Bhavik Kothari

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Summer Project Report On

TO STUDY CUSTOMER UTILIZATION OF

BARODACONNECT & STRATEGIES TO ENHANCE

UTILITY VALUE AMONGST THE CUSTOMERS

UNDER THE GUIDANCE OF

Mr. R K Sinha

DGM, E-Business

Submitted By

Bhavik Kothari

PGDBM Marketing (Batch 2008-10)

N L DALMIA INSTITUTE OF MANAGEMENT STUDIES &RESEARCH


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ACKNOWLEDGEMENT

This report with regards to BarodaConnect at Bank of Baroda is a result of valuable

guidance provided by the Bank and it is due to them that I had an opportunity to gethands-on experience on the working of the Internet Banking module of the Bank.

I am very much grateful to Mr. Nandan Shrivastav, General Manager, Retail Banking

for providing me this opportunity to get associated with the Retail Banking department

of the bank.

I am also thankful to Mr. R K Sinha, Deputy General Manager, E-Business and my

project guide for his efforts and guidance throughout the project; for providing help

and support at every stage of this project.

The study is a product of important inputs from a wide section of people. Without their

contribution, it was practically impossible to understand and assess the true knowledge

of the module.

I would like to gratefully acknowledge the contributions of various branches and

customers who took great effort to share and demonstrate their views and experiences.

The entire BarodaConnect Operations Team (BCOT), especially Mr. Rane, Mr. Kulkarni

Mrs. Shivkar and Mrs. Kaur (Tanu mam) at BCC for providing invaluable processknowledge during the entire period of study. Also not to forget the valuable data

received from the data centre team which helped in the shaping up of the project.

I am also grateful to other Bank of Baroda staff members whose name may not appear

on the project for not being directly related to the project but without their cooperation

it would have been difficult to accomplish the project.

Finally, I am indebted to Prof. Pyare Lal Arya, Director at N L Dalmia Institute of

Management Studies and Research for giving an opportunity to get associated with

such a marvelous Public Sector Undertaking for the summer internship.

Bhavik Kothari


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Executive Summary

The purpose of this research project is to enable an appreciation for the factors

contributing to the usage of internet banking system particularly BarodaConnect hich

help us understand the utilization value of the system.

The objective of this research project is to study the perceived barriers for low number of

users of Bank of Barodas Internet Banking system and various other factors that

influence the usage of the system.

The Descriptive and the Exploratory Research Design Method have been used so as to

optimize the research objectives and to get the perspective of the target sample

population to supplement the research study objectives respectively.

The method of data collection has been through surveys involving questionnaires and

interviews for the sample target population. The contact method involves both direct &

indirect methods of communication.

This research project will be presented to the organization so as to enable an outlook on

the utilization value of their product along with the strategies to enhance the utility

value of the same.


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TABLE OF CONTENTS

Sr. No Topic PageAcknowledgementExecutive Summary

1 Introduction 4

1.1 About Bank of Baroda 51.2 Internet Banking Systems1.2.1 An Overview 10

1.2.2 About Baroda Connect 121.3 Introduction of project 181.4 Problem Statement 191.5 Research Objective 191.6 Brief outline of report 20

2 Literature review 212.1 Internet Banking Industry 22

2.2 Indian Banks on the Web 282.3 Emerging Challenges & Concerns 412.4 Future of Internet Banking & Trends 47

3 Research Methodology 503.1 Research Type 513.2 Data collection approach 523.3 Sampling Design 533.4 Data organization 54

4 Key findings 554.1 Overall Demographics 56

4.2 Category Analysis 594.3 Category-wise analysis (Bank of Baroda customer) 63

4.3.1 Category A 634.3.2 Category B 664.3.3 Category C 674.3.4 Category D 70

4.4 Non Bank of Baroda Customer analysis 735 Strategies 796 Limitations & Scope of Study 1047 Conclusion 105

ReferencesAnnexure 1

Annexure 2

Annexure 3

Annexure 4

Annexure 5


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INTRODUCTION


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1.1 ABOUT BANK OF BARODA

A Saga of Vision & Enterprise

It has been a long and eventful journey of almost a century across 25 countries. Starting

in 1908 from a small building in Baroda to its new hi-rise and hi-tech Baroda Corporate

Centre in Mumbai, is a saga of vision, enterprise, financial prudence and corporate

governance.

It is a story scripted in corporate wisdom and social pride. It is a story crafted in private

capital, princely patronage and state ownership. It is a story of ordinary bankers and

their extraordinary contribution in the ascent of Bank of Baroda to the formidableheights of corporate glory. It is a story that needs to be shared with all those millions of

people - customers, stakeholders, employees & the public at large - who in ample

measure, have contributed to the making of an institution.

Mission statement

To be a top ranking National Bank of International Standards committed to augmenting

stake holders' value through concern, care and competence.

The Heritage Values

It all started with a visionary Maharaja's uncanny foresight into the future of trade and

enterprising in his country. On 20th July 1908, under the Companies Act of 1897, and

with a paid up capital of Rs 10 Lacs started the legend that has now translated into a

strong, trustworthy financial body, THE BANK OF BARODA.

It has been a wisely orchestrated growth, involving corporate wisdom, social pride and

the vision of helping others grow, and growing itself in turn.

The founder, Maharaja Sayajirao Gaekwad, with his insight into the future, saw "a

bank of this nature will prove a beneficial agency for lending, transmission, and deposit


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of money and will be a powerful factor in the development of art, industries and

commerce of the State and adjoining territories."

The Ethics

Between 1913 and 1917, as many as 87 banks failed in India. Bank of Baroda survived

the crisis, mainly due to its honest and prudent leadership. This financial integrity,

business prudence, caution and an abiding care and concern for the hard earned

savings of hard working people, were to become the central philosophy around which

business decisions would be effected. This cardinal philosophy was over the 94 years of

its existence, to become its biggest asset. It ensured that the Bank survived the Great

War years. It ensured survival during the Great Depression. Even while big names were

dragged into the Stock Market scam and the Capital Market scam, the Bank of Baroda

continued its triumphant march along the best ethical practices.

Initiatives

The mid-eighties marked the beginning of the shift to a buyers` market. The Bank

orchestrated its business strategies around the centrality of the customer. It diversified

into areas of merchant banking, housing finance, credit cards and mutual funds. A

string of segment specific branches entrenched operations in the profitable markets.

Overseas operations were revamped and structural changes intensified in the territories

to cater to second generation NRIs. Slowly but surely, the move to become a one stop

financial supermarket had been set in motion. Service delivery standards were

stipulated.

Technology was adopted to add punch. Employees across the board were inculcated

with the marketing concept. Aggressive marketing became the new business

philosophy.


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Bank of Baroda has always had an immense faith in the infinite potential of its people.

This has been historically demonstrated in its recruitment practices, developmental

initiatives, placement processes and promotion policies. Strategic HR interventions like,

according cross border and cross cultural work exposure to its managers, hiring diversefunctional specialists to support line functionaries and complementing the technical

competencies of its people by imparting conceptual, managerial and leadership skills,

gave the Bank competitive advantage. The elaborate man management policies also

made the Bank a breeding ground for business leaders. The Bank provided around a

dozen CEOs to the industry- men who went on to build other great institutions. People

initiatives were blended with IR initiatives to create an effectively harmonious

workplace, where everyone prospered.

New norms for capital adequacy required new capital management strategies. In 1995

the Bank raised Rs 300 crores through a Bond issue. In 1996 the Bank tapped the capital

market with an IPO of Rs 850 crores, Despite adverse market conditions prevailing

then, the issue was over subscribed, reflecting the positive public perception of the

Bank's fundamental financial strength.

Bank of Baroda pioneered the shift from manual operating systems to a computerized

work environment. Starting with ledgers, to ledger posting machines, through ALPMs,

the Bank graduated to the use of Unix based systems to Mainframes, to client server

based Total Branch Mechanization Systems. Today, the Bank has 1918 computerized

branches, covering 70% of its network and 91.64% of its business. Alive to the growing

complexities of an intensely competitive marketplace and the mounting expectations ofcustomers fuelled by this competition, the Bank reworked its distribution strategy. It

ventured beyond the brick and mortar delivery channel into ATMs and the OmniBOB

range of anytime, anywhere electronic channels of PC banking, telephone banking. The


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e-banking products used state of the art technologies like digital certificates, smart card

authentication and secure networking.

The new IT strategy, in the process of implementation will see the deployment of Core

Banking Systems, Multi Service Transaction Switch, Payment Gateways - all geared to

deliver convenience banking.

In its relentless striving for quality perfection, the Bank secured the ISO 9001:2000

certification for 15 branches. By end of the current financial, the Bank is targeting 54

more branches for this quality certification.

Revolutionary and discontinuous changes in the operating environment are a stark

reminder that business success is 'impermanent'. The emergence of IT as a major driver

for change, has accentuated the need to initiate a major transformation program. The

conversion to an IT savvy, market driven bank will be a prerequisite to survival and

growth. A major and strategic step in hi-tech, was the establishment of the Integrated

Treasury branch, as a forerunner to full-fledged global treasury operations. Towards

creating a future Bank of Baroda, the Bank has adopted a revolutionary new business

strategy that will be enabled by a revolutionary new IT strategy. Actioning this strategy

will position Bank of Baroda as India's uncontested premier bank.

At Bank of Baroda, change is a journey. It has a beginning. There will be no end. It will

be a long and difficult march. And the Bank will emerge stronger, more resilient and

positioned to become India's first bank of truly global standards. The relocation to the

imposing Baroda Corporate Centre, is a true reflection of the Bank's resolve to move

ahead of the times. It will not be out of place now, as it stands on the threshold of a

digital era, to echo the same sentiments that guided the Bank in its platinum jubilee

year - 'a promising future is the sequel to a glorious past'.


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1.2 Internet Banking

1.2.1 An Overview

Internet banking refers to the use of the Internet as a remote delivery channel for

banking services. Such services include traditional ones, such as opening a deposit

account or transferring funds among different accounts, and new banking services, such

as electronic bill presentment and payment (allowing customers to receive and pay bills

on a banks Web site).

Banks offer Internet banking in two main ways. An existing bank with physical offices

can establish a Web site and offer Internet banking to its customers as an addition to its

traditional delivery channels. A second alternative is to establish a virtual,

branchless, or Internet-only bank. The computer server that lies at the heart of a

virtual bank may be housed in an office that serves as the legal address of such a bank,

or at some other location. Virtual banks may offer their customers the ability to make

deposits and withdraw funds via ATMs or other remote delivery channels owned by

other institutions.

A growing phenomenon in financial services is the use of the Internet as a channel for

financial services. The Internet bank usage might however not be easy for theconsumers. Consumers use of Internet banking requires acceptance of the technology,

which can be complicated because it involves the changing of behavioral patterns.

Technology, on the one hand, can simplify consumers understanding of exchange, but

on the other hand, it can make consumers understanding more difficult. Consumers

perceive Internet technology as leading to control and chaos, freedom and enslavement,

new and outmoded practice, increase and decrease in the feeling of competence,

increase and decrease in efficiency, fulfillment and creation of needs, promotion and

hindrance of social interaction, and engagement and disengagement. These ambiguities

make Internet technology difficult for consumers to understand. To use Internet

financial services, consumers not only need to understand the technology, they also


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1.2.2 About Baroda Connect

"Baroda Connect" is an internet banking facility introduced as an alternative delivery

channel for rendering effective customer service on 24 X 7 basis. It offers unique

customized services to both Retail & Corporate customers.

All customers can register under Baroda Connect for View and / or Transaction

facility

Under VIEW facility customer can

View Account summary of all operative, deposit and loan accounts

View all multiple Account information online with a single userid

Get Account statements

Under Transaction facility customer can (in addition to the above VIEW facilities)

Transfer funds immediately or schedule for a future date to self linked and thirdparty

Stop Payment of Cheques

Pay through Online Tax - Direct and Indirect taxes online such as Excise Duty,

Service Tax, Customs Duty, Income Tax etc.

Pay through Baroda Easy Pay - utility bills like electricity, mobile etc , Donations,

Subscription, Travel plan booking online

Book Rail Ticket - IRCTC

Additionally a Corporate user can


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o Set up multiple workflow of initiators and approvers for transactions andrequests

o View all trade finance related facilities availed e.g. Export / Import LC,Inland/ Export Bills, Forward Contracts Bank Guarantees, Packing Credit

account etc

o Use upload facility for single debit-multiple credit, multiple debit-multiple credit and single credit-multiple debit.

Baroda Connect facility is FREE of charge

Baroda Connect is a fully secured 128 bit SSL site duly certified by Verisign

Limit for Fund transfers under Baroda Connect

Services

Retail Corporate

Self and Third Party Self Third Party

Fund Transfer *

Per transaction 25,000 5,00,000 50000

Daily 50,000 10,00,000 1,00,000


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Weekly 2,00,000 40,00,000 4,00,000

Monthly 5,00,000 1,00,00,000 10,00,000

Yearly 30,00,000 6,00,00,000 60,00,000

No. of transaction per

day5 transactions No limits

Approvals for

TransactionsIndividual can do Involvement of multiple users

* For corporate customers there can be different limits for different corporates after

approval from the respective Zonal / Regional authority of the Bank


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Application Process

Download appropriate internet banking form from the Home Page- Click the Link under "Download Application Form" to download

form for RETAIL Users / CORPORATE Users

Retail.- All Individual account holders should use theRETAIL form

Corporate - All non individuals i.e. companies, partnershipfirms, HUFs, Sole proprietors should use CORPORATE form

The form should be duly filled in, signed by all signatoriesi.e. all joint account holders in case of a joint account, all

partners in case of a partnership firm etc.

The form should be submitted through the base branchwhere the customer is maintaining the account forprocessing.

Customer will get the User Id by post at the communicationaddress

Passwords should be collected from BOB Branch where theapplication was submitted against acknowledgement


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First Time Logging Process

Open your Internet explorer browser and typewww.bankofbaroda.com

Click on Net Banking and select Country

Select RETAIL USER or CORPORATE USER

Your login page will be opened.

Type your User Id (received at your communication address)

Password (received through the branch)

Click on Go button only once (Please note that the password is case sensitive).

The terms and conditions page will be opened.

After reading click on Agree button.

A screen will be displayed for changing the password. Please change both the

sign-on and transaction password in case you have received both.

Note that the password must contain a minimum of 8 characters (maximum 16)

comprising of an alphabet, a number and a special character. The password

should not be the same as the userid.

Additionally, the following functionalities under Baroda Connect are also available

Click at Bank's websitewww.bankofbaroda.comat the appropriate link
http://www.bankofbaroda.com/http://www.bankofbaroda.com/http://www.bankofbaroda.com/http://www.bankofbaroda.com/http://www.bankofbaroda.com/http://www.bankofbaroda.com/http://www.bankofbaroda.com/http://www.bankofbaroda.com/


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Payment of Indirect Taxes ( Service Tax, Excise duty and Customs duty)

Payment of Direct Taxes( Corporation Tax, Income Tax, TDS, Securities tax etc.)

Payment of Utility Bills Booking of Rail Tickets

The demonstration of the banks system has been attached in the Annexure 5 for

references.


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1.3 Introduction of the Project

Internet commerce is a revolution that is driven by the worlds fastest growing sector -

the Internet. However, like in any emerging technology, there exist barriers to the

adoption of Internet banking services.

This study examines the customer utilization of Bank of Barodas Internet banking

service BarodaConnect by the account holders of different branches in Greater Mumbai

Region. It also further analyzes the various areas of concern which the bank needs to

work on so as to enhance the utility value of BarodaConnect.

The study is not only restricted to the bank but a comparative analysis ,of eight premier

banks which includes three private sector banks and five public sector banks, is done

and their customer responses for internet banking are noted.

The results and the findings are interesting, followed by few strategies in terms of

deliverables so as to improve the utilization value of BarodaConnect amongst its

customers


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1.4 PROBLEM STATEMENT:

Low number of users of Bank of Barodas Internet Banking system Baroda Connect.

1.5 RESEARCH OBJECTIVE:

1. To study the perceived barriers to the usage of Internet Banking system.

2. To study various other factors contributing to the usage of Bank of Barodas Internet

Banking system-BarodaConnect


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1.6 Brief Outline of the Report

For the purpose of easy understanding and analysis of our report we have divided the

report into a number of sections for the convenience of the user.

The Initial section of the report consists of background of our subject of concern and

deals with the basic fundamental knowledge about the topic and the company for

which the research is conducted along with its history, products and services and its

Internet Banking system. Also covered in this section is the problem definition and the

objective of research.

The section thereafter covers the necessary literature to be reviewed so as to obtain an

overall view of the project with regards to the previous research conducted and the data

readily available for our references.

The preceding section discusses on the methodology adopted for the research which

includes the data instruments used, the research type and the sampling type alongwith

the data organization technique employed.

Based on the research methodology adopted the next section covers the most important

aspect of the report the Findings from the survey done and an in-depth category-wise

analysis with regards to Bank of Baroda as well as Non Bank of Baroda Customers and

analyzes their responses.

The final section of the report consists of various strategies with their benefits and cost

analysis so as to enhance the utility value of the system amongst its customers.

The report is finally summarized with its key findings and strategies which need to be

further thought about and worked on.


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LITERATURE REVIEW


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2.1 INTERNET BANKING INDUSTRY AN OVERVIEW

The Internet banking is changing the banking industry and is having the major effects

on banking relationships. Even the Morgan Stanley Dean Witter Internet research

emphasized that Web is more important for retail financial services than for many other

industries. Internet banking involves use of Internet for delivery of banking products &

services. It falls into four main categories, from Level 1 - minimum functionality sites

that offer only access to deposit account data - to Level 4 sites - highly sophisticated

offerings enabling integrated sales of additional products and access to other financial

services- such as investment and insurance. In other words a successful Internet

banking solution offers

Exceptional rates on Savings, CDs, and IRAs

Checking with no monthly fee, free bill payment and rebates on ATM surcharges

Credit cards with low rates

Easy online applications for all accounts, including personal loans and mortgages

24 hour account access

Quality customer service with personal attention

DRIVERS OF CHANGE

Advantages previously held by large financial institutions have shrunk considerably.

The Internet has leveled the playing field and afforded open access to customers in theglobal marketplace. Internet banking is a cost-effective delivery channel for financial

institutions. Consumers are embracing the many benefits of Internet banking. Access to

one's accounts at anytime and from any location via the World Wide Web is a

convenience unknown a short time ago. Thus, a bank's Internet presence transforms


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from 'brouchreware' status to 'Internet banking' status once the bank goes through a

technology integration effort to enable the customer to access information about his or

her specific account relationship. The six primary drivers of Internet banking includes,

in order of primacy are:

Improve customer access

Facilitate the offering of more services

Increase customer loyalty

Attract new customers

Provide services offered by competitors

Reduce customer attrition

INTERNET BANKING AND THE NEED FOR KNOWLEDGE

The financial sector is an example of where the relationship between buyer and seller is

complicated because the services are heterogeneous (Eriksson & Mattson, 2002) and

contain an extensive level of uncertainty (Eriksson & Sharma, 2003). Financial services,

such as funds, placements, accounts, and mortgages, are often perceived as difficult for

consumers to understand, thus complicating the consumers decision-making process

and attaching a high perceived risk to it (Harrison, 2002). If consumers have extensive

knowledge of financial services, they are more likely to use Internet-based financial

services than consumers with the same level of knowledge of the technology but with

less knowledge of financial services. The knowledge of a service influences the use of a

technology; consumers who do not have knowledge of a certain service may be

uncomfortable purchasing the service through the Internet. Consumers tend to prefer

purchasing standardized products over the Internet, whereas complex services are

more often bought in face-to-face interaction (Bobbit & Dabholkar, 2001). Products that


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are more often bought on the Internet, include the following: software, books, and

music (Bobbitt & Dabholkar, 2001). These products involve little risk in terms of defects,

fragility, style, fabric, and color differences; they are also products that consumers have

higher levels of experience purchasing (Bobbitt & Dabholkar, 2001).If consumers lack knowledge about financial services, they may not have the

capacity to make favorable decisions based on their presumptions. The lack of financial

knowledge may affect an individuals or familys capacity to make a long-term

placement, which results in a position that is sensitive to descents in their economy.

Research has shown that acquirement of additional information results in improved

acting in financial matters (Braunstein & Welch, 2002). According to Mitchel (2002), a

lack of financial knowledge may result in two possible scenarios. Individuals who donot understand a product or a service have a tendency to hesitate when they are

buying. Consumers who intend to buy despite their lack of knowledge become

vulnerable to salespeople who may try to sell them a product or a service that is

inappropriate or that they do not need. Neither of these scenarios is good for the

supplier of financial services. The first case results in an absent sale, and the second case

may result in unsatisfied consumers and increased governance regulation. In the same

way that the level of knowledge of financial services may influence the consumers useof financial services, the level of knowledge of technology may influence the

consumers use of financial services in a technology-intensive context. If consumers

learn about financial services, but not how to purchase them, the level of Internet

banking usage will not increase. It is therefore important that consumers learn about

financial services as well as Internet banking in order to become a regular Internet

banking user (Mittal & Sawhney, 2001).


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Seller support

However, even consumers who are knowledgeable about the services and the

technology may experience occasions when they cannot overcome obstacles on their

own and, therefore, need assistance from someone who is more knowledgeable in thatparticular problem area. In those cases when consumers need assistance, external

sources of information are likely to be important in bridging the gaps in the consumers

knowledge. External sources, which provide consumers with information about using

the SST, are most often a third party or the seller support. Consumers can transform the

information gained from the third party or the seller support into their own personal

knowledge. The new knowledge can then serve to bridge the gaps in the consumers

knowledge, which will facilitate future usage of the SST.Many firms offering their services through SSTs, provide consumers with

assistance around the clock, whereas others provide this support for approximately 14

to 18 hours a day. Service firms refer to this support by different names (e.g., support,

customer support, customer centers, customer service), but I have chosen to use the

term seller support as a general term to include all of them. Cleveland and Minnucci

(2000) define the seller support as a coordinated system of people, processes,

technologies and strategies that effectively integrates organizational resources and

multiple channels of communication to enable customer interactions that create value

for the customer and organization. The seller support enables consumers to access the

services they want, when they want, and how they want.

Third party influence

Several studies have found that individuals prefer to turn to friends and family

members for assistance rather than to strangers or formal agencies (Amato, 1990; Burke

& Weir, 1975; Croog et al., 1972). The social network which I in this article refer to as

third party, consists of individuals who are connected in some form of contact and have

some form of social bonds (Axelrod, 1956). The social network often consists of family

members, friends, neighbors, and colleagues (Axelrod, 1956; Bell & Boat, 1957), but the


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most frequent social contact is with our families (Axelrod, 1956). A social network is a

specific set of linkages among a defined set of persons, with the additional property that

the characteristics of these linkages as a whole may be used to interpret the social

behavior of the persons involved (Mitchell, 1969). A social network can be developedfrom entities around which individuals organize their social relationships; for example,

it can be developed in a social, psychological, legal, or physical entity around which

joint activities are organized (e.g., workplaces, voluntary organizations, hangouts,

families, etc.) (Feld, 1981).

The social network is sets of interpersonal ties that connect people with various

knowledge of the SST to one another through relations of for example family and

friendship. Having a tie to someone who is more knowledgeable about SST use yieldssocial capital that people can draw upon to gain more knowledge of SST usage. Ties of

for example friendship that is less knowledgeable in matters related to the SST usage

provides few advantages for an consumer who needs assistance. Once someone in a

persons network becomes more knowledgeable in the area of the problem, than the

person self, the ties are transformed into a resource which can increase the own

knowledge.

Despite the influence the third party has on the consumers behavior, mostdiffusion research has ignored the effects of social influence (Karahanna et al, 1999).

Karahanna et al (1999) identifies two types of social influence: (1) Informational

influence, which occurs when individuals accept information as evidence of reality,

through either information from someone about their personal experience and

evaluation of the innovation or when the individual can observe someone using the

innovation, and (2) normative influence, which occurs when individuals conform to the

expectations of relevant others.

An innovation creates uncertainty (Rogers, 1995) and individuals are in general

uncomfortable with uncertainty and therefore tend to increase the interaction with a

third party to interpret the innovation (Karahanna et al, 1999). The increased

interactions with the third party influence the behavioral decision via informational and


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normative influence (Karahanna et al, 1999). Informational influence occurs when

relevant others of the individual inform of their own personal experience and

evaluation of the innovation or when the individual can observe the relevant others

using the innovation. In addition to informational influence, normative pressure fromrelevant others to adopt or use the innovation reduces the risk of adoption or use and

uncertainty because it provides strong evidence indicating the behavioral decision to

adopt or use is a good decision.

When the consumer receives assistance from a third party, the service supplier can

not influence the consumers behavior, instead an individual in the consumers social

network have the power to influence the consumers behavior. The third party uses

their own attitudes to influence the consumer, and the consumers behavior thereforemay be influenced by the attitudes of the third party, and not by the service supplier.

Individuals tend to communicate negative word-of-mouth more frequent than positive

word-of-mouth (Lau & Ng, 2001). Therefore, consumers contacting a third party for

assistance is expected to use the SST less than individual who do not.


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2.2 INDIAN BANKS ON WEB

The banking industry in India is facing unprecedented competition from non-

traditional banking institutions, which now offer banking and financial services over

the Internet. The deregulation of the banking industry coupled with the emergence of

new technologies, are enabling new competitors to enter the financial services market

quickly and efficiently.

Indian banks are going for the retail banking in a big way. However, much is still to be

achieved. This study which was conducted by students of IIML shows some interesting

facts:

Throughout the country, the Internet Banking is in the nascent stage of development

(only 50 banks are offering varied kind of Internet banking services).

In general, these Internet sites offer only the most basic services. 55% are so called

'entry level' sites, offering little more than company information and basic marketing

materials. Only 8% offer 'advanced transactions' such as online funds transfer,

transactions & cash management services.

Foreign & Private banks are much advanced in terms of the number of sites & their

level of development.

It's the new generation of banking in India. Most private and MNC banks have already

setup an elaborate Internet banking infrastructure. And this exercise has provided them

numerous benefits like:

Greater reach to customers

Quicker time to market

Ability to introduce new products and services quickly and successfully

Ability to understand its customers needs


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Customers are given access to information easily across any location

Greater customer loyalty

Multi-national and private sector banks in India have been very successful in setting up

Internet banking services. This is mainly because these banks already had a robust

automated banking environment on which they could build the Internet banking

infrastructure. Most multi-national banks already have efficient Internet banking

infrastructures running in other countries which could be emulated in India. And the

private banks, which are relatively young, did not have to carry the burden of legacy

systems. They merely invested in best-of-breed Internet banking solutions from the

start.

In a fix

Unfortunately nationalized banks have been unable to evolve as fast as most private

sector and MNC banks. As a result, in many organizations there may be a mix of

automated systems and manual systems, with both systems running parallel, and using

half-baked applications created by smaller vendors which run in certain departments.This creates a chaotic scenario. Network management is a nightmare, the legacy

systems may buckle any moment, new users and locations keep coming up, and there

are also issues of security and consolidation.

This is a typical situation at a usual nationalized bank:

A very large network of branches nationwide growing fast

Lack of connectivity in remote locations

A very large base of customers increasing fast

75-80 percent automation in main branches with less automation in remote cities

and smaller branches


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Large amount of legacy equipment which doesn't integrate well with other

systems

Inefficient and outdated applications in some departments which are not flexible

and don't integrate well with other applicationsSlow-to-change mentality of an Indian customer who is used to dealing with a

human teller

Web-enabling banks with such infrastructure and number of branches nationwide at

one go is a near-impossible task. However each of the challenges can be overcome with

good planning, phased implementation, and lots of grit on the part of the CIOs.

The RBI steps in

The Reserve Bank of India (RBI) has created a comprehensive document which lays

down number of security-related guidelines and strategies for banks to follow in order

to offer Internet banking. The guidelines broadly talk about the types of risks associated

with Internet banking, the technology and security standards, legal issues involved, and

regulatory and supervisory concerns. Any bank that wants to offer Internet banking

must follow these guidelines and adhere to them as a legal necessity.

Vaidyanathan Iyer, National Manager, eSecurity Business, Computer Associates

provides solutions to banks which can help them go online. He says, "the guidelines

have been created with a lot of thought regarding the banking scenario in India. It is at

par with international banking standards and is very comprehensive."

Background

The document broadly categorizes levels of Internet banking services into three types:

The basic level service in which the banks' websites disseminate information on

different products and services to customers. It may receive and reply to

customers' queries through e-mail.


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Simple transactional websites which allow customers to submit their

instructions, applications for different services, and queries on their account

balances. They do not permit any fund-based transactions on their accounts.

The third level of Internet banking services offered by fully-transactionalwebsites which allow customers to operate on their accounts for transfer of

funds, payment of different bills, subscribing to other products of the bank, and

to transact purchase and sale of securities.

Internet banking

The document lays down some of the distinctive features of Internet banking. They are:

It removes the traditional geographical barriers as it could reach out to customers

of different countries/legal jurisdiction. This has raised the question of

jurisdiction of law/supervisory system to which such transactions should be

subjected.

It has added a new dimension to different kinds of risks traditionally associated

with banking, heightening some of them and throwing new risk control

challenges.

Security of banking transactions, validity of electronic contract, customers'

privacy, etc., which have all along been concerns of both bankers and supervisors

have assumed different dimensions given that Internet is a public domain, not

subject to control by any single authority or group of users.

It poses a strategic risk of loss of business to those banks who do not respond in

time to this new technology, being the efficient and cost effective delivery.

Securitythe key concern

It's evident from the document and from a general study of the business case of Internet

banking, that security is perhaps the biggest concern. Connectivity issues to remote

locations is also very important, but the need to be secure is far more pressing.


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The document says that security issues include questions of adopting internationally

accepted state-of-the-art minimum technology standards for access control,

encryption/decryption (minimum key length), firewalls, verification of digital

signature, and Public Key Infrastructure (PKI).

Concerns in Chapter 5 and 6

The concerns and guidelines about security are discussed in detail in Chapter 5 and

Chapter 6 of the report. The key components of security concerns are

Authentication: The assurance of identity of the person in a deal

Authorization: A party doing a transaction is authorized to do so

Privacy: The confidentiality of data and information relating to any deal

Data integrity: Assurance that the data has not been altered

Non-repudiation: A party to the deal cannot deny that it originated the

communication or data

If these areas are not addressed, the bank may suffer operational risk, reputational risk,

legal risk, money laundering risk, and strategic risk.

Chapter 6 of the report talks about technology and security standards for Internet

banking. It talks about TCP/IP, the OSI Layers, and application architectures. There are

guidelines for backup and recovery, list of the different types of attacks and the ways in

which they can compromise a system, like sniffer attacks, DoS, and e-mail bombs.

Authentication techniques like tokens, biometrics, and smart cards are described. The

concepts of firewalls, proxy servers, cryptography, digital signatures, certification, SSL,

and PKI are explained in detail. Security tools like scanners, sniffers, and IDSs are also

described. Physical security is talked about and followed by guidelines of a security

policy and a number of recommendations. The recommendations talk about access

control, isolation of application servers, security logs (audit trails), penetration testing,

backup and recovery practices, monitoring against threats, and education.


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Comprehensiveness and Indian banks

The RBI guidelines are very exhaustive and extremely comprehensive. But are Indian

banks following the guidelines accordingly? Experts at Global E-Secure Limited, a

security solutions company say that none of the Indian banks which offer Internetbanking facilities have an IT security policy as stipulated by the RBI. While banks have

been asked to file monthly reports to show compliance to the guidelines, most of them

have sought time to satisfy the security policy criterion.

The RBI is insisting on a written document, signed by the Board of Directors to make

the banks aware that IT security is not just an IT concern, but something that could

affect overall business as well.

The company also says that while these banks do have security measures, there is no

clear-cut program which incorporates all the aspects of a comprehensive security policy.

Also, some banks do not have straight-through processing. There is manual

intervention, which poses a great security risk for the customer. In order to fill such

gaps, the security policy guidelines clearly lay out the areas which should be looked

into. To provide a further check, the RBI is also empowered to audit the compliance to

the policy.

Rajeev Wadhwa, COO, Global E-Secure Limited says, "Following the release of its

guideline, the RBI will also come out with a policy on similar lines. Hence, it's

imperative that banks immediately act upon the same. The RBI has asked I-banking and

e-trading banks to perform ethical hacking of their servers and submit their reports.

Since there is no proper ethical hacking policy and methodology published in the IT-Act

nor by the RBI, these banking organizations have to depend on only security specialists

who have the Service Level Agreement (SLA) and a procedure in place."


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Indian Banks-The New Web Hub

Indian banks have a chequered history. The British legacy left behind a host of large

and small privately-held banks. The late 60s saw the 34opularize343434on of banks,

leading to the emergence of the public sector banks. The 90s saw the banking industry

embracing technology in a massive way, led in particular by the new private banks and

MNC banks. Among these series of technology innovations, Internet banking for the

retail segment is a recent phenomenon that has generated a lot of interest in the Indian

banking industry. Private and foreign banks have been the early adopters while the

PSU banks are also beginning to latch on to the bandwagon.

As per IDC estimates, the total number of registered users for Internet banking in India

is over two million. But this figure needs to be adjusted for dormant users and multiple

accounts (a user having accounts with more than one bank). India has a little less than a

million active Internet banking users. And though this is just 0.096 percent of the total

population, it represents 15 percent of the Indias Internet user population. Thus

indicating that the concept of Internet banking is surely catching on.

Impressive as these figures might be, the truth is that India lags behind other countriesin Internet banking. In the US, the number of commercial banks with transactional

websites is 1,275 or 12 percent of the total number of banks. Of these, seven could be

called virtual banks. Ten traditional banks have established Internet branches or

divisions that operate under a unique brand name. At present, in the US approximately

78 percent of all commercial banks with assets more than $5 billion, 43 percent of banks

with $500 million to $5 billion in assets, and 10 percent of banks under $500 million in

assets have transactional websites.

From the Asian market experience, it is clear that Internet banking is here to stay and

will be a major channel to acquire and service customers. Markets like Korea and

Singapore have nearly 10 percent of their population banking over the Internet.


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Though, these markets are way ahead of India both in terms of Internet penetration and

online banking penetration, India is a big potential market and is fast catching up with

its Asian counterparts.

The Indian saga

In contrast, Indian banks have an insignificant Internet banking record. ICICI Bank

kicked off online banking way back in 1996 and a host of other banks soon followed

suit. But even for the Internet as a whole, 1996 to 1998 marked the adoption phase,

while usage increased only in 1999due to lower ISP online charges, increased PC

penetration and a tech-friendly atmosphere. Reveals Anup Bagchi, head, Internet

Banking, ICICI Bank, We had launched the Internet banking service even before the

RBI had formulated its guidelines. Fortunately, as it was a comparatively new concept,

the regulating authorities were extremely co-operative with us.

After ICICI, Citibank, IndusInd Bank and HDFC Bank and Timesbank (now part of

HDFC Bank), were the early ones to bite the technology bullet in 1999. Says C N Ram,

head, information technology, HDFC Bank, Our vision was very clear, we were not

enamoured by the concept of Internet banking but looked at it more as an add-on

service which our customers should gradually adopt. In line with this strategy,

initially the Net banking facility was provided in order to meet the information

requirements of the customers and gradually it ventured into fund transfers and third

party transfers.

Though adoption of Internet banking by Indian banks and their customers would not

set the Arabian Sea on fire, no one can deny the obvious benefits that this service offers.

Costs of banking service through the Internet amount to a fraction of the costs through

conventional methods. Industry estimates assume teller cost at Re 1 per transaction,

ATM transaction costs at Re 0.45, phone banking at Re 0.35, debit cards at Re 0.20 and

Internet banking at Re 0.10 per transaction. Says V K Ramani, president, information

technology, UTI Bank, another of the early adopters, No wonder, the cost-conscious


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banks in the country are now actively considering using the Internet as a channel for

providing services. People were popularize about even ATM at the beginning, but look

how it has picked up today. However, he warns that banks cannot expect instant

returns, unless the Internet population itself does not reach a critical mass. Besides, healso feels that fully popularized banks, with better management of their customer base

are in a stronger position to cross-sell their products through this channel.

Nitin Chopra, head, consumer banking, ABN-AMRO Bank, feels that the prohibitive

costs of real estate would always make Internet banking a much more viable option in

the long run than physical banks. In todays environment besides their physical

branches, banks need to grow non-branch delivery networks as a part of their growth

strategy. ATMs are currently the hot favourite for most banks, but Internet banking

definitely has the potential to leave the rest behind. Therefore, on the whole, Internet

banking increases operational efficiencies and reduces costs, besides giving a platform

for offering value added services to the customer, thereby fulfilling all the essential

prerequisites for a flourishing banking industry.

The PSU lethargy

As in all forms of technology innovations, PSU banks have remained laggards in the

race for adopting Internet banking practices. There are very few popularized banks like

State Bank of India, Bank of Baroda, Allahabad Bank, Syndicate Bank and Bank of India,

that offer Internet banking services. Some others like Union Bank of India, Canara Bank

and Punjab National Bank are on the verge of doing so. SBIs Internet banking initiative,

launched in July 2001, is in fact doing quite well and has over 18,000 registered

customers across 150 branches. The enthusiastic response has encouraged the SBI

management to extend the service to an additional 500 branches. But despite positive

news like this, PSU banks still have a lot of catching up to do on the Internet banking

services front.


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DD Krishnamoorthy, deputy general manager, information technology, Bank of India

says that the primary reason preventing PSU banks from introducing online banking

services, has been the absence of a legal framework to back up, and regulate Internet

banking operations in the country. Though the Information Technology Act 2000attempted to address a number of e-commerce regulatory issues, he feels that there still

are several grey areas which have neither been spelt out properly, nor have the courts

suggested workable modes of implementation. Though Internet banking is only an

extension of traditional banking services, there are several instances which contradict

the legal framework for this banking in India provided by a set of enactments like the

Banking Regulations Act, 1949, the Reserve Bank of India Act, 1934 and the Foreign

Exchange Management Act, 1999.

However, not many are willing to buy the argument that its the lack of regulations that

is preventing the PSU banks from taking the Internet plunge. Says an industry analyst,

More than a lack of regulatory framework, it is lack of zeal and a mindset attuned

towards resisting any new technology that is holding back the popularized banks. On

top of this, the highly popularize unions are also an impediment as they feel that

Internet banking would expose the low productive levels of the workforce.

The average customer profile of PSU banks is also comfortable with the traditional

banking system and is not too keen on adopting an online model. Typically, most PSU

banks have the majority of their customer base in the smaller cities or towns and even in

remote villages. Even in bigger cities, a large proportion of their customers are either

senior citizens or at least 50+ who have a natural aversion towards adopting new

technology. This not the case with private or MNC banks, where the clientele is mostly

urban-based falling in the 20-40 age group and who have a higher exposure to

technology.

Even the IDC survey seems to confirm this premise. Among the elite Internet banking

users, that is, those customers who belong to Socio-Economic Class A1 (SEC A1) in the


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top five cities, it has been found that people access their account through the Internet

once every week. Similarly users visit their ATM centre on an average of two times per

week. The workplace happens to be the most favoured place to access Internet for

banking purposes. The home comes a close second while 38opularize take the thirdplace. ATM in the close vicinity to the office is the most preferred place among users for

banking. The users (24 percent) who access the ATM near their office mostly go during

the first half of the day, between 9 AM to 12 PM, but most preferred time by all users

(41 percent) is between 6-9 PM.

Bouquet strategy

This probably explains why more and more banks are looking at Internet banking as

another attractive addition to their bouquet of delivery channels. At least in urban

areas, ATMs are already fast becoming the most popular mode of banking, while phone

banking and mobile banking are also on the upswing as the user base grows. Internet

banking now seems to be the perfect model to complement the whole system. Says

Ram, In fact, currently telephone banking is much more popular than Internet

banking. But we at HDFC Bank are working on a strategy to integrate various channels

like the telephone, ATM, Internet, mobile, branches, etc. Customers have real-time

access in all wherein any action in any of the above mentioned channels would be

immediately reflected in the account of the account holder.

All these initiatives taken by banks are part of their channel diversification strategy,

where they intend to put the strategy matrix in place. This will be done through

sprucing up the channel strategy in depth and width in which width would mean the

various varieties of channel and depth would mean the value added services in each

channel. Adds Ramani, We can divide the user group into 50 percent that would not

prefer transacting through the Internet, 25 percent that are open to the idea, and the


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other 25 percent that are the ones who can be given credit to 39opularize the use of

Internet for transaction purposes.

What is ultimately emerging is that though there is certainly a high level of importance

attached to Internet banking, it is at present not necessarily a priority for all banks. As

far as banks are concerned, migrating customers to any self-directed channel is the main

goal. However, the future of banking will be one in which customers can address most

of their needs through self-directed means and the key differentiator will be how

effective a bank is in getting its customers online and deriving measurable value from

this presence. One can sum up the whole Internet banking scenario with the adage, For

while winners may not see massive gains, the losers will fade from view as their ability

to compete is eroded with every mouse click.

Indias Net banking almanac

Bank Name Technology Vendor Service offering

ABN AMRO Bank Infosys (BankAway) NetBanking

Abu Dhabi CommercialBank Infosys (BankAway) ADCB NetLink

Bank of India I-flex BOIonline

Centurion Bank Logica MyCBOL

Citibank Orbitech (now Polaris) Citibank Online

Corporation Bank I-flex CorpNet

Deutsche Bank db direct

Federal Bank Sanchez FedNet

Global Trust Bank Infosys (BankAway) ibank@gtb


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HDFC Bank i-flex/ Satyam NetBanking

HSBC Online@hsbc

ICICI Bank Infosys, ICICI Infotech Infinity

IDBI Bank Infosys (BankAway) i-net banking

IndusInd Bank CR2 IndusNet

Punjab National Bank Infosys (BankAway)

Saraswat Bank

Standard Chartered Bank In-House Me Standard Chartered Online

State Bank of India Satyam/Broadvision onlinesbi.com

UTI Bank Infosys (BankAway) iConnect

Bank of Baroda Infosys(BankAway BarodaConnect


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2.3 EMERGING CHALLENGES& CONCERNS IN INTERNET BANKING

Information technology analyst firm, the Meta Group, recently reported that "financial

institutions who don't offer home banking by the year 2000 will become marginalized."

By the year of 2002, a large sophisticated and highly competitive Internet Banking

Market will develop which will be driven by

Demand side pressure due to increasing access to low cost electronic services.

Emergence of open standards for banking functionality.

Growing customer awareness and need of transparency.Global players in the fray

Close integration of bank services with web based E-commerce or even

disintermediation of services through direct electronic payments (E- Cash).

More convenient international transactions due to the fact that the Internet along with

general deregulation trends, eliminate geographic boundaries.

Move from one stop shopping to 'Banking Portfolio' i.e. unbundled product purchases.

Certainly some existing brick and mortar banks will go out of business. But that's

because they fail to respond to the challenge of the Internet. The Internet and it's

underlying technologies will change and transform not just banking, but all aspects of

finance and commerce. It represents much more than a new distribution opportunity. It

will enable nimble players to leverage their brick and mortar presence to improve

customer satisfaction and gain share. It will force lethargic players who are struck with

legacy cost basis, out of business-since they are unable to bring to play in the new

context.

Relationship building is a strategic priority for many banks. Internet Banking

technology and products can provide a means for banks to develop and maintain an

ongoing relationship with their customers by offering easy access to a broad array of

products and services, through which banks build customer loyalty, cross sell, and


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enhance repeat business. As the demographics of banking customers continue to

change, the challenge to banks is to understand their customer base and find the right

mix of delivery channels to make available products and services profitably to their

various market segments.When the public uses the internet to move or hold their money, they expect messages to

arrive at their destination without error or interception; they expect the system to be

safe from fraudulent or unauthorised access; and they expect to enjoy the same degree

of customer confidentiality as with conventional banking arrangements. They want to

be assured not only that the execution process is reliable and secure, but also that there

are adequate controls on read only access facilities.

In a survey conducted by the Online Banking Association, member institutions rated

security as the most important issue of online banking. There is a dual requirement to

protect customers' privacy and protect against fraud. Banking Securely: Online Banking

via the World Wide Web provides an overview of Internet commerce and how one

company handles secure banking for its financial institution clients and their customers.

Some basic information on the transmission of confidential data is presented in Security

and Encryption on the Web. PC Magazine Online also offers a primer: How Encryption

Works. A multi-layered security architecture comprising firewalls, filtering routers,

encryption and digital certification ensures that your account information is protected

from unauthorised access:

Firewalls and filtering routers ensure that only the legitimate Internet

users are allowed to access the system.

Encryption techniques used by the bank (including the sophisticatedpublic key encryption) would ensure that privacy of data flowing between

the browser and the Infinity system is protected.

Digital certification procedures provide the assurance that the data you

receive is from the Infinity system.


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One of the main challenges therefore facing Internet banking is that of security of data

and confidentiality, both for the user and the bank. By virtue of the nature of banking,

absolute confidence in the privacy and security of data is a fundamental requirement

and needs to be demonstrated not only to the banks own clients and internal auditors,

but also to external auditors and regulators.

How can we as bank supervisors obtain these assurances? Inevitably we will have to

depend to a large extent on the experts who have and continue to devise sophisticated

methods. The key components of these methods, which will help maintain a high level

of public confidence in an open network environment, include:

_ Security

_ Authentication

_ Certification

_ Non-repudiation

_ Privacy

Security

Although the publicly accessible Internet is generally less secure than the direct dial-in

access system, both types of connections are vulnerable to interception and alteration.

For example, software sniffers can obtain passwords, account numbers, credit card

numbers, etc. without regards to the means of access.

Firewalls are frequently used on Internet banking systems as a security measure to

protect internal systems and should be considered for any system connected to anoutside network. They provide the gateway to guard against unauthorised individuals

gaining access to the banks network. The mere presence of a firewall does not ensure

security, as firewalls are not impenetrable. There are instances where the existing

privacy protection regime afforded Internet banking customers have proven


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inadequate. Take for example Eggs (the on-line bank run by Prudential (UK)) account

holders who found that the log-out function malfunctioned, enabling other people to

browse their account and even transfer funds.

AuthenticationAuthentication is a process that provides confidence to the message receiver on the

identity of the sender and the integrity of the message itself. In a digital environment,

authentication is achieved through the use of a digital signature, which is analogous to

a handwritten signature. This piece of data asserts that a named person wrote or

otherwise agreed to the document to which the signature is attached. Authentication is

usually implemented through the use of Encryption technology.

Encryption is the transformation of data into an unreadable form. The purpose ofencryption is to provide secrecy by keeping the information hidden. Information can be

encrypted through use of an encryption key and decrypted for viewing via a decryption

key. Public key cryptography and secret key cryptography are currently the two

leading cryptosystems. For secret key cryptography, only the sender and the receiver

know the common encryption and decryption key. The main concern here is to getting

the sender and receiver to agree upon a secret key without anyone else finding out.

In a multi-user environment, secure key distribution becomes even more difficult, and

to overcome this problem the public key cryptography was developed. The public key

system requires that each person involved in a transaction possesses a key pair, of

which one key is made publicly available, and the other is private; nobody else besides

the person to whom it is assigned ever needs to know it. A message encrypted with a

persons public key cannot be decrypted with that public key; the formula used to

encrypt the message is a one-way function and cannot be reversed. So only the

person who has a private key corresponding to that public key can decrypt and read the

message.

For example, as Joe sends an order to Company A, the pieces of information that are

confidential are encrypted using Company As public key. Company A uses its private


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key to decrypt, and this message can only be decrypted with that key; thus the

customer knows that only Company A received the message.

Certification

A trusted third party is a necessary part of the Internet banking process. A certificateauthority is a trusted third party that verifies identities in cyberspace. Certificates

issued by certifying authorities are issued to deter and detect an entity from

impersonating another using a fake key. Some people think of the certificate authority

functioning like an online notary.

The basic concept is that a bank, or other third party, uses its good name to validate

parties in transactions. This is similar to the historic role banks played with letters of

credit, where neither the buyer nor seller knew each other but the bank knew bothparties. Thus the bank used its good name to facilitate the transaction, for a fee.

Non-repudiation

Non-repudiation is the undeniable proof of participation by both the sender and

receiver in a transaction. It is one of the reasons public key encryption was developed,

i.e., to authenticate electronic messages and prevent denial or repudiation by the sender

or receiver. There are two sides to non-repudiation: one side is relevant to the sender,

known as non-repudiation of origin, and to assure that the sender cannot deny having

sent the message. The other side is at the receivers side, known as non-repudiation of

receipt, to assure the receiver cannot deny the receipt of the message.

Both of these are extremely important to the banking community.

Privacy

Privacy is a consumer issue of increasing importance. Banks that recognize and respond

to privacy issues in a proactive way make this a positive attribute for the bank and a

benefit for its customers.

Public concerns over the proper versus improper accumulation and use of personal

information are likely to increase with the continued growth of electronic commerce

and the Internet.


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2.4 FUTURE OF INTERNET BANKING

It is an old clich to say that "time equals money," but like virtually all cliches, there is a

significant grain of truth to the statement. To define the concept of time equaling money

a step further, one could point to the reality that opportunity costs play a significant

factor in the generation of prosperity and money.

From a definition that can be learned in any Economics 101 course, opportunity costs

(on a very baseline level) refer to the fact that if a person does something specific, the

time and money invested in such an activity result in the minimizing of the ability to do

something else with the same time and money.

In other words, no one can commit resources to two courses of action simultaneously

without expanding the source (money) required to maintain a simultaneous venture.

This is why it is important to drastically reduce unproductive downtime from a

person's life and use the recaptured time for pursuits that will be productive. This is

why internet banking is such an important concept.

While we would all love to live in a world where banking and the time required to

make a banking transaction are greatly limited, we will never achieve such a goal unless

we leave the confines of traditional banking and veer towards internet banking instead.

When it comes to time costs, traveling to the bank, waiting in traffic, waiting in line,

dealing with poor or limited customer service all add minutes to the time wasted in

one's day.

This is to say nothing of the hassles involved with having to conduct all business within

the framework of the hours of operation that the bank is open. Internet banking

eliminates virtually all of these needless hassles.

With the convenience of internet banking, one can conduct most simple banking

processes like withdrawals, transfers, checking one's balances, pay a loan or even make


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monetary deposits 24 hrs a day, 7 days a week, 365 days a year. Literally, internet

banking is a world without limits! Well, of course, it does have certain limits as

oftentimes a human element will be required under certain customer service conditions.

But for many basic banking issues, internet banking will serve the banking public well.

Unfortunately, there will be those who have certain reservations against using internet

banking services. The main reason for such reservations is an unnecessary desire to

avoid dealing with something that is considered "new." While it is understandable that

people will have reservations against taking the great leap into trying something new, it

also must be understood that very little worth anything comes without taking a great

step forward.

So, do not continue to do things the hard way. Embrace the ease of internet banking

today.

FIVE KEY TRENDS IN INTERNET BANKING

1. Security stays of major importance to online consumers. This is

understandable but also a very general insight. Firms with online

activities will therefore have to deal with the matter in a more

differentiated way. Those who are concerned about security have

identified as the most dangerous threats, first, the lack of staff

awareness and, second, viruses, Trojan horses, and worms. This holds

for all sectors. The financial industry, however, is particularly sensitive

to the topic. The fear of a lack of security is a higher hurdle to those

internet users who do not use online banking than missing monetaryincentives or insufficient comfort or functionality.

2. Customer retention becomes ever more important. Research shows

that the more services of his or her bank the customer uses, the higher


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the real and psychological switching costs will be. Also: the more

services the customer uses, the greater are the banks expected profits.

Customer loyalty, therefore, gains importance over customer

acquisition, and the value of customer relationship managementbecomes apparent.

3. Technological progress will give a boost to existing online banking

services and devices. Their quality will improve. Ever faster and more

powerful chips and the widespread use of broadband internet access

make online banking more comfortable for more and more peoplewithout necessarily triggering the emergence of completely new devices

and inventions.

4. Some players will take a second stab at mobile banking. Increasingly

faster transmission via GPRS or UMTS feed the vision that mobile

banking merits another attempt in spite of the GSM failure. Indeed,many advantages can be thought of. SMS alerts can disburden more

expensive channels (e.g. contact centres). Also, useful information can

be transmitted to the client, and increase customer loyalty at low cost.

Still, a comprehensive business case in transaction banking and

brokerage with cost covering revenues is currently not in sight.

5. Online research grows. An increasing number of visitors of bank

websites do considerable research before making financial decisions.

They shop around for financial products, and make their own

investment decisions in part without consultants. Though the chart


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shown here refers to US customers, we observe a similar trend in

Europe: Researching via the internet is gaining importance in online

banking


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RESEARCH

METHODOLOGY


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3.1 Research Type:

The research design is descriptive and exploratory. The research was conducted using a

purely quantitative method. It employed a survey method surveying the account

holders in banks offering Internet banking services in the Mumbai region, India. The

Mumbai Region for the purpose of this study comprises of :

a. Mumbai South which includes suburbs like Colaba, Cuffe Parade, Nariman Point and

the Girgaon cluster.

b. Mumbai North which includes western suburbs and business centers like Vile parle,

Santacruz, Andheri, Goregaon, Malad, Kandivali , Borivali

c. Mumbai Metro East which covers the Central Suburbs like Chembur, Ghatkopar ,

Mulund, Thane (Urban & Rural) and New Bombay(Navi Mumbai).


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3.2 Data Collection Approach

There are a wide variety of methods that can be used. These methods can be used singly or

as combinations.

The primary classification is:

Primary data

Secondary data

Primary data: The data is collected especially to address a specific research objective.

Method of Data

Collection

Surveys

Contact Method Direct & Indirect(which

includes Mail, Telephonic

Conversation,

Fascimile,Intercepts,Direct

Meet)

Instrument of Data

Collection

Interviews , Questionnaire

Secondary data: The data is collected for some other purpose, not addressing the specific

research objective.

Referred journals

Websites

Magazines.


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The study included eight major banks operating in India of which three were from the

Private sector namely HDFC , ICICI , Axis Bank whereas five from the Public Sector

namely Union bank of India, Bank of India, Punjab National Bank, Canara Bank and

State Bank of India.A comparative study of Bank of Baroda (thereafter referred as the Bank) vis--vis these

banks were done of various factors and the results were tabulated considering various

Internet Banking aspects.

3.3 Sampling Design

The sampling method employed was a Cluster/Area Sampling Method. The

questionnaires were distributed in two formats that were in soft and hard copy formats.

Soft copy format of the questionnaire was sent out through electronic mail via the

Internet, whilst the hard copies were distributed personally and some responses were

even obtained via the telephonic conversations.

Sampling Size Estimation

With a Z value (Confidence Interval) of 95% and Standard Deviation (s) (With Mixture

of Heterogeneity & Homogeneity) of 35% and Error rate (e) of 2%

We find the Sample size using

n =

which comes to n = 250 and with 5% extra including the contingency for the total inputs

we estimate the sample size to be 263.

Of the various branches of the Bank spread across the Mumbai region twenty one (21)

branches were visited and with a sample size of 15 from each branch 315 questionnaires

were distributed. The reason for the sample selected being the average number of users

at every branch being around 200 250 of which the active users were very low so a

sample size of around 5 to 8% of the total user base was selected an appropriate sample.

Finally only 267 of the respondents actively responded, yielding a response rate of


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84.75%.The 267 valid respondents were adequate for the study to infer valid

conclusions.

Along with the survey send to these branch clients, more 400 responses of customers

other than the mentioned above were obtained from various other areas to get an ideaof the responses and services of other Banks Customers.

3.4 Data Organization

Out of the 267 Bank customers it was found that 141 customers used the Internet

Banking whereas the remaining 126 customers did not utilize the Internet Banking

facility by the Bank. Both the cluster results obtained were adequate for the study to

infer valid conclusions

However of the 400 Non Bank of Baroda Customers, 304 customers used Internet

Banking of various banks whereas the remaining 96 customers were still hesitant to use

the Internet Banking due to various reasons as given in the findings.

The data collected were tabulated and analyzed using a statistical software package

known as Statistical Package for Social Sciences. The different types of analysis used in

this research were:

1) Descriptive statistical analysis

The findings are presented in the following pages.


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KEY FINDINGS


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4.1 Overall Demographic Information of the Respondents (Bank of

Baroda Customers)

The data of the respondents demographics is presented below. It can be observed that

majority (80%) of the respondents are male and the remaining 20% were females.

Considering the age wise distribution of the respondents the major focus was on the

age group between 21-40 years because it is this age group which is technology savvy

and is comfortable in using the technology compared to the other age groups

80%

20%

Gender Distribution

Male

Female

50

Users 7 78 84 51 47

0

10

20

30

40

50

60

70

80

90

Users

Age Group Distibution


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With regards to the educational background of the respondents it was found that a

majority (95%) of the respondents were either Graduate / Post Graduate and only a

small chunk of the lot was in the studying phase. A sample size with this background

would be more responsive to understandingthe new features of the Internet Bankingcompared to the uneducated class.

The occupation wise distribution of the respondents is quite a mix of self employed

/Business and Salaried individuals. A heterogeneous mix helps us in analyzing the

individuals as well as corporate behavior while deciding the selection of services.

95%

5%

Education

Grad. & PG

Studying

46%

51%

3%

Occupation

Salaried Self Employed/Business Retired


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Also considered is the banks association with the respondents where it helps in

tapping the untapped but potential and loyal customer base . It was found the

majority of the respondents of the survey were associated with the Bank for more than

five years followed by one to three years.

< One Yr

9%

One-Three

Years

19%

Three-Five

Years

15%

> Five Yrs

57%

Association


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4.2 Category analysis

Considering the data available from the survey with respondents , we categorized the

complete data into four broad categories as shown below

BoB\Non BoB Users Non Users

Users Category A Category B

Non Users Category C Category D

Category A: Includes users which use Bank of Baroda as well as other Banks Services

Category B: Includes users which use Bank of Baroda services but not other Banks

Services

Category C: Includes users which do not use Bank of Baroda Services but use other

Banks Services.This includes the 304 respondents which were other banks customers

and have been using their services.

Category D: Includes users which neither use Bank of Barodas services nor any other

banks services.

The purpose of categorizingthe users is to tap the complete customer base and to map

on their responses with regards to their feedback and inputs .The demographics of the

different categories consolidated are as given below.

The Gender wise distribution shows that majority of respondents are males in all the

categories and a minor section of females. This indicates the amount of female

respondents customers that can be targeted to increase the female customer base

using Internet Banking services. Also an indirect influence can be made in properchanneling and influencing the services through the female/ working women channel.


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Considering the age wise distribution of the category

It can be seen that majority of the users are in the age group 21-40 years. These are the

respondents who mainly form the working / salaried or self employed class of

individuals and hence can contribute towards technology banking. However a huge

Category A Category B Category C Category D

Male 45 66 34 68

Female 15 15 6 18

0

10

20

30

40

50

60

70

80

AxisTitle

Gender Distribution

50

Category A 2 19 22 10 7

Category B 0 27 28 12 14

Category C 3 3 16 8 10

Category D 2 29 18 21 16

0

5

10

15

20

25

30

35

Users

Agewise Distribution


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number of respondents in this age group (21-40 years) in the C & D category indicate

the shift of this group either to other banks or branch banking. Thus special strategies

must be implemented to attract and convert them into potential users which shall be

discussed further in the strategies section.As far as the education background of the respondents goes it can be seen that majority

of them are either graduates / post graduates or still studying.

The sample of this demographic can be used to infer that majority of the respondents

are knowledgeable enough to understand the usage of the Internet and its facilities.

However a huge amount of respondents in the category D in this group is a bit mind

boggling which could be due to various reasons which shall be discussed further in

category wise analysis .

As far as the employment background of the respondents goes,


Grad. & PG 58 79 38 79

Studying 2 2 2 7

0

10

20

30

40

50

60

70

80

90

Users

Education


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It can be seen that there are almost similar number of salaried and self employed

respondents. But concerning category in this case is the category D with maximum

number of Salaried / Self Employed / Retired users who do not use any Internet

Banking system as such. Thus this category and the employment distribution needs tobe further analyzed to get to the crux of the issue.


Salaried 22 43 23 48

Self Employed/Business 38 38 17 30

Retired 0 0 0 8

0

10

20

30

40

50

60

Users

Employment Distribution


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4.3.CATEGORY-WISE ANALYSIS

4.3.1 Category A Analysis

Category A users consists of users who have been using BarodaConnect as well as other

banks internet banking system

What needs to be analyzed in this cluster of users is

a. which other banks services do they utilize

b. primary driving reasons for their services

c. impact of the latest advertisement campaign

A. Other Banks services they Utilize

Majority of the Banks users have been using other Private sector banks services which

includes ICICI Bank followed by HDFC Bank and lastly by Axis Bank. It is seen that

there are very few Banks customers who have been using other public sector banks

services(mainly SBI). Thus the major competitor for the bank seems to be private sector

banks who have been acquiring majority of the Internet banking users.

B. Primary driving reasons for their services

The various reasons for using other banks services vis--vis the banks services are

given below:

HDFC

24%

ICICI

35%

Axis bank

12%

SBI

9%

PNB

0%

BoI

4%UBoI

0%

Bhavik Kothari

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