E-banking. History, advantages and risks.

Tursyn Abylay Oraluly, Kaldybekov Salamat, Sadyhanova G.A.

KazNU Al-Farabi

Abstact

This article provides the brief overview of the e-banking system as a whole. Further we review the history of development and advantages that e-banking brings in compare to traditional banking. In the third part the is a review of risks of fraud. In conclusion we state that the e-banking is growing fast and will have more transformation in future for example in the blockchain technology’s direction.

Introduction

E-banking – providing banking services in electronic format. There are various formats, such as a desktop application (which might be offline or online versions), website and mobile application. Those services may include:

- checking account balance, debts, transaction history;

- transferring money;

- paying bills and etc.

The main service of banks is putting money in the bank and getting deposit interest or taking some money as debt and returning it with banks interest. These operations are steadily moving to non-cash operations. This is the call of our time. As there is a big wave of automation of vast parts of old jobs as well it is true for the banking system. The one, who uses new technologies as soon as possible, can get competitive benefits on the market.

As well it leads to the wide spread of various electronic services. The growth of the market attracts frauds who steal the assets of participants of the system. This situation requires administrative regulation, which is provided by the bank’s inner security system and various special organizations accredited by authorities to protect the fair work of the market. The government defines institution that monitors and regulates bank management and the banking system.

Figure 1. Structure around the e-banking

History of development and advantages

E-banking is a very important technology nowadays. For the management of banks it is important as a competitive tool in industry for delivery of services. It is convenient for customers who values their time and choose to make operations remotely. Highly valued customers, who are educated, prefer using internet so they also might be attracted with it. Research of Young [3] suggests that adding internet delivery channel increases profits. Obviously the expansion of a bank on international levels gets easier because they do not need to open branches everywhere. Most of services can be delivered via internet. Lastly, e-banking can reduce the load of branches.

Figure 2. Stages of e-banking’s evolution

Some research suggests that e-banking is not a revolutionary technology but just a step in evolution of the banking system [1]. In the figure 2 we can tangibly see the development stages of the banking system where every new channel of delivering banking services adjusts to previous making them closer to customers.

According to Devlin [2], until the early 1970’s the banking system was highly regulated and got only little technological improvements. From 1980’s to 1990’s, there was a big wave of deregulation in the industry so the competition has grown. The peak of that growth was in 2001 at the burst of the internet bubble. One survey by TechWeb News stated that in 2005 e-banking was the fastest growing commercial activity.

Due to ease of access via internet banking services can be provided internationally if laws do not restrict it. E-banking shows rapid growth in last decades due to the wide spread of the internet and maturity of the average user. Also the spread of high speed broadband stimulated the rapid growth of e-commerce, which consecutively activated e-banking. People tend to purchase goods via internet shops, the brightest examples of it are Amazon and Aliexpress, world’s biggest internet retailers.

The risks

However the same advantage of ease of access brings few risks. There are few types of fraud that were classified as sales fraud, purchase, cheque payment fraud and ATM fraud [4]. Nevertheless, in that frauds might be involved the personnel of bank. Those are huge risks in running e-banking for the banks and for the clients.

The fraud can be schemed based on multiple vulnerabilities such as connection between customer and bank. If the channel is not protected with secure connection, the schemer can get the secret personal information of a customer. Also he can use social engineering to manipulate customer. For instance, schemer can introduce himself as a bank worker and ask for customer’s confidential information to the access for account and move money.

Payment fraud includes false payment information, when cybercriminal use gained information about customer’s account to purchase good for another person. Also this type of fraud can be applied on the e-commerce participant like internet shops, who use e-payments. The payment fraud may use vulnerabilities of refund policy in e-commerce.

ATM fraud is a physical contact with banks delivery channel in order to corrupt the ATM’s work by making false orders to take cash from customer’s account or installing malware into the ATM. These schemes are already known and well secured, however there are risks of unknown vulnerabilities of ATMs that can be abused.

All of these frauds are very sensitive for the businesses attempting to integrate e-banking into their payment channels. In order to be protected from that the bank should always be on touch with latest news in the field of electronic security, such as newly discovered vulnerabilities of systems they use. Keep their security policy adaptive to new technologies and new schemes.

Conclusion

E-banking sure has its benefits like lower delivery costs (after reaching a certain critic mass of client base), higher sales and potential for offering greater convenience for consumers of the banking services. As well, there are some cons like high cost of integration, need of higher educated labor with higher wages to work with complicated systems, risks of unauthorized persons getting access to accounts via internet.

In this article there were provided a basic review of e-banking’s main features, background and risks. So e-banking is a tool for banking system to improve efficiency and expansion opportunities. And of course e-banking is a step of banking system into the digital era. Although we already can see it in our everyday life, we all should use it carefully considering all risks.

Source list:

1. M. Shah & S. Clarke (2009) E-Banking Management: Issues, Solutions, and Strategies

2. Devlin, J. F. (1995). Technology and Innovation in Retail Banking Distribution. International Journal of Bank Marketing, 13(4), 19-25.

3. Young, R. D., Lang, W. W., & Nolle, D. L. (2007). How the Internet affects out-put and performance at community banks. Journal of Banking & Finance, 31, 1033 –1060.

4. Usman A.K. (2013) Critical Success Factors for Preventing e-Banking Fraud

5. Romi I.M. (2015) Mapping E-banking Models to New Technology. Journal of Internet Banking and Commerce, Volume 20, issue 2

6. Driga I. & Isac C. (2014) E-banking services – features, challenges and benefits.