E Banking : Risks and Responses

A Presentation by : Mrs. Pratibha N. Jha

Abstract of Presentation
e-banking

e-banking is the use of electronic channels to communicate and transact business with
both domestic and international customers, primarily through use of the Internet and the
World Wide Web. This has enabled banks and other financial institutions to increase the
use of electronic channels for receipt and delivery of their products and services. The BIS
broadly categorises e-banking, both domestic and international, into three categories:

• Basic information web sites, which only broadcast information on banking

products and services offered to bank customers and the general public.
• Simple transactional web sites which allow bank customers to submit applications
for different services, make enquiries about balances and submit instructions to
the bank but not permit any account transfers.
• Advanced transactional web sites that allow bank customers to electronically
transfer funds to/from their accounts, pay bills and conduct other banking
transactions on-line.

e-banking has unique characteristics that may increase an institution’s overall risk profile
and the level of risks associated with traditional financial services, particularly strategic,
operational, legal, and reputation risks. These unique e-banking characteristics include:

 Speed of technological change,

 Changing customer expectations,
 Increased visibility of publicly accessible networks (e.g., the Internet),
 Less face-to-face interaction with financial institution customers,
 Need to integrate e-banking with the institution’s legacy computer systems,
 Dependence on third parties for necessary technical expertise, and
 Proliferation of threats and vulnerabilities in publicly accessible networks.

e-banking Risk

Risks arise primarily on the latter two categories which permit transactions, though
clearly a site which broadcasts information can be exposed to risks arising from
inaccurate, misleading or even fraudulent representations about the bank's products and
services.
Risk in e-banking business can be broken down into six broad categories:

 TRANSACTION/OPERATIONS RISK
 CREDIT RISK
 LIQUIDITY, INTEREST RATE, PRICE/MARKET RISKS
 COMPLIANCE/LEGAL RISK
 STRATEGIC RISK
 REPUTATION RISK

Conclusion

Financial institution management should choose the level of e-banking services provided
to various customer segments based on customer needs and the institution’s risk
assessment considerations. Institutions should reach this decision through a board-
approved, e-banking strategy that considers factors such as customer demand,
competition, expertise, implementation expense, maintenance costs, and capital support.
Some institutions may choose not to provide e-banking services or to limit e-banking
services to an informational website. Financial institutions should periodically re-evaluate
this decision to ensure it remains appropriate for the institution’s overall...