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Online Banking: Idea whose time has come.
by Vipul Shah

Online Banking has made its mark in India as early as august 1997, but real movement is seen only in last few months with heavyweights in private banks and foreign banks launching their services.

One need to understand how Online Banks emerged before looking into its negative/positive sides.

It all started in USA in 1996, with 2 major California banks starting web based operation for their customers. One was Bank of America and other was Wells Fargo Bank. Both are now considered pioneer in this industry. Initially only online statement viewing was offered, but very soon services like E-payment was included in menu. Online banking was just one more way to reach out to customer.

With advent of INTERNET ONLY banks like Security First Network Bank http://www.sfnb.com, whole picture changed. This bank was first real internet bank. It didn't have any brick and mortar branch network, and hence its cost of operation was very low. Customers anywhere in USA could send Cheques for deposits by postage free envelope to Bank and withdraw money by ATM around the world. SFNB converted its low overheads to stretegic advantage by offering 6% interest on balance of its Checking account (in USA most banks offer maximum 2.5% interest on bank balance). Within less then 1 year SFNB had 10,000 account and more than US$100 million in deposits (all with just one head office in Atlanta).

In India first one to move into this area was ICICIBANK. They started web based banking as early as August 1997. In India they have tremendous head start as even in late 1999 no one else offered this kind of services. Today ICICIBANK is considered market leader (which you can make out from its stock prices).

Very recently leading foreign Bank launched its web/e-banking and credit card products. I just went thru its terms and conditions, and i was shocked. Every risk connected to online banking was passed to customer. If any hacking happened then customer didn't have any recourse even if he was not at fault and hacking didn't happen from his end or his pc. Unlike this, in USA SFNB and others cover the risk of hacking themselves and customer is relatively free of worry.

Online Banking, what is there for bank in it?

Traditionally Banks in India spent 3.5% of its deposits on managing bank (staff, branches etc). But with advent of online banking and call-centers this cost could be broughtdown significantly. Less number of branches required and even lesser staff needed at each branches as Call-centers handle most of customer interaction. Banks like ICICIBANK achieved less than 1% overhead (compare this with 3.5% of other bank). Now in Banking 2.5% difference can make big difference. Bank can spend it on aggressive marketing to expand customer base, pay higher interest to customers, provide better service, and ask for lower or nil minimum balance.

So Banks have lot to benefit by converting branch visiting customers to Online customers.

Online Banking: What is there for consumer in it?

Consumer saves Time, money and effort.

You can bank at any time and not just at the time when banks work. Most transaction in tradional banking cost money. Even simple account to account transfer would cost Rs.1 to Rs.2 (most bank charge that much for cheque book leafs). If you do this online , there is no cost, and no paper work. No slips to be filled, no papers to be submitted, no bank visits.

You can view statement of last 10 days or 10 month at few keystrokes (try asking your regular non online bank for last 10 month statement and see how much time it takes, most will ask for written request, then ask you to come following day).

Few of the services missing in India from online banks are:

  1. e-payment: In USA using e-pay you can make payment to anyone by web based forms (fill in name, address, phone and amount and bank prints and posts chq free of charge).
  2. Online PPF accounts: Many nationalized bank have PPF accounts too, if only this were made available online.
  3. Online Tax Payment: Today you have to fill up tax challan, attach cheque and give it to bank. Instead if they would do this on web, and mail you paid tax challan, it would take lot of time from tax hassles.
Security aspects:

Software used at Bank for online Banks are usually very secure and tried and tested. Browsers offer from 40 bit to 128 bit of secure encryption (now USA have allowed export of 128 bit browsers so you can just go and download it). So online banking is as secure as most E-commerce transactions. Cyber-law which recently passed gives legitimacy to electronic signatures. But how bank treats hacking and who foots bill of hacking needs some thoughts.

Overall , I had very positive experience in Internet Banking as compared to my couple of decade experience with nationalized banks manual banking. I saved lot of costs and increased return in form of interest (as I would make fixed deposits of even smallest amount cleared by Cheque, which I could never dream in doing with nationalized banks).

Cost involved in starting out is very less as many aggressive banks ask for very nominal minimum balance.

for more information.

I would like to hear about your experience in online Banking. Write to me at


(Vipul Shah is a Chartered Accountant, specializing in Online systems security and Ecommerce.)

Copyright 1999 Dr. Raj Mehta. All rights reserved.