Introduction: The transition in the banking sector with globalization and deregulation has made the banks highly competitive. Banks have got multiple channels for making the consumer satisfied. With advanced technology and sophistication, it is quite challenging for the banks to consider the use of technology for their continuously changing requirements.
Internet banking is a process where a customer accesses the bank account via the Internet using a personal computer, mobile phone or Web browser. With the use of the Internet, banking has progressed heavily in India and looking forward to increasing the adoption by Indian consumers. Indian Government started Information Technology (IT) Act 2000 from October 17th, 2000 which had given the due authority and power to the online transactions and Internet banking. The working committee of the Reserve bank of India aimed to examine key areas of Internet banking.
The objectives of the committee are issues of IT and security, law-related issues and governing and regulatory issues. The working group’s sanctions have been accepted and brought the guidelines for Internet banking execution for Indian banks. In the last two and a half decades there has been a paradigm shift in innovations like computerization, satellite banking, distribution channels, ATM, biometrics, Internet banking, mobile banking, online banking, and card based delivery system, RTGS, cheque truncation services, electronic fund transfer.
Subsequently, it is visible that the consumers of Internet banking are gaining popularity in the world because of so many innovations and convenience in Internet banking. The in-depth study of Internet banking services is made to enhance the current scenario. The Internet act as delivery media and include all form of traditional services like the inquiry of balance, statement printing and transfer of funds, paying of bills and other banking services like Internet bill payment, etc. is called Internet banking (Frust et aL, 2000).
The tradition bank branch visit is not required in Internet banking (Mukherjee et a/.,2003). Further, the advent of Internet banking happened in early 1990 (Srivastava et al., 2007). There have been researches made in Internet banking and various factors affecting the Internet banking adoption in India have been explored in the past. Still, the users of Internet banking are less in numbers.
1.1 Evolution of Internet Banking:
Internet Banking has evolved out of a project, ARPANET developed by a US Department of Defence. The full name of ARPANET is Advanced Research Project Administration Network and development was made in the 1960s and early 1970s in WAN. Back in 1969 when Arpanet was created, it connected five sites: UCLA, Stanford, UC Santa Barbara, the University of Utah and BBN. Arpanet was renamed the Internet in 1984 when it linked 1,000 hosts at university and corporate labs (http:// networkworld.com).
TCP/IP is the protocol used for communication between the interconnected computers and their networks. Internet banking includes the integration of individual computers and networks all over the world and communication protocol has a significant role. Internet or internetwork is formed when two or more computers are connected. Internet is also called ‘Information Superhighway and this is a means to reach unlimited potential destinations. This is the structure of Internet banking.
The original design was the defense network and in a few years, the use of this network was limited to communication and scientific studies. In 1980 the independent networks from the US and outside were linked and it became out of control of pentagon. The national network was formed in 1986 by the US National Science Foundation (NSF) and was based on the protocol of ARPANet with the connectivity of commercial telephone lines. The larger scientific community, commercial networks, and general users were made available by the network and host computers also started growing.
With the passage of time, today’s Internet is more governed by NSFNet than ARPANet as it was withdrawn in 1990. The scope of the Internet has broadened with the exchange of information and the definition of a business with the added channel has also changed for information exchange. This is the information based strategy and model.
Internet banking has evolved with these technologies and communication medium has expanded with the passage of time. The banks have been transformed with Internet banking.
E-banking and Internet Banking:
The past research has defined Internet banking as a process where customer access the bank account via the Internet using a personal computer, mobile phone or Web browser(Arunachalam and Sivasubramanian, 2007). Another definition states that Internet banking is a practice of bank which allows the customers in accessing and performing financial transactions on bank accounts from the web (Ongkasuwan and Tantichaltonon, 2002).
The process of e-banking has started primarily with the use by defense researchers and scientific community, the World Wide Web evolved in the early 1990s; the banking had started using the Internet. The growth of Internet banking was started. E-banking includes the exchange of information between individuals and banking organizations over electronic media using computers, telephones, and other telecommunication equipment. Internet banking involves the use of the Internet only in exchanging information between banks and customers.
The business model is a plan for the successful operation of a business, identifying sources of revenue, the intended customer base, products, and details of financing. The business model has four areas of focus where the business operates- first is competitors and customers, second is the market, third is products and services and fourth are channels of distribution. This study has incorporated the customer side of Internet banking. The customers of Internet banking have huge expectations from the technology which motivates them either to use or not to use.
The distribution channel is the medium for sale and supply of its products and the revenue-expenditure sources with its effects. The strategy of Internet banking is largely impacted by business models. The market size has become higher and anyone can access the products and services from any part of the world.
Figure 1.1: Electronic Banking and Internet Banking
The mode to access the customers, receive the response and offer the services has become simple because of the Internet. Internet banking adoption models have two types in operation: the adoption of the electronic medium for brick and mortar companies to improve their existing products and services and offering of new products and services through pure-play companies who have no physical presence.
The difference in the operation of the two Internet banking adoption model has wider consequences than just visibility with respect to customer’s trust issues, brand equity, ability to serve the customers, new business culture adoption and cost. Internet banking features have been included in the chapter. E-banking is a larger concept than Internet banking. This is the mode when a person has to log on to his bank account for financial transactions. The use of Automated Teller Machines (ATM’s) is one where a person can access his bank account by swapping his debit or ATM card in a machine and entering the Personal Identification Number allotted to him by the bank.
E-banking is also called as Electronic Fund Transfer (EFT) where financial transactions are possible without logging on to the Internet. The use of trade machine where you make payments to a merchant for products using your ATM, debit or credit card is another case of e-banking where the information of your acquisition reaches your bank electronically and the amount is debited in customer’s account that you have used from the account for making purchases.
The use of technology in Internet banking and e-banking has been made secure for all purposes, but the instances of forgery and hacking where people with malicious intentions crack the password and code of other person’s account and harm him financially. This is why Internet banking has to be used with caution by following all the rules and guidelines issued by the bank for one’s own safety.
Growth and popularity of the Internet have produced great opportunities and threats to companies in many business sectors and this endorses and delivers their products and services using distribution channel i.e. Internet (Chau et 42003). The banks have employed IT to acquire, process and to deliver the information to customers with the rise of new digital technology (Munuswami et al., 2012).
Banks have to be innovative and update themselves for providing reliable, useful and convenient services with customer’s changing expectations. Customers are value driven and banks have started using its distribution channel in the form of the Internet which is driven by the competition among banks in order to capture a larger share of the banking market (Munuswami, et al., 2012). The system of Internet banking enables financial institution customers, individuals or businesses for accessing accounts, business transaction and obtaining information on financial products and services through the Internet.
Although there is a significant growth of Internet users in India, the number of financial transactions carried out over the Internet remains very low. This trend, however, is the same globally and it has been observed that potential users either do not adopt Internet banking or do not use it continually after adoption (Jayaraman, 2012). Multiple benefits are offered to banks and customers. Online users in India are not high as compared with the USA and China. Although the population of the USA is less than India but the Internet penetration is more than 80% in the USA. China has a high population and Internet penetration in comparison to India (Source: indialivestats.com). There are several reasons of the same. The first is that customers must have access to the Internet in order to utilize the service. The challenge is present for new online users that they have to learn to use the effective service.
The criticism comes from non-users that social acceptability is not there with Internet banking and there is a big difference between online and face to face branch banking and customers are quite bothered with privacy and security issues. ICICI Bank became the first bank which used Internet banking services in India (Srivastava et al., 2007). Today large numbers of Indian banks are attempting to leverage on Internet banking system to provide online banking solution. ICICI became the foremost bank to begin the expansion of Internet banking revolution in India in 1997 under ‘Infinity’. This bank started Internet banking in 1996. The phase between 1996-1998 is called adoption phase and the use of the Internet got high in 1999 owing to low charges of the Internet and more diffusion of the Internet.
The improvement of services in Internet banking is done by exploring and exploiting the Internet. Banks have rivals in traditional banking services and have a broader scope of the competition in the digital market with Internet services. Internet banking has been introduced by banks as an assurance to their customers and they will keep maintaining the quality services, their determination to avoid losing their customers to other banks. The relationship with customers has been built and maintained easily with the aid of Internet banking, and this reduces operating and fixed costs as a result of which financial performance is enhanced.
The benefits of Internet banking are easier to operate, reliable, hassle free, and safer to use (Jayaraman et al., 2012). In a large country like ours where a majority of the population still lives in rural areas that do not have the presence of formal banking providing banking, the facility has been a major challenge. Of the 0.6 million villages in India, the total number of villages with banking services through brick and mortar branches and alternate banking channels stands at approximately 0.14 million villages as on March 2012. India has around 145 million households which are highest and still not have adopted Internet banking (http://rbi.org.in).