Online Banking Term Paper

Internet and Web Application in E-Commerce (I-banking)

INTRODUCTION

Despite huge demand from the business community as well as the retail customers particularlythe urban customers, internet banking (i-banking) in Bangladesh is still at a budding state due mainly to a number of constraints such as unavailability of a backbone network connecting the whole country; inadequacy of reliable and secure information infrastructure especially telecommunication infrastructure; sluggish ICT penetration in banking sector; insufficient legal and regulatory supports for adopting internet banking and so on.

In Bangladesh, telephone connectivity is inadequate, cost of PCs are still beyond purchasing capacity of most people, internet connection is costly, IT literacy is yet to reach satisfactory level, banking sector lacks skilled IT personnel, and huge investment requirement for establishing technology based banking services are prime drawbacks. In this backdrop, with high potential of internet banking, Bangladesh Bank as the regulator of banking and financial sector, government of Bangladesh, and the scheduled banks together need to come forward with necessary initiatives for successful introduction of internet banking in Bangladesh.

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OBJECTIVES OF THE STUDY

A clear objective helps to prepare a well-ornamented report in which others take the right decision. During the time of preparing this report the following mottos are being our concerned:

To know the present situation of internet banking on E-commerce.

To identify the process of internet banking in Bangladesh.

To be acquainted with the implementation of internet banking in Bangladesh.

To identify the problems regarding internet banking in Bangladesh.

To examine the overall change of internet banking in Bangladesh.

To know about government roles on internet banking.

LIMITATIONS OF THE STUDY

As a student of BBA program at Faculty of Business Administration and Management

in semester- I, Level- 4. As a novice we are not very much expert to make a report.

This is our second time of making report. Actually the topic internet banking in

Bangladesh is quite new for us.

We have tried our level best to arrange this report but we have faced some limitations in preparing this report such as-

Lack of adequate information availability.

Some unconscious biased information may be there in the information collect.

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Analysis and interpretation of data & information

Fixation of the report topic

Selection of the sample

Go to web site

Collecting data & information

Processing of data & information

Final preparation of report


METHODOLOGY

Methodology is the outline of report preparation from topic selection to final report preparation. In preparing the report we have maintained the following sequential steps:

Figure (1): Methodology of the study

Being assigned to prepare the report the topic of the report was fixed. Then we fixed the working sector. Subsequently we collected data & information from text books, journals, newspapers, and different websites etc. The collected data & information were processed; data were interpreted to achieve the report objective. At the final stage the findings we formatted and prepared for submission.

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E-COMMERCE

Even though started as network primarily for use by researchers in defense and scientific community, with the introduction of WWW in early 1990s, use of Internet for commerce has grown tremendously. E-commerce involves individuals and business organizations exchanging business information and instructions over electronic media using computers, telephones and other telecommunication equipments. Such form of doing business has been in existence ever since electronic mode of data / information exchange was developed, but its scope was limited only as a medium of exchange of information between entities with a pre-established contractual relationship. However, Internet has changed the approach to e-commerce; it is no longer the same business with an additional channel for information exchange, but one with new strategy and models. A business model generally focuses on (i) where the business operates, that is, the market, the competitors and the customers, (ii) what it sells, that is, its products and services (iii) the channels of distribution, that is, the medium for sale and distribution of its products and (iv) the sources of revenue and expenditure and how these are affected. Internet has influenced all the four components of business model and thus has come to influence the business strategy in a profound way. The size of the market has grown enormously as technically, one can access the products and services from any part of the world. So does the potential competition. The methods of reaching out to customers, receiving the response and offering services have a new, simpler and efficient alternative, now, that is, Internet. The cost of advertisement, offer and delivery of services through Internet has reduced considerably, forcing most companies to rework their strategies to remain in competition.

Classification of E-Commerce

Another way of classifying the e-commerce is by the targeted counterpart of a business, viz, whether the counterpart is a final consumer or another business in the distribution chain. Accordingly, the two broad categories are: Business-to-Consumer (B2C) and Business-to-Business (B2B).

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Business-to-Consumers (B2C):In the B2C category are included single e-shops, shopping malls, e-broking, i-banking, service providers like travel related services, financial services etc., education, entertainment and any other form of business targeted at the final consumer. Some of the features, opportunities and concerns common to this category of business irrespective of the business segment, are the following.

Opportunities Business-to-Consumers (B2C) Internet provides an ever-growing market both in terms of number of potential customers and geographical reach. More and more people across the globe are accessing the net either through PCs or other devices. The purchasing power and need for quality service of this segment of consumers are considerable. Anybody accessing Internet is a potential customer irrespective of his or her location. Thus, any business targeting final consumers cannot ignore the business potential of Internet. So, there are some opportunities. These are-

Internet offers a unique opportunity to register business presence in a global market.

The quality of service is a key feature of any e-commerce venture. Technological development has made access to Internet both cheaper and

faster. It is generally accepted that the cost of overhead, servicing and distribution,

etc. through Internet is less compared to the traditional way of doing business

Business to Business (B2B)As opposed to B2C e-commerce, in B2B domain, the parties to a deal are at different points of the product supply chain. Typically, in a B2B type domain, a company, its suppliers, dealers and bankers to all the parties are networked to finalize and settle all aspects of a deal, online. Perhaps, only the goods in different stages of processing physically move from the supplier to the dealer. This scenario can be extended to include the shipper, providers of different ancillary services, IT service provider and the payment system gateway, etc., depending on the degree of sophistication of the available systems.

Internet with WWW and other standard technology have offered opportunity to relatively smaller and medium sized firms to integrate their operations in B2B model and take advantage of the benefits it offers. It has also led to standardization of software platforms.

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The concerns of B2B e-commerce are similar to those of B2C, discussed earlier. The security issues are more pronounced because of high value transfers taking place through the net. So also are the issues relating to privacy of information, law, tax repudiation etc. The other issues of importance to a B2B firm are the choice of appropriate technology, the issue of build or outsource, maintenance and training of personnel, etc., since they involve large investments and are critical to success.

HOW IS THE INTERNET RELEVANT TO E-COMMERCE?

The Internet allows people from all over the world to get connected inexpensively andreliably. As a technical infrastructure, it is a global collection of networks, connectedto share information using a common set of protocols.23 Also, as a vast network ofpeople and information,24 the Internet is an enabler for e-commerce as it allows businesses to showcase and sell their products and services online and gives potentialcustomers, prospects, and business partners access to information about thesebusinesses and their products and services that would lead to purchase. Before the Internet was utilized for commercial purposes, companies used private networks-such as the EDI or Electronic Data Interchange-to transact business with each other. That was the early form of e-commerce. However, installing and maintaining private networks was very expensive. With the Internet, e-commerce spread rapidly because of the lower costs involved and because the Internet is based on open standards.

HOW IMPORTANT IS AN INTRANET FOR A BUSINESS ENGAGING IN E-COMMERCE?

An intranet aids in the management of internal corporate information that may beInter connected with a company’s e-commerce transactions (or transactions conductedoutside the intranet). Inasmuch as the intranet allows for the instantaneous flow of internal information, vital information is simultaneously processed and matched with data flowing from external e-commerce transactions, allowing for the efficient and effective integration of the corporation’s organizational processes. In this context, corporate functions, decisions and processes involving e-commerce activities are more coherent and organized. The proliferation of intranets has caused a shift from a hierarchical command-and control organization to an information-based organization. This shift has implications for managerial responsibilities, communication and information flows, and workgroup structures.

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E-COMMERCE APPLICATIONS

Various applications of e-commerce are continually affecting trends and prospects forbusiness over the Internet, including i-banking, e-tailing and online publishing/onlineretailing.

A more developed and mature i-banking environment plays an important role in ecommerce by encouraging a shift from traditional modes of payment (i.e., cash, checks or any form of paper-based legal tender) to electronic alternatives (such as e payment systems), thereby closing the e-commerce loop..

INTERNET BANKING

“Internet banking” refers to systems that enable bank customers to access accounts and general information on bank products and services through a personal computer (PC) or other intelligent device.

The concept of i-banking includes all types of banking activities performed through electronic networks. It is the most recent delivery channel of banking services which is used for both business-to-business (B2B) and business-to-customer (B2C) transactions. However, in true sense, i-banking includes activities like payment of bills and invoices, transfer of funds between accounts, applying for a loan, payment of loan installments, sending funds to third parties via emails or internet connections regardless of where the client is located.

Transactions in internet banking are performed within closed network for which the customer use specialized software provided by the respective bank. International standard internet banking facilities are expanding in Bangladesh. At present, Bangladesh is trailing behind in acquiring the required quality of banking services to effectively compete in the global market. Therefore, the banking system needs up gradation for which urgent measures are needed to create a level playing field for rapid expansion of internet banking in the country. Despite the constraints, more efficient use of existing capabilities in developing the services can pave the way to quality provision of internet banking in Bangladesh.

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Inter-bank transactions or transaction between inter bank branches are yet to expand. Under the modernization program of the National Payment and Settlement System, Bangladesh Automated Clearing House (which includes Bangladesh Automated Cheque Processing System and Bangladesh Electronic Fund Transfer Network) is scheduled to come into effect from September 2009 followed by implementation of internet banking at per international standard in near future.

HISTORY OF INTERNET BANKING:

The precursor for the modern home internet banking services were the distance banking services over electronic media from the early '80s. The term internet became popular in the late '80s and referred to the use of a terminal, keyboard and TV (or monitor) to access the banking system using a phone line. ‘Home banking’ can also refer to the use of a numeric keypad to send tones down a phone line with instructions to the bank. Internet services started in New York in 1981 when four of the city’s major banks (Citibank, Chase Manhattan, Chemical and Manufacturers Hanover) offered home banking services using the videotex system. Because of the commercial failure of videotext these banking services never became popular except in France where the use of videotext (Minitel) was subsidized by the telecom provider and the UK, where the Prestel system was used.

The UK’s first home internet banking services were set up by Bank of Scotland for customers of the Nottingham Building Society (NBS) in 1983. The system used was based on the UK's Prestel system and used a computer, such as the BBC Micro, or keyboard (Tandata Td1400) connected to the telephone system and television set. The system (known as 'Homelink') allowed on-line viewing of statements, bank transfers and bill payments. In order to make bank transfers and bill payments, a written instruction giving details of the intended recipient had to be sent to the NBS who set the details up on the Homelink system. Typical recipients were gas, electricity and telephone companies and accounts with other banks. Details of payments to be made were input into the NBS system by the account holder via Prestel. A Cheque was then sent by NBS to the payee and an advice giving details of the payment was sent to the account holder. BACS was later used to transfer the payment directly.

Stanford Federal Credit Union was the first financial institution to offer internet internet banking services to all of its members in Oct, 1994.

Today, many banks are internet only banks. Unlike their predecessors, these internet only banks do not maintain brick and mortar bank branches. Instead, they typically differentiate themselves by offering better interest rates and internet banking features.

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http://en.wikipedia.org/wiki/Stanford_Federal_Credit_Union

http://en.wikipedia.org/wiki/BACS

http://en.wikipedia.org/wiki/Homelink

http://en.wikipedia.org/wiki/BBC_Micro

http://en.wikipedia.org/wiki/Prestel

http://en.wikipedia.org/wiki/Nottingham_Building_Society

http://en.wikipedia.org/wiki/Bank_of_Scotland

http://en.wikipedia.org/wiki/Prestel

http://en.wikipedia.org/wiki/Minitel

http://en.wikipedia.org/wiki/Videotex

http://en.wikipedia.org/wiki/Manufacturers_Hanover

http://en.wikipedia.org/wiki/Chemical_Bank

http://en.wikipedia.org/wiki/Chase_Manhattan

http://en.wikipedia.org/wiki/Citibank


Internet banking in the subcontinent was first started by ICICI Bank in India and Habib Bank in Pakistan in 1997. In Bangladesh “Internet Banking” was first started by Standard Chartered Bank. They introduce a new dimension in banking sector of Bangladesh.

CATEGORIES OF INTERNET BANKING

Understanding the various types of Internet banking products will help examiners assess the risks involved. Currently, the following three basic kinds of Internet banking are being employed in the marketplace:

Informational—This is the basic level of Internet banking. Typically, the bank has marketing information about the bank’s products and services on a stand-alone server. The risk is relatively low, as informational systems typically have no path between the server and the bank’s internal network. This level of Internet banking can be provided by the bank or outsourced. While the risk to a bank is relatively low, the server or Web site may be vulnerable to alteration. Appropriate controls therefore must be in place to prevent unauthorized alterations to the bank’s server or Web site.

Communicative—This type of Internet banking system allows some interaction between the bank’s systems and the customer. The interaction may be limited to electronic mail; account inquiry, loan applications, or static file updates (name and address changes). Because these servers may have a path to the bank’s internal networks, the risk is higher with this configuration than with informational systems. Appropriate controls need to be in place to prevent, monitor, and alert management of any unauthorized attempt to access the bank’s internal networks and computer systems. Virus controls also become much more critical in this environment.

Transactional—This level of Internet banking allows customers to execute transactions. Since a path typically exists between the server and the bank’s or outsourcer’s internal network, this is the highest risk architecture and must have the strongest controls. Customer transactions can include accessing accounts, paying bills, transferring funds, etc.

GROWTH IN INTERNET BANKING

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Internet Banking is a product of e-commerce in the field of banking and financial services. In what can be described as B2C domain for banking industry, Internet Banking offers different online services like balance enquiry, requests for cheque books, recording stop-payment instructions, balance transfer instructions, account opening and other forms of traditional banking services.

Numerous factors — including competitive cost, customer service, and demographic considerations — are motivating banks to evaluate their technology and assess their electronic commerce and Internet banking strategies. Many researchers expect rapid growth in customers using internet banking products and services.

Some of the market factors that may drive a bank’s strategy include the following:

Competition —

Studies show that competitive pressure is the chief driving force behind increasing use of Internet banking technology, ranking ahead of cost reduction and revenue enhancement, in second and third place respectively. Banks see internet banking as a way to keep existing customers and attract new ones to the bank.

Cost Efficiencies —

National banks can deliver banking services on the Internet at transaction costs far lower than traditional brick-and-mortar branches. The actual costs to execute a transaction will vary depending on the delivery channel used. National banks have significant reasons to develop the technologies that will help them deliver banking products and services by the most cost-effective channels. Management should include in their decision making the development and ongoing costs associated with a new product or service, including the technology, marketing, maintenance, and customer support functions.

Geographical Reach —

Internet banking allows expanded customer contact through increased geographical reach and lower cost delivery channels. In fact some banks are doing business exclusively via the Internet they do not have traditional banking offices and only reach their customers internet. Other financial institutions are using the Internet as an alternative delivery channel to reach existing customers and attract new customers.

Branding —

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Relationship building is a strategic priority for many national banks. Internet banking technology and products can provide a means for national banks to develop and maintain an ongoing relationship with their customers by offering easy access to a broad array of products and services. By capitalizing on brand identification and by providing a broad array offinancial services, banks hope to build customer loyalty, cross-sell, and enhance repeat business.

ISSUES IN INTERNET BANKING

Financial institutions, their card associations, and vendors are working to develop an internet payment infrastructure to help make electronic commerce secure. Many in the banking industry expect significant growth in the use of the Internet for the purchase of goods and services and electronic data interchange. The banking industry also recognizes that the Internet must be secure to achieve a high level of confidence with both consumers and businesses.

Sound management of banking products and services, especially those provided over the Internet, is fundamental to maintaining a high level of public confidence not only in the individual bank and its brand name but also in the banking system as a whole. Key components that will help maintain a high level of public confidence in an open network environment include:

Security Authentication Trust Non repudiation Privacy Availability

Security:

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Security is an issue in internet banking systems. Some banks allow for direct dial-in access to their systems over a private network while others provide network access through the Internet. Although the publicly accessible Internet generally may be less secure, both types of connections are vulnerable to interception and alteration. For example, hardware or software “sniffers” can obtain passwords, account numbers, credit card numbers, etc. without regard to the means of access.

Security includes the following categories:

Passwords ---

1. Assess the adequacy of the process for password administration for internet banking systems. Consider the following:

The adequacy of control and security over the bank’s process for issuing passwords to customers.

Whether alphanumeric passwords are required. The required length of passwords. Whether passwords have an automatic expiration. If adequate procedures are in place for resetting passwords. If automatic log-off controls exist for user inactivity. Whether excessive failed access attempts by the user disablesaccess.

2. Evaluate the adequacy of the process used to select how passwords are employed to authenticate users including whether:

Controls combine passwords with other authentication techniques. Password-only log-in is used for access control and authentication. Password-only log-in is used for public network (Internet) access. If so,

determine whether the institution has compensating controls to authenticate users.

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Firewalls ---

1. Evaluate the process management uses to determine the appropriate type of Web site (informational, communicative, or transactional) for the bank’s Internet-based banking business.

2. Determine whether the institution has a sound process to ensure adequate control over the path between the Web site and the institution’s internal networks or computer systems.

3. Determine the process management employs to ensure that the firewall, if used, prevents unauthorized access to internal networks and computer systems.

4. If the firewall was commercially purchased, determine whether the bank has an adequate process to ensure that the responsibilities of the bank and vendor are well defined.

5. Determine the adequacy of the administration of the bank’s firewall configuration and whether it ensures that:

Software change control procedures are appropriate. Vendors provide timely fixes or upgrades and whether management

implements them in a timely manner. Changes in firewall configuration are tested prior to implementation. Operating system control features have been invoked. Operating system software default settings are adequate.

6. Determine whether the bank has an adequate process for:

Conducting penetration testing and certification. Reviewing the qualifications of the company/person performing the

certification.

7. Determine whether the bank has an effective process to assess the adequacy of physical controls in place to restrict access to firewall servers and components.

8. Determine whether the institution has an adequate process to identify any remote access, other than through a firewall, and how management monitors and controls that access.

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9. Determine the adequacy of the institution’s process to restrict access to firewall configuration documentation.

Physical Security ---

1. Determine whether the bank has an adequate process to address physical security for hardware, software, and data communications equipment associated with the Internet banking system including:

Whether the network servers are secured. How the institution prevents unauthorized physical access to equipment. Whether the bank secures vendor owned equipment. If proper physical controls are in place for the data center or other location

housing equipment and documentation.

Transaction Verification---

Determine whether the bank has an adequate process to verify transactions to avoid claims of repudiation by bank customers.

Virus Detection and Prevention---

1. Determine whether the bank has an adequate process regarding virus detection and prevention associated with the Internet banking systems. Consider whether:

User awareness efforts address viruses. The last risk assessment and/or audit reports identified any deficiencies in virus

controls. The frequency with which anti-virus products and definitions are updated and

whether the most current version/release is installed.

2. Determine whether the bank has an adequate process regarding virus detection and prevention. Consider whether:

Virus detection software distribution is made through downloads from the bank’s server.

The bank’s software distribution process provides for virus detection/prevention.

Authentication

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Authentication is another issue in an internet banking system. Transactions on the Internet or any other telecommunication network must be secure to achieve a high level of public confidence. In cyberspace, as in the physical world, customers, banks, and merchants need assurances that they will receive the service as ordered or the merchandise as requested, and that they know the identity of the person they are dealing with.

Internet banking systems should employ a level of encryption that is appropriate to the level or risk present in the systems. Thus, a bank should conduct a risk assessment in deciding upon its appropriate level of encryption. The OCC does not mandate a particular strength or type of encryption. Rather, it expects management to evaluate security risks, review the cost and benefit of different encryption systems, and decide on an appropriate level of encryption as a business decision. Management should be able to explain the supporting analysis for their decision.

Biometric devices are an advanced form of authentication. These devices may take the form of a retina scan, finger or thumb print scan, facial scan, or voice print scan. Use of biometrics is not yet considered mainstream, but may be used by some banks for authentication. Examiners should evaluate biometric activities based on management’s understanding of risks, internal or external reviews, and the overall performance of these devices.

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Trust

Trusties are another issue in Internet banking systems. As noted in the previous discussion, public and private key cryptographic systems can be used to secure information and authenticate parties in transactions in cyberspace. A trusted third party is a necessary part of the process. That third party is the certificate authority.

A certificate authority is a trusted third party that verifies identities in cyberspace. Some people think of the certificate authority functioning like an internet 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 have played with letters of credit, where neither the buyer nor seller knew each other but both parties were known to the bank. Thus the bank uses its good name to facilitate the transaction, for a fee.

Banks also may need a way to validate themselves in cyberspace, as theft of identity has taken place. Except for the post office box and possibly the URL, everything on the Web site could appear legitimate. Banks will have to guard against a variety of frauds and scams as banking on the Internet becomes more prominent. A proper mix of preventive, detective, and corrective controls can help protect national banks from these pitfalls. Digital certificates may play an important role in authenticating parties and thus establishing trust in Internet banking systems.

Non repudiation

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Non repudiation is the undeniable proof of participation by both the sender and receiver in a transaction. It is the reason public key encryption was developed, i.e., to authenticate electronic messages and prevent denial or repudiation by the sender or receiver.

Although technology has provided an answer to nonrepudiation, state laws are not uniform in the treatment of electronic authentication and digital signatures. The application of state laws to these activities is a new and emerging area of the law.

Privacy

Privacy is a consumer issue of increasing importance. National 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. Providers who are sensitive to these concerns have an advantage over those who do not.

Availability

Availability is another component in maintaining a high level of public confidence in a network environment. All of the previous components are of little value if the network is not available and convenient to customers. Users of a network expect access to systems 24 hours per day, seven days a week.Among the considerations associated with system availability are capacity, performance monitoring, redundancy, and business resumption. Banks and their vendors who provide Internet banking products and services need to make certain they have the capacity in terms of hardware and software to consistently deliver a high level of service.In addition, performance monitoring techniques will provide management with information such as the volume of traffic, the duration of transactions, and the amount of time customers must wait for service. Monitoring capacity, downtime, and performance on a regular basis will help management assure a high level of availability for their Internet banking system.

It is also important to evaluate network vulnerabilities to prevent outages due to component failures. An entire network can become inoperable when asingle hardware

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component or software module malfunctions. Often national banks and their vendors will employ redundant hardware in critical areas or have the ability to switch to alternate processing locations. The latter is often referred to as contingency planning.

System of internet Banking

REGISTER (Actor: Customer)Pre-condition: None

Navigate to the Registration page Fill the registration form Submit the form

Post-condition: Get instant message that customer profile is created and login details is sent to inbox.

SIGN IN (Actor: Customer) Pre-condition: Register as a Customer

Navigate to sign in page Enter login details Click again

Post-condition: Access is granted to the user home page for the customer.

OPEN AN ACCOUNT (Actor: Customer) Pre-condition: Login as a customer

Click the create account button on the user home page View the create account page Enter account name for the new account Select account type for the new account Click submit button

Post-condition: The new account is added to the accounts list on user home page.

OPERATE AN ACCOUNT (Actor: Customer)

Pre-condition: Login as a customer

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Select the account to operate in the list of accounts Click the desired operation such as deposits, withdrawals , funds transfer

and statement of account Post-condition: Access is granted to the appropriate transaction page for the selected account

MANAGE CUSTOMERS (Actor: System) Pre-condition: None

Create customer inbox Generate customer login details Sends details to inbox

Post-condition: Customer can check his login details in his inbox.

MANAGE ACCOUNTS (Actor: System) Pre-condition: None

Generate account Send details to customer inbox

Post-condition: Customer details such as account no, access code etc is sent to inbox.

MANAGE TRANSACTIONS (Actor: System)

Pre-condition: None

Execute transaction instructions Updates customer account Generate account balance

Post-condition: Customer sees the current state of account on the user home page

BANGLADESH IN INTERNET BANKING

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In Bangladesh, the expansion of internet banking is beset with several infrastructural, institutional, and regulatory constraints such as inadequate availability of reliable and secure telecommunication infrastructure, absence of a backbone network connecting the whole country, poor ICT penetration in the banking sector, lack of skilled manpower and training facilities, absence of supportive policies, guidelines, rules and regulations relating to e-transactions and the like.

At present, 29 scheduled banks offer any branch banking facilities through their respective bank internet network that provides facilities like transaction through any branch under the respective bank internet network; payment against pay order or pay order encashment, demand draft encashment, opening or redemption of FDR from any branch of the same bank; remote fund transfer, cash withdrawal, cash deposit, account statement, clearing and balance enquiry within branches of the same bank; and L/C opening, loan repayment facility to and from any branch of respective bank under its own internet network.

Right now, Bangladesh is trailing behind in acquiring the required quality of banking services to effectively compete in the global market. Therefore, the banking system needs up gradation for which urgent measures are needed to create a level playing field for rapid expansion of internet banking in the country. Despite the constraints, more efficient use of existing capabilities in developing the services can pave the way to quality provision of internet banking in Bangladesh.

PROSPECTS OF INTERNET BANKING IN BANGLADESH:

Internet banking is now a global phenomenon. Apart from the developed countries, the developing countries are experiencing strong growth in internet banking. The Bank of Thailand has created an industry payment body to involve other stakeholders, in particular from commercial banks which take leading responsibility for the development of e-payment system and technologies. Internet banking in Korea has increased at a rapid pace. Korea is also leading in internet brokerage and mobile banking. In Southeast Asia, internet banking is also developing rapidly in Thailand, Malaysia, and Singapore and to a lesser extent in Philippines. In Nepal, ATMs are the most popular electronic delivery channel for banking services but only a few customers are using internet banking facilities. Among others, Nepal's commercial banks have adopted credit card, teli-banking, and SMS-banking.

The government’s emphasis on building a digital Bangladesh, setting up ICT park, raising allocation for developing ICT infrastructure, waiving taxes on computer peripherals and other measures including the automation program of banking sector

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led by the Bangladesh Bank and competition among the scheduled banks in improving customer services have accelerated the prospects of internet banking in Bangladesh.

The Bangladesh Railway owns a high-speed optical fiber network (1,800 km) parallel to the railway path that covers most of the important parts of Bangladesh. This optical fiber network can be used as the backbone network of i-banking in Bangladesh. For example, mobile phone operators such as Grameen Phone and Ranks ITT of Bangladesh use this optical fiber network through which they reach even in rural areas with their services (Islam 2005). It is encouraging that some of the FCBs and PCBs are already using this optical fiber network for conducting internet transactions, ATM and POS services.

In addition, Bangladesh Bank is implementing the RPP project for modernizing national payment and settlement system. It is expected that the BACH including BACPS and BEFTN would start functioning from September 2009 followed by the development of inter-bank internet network. The project plans to go for real time gross settlement (RTGS) by 2012. It has been made mandatory for all head offices of the scheduled banks to be connected with Bangladesh Bank for satisfying BACH and BEFTN. These efforts would allow the scheduled banks to be connected to each other for conducting inter-bank internet transactions in near future and this would smoothen the introduction of e banking in Bangladesh.Internet services came to Bangladesh with connectivity in 1996. Digital telephone exchanges have been established in 389 upazilas and 17 growth centers. Work is underway to cover the rest of the upazilas under digital exchange system. Meanwhile, Bangladesh has joined the information super-highway by connecting itself with international submarine cable system in 2006. A total of 159 Internet Service Providers (ISPs) have now been connected with this system of which 64 are actively providing services. Internet connection is slow with bandwidth range 32 kbps to 56 kbps for dial up and 64 kbps to 8 mbps for broadband. The establishment of internet exchange is under implementation. Encryption laws to accept electronic authentication of transactions has been enacted in 2006 and Voice over Internet Protocol (VoIP) has been legalized. Under this scenario, as a part of government decision of building digital Bangladesh, the existing capabilities of ICT sector is likely to increase rapidly in bringing all upazilas under internet services and this will contribute in widening the scope of internet banking throughout the country.

Although all branches of FCBs and 99 percent branches of PCBs were computerized by December 2006, the average for all bank branches was 37 percent since only 4 percent and 16 percent of SBs and SCBs respectively were computerized. Out of a total of 6,565 branches in 2006, 2,426 were computerized of which 651 branches of

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22 PCBs and 7 FCBs together were providing any-branch-banking facility under respective bank internet network. During the period, the number of ATM booths and POS terminals stood at 478 and 4,647 respectively covering important merchant outlets in six divisional cities and some other important district towns in Bangladesh while 43 banks became the member of SWIFT and 25 banks adopted router connection.

Since about 50 percent of total bank branches belong to SCBs spread throughout the country including the rural areas, ICT penetration is crucial for this category of banks. The recent corporatization of the NCBs would influence the banks in this category to be competitive through improving their service quality incorporating the use of modern technology. Although all these are positive developments, more attention is needed to enhance ICT capabilities of the banking system especially the SCBs for successful implementation of internet banking all over the country.

Although internet banking has bright prospects, it involves some financial risks as well. The major risk of internet banking includes operational risks (e.g. security risks, system design, implementation and maintenance risks); customer misuse of products and services risks; legal risks (e.g. without proper legal support, money laundering may be influenced); strategic risks; reputation risks (e.g. in case the bank fails to provide secure and trouble free internet banking services, this will cause reputation risk); credit risks; market risks; and liquidity risks. Therefore, identification of relevant risks, and formulation and implementation of proper risk mitigation policies and strategies are important for the scheduled banks while performing internet banking.

BENEFITS OF INTERNET BANKING

With the increasing popularity of the internet, more and more industries are seeking ways to utilize this popular medium in an effort to keep up with the changing

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technological preferences of their customers. These days you can do just about anything internet from grocery shopping to making a free phone call to a friend in Dhaka through our PC. The possibilities of the internet are seemingly endless and the banking industry has decided that it will not be left behind. While most people have at least heard of internet banking, the majority of them have probably not tried it yet. Maybe it's because we find more comfort in working with real people and real paper when it comes to money matters rather than performing transactions in the seemingly impersonal universe of the World Wide Web.

Let's begin with the advantages of internet banking:

First, internet banking is convenient. It allows you to perform transactions, pay bills and check balances 24 hours a day, 7 days a week. The bank virtually never closes because it is as accessible as your PC or laptop computer. No matter where you are in the country or in the world, you can visit your internet bank and handle money matters. You can even schedule to pay several payees ahead of time rather than keeping up with paper bills or trying to remember when to visit a payee's web site to make an internet payment. Your bank will automatically send the payments on your behalf in the amounts and on the dates you specify.

Second, internet banking is fast, efficient and effective. Through the internet, transactions are typically performed and executed at a faster rate than ATM's. In addition, internet banks give you the ability to handle several bank accounts (checking, savings, CDs, IRAs, etc.) from one site. The majority of banking sites are also compatible with programs like Quicken and Microsoft Money, so as to allow for more effective management of assets.

INTERNET BANKING RISKS

Internet banking creates new risk control challenges for national banks. From a supervisory perspective, risk is the potential that events, expected or unexpected, may

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have an adverse impact on the bank’s earnings or capital. The OCC has defined nine categories of risk for bank supervision purposes. Those are:

Credit Risk Interest Rate Risk Liquidity Risk Price Risk Foreign Exchange Risk Transaction Risk Compliance Risk Strategic Risk Reputation Risk

--------These categories are not mutually exclusive and all of these risks are associated with internet banking.

DRAWBACKS OF INTERNET BANKING:

If our idea of a mouse is something that should never be caught dead--or alive for that matter--inside our house, internet banking may not be for us. It's convenient if we know how to work on a computer. If not, a drive through ATM takes a whole lot less time than trying to learn Windows 7.

Let's begin with the disadvantages of internet banking:

Need an account with an Internet Service Provider (ISP). Security concerns, like "hackers" accessing our bank accounts. Original setup for bill paying time is time-consuming but will ultimately be a

time-saver. Switching banks can be more cumbersome internet than in person. Must have basic computer skills and Internet knowledge. Must be comfortable using a computer.

RECOMMENDATIONS

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In addition, several steps may be contemplated in order to accelerate the adoption of internet banking:

Internet penetration is a key factor for the growth of internet banking (i-banking). Christiansen (2001) reports that the takeoff phase of Internet banking needs at least 30 percent Internet usage among the population. Moreover, since Internet penetration alone is not adequate for internet banking expansion, the government may provide subsidy for surfing cost, organize training facilities with private partnership, widen multiple access facilities like web, telephone, ATM etc., and initiate motivation programs for the users and the target population. Moreover, adequate legal framework and security are essential for flourishing internet banking.

VSAT operating license should not limit the bandwidth. Moreover, high bandwidth charge is another constraint in widening internet access to a greater number of people. Therefore rationalizing the charge could make the use of internet affordable to all.

New ISPs should be attracted into the business for promoting greater competition in the industry.

The policies relating to long distance and international voice traffic need review to remove impediments to growth of e-commerce that relates i-banking as well.

As a part of building digital Bangladesh, measures are needed to improve existing ICT infrastructure and address relevant issues including governance and institutional strengthening.

A package of required rules, acts, laws, and regulations pertinent to i-banking adoption and development may be formulated. In this respect, lessons and experience of countries that have already expanded i-banking can act as useful guides.

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The Bangladesh Bank may consider the following steps:

Take steps to orient bank officials on benefits of internet banking. For instance, BB may offer short courses (e.g. using the Bangladesh Bank Training Academy) on internet banking including analysis of costs and benefit from the perspectives of customers and the banks, present status, and opportunities and challenges.

To avoid risks involved in internet banking, risk mitigation policies and strategies need to be adopted as a part of the package approach to implementing i-banking.

Mobile banking is a prospective area for two reasons: it covers almost all activities involved in retail banking; and mobile phone network has already been spread all over the country covering more than 30 million people. Because of convenience, a sizeable share of the unbanked people can be brought under the network especially in rural areas with flourishing mobile banking. In this context, it is important to formulate relevant acts, policies, and adopt operative guidelines.

For the scheduled banks, it is important to:

Review their business strategy and create the required space for adopting i-banking services in order to remain competitive and attract new customers.

Strengthen ICT department through providing training to IT personnel and procuring required hardware and software.

Create separate unit in each branch for rendering ICT related operational activities under the supervision of the ICT department.

Train all staff in basic ICT related matters in phases.

MAJOR FINDINGS

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Internet banking (i-banking) is still growing in Bangladesh. The major outcomes of internet banking in Bangladesh (from our point of view considering the report) are:

Internet banking (i-banking) is supportive for building a “Digital Bangladesh”. With the help of internet banking clients can get money quickly from abroad

country. Bangladesh is still lagging behind in internet banking sector comparing with

the other countries of the world. The internet banks of Bangladesh cannot facilitate with enough branches and

ATM Booths throughout the country. Internet banking system is spreading quickly in Bangladesh. People feel secure the internet transactions in Bangladesh. Internet banking (i-banking) reduces the wastage of time. With the help of internet banking it is easy for Bankers to provide decent

services to their clients. Internet banking is one of the foremost steps for enlightening the banking

sectors. Through the weaknesses of securities of some banks it is easy for hackers to

conduct their hacking activities which are unexpected to the users of the system.

CONCLUSION

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A well-functioning internet banking network is dependent on availability of a backbone network connecting the whole country; reliable and secure information infrastructure including telecommunication infrastructure; ICT penetration in the banking sector; skilled operational personnel; and legal and regulatory framework. The government, Bangladesh Bank and scheduled banks are related to these issues. Therefore, both individual and joint efforts are needed to overcome the constraints in promoting internet banking in the country.

In respect to technology adoption, the PCBs and FCBs have attained greater success relative to other bank categories but their coverage is concentrated mainly in urban and semi-urban areas.The rural parts of Bangladesh still remain outside of their services. Since the SCBs and SBs have branches throughout the country including the rural areas, penetration of technology in banking activities of these two categories of banks are crucial to wider spread of e banking services. For the purpose, the management of these banks might allocate a part of their yearly profit for ICT penetration in banking activities and human resources development supported by fixed targets.

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REFERENCE Search Engine

www.Google.com www.yahoo.com www.wikipedia.com

Text Book Succeeding with computer

-ken Baldauf & Ralph M.Stair

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http://www.wikipedia.com/

http://www.yahoo.com/

http://www.Google.com/

Online Banking Term Paper

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