurance is more or less the same with an exception of Multiple Action.

MAPPING OF E-COMMERCE MODEL

& BUSINESS MODEL
Considering the convention steps followed in the Basic Banking Business Model, below is the brief
summary of what each step is performing:

1. Customer Initiates/Instantiates the system.

2. The true identity of bank with all relevant information is confirmed by the customer.
3. Customer Authentication information transferred safely, securely and confidentially.
4. Bank authenticates the customer.
5. Customer instantiates a particular service.
6. Bank processes it and sends the acknowledgement to customer.
 TECHNOLOGY
The different levels of complexity associated with certain areas involving security, operations, planning,
and monitoring have caused many banks to outsource all or parts of their Internet banking operations.
Regardless of whether technology services are provided in-house or through a third-party servicer,
banks need to have a strong link between their technology provider and their strategic planning process.
This will enable the bank to link new products and services with the existing technology and product
mix.

Larger national banks with substantial resources may choose to purchase computer hardware and
operating systems and/or develop the necessary application software in-house. This option may provide
the greatest flexibility to customize product offerings. Other banks may choose to purchase a “turnkey”
system from a vendor. In this arrangement, the vendor typically provides the hardware, operating
systems and applications software necessary to enable the bank to offer the particular product or
service to its customers. The vendor will typically provide the service and maintenance for the turnkey
system. A variation is to outsource the service. National banks need to monitor their vendor’s
operational performance, financial condition and capability to stay current with evolving technologies.

Technology can be used to increase the efficiency of the organization by timeliness, forecasting the
changes and monitoring.

SECURITY
Protection through single password authentication, as is the case in most secure Internet shopping sites,
is not considered secure enough for personal online banking applications in some countries. Basically
there exist two different security methods for online banking.

1. The PIN/TAN system where the PIN represents a password, used for the login and TANs
representing one-time passwords to authenticate transactions. These transactions are carried
out via web using SSL secured connections. TANs can be distributed in different ways, the most
popular one is to send a list of TANs to the online banking user by postal letter. The most secure
way of using TANs is to generate them by need using a security token. These token generated
TANs depend on the time and a unique secret, stored in the security token (this is called two-
factor authentication or 2FA).
 2. Signature based online banking where all transactions are signed and encrypted digitally. The
Keys for the signature generation and encryption can be stored on smartcards or any memory
medium, depending on the concrete implementation.

A multi-layered security architecture comprising firewalls, filtering routers, encryption and

digital certification ensures that the account information is protected from unauthorized
access:

1. Firewalls and filtering routers ensure that only the legitimate Internet users are allowed
to access the system.
2. Encryption techniques used by the bank (including the sophisticated public key
encryption) would ensure that privacy of data flowing between the browser and the
Infinity system is protected.
3. Digital certification procedures provide the assurance that the data you receive is from
the Infinity system.

EXPECTATIONS
ISSUES: Financial Institutions, Bank and the vendors are working to develop an Internet payment
infrastructure to help make E-Commerce secure. The 6 key components that will help maintain a high
level of public confidence in an open network environment include:

1. Security
2. Authentication of transactions
3. Trust between the parties.
4. Nonrepudiation is the undeniable proof of participation by both sender and receiver in a
transaction.
5. Privacy is a consumer issue of increasing importance.
6. Availability of Network - Capacity, Performance Monitoring, Redundancy & Business
resumption.

MEASURES: The following would be the Expectation measures from the customers:
1. Value Proposition: Value is what an investor gets and what gets created when organization
acts to pursue their mission. Value consists of economic, social and environmental value
components. It takes into consideration factors like Services provided; Product Innovations &
Schemes and Benefits.
 2. Customer Relationship: This consists of customer the company wants to offer value to. This
also includes the tools, customer relationship management, the companies used to create trust,
loyalty and branding and the communication tools the company uses to get in touch with the
customer. It takes into consideration factors like Ease of Use and Design and Layout; Security &
Customer Support.
3. Value Configuration: This includes the capability and resources the company needs to
implement a business model. It includes Internet Servers, Softwares, ATMs and Call Centers etc.
It also includes the relationship with partner and suppliers of fund. It takes into consideration
factors like Strategy; IT Infrastructure; Technologies Used & Capabilities.
4. Financial Aspects: Analysis of the financials of any business entity signals how well the
organization is performing. The following are some of the inevitable factors in assessing the
financial performance of any bank: Revenue, Costs & Net Profit.

Most importantly, the number of transactions which can be processed in a unit time needs to be
maximized from bank’s perspective.

PERFORMANCE METRICS
The assessment for a quality website of E-Banking can be done on the basis of four main categories
which are discussed below:

1. Accessibility: Presence in Search Engines, Popularity.

2. Contents Quality:
A. Informational Content: General Company information; Product/Services information; Price
information; ATM & Branch information; Financial Information.
B. Communicational Content: Users Feedback; Contact Telephone; Contact E-mail.
C. Transactional Content: Online banking; Fund transfers; Brokerage; Investment & Savings
services; Online communications; General enquiries; Specific enquiries; Accounts & Pay
cards; Credit applications; Tax payments; Cell phone recharging.
3. Speed: Access speed in seconds.
4. Navigability: Site Map, Keyword Search function.

The performance metrics for overall E-Banking discussed in the class are:

1. Geography: Technology – Network, Database & Load Distribution.

2. Function: Core Functions (Registry, Identification, Authorization & Policy) & Personalized
Functions (Access Control & any program execution)
3. Line of Business: LOB refers to a set of one or more highly related products which service a
particular customer transaction or business need.