Advancement of Banking Technology in Bangladesh

Main purpose of this report is to analysis Advancement of Banking Technology in Bangladesh. Other objectives are to shed light on the concept of technological advancement of banking and to explore the Structure of electronic banking in Bangladesh. Report also focus on to explore the electronic services offered by various bank in Bangladesh. Finally find out the common features of  adopted Technology of banking in Bangladesh and find out the customer satisfaction  level with the advancement of banking technology.

Introduction

The commercial banking business has changed dramatically over the past 25 years, due in large part to technological change.1 Advances in telecommunications, information technology, and financial theory and practice have jointly transformed many of the relationship focused intermediaries of yesteryear into data-intensive risk management operations of today.

Consistent with this, we now find many commercial banks embedded as part of global financial institutions that engage in a wide variety of financial activities. To be more specific, technological changes relating to telecommunications and data processing have spurred financial innovations that have altered bank products and services and production processes. For example, the ability to use applied statistics cost-effectively (via software and computing power) has markedly altered the process of financial intermediation.

Retail loan applications are now routinely evaluated using credit scoring tools, rather than using human judgment. Such an approach makes underwriting much more transparent to third parties and hence facilitates secondary markets for retail credits (e.g., mortgages and credit card receivables) via securitization.2 Statistically based risk measurement tools are also used to measure and manage other types of credit risks – as well as interest rate risks – on an ongoing basis across entire portfolios. Indeed, tools like value-at-risk are even used to determine the  appropriate allocation of risk-based capital for actively managed (trading) portfolios.

This chapter will describe how technological change has spurred financial innovations that have driven the aforementioned changes in commercial banking over the past 25 years. In his respect, our survey is similar to that of Berger (2003).3 However, our analysis distinguishes itself by reviewing the literature on a larger number of new banking technologies and synthesizing these studies in the context of the broader economics literature on innovation. In this way, the chapter is more like our own previous survey of empirical studies of financial innovation (Frame and White, 2004). We note that this survey is U.S.-centric, owing to our own experiences, the fact that many financial innovations originate in the U.S., and that most studies of such innovations rely on U.S. data. Before proceeding, it will be helpful to understand better what is meant by financial innovation.

In Bangladesh, multinational banks are operating for long besides our nationalized, private andspecialized banks. However, much of the resulting research has concentrated on providing evidence ofthe association between consumers’ usage patterns of ATMs and their demographic profiles (Hood,1979; Murphy, 1983) and, more recently, consumer psychographic profiles (Stevenset al., 1986).Besides, the banking services of nationalized, private, and multinationals are different by quality oftheir services. Multinational banks are offering better services than others. They offer better customerservices, personal financial services, corporate facilities, trade services with the help of efficientoperational department, credit department, information technology department and the most importantdepartment is the marketing department. Presently they are thinking to offer door-to-door services, 24hours banking services with electronic banking, pay and cash management through internet services.Moreover, waiting to introduce intensive e banking of the multinational banks in Bangladesh.Customer always demands better services, security, and round the clock banking. Multinational banksare considering customers needs and demand in the first line of preference. Moreover, trying to offerand introduce the demanded services by theBank and changing their offering based on the needs ofpresent and potential customers. Only a few studies regardless of research context have beenconducted which focus on the attributes of innovations, as perceived by potential users (Ostlund,1974; Taylor, 1977). This paper tries to highlight the present condition of electronic banking inBangladesh.

Objectives of the Study

This research has taken into consideration to accomplish the following objectives:-

1. To shed light on the concept of technological advancement of banking
2. To unearth the development of e-banking in Bangladeshi banking sector
3. To explore the Structure of electronic banking in Bangladesh
4. To explore the electronic services offered by various bank in Bangladesh
5. To find out the common features of adopted Technology of banking in Bangladesh
6. To find out the customer satisfaction  level with the advancement of banking technology.

Methodology of the Study

The study has been done mainly based on primary and secondary sources of data or information. Secondary sources of data have been obtained through different web sites , books and related journals. The study covered 5 different Multinational, private commercial banks, which mainly situated in the capital city of Dhaka in Bangladesh. Some of the respondents were in the capital city of Dhaka. Data have been collected through a structured questionnaire.

Data Collection Procedure

Primary data sources

Primary has been collected from Dhaka based on some selected banks e.g United Commercial Bank, Dutch Bangla Bank. these banks are considered as the private commercial banks and foreign banks respectively. Primary data collections are done by the interviewing method with proper questionnaire.

Secondary Data Sources

Secondary data has been collected from different publications, material and website as well as the books and material from different libraries , the hand note of the various seminar and research related to the issue are taken into account that includes the library of BIBM, BANBASE.

Literature review

With the extensive technology innovation and telecommunication, we have seen new financial distribution channels increasing rapidly both in the numbers and form, from ATMs, telephone banking, PC banking to internet banking. (Earring Wood and Story, 1996). Developing alternative distribution channels is not only important in terms of reducing costs and improving competitiveness, but also in terms of financial institution’s ability to retain the existing customer case. (Kimball and Gregor, 1995) as well as to attract new customers. Sathye (1999) proposed a model for Internet Banking in Australia is significantly influenced by variables of system insecurity, case of use awareness of service and its benefits, reasonable price, availability of infrastructure and resistance to change. The transformation from traditional brick-and-mortar banking to E-Banking has been Automatic Teller Machine (ATM) and thus the retail banking industry witnessed significant and extensive change. Formally, E-banking comprises various formats or technologies, including telephone (both land line and cell phone banking, direct bill payment (EFT), and PC or internet banking (Power, 2000). Weitzman, (2000), Lassar, Manolits and Lassar, (2005), Ehou and Chou (2000) identified five basic services associated with online banking: view account balances, and transaction histories, paying bills, transferring funds between accounts, requesting credit card advance, and ordering checks. Majority of banks of banks is planning to introduce ICT for integration of banking service and new finance service, which will play a vital role in bringing efficiency in financial sector (Raihan, 2001). The most commonly factors are ease of use, transaction security, convenience and speediness (Wan, Luk and Chow, 2005).

Organization theorists and practioners have defined e-banking in various ways. A Surveyof Electronic Banking, Electronic Cash and Internet Gaming (2003), has definedelectronic banking as “an umbrella term for the process by which a customer may perform banking transactions electronically without visiting a brick and mortar institution”. The following terms all refer to one form or another of electronic banking: personal banking,(pc) virtual banking, on line banking, home Banking, remote electronic banking, and phone banking are the most frequently used designations, (Joris, Claessens, Valentine Dem et.al,2001),on line electronic banking system give every body the opportunity for easy access to their banking activities.

These banking activities may include; retrieving an account balance, money transfers (Between a user’s accounts, from user’s account to someone else’s account) retrieving an accounting history. Some banks also allow services such as stock market transactions, and the submission of standardized accounting payment files for bank transfer, to third parties, As technology evolves, different kinds of electronic banking system emerge, each bringing a new dimension to the interaction between user and bank. The ATM is the first well-known system that was introduced to facilitate the access of the user to his banking activities, (M. Rahman, 2003), E-banking is a form of banking where funds are transferred through an exchange of electronic signals between financial institution, rather than exchange of cash, checks or other negotiable instruments common wealth bank of Australia, (2006) defined E- banking as “a range of banking services that utilizes electronic equipment”. Electronic equipments are ATM machine card (plastic), PIN, password, code or net code etc.

With the extensive technology innovation and telecommunication. We have seen new financial distribution channels increasing rapidly both in the numbers and form, from ATM’s, telephone banking, PC banking to internet banking. A broad range of financial distribution channels must be available to deliver varying services needs of customers segments (Earring wood and story, 1996).

Developing alternative distribution channels is not only important in terms of reducingcosts and improving competitiveness but also in terms of a financial institution’s ability to retain the existing customer case (Kimball and Gregor, 1995) as well as to future attract new customers.

While the trend within the banking industry is to replace human tellers with self-servicedistribution channel’s. the strength of customer intentions for usage of human tellers within the next two years support the concept that the branch will still play an instrumental rate in the delivery of services to customers in the future. (Greenland,1995; Woodruff, 19*95; Thornton and White, 2000).

Sathye (1999) proposed a model for Internet Banking Adoption, which argued that the Intention of Internet Banking in Australia is significantly influenced by variables of system insecurity, case of use awareness of service and its benefits, reasonable price, availability of infrastructure and resistance to charge.

The Willis Report (1997 in Sathye, 1999) Stated that the technology must be reasonably priced relative to alternatives for customers to adopt. Otherwise the acceptance of the new technology may not be viable from customer’s stand point. Customers today are more conscious of the expenses associated with the banking as they are generally better informed about alternative option. The total costs incurred in using Internet Banking must be minimal or competitive (Joyawardhena and foley, 2000).

Howard and Moore (1982) reported that consumers must be aware of the new brand before adoption. Therefore it is important factor that the boxes have to create awareness on internet banking to the consumers. Adoption means acceptance and continued use of a product, service and idea. Customers go through a process of knowledge, persuasion, decision and confirmation before they adopt the product or services.

Offer the internet banking; the greater the awareness level among customers and therefore the higher will be internet banking adoption. Besides awareness, the service provided by the banks should be perceived to be innovative with high quality and user friendliness to meet an individual’s expectation. Cooper (1997) reported that case of use of innovation product or service as one of the three important characteristics for adoption from the customer’s perspective. This is related to user friendliness and ease of navigation as well as simple institutions to use the service.

Brief History of Banking Technology

In 60’s, banks started to establish centralized data processing centers. Essentially, the roles of these data processing centers are:

• collect the handwritten documents from branches
• compile the documents
• manual data entry by the operators
• generate reports for the bank staff and the central bank
• execute some banking transactions
• In 70s-80’s, banks started technology investments for the branches.
• The first step is offline branches.
• Terminals connected to local branch computer
• Second step is online branches connected centrally.
• Most of the transactions started to be performed in the central mainframe.
• In the mid-1980s, banks accepted product based banking and competed with their products.

Banks developed new products for their customers.

• Credit card
• Debit cards
• Smart cards

Beside their branches, banks brought new channels to give better service to their customers such as:

• ATM (Automated Teller Machine)
• POS (Point Of Sales)
• IVR (Interactive Voice Response)

In 1990s the use of Internet affected services and increased competition among banks.  Since then banks are trying to offer convenient banking service to online customers, and to protect and secure their web sites.

In 2000s the spread of wireless technology and the use of wireless devices became field of which banks can use to offer banking services. Therefore, mobile banking concept became a new opportunity, and customer started to use their cell phones. Accordingly, the new intermediaries such as electronic payment systems emerged to satisfy more customers.

Advances in Banking Technology

During recent years technology has become one of the key aspects for the organizations to deliver their services. Banks started giving importance to new technologies. The term “Technology” is not only machines or equipments. The term technology can be categorized into hard, hybrid and soft technologies.

• Hard Technology: is a physical technology that replaces both manual labor and brainpower, usually termed as AUTOMATION.
• Hybrid Technology: is a set of machines or equipments that manage and organize work or service processes more faster and more efficiently.
• Soft Technology: is a technique or an organized way of doing things.

The main reasons for the banks to offer technology-based service delivery are the followings:

• Controlling and enhancing quality,
• Direct connection with customers, and
• Reducing  transaction and agency costs

Advances in technology have increased service delivery in recent years, with a tremendous impact on service support. Today, customers can choose among different varieties of technological options to perform banking services. At the same time, banks employ technology at various stages in the service delivery process and in service support operations to improve quality and productivity.

Advances in technology are many; some are ATMS, electronic banking, Internet banking, phone banking, home banking etc.

e-Banking:

The letter (e) stands for the word electronic. The word banking means a certain financial service with certain conditions presented by banks to their customers.  Customers are either individuals or corporations.
e-Banking could be defined as follows:

• The term e-banking is used to describe supplying banking services through electronic intermediaries or electronically based channels .These channels include World Wide Web (www), personal computer (PC), digital television set, telephone, mobile phone, automated teller machines (ATMs) and so on.
• E-Banking the  provision of information or services by a bank to its customers through computer, television, telephone or mobile.
• E-Banking is an electronic connection between bank and customers in order to prepare, manage and control financial transactions.
• E-Banking is an umbrella term for the process by which customer may perform banking transactions electronically without visiting a brick institution.

Some people use the term online banking as a broad title to non-traditional banking, however, the term online is mainly used to describe people connected to the Internet. Therefore, it is more specific to use the term e-banking to encompass non-traditional banking rather than to use online banking. This is also applied to those who use the term Internet banking to mean e-banking, it should be noted that electronic banking is a bigger platform rather than just banking via Internet.

Banking Services could be offered through:

1. Virtual Banks: Organizations (banks) that conduct their business activities solely online.
2. Click-and-mortar (click and brick) Banks: Organizations (banks) that conduct some online activities but do their primary business in the physical world.
3. Brick-and-mortar Banks: Old-economy organizations (banks) that perform most of their business off-line.

Trends in banking technology

Fifty years ago, the Texas Bankers Record, predecessor to Texas Banking magazine, was touting such technological advances as mic3rofilmers to photograph checks and statements and electronic bank posting machines, described as a “behind-the-scenes revolution.” “In the relatively short span of a year, electronic bank methods have become a reality, and even greater strides lie ahead,” a representative of the National Cash Register Company predicted in 1958.

Our November issue is traditionally devoted to trends and advances in banking technology. It’s one of our most popular issues, since banking technology is constantly evolving and changing the face of the banking industry. It’s hard to predict from one year to the next which technological breakthroughs will be developed and which ones will appeal to customers.

Image Photograph

The electronic posting machine is the latest and greatest technology advance of 1958.

Lee Wetherington, a very popular speaker at TBA conferences – and slated to speak at next year’s convention – wrote our cover feature on “The Future of Banking.” Lee focuses on second generation Customer Relationship Management, social networking, remote deposit, debit card rewards and mobile banking. Lee believes banks that leverage technology will be rewarded with a prosperous future. Joe Gillen of Pinnacle Financial Strategies discusses one of the hottest banking technology offerings today – mobile banking, which is particularly appealing to the younger generation. But, Joe cautions, mobile banking isn’t for all banks, and he offers a list of five points banks should consider before offering this service.

John Waupsh of First ROI wrote our article on “The New Face of Banking,” which discusses the importance of a well designed and easy-to-use Web site that offers exceptional e-commerce solutions. Those banks that dismiss the importance of the Internet will lose an important segment of their customer base – the younger generation, Joe writes.

Finally, one of the unfortunate side effects of technology, such as online and mobile banking, is that it can lead to data breaches. Bill Morrow with CS Identity offers steps banks can take to help reduce the chance of a data breach and how to respond when one does happen.

It’s hard to predict the direction technology will take in the coming years. I doubt the representative of the National Cash Register Company could have predicted that 50 years in his future, customers would be conducting their bank business on a device as small as the palm of their hands.

Trends in mobile banking

The phone’s become a music player, an arcade, an e-mail device and a camera. So why not become a bank as well?

Add banking to the features on your phone

That’s the latest trend for the ever-changing device. AT&T announced earlier this spring plans to launch a mobile banking service with several banks in the South.

But Novato’s own ClairMail is also working it’s own magic trying to come up with an easy way to conduct banking transactions on your phone. The company announced this week it has inked a deal with the Bank of Stockton to offer mobile banking through text messaging.

Here’s how it works: You set up an account on line and the verify your cell phone number with the bank using a PIN number. Then you can start sending text messages to your bank like “BAL” for balance. Within about three seconds, you get a return text message with your balance.

You can send messages to transfer money from one account to another. You can also receive electronic bills sent as text alerts and then pay them right away through a quick text message. If you’re worried about security or overdrawing from your account, you can sign up for text alerts that warn you when there’s odd activity in your account or if you’re close to being overdrawn. The service also allows you to add another layer of security by requiring large transfers to get your personal approval via a separate phone call.

ClairMail says its approach is better than solutions like AT&T’s because you don’t have to have a certain type of phone that can support the downloadable application required. You just need a phone that has text messaging, which is basically most every phone out there. Their sense is that people just want to get in and get out of their virtual bank and they think that text messaging is the best solution for that.

The service for Bank of Stockton customers begins this summer and then should have a full launch in September. ClairMail plans to announce other deals with major banks in the coming months.

If anything ClairMail shows you that mobile banking can be easy. And it brings home the idea that

A mobile banking conceptual model

In one academic model, mobile banking is defined as:

Mobile Banking refers to provision and availment of banking- and financial services with the help of mobile telecommunication devices.The scope of offered services may include facilities to conduct bank and stock market transactions, to administer accounts and to access customised information.”

According to this model Mobile Banking can be said to consist of three inter-related concepts:

• Mobile Accounting
• Mobile Brokerage
• Mobile Financial Information Services

Most services in the categories designated Accounting and Brokerage are transaction-based. The non-transaction-based services of an informational nature are however essential for conducting transactions – for instance, balance inquiries might be needed before committing a money remittance. The accounting and brokerage services are therefore offered invariably in combination with information services. Information services, on the other hand, may be offered as an independent module.

Mobile phone banking may also be used to help in business situations

Mobile banking business models

A wide spectrum of Mobile/branchless banking models is evolving. However, no matter what business model, if mobile banking is being used to attract low-income populations in often rural locations, the business model will depend on banking agents, i.e., retail or postal outlets that process financial transactions on behalf telcos or banks. The banking agent is an important part of the mobile banking business model since customer care, service quality, and cash management will depend on them. Many telcos will work through their local airtime resellers. However, banks in Colombia, Brazil, Peru, and other markets use pharmacies, bakeries, etc.

These models differ primarily on the question that who will establish the relationship (account opening, deposit taking, lending etc.) to the end customer, the Bank or the Non-Bank/Telecommunication Company (Telco). Another difference lies in the nature of agency agreement between bank and the Non-Bank. Models of branchless banking can be classified into three broad categories – Bank Focused, Bank-Led and Nonbank-Led.

Bank-focused model

The bank-focused model emerges when a traditional bank uses non-traditional low-cost delivery channels to provide banking services to its existing customers. Examples range from use of automatic teller machines (ATMs) to internet banking or mobile phone banking to provide certain limited banking services to banks’ customers. This model is additive in nature and may be seen as a modest extension of conventional branch-based banking.

Bank-led model

The bank-led model offers a distinct alternative to conventional branch-based banking in that customer conducts financial transactions at a whole range of retail agents (or through mobile phone) instead of at bank branches or through bank employees. This model promises the potential to substantially increase the financial services outreach by using a different delivery channel (retailers/ mobile phones), a different trade partner (telco / chain store) having experience and target market distinct from traditional banks, and may be significantly cheaper than the bank-based alternatives. The bank-led model may be implemented by either using correspondent arrangements or by creating a JV between Bank and Telco/non-bank. In this model customer account relationship rests with the bank

Non-bank-led model

The non-bank-led model is where a bank has a limited role in the day-to-day account management. Typically its role in this model is limited to safe-keeping of funds. Account management functions are conducted by a non-bank (e.g. telco) who has direct contact with individual customers.

Mobile Banking Services

Mobile banking can offer services such as the following:

Account Information

1. Mini-statements and checking of account history
2. Alerts on account activity or passing of set thresholds
3. Monitoring of term deposits
4. Access to loan statements
5. Access to card statements
6. Mutual funds / equity statements
7. Insurance policy management
8. Pension plan management
9. Status on cheque, stop payment on cheque
10. Ordering cheque books
11. Balance checking in the account
12. Recent transactions
13. Due date of payment (functionality for stop, change and deleting of payments)
14. PIN provision, Change of PIN and reminder over the Internet
15. Blocking of (lost, stolen) cards

Payments, Deposits, Withdrawals, and Transfers

1. Domestic and international fund transfers
2. Micro-payment handling
3. Mobile recharging
4. Commercial payment processing
5. Bill payment processing
6. Peer to Peer payments
7. Withdrawal at banking agent
8. Deposit at banking agent

A specific sequence of SMS messages will enable the system to verify if the client has sufficient funds in his or her wallet and authorize a deposit or withdrawal transaction at the agent. When depositing money, the merchant receives cash and the system credits the client’s bank account or mobile wallet. In the same way the client can also withdraw money at the merchant: through exchanging sms to provide authorization, the merchant hands the client cash and debits the merchant’s account.

Investments

1. Portfolio management services
2. Real-time stock quotes
3. Personalized alerts and notifications on security prices
4. mobile banking

Support

1. Status of requests for credit, including mortgage approval, and insurance coverage
2. Check (cheque) book and card requests
3. Exchange of data messages and email, including complaint submission and tracking
4. ATM Location

Content Services

1. General information such as weather updates, news
2. Loyalty-related offers
3. Location-based services

Based on a survey conducted by Forrester, mobile banking will be attractive mainly to the younger, more “tech-savvy” customer segment. A third of mobile phone users say that they may consider performing some kind of financial transaction through their mobile phone. But most of the users are interested in performing basic transactions such as querying for account balance and making bill payment.

Others

There are some other electronic services like TV Banking,  Mail Banking etc is practicing ignorable way. But banks are trying hard to developnew products which can be done through electronic device like internet, telephone including cellularand mechanical devices.

Future functionalities in Mobile Banking

Based on the ‘International Review of Business Research Papers’ from World business Institute, Australia, following are the key functional trends possible in world of Mobile Banking.

With the advent of technology and increasing use of smartphone and tablet based devices, the use of Mobile Banking functionality would enable customer connect across entire customer life cycle much comprehensively than before. With this scenario, current mobile banking objectives of say building relationships, reducing cost, achieving new revenue stream will transform to enable new objectives targeting higher level goals such as building brand of the banking organization. Emerging technolgy and functionalities would enable to create new ways of lead generation, prospecting as well as developing deep customer relationship and mobile banking world would achieve superior customer experience with bi-directional communications.

Illustration of objective based functionality enrichment In Mobile Banking

• Communication enrichment: – Video Interaction with agents, advisors.
• Pervasive Transactions capabilities: – Comprehensive “Mobile wallet”
• Customer Education: – “Test drive” for demos of banking services
• Connect with new customer segment: – Connect with Gen Y – Gen Z using games and social network ambushed to surrogate bank’s offerings
• Content monetization: – Micro level revenue themes such as music, e-book download
• Vertical positioning: – Positioning offerings over mobile banking specific industries
• Horizontal positioning: – Positioning offerings over mobile banking across all the industries
• Personalization of corporate banking services: – Personalization experience for multiple roles and hierarchies in corporate banking as against the vanilla based segment based enhancements in the current context.
• Build Brand: – Built the bank’s brand while enhancing the “Mobile real estate”.

Challenges for a Mobile Banking Solution

Key challenges in developing a sophisticated mobile banking application are :

Handset operability

There are a large number of different mobile phone devices and it is a big challenge for banks to offer mobile banking solution on any type of device. Some of these devices support Java ME and others support SIM Application Toolkit, a WAP browser, or only SMS.

Initial interoperability issues however have been localized, with countries like India using portals like R-World to enable the limitations of low end java based phones, while focus on areas such as South Africa have defaulted to the USSD as a basis of communication achievable with any phone.

The desire for interoperability is largely dependent on the banks themselves, where installed applications(Java based or native) provide better security, are easier to use and allow development of more complex capabilities similar to those of internet banking while SMS can provide the basics but becomes difficult to operate with more complex transactions.

There is a myth that there is a challenge of interoperability between mobile banking applications due to perceived lack of common technology standards for mobile banking. In practice it is too early in the service lifecycle for interoperability to be addressed within an individual country, as very few countries have more than one mobile banking service provider. In practice, banking interfaces are well defined and money movements between banks follow the IS0-8583 standard. As mobile banking matures, money movements between service providers will naturally adopt the same standards as in the banking world.

On January 2009, Mobile Marketing Association (MMA) Banking Sub-Committee, chaired by CellTrust and VeriSign Inc., published the Mobile Banking Overview for financial institutions in which it discussed the advantages and disadvantages of Mobile Channel Platforms such as Short Message Services (SMS), Mobile Web, Mobile Client Applications, SMS with Mobile Web and Secure SMS

Security

Security of financial transactions, being executed from some remote location and transmission of financial information over the air, are the most complicated challenges that need to be addressed jointly by mobile application developers, wireless network service providers and the banks’ IT departments.

The following aspects need to be addressed to offer a secure infrastructure for financial transaction over wireless network :

1. Physical part of the hand-held device. If the bank is offering smart-card based security, the physical security of the device is more important.
2. Security of any thick-client application running on the device. In case the device is stolen, the hacker should require at least an ID/Password to access the application.
3. Authentication of the device with service provider before initiating a transaction. This would ensure that unauthorized devices are not connected to perform financial transactions.
4. User ID / Password authentication of bank’s customer.
5. Encryption of the data being transmitted over the air.
6. Encryption of the data that will be stored in device for later / off-line analysis by the customer.

One-time password (OTPs) are the latest tool used by financial and banking service providers in the fight against cyber fraud. Instead of relying on traditional memorized passwords, OTPs are requested by consumers each time they want to perform transactions using the online or mobile banking interface. When the request is received the password is sent to the consumer’s phone via SMS. The password is expired once it has been used or once its scheduled life-cycle has expired.

Because of the concerns made explicit above, it is extremely important that SMS gateway providers can provide a decent quality of service for banks and financial institutions in regards to SMS services. Therefore, the provision of service level agreements (SLAs) is a requirement for this industry; it is necessary to give the bank customer delivery guarantees of all messages, as well as measurements on the speed of delivery, throughput, etc. SLAs give the service parameters in which a messaging solution is guaranteed to perform.

Scalability & Reliability

Another challenge for the CIOs and CTOs of the banks is to scale-up the mobile banking infrastructure to handle exponential growth of the customer base. With mobile banking, the customer may be sitting in any part of the world (true anytime, anywhere banking) and hence banks need to ensure that the systems are up and running in a true 24 x 7 fashion. As customers will find mobile banking more and more useful, their expectations from the solution will increase. Banks unable to meet the performance and reliability expectations may lose customer confidence. There are systems such as Mobile Transaction Platform which allow quick and secure mobile enabling of various banking services. Recently in India there has been a phenomenal growth in the use of Mobile Banking applications, with leading banks adopting Mobile Transaction Platform and the Central Bank publishing guidelines for mobile banking operations.

Application distribution

Due to the nature of the connectivity between bank and its customers, it would be impractical to expect customers to regularly visit banks or connect to a web site for regular upgrade of their mobile banking application. It will be expected that the mobile application itself check the upgrades and updates and download necessary patches (so called “Over The Air” updates). However, there could be many issues to implement this approach such as upgrade / synchronization of other dependent components.

It would be expected from the mobile application to support personalization such as :

1. Preferred Language
2. Date / Time format
3. Amount format
4. Default transactions
5. Standard Beneficiary list
6. Alerts

Manual Banking and its problem.

What is manual banking?

Anything that is done by hand is called manual and the manual system in banks is also called traditional banking system. It is a process for containing the information of the customers by the banking staff with handwriting but not through computerized system. Opening an account, debit credit, withdrawal of amount, transactions and other utility bills are made in ledgers through hand-written without any automated system.

For an account opening and issuing the bank statement before computerized system MCB staff had to do this process. A customer had to fill a form for opening an account and necessary payment were made to the bank cashier who gave the payment slip to the customer. After getting the payment receipt, customer had to the other staff for verification and entering his information in the ledger book. Customer received a cheque book and a pass book along with account number after book keeping his information. Whenever he wanted to deposit or withdraw his money he had to go to the branch and wait for his turn in a long queue and gave the cheque to the bank officer and got a token. The cheque was verified and sends to the desk of cashier for giving the cash to the concerned customer having the same other relevant token. The cashier announced the token number of that cheque and gave the cash to the customer.

It was very complicated and time consuming process through which every customer has to adopt for services. For customers account statement a customer has to apply through an application along with his/her identification. The statement issuance staff gave him/her time of one or two days for collection of the statement. Then bank staff prepared statement of account based on the information in the ledger book and make the statement of account before coming of consumers next time. It all time consuming and boring to customer.

Manual banking Problems

There may be a lot of problems due to the manual or traditional banking system which can be overcome with the help of computerized systems. Some most common problems are as under:-

• Time is money and manual system takes a long time for the processing of customer‟s accounts information.
• Customers have to come to the concerned bank branch for any help related to banking services.
• Customers have to wait in long queues to get their turn.
• Percentage of human error is more than an expert system.
• Boring and uncompetitive system
• Cost of labor is increase
• It is difficult to keep the backup of all the ledgers in case of any mishap like burning.

Growth of E-Banking

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 online banking products and services. Evaluating  a bank      ’s  data on the use of their  Web sites, may help

examiners determine the bank’s strategic objectives, how  well the bank is

meeting its Internet banking product plan, and whether the business is expected to be profitable 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. 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.

Banking products and services

E-Banking  products and services can include wholesale products for corporate customers as well  as retail and fiduciary products for individual customers.  Ultimately, the products and services  obtained through internet banking may mirror products and services offered through other bank delivery channels.  A brief description of retail and wholesale products and services is given below:

Automated Teller Machine (ATM)

An automated teller machine  (ATM) is a computerized telecommunications device that provides a financial institution’s customers with a method of financial transactions in a public space without the need for a human clerk or bank teller.

Debit Card

 A  debit card is a plastic card which provides an  alternative payment method to cash while making purchases. The amount of a transaction is typically displayed on a card reader, after which the customer swipes the card then enters their PIN number (an attendant must swipe gift cards at gas stations). There is usually a short delay while the EFTPOS (Electronic Funds Transfer at Point of Sale) terminal contacts  the computer network  (over a phone line or mobile connection) to verify’ and authorize the transaction.

Credit Card

A credit card is a system of payment named after the small plastic card issued to users of the system. A credit card is different from a debit card in that it does not remove money from the user’s account after every transaction. In the case of credit cards, the issuer lends money to the consumer (or the user). It is also different from a charge card (though this name is sometimes used by the public to describe credit cards), which requires the balance to be paid in full each month. In contrast, a credit card allows the consumer to ‘revolve’ their balance, at the cost of having interest charged.

Point of sale (POS)

POS is an abbreviation for point of sale (or point-of-sale, or point of service). This can mean a retail shop, a checkout counter in a shop, or a variable location where a transaction occurs in this type of environment. Additionally, point of sale sometimes refers to the electronic cash register system being used in an establishment. Point  of sale systems are used in restaurants,  hotels, stadiums, casinos, as well as retail environments in short, if something can be sold, it can be sold where a point of sale system is in use.

Check Truncation

Check truncation is such a service in which a financial institution does not return the rejected checks with the monthly statement to their customers, rather they provide statement of rejected checks with the monthly statement. The banks store the rejected checks for a certain period (usually 90 days). During this time

period, a  customer  can adjust/rectify his account if any imbalance is found between his own records and the bank statement provided by bank. After the expiration of this stipulated period, the rejected checks are spoiled and the bank maintains a micro film copy for a period.

Home Banking

At  first, banks introduced  Telephone Bill Payment  (TBP) system so that customers could be able to do their banking activities from their home. The next version of home banking was  Video Home Banking  (VHB). The internet  is expected to be a major factor in home banking.

Retail Automated Clearing House Service

The Automated Clearing House (ACH) is an electronic network for financial

transactions. ACH processes large volumes of both credit and debit transactions which are originated in batches.   ACH  credit  transfers include direct-deposit payroll payments and payments to contractors and vendors. ACH debit transfers include consumer payments on insurance premiums, mortgage loans, and other kinds of bills. Businesses are also increasingly using ACH to collect from customers’ online, rather than accepting credit or debit cards.

Wire Transfer

Wire transfer is a process which ensures fast and appropriate timing of fund

transfer from the sender to the recipient. This kind of transfer of money could be either within the country or abroad. Funds are transferred under the following network:

1. Fed wire (The Federal Reserve Communication System)
2. Bank wire
3. CHIPS (The Clearing House Inter-bank Payment Service)
4. SWIFT (The Society for World Wide Inter-bank Financial Telecommunication)

Corporate Automated Clearing House

The Automated Clearing House (ACH) is an electronic network for financial transactions. ACH processes large volumes of both credit and debit transactions which are originated in batches. Other retail and fiduciary products and services may include Balance inquiry,  Funds  transfer,  Downloading transaction information, Bill presentment and payment, Loan application, Investment activity and other value-added services.

Security measures of E-banking

The Security of a system is the extent of protection against some unwanted occurrence such as the  invasion of privacy, theft and  the corruption of information or physical damage. As this system is developed through the Internet there is a big chance for hacking through our system. Current browsers counter security threats with a network communication protocol called Secure Sockets Layer (SSL). SSL is a set of rules that tells computers the steps to take to improve the security level of communications. These rules are designed for the following:

Encryption 

Guards against eavesdropping. Encryption is the scrambling of information for transmission back and forth between two points. When we send out a letter to our friend, we communicate in a language that both of us understand. Since, our language is understood by thousands of other people also, if someone else gets hold of our letter, he will not have any problem in understanding its contents.

Decryption

Encryption refers to the encoding of information that a user sends over the Internet. If an unauthorized party tries to read that, it would be impossible for them to read it. Decryption is reverse technique of Encryption.  After receiving encrypted data it is converted to original data.

Secure Socket Layer

Secure Socket Layer (SSL) provides sound privacy protection by encrypting the channel of communication between server and the customer.  Using  a mathematical formula, SSL puts the information into a complex code. Even if information is intercepted, that would be extremely difficult to read. So SSL’s only role  is  to  encrypt or decrypt  message.  This protocol fully encrypts all the information in both the HTTP request and HTTP response, including the URL the client is requesting any submitted from contents (e.g. credit card number, debit card number), any HTTP access authorization information (user names, password) and all the data returned from the server to the customer.

Authentication

Guards against impersonation. However, these effects protect our data only during transmission, That is, network security protocols do not protect our data before we send it. Just as we trust merchants not to share our credit card information, we must trust the recipients of our on-line data not to mishandle it.

Present Status of e-Banking in Bangladesh

E-banking at per international standard is yet to develop in Bangladesh. At present, several private commercial banks (PCBs) and foreign commercial banks (FCBs) offer limited services of tele banking, internet banking, and online banking facilities working within the branches of individual bank in a closed network environment. As a part of stepping towards e-banking, the FCBs have played the pioneering role with adoption of modern technology in retail banking during the early 1990s whereas the state-owned commercial banks (SCBs) and PCBs came forward with such services in a limited scale during the late 1990s. Moreover, the banking industry as a whole, except for the four specialized banks (SBs), rushed to offer technology based banking services during the middle of the current decade. The existing form of e-banking that satisfies customer demand in banking activities electronically throughout the world are PC banking or PC home banking that include online banking, internet banking, mobile banking, and tele banking.

PC banking or PC home banking: PC banking refers to use of personal computer in banking activities while under PC home banking customers use their personal computers at home or locations outside bank branches to access accounts for transactions by subscribing to and dialing into the banks’ Internet proprietary software system using password. PC banking or PC home banking may be categorized into two types such as online banking and Internet banking.

Online banking: Transactions in online banking are performed within closed network for which the customer use specialized software provided by the respective bank. International standard online banking facilities are expanding in Bangladesh. At present, 29 scheduled banks offer any branch banking facilities through their respective bank online network that provides facilities like transaction through any branch under the respective bank online 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 online network.

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 Cheaque  Processing System and Bangladesh Electronic Fund Transfer Network) is scheduled to come into effect from September 2009 followed by implementation of online banking at per international standard in near future.

Internet banking: Internet banking refers to the use of internet as a remote delivery channel for banking services which permits the customer to conduct transactions from any terminal with access to the internet. It is the WWW through which banks can reach their customers directly with no intermediaries. Internet banking in true sense is still absent in Bangladesh. Only 7 out of 48 banks are providing some banking services via internet that include account balance enquiry, fund transfer among accounts of the same customer, opening or modifying term deposit account, cheque book or pay order request, exchange rate or interest rate enquiry, bills payment, account summary, account details, account activity, standing instructions, loan repayment, loan information, statement request, ,cheque status enquiry, stop payment cheque, refill prepaid card, password change, L/C application, bank guarantee application, lost card (debit/credit) reporting, pay credit card dues, view credit card statement, or check balance. The core banking activities like fund transfer to third party, cross border transactions and so on are still uncovered by internet banking offered by the scheduled banks in Bangladesh.

Mobile banking: Mobile banking (also known as M-banking or SMS banking) is a term used for performing balance checks, account transactions, payments etc. via a mobile device such as a mobile phone. Mobile banking is most often performed via SMS or the Mobile Internet but can also use special programs called clients downloaded to the mobile device. The standard package of activities that mobile banking covers are: mini-statements and checking of account history; alerts on account activity or passing of set thresholds; monitoring of term deposits; access to loan statements; access to card statements; mutual funds/equity statements; insurance policy management; pension plan management; status on cheque, stop payment on cheque; ordering check books; balance checking in the account; recent transactions; due date of payment (functionality for stop, change and deleting of payments); PIN provision, change of PIN and reminder over the internet; blocking of (lost/stolen) cards; domestic and international fund transfers; micro-payment handling; mobile recharging; commercial payment processing; bill payment processing; peer to peer payments; withdrawal at banking agent;3 and deposit at banking agent. Despite huge prospects, only a few banks adopted mobile banking in Bangladesh during the last year.

Tele banking: Tele banking refers to the services provided through phone that requires the customers to dial a particular telephone number to have access to an account which provides several options of services. Despite huge potential, tele banking services have not been widened enough in daily banking activities in Bangladesh. Only four banks so far provide a few options of tele banking services such as detail account information, balance inquiry, information about products or services, ATM card activation, cheque book related service, bills payment, credit card service and so on. Funds transfer between current, savings and credit card account, stock exchange transactions etc are still inaccessible through tele banking in Bangladesh.

Status of Bangladesh in Adopting Banking Technology

It is imperative for the Bangladeshi commercial banks to embrace the latest technological changes in offering banking services. More and more banks are now using different software to do their banking operations (Table 1), which has established the arguments in favor of using technology. Many Bangladeshi commercial banks initially started with some locally produced banking software and at present many of them are now upgrading the previously obtained software. However, some of them started with the advanced foreign software. These software enable the banks to perform their banking operations more smoothly than that of past with more customer orientation and flexibility. It is evident from Table 1 that the banking sector of Bangladesh has recognized the necessity of introducing new technology in this arena.

The widely used banking software in Bangladeshi commercial banks at present are PC Bank (12 banks), BEXIBank (7 banks), Flora Bank (7 banks), Infinity Banking Solutions  (4  banks), Micro Banker  (2 banks), and Flexcube  (2 banks). Moreover,  some commercial banks are using Kurnel, KPATI,  A2Z,  IBBS, Finacle Core, EAGLE, Stellar, Millennium Banking System (MBS), and EBBS etc. About 16 commercial banks are using ATMs including foreign commercial banks. The banks are planning to install more ATMs in different locations, which are commercially important. Some banks are using shared ATM facilities to minimize the installation cost of ATMs.

Banking  Software

Bangladeshi commercial banks are implementing  the online banking gradually, though it can not be said it is real time online banking. In this case the private commercial banks are playing the pioneering role. Through the existing system of online banking the branches  are linked together with one another which facilitate smooth coordination among the branches and also with the head office. In Bangladesh, except very few banks, online banking is limited to the extent – any branch banking, which enables a customer to operate his/her account in any of the branch if he/she has a account in respective bank. It enhances the mobility of account transaction. Few Bangladeshi banks are now introducing real time online banking and Internet banking. It is basically in true sense the online banking, which is practiced in much developed banking system. The Bangladeshi commercial banks, which are introducing the real time online banking, have made a breakthrough in traditional online banking. They  interpret this paradigm shift in terms of benefits such as centralized system, EOD at data center, centralized MIS, improved control reports, anywhere 24 hours x 7 days banking, internet banking, tele-banking,  and  ATM/POS, one  stop shop for all banking needs, sophisticated customer information, online inter-branch transfer, any branch pay order system, digital signature/photo image while transacting, display customer balance-transaction-statement online, automatic Sweep in and out, bill payment (utility service bill, tuition fees, mobile phone bills), etc. Therefore, from the introduction of real time online banking the customers of those banks will be able to enjoy the high quality customer oriented banking service. Besides the PCBs, Foreign Commercial Banks  (FCBs)  operating in Bangladesh are offering world class banking services using the improved banking technologies since their operation started in this country.

Constraints of Internet Growth

• Lack of adequate and knowledgeable technical skill
• Lack of adequate govt. support
• Lack of software copyright protection act
• High preliminary cost
• Lack of adequate physical facilities
• Less investment and looking for short term return in the last mile solution
• Lack of long term planning
• Poor telecommunication infrastructure
• Low level of computer literacy
• Widespread poverty
• Limited point of presence of ISPs
• Lack of software and content in Bengali

Government Initiatives

The Government of Bangladesh has taken some important initiatives to develop our IT sector. Still we are waiting to see a fruitful change in our Information Technology. However, some remarkable steps of  government are highlighted for information.

• IT has been declared as a thrust sector.
• Quick implementation of the recommendations of JRC reports  (a high powered committee for software export).
• Waiving all taxes and duties from import of computer hardware and software.
• Hundred percent remittances of profit and capital gains for foreign investors without any approval.
• BTTB’s implementation of Digital Data Network (DDN) service.

E-banking in Bangladesh & Technological Movement in Private Banking sector

e-Banking facilitates instant access to account information, maintain control over the finances, saving time, avoiding trips and phone calls to the bank. It enables account access that isn’t limited to a specific PC and usages of money management software like Quicken and Microsoft Money. Time of writing and clearing out bills, buying stamps, writing checks, and writing addresses on envelops every month could be saved. E-banking takes just minutes to setup an on-line bill payment; and bills are paid directly from bank checking account.

Further, setting up of future bill payments, or scheduling of monthly payments could be made. It has only to be ordered whom to pay, how much to pay, and when to pay; and the bank take care of the rest. After the implementation of WTO treaty in 2005 many banks across the globe have come with new solutions with minimum possible banking expenditure.

At present most of the banks in Bangladesh are using electronic banking services in this and other forms. Nevertheless, the banks can be profitable if they use e-banking. Local and foreign private banks operating in Bangladesh are the pioneers to introduce the electronic banking facilities in the country. Among the indigenous banks, the private banks are ahead of the public banks. BRAC Bank, Dutch-Bangla Bank, Prime bank, Premier Bank, Islami Bank, Eastern Bank, Mercantile Bank, and Dhaka Bank are some of the banks marching towards ebanking. Among the four Nationalized Commercial Banks (NCBs), Janata bank has some access to the electronic banking facilities. Bangladesh Bank, the Central Bank of Bangladesh, is also trying to formulate the structure of electronic banking facilities.

The e-banking services provided by the banks in Bangladesh could be divided in three groups: ATM Services, Internet Banking (iBanking), and SMS Banking. The scopes of these services are vast, but the banks in Bangladesh do not provide all of these services.

Some of the banks provide these or other services and charge fees for ATM transaction, SMS and iBanking while the western banks inspire clients to do ATM banking without fee or a minimum fee to reduce banking expense.

Dutch-Bangla Bank Limited (DBBL) was the first bank in Bangladesh to introduce ATM and e-banking in 2003, and further additions and features are continuously being added and upgraded. DBBL has adopted the same exact automation solution used by international banking giants (DBBL Annual Report, 2009). A DBBL client has unlimited access to banking from any DBBL branch, ATM and Point of Sale (POS). ATM access to all DBBL clients is unlimited and free of cost. All of these services are affordable for everyone. With 800 ATMs nationwide DBBL has thelargest ATM network in Bangladesh which gives its clients full access to ‘anytime anywhere’ banking. All international and many local banks use the ATM network of DBBL for their clients. However, if aclient of a member bank uses a DBBL ATM, the member bank may add a transaction charge to its client. DBBL has an off-site Data Recovery Site (DRS) which ensures that customer records are safe, backed-up, and up to date in the event of a major catastrophe at the Electronic- Banking Division headquarters.

Since 2004, DBBL has introduced mobile and SMS banking. With a mobile phone, customers can perform many banking operations. DBBL is a primary license holder for both VISA and Mastercard. It is authorized to issue and accept payments from both organizations. DBBL offers also Visa and Mastercard Debit Cards. It does also Internet and SMS Banking and provides other services. DBBL has established drawing arrangement network with banks located in the important countries of the world namely in the United Arab Emirates, State of Kuwait, State of Qatar, State of Bahrain, Italy, Canada and United States of America. Bangladeshi Wage Earners can send their money with confidence, safety and speed to their respective beneficiaries in Bangladesh in shortest possible time. DBBL has set up a representation agreement with Western  Union Financial Services Inc, USA, which is are liable international money transfer company. Using the service of DBBL, Bangladeshi Wage Earners can send and receive money quickly from over 225,000 Western Union Agent located in 197 countries and territories world wide only by visiting any branches of Dutch- Bangla Bank Limited in Bangladesh.

DBBL offers banking facilities through a wide range of mobile phones. Customer using HTML browser has access to the internet banking facilities of DBBL.

Premier Bank has set up Wide Area Network using Radio, Fibre-Optics & other communication systems to provide branch banking to its customers (Premier Bank Annual Report, 2009). Customer of one branch is now able to deposit and withdraw money at any of the branches. All Branches are included in the Wide Area Network. So, no TT/DD or cash carrying is necessary. Premier Bank has been giving SMS Banking Service since 2006. The customers of Premier Bank can have information about banking transactions and inquiries  through SMS Banking. They can check their balance, stop a cheque payment, or get statements. Its SMS Banking provides the customers with real time account information by using mobile phones and instruction capabilities from the mobile phones at ‘anywhere, anytime, anyhow’. The service is available round the clock seven days a week. Premier Bank SMS banking service is free for customers. Prime Bank Limited provides Internet Banking with a secure connection of the client’s access to the accounts 24 hours a day, 7 days a week from any Internet connection (Prime Bank Annual Report, 2009). It provides the opportunity to verify account balances, transfer funds, and pay loans, every time when the customers log on to their on-line account. The customers can monitor account activity, get real-time account balance, and transfer funds at convenience.

Prime bank’s Internet Banking requires no special software; it is available through its website. Account access isn’t limited to a specific PC with special software installed and data stored. Anywhere the customers have access to the Internet, have access to their Prime bank accounts. Primebank’s Internet Banking lets the customers download their latest on-line account information. Primebank’s Internet Banking gives opportunity of bill paying for its customers through Primebank’s Bill Payer program.

Islami Bank Bangladesh Limited (IBBL) provides different services of e-banking to its customers (Islami Bank Annual Report, 2009). It has introduced ATM, SMS banking and Internet banking. For SMS banking registration is required. Under SMS banking of IBBL customers get different services. SMS and iBanking facilities, however, are applicable only for online branches. The contract could be terminated by either side giving 30 days’ prior notice. The Internet Based Banking of IBBL is called iBanking which has been introduced since 2009.

IFIC Bank issues VISA Credit Cards for both local and international use (IFIC Bank Annual Report, 2009). The Local Cards can be used at any ATM displaying VISA Logo for withdrawal of cash and for purchase of goods & services at any POS displaying VISA Logo within Bangladesh. The International Cards, on the other hand, can be used at any ATM and POS displaying VISA logo anywhere in the world. International credit card of IFIC Bank is a dual currency card and could be used at home& abroad. IFIC credit cardholders can enjoy 20 to 50 days interest fre period depending on the date of transaction and the date of statement generation. IFIC Bank Limited provides also opportunity for SMS Banking Card Services to its clients. Under Card Services the clients of IFIC can have Push /Pull Services. All Account & Card Holder of IFIC Bank are eligible to apply for SMS Banking and Card Services.

Foreign banks through successful use of a global network have increased the timeliness and accuracy of information, benefiting its customers, employees and also management.

A broad spectrum of E-banking services, a subset of electronic finance, is available in Bangladesh with different degree of penetration.

CitiDirect has gained more control over ones cash positions, one needs easy access to accounts and information in real time.  One will need the convenience of local banking and the global solutions of an industry leader.  The solution is CitiDirect® Online Banking. The motto of CitiDirect® is “Money isn’t everything but it can be everywhere”. The available facilities are:

• Online Direct Debit Transaction Process
• Information Reporting
• Real-time information reporting for more effective cash management
• Delivered with the highest level of security
• Easy-to-use application
• World Link through CitiDirect
• Comprehensive payment transaction solution
• Flexible, streamlined functionality
• Reliability, speed and information
• Payments through CitiDirect

A comprehensive payments solution globally and locally  Simplified, secure transaction management ,Timely, accurate information E-mail and Wireless Banking Alerts by CitiDirect

Eastern Bank Limited Internet banking application addresses the needs of small, individual and corporate account holders of the bank. This application provides a comprehensive range of banking services that enable the customer to meet most of their banking requirements over the net. The transactions that are supported by the internet banking provided by Eastern Bank Limited are Account operations and  Inquiries, Fund Transfers  and  Payments,  Utility Bill Payments, Deposits, Loans, Session Summary etc.

Bank Asia symbolizes modern banking with innovative services in Bangladesh. It has centralized Database with online ATM, SMS and Internet query service. Bank Asia has 21 ATMs as a member of ETN along with eleven other banks. Bank Asia is maintaining its competitiveness by leveraging on its Online Banking Software and modern IT infrastructure. It is the pioneer amongst the local banks in introducing innovative products like SMS banking, and under the ATM Network the Stellar Online Banking software enables direct linking of a client’s account, without the requirement for a separate account.

BRAC Bank deployed a layer of security system for its Internet Banking. These measures extend from data encryption to firewalls. BRAC Bank uses the most advanced commercially  available Secure Socket Layer  (SSL) encryption technology to ensure that the information exchange between the customer’s Computer and BRACBank.com over the internet is secure and cannot be accessed by any third party. SSL has been universally accepted on the World Wide  Web for authenticated and encrypted  communication between customers’ computers and servers.

Arab Bangladesh Bank Ltd. is the first private bank of Bangladesh with a long standing experience in domestic and international banking. Its 153 branches in all the major commercial centers of the country and 152 correspondents worldwide provide proficient banking services to its customers.             

HSBC

Business Banking Account enables a person to receive credit of all the cash or cheque  deposits along with  inward  remittance and make all local payments and provide access to the wide range of services for the business requirements. With Easy Pay Machines both HSBC and Non-HSBC customers can make deposits and pay their utility bills, credit card payments and etc.

SCB

Standard  Chartered offers the client a  comprehensive range of Cash Management services. Electronic Banking provides various types of support through a wide range of operating systems, sweeping transaction accessories with the provision of reporting features or other special functions.

The common features of electronic banking in Bangladesh are as follows: –

Electronic banking idea developed in Bangladesh since 1992 through several multinational banks. But most of the local and foreign banks are maintained electronic banking in their all branches. Here the researcher fined some common features of electronic banking in Bangladesh.

1. 24- hours cash withdrawal facility
2. Quick cash withdrawal without having queue
3. Account activities enquiry in any moment
4. Statement request through ATM/Debit/Credit Card
5. Transfer own funds to other account number in same bank
6. Present Balance enquiry
7. More than16- hours shopping facilities
8. Deposit or Mail cash or cheque(s) (Cross cheque) through mechanical device.
9. Changing Personal Identity Number
10. Cash deposit which will originally deposit very next day of deposit that means do not need to go to the branch for every occasion.
11. Mini statement which contain 8-10 previous transaction records
12. Can able to pay utilities bill
13. Withdraw money by using VISA, PLUS, MASTER, MAESTRO and other credit card
14. Withdraw money from dollar account which gives taka by converting foreign currency Results

Analysis And Findings  Of  The Study

After having interview to theElectronic Banking users the researches finds that cash withdrawal, cashdeposit, fund transfer and balance query are the most popular things for the Electronic Banking usersout of all of other features of ElectronicBanking. Here figure one showthat out of 160 respondents;around 150 have the habit of doing balance cheque whenever they come in Electronic Bankingpoint,more than 130 respondents are coming to theBank for cash withdrawal so that bank customer hascome to the Bank or booth to mainly withdraw the money and the secondary need is for cash depositand other things. Figure two shows that the trend ofElectronicBanking uses by the samplerespondents. Figure three shows thatElectronicBankinguse is also depends on the based on agegroup. Here survey shows that age group 18-25 is more dominant user because they are the younggeneration who like to play with latest technology. Second dominant group is 25-35 years group age.And rest of the two groups such as 35-50 years group age and 50+year group age are dominatingpercentages. Table one shows that launching a pure online bank was in 1995. It is evident by the fieldsurvey that multinational banks like standard chartered bank, HSBC, Hanvit Bank Limited, Citi Corp,Credit Agricole and other banks are the pioneer in the name of online bank in Bangladesh. After starting to installation of pure online bank rather manual bank, within eight years most of the bankshave finished installation for the sake of online. Now more than40 banks out of53 banks inBangladesh are under Electronic Banking.And finally table four shows the Distinct Characteristics ofElectronicBanking by using factor analysis.HereA plus (+) or minus (-) indicates whether thequestion contributes positively or negatively to that factor, respectively. After having some simplesurvey and analysis, the researcher comes to a conclusion regardingElectronicBanking that isfollows:-

Development of e-banking in Bangladeshi banking sector

Electronic Banking

Electronic Banking is transforming the financial services industry through various impossible innovations. The quantity of cross-border trading and other financial activities is increasing geometrically make possible by technology. It has been made possible by technology, particularly information technology to generate, collect and process information about bank operation and bank customers efficiently and effectively. It provides the ability to create more effective systems of controls in individual institutions and in the market themselves. Compared to the paper based operation, Electronic Banking Systems, in its most proficient form, offer instant verification and transfer and reduces the flow of costly paper in the record keeping process. Application of technology in banking offer opportunity for reduction of both paper and people. Banks have developed EBS for three main reasons (Horseman, Michael J. 1979)

• To protect and increase market share
• To reduce operating cost by substituting physical capital and technology for labor
• To generate new revenue

Electronic banking allow banks to expand their markets for traditional deposit taking and credit extension activities, and to offer new products and services or strengthen their competitive position in offering existing payment services. In addition, electronic banking could reduce operating costs for banks. More broadly, the continued development of electronic banking and electronic money may contribute to improving the efficiency of the banking and payment system and to reducing the cost of retail transactions nationally and internationally. Although many financial instrument and systems are now considered as “Electronic Banking” came into the terminology of the financial world in the late 1980s, with the possibility of emergence of true electronic money. All sorts of back-office information management technology and financial services using electronic devices can be included into the term “Electronic Banking”. The development in information technology has contributed positively to economic growth through several channels. ICT has led to a productivity growth through the impact on activity processes. Banks have been increasing their own size and financial strength and expanding the scope of their products lines to meet the growing demand of on-line real- time financial service

 Structure of electronic banking

E-banking is a general term referring to various computer-based technologies for delivering banking services. Electronic banking systems can be divided into two categories by the functional characteristics, viz. back-office electronic banking, and electronic financial instruments or front-office electronic services. Back-office electronic banking provides information management services, and quick fund transfer facilities both for traditional banking and financial instruments and electronic financial instruments. Science inception of primary forms of electronic banking it has been passed through a comprehensive evolution process. Electronic banking services can be grouped into three generations of evolution:

 Categorization of electronic banking services

Source: Raihan, Ananya. 1998

Electronic facilities given by different bank in Bangladesh

The following Electronic facilities are providing by different Foreign and Private Commercial banks (PCBs) in Bangladesh:

Bank accounts: Savings, Current, FDR, PDS, Term Deposit Scheme

All these accounts are maintained in electronic way for the sake of customer satisfaction in Bangladesh. People can deposit their money through electronic device and also can withdraw their money such way. These are the common bank accounts which maintained by the bank customer every now and then and bank is also given high priority or facilities in this regards to their customer.

Special Services

Some Banks render special services to the customers attracting other banks.

Debit Point- of-Sale

An advanced payment system which enables consumers to use an ATM Card to pay for goods and  services, electronically debiting the cardholders account and crediting the account of the merchant.

Cards: Credit/Debit Card

There are two different types of card. One is debit which designate to withdraw own money from thebank in any time. Another one is a credit system which provided by bank to their customer. Customercan enjoy their credit amount while they are in shopping, withdraw cash etc.

Internet Banking

Customers need an Internet access service to handle this type of banking. As an Internet Bankingcustomer, he/she will be given a specific user ID and a confidential/secret or secured password so thatthey can access to their own account. Here customer can able to see the ledger balances, transfer hismoney, request something towards bank, etc.

Home Banking

Home banking frees customers of visiting branches and most transactions will be automated to enablethem to check their account activities transfer fund and to open L/C sitting in their own desk with thehelp of a PC and a telephone. For example: HSBC is giving Hexagon facilities to their individual andcorporate customer.

Automated Teller Machine (ATM)

Full abbreviation of ATM is “Automated Teller Machine” which acts like a teller point in a bank who takes and gives money over the counter. ATM is same as teller point but it run automatically through identity like card and password. It does not need any slip or Cheque but it is very much based on A/C holder’s ATM card and it’s Password. Those who are entitled for ATM card, bank has provided them a password against every single card. This is like a debit card. People can deposit their money in a bank account and they have entitled withdraw their money through ATM card, which is applicable for 24 hours a day and 365 days in a year. It has different name such as ATM, 24 hours banking card, money link card, e-cash, ready cash etc. In Bangladesh, some multinationals incepted the ATM booth in Dhaka since 1992-93. The Grind lays Bank was the pioneer in Bangladesh then after Standard Chartered Bank, American express Bank, HSBC, Bank Asia and seven others local private banks are the followers.

Tele Banking

Tele-Banking permit customers to get access into their respective banking information 24hours a day. Subscribers can update themselves by making a phone call. They can transferany amount of deposit to other accounts irrespective of location either from home or office.

SWIFT

SWIFT is a bank owned non-profit co-operative based in Belgium servicing the financial community worldwide. It ensures secure messaging having a global reach of 6,495 Banks and Financial Institutions in 178 countries, 24 hours a day. SWIFT global network carries an average 4 million message daily and estimated average value of payment messages is USD 2 trillion. SWIFT is a highly secured messaging network enables Banks to send and receive Fund Transfer, L/C related and other free format messages to and from any banks active in the network. Having SWIFT facility, Bank will be able to serve its customers more profitable by  providing L/C, Payment and other messages efficiently and with utmost security. Especially it will be of great help for our clients dealing with Imports, Exports and Remittances etc.

Easy Pay Machine

It is a mechanical device which can accepted utilities bill like land phone bills, cell phone bills, Gas bills, WASA-DESA bills etc. The day after tomorrow bank will report to the particular authority to give acknowledgement on behalf of their customer.

Mobile banking

Mobile banking is  (also known as M-Banking, mbanking, SMS Banking) is a term used for performing balance checks, account transactions, payments, credit applications and other banking transactions through a mobile device such as a mobile phone or Personal Digital Assistant (PDA). The earliest mobile banking services were offered over SMS. With the introduction of the first primitive smart phones with WAP support enabling the use of the mobile web in 1999, the first European banks started to offer mobile banking on this platform to their customers ^[1].

Mobile banking has until recently (2010) most often been performed via SMS or the Mobile Web. Apple’s initial success with iPhone and the rapid growth of phones based on Google’s Android (operating system) have led to increasing use of special client programs, called apps, downloaded to the mobile device.

Future Banking Technology

• Video Banking
• Virtual wallet
• Wireless public key infrastructure

Biometric technology

Biometric technology works by identifying a person through unique biological characteristics, such as fingerprints and retina scanning. This technology ooffers a more secure form of baking authentication than typing in PINs, but it is not yet clear whether that accuracy can outweigh public discomfort over the last 50 years of banks have made huge advancement to make baning faster,easier and more accessible

Empirical Analysis

SWOT Analysis

To find out the viability of a particular product we must perform a SWOT Analysis of the product. This will analyze the Strengths, Weaknesses, Opportunities, and Threats of the particular product. For analyzing the performance of Internet Banking in Bangladesh we the following SWOT Analysis is considered

Strengths

Internet Banking is new in our market. Only a few banks are now offering internet services in solving banking problems. Most of the banks are offering only  accounting information online.  Actual fund transfer  and  fund disbursement  is not  possible  in all the banks that  are offering internet services. So this product will enjoy the benefit of a first mover.

It is cheap both for the banks and the customers. The bank will be able to lower down the overhead costs and make more profit out of it. Internet banking will require less manual workers. Again the customers will be able to save time as well as money for their transaction needs.

Internet banking is convenient as the service is available all the time at just a click away.

Weaknesses

Security breakdown: The system will have a problem with the identification of the individual who is  initiating the transaction. In Bangladesh, the identification of an individual is not yet supported digitally. So there will be a problem in moving to the Internet era for banking purposes just now. First we will have to develop a digital database of the users of the internet banking services.

The transaction can be cancelled only via  internet.  The  internet infrastructure of our country is not that much supportive to provide all time access to the web. So there will be a problem in executing the service with its full functionality.

Opportunities

Non-branch banking is becoming popular in our country. Many banks are now offering non-branch banking facilities.  A person can withdraw or deposit money in any branch of the bank he has account with. So moving to internet banking  will allow  the banks to offer non-branch banking facilities. The internet services are becoming  very common to us. So a service offered through the internet will be widely accepted in the near future.

Threats

People have concern about security and privacy. They like to feel their money with their hand.  They actually don’t believe in  virtual money transfer.

In the field of IT new technology is coming everyday. The one which is very popular today might get obsolete tomorrow. So to have a competitive edge over the competitors the banks must always update their services.

The movement towards online banking might marginalized the customers who do not have internet access or who are not technologically sound.

Despite the presence of online Internet service in Bangladesh, its scope is largely underutilized. The reasons include high service charges, lack of awareness, poor telecommunication systems, government policy, low buying power of potential clients, and lack of institutional support.

Cost Benefit Analysis (CBA)

The main benefit of internet banking is the amount of time (thus money) it saves. Although Internet banking is restricted to managing accounts and making on-line transactions, it cuts out much of the need to personally visit the bank. Using Internet banking will also increase the efficiency of paying money (bills, debts, wages, etc) as it can reduce the need for writing and sending cheques (which can take up to 5 days to clear). Wages and Salary payments can be created via internet banking to pay such money, which is also an efficient way of paying staff wages. On-line banks are able to offer their customers higher interest rates than high street banks due to their reduced overheads. If the popularity of Internet banking  takes off as  predicted the banks may also be capable of offering their Internet banking customers higher interest rates (due to reduced overheads or as and incentive). Though Internet banking will require a higher initial investment, the operating expenses will be much lower. Again customers will be satisfied through fast, accurate, easy-to-use, comprehensive delivery of the services. So internet banking will be much more beneficial to banks as well as customers.

Challenges of E-Banking in banking Technologies in Bangladesh

Challenges of e-banking in Bangladesh Generally it is believed that banks in Bangladesh are facing different problems adopting e-banking. Inefficiency and lack of adequate knowledge of the top management of the last generation about e–banking may have to be put at the first place. The top management set the way for future development. For the change they must have understood its significance and prospect. Only so, proper strategic plan could be done, appropriate adjustment with changing national and international business and technological environment could be made, the coming challenges from the national and international competition successfully faced, and the market share retained and gained. The lack of communication channel and technological and technical infrastructure support may be seen as the second crucial challenges of e-banking in Bangladesh. It is not enough that there are enough communication channels, but they must be efficient, competitive, competent, cost effective and supportive to the services. In the  millennium of ICT every nation has to think global, so worldwide efficient networking and WAP have to be ensured. Ensuring mature technology is also very important for successful introduction of the e-banking which includes adequate software. Modern technology is available but frequently very costly, but the countries like Bangladesh have other decisive comparative advantages that could be used to compensate the cost of the modern technology.

Prospects of e-Banking

E-banking is now a global phenomenon. Apart from the developed countries, the developing countries are experiencing strong growth in e-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 online 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 (Mia et. al. 2007). 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, tele-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 led by the Bangladesh Bank and competition among the scheduled banks in improving customer services have accelerated the prospects of e-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 e-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 online 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 online 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 online 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 centres. 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 e-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 22 PCBs and 7 FCBs together were  providing any-branch-banking facility under respective bank online 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.4 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 corporatisation 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 e-banking all over the country.

Although e-banking has bright prospects, it involves some financial risks as well. The major rise of e-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 e-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 e-banking.

Conclusion

Trend of technology about banking is soothing for the customer, but there may have some risk associates with it, since information technology is often hacked by some notorious hacker. So, it is very much essential for the bank to adopt the right technology with optimum security system. Banks are required to ‘ restructure’ reinvent and reengineer and get the competitive edge due to the introduction  of information technology being an important out put of ; information out put of information technology has ushered in an era which is transforming the entire functioning of banks .

The flexibility of e-banking offers unprecedented opportunities for the bank to reach out to its customers. With the rapid expansion of the Internet facilities, e-banking is all set to play a very important role in the 21st century. Banks have to deal with the sophisticated clientele with the help of latest technology like e-banking. Lack of coordination and cyber crimes encroaching E banking if taken in the right way by banks and customers would take the economy to its best and make it a boon to customers

Modern electronic banking concept in the banking services is new for Bangladeshi people.Most of our bank has not any marketing or sales forces to execute the raw and cold business of electronic banking for their own organization. People are not also conscious about the advantages of the technology. Some multinational banks are already introduced their marketing activities over their targeted customers for specialized products like electronic products which is found very effective. The multinationals are coming up towards people with variety of highly technical products, which can solve the people’s problem and can able to modernize their lifestyle. The growth of electronic banking users increasing is a significant manner. However, last 10 years it has got tremendous importance over the bank customer and hopefully it will increase day by day after nurture the product by the professional bankers.

Recommendation

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. In addition, several steps may be contemplated in order to accelerate the adoption of e-banking.

Internet penetration is a key factor for the growth of e-banking. Christiansen (2001) reports that the take off phase of Internet banking needs at least 30 percent Internet usage among the population. Moreover, since Internet penetration alone is not adequate for online 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.

 The Bangladesh Bank may consider the following steps:

• Take steps to orient bank officials on benefits of e-banking. For instance, BB may offer short courses (e.g. using the Bangladesh Bank Training Academy) on e-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 e-banking, risk mitigation policies and strategies need to be adopted as a part of the package approach to implementing e-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 e-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

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 upgradation for which urgent measures are needed to create a level playing field for rapid expansion of ebanking in the country. Despite the constraints, more efficient use of existing capabilities in developing the services can pave the way to quality provision of e-banking in Bangladesh.