What is E-banking?
E-banking (Electronic Banking) refers to banking services that are delivered through electronic channels instead of traditional face-to-face interactions at a physical branch. It allows customers to perform financial transactions using computers, smartphones, ATMs, or other digital devices.
Table of Content
Electronic banking is the buzzword for modern Indian Banking. It is a form of banking where funds are transferred from one account to another with the help of computer applications. When you go to a bank and withdraw money from the ATM, the funds are transferred in your hands through electronic banking. When you go to a bank kiosk and print your passbook, it is also said to be the usage of electronic banking.
Electronic banking requires information and communication technology (ICT) to perform its various functions. With electronic banking, any task such as transfer of amount from one account to another can be performed. Besides this, cash withdrawal from ATMs, passbook printing, cheque book Applications, demand draft preparation, and payment of utility bills such as electricity or water can be made with just a click of the mouse. Though initially there were several flaws and cases of frauds reported but with every passing day, it is becoming safer and more reliable. OTP and password make it difficult to hack.
Not only the private sector but the public sector banks are also offering this facility to their customers on a large scale. When it comes to offering convenient banking, electronic banking is the right option. It is not only time saving but anyone can have access to it 24×7. Online banking is offered not only by the new banks but by the public sector banks also with no compromise to the set of services. Therefore, setting up your account online is a significant tool. In order to set up an online account, one needs to perform registration formalities, and should have knowledge of the key features to stay secure while doing banking.
Traditional vs Electronic Banking
The following table summarises the differences between traditional and electronic banking.
| Basis of Difference | Traditional Banking | Electronic Banking |
|---|---|---|
| Physical Presence | Traditional Banks serve customers personally and have face to face interaction with them to attend their queries and serve better. | Electronic banking as such does not offer any physical contact or face to face interaction. |
| Time | Traditional banks serve customers on their turn. So sometimes, customers may get irritated as they have to wait for a long time for tasks that require only a few seconds to be completed. | Under electronic banking, customers need not spare much time as most of the activities are done just at the click of the mouse or by entering data. So it is time saving as no physical visit to the bank is required. |
| Accessibility | Bank customers can visit to the banks only during working days and hours only. | Electronic banking is operational and available round the clock. Any time during the day, one can perform banking operations. |
| Safety and Security | Traditional banking as such is not prone to hacking risks. | Electronic banking, on the other hand, is full of technological risks and if due care is not taken, one may lose his hard earned money to unknown online hackers. |
| Finance Control | The bank customers who frequently travel abroad, cannot perform their banking operations and control their finances. | Under electronic banking, one can take care of his finances from distance also. Therefore, this suits to the people who frequently travel abroad. |
| Expensive | Customers find it expensive to visit the bank branch. Parking is a big issue for them. | In electronic banking, customers have to perform their banking operations from their home or work place so it saves the time required to visit bank branches and avoids public exposure especially after covid-19. |
| Cost | Traditional banking requires a lot of cost and expenditure. Running bank branches, salary of employees, require lot of fixed and operating costs. | Such expenses are automatically eliminated as the banks do not operate physically. |
| Customer Service | ln traditional banking, bank employees can attend a limited number of clients at a time. So rest of the customers have to wait for their turn. | In electronic banking, the customers do not have to stand in queues to perform day to day banking operations. |
| Contact | Customers have face to face interaction in the traditional banking. | Here bank clients have only electronic contacts. |
Facets of Electronic Banking
E-banking is an umbrella term which is applied to specify a practice through which a bank client is allowed to carry out, private or commercial banking transactions with the use of information and communication technology. E-banking has several advantages over traditional banking. It allows you to conduct various transactions using the bank’s website. It has made banking so simple that one can conduct almost all the transactions without going to the bank and standing in a queue waiting for his/her turn.
Electronic banking eliminates the requirement for bank customers to visit the bank to perform financial transactions. This is the reason that most of the customers are opting for internet banking. This modern form of electronic banking makes banking convenient and accessible to bank clients. Today, there are various types of e-banking services which one can use for various banking transactions.
Some of the most popular ways are as follows:
- Internet Banking: Internet Banking is a type of e-banking service which allows you to do several financial and non-financial transactions through the usage of internet. One may use his/her personal computer or laptop and an internet connection to use banking online. Internet banking offers you to transfer funds from one account to another irrespective of boundaries, pay utility bills, and checking account statements and a lot more, just on the click of mouse.
- Mobile Banking: Most banks now also have an app for Mobile Banking. Just like the online portal of the bank that is used for Internet Banking, you can use the app for different types of banking transactions. If you use an Android or iOS device, you can download the app of your bank and use this facility. The apps can also be used for transferring funds, checking account statements, locate the nearest ATM, and other banking services.
- ATM: Automated Teller Machine, commonly called ATM is the most commonly used form of electronic banking. The ATMs are seen everywhere. This machine has brought innovations in the Banking sector all over the world. The ATMs are emerging as the most useful tool to ensure, “Any-Time Banking” and “Any-where Banking” or “Any-Time Money”. The advent of the ATM has made the concept of round the clock banking a reality.
The ATM has been helpful to both the bankers and the customers. The long crowd of customers in the banking hall of a branch waiting for their turn to collect cash is disappearing. The branch business timings have lost significance for the customers after the introduction of ATM. ATMs are used by the bank customers to process account transactions.
The customer inserts a plastic card encoded with information on a magnetic strip into the ATM. The strip contains an identification code that is transmitted to the bank’s central computer by modem. Every cardholder should be given a PIN (personal identification number) that he should enter and after verifying the same with the records, ATM would allow operations. - Debit Card: Today all of us use debit card for our day to day financial transactions. Be it the matter of buying online, paying at cash counters or transferring money from one account to another, all of these are done through debit cards. Debit cards are magnetic stripe and chip enabled cards, issued to customers by their respective banks. These cards are linked to the accounts of the customers and the funds they spend using their card are directly deducted from their own bank account.
Benefits of Debit Cards
- A debit card frees you from carrying any cash or cheque books
- Debit cards do not have any interest applied as in credit cards
- Debit cards save you from carrying cash when travelling abroad and are also more readily acceptable than cheques
- Easier to get than a credit card
- Using a debit card instead of writing cheques saves you from showing identification or giving out information at the time of the transaction
Limitations of Debit Card: - Generally, there are no limitations of having a debit card. So the advantages outweigh the disadvantages. Only limitation is that you cannot shop more than the available balance in your SB account. Secondly, annual fee sometimes pinches when you don’t use your debit card much.
Different Types of E-Banking Transactions
In this section, you will learn about some types of e-banking transactions.
National Electronic Fund Transfer (NEFT)
National Electronic Funds Transfer, commonly called NEFT is an electronic payment system that facilitates easy and convenient funds transfer. Under this System, entities, companies and individuals can transfer funds from one account to another electronically, irrespective of distance and nationalities. The Indian banking system has come a long way since the old days when money transfer would take days. The systems are now enabled with electronic transfers like NEFT, RTGS, IMPS where funds are transferred within fraction of time.
The salient features of NEFT are:
- Internet is used to transfer funds.
- It is an electronic transfer of money from one bank or bank branch to another.
- NEFT functions on ‘batch settlement’ basis.
- NEFT is a convenient mode of money transfer between banks in India.
- The batches are settled in hourly time slots.
- There is no limit – either minimum or maximum – on the amount of fund transfer but maximum amount per transaction is limited to 10 Lacs.
Real Time Gross Settlement (RTGS)
RTGS stands for real time gross settlement, which means that it enables money to move from one bank to another on a real time and gross basis. Simply put, real time means the beneficiary bank receives the instructions for fund transfer immediately and gross means that it is not bunched with any other transaction and settlements of funds transfer instructions happen individually.
The salient features of RTGS are:
- It is a fast and convenient mode of money transfer between banks in India.
- Internet is used to transfer funds.
- As soon as the transaction is processed, the funds are created to the beneficiary.
Immediate payment Services (IMPS)
Immediate Payment Service is an interbank electronic instant mobile money transfer service through mobile phones. The beneficiary account is credited immediately when a Fund Transfer request is made. This service is available 24×7, throughout the year including Sundays and any bank holiday. This service is facilitated by NPCI ((National Payments Corporation of India) and was introduced in 2010.
The Salient features of IMPS are:
- 24 x 7 x 365 availability
- Credit and debit confirmations to sender and receiver immediately
- Fast, inexpensive, safe & secure, accessible
- Instant Funds Transfer
- Mobile based payment service
- Simple & Easy to use
Electronic Clearing System (ECS): Truncated and Electronic Cheque
Electronic Clearing System, commonly called ECS is a substitute for utility bills payment transactions where bills such as electricity bills, telephone bills, Credit card payments, loan payments, etc. are done by the banks on the standing instructions of the customers. This is one of the best ever service offered by the banks since the dawn of electronic banking. Here bank overtakes all of your concerns and worries to settle your bills before time.
Truncated Cheque
Truncation stands for changing shape or converting into another form. A cheque is said to be ‘truncated’ when it is converted into an electronic image. For example, converting a physical cheque into a scanned cheque. It is evident that when the cheques are accepted for collection, they are sent to the clearing house by bank employees where they give the cheques to the clearing house and, in turn, accept or take cheques that belong to their bank branch. This can be done by bank employees or by the third party employees.
Cheques so collected by various banks’ representatives are verified by the respective bank branches for making payments and the cheques that do not qualify for payment (whatever the reason may be), are then returned through consequent clearing. The banks are supposed to ensure that this clearing should be on the same day in case of small towns and cities while in case of metropolitan and large cities, it should be done on the next day. RBI has fixed a time limit of forty-eight hours from the time of receiving the cheques for collection.
But this process of sending, collecting and accepting cheques manually consumes a lot of time of the bank employees. And if third parties are involved, the clearing process becomes expensive.
Therefore, as per the directions of Reserve Bank of India (RBI), commercial banks, instead of sending cheques through their representatives, just send the electronic image of the cheques assembled in single electronic file to the concerned clearing house. At the clearing house, software is being used for sorting of the cheques that sort files branch wise and make the process simple and convenient.
The Initial (Original) cheques once truncated are considered as cancelled and are kept separate for further verification at the bank branch. This process is referred to as Cheque Truncation System (CTS). Therefore, RBI has advised all commercial banks to issue only CTS compiled cheque books to their clients. Therefore, modern cheque books contain following particulars:
- IFSC code
- MICR code
- CTS code (a small rectangle box below the space meant for amount in words)
Electronic Cheque
Truncation cheques are doing well in the country. Where truncation reduces the physical movements of cheques from one place to another and saves the precious time of bank staff, electronic cheques reduce the usage of paper based cheques for transferring money. In this type of banking service, cheques are presented, endorsed and delivered electronically.
In Indian banking the concept of electronic cheques are in the nascent stage. An electronic cheque is a kind of payment where internet or related data network is used. It is electronic version but represent the same function as a conventional paper check. Electronic check being electronic format, can be processed in less steps.
Moreover, electronic cheque has more safety features than ordinary paper checks comprising of verification, digital signatures, public key cryptography, and encryption, prominent among others.
The features of an electronic cheque are as follows:
- Electronic cheques have more safety features than ordinary paper checks.
- An electronic cheque is a form of payment made via the internet that is designed to perform the same function as a conventional paper check.
- Normally, the costs related with issuing an electronic cheque are remarkably lower than those linked with paper cheque.
- One of the often used forms of the electronic cheque is the direct deposit system offered by many companies.
Models of E-banking
In order to implement e-banking effectively and prudently, the models discussed in following sections have been proposed.
Complete Centralised Solution (CCS)
Features CCS is one of the best suited network model which can be implemented on E- banking activities to make it consistent and efficient. Under this most widely used model, a bank provides web-server and the necessary software, which is linked to the main server. Once the essential software and hardware are set in, the clients can access the web browsers for routine banking operations from any location.
The salient features of complete centralized solution are as follows:
- First of all, the entire system of software, backup data for the whole bank and allied information are stored in centralised server with its hot standby server being substituted at diverse location and associated through high speed and well-organized network.
- Bank branches are offered online nodes to obtain requests from clients and deliver them services across the counter.
- The nodes provided at remote branches are connected through active satellite links with sufficient redundancy to deliver reliability as well as satisfactory bandwidth.
- The trained manpower is essential only at the centralized location.
Cluster Approach
Under the cluster approach, computerized branches of each town and city are linked with regional processor situated at each such location, which are then linked through dependable media to a centralized high-end server. Under this model, it is essential that a united mechanization is accessible at all bank branches so that connectivity amongst various bank branches can be recognized through local clusters.
The following are the significant features of cluster approach:
- The entire branch network of the bank is computerized through integrated software.
- All the bank branches are interrelated with regional servers through trustworthy network media.
Hi-Tech Bank within Bank
Under hi-tech bank within bank model of e-banking, comprehensive computerization of all of the bank branches is avoided. Within each bank, two different types of banks would function simultaneously. Hi-Tech banking services offering online banking services through designated branches and old-style bank offering traditional services through other branches.
With this approach, banks play a balanced role to provide state of the art services to fast changing and demanding clients of metro cities and simultaneously continue to offer traditional personalized services to the major chunk of bank clients who still prefer them.
Following are some of the features of hi-tech bank within bank model:
- Under this model, for the effectiveness of e-banking, only some particular branches are chosen to bid E-banking depending upon the customers’ requirements, infrastructure facilities, business potential, and so on.
- The financial records of all the clients in those branches must be computerized under a central system offering several electronic channels comprising Internet Banking.
- The High network clients should be encouraged to practice E-Banking services through these designated branches.
- It would not levy any technological burden on the clients who are not interested for opting e-banking services.
- The banks could get a gestation period to cover more branches under the aegis of hi-tech bank within bank in a planned phase.
Advances in E-banking
Let’s look at such advances in e-banking in this article briefly.
Home Banking
When it comes to e-banking, a considerable leap of technological advance is home banking is the way of conducting bank transactions from home in place of branch locations. It includes internet banking, mobile or SMS banking, phone banking and e-mail banking. Today, it has also spread to rural and remote areas, due to which, the character of the traditional banking has drastically changed from manual to technology-based. Under home banking, customers need not visit bank branch physically.
However, only those banks, which have understood the significance of technology well in time, have been benefitted from this shift in the banking system. The non-existence of brick and mortar locations allow modern banks to offer lower service charges and incentives thus attracting new customers.
Many of the limitations of ‘home banking’ appear in form of initiating large transactions that require a bank client to appear in person. This even prevents several forms of online fraud. Although, today, banks offer wide range of online services to its clients, they still hold back some services, for instance, applying for bank loans, home loans or business loans.
There are several such advances that have taken place in the area of electronic banking. These are discussed in the following sections.
Mobile Banking
Mobile banking, one of the most common way of banking is done through mobile phone apps. Modern mobile apps are easy to use and are enabled with all security benefits. In short, banking apps offer protection from phishing attacks. Mobile apps generally offer more features and are user friendly as compared to the websites. For instance, mobile apps make it possible to scan paper checks with an app, while this feature is not common on websites.
SMS banking
SMS banking is also a type of mobile banking in which a bank sends notifications or alerts through phone messages to their bank customers. SMS banking enables bank clients to perform bank transactions using SMS. These notifications or alerts are send to clients about their dealings as and when they take place. Such notifications or alerts help clients to keep a watch on their bank account round the clock. Whenever any debit or credit transaction takes place, customer is alerted through SMS.
Hence, these SMS alerts prevent unauthorized access to a client’s bank account. Besides this, a bank client can have the details of last five transactions and download mini statements through SMS banking. The characteristics of SMS banking are:
- SMS banking is available to all customers at no or very nominal charges, irrespective of distance.
- SMS banking is time saving and cost effective.
- SMS banking saves precious time of both the bankers and bank clients.
- All transactions, over and above the limit specified by a customer will be intimated for the safety of their account.
Banking over the Telephone
Banking over the telephone, is also very common form of home banking, and is still in practice. Earlier, some of the forms of ‘home banking’ services were automated systems for getting update of account balances over the phone. Though the internet has typically taken over this function, banking over the phone still remains a useful fall-back. Banking over phone is also a way for banks to verify any doubtful looking dealings by clients. Phone calls also help customers to resolve matters when mistakes occur.
Mail Banking
With the advent of mobile banking, mail banking is less common among bank clients. It is a service provided by a financial institution which allows its customers to deposit cheques into their account by mail. It is usually used by virtual banks and by customers who live too far from a branch. Additionally, mail banking normally does not invite security risks associated with online banking.
Online Banking
Online banking or web banking is an electronic payment system where bank clients perform their bank transactions from their personal computers that are internet enabled. Almost all of the banks have their websites that permit clients to check their accounts. Banks offer web banking to both the individual and commercial customers. The customers that find themselves more comfortable with web banking than mobile banking can use web banking.
Present web browsers are open source and systematically tested, which offer more security even as compared to mobile apps. To perform banking transactions online, a client has to register themselves with the bank. After successful registration, bank provides a client ID and a password for client verification. To access online banking, a customer has to login to the bank website and enter his/her particulars. Once login is successful, clients can perform their banking transactions as per their convenience.
A bank customer can transfer funds from one account to another account, view bank balances and other details about recent transactions. A customer can also give standing instructions to the bank to pay their utility bills on their behalf. They can also request for the issue of new cheque book, Demat account and download bank statements.
Following points must be remembered with regard to online banking:
- For banks, online banking is one of the convenient and cost effective way of doing banking.
- In online banking, customers perform their banking operations from their home or workplace thus, saving time and avoiding public exposure, which should be avoided especially after COVID-19.
- Online banking is available and operational round the clock. A customer can perform banking operations anytime.
- Online banking is stress-free and simple to perform.
- Online banking is however full of security risks and if due care is not taken, one may lose their hard-earned money to unknown online hackers.
- OTP and unique password features provide extra security to the doubtful activities.
- Through online banking, one can manage multiple accounts at a same time and the transactions are very fast.
- Under online banking, one can take care of their finances from long distance. Therefore, this suits people who frequently travel abroad.
Constraints of E-banking
E-banking is the need of the hour. It has become part and parcel of modern life. People don’t want to visit bank branches physically. Especially, after COVID-19, the popularity of e-banking has gained momentum. People are satisfied with the e- banking platforms and are using them extensively. However, there are some constraints that hinder the growth of the e-banking.
These are discussed as follows:
- Complicated websites: Bank clients often complain of complicated and unfriendly websites, which are full of pop-ups, errors, links, and interlinks, and redirections to probably a million pages.
- Difficult for beginners: In absence of hands-on experience, first-time users, find it difficult to use as they are afraid of losing money. They are hesitant to explore all the options and features offered by e-banking. They prefer to stick to traditional method in absence of any assistance from banks.
- Financial jargon: The bank clients that are from non-commerce background, find it difficult to operate because of technical language. Although it is difficult to learn such knowledge overnight, one should get familiar with some basic terms used frequently on such websites.
- Inability to handle complex transactions: Online banking is great for small transactions, however, when a large transaction is involved, it is better to visit a bank. In some cases, documents verification is required, which should be done by visiting a bank.
- Inconvenience: Although online banks are open round the clock, they are a cause of serious inconvenience in certain cases. For instance, if you get locked out of your bank account, you cannot perform any banking transactions. However, in physical world, you have relationships with bank staff, who will come forward to help you whenever you desire.
- Security issues: Despite of technological revolution in the country, every day, cases are heard of online bank frauds and cheatings. Hence, there always remains a risk of identity theft by stolen password.
- Technology issues: The speed of the internet in small cities is a major technological glitch that irritates online customers. Moreover, if there are bugs in the software or there is a power cut or maybe the servers have gone down the websites are bound to crash leading to technological issues.
- Trust and responsibility: Bogus websites and fake sites are very common in this technological age. It is quite difficult to find real website among fake ones. Customers are bombarded with doubts such as what if they log in to fake website and lose all of my hard-earned money. With such incidents, the trust between bank and clients gets shattered.
- Virtual assistance: During online banking, if a customer needs assistance, it is not available every time. When you approach a bank through phone or internet, your concern is assigned to an anonymous customer service agent, who is totally unknown and you may face language barrier. Your desire to talk to personal banker cannot be fulfilled.
- Other limitations: Though e-banking is useful but it is not for everyone. Elderly or uneducated people cannot take benefit of online banking. Besides this, in case of lost network, no one can use e-banking facilities.
Advantages of E-banking
E-banking or Internet Banking has several advantages over traditional banking. It allows you to conduct various transactions using the bank’s website. It has made banking so simple that one can do almost all the transactions without going to bank branch and standing in queue for hours. Following are the advantages of e- banking:
- Simplicity: E-banking is simple and easy to operate. It is quite convenient as one can easily pay various bills, transfer funds between accounts, etc. Now one does not need to stand in a queue to pay off utility bills; also, you do not have to keep receipts of all the bills as you can now easily view your transactions.
- 24×7 Banking: E-banking is available all the time, i.e. 24×7. You can perform your tasks from anywhere and at any time, even in night when the bank is closed or on holidays. The only thing you need to have is an active internet connection.
- Fast and Efficient: Through e-banking, funds get transferred from one account to another very quickly. One can manage several accounts easily through internet banking.
- Continuous Monitoring: E-banking enables users to keep an eye on their transactions and account balance all the time. This facility also keeps your account safe. This means that due to the ease of monitoring your account at any time, you can get to know about any fraudulent activity or threat to your account before it can cause severe damage.
- Useful for Banks: E-banking reduces the workload of bank employees as now bank customers need not visit bank branch for each and every transaction. E-banking also offers a great medium for the banks to endorse their products and services. The services include loans, investment options, etc.
