Electronic Banking in Pakistan | Dissertation

electronic confideing in Pakistan Dissertationelectronic brinking in Pakistan1. PROBLEM AND ITS BACKGROUND1.1. INTRTODUCTIONAs the world has entered the twenty first cen sequenceury, one thing has aim exclusively too app bent, any organization that wishes to succeed in todays cutthroat competition volition father to embrace Information Technology (IT) with fervor.In this age of Information Technology novel inventions and innovations are change all the field of life. Almost all winsomes of organizations are stepping into the field of IT, in an effort to increase their productivity and expand their client cashbox. The same goes for the Banking Sector. Today all the banks of the world are geting the tool of electronic Banking.The look at of Electronic Banking was felt in South Asia during the last 5 to 7 years. This concept emerged as an ingrained tool for successful bank worry. Financial sector has been quick to recognize this fact, and in Pakistan, most of the banki ng industry has moved away from the old ledger infantryd system to computers and mechanization in order to produce their operations. Although foreign banks were pioneers of acting this concept to South-Asia but they tole measure yet to start latest Electronic Banking practices in PakistanBackground Electronic BankingElectronic banking is an umbrella term for the process by which a guest whitethorn perform banking effects electronically without visiting a brick-and-mortar institution.It is a form of banking in which funds are transferred by means of an counterchange of electronic signals amidst monetary institutions, rather than an exchange of cash, checks or other transferr equal to(p) instruments.The growth in use of the lucre world-wide and the instruction of procedures enabling secure lawful proceeding on-line(a)(a) bring about created the new field of on-line banking, where customers deal with their banks chiefly or entirely by means of Internet bring to getherions. porta hours or location of leges, un homogeneous the traditional banks does non restrict such run. Both existing banks and new groups are already moving into this potentially very important area. Since on-line banking work squirt be accessed with equal ease almost anywhere in the developed world, this raises the possibility of banking networks operating without regard to issue boundaries, with consequent regulatory bothers.Banking on line, comm however called PC banking, electronic banking or Internet banking, has been around in one form or another for a decade or much.Forms of on-line BankingFol broken ining shadower be the ways to bank on-line1) Internet Based accessto account breeding through banks web site, via modem, using a standard web browser such as Microsoft Internet explorer or Netscape Navigator.2) Bank SoftwareBank allows customers with proprietary software to install in their computers. The software allows customers to connect to banks compute rs over a secure network. The customer essentially dials directly into the bank instead of through the Internet.3) in the flesh(predicate) Finance SoftwareSoftware such as Quicken or Microsoft Money allows customer to exchange fiscal discipline with the bank. The software connects to the banks computers via an Internet based set up and d declareloads fiscal nurture from the clients account. many an(prenominal) an(prenominal) banks affiliate leading software vendors such as Intuit or Microsoft to make their systems compatible.4) Pay-by-Phone Systems /Tele bankingAllows a customer to pay by tele call back certain bills, or transfer funds between accounts, with instructions to the bank. one(a) must have an agreement in advance with the institution to make such transfers.5) Point-of-Sale TransfersAllows a customer to pay for retail acquires with an EFT (or debit) card. In some instances, this card may similarly be an standard atmosphere card. This is similar to using a credit c ard, but with one important exception the money for the purchase is transferred immediately or very shortly from customers bank account to the stores account. An change magnitude get of merchants are relieve this type of pay.On-line Banking a RevolutionThe thought of today is the reality of tomorrow but the thoughts of Banking on Your OWN TERMS AT YOUR OWN DOORSTEPS, which seemed to be reality of tomorrow, is no a more mystique.What we can do NOW (?)It allows customers to do most of their financial transactions at home on a personal computer.Pay your bills on-line while youre watching TV.Check your account balances from your digital cell phone as you stand in line to board a flight.Consolidate all your financial accounts on-line in one convenient, secure location.Have access to friendly, financial aidful customer service representativesWhy on-line banking?Unfortunately, banking is a necessary evil that can take a large chunk out of already busy schedules. Visiting a branch or ATM, paying bills by paper check (and card them) and balancing a chequebook all can be time consuming. Banking on-line, by its nature, can modify many of these processes, saving time and, in many cases, money. One can access his account and do banking when (and where) it is convenient for him.Following can be online banking services offered by various banksCheck account balances reconstruct transfers between online accountsCheck the status of loansTrack investmentsApply for loans onlinePay bills electronicallyDownload account information to a personal finance software programOn-Line Banking AdvantagesInternet banks are unfastened 7 days a week 24 hours a dayIn general, you impart find start fees and higher interest rates for deposits delinquent to the reduced cost of operating on-line and not fatalitying legion(predicate) animal(prenominal) bank branches.Create a more in depth portfolio of each individual customer of what their needs and expectations are.Be able to provide services to each customer that are customized to their individual preferencesYou allow have easy access to account information and transactions, because any Internet- alterd computer can become your bank terminal.You will generally have up-to-the-minute current bank account information due to the automation of most systems.In many cases, on-line banks offer free bill pay, which can be a big saving in two money and time.You can transfer funds electronically between accounts.Common E-Banking ServicesRetail ServicesWholesale ServicesAccount managementAccount managementBill payment and presentmentCash managementNew account openingSmall job loan finishings, approvals, or advancesConsumer wire transfersInvestment/Brokerage servicesCommercial wire transfersLoan application and approvalBusiness-to- pipeline paymentsAccount aggregationEmployee benefits/pension administrationCurrent Scenario of Electronic Banking in PakistanPakistan is widely considered to be in the Third Wave of develop ing economies that include countries in Asia, Latin America, the Pacific Islands and the Middle East. These countries started to adopt the Internet from around 1993. Almost all have a state monopoly over the telecommunications sector with low tele-densities per population and high telecom costs, which restrict Internet access to elitist groups in the population. Less than 2 per cent of the population is committed to the Internet. These countries have weak semipolitical and democratic institutions where the governments welcome new commercialized opportunities.The premiere Wave countries include USA, Canada, and some Nordic states where the Internet took hold in the 1980s, and became an upholded feature of social, political and economic life. On average, over 35 per cent of the population are connected to the net, with households always connected online to the net 24 hours in the day in many cases.Both the First and Second wander of counties have much in common with both involved in the early development of the Internet. The suspension between the two is rapidly diminishing. Both have highly developed telecommunication foundations, with extensive networks of reference optic, satellite and ISDN lines that can respond to exponential growth in demand for bandwidth. Knowledge of Internet applications is a mainstream activity, and a prerequisite for commercial credibility. They have highly developed information, dissemination applied science and content industries, with a strong export focus. Both have strong government policies that aim to influence the shape of the afterlife information society, with massive investments in question and development, education, training, IT and Internet developed research.E-Banking in PakistanDue to advancements in sciences and engineering, many foreign banks started offering Electronic Banking services in Pakistan. Electronic Banking offers tremendous opportunities and saves cost and time for both banks and customers.E-Ba nking in Pakistan is subdued a relatively new phenomena and is expected to grow now faster with next penetration of computers and internet services in the coarse, availability of a robust legal framework, removal of concerns close to(predicate) protection of electronic transactions and enhanced reliability of communicationUnfortunately Electronic Banking in Pakistan is still in the introduction phase and the government with the private sector has to streamline many policies for its further development and success. Although foreign banks took the initiative but now there are private Pakistani banks that are qualification advancements in E-Banking. The rate of technology transfer from developed to developing countries has been very slow in this regard.In Pakistan the getable technology services are NIFT, ATM, ETPoS, Tele Banking and Central Depository Systems.NIFT was established in 1997,it is a technology that uses images with high-speed sorters to automate check clearing.ATM s are automated teller machines that provide facilities for instant deposits and cash withdrawals, and are presently purchasable at around 200 locations in major(ip) cities only.ETPoS is a manner of payment where goods and services are paid for at the point of sale, and is available in major cities in a few super markets only.Telebanking is telephone banking facility available only in a few banks, and again, in major cities only.The central depository system is a healthful- established system used in transmit exchanges for recording and the transfer of securities.Secure electronic transactions (SET) This protocol was developed jointly by visa and Master Card and is now baked by American Express. Major players in e-commerce, networking, and computing like Microsoft, Netscape, IBM, etc, are behind specifications of this protocol, and are thus becoming an industry standard for secured payments on the internet. SET provides confidentiality through encryption message integrity using digital signatures, and authentication of consumer and merchant identity Use of this, method is ideal due to the level of security that this method offers. However, makeup of this protocol will claim Internet merchant accounts.Smart cardsIt is a digital currency payment, which looks similar to credit cards, but contains a microprocessor and a storage unit. The cards hold prepaid account information. Merchants who accept these records are credited for the transaction amount by card issuers. The use of this technology is safe but expensive to acquire. Pakistan will require building a consensus among major stakeholders to invest in making this technology available in Pakistan.Value-added networksPakistan could establish value added networks (VAN) for financial transactions to expedite fast and streamlined flow of remittances to all major cities and to enable exchange of electronic documents. These networks will provide shared connectivity, security assurance of data, and reliabilit y of service. These networks will provide bank -to -bank transfer of funds for financial transactions, and will also enable the exchange of electronic documents to promote e-trade. These value added networks will also facilitate B2B transactions using EDI systems. The EDI Vans will execute authorized transactions between valid trading partners. These networks will reduce technical complexities and the cost of implementing dedicated connections with a force of trading partners. Another advantage out of these networks will be the provision of storing viable information on the networks, so that authorized partners can directly access them without contacting the other parties. This will help in increasing efficiencies of business transactions in impairment of time and costs.1.2. STATEMENT OF THE PROBLEME-banking has entered the Pakistan delivery in a big way but, considering the state of development of banking industry in the country and the client-base, there are doubts about the u tility and cost-effectiveness of this mode of banking. The research study will examine these points and give recommendations on the subjectAn evaluation, theoretically and practically, of the progress of banks which adopted electronic operations, and the prospective exercise for banks in the future.Discussing problems facing banks in the scope of electronic banking operations.Specifying the concept of electronic banks.1.3. OBJECTIVES OF THE STUDYFollowing objectives have been set forth in conduct of the researchTo familiarise public with the subject of ELECTRONIC BANKING, enhance their keenness to remain abreast to the techniques, and modern trends of efficient banking.To induce healthy practices in banking business and profession and to advise suitable measures for their achievement.To encourage and provide Electronic Banking information and to offer education through research report contents to students and consequently to national financial institutions.To print and publish the report for provision to all who are interested in the issue of Electronic Banking.To study Electronic Banking practices of antithetical banks in Pakistan.1.4. SIGNIFICANCE OF THE STUDYE-banking is playing an important role not only in the development of electronic services in the first world countries but also in the developing countries too. Due to advancements in sciences and technology, many foreign banks started offering Electronic Banking services in Pakistan. Electronic Banking offers tremendous opportunities and saves cost and time for both banks and customers.This study will evaluate the electronic operation of banks. This report emphasizes the fact that on-line accessibility, awareness, attitude towards change, computer and Internet access costs, trust in ones bank, security concerns, ease of use and convenience are the major factors affecting the adoption of Internet bank services in Pakistan.1.5. SCOPE AND LIMITATIONS OF THE STUDYScope of the studyThe research thesis s pines the leading banks in Pakistan that have entered the e-banking era and examine its economics. The major limitation of the study is that the concerned banks are reluctant to disclose information with regard to costs incurred on E- banking.Limitations of the studyAs the E-banking in Pakistan is at the introduction stage and its competency is yet to be tested, adequate literature on the subject is not available.Moreover, the topic under study requires all-inclusive research, which is possible if more time is allotted for the project.Banks personnel are reluctant to give information about banks electronic process and problems faced by banks.2. LITERATURE REVIEWLiterature survey is conducted in order to get more insight into the study. Literature survey consists of past studies related to this topic. Which will help and ensure that no important information related to the study is omitted. It includes mostly domestic studies conducted by our own scholars.2.1. FOREIGN SCENARIOYoshio , (1999), states that Malaysian banking sector started in the 1970s. However, the first visible form of electronic innovation in the Malaysian banking industry was the introduction of Automated Teller Machines (ATMs) in 1981. The ATMs to a large extent released banks from the constraints of time and geographic location.Then in the early 1990s, Tele-banking was introduced in Malaysia, which provided yet another delivery channel for branch financial services via telecommunications devices connected to an automated system of the bank by utilizing Automated Voice result (AVR) Technology.Utsuml, on June 1, (2000), say that the Malaysian Central Bank gave the green light for local anaestheticly owned commercial banks to offer Internet banking services. On June 15, 2000, Maybank, the largest domestic bank in terms of assets as well as network distribution, http//www.arraydev.com/commerce/jibc/www.maybank2U.com became the first bank to offer Internet banking services in Malaysia. This se rvice is soon provided to individual customers of the bank and the site boasts of the latest 128-bit encryption technology to allay fears of security among consumers. The services provided in this portal include banking enquiry functions, bill payment, credit card payment, funds transfer, and accounts summary as well as transaction taradiddle. Customer support service is provided via e-mails as well as via telephone lines and is available daily from 6 am to 12 mid-night.Jose, (2000), said that the Hong Leong Bank commenced its Internet banking operations known as e-Banking, which can be accessed via their web site at http//www.arraydev.com/commerce/jibc/www.hlbb.hongleong.com.my in December 2000. In add-on to providing services that were previously included in their Phone banking service, they also offer options of assessing account transaction history in their e-banking. They too provide support services via e-mails and telephones from 7 am to 11.00 pm, seven days a week.Al-Jasse r, (1999), states that both the competitive forces as well as the expected benefits are causing concentration and blowup of E-banking services in the country (Saudi-Arabian Arabia). However, in the long run it would be the actual benefits which the banks would realize in terms of higher profits through reduction in intermediary costs and expanded consumer base due to change services on a cost effective manner that would determine the role of E-banking in the countrys banking sector. E banking is expected to play an important role in integrating the financial markets of Saudi Arabia globally and banks would ultimately profit on these developments.Figures, (2000), states that E-banking Automate critical banking activities and interact electronically with bank with comprehensive tools that help reduce administrative costs, increase productivity, and improve cash managementin a security-enhanced environment.2.2. local anaesthetic SCENARIOMashhood, (2000), states that the role of in formation technology in financial services is to support operational efficiencies, facilitate customer services, mange risk and support in decision-making. In the IT policy on financial services, the government of Pakistan has asked the State Bank of Pakistan to allow opening of internet merchant accounts to enable inter-bank electronic fund transfer, to re-engineer processes of foreign trade sections, to accept e-orders of value less than $500, to open an e-commerce wing in financial institutions, and to facilitate clearing and e-reporting in al banks. The e-commerce action plans for the financial sector have been established as per directions from the government. The plan is to connect branches of 25 local and foreign banks in 12 major cities. In phase I, branches in one city will be linked with their head office. In phase II, all these banks and other financial institutions will be connected together. In phase III, private and public sector stakeholders will be linked and ultimat ely e-commerce network will include financial, trade and customs networks along with their international links.Ziauddin, (1998), states that In Pakistan, huge investments, pass costs, and absence of economies of scale are some of the major bottlenecks to invest in online banking. One other problem is that only a few foreign banks are linked with their branches, otherwise all major financial institutions work in isolation.AL-Bader, (1999), said that in the absence of a centralized database linked to branches, banks do not only need the communication software to facilitate communication, but also require modems, routers, controllers, etc. no matter of the volume of transactions, be it small or massive, huge investments are required to facilitate online banking. Not only the capital investments debut also the recurring costs, such as lease payments to PTCL, ongoing maintenance costs, etc, are discouraging national banks to invest.Giasuddin, (2003) said that there is a need to establi sh inter-branch and inter-bank networks so that all financial institutions may be linked together to facilitate electronic payment systems, which are among basic prerequisites for establishment of the financial root word for e-commerce development. The next step that is still not clear in Pakistan is the type of electronic payment systems and digital currencies to be used in Pakistan. There are a lot of different methods of payment that are available globally. Pakistan has to carefully decide the most feasible payment systems that can advantageously fulfill financial requirements, as well as, provide enough confidence to the buyers and merchants for safety and security of such payments.Kazmi, (2000), said that there is an urgent need in Pakistan for establishing value added networks for financial transactions. Without these networks, it will be backbreaking for business and financial institutions to provide EC solutions with high quality and low costs.Zaidi, (2003), states that t here is a need to establish inter-branch and inter-bank networks so that all financial institutions may be linked together to facilitate electronic payment systems, which are among basic prerequisites for establishment of the financial infrastructure for e-commerce development. The next step that is still not clear in Pakistan is the type of electronic payment systems and digital currencies to be used in Pakistan.Shabbir, (2003), said that both the competitive forces as well as the expected benefits are causing concentration and blowup of E-banking services in the country. However, in the long run it would be the actual benefits which the banks would realize in terms of higher profits through reduction in intermediary costs and expanded consumer base due to improved services on a cost effective manner that would determine the role of E-banking in the countrys banking sector. E-banking is expected to play and important role in integrating the financial markets of Pakistan globally a nd banks would ultimately capitalize on these developments.Naveed, (2003) states that Credit cards are primarily used as convenient payment products and at times a credit facility for short term needs. The State Bank of Pakistan is playing a pro-active role in promoting adoption of technology-based solutions in the banking sector and supporting services based on E-Banking. E-Banking has already taken off in this country and the recent launch by Habib Bank- one of the largest banks in the country has provided a major breakthrough. so the question is not when the facilities will be provided but how rapidly these facilities will expand. Efforts in this direction are focused upon following areasCreation of a robust legal infrastructure catering to the needs of E-Banking and other payments systems involving electronic settlement of funds. Key step in this direction was the annunciation of Electronic Transactions Ordinance 2002, which provides legal recognition to digital signatures and documentation reducing the risks associated with the use of electronic medium of business. State bank is currently engaged in an exercise to further augment the legal framework for electronic settlement of transactions in the banking sector.Establishing of Payment Systems Development Committee in which commercial banks are members, to guide the development of payment systems in Pakistan.Creation of a dedicated Payment Systems department in the State Bank dealing with all issues pertaining to payment systems including E-Banking.Creation of a Real sentence Gross Settlement System (RTGS) providing an E-Banking solution to banks maintaining their accounts with standard operating procedure (SOP) whereby they will be able to operate these accounts from their own premises via an electronic connection with the State Banks own servers.Commercial banks have been allowed to open and operate Internet Merchant Accounts.Banks are being encouraged to expand the ATMs network through more partici pation and a wider network of machines all across the country. all banks have been asked to join a alternate and interconnection between the 2 existing SWITCHES is being encouraged for further development of the electronic infrastructure .State Bank has already acquired swift connection and has also made it mandatory for banks to acquire SWIFT connectivity for settlement of all cross border financial transactions.Expansion of automated cheques clearing services to all major cities in the country is actively being pursued. The usage of plastic money such as Credit/Debit cards is making good progressIshrat, (2003), states that introduction of E-banking will improve banking services mainly in terms of the convenience of the customers including, place, time and price, the banks will be able to provide improved services and, consequently, the quality and skills of banking staff will also improve. Although many banking services will be available 24 hours, the need for over the counter s ervices will remain and banks would continue to provide usual services during office banking hours in Pakistan also like in the developed countries where E -banking is prevalent, it has been observed that customers tincture much confident in using e-banking services when they can associate it with brick and mortar branches. Purely online banking without physical branch network has not made much headway even in developed countries. In Pakistan, with low rates of literacy the majority of customers will continue to use the 9-5 bank branches.Rizvi, (1999), states that the state bank of Pakistan has comprise various committees such as the Payment Systems Development Committee and the ECH task force for the development of technology based banking services in the country. Besides other matters, these committees also oversee the developments in the areas of E-banking. State Bank of Pakistan coordinates closely with other agencies such as the Ministry of Science Technology (MoST), in ini tiatives relating to E-banking.Shirazi, (2001), said that the future of e banking is very bright in Pakistan. Many banks in Pakistan have started providing e-banking facilities to their consumers. Over 300 ATMs are in operation in Pakistan the use of ATMs is rapidly increasing. More and more facilities are being provided by the banks electronically including e-statements, funds transfer, bill payment for utilities as well as other purchases. By 2002, almost 40% of the bank branches have been automated and it is expected that this proportion will reach 50% by 2004. The rate of increase is phenomenal i.e. about 318%. Similarly, the number of online branches has doubled during the last 2 years to 570 and by 2004 this number will jump to 1356, representing an increase of 376%. This expansion along with the growing penetration of internet will bring E-banking to more and more of their customers both in terms of numbers as well as geographical locations.Mahmood, (2003), states in order to meet E-banking challenges that State Bank of Pakistan established the ECH Task take in under the leadership of Mr. Naveed A Khan(Country Representative ABN AMRO Bank) to facilitate the development and implementation of E-Banking sector to promote E-Commerce. This Task Force was constituted to facilitate in planning introduction of enabling technologies in the financial sector of the economy having a direct bearing on E-commerce. The ECH Task Force is constituted of various dedicated professionals from the major financial institutions of the country who enrich the Task Force with their experience and expertise with a firm allegiance to develop and promote E-Commerce in Pakistan.Ahmed,(2001), states that Electronic Commerce (E-Commerce) is just another business tool, one that enhances business efficiency and effectiveness and allows cost reduction. It is a vehicle to carry out business-to-business (B2B) or business-to-consumer (B2C) transactions. For financial institutions and e ntrepreneurs, E-Commerce not just makes old processes work better it also provides a means to break with tradition and create new ways of doing business. E-Commerce has a lot of potential in Pakistan where ideas are rich, resources and labor are cheap, trade is excellent, entrepreneurial skill in abundance, and there is a large presence of indigenous and globally apprehended artifacts other tradable goods. However, on a more realistic side, we have a lot of ground to cover before we can reap the benefits of E-Commerce and turn our economy around. These are technical as well as administrative challenges that have to be met and above all we need the basic infrastructure, which facilitates and promotes trading through electronic means.3. RESEARCH METHDOLOGYThis chapter presents the basic methodological analysis required in research. It includes the methods of search, type of study and the sources of data.3.1. METHODOLOGY OF THE STUDYThe methodology of study includes the different met hods that tec has used to reach to the conclusion. But due to shortage of time the researcher has tried his best to make this report informative, useful and also beneficial for others. The researcher has also self-collected a lot of information to cover all types of aspects related to automation and electronic data processing.In this report the researcher has covered first of all the introduction of electronic banking, its background, what facilities and benefits it provide and what is its scope in Pakistan? Secondly the researcher has visited few of the banks offering electronic services. They were very knowledgeable to the researcher basically in explaining their scope in Pakistan.3.2. TYPE OF THE STUDYThe study is descriptive because the intention is to explore the existing determine given in problem statement. Descriptive process was believed to be more suited in this kind of investigation because it seeks direct response from respondents. This procedure has been used in many areas of investigations in many fields of academics and scientific discipline.3.3. GOAL OF DESCRIPTIVE STUDYThe goal of the descriptive study, here is to offer a peo