E-Banking In Bangladesh: Present Scenario and Prospects

“E-Banking: Present Scenario and Future

Prospects in Bangladesh”

Md. Rejaul Karim

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 E-Banking In Bangladesh: Present Scenario and Prospects

E-Banking: Present Scenario and Future Prospects in Bangladesh

CHAPTER-ONE

1. Introduction:
As an Internet based technology, e-banking is new and a quite unfamiliar for some people in Bangladesh
due to the digital divide and the different level of internet experience and environments. E-banking services
have been available in Bangladesh since 2001. As of 2013, All the bank have minimum E-banking services.
Almost most of the bank provides wide range of e-banking services ,rest of the bank are providing few e-
banking services.

In Bangladesh, research has been done on electronic commerce issues, computer usage, Internet usage,
telephone and electronic banking. The reason for the lack of complete adoption of e banking in developing
countries like Bangladesh is an important research work. In other words, despite this growth of IT
Worldwide, some Bangladeshi banks continue to conduct most of their banking transactions using traditional
methods. Understanding the reasons for the lack of such technological innovation in developing countries such
as Bangladesh will develop a fruitful research. The aim of this research is to look at the emergence,
advantages and acceptance of e-banking in Bangladesh. This report is aimed at to determine
economical prospects of e-banking and to explain the present scenario of banking sectors in Bangladesh and at
the same time it demonstrates the scope and benefits of e-banking compared with the existing system. This
report also tries to present actual situation of e-banking in the marketing point of view in Bangladesh.

E-banking is now a global phenomenon. The developed country as a part and parcel of their economy is now
using e-banking. A strong banking industry is an important in every country and can have a significant affect in
supporting economic development through efficient financial services (Salehi and Azary, 2008; Salehi et. al.,
2008).

As a third world developing country, Bangladesh is far behind to reach the expected level of global banking
system. At present the banks in Bangladesh are using the limited electronic banking services. E-banking product
and services include wholesale products for corporate customers as well as retail and fiduciary products for
individual customers. Foreign commercial banksand private commercial banks are relatively in a better position
to provide online banking services. Dutch bangla bank is acting as a pioneer in this sector.

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1.1. Concept of Banking:

Finance is the life blood of trade, commerce and industry. Now-a-days, banking sector acts as the backbone of
modern business. Development of any country mainly depends upon the banking system. The term bank is
either derived from old Italian word “ banca” or from a French word “banque” both mean a Bench or money
exchange table. In olden days, European money lenders or money changers used to display (show) coins of
different countries in big heaps (quantity) on benches or tables for the purpose of lending or exchanging.A bank
is a financial institution which deals with deposits and advances and other relatedservices. It receives money
from those who want to save in the form of deposits and it lends money to those who need it.

Oxford Dictionary defines a bank as "an establishment for custody of money, which it pays out on customer's
order." So Bank as a financial intermediary have some unique characteristics such as—

 Dealing in Money :
Bank is a financial institution which deals with other people's money i.e. money given by depositors.

 Individual / Firm / Company :

A bank may be a person, firm or a company. A banking company means a company which is in the
business of banking .
 Acceptance of Deposit:
A bank accepts money from the people in the form of deposits which are usually repayable on
demand or after the expiry of a fixed period. It gives safety to the deposits of its customers. It also
acts as a custodian of funds of its customers.

 Giving Advances:
A bank lends out money in the form of loans to those who require it for different purposes.

 Payment and Withdrawal:

A bank provides easy payment and withdrawal facility to its customers in the form of cheques and
drafts, It also brings bank money in circulation. This money is in the form of cheques, drafts, etc.

 Agency and Utility Services :

A bank provides various banking facilities to its customers. They include general utility services and
agency services.

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 Profit and Service Orientation:

A bank is a profit seeking institution having service oriented approach.

 Ever increasing Functions:

Banking is an evolutionary concept. There is continuous expansion and diversification as regards the
functions, services and activities of a bank.

 Connecting Link:
A bank acts as a connecting link between borrowers and lenders of money. Banks collect money from
those who have surplus money and give the same to those who are in need of money.

 Banking Business:
A bank's main activity should be to do business of banking which should not be subsidiary to any
other business.

 Name Identity:
A bank should always add the word "bank" to its name to enable people to know that it is a bank and
that it is dealing in money.

1.2: Concept of E-banking:

The term Internet Banking or E-Banking Internet both are used as supplement. E-Banking is the one of the
major part of E-Financing. Hertzum et al. (2004) defined E-Banking as web-based Banking. In other words E-
Banking refers to the banking operations, which is done over World Wide Web. However, more comprehensive
and well-established definition is given by the United Nations Conference on Trade and Development
(UNCTAD). This definition covers almost all area of E-Banking. Internet banking refers to the deployment over
the Internet of retail and wholesale banking services. It involves individual and corporate clients, and includes
bank transfers, payment settlements, documentary collections and credits, corporate and household lending,
card business and some others (UNCTAD, 2002) .

E-Banking information architecture is modeled as client-server architecture. A client operating through a PC

linked to Internet opens the special E-Banking site of his bank and then, using a set of special secure numbers,
gets access to his bank accounts and has the opportunity to consult them, as well as to make all necessary
payments and transfers form his personal accounts. When the transaction number is exhausted the bank sends

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him a new set of numbers for his individual transfer sessions. In some cases the bank provides customized
software. The bank software program can also be utilized offline, for example for preparing the payment orders
offline and then making the actual order online. The client receives all numbers separately, mainly by mail. The
bank also provide clients with similar facilities in its premises so that clients can use the bank equipment such
as an ATM or a special facility linked to the main terminal facility called MultiMate, permitting them to effect
the same account examination, payment and transfer operations without consulting the bank staff.( Abdul,
Mohammad,Md. Main )

1.3: Scope of E- Banking:

To day the customer demands the services of banks 24 hours where he lives even he is in the airplane. Now in
this modern age the entire banking structure has been changed due to widespread internet technology. Now all
the business like commerce, trade, import, export, purchase and sale of goods is relying upon electronic
banking. By using the advance electronic technology the banking services are ast and economical.

There is a saving time an saving of money in the use of E-banking. If any country wants to work in the world
market, it will have to improve the banking services at international level because old traditional banking is not
acceptable in the changing global economy. The online banking facility has been provided by the large number
of commercial banks. On other hand credit card facility is also available in the various commercial banks. Now
every bank wants to attract the customers and for this purpose the offers the latest facilities so seem that no any
Bank will survive in the market if he fails to provide update facilities.

1.4: Benefits of E- Banking:

Now it is also called on line or home banking electronic banking was stared with the use of proprietary
software. Following are the important advantages of electronic banking :

 Paper Work Reduced:

The traditional procedure of banking is manual and paper based. Electronic banking is gradually
replacing the paper transactions in the banks which has reduced the paper work.

 Easy Transactions:
Electronic banking has reduced the problems of the customers like writing cheques, filing taxes, and
transforming of cash. Now in ATM facility there is no need of cheque book.

 Security:
Electronic banking provides the safe system of payment. Now transactions are made in the accounts
through internet.

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 Saving Of Time:
Electronic banking has saved the time and money of the customers and also the bank. Now burden of
work on bank employees has been also reduced. were hired at higher wages, so operating cost was very
high. Now by using electronic banking the number of employees has been reduced.

 Reduction In Cost :
In case of manual banking, large number of employees were hired at higher wages, so operating cost
was very high. Now by using electronic banking the number of employees has been reduced.

 Market Expanded :
Due to electronic banking, national international market of various goods and services has been
expanded. Now we can purchases and make payment in any place in the world.

 Increase In Customers :
As the banking industry is expanding due the modern facilities, it is attracting more and more customers.
So number of customers are increasing day by day.

 Branches Reduced :
Now there is no need to open the branches on every place in the city because due to electronic banking
facilities, there is no rush of customers in the banks. Because there is no need to visit the bank
physically. So heavy cost of opening the new branches has been reduced and facilities are provided at
low cost.

 Checking of Account:
Every customer can check his balance of account sitting at home and makes the payments without
traveling. It saves his time and expenses.

 Utility Bills Payment:

Bills, like telephone, gas, electricity and water can be easily paid to the concerned departments without
going to the bank physically. Even he is sitting in any other country, he can make the payment.

 Transferring Of Money:
There is no need of writing the deposit slip cheques and drafts. By using the electronic banking money
can be transferred easily.

 Credit Cards:
It is also very important facility for the customers that he can purchase the goods and ca make the
payment by using the credit cards
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1.5: Origin of the Study:

Thesis and research program is a scope for acquiring knowledge after successful completion of academic
curriculum. Theoretical knowledge gets a complete shape only when it is applied in a practical field.

Every organization is concerned about the competence of its executive to cope with the technological
advances in industrial and commercial development in the fast-moving global environment. The capability of
the executive must be enhanced so as to make them efficient and effective in the execution of their duties and
responsibilities. The principal emphasis on MBA program has been given on the operation of business
organization mostly in private sector. The objective of this program is to prepare students in such a manner so
as to equip them with accounting and financial skills, competence in to depth knowledge of business
administration so as to enable them to meet any challenging situation and to work with the competence in the
competitive business environment.

During my research period; I’ve tried my best to get knowledge about the overall operations of e-
banking, impact in our economy & its future prospect with our banking sector.

This program is, in fact, is at endeavor to make the students familiar with the real business situation and to
prepare themselves to match their theoretical knowledge with practical field. My research is with the name
of “E-Banking in Bangladesh: Present Scenario and Prospects ”. Exposure to the business world and
acquiring practical knowledge are also the main objective of this research.

E-banking is the waves of the future. It provides enormous benefits to consumers in terms of case and cost of
transactions, either through internet, telephone or other electronic delivery channels. For many consumers,
electronic banking means 24-hours access to cash through an Automated Teller Machine (ATM) or Direct
Deposit of paychecks into checking or savings accounts. But electronic banking now involves many different
types of transactions. 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, cheeks or other negotiable
instruments. With the expansion of global Information and Communication Technology (ICT) infrastructure
and the internet, e-banking is set to play a pivotal role in the national economy, proper software, infrastructure,
cyber low and skilled manpower are important for the implementation of e-banking in the country.

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This research is an overview of the issues associated with e-banking and I have tried to explore the future
challenges and prospect in Bangladesh.

1.6:Objectives of the study:

In this research there are basically two types of objectives. Those are:

1.6.1: Main Objective

 To examine the present status of E-banking in Bangladesh.

 To examine the Future prospects of E-banking in Bangladesh.

1.6.2: Specific Objectives

(i) To identify various forms of E-banking available in Bangladesh.

(ii) To identify various economic aspects of e-banking in Bangladesh.
(iii) To identify the future challenges posed by the E-banking in Bangladesh.

There are several other objectives to conduct the study .

These are:
 To fulfill the partial requirement of the “ Research paper(FIN-5206) ” course offered in MBA program.
 Enhance individual performance.
 To meet the curiosity in this stated subject

1.7: Justification/scope of the study:

This report presents an initial phase of a sustainable research program and as such has limited itself in
terms of research design. Firstly, non-probability sampling method is adopted for research, meaning that

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statistical inferences regarding the population may not be made accurately. Secondly, data collection
was confined to only secondary data collection because of short time span of research. Thirdly, it was
time consuming and was difficult to find out spontaneous sources of data. Again, there was limited
secondary literature available on the topic that restricted me to explore the sector related to it.

1.8: Methodology:

Every work has a methodology. On the way of the formation of this report, it has a methodology. The study is
mainly based on secondary data related to E-banking. Secondary data and information have gathered from
Books, Journals, research paper etc. Primary data and information also have collected through using observation
and interview method. This is an exploratory research based on – Data from Secondary Data Souces.

Secondary data obtained through the Net, books and related journals including different publications: (i)
Bangladesh Institution of Bank Management (ii) Bank for International Standard Working (iii) Papers
International and local Publications (iv) Different seminar papers (v) Information from Internet (vi) UNCTAD
and WTO publication. And primary data are collected on direct interview with various bank account holder and
some of banks services holder. Here I also collect lots of information through banks journals.

And also some secondary data are collected from different publication material and web site 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, Science Laboratory, DCCI library.
The secondary data have been also collected from research material of the following sources; DBBL–Products
and Software, EBL–Survey Report, IBA–Feasibility Report, WTO/UNCTAD–Secret of ecommerce.

1.9: Limitations Of the study:

To conduct the research, there have come some limitations.

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 One sort of limitation is time limitation. To conduct a thorough research, sufficient time is required. But
the time that has been assigned to complete the research is less than necessary. In spite of that, an
allocation of the given time has been made as per required.
 Another limitation is the lack of availability of the intended information. That is, it is not that much easy
to collect needed information. Because the banks are not willing to disclose their internal report or
internal information to the people coming from outside of the organization

 Lack of experience acted as constraints in the way of careful exploration on the topic

CHAPTER TWO

LITERATURE REVIEW
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2.1: Banking Sector And The Adaptation OF E-Banking:

Banking has never been more important to our society than it is today. The way Bill Gates (2008) announced
that « banking is essential, banks are not ». This quotation means that the traditional bank branch is going to
vanish in order to be surrogated by electronic banking which continues to attract new users. The banking
industry believes that by adopting new technology, the banks will be able to improve customer service level and
tie their customers closer to the bank. Meanwhile, the banking industry has been also looking for new methods
to expand its customer base and to counteract the aggressive marketing effort of those non-traditional banking
entities (Graven, 2000). Larger banks that maintain expensive branch networks tend to have the greatest
incentive to adopt e-banking services. In comparison, smaller banks have higher start up costs and tend to have
a high initial technological cost in developing e-banking services (Treadwell 2001). The application of e-
banking has been proven as an effective way to reduce the costs of operation for the financial institutions. For
instance, e-banking services will allow banks to reduce expenditures on physical structures. It is believed that
the e-banking will help banks to cut costs, increase revenue, and become more convenient for customers
(Halperin 2001). Another important benefit from e-banking is a more effective information collection and
management. A combination of a low percentage of customers using e banking services on a consistent basis
and a relatively low start-up cost in developing e banking services in the banking industry–will make the impact
of e-banking (positive or negative) quite limited on financial institutions (Marenzi, et al., 2001). Finally, the
development of e-banking service has encouraged the adoption of a decentralized approach to give banks more
needed flexibility to distribute Internet access to a much larger number of employees and potential customers

References:
Mohammad Azizul Baten, PhD , Anton Abdulbasah Kamil, PhD , E-Banking of Economical Prospects in
Bangladesh, An open access Internet journal (http://www.arraydev.com/commerce/jibc/) Journal of Internet
Banking and Commerce, August 2010, vol. 15, no.2 (http://www.arraydev.com/commerce/jibc/)

2.2 World Wide E-Banking Facilities:

With the extensive technology innovation and telecommunication, we have seen new Financial distribution
channels increasing rapidly both in the numbers and form 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

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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 Survey of Electronic Banking, Electronic Cash and Internet Gaming (2003), has defined electronic 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 reducing costs 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-service distribution 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).

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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 aproduct, 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 serviceprovided 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.

E-banking is the waves of the future. It provides enormous benefits to consumers in terms of case and cost of
transactions, either through internet, telephone or other electronic delivery channels (Nsouli and Schaechter,
2002)

E-banking development would lead to two classes of surviving banks, which are very large banks and small
niche ones (Dewan and Seismanm, 2002). Through the E-banking, smaller banks could compete by offering
portals to the services offered by larger banks (Holland and Westwood, 2001) with this development, banks
could use E-banking to focus an customer need in order to gain the strongest competitive advantage (Wind,
2001).

The transformation from traditional brick-and-mortar banking to E-banking has been automatic teller machine
(ATM) has the retail banking industry witnessed such significant and extensive change. Formally, E-banking
comprises varies formats or technologies, including telephone (both landline 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
advanced; and ordering checks.

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Majority of banks is planning to introduce ICT for integration of banking service and new finance service,
which will play a vital role in bragging efficiency in the financial sector (Raihan, 2001). The most commonly
factors are ease of use, transaction security, convenience and speediness (Wan, Luk and Chow, 2005).
ICT networking has offered a wide range of delivering channel’s in retail banking. Banking institutions need to
exploit opportunities that arise from these development and changes to remain competitive. The successful
financial institutions in the future will be those that are able to leverage most from the information and
communication technology revolution. Increasingly consumers are also demanding more efficient banking
services are becoming more discrediting of the power that the technology brings. The winners will be those
financial institutions that are able to harness on the Capability of ICT in making strategies decisions in terms of
inability leader alignment of business, enhancing organizational capacity and capability, risk management and
building better customer relationships CC the rapid pace of advancement.

A survey of electronic cash, electronic banking and internet gaming (2002) reported that the term electronic
cash, e-cash or e-money refer to electronic payment schemes that enable consumer to store and redeem financial
value. They operate via stored electronic units of value. Paid for in advance by conventional money and
representing equivalent units in real currency, these funds can be transferred between vendors and individuals
using compatible electronic system, in some cases consumers report to banks or other financial intimidators. E-
cash (e-money) comes in two forms: smart card e-cash and computer e-cash.

References:

1.Raihan,A,2001,privatization of Telecom Industries and development of IT industry in Bangladesh. A

Rountable paper presented at BIBM.

2.Sathye M (1997), “Internet Banking in Australia”, Journal of Internet Banking

and Commerce, Vol. 2, No. 4.

3.Sathye M (1999), “Adoption of internet banking by Australian consumers: an

empirical investigation”, International Journal of Bank Marketing, Vol.17, No.7,
pp.324-334.

4.Ali Mohammad Mahboob, “Management Information Systems for today’s banking

business: Bangladesh Perspective” South Asian Journal of Management, India, Vol-07,
No.1&2

5.Bank, David, “Smart Cards are open to new attack by Hackers, Say Israeli Researchers”.
Wall Street Journal, October 21, 1996, p-17 Basel Committee, “Electronic Money: Provider Issues and
Regulatory Structure”. Report by the Working Committee on payments and settlement systems, Basel, June,
1996.

6.Barbara A. Good, “E-Money” Working Paper , Federal Reserve Bank of Cleveland ,

Economic Research Department, August,(1997), pp-1-10.

7.Bauer, Paul W., “Making payments in Cyberspace”, Economic Complementary, Federal

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Reserve Bank of Cleveland, October 1, 1995

8.Block Valerie, “Smart Card Venture, once written off, Is Perking Up.”, American
Banker, Vol-161, no.186, September 27, 1999, Online Edition Castaneda, Laura, “Cashless future”, San
Francisco Chronicle, September 25, 1996, p-1

9.Denny S., “Electronic Commerce Challenge”, Journal of Internet Banking and Commerce, Vol.3 no.3,
June 1998 Federal Deposit Insurance Corporation Division of Supervision, U.S.A (1999) “Electronic
Banking: Security and Soundness Examination Procedures”

10.Graham George, “world tries a new way to pay.” Financial times, November 8, 1996, p-3

11.Khan, A.R,(2007) “Bank Management” 4th ed. Ruby Publications, pp-312-347

12.Koprowski, Gene (1996), “The money changers: Digital Cash Innovators Talk Bank,
Bits, Bytes, and Bucks”, Fortune ASAP, August 28 pp-68-74.

2.3:History of E-Banking:
E-banking allows customers of a financial institution to conduct financial transactions on a secure website
operated by the institution, which can be a retail or virtual bank, credit union or building society. To access a
financial institution's E-banking facility, a customer having personal Internet access must register with the
institution for the service, and set up some password (under various names) for customer verification.  The
password for E-banking is normally not the same as for telephone banking. To access E-banking, the customer
would go to the financial institution's website, and enter the E-banking facility using the customer number and
password. Some financial institutions have set up additional security steps for access, but there is no consistency
to the approach adopted.
The precursor for the modern home E-banking services was the distance banking services over electronic media
from the early 1980s. The term online became popular in the late '80s and referred to the use of a terminal,
keyboard and TV (or monitor) to access the banking system using a phone line. ‘Home banking’ can also refer
to the use of a numeric keypad to send tones down a phone line with instructions to the bank. Online services
started in New York in 1981 when four of the city’s major banks (Citibank, Chase
Manhattan, Chemical and Manufacturers Hanover) offered home banking services[1][2][3] using
the videotext system. Because of the commercial failure of videotext these banking services never became
popular except in France where the use of videotext (Minitel) was subsidized by the telecom provider and the
UK, where the Prestel system was used.
The UK's first home E-banking services known as Homelink was set up by Bank of Scotland for customers of
the Nottingham Building Society (NBS) in 1983. The system used was based on the UK's Prestel viewlink
system and used a computer, such as the BBC Micro, or keyboard (Tandata Td1400) connected to the telephone
system and television set. The system allowed on-line viewing of statements, bank transfers and bill payments.
In order to make bank transfers and bill payments, a written instruction giving details of the intended recipient
had to be sent to the NBS who set the details up on the Homelink system. Typical recipients were gas,
electricity and telephone companies and accounts with other banks. Details of payments to be made were input
into the NBS system by the account holder via Prestel. A cheque was then sent by NBS to the payee and an
advice giving details of the payment was sent to the account holder. BACSwas later used to transfer the
payment directly.
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Stanford Federal Credit Union was the first financial institution to offer online internet banking services to all of
its members in October 1994.[4]
Today, many banks are internet only banks. Unlike their predecessors, these internet only banks do not maintain
brick and mortar bank branches. Instead, they typically differentiate themselves by offering better interest rates
and more extensive E-banking features.

2.4 E-banking product available in Bangladesh:

E-banking product and services can include wholesale products for corporate customers as well as retailand
fiduciary products for individual customers. Ultimately the product and services obtained throughinternet
banking may mirror product and services offered through other bank delivery channels. A brief description of e-
banking products are described below

Automated teller machine:

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

Debit card:

A debit card is a plastic card which provides an alternative payment method to cash. While makingpurchases.
The amount of a transaction is typically displayed on a card reader, after which the customerswipes the card and
enters the pin number. There is usually a short delay while the EFTPOS (electronicfund transfer at point of sale)
terminal contact the computer network (over a phone line and mobileconnection) to verify the 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 afterbevery transaction. In the case
of credit card the issuer lends money to the customer. It is also differentfrom a charge card though this name is
sometimes used by the public to describe credit cards. Thisrequires the balance to be paid in full each month. In
contrast the credit card allows the customer torevolve their balance at the cost of having interest charged.Credit
card facility fully can not be extended in the country, as common gateway between financialinstitutions can not
be established. Pricing mechanism of the products of country is not competitive,
rater it is very much volatile. This creates a negative impact on the customers’
Point of sale (POS):

This means a retail shop or 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 system are used in restaurants, hotels and stadiums as well as retail
environment in short , if something can be sold, it can be sold where a point of sale system is in use.

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 E-Banking In Bangladesh: Present Scenario and Prospects

Check Truncation:

This is such a service in which a financial institution doesn’t return the rejected checks with the monthly statement to their
customer, rather they provide statement of rejected checks with their monthly statements. The banks store the
rejected checks for a certain time period (usually 90 days). During this time period a customer can adjust
/rectify the account if any imbalance is found between his own record and the bank statement provided by the
bank. After the expiration of the stipulated period the rejected checks are spoiled and the bank maintains a
micro film copy for a period.

Home banking:

At first bank introduced telephone bill payment (TBP) so that customer could be able to do their banking
activities from their home. The next version for the home banking was Video Home Banking (VHB). The
internet is expected to be a major factor for home banking.

Retail Automated Clearing House Service:

It is an electronic network for financial transaction. ACH process large volume of both credit and debit
transactions which are originated in batches. ACH credit transfers including direct deposit, payroll payment
and payments to contractors and vendors. ACH debit transfers including customer payment of insurance
premiums, mortgage loans and other kinds of bills. Businesses are also increasingly using ACH to collect the
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 tothe
recipient. This kind of transfer of money could be either within the country or abroad. Funds aretransferred
under the following network:
 FED wire ( federal reserve communication system)
 Bank wire
 CHIPS (clearing house interbank payment service)
 SWIFT ( the society for worldwide interbank financial telecommunication)
M remittance

For sending foreign remittance four nationalized banks and fifteen private banks are workingcollaboratively
with mobile phone service operators. Recently remittance could be sent in Bangladeshby banking channel
through account transfer (normally takes 3 working days) or in the form of instancecash (takes 24 hours).
Foreign resident people can send their money and PIN (personnel identificationnumber) through mobile phone.
As a result money transfer becomes relatively easy, quick and hasslefree. But this system also superseded by
mRemittance system. Mobile remittance service ormRemittance was introduced in the country opening doors to
millions migrants workers to help transfertheir hard  – earned money easily, effectively and most importantly
,swiftly. The first ever remittance service for Bangladesh was jointly launched by two local banks – Dhaka
Bank ltd. and Eastern Bank ltd.  – and the country’s second largest mobile operator ,Banglalink.

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 E-Banking In Bangladesh: Present Scenario and Prospects

 
Security measures of e-banking:

The security of a system is the extent of protection against some unwanted occurrence such as theinvasion of
privacy, theft and the corruption of information or physical damage. At this system isdeveloped through the
internet there is a big chance of hacking through our system. Current browserscounter security threats with a
network communication protocol called secured sockets layer (SSL). SSLis a set of rules that tells computers
the step to take to improve the security level of the communication.

Corporate automated clearing house:

 The automated clearing house (ACH) is an electronic network for financial transaction. ACH processeslarge
volumes of both credit and debit transactions. Which are originated in batches other retail andfiduciary products
and services may include balance inquiry, funds transfer, downloading transactioninformation, bill presentment
and payment, loan application, investment activity and other value addedservices.

Other E-banking services available in Bangladesh:

 Core Banking
 Cluster Banking
 Phone Banking
 SMS Banking
 Various Cards
 ATM Shared (VISA/MASTER)
 ATM own (VISA/MASTER)
 PC Banking
 Banking KIOSK
 Offline Branch Computerization E-payment

The credit card is available from VISA, MasterCard and VANIK. Some foreign banks provide electronic
fund transfer (EFT) services. It is at an early stage and used on a very limited scale. Microchips embedded
Smart Card is also becoming popular in the country, particularly for utility bill payment. Automated teller
machine (ATM) is expanding rapidly in major cities. A group of domestic and foreign banks operate shared
ATM network, which drastically increase access to this type of electronic banking service. The network will
gradually be extended to other parts of the country.

References:

Mohammad Azizul Baten, PhD , Anton Abdulbasah Kamil, PhD , E-Banking of Economical Prospects in
Bangladesh, An open access Internet journal (http://www.arraydev.com/commerce/jibc/)
Journal of Internet Banking and Commerce, August 2010, vol. 15, no.2
(http://www.arraydev.com/commerce/jibc/)

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 E-Banking In Bangladesh: Present Scenario and Prospects

2.5. Impact of E-Banking on Traditional Services:

One of the issues currently being addressed is the impact of e-banking on traditional banking players. After all,
if there are risks inherent in going into e-banking there are other risks in not doing so. It is too early to have a
firm view on this yet. Even to practitioners the future of e-banking and its implications are unclear. It might be
convenient nevertheless to outline briefly two views that are prevalent in the market .The view that the Internet
is a revolution that will sweep away the old order holds much sway. Arguments in favor are as follows’-banking
transactions are much cheaper than branch or even phone transactions. This could turn yesterday’s competitive
advantage - a large branch network, into a comparative disadvantage, allowing e banks to undercut bricks-and-
mortar banks. This is commonly known as the "beached dinosaur" theory .E banks are easy to set up so lots of
new entrants will arrive. ‘Old-world’ systems, cultures and structures will not encumber these new entrants.
Instead, they will be adaptable and responsive. E-banking gives consumers much more choice. Consumers will
be less inclined to remain loyal .E-banking will lead to an erosion of the ‘endowment effect’ currently enjoyed
by the major UK banks .Deposits will go elsewhere with the consequence that these banks will have to fight to
regain and retain their customer base. This will increase their cost of funds, possibly making their business less
viable. Lost revenue may even result in these banks taking more risks to breach the gap.

2.6. Role of E-Banking in the Banking Sector:

Electronic banking (e-banking) is the newest delivery channel of banking services. The definition of e-banking
varies amongst researches partially because electronic banking refers to several types of services through which
a bank’s customers can request information and carry out most retail banking services via computer, television
or mobile phone (Daniel, 1999; Mols, 1998; Sathye, 1999). Burr, 1996, for example, describes it as an
electronic connection between the bank and customer in order to prepare, manage and control financial
transactions. Electronic banking can also be defined as a variety of the following platforms: (a) Internet
banking (or online banking), (b) telephone banking, (c) TV-based banking, (d) mobile phone banking, and (e)
PC banking (or offline banking). In this paper, the ATM (Automated Teller Machine) channel is also added to
the research. The channels comprise two major groups: the traditional channels and e-channels. (1) The
traditional channels are defined on the basis of the type of human assistance: teller, retail or corporate manager.
(2) E-channels are divided into 4 sub-groups on the basis of how the channel is seen by clients, with some
exceptions based on the technological processes of transaction execution: Internet based (online bank for
corporate clients Telehansa.net, online bank for private clients Hanza.net, and offline bank for large corporate
clients Telehansa), card-related (ATM – Automated Teller’s Machine and POS –payment terminal), Phone
channels (call center, IVR, mobile bank) and Automated channels (“virtual” bank core channels where direct
debit and incoming payments are effected). Services are one of the primary benefits which a customer looks for
while adopting a new channel. The consumers consider the benefits and weigh them against the costs
associated. The Internet offers a lot of benefits to consumers, like any time anywhere banking, updated
information, convenience, faster transaction, etc. E – Banking services are replacing traditional services and
creating a new scale in transformation. In the initial stage, e- channels were introduced in metropolitan cities
and urban areas, but recently some banks have started focusing on rural and semi urban areas. New private
sector banks are taking the lead in capturing rural and semi urban sector. The different e- channels such as

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ATMs, Credit and debit cards, Tele-banking, Mobile – banking, online – banking and Smart Cards, are
changing the face of the retail banking sector. New private sector banks and foreign banks are attracting
customers in a big way. The potential customers and big companies are shifting their accounts from traditional
banks (not fully computerized) to E - banks (fully computerized and provide different e – channels). If
traditional banks, mostly public sector banks, do not transform their business by introducing IT, their survival
will become difficult, as now-a-days IT is not a matter of convenience but a survival factor. Therefore, e –
banking services are a potent factor for transformation in this e – age.

References:

F.Sameni Keivani1, M.Jouzbarkand1, M.Khodadadi1, Z.Khalili Sourkouhi(2012),A General View on

the E-banking ,Dept. accounting, Islamic Azad University, Roudsar and Amlash Branch, Roudsar, Iran.
Reviewed at 01.01.15,9.00 am.

Now a days, E-Banking plays a vital role in banking industry. Bank services is more comfortable and easy due
to blessing of E-banking. The citizen of modern society enjoy more easy and faster banking services because of
E-Banking. So it important for every person to know about present condition of E-banking and also its future
possibility . So my study mainly focused on present scenario and prospects of E-Banking in Bangladesh.

Chapter 3
Overall conceptual review of e-banking

3.1Electronic Banking:

Electronic Banking or e-banking may be defined as the banking environment in which banking information as
well as transactions moves and conducted through electronic medium. It is considered to be a segment of e-
business to the extent that banks are involved in the conduct of business transactions via electronic media; other

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 E-Banking In Bangladesh: Present Scenario and Prospects

non-banking financial products and services (e.g. insurance), not to mention products and services from other
sectors of business may be sold electronically as well.

E-banking includes the systems that enable financial institution customers, individuals or businesses, to access
accounts, transact business, or obtain information on financial products and services through a public or private
network, including the Internet. It includes any technology that that enables a bank to do business electronically.
E-banking has different aspects like Internet banking, Online Banking and e-payments. E-banking may be
understood as term that covers all these ways of banking business electronically. The following illustration
depicts the different form of e-banking services:

So E-banking is conduct of banking services by using electronic delivery channels such as ATM, telebanking
and PC banking. Under this banking process, the branches of a bank are connected electronically in such a way
so that a client or a customer of a particular bank can draw the money or make deposits anytime anywhere of
the country or the world. Large number of banks world-wide offer e-banking/web banking/internet banking,
whereby their customers manipulate their personal finances and execute transactions via the internet.

E-Banking is 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 refers to one form of
electronic banking: personal computer (PC) banking, Internet banking, virtual banking, online banking, home
banking, remote electronic banking, and phone banking. PC banking and Internet or online banking is the most
frequently used designations. It should be noted, however, that the terms used to describe the various types of
electronic banking are often used interchangeably.

3.2: Types of E-banking:

3.2.1 PC Banking:
The increasing awareness of the importance of literacy of computer has resulted in increasing use of personal
computers through the entire world. Furthermore, incredible plummet of cost of microprocessor has accelerated
the use of computer. The term „PC banking‟ is used for banking business transacted from a customer’s PC.
Using the PC banking or home banking now customers can use their personal computers at home or at their
office to access their accounts for transactions by subscribing to and dialing into the banks‟ Intranet proprietary
software system using password.

3.2.2Internet Banking:
Customers need an Internet access service to handle this type of banking. As an Internet Banking customer,
he/she will be given a specific user ID and a confidential/secret or secured password so that they can access to
their own account. Here customer can able to see the ledger balances, transfer his money, request something
towards bank, etc.

3.2.3 Virtual Banking:

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Virtual banks are banks without bricks; from the customer perspective, they exist entirely on the Internet,
where they offer the same range of services and adhere to same rules and regulations of central banks.

3.2.4 Telephone Banking:

Telephone 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, telephone banking services have not been widened enough in daily banking activities in Bangladesh.
Only four banks so far provide a few options of telephone 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 telephone banking in Bangladesh.

3.2.5 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.

3.2.6 Online Banking:

On line banking is a service provided by many banks, and Financial Institutions that allows one to conduct
banking transactions over the Internet using a personal computer, mobile telephone, or handheld computer (such
as a "personal digital assistant"). Through on line banking one may be able to:
 Access accounts round-the-clock, even on weekends
 See balances on line and find out whether checks or deposits have cleared
 Transfer funds between accounts
 Receive and pay bills on line(without check writing, envelopes, or stamps)

3.2.6.1 Common Online Banking Services includes-

The following table lists some of the common retail on line banking services offered by banks are as follows:
 Account management
 Bill payment and presentment
 New account opening
 Investment/Brokerage services
 Loan application and approval
 Business-to-business payments
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 Business-to-business payments

3.3.Required Physical Infrastructure for E-Banking:

3.3.1 Internet:
The Internet is a global system of interconnected computer networks that use the standard Internet Protocol
Suite (TCP/IP) to serve billions of users worldwide. It is a network of networks that consists of millions of
private, public, academic, business, and government networks of local to global scope that are linked by a broad
array of electronic and optical networking technologies. The Internet carries a vast array of information
resources and services, most notably the inter-linked hypertext documents of the World Wide Web (WWW) and
the infrastructure to support electronic mail.

3.3.2 Intranet:

An intranet is a private computer network that uses Internet Protocol technologies to securely share any part of
an organization's information or network operating system within that organization. The term is used in contrast
to internet, a network between organizations, and instead refers to a network within an organization. Sometimes
the term refers only to the organization's internal website, but may be a more extensive part of the organization's
information technology infrastructure. It may host multiple private websites and constitute an important
component and focal point of internal communication and collaboration.

3.3.3 Hardware:
The essential hardware required to build a complete online banking system includes:
 Personal Computers,
 Servers,
 Routers,
 Firewalls
 Modems
 POS (Point of Sale) Terminals
 ATM (Automated Teller Machines) booths

3.3.4 Software:
For conducting online banking operations several software are now available such as FLEXCUBE, a banking
software which enables banks to process and store banking transaction data and making payments through a
dedicated client-server network. Another type of statistical software E Views (Econometric Views) is a
statistical package for Windows, used mainly for time-series oriented econometric analysis. Different banks use
different types of software depending on the cost and other factors.

3.3.5 Electronic Money (E-Money):

Electronic money (also known as e-currency, e-money, electronic cash, electronic currency, digital money,
digital cash or digital currency) refers to money or scrip which is only exchanged electronically. Typically, this
involves the use of computer networks, the internet and digital stored value systems. Electronic Funds Transfer
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 E-Banking In Bangladesh: Present Scenario and Prospects

(EFT) and direct deposit are all examples of electronic money. Also, it is a collective term for financial
cryptography and technologies enabling it.

3.3.6 Plastic Money:

Plastic money is a plastic card issued by banks or financial institutions with a magnetic stripe or chip that holds
machine readable identification code (account number, customer‟s personal identification number, and other
such information readable by ATMs). Bank cards are used for electronic commerce (with magnetic stripe
readers or via Internet) and for banking transactions through Automated Teller Machines (ATMs). Types of
plastic money include:

3.3.7 Credit Cards:

Credit Card can be called as an equivalent of a loan sanctioned by the bank to its customers. Credit card
facilitates and makes it possible to “Use First and Pay Later” the specified amount of credit as per the agreed
terms of sanction. This card facilitates the cardholder to purchase goods and services from the merchant
establishments and shops through the collaborating credit card companies like VISA, MasterCard, Maestro, and
Cirrus.

3.3.8 Debit Cards:

A Debit Card provides for online electronic payment like Credit Card but from savings or current accounts of
the cardholder for purchases. This card is a deposit access product where cardholder uses his own money in his
bank account through the debit card on the principle of “Pay First and Use Later”. Debit card contains the
symbol or hologram of collaborating company such as VISA, MasterCard, Maestro and Cirrus etc.

3.3.9 ATM Cards:

ATM Card can be used to withdraw money, deposit money, balance enquires, deposit bills in the account. The
cardholder must maintain a savings bank account or current account with the bank. On issuance of card, the
cardholder is intimated a four digit secret Personal Identification Number (PIN). The cardholder is always
required to maintain safely the PIN to prevent fraudulent activity.

3.3.10 ATM Card-cum-Debit Card:

ATM Card-cum-Debit Card can be used both as an ATM card and Debit card as a method of payment when
purchasing goods and services in Bangladesh and Overseas. The cardholder is responsible for all transaction
made by the use of the card. In Bangladesh most of the debit cards issued by banks are also ATM cards. For
example, Dhaka Bank Limited, DBBL, SCB, HSBC, BRAC Bank and other banks operating in Bangladesh
provides ATM Card-cum-Debit Card.

3.3.11 Smart Card:

The smart card is an amazing piece of technology. It is the size of a regular ATM card but is capable of storing
over a 1000 times more data. The data can be encrypted and hence the card is completely temper-proof. The
card can also be personalized to the holder by printing personal and other details on the card face.

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 E-Banking In Bangladesh: Present Scenario and Prospects

3.3.12 Point of Sales:

Point of sale (POS) or checkout is the location where a transaction occurs. A "checkout" refers to a POS
terminal or more generally to the hardware and software used for checkouts, the equivalent of an electronic cash
register. A POS terminal manages the selling process by a salesperson accessible interface. The same system
allows the creation and printing of the voucher.

3.3.13 Electronic Funds Transfer:

Electronic funds transfer or EFT refers to the computer-based systems used to perform financial transactions
electronically. An EFT is the electronic exchange or transfer of money from one account to another, either
within the same financial institution or across multiple institutions.

3.3.14 Electronic Payment System:

Electronic payment is an integral part of electronic commerce. Broadly de-fined, electronic payment is a
financial exchange that takes place online between buyers and sellers. The content of this exchange is usually
some form of digital financial instrument (such as encrypted credit card numbers, electronic checks, or digital
cash) that is backed by a bank or an intermediary, or by legal tender.

3.3.15 Mobile banking

Mobile banking was a term used for performing balance checks, account transactions, payments etc. via a
mobile device such as a mobile phone. The standard package of activated 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; 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; and deposit at banking agent. Despite huge prospects, only a few banks
adopted mobile banking in Bangladesh during the last year.

3.3.16 Tele-banking
Tele-banking service was provided by phone. To access an account it was required to dial particular telephone
number and there were several options of services. Tele banking services widened not enough in daily banking
activities in Bangladesh. Only four banks so far provided 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.

Graphical Presentation of E-Banking :

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 E-Banking In Bangladesh: Present Scenario and Prospects

Figure : Types of E-banking

Referances:

1.Md. Mohiuddin IOSR Journal of Business and Management (IOSR-JBM) e-ISSN: 2278-487X, p-ISSN:
2319-7668. Volume 16, Issue 5. Ver. II (May. 2014), PP 16-24 www.iosrjournals.org

2.Dr. Md. Habibur Rahman1, Dr. Mohammed Nasir Uddin2 and Sayeed Ahmed Siddiqui, Problems and
Prospects of E-Banking in Bangladesh, International Journal of Scientific and Research Publications,
Volume 2, Issue 7, July 2012 1 ISSN 2250-3153

CHAPTER FOUR

FINDINGS & ANALYSIS OF THE STUDY

4.1: Present Scenario & Status of E- Banking in Bangladesh:

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 E-Banking In Bangladesh: Present Scenario and Prospects

At present, several private commercial banks (PCBs) and foreign commercial banks (FCBs) in Bangladesh offer
limited services of telephone banking, internet banking, and E-banking facilities working within the branches of
individual bank in a closed network environment. 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.

But in Bangladesh total number of different categories of banks, is currently fifty-seven. The Bangladesh
Development Bank Ltd (BDBL) began operations, on 3rd January, 2010 through merger of Bangladesh
Shilpa Bank and Bangladesh Shilpa Rin Sangstha. From the field survey we observe that following banking
services are being provided by different banks: Core Banking, Cluster Banking, Phone Banking, SMS Banking,
Internet Banking, Various Cards, ATM Shared (VISA/MASTER), ATM own (VISA/MASTER), EFT, SWIFT,
PC Banking, POS Terminal, Banking KIOSK, Offline Branch Computerization.

Electronic banking is relatively new concept in Bangladesh. Formerly only the foreign banks operating in
Bangladesh like Standard Chartered Bank, HSBC, etc provided it. These foreign banks managed to gain
competitive advantage with the introduction of electronic banking for the first time in Bangladesh. As result the
local commercial banks started to loose their market to these foreign commercial banks. So they reacted very
quickly. First time it was combined, now some of the banks are offering Electronic-banking services even
solely. Eastern Bank Ltd. is the leading local commercial banks in Bangladesh to offer world-class electronic
banking services. In terms of adoption of E-Banking we can divide our banking sector in to three basic
categories

1. Classical Banks.
2. Modern Banks.
3. Electronic Banks.

4.1.1: Classical Banks:

Classical bank includes those commercial banks, which don’t provide or provide very little E-banking
facilities. In our country these category mainly includes mainly.

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 E-Banking In Bangladesh: Present Scenario and Prospects

• Nationalized Commercial banks

1. Sonali Bank
2. Janata Bank
3. Agrani bank
4. Rupali Bank

• Specialized banks
1. Bangladesh Shilpa Bank (BSB)
2. Rajshai Krishi Unnayan Bank
3. Bank of Small Industries and Commerce Bangladesh Ltd.
4. Bangladesh Shilpa Rin Sangstha (BSRS)
5. Bangladesh Krishi Bank (BKB)

• Local private commercial banks-

1. The Oriental bank ltd.
2. First security bank ltd.
3. Social investment bank ltd.
4. Al Arafah bank
5. The Standard Bank Ltd.
6. Bangladesh Commerce Bank Ltd.etc

These banks are termed as classical because this Bangladeshi banks still now mainly follows the manual
procedure for securing the valuable information and assets of customers. Except Agrani bank and Janata bank
these banks are still in infant level automation. Both of these two banks has launched ATM card sharing with
other banks and EFTS like Ready cash, Q-Cash other than these two facilities, these banks has no other E-
Banking facilities like Online banking, Home banking, Internet Banking. All the NCBs in Bangladesh use the
software named as Bexibank. Besides this they also use two most widely used software named PC bank and
NIKASH developed by the Bangladesh Bank.

These classical banks have no centralized database system. As a result they always lack the required effective
coordination among different units, required information to make right decision at right time, incurs high
overhead costs. The branches of these classical banks are not connected through LAN or WAN or MAN. The
proper coordination and harmonization between branches and head office of these banks are very much weak.

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 E-Banking In Bangladesh: Present Scenario and Prospects

They cannot take proper decision at proper time and manage their loans and deposit portfolio achieved client
satisfaction. Services provided by these banks in the classical stage are outdated and lacks the competitiveness.

But it is a matter of hope that the top management of these commercial banks is seriously thinking about full
automation of their operations both at the branch level and at the head office level. But to do this they face some
common problems like –

 Huge Number of branches all over the Bangladesh even outside the country and for the purpose of
automation huge investment is necessary.
 Most of the branches are in the rural areas where there are no modern digital communication
facilities.
 Most of the users or clients of the banks are poor and uneducated village people having no
knowledge about electronic banking and cannot afford it at the current cost level.
 Most of the officials of these banks in the classical stage especially the state owned ones are aggie
and cannot understand and are reluctant to accept modern electronic banking. To turn around these
banks at first the outdated mentality of these officials of the classical banks.

In spite of these shortcomings all these banks in the classical stage are trying to convert themselves into the
modern electronic banks and make them able to compete with other commercial banks

4.1.2: Modern Banks:

Currently some of the banks of Bangladesh are providing electronic services to their customers we cannot say
they are completely following electronic way. Because they offer some of the functionalities of the complete
electronic banking like intra-bank transactions, Letter of Credit (LC) and foreign exchange etc. In case of
inter-bank transactions, central bank authority handles the procedure all the banks are termed as modern
banks this is the largest segment of commercial banks among the three. These commercial banks which are
much more innovative, flexible, and proactive in their operation. They are quite at home in managing their
assets and liabilities. Banks as well as employees are beneficiated after implementing Information technology
in Bank because this system has some advantages over traditional system. Advantages are as follows:

 Process handling becomes faster. It includes day end process, month end process, monthly/yearly
interest calculation; fixed deposit receipt process, scheme process and loan process etc.

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 In traditional system, to accomplish audit, government officials need to go to every bank. After IT
implementation they do not need to go to banks rather they can collect the same information
through network and audit report can be generated within few minutes.
 In traditional system it is time dependent to transfer money from city to remote area and also a
matter of some investment. During the transfer time the money is idle so it’s a great loss for the
bank as well as customers. Electronic system can be used to transfer money within a few seconds
(Intra-bank).
All these modern banks have somewhat common features like-
 Trying to launch or at least have planned to initiate online banking Tele banking etc in near future.
 Trying to follow marketing strategies of others.
 Providing ATM card and in some cases credit card facilities.
 Initiating modern banking concepts like one-stop services, serving the underserved market, and
continuously updating their service and product portfolio.
 Providing quick transfer of remittances with the help of international money transfer unions like
Western Union, Express Money and Money Gram.

Following are some of those commercial banks, which fall with in modern banks category in our country, which
provide ATM services on shared basis and planning to provide online banking and any branch banking.

 Pubali Bank Ltd.

 Mercantile Bank Ltd.
 National Bank of Pakistan
 National Bank Ltd.
 International Finance Investment and Commerce bank Ltd
 United Commercial Bank Ltd.
 Uttara Bank Ltd.
 National Credit and Commerce Bank Ltd.
 Prime Bank Ltd.
 The Mutual Trust Bank Ltd.
 National Bank of Pakistan
 State Bank of India
 Habib Bank Ltd

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 Arab Bangladesh Bank Ltd.

 National Bank of Pakistan
 Southeast Bank Ltd.

4.1.3: Electronic Banks:

Electronic banking as a segment of electronic business, which, in turn, encompasses all types of business
performed through electronic networks. Banks in this category are more electronically service oriented than
the above-mentioned commercial banks. Electronic bank include those commercial banks, which uses
sophisticated computer and networking technology to carryon their day-to-day banking business. All of their
business process in maintained and executed electronically. Following are those banks, which fall in the class
of Electronic Banks
Two fundamental aspects of electronic banking are the nature of the delivery channel through which activities
are performed, and the means for customers to gain access to those channels. Commonly delivery channels
include ‘closed’ and ‘open’ networks. ‘Closed networks’ have no such membership requirements. Currently,
widely used access devices through which e-banking products and services can be provided to customers
include point of sale terminals, automatic teller machines, telephones, PCs.

Here we divide the electronic banks in to two categories.

a. Local Electronic Commercial banks:

1. Eastern Bank Ltd.
2. BRAC Bank Ltd.
3. Bank Asia ltd
4. Dutch Bangla Bank Ltd
5. Jamuna Bank
6. Islami Bank Bangladesh Ltd.

b. Foreign Electronic Commercial banks:

1. Standard Chartered Bank ltd. (SCB)
2. HSBC
3. Citi bank NA
4. Commercial Bank of Ceylon Ltd.

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5. Woori Bank
6. Bank Alfalah etc.

4.1.3.1: Features of the Electronic Bank:

With business processes becoming increasingly digitized, business models, and, with them, the risk structure
of credit institutions, are changing. The following characteristics of E-banking are therefore at the center of
banking supervisors ’interest.
 Overcomes national borders:
Owing to the virtual nature of electronic commerce, the transaction of banking business is no longer
confined to national borders. Much the same applies to the relationship between bank products and
non-bank products. That means supervisors will need to cooperate even more closely with foreign
supervisory authorities than in the past.

 Depends on IT:
The secure and efficient deployment of ICT will become a crucial strategic factor in the success of
electronic banking. Every stage in the value-added chain, from development through production to
the marketing of financial products, is dependent on IT. Most importantly, this dependency,
coupled with the innovative momentum of the Internet, will increase the strategic and operational
risk faced by banks.

 Card services:
With I-Banking one can view complete Credit Card details. One can view Credit Card statement,
determine the minimum amount due, request for a credit limit increase and even make an online
card payment.

 Enhances competition:
Several factors have conspired to induce this effect. The greater ease with which prices and
products can be compared has enhanced market transparency; the market entry barriers for new
competitors have been lowered; the spatial and temporal constraints on competition have been
removed; Internet or online banking customers display little brand loyalty; and e-banking customers
are focusing ever more on costs and profit margins.

Table 1: Various E-Banking services introducer bank and introducing date:

E-Banking Services Introducer Bank Date

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Mobile Banking Dutch Bangla Bank 31 March 2011

ATM Cards Standard Chartered Bank  2002
Telephone banking Standard Chartered Bank  1997
Smart Cards Standard Chartered Bank  1997
PC banking Standard Chartered Bank  1997
Source: Data are collected through internet.

4.1.3.3: Different users age band that are using e-banking are shown graphically:

In Bangladesh lots of user are using e-banking, but all of user are not in same age categories. Here I also
collected different age categories user who are using e-banking through primary sources

Sources: Data collected through secondary sources.

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4.1.3.4: E-Banking services in Bangladesh

Electronic banking as a segment of electronic business, which, in turn, encompasses all types of business
performed through electronic networks. Electronic channels are used for both business-to-business and
business-to-customer transactions, such as ordering goods, delivering software or paying for such transactions.
E-banking is considered to be a segment of e-business to the extent that banks are involved in the conduct of
business transactions via electronic media; other non-banking financial products and services (e.g. insurance),
not to mention products and services from other sectors of business, may be sold electronically as well In other
words, e-banking is not a banking product; rather, it describes the way transactions are conducted. Establishing
E-banking infrastructure has been a challenging task for the developing countries like Bangladesh. At present,
there is no infrastructure for performing Electronic-banking activities in Bangladesh. Nowadays, in fact, banks
are involved in e-business in a variety of ways, including cooperation with Internet service providers (ISP’s),
the issuing of e-money or the execution of payments.

But in general we can define Electronic Banking according to the service provided-
 Automatic deposit and withdrawal of money
 Quick transfers of funds from one account to other, even to another bank
 Payment of utility bills, salary, opening of LC, being in the home or the office.
 Balance enquiry, receipt of transaction statement
 Instructing the broker.
 Disabling the lost debit card or credit card, checking accounts
 Apply and issuance for new debit / credit card or checkbooks.

4.1.3.5: Different forms of Electronic-Banking

The terms ‘PC banking’, ‘online banking’, ‘Internet banking’, ‘Telephone banking’ or’ mobile banking’ refer to
a number of ways in which customers can access their banks without having to be physically present at the bank
branch. E-banking may be understood as term that covers all these ways of banking business electronically.

 PC banking:

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The increasing awareness of the importance of literacy of computer has resulted in increasing use of
personal computers through the entire world. Furthermore, incredible Plummet of cost of
microprocessor has accelerated the use of computer. The term ‘PC banking’ is used for banking business
transacted from a customer’s PC. Using the PC banking or home banking now customers can use their
personal computers at home or at their office to access their accounts for transactions by subscribing to
and dialing into the banks’ Intranet proprietary software system using password. Basically, there are two
types of PC banking.
(a) E-banking:
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.
(b) Internet banking:
German banks have been offering the Internet banking since the mid-nineties, although the only
product they were offering at the time was information. 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 JIBC August 2010, Vol.
15, No.2 application, bank guarantee application, lost card (debit/credit) reporting, pay credit card
dues, view credit card statement, or check balance.
 Mobile banking:
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; PIN provision,

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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; and deposit at
banking agent. Despite huge prospects, only a few banks adopted mobile banking in Bangladesh during
the last year.
 Telephone banking:
Tele banking service is provided by phone. 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. That services Tele-banking provide mainly:-
Checking account balance, Funds transfer between current, savings and credit card accounts, Bill
payments, Stock exchange transaction, Receive statement via fax, Loan payment information
 Magstripe(ATM) Cards:
Debit cards, often based around magnetic stripe technology, allow customers online access to their
accounts through a network of POS devices and ATMs. The principle advantages quoted by proponents
of Magstripe cards are low price and the requirement that transactions are performed online. The
requirement for online transactions means that geographic outreach is determined, in part, by the
availability of reliable and affordable communications and power.
 CDM:
CDM means “Cash deposit machine”. In Bangladesh it’s mainly used to deposit cash. Customers do not
need any manual system to deposit cash in his/her account. Banks are provide CDM card to their
customers and customers are can easily deposit their money into their account in 24 hours in a day.
 Smart Cards:
Smart cards have a machine-readable chip embedded in the card. This chip is able to store detailed
transaction records offline and perform transactions without a link to the customers ‘account. In order to
do this, value is stored on the chip by the customer and is periodically reloaded, over the counter,
through ATM machines or through POS devices.

The principle advantages quoted by proponents of the Smart Card are security and offline functionality.
Biometric security allows a cardholder’s picture and fingerprints to be stored on the card and used to
identify the user. More information on biometric security is available in Stephen Whelan’s article in the

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CGAP innovations series. Disadvantages include the cost of the card and risk of loss of value on losing
the card. Counterweighted by move to pre-authorized debit where cards are loaded ‘on-line’ but transact
‘off-line’ which allows reconciliation of approved transactions.

Euro card, MasterCard and Visa are currently introducing a new standard (called EMV) whereby all
Visa, MasterCard and Euro card branded cards will be issued with a magstripe and a smart chip. Whilst
this offers security advantages, it could significantly increase the cost of any mass market solution which
relies upon the Visa or MasterCard distribution network.

 Electronic fund transfer services:

IFIC bank ltd. Mercantile bank ltd. Pubali bank ltd. AB bank ltd Agrani bank is providing
electronic fund transfer services on shared basis in the name of Q-cash.
 CIB Report Generation:
Bangladesh Bank has the access to all other banks so it is very easy task to maintain an integrated
database of all customers specifying their credit and debit information with each bank

 Any branch Banking:

At present Mutual Trust bank ltd. State Bank of India, Habib Bank Ltd. National Bank of Pakistan
are offering any branch banking to all their clients. Mercantile Bank Ltd. IFIC bank ltd. NCC bank
ltd. Offer any branch banking services to only a selected group of clients who are ready to pay an
amount of extra annual fee for the usage of these service. National Bank ltd. United Commercial
bank ltd. Southeast bank ltd. Prime bank ltd. are hoping and arranging to provide any branch
banking services.

 Software used:
All the modern banks uses two common software developed by Bangladesh bank named NIKASH
for check clearing purposes and PC bank for maintaining the ledger of clients. Besides Dhaka Bank
ltd. and Eastern bank ltd. uses FLEXCUBE, Mercantile bank ltd. and Mutual Trust Bank ltd. uses
FLORA Bank, the City bank ltd. and Arab Bangladesh Bank ltd. uses FINACLE.

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Table 3: Common Features Offered by Electronic Banking Products:

Accessibility
ATM Withdrawals and deposits, account transfers, money transfers,
purchase of airtime and bill payments.
Merchant network Ability to use solution to make purchases at merchants
Visa/Maestro issuing Cards branded Visa or Maestro (or MasterCard) enabling the
cards to be used throughout the Visa or MasterCard infrastructure.
Cash back The ability to withdraw cash from the card through a merchant
network
Person to person transfer The ability to transfer funds onto the card
Third Party Deposits The ability to deposit money into the card through third parties
e.g. Post Offices
Ease of Use / User Training
Uniformity of service Services are provided in a standardized manner regardless of
point of service
Assistance at service points Assistance can be provided by the merchant or through assisted
service points
Transparency
Statement Printing A statement showing recent history on the electronic account is
printed on request
Balance Enquiry A balance enquiry either prints the account balance or shows it on
a screen
Transaction Receipt A receipt is printed by the ATM or POS device following the
completion of the transaction
Security
PIN based verification Verification of the user through use of a secret numerical code
called a Personal Identification Number.
Biometrics Using finger print or iris scans to verify the identity of the user
Photograph A photograph of the user is often printed on the face of the card
Value Added Services
Money transfer Transferring money typically from one card holder to another
Bill payments Paying bills electronically usually for utility payments
Call centre A call centre provides a mechanism to initiate transactions such as
direct debits and enables lost cards and problems to be reported
and resolved.

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Electronic Funds Transfer Electronic funds transfer allows electronic payments into an e-
(EFT) banking account
Source: Data was collected from secondary sources.

4.2: 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 Bangladesh 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. Digital telephone exchanges have
been established in 389 upazilas and 17 growth centers. 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.
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. The overall computer density in the banking sector is
1.64. For foreign commercial banks (FCBs) the computer density is 45.34, where as for NCBs the ratio is only
0.41. The specialized bank scenario is almost same as the NCBs, 0.43. On the other hand, private commercial
banks have comparatively higher ratio, 4.94. As a whole 81.81 JIBC August 2010, Vol. 15, No.2 percent bank
does not have any local area network (LAN), 30 percent have WAN (Wide Area Network) but for some banks
many branches are outside of WAN connectivity. At present, all foreign banks of our country are using E-
banking system; they are invested a lot for their automation banking services. They are the pioneer of
implementing electronic banking systems in Bangladesh, but now most of the private banks of our country are
using electronic banking systems. In our country different banks are offering electronic banking services in
different ways, some are offering ATM (Automatic Teller Machine) services, some are tele-banking and some
are electronic fund transfer, debit card, credit card etc. Recently, the government’s emphasis on building a
digital Bangladesh, setting up ICT park, raising allocation for developing ICT infrastructure, waiving taxes on

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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.

4.2.1: Economic Aspects of E- Banking in Bangladesh:

Advantages of e-banking in Bangladesh:

Employment Opportunity:
There are a substantial number of educated unemployed youth forces, with ability to read and write
English exist in the country. They can be trained within a required skill in a short time.
Short term Benefits:
Reduce extra time; Increase productivity and efficiency; Eliminate duplication and wastage; Cut down
maintenance, and shortage cost; Curtail security cost.
Long-term benefits:
Create new opportunities of jobs for jobless; Participate in the country’s economic health; proper
planning and monitoring; Proper use resources.

Job creation:
According to Bangladesh Bureau of Statistics, the number of unemployed people in Bangladesh in
1990-01 was 1.0 million. Among them 0.2 million are male and 0.8 million female, at the rate of
unemployment is 1.1 which is extended 1.9. The issue of computers eliminating jobs of people is quite
emotional and painfully real. But it has two sides that automation will eliminate certain types of job like
record keeper and also create jobs like administrator, system analyst, programmer, operator etc. and help
to reduce unemployment problem.

Contribution to GDP:
Banks with a national economy, work towards building national capital, increasing national savings and
mobilizing investments in trade and industry.

Benefits from the banks’ point of view:

From the banks’ view point, the first benefits for the banks offering e-banking services is better
branding and better responsiveness to the market. The other benefits are possible to measure in monetary
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terms. The main goal of every company is to maximize profits for its owners and banks are not any
exception. Automated e-banking services offer a perfect opportunity for maximizing profits.

Benefits from the customers’ point of view:

The main benefit from the bank customers’ point of view is significant saving of time by the automation
of banking services processing and introduction of an easy maintenance tools for managing customer’s
money. The main benefits of e-banking are as follows: Increased comfort and timesaving-transactions
can be made 24 hours a day, without requiring the physical interaction with the bank. Quick and
continuous access to information. Corporations will have easier access to information as, they can check
on multiple accounts at the click of a button. Better cash management. E-banking facilities speed up
cash cycle and increases efficiency of business processes as large variety of cash management
instruments is available on Internet sites of banks. Private customers seek slightly different kind of
benefits from e-banking. Reduced costs: This is in terms of the cost of availing and using the various
banking products and services. Convenience: All the banking transactions can be performed from the
comfort of the home or office or from the place a customer wants to Speed. The response of the medium
is very fast; therefore customers can actually wait till the last minute before concluding a fund transfer
Fund’s management. Customers can download their history of different accounts and do a “what-if”
analysis on their own PC before affecting any transaction on the web.

Economical benefits:
E-banking serves so many benefits not only to the bank itself, but also to the society as a whole. E-
banking makes finance economically possible: (i) Lower operational costs of banks (ii) Automated
process (iii) Accelerated credit decisions (iv) Lowered minimum loan size to be profitable. Potentially
lower margins: (i) Lower cost of entry (ii) Expanded financing reach (iii) Increased transparency.
Expand reach through self-service: (i) Lower transaction cost (ii) Make some corporate services
economically feasible for society (iii) Make anytime access to accounts and loan information possible.

Policy Implications:
The comprehensive set of e-banking products can help us run our business more effectively by
automating many of our critical banking activities and interacting electronically with our bank. Initial
cost of e-banking may be high, but it can be recovered within a few years. Electronic banking may play

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a vital role in order to promote an automated service to the potential customers. Ministry of finance can
also play some role for conveyance. Arrange monthly seminar in the banks or in the training academy of
the banks to make awareness about the new technology available in banks. Electronic security and
viability may require taking faith from the potential clients. Communication should be liberalized for
technological advancement. Bank should develop own online software rather depending on other
vendors.

4.3. Constraints to E-Banking in Bangladesh

Foreign and private banks offered a broad range of services over the internet. Public sector banks lag behind in
offering wider range of internet banking services and products.
 At present, there is no proper infrastructure for performing Electronic banking activities in Bangladesh.
 Slow uptake of internet access and PCs
 Poor telecommunication network policies and slow paced regulatory initiatives.
 Very minimum number of users of internet.
 The banking infrastructure in terms of electronic payments and inter-bank connectivity is poor.
 Limitations of supportive legal system.
 Absence of cyber law.
 Absence of EFT (Electronic Fund Transfer) legislation.
 Absence of need based business plan for online banking
 ATMs may have network problems, unavailability and shortage of money.
 High price of computer, compute hardware and banking software.
 Lack of awareness at government level of e banking issue.
 Lack of awareness at customer level of e banking issue.
 Weather has a direct effect towards e-banking. If create heavy rain, flood or cyclone then the entire
network is down.

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