The Trend of Electronic Banking in Bangladesh Electronic Banking Electronic Banking is a modern computerized system of providing banking services by the banks to their customers. By using the modern technologies, banks have become able to provide their existing services more quickly, more accurately and more conveniently. It has created revolution in the service delivery of the banking industry. Electronic banking, also known as electronic funds transfer (EFT), is simply the use of electronic means to transfer funds directly from one account to another, rather than by check or cash.. It is the Form of banking where funds are transferred through an exchange of electronic signals between financial institutions, rather than an exchange of cash, checks, or other negotiable instruments. The ownership of funds and transfers of funds between financial institutions are recorded on computer systems connected by telephone lines. Customer identification is by access code, such as a password or Personal Identification Number instead of a signature on a check or other physical document. Objective of electronic banking Technology always changes the society. It plays a vital role in communication, trade and commerce, culture, education i.e. in every sphere of our social and national life. Technological development affects the lifestyle of the customers by changing their needs; improved and quality banking activities are required to meet their changed needs and/or demands. That is, banking activities also change in tandem with the change in the customerâ€™s needs and preferences and thus world trade, i.e. banking-finance is increasing day by day. By introducing newer services, banks are able to provide better services than before, which improve the banker-customer relationship. In the banking industry, technology is welcomed both by the banks and their customers. Among the technology based services, e-banking is the latest and now is playing a prime role. Question may arise for why a highly technology based e-banking services are being offered by the bank or why it is becoming popular to the customers. To answer this question, the objective of e-banking has to be explained with the two different aspects- one is bank, and another is the client. Bankers point of view: 1. 2. 3. 4. etc. 5. 6.
Provide retail services at reduced cost through branch network. Reduction of administrative expenses by reducing the number of workers with the help of electronic banking. Reduction of the volume of the paper work with the help of electronic banking. Increase of income through different types of fees like-debit card fee, credit card fee, Strengthening the position of in the competitive environment Expanding the services in the remote areas
Clients point of view:
2. cost. 3. 4. 5. 6.
Receiving timely and instant information, such as – a. Balance statement b. Account statement c. Transaction statement Ability to deposit and withdraw of money flawlessly within short time and at lower Advantageously making payment for the goods and services. Staying at home or outside, availing the facility like opening L/Cs, making investment, obtaining loan facility and above all making fund transfer with the help of electronic banking. Securing the advantage of maintaining secrecy of accounts of the clients. Enjoying utmost protection of the accounts maintained under electronic banking.
History of Electronic Banking In the 1961, the First National City Bank of New York introduced successfully the certificate of Deposit under electronic system for the first time. The primary stages of the e-banking are the Electronic Fund Transfer System (EFTS). The main elements of the EFTS are the Automated Teller Machine (ATM), Point of Sale (POS), Terminals, and the Automated Clearing House (ACHs). In 1967, the Barclays Bank of UK established Cash Dispenser at first. The working procedure of this machine was quite different from the machine used now. In those days, there were no magnetic cards. Bank gave paper voucher to its clients and when the clients would insert these vouchers in the machine 10 pounds would come out. Later on, plastic cards were used. Within one year of the establishment of cash dispenser by Barclays bank, France, Sweden and Switzerland started “National Cash Dispenser Network”. In 1969, Japan and USA started the use of these types of machines produced by them. The machines of that time were in offline; there was no connection with the computer. Machines of the second era: In 1972, Lloyd’s Bank of UK established the very first on-line “Cash Point” machine. They supplied plastic cards to their clients. There were magnetic stripes on those cards. As a result, the client’s accounts or the client could be identified. In this on-line system, every machine was connected with the central computer. Machines at present: The machines, which are used at present, are the outcome of the research performed in the last 30 years. In today’s machine, there is a full graphics screen monitor like color computer and transaction in different currencies can be conducted from the same machine. The cost of establishing these machines is also reducing. Now-a-days, only TK. 50-60 lac is needed to establish a machine. Basic Components of Electronic Banking: Electronic banking system requires the following four components1. 2. 3. 4.
Banking System Software Communication Network Delivery Channel Switching System
(1) Banking System Software: By using computer software package, banks can deal with the transactions of cash deposit, withdrawals, bill payment, bill collection, salary and settlement of provident funds, making accounting reports and statements etc. It does not require any use of papers to prepare journals, ledgers, vouchers or notes. (2) Communication network: Communication network is an important issue in an online banking. In some cases dial-up telephone and in other cases radio link is used for communication network. The usage of these networks depends on the practice of e-banking. (3) Delivery Channel: These channels are used in corporate and retail banking, as well as to the individual or family oriented banking. Modern banks and financial institutions are providing facilities like balance reporting, accounts keeping, domestic and international payments, trade financing, monitoring, netting, cash withdrawal and factoring and other sorts of services related to these by using Banksys, Euro clear, SWIFT etc. (4) Switching System: To sort the transactions data in due places, electronic banking network and various communication tools in bank host computer requires the use of switching system. It helps to prepare various reports and monitor the implementation of those. Types of electronic banking Electronic banking system provides customer services by means of various techniques and/or products. Types of services offered are different for each single product. Not all of the products were invented at a time rather through they were invented with the passage of time. With the advent and invention of newer electronic banking process, the quality of client service is increasing rapidly. In the following table the basic types of electronic banking products are presented: Types of Electronic Banking Retail Electronic Banking Service ATM Debit Credit Card Point Card of Sale- POS Cheque Truncation Home Type of Banking Retail Electroni Automated cs Clearing Banking House Source:(ACH) Bank Management by
Wholesale Electronic Banking Cash Management Wire Transfer Corporate Automated Clearing House- ACH
Dr. A R Khan
Electronic banking in Bangladesh Electronic Banking is growing popular day by day in Bangladesh. A number of private as well as local banks are going online now considering the demand and necessity of fast banking. Internet banking not only provides banking facility round the clock but also helps a
country to get attached to the international economy as well as business. People throughout the world are now getting engaged with more activity and business and hence need the fast and anytime access to his/her bank account. Internet banking also facilitates buying and selling various products which varies country to country. In Bangladesh many banks have launched Internet Banking. Amongst those HSBC, City Bank, BRAC Bank, Bank Asia, Jamuna Bank, Janata Bank, Southeast Bank, AB Bank, First Security Bank, Mercantile Bank, Premier Bank etc are in action already. Some are known as online banking, some are Internet Banking, providing various facilities. Electronic banking is a relatively new concept in Bangladesh. Like any new technology, along with the potential, it brings with it a rush of questions relating to its design, acceptability and potential risks. In the global banking scenario, cheques are passé now, and new methods of e-banking are widely welcomed. If Bangladesh's banks are to stay within the competition, they will have to move fast and initiate efforts to build the foundations for a good e-banking system. In the system of e-banking, funds are transferred through an exchange of electronic signals between financial institutions, rather than exchange of cash, cheques or other negotiable instruments. With the expansion of global information and communication technology (ICT) infrastructure and internet, e-banking is set to play a pivotal role in the national economy. Newer modes of electronic transactions are being introduced rapidly, from ATMs, telephone banking, PC banking to internet banking. Developing alternative distribution channels is important in terms of reducing costs and improving competitiveness. It also increases the financial institutions' ability to retain and expand their existing customer base. The common factors associated with e-banking are ease of use, transaction security, convenience and speed. Currently, online banking provides five basic services worldwide. It allows the users to • view their account balance and transaction history, • pay bills, • transfer funds between accounts, • request credit card advance and • order cheques. 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 the user and the bank. The ATM was the first wellknown system that was introduced to facilitate the access of the user to his/her banking activities. Currently, the banks are considering online banking as a powerful “value added” tool to attract and retain new customers, while helping to eliminate costly paper handling and teller interactions in an increasingly competitive banking environment. E-banking is now a global phenomenon. Apart from the developed world, the developing countries are also experiencing strong growth in such transactions. The government's emphasis on building a digital Bangladesh, setting up an ICT park, raising allocation for developing ICT infrastructure, waiving taxes on computer peripherals and other measures,
including the automation program of the banking sector have brightened the prospects of ebanking. Adaptation of electronic banking Nowadays e-commerce, e-business and financial services industry have increasingly become a necessary component of business strategy and a strong catalyst for economic development. As a third-world developing country, Bangladesh is far behind to reach the expected level in global banking system. So it is our urgent need to upgrade its banking system. E-Banking satisfied customer demand in banking activities electronically throughout the world. At present, several private commercial banks (PCBs) and foreign commercial banks (FCBs) in Bangladesh offered limited services of tele banking, internet banking, and online banking facilities working within the branches of individual bank in a closed network environment. The FCBs 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. Prospects of e-banking in Bangladesh: The Bangladesh railway owned a high-speed optical fiber network (1,800 km) parallel to the railway path that covered most of the important parts of Bangladesh. This optical fiber network can be used as the backbone network of e-banking in Bangladesh. For example, mobile phone operators such as Grameen Phone and Ranks ITT of Bangladesh used this optical fiber network through which they reached even in rural areas with their services (Islam 2005). It is encouraging that some of the FCBs and PCBs are already used this optical fiber network for conducting online transactions, ATM and POS services. In addition, Bangladesh Bank was implementing the different projects for modernizing national payment and settlement system started from 2009 followed by the development of inter-bank online network. It made mandatory for all head offices of the scheduled banks to be connected with Bangladesh Bank. These efforts would allow the scheduled banks to be connected to each other for conducting inter-bank online transactions in near future and this would smooth the introduction of e banking in Bangladesh. Internet services came to Bangladesh with connectivity in 1996. Digital telephone exchanges established in 389 upazilas and 17 growth centres. Work was underway to cover the rest of the upazilas under digital exchange system. Meanwhile, Bangladesh joined the information super-highway by connecting itself with international submarine cable system in 2006. A total of 159 Internet Service Providers (ISPs) now connected with this system of which 64 are actively providing services. Internet connection was slow with bandwidth range 32 - 56 kbps for dial up and 64 - 8 mbps for broadband. Under this scenario, as a part of government decision of building digital Bangladesh, the existing capabilities of ICT sector was 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 was 1.64. For foreign commercial banks (FCBs) the computer density was 45.34, where as for NCBs the ratio was only 0.41. The specialized bank scenario was almost same as the NCBs, 0.43. On the other hand, private commercial banks had comparatively higher ratio, 4.94. As a whole 81.81 percent bank did not have any local area network (LAN), 30 percent had WAN (Wide Area Network) but for some banks many branches were outside of WAN connectivity. At present, all foreign banks of our country were using online banking
system; they were invested a lot for their automation banking services. For this reason, they were increasing market share every year. They were the pioneer of implementing electronic banking systems in Bangladesh, but now most of the private banks of our country used electronic banking systems. In our country different banks were offering electronic banking services in different ways, some were offering ATM (Automatic Teller Machine) services, some were tele-banking and some were electronic fund transfer, debit card, credit card etc. Recently, the governmentâ€™s emphasis on building a digital Bangladesh, setting up ICT park, raising allocation for developing ICT infrastructure, waiving taxes on computer peripherals and other measures including the automation program of banking sector led by the Bangladesh Bank and competition among the scheduled banks in improving customer services accelerated the prospects of e-banking in Bangladesh. Electronic facilities given by different bank in Bangladesh The following Electronic facilities are providing by different Foreign and Private Commercial banks (PCBs) in Bangladesh: Bank accounts: Savings, Current, FDR, PDS, Term Deposit Scheme All these accounts are maintained in electronic way for the sake of customer satisfaction in Bangladesh. People can deposit their money through electronic device and also can withdraw their money such way. These are the common bank accounts which maintained by the bank customer every now and then and bank is also given high priority or facilities in this regards to their customer. Special Services Some Banks render special services to the customers attracting other banks. Debit Point-of-Sale An advanced payment system which enables consumers to use an ATM Card to pay for goods and services, electronically debiting the cardholders account and crediting the account of the merchant. Cards: Credit/Debit Card There are two different types of card. One is debit which designate to withdraw own money from the bank in any time. Another one is a credit system which provided by bank to their customer. Customer can enjoy their credit amount while they are in shopping, withdraw cash etc. Internet Banking Customers need an Internet access service to handle this type of banking. As an Internet 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. Home Banking Home banking frees customers of visiting branches and most transactions will be automated to enable them to check their account activities transfer fund and to open L/C sitting in the own desk with the help of a PC and a telephone. For example: HSBC is giving Hexagon facilities to their individual and corporate customer.
Automated Teller Machine (ATM) Full abbreviation of ATM is “Automated Teller Machine” which acts like a teller point in a bank who takes and gives money over the counter. ATM is same as teller point but it run automatically through identity like card and password. It does not need any slip or Cheque but it is very much based on A/C holder’s ATM card and it’s Password. Those who are entitled for ATM card, bank has provided them a password against every single card. This is like a debit card. People can deposit their money in a bank account and they have entitled withdraw their money through ATM card, which is applicable for 24 hours a day and 365 days in a year. It has different name such as ATM, 24 hours banking card, money link card, e-cash, ready cash etc. In Bangladesh, some multinationals incepted the ATM booth in Dhaka since 1992-93. The Grind lays Bank was the pioneer in Bangladesh then after Standard Chartered Bank, American express Bank, HSBC, Bank Asia and seven others local private banks are the followers. Tele Banking Tele-Banking permit customers to get access into their respective banking information 24 hours a day. Subscribers can update themselves by making a phone call. They can transfer any amount of deposit to other accounts irrespective of location either from home or office. SWIFT SWIFT is a bank owned non-profit co-operative based in Belgium servicing the financial community worldwide. It ensures secure messaging having a global reach of 6,495 Banks and Financial Institutions in 178 countries, 24 hours a day. SWIFT global network carries an average 4 million message daily and estimated average value of payment messages is USD 2 trillion. SWIFT is a highly secured messaging network enables Banks to send and receive Fund Transfer, L/C related and other free format messages to and from any banks active in the network. Having SWIFT facility, Bank will be able to serve its customers more profitable by providing L/C, Payment and other messages efficiently and with utmost security. Especially it will be of great help for our clients dealing with Imports, Exports and Remittances etc. Easy Pay Machine It is a mechanical device which can accepted utilities bill like land phone bills, cell phone bills, Gas bills, WASA-DESA bills etc. The day after tomorrow bank will report to the particular authority to give acknowledgement on behalf of their customer. Others There are some other electronic services like TV Banking, Mobile Banking; SMS Banking through cellular phone, Mail Banking etc is practicing ignorable way. But banks are trying hard to develop new products which can be done through electronic device like internet, telephone including cellular and mechanical devices. The common features of electronic banking in Bangladesh are as follows: Electronic banking idea developed in Bangladesh since 1992 through several multinational banks. But most of the local and foreign banks are maintained electronic banking in their all branches. Here the researcher fined some common features of electronic banking in Bangladesh. 1.
24- hours cash deposit & withdrawal facility
2. Quick cash withdrawal without having queue 3. Account activities enquiry in any moment 4. Statement request through ATM/Debit/Credit Card 5. Transfer own funds to other account number in same bank 6. Present Balance enquiry 7. More than16-hours shopping facilities 8. Deposit or Mail cash or cheque(s) (Cross cheque) through mechanical device. 9. Changing Personal Identity Number 10. Cash deposit which will originally deposit very next day of deposit that means do not need to go to the branch for every occasion. 11. Mini statement which contain 8-10 previous transaction records 12. Can able to pay utilities bill 13. Withdraw money by using VISA, PLUS, MASTER, MAESTRO and other credit card 14. Withdraw money from dollar account which gives taka by converting foreign currency Advantages of e-banking in Bangladesh: There were a substantial number of educated unemployed youth forces, with ability to read and write English exist in the country. They 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. •
According to Bangladesh Bureau of Statistics, the number of unemployed people in Bangladesh in 1990 - 2001 was 1.0 million. Among them 0.2 million are male and 0.8 million female, at the rate of unemployment was 1.1 which was extended 1.9. The issue of computers eliminating jobs of people was quite emotional and painfully real. But it has two sides that automation will eliminate certain types of job like record keeper and also created jobs like administrator, system analyst, programmer, operator etc. and helped 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 was better branding and better responsiveness to the market. The other benefits were possible to measure in monetary terms. The main goal of every company was to maximize profits for its
owners and banks were not any exception. Automated e-banking services offered a perfect opportunity for maximizing profits. •
Benefits from the customers’ point of view:
The main benefit from the bank customers’ point of view was significant saving of time by the automation of banking services processing and introduction of an easy maintenance tools for managing customer’s money. Increased comfort and timesaving-transactions made 24 h a day, without requiring the physical interaction with the bank. Quick and continuous access to information. Corporations had easier access to information as, they checked 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 looked for slightly different kind of benefits from e-banking. Reduced costs: This was in terms of the cost of availing and using the various banking products and services. Convenience: All the banking transactions performed from the comfort of the home or office or from the place a customer wants to. Speed: The response of the medium was very fast; therefore customers actually waited till the last minute before concluding a fund transfer. Fund’s management: Customers downloaded their history of different accounts and do a “what-if” analysis on their own PC before affecting any transaction on the web. •
E-banking served so many benefits not only to the bank itself, but also to the society as a whole. E-banking made 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 reached 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 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. Limitations and Constraints Although e-banking has bright prospects, it involved some financial risks as well. The major risk of e-banking included operational risks (e.g. security risks, system design, implementation and maintenance risks); customer misuse of products and services risks; legal risks (e.g. without proper legal support, money laundering may be influenced); strategic risks; reputation risks (e.g. in case the bank fails to provide secure and trouble free e-banking services, this will cause reputation risk); credit risks; market risks; and liquidity risks. Another important issue in extending the internet banking services throughout the country was gaining popularity. In Bangladesh most of the people were illiterate and obviously they were technology ignorant. But among the literate portion many of them had computer phobia. So these people could not trust on the internet banking services. To gain the confidence on internet banking the overall computer literacy must be developed. With that goal government had taken initiative even in the root level to develop it literacy in the country. This would be a perfect ground for the development of internet banking. However, with banking customers growing increasingly comfortable with the digital lifestyle, but Bangladeshi customers were not aware about e-banking in Bangladesh. They were not fully understand the power of technology and seek to leverage it to enjoy better control over their banking operations. Suggestions for introducing Electronic Banking in Bangladesh In our country, the electronic banking systems are yet in the preliminary stage. Most of the banks still maintain their transactions manually. To improve the condition we have the following suggestions for the banks in Bangladesh. 1.
Government should create a congenial environment so that all govt. and private sectors could get the benefit. 2. Provide adequate training and technological support to develop the manpower/personnel working in the e-banking section need to be arranged by the management of govt. and private authority. 3. Developing the national as well as the international communication standard for providing e-banking services with ease. 4. Banks should have their own strategic plans for automated market development. 5. Developing of integrated e-banking software within a short period of time. 6. A specialized, self-owned organization can be established to incorporate ebanking infrastructure development of the financial institutions. 7. A standard carrier design needs to be formed for the computer experts within the bank, so that they do not feel interest to go abroad for lucrative financial offer. 8. Clearing house operations are demanded to be fully automated. If it could be implemented, then banks will be motivated to implement in front service counter of electronic banking. 9. Countries legal structure also needs to be technology based. Safe and ease fund transfer would be possible by abiding the law of e-banking. 10. To take initiative for implementing automated financial sector by co-ordinate effort of the central bank along with the commercial bank.
Bangladesh is supposed to implement wholesale e-banking rather than taking retail e-banking system in its primary stage. In doing so it has to take back end e-banking system, automated clearing house on the part of the central bank. Along with this, by being introduced with ATM, Debit card, Credit card clients are habituated with the modern banking practices and this will help to implement a fully conducive environment for e-banking. Conclusion E-banking, the latest generation of electronic banking transactions, opened up new window of opportunity to the existing banks and financial institutions. Most of the banks have their own websites but not all of them offered internet facilities. The main reason of this was that the banks did not have the IT infrastructure and proper security features. The Ministry of Science, Information and Communication Technology went out the policy for the development in the IT sector. To conclude that e-banking also provided other benefits. For instance, creating new markets, and reducing operational costs, administrative costs and workforce are increasingly important aspects for the banksâ€™ competitiveness, and e-banking improved these aspects as well. So, Bangladeshi banks should take these advantages of ebanking in Bangladesh economy as early as possible.