Can hackers intercept messages as they pass through the Internet, grabbing credit card numbers, account passwords and other financial secrets? Can a computer genius break into a bank’s system and embezzle the customer’s money?

Risks involved in electronic banking

Banks may face different forms of risks in the future due to shift to the electronic medium.

These include:

• Dominance of technology companies

In future technology providers may dictate banks with respect to the terms and conditions at which:

• Retail services will be made available to the customers electronically
• Cost of providing the retail services
  
  
• Fear of losing primary relationship with customers

The standard interface in E-banking is a web browser and a mouse. Thus, the person-to-person contact is replaced by a computer link. With customers using computers to give instructions to their bankers and to conduct all routine banking businesses, banks may lose the personal contact with their clients. This may remove the human element in banking business.

• Electronic security

Most of the retail banking products, in the electronic era will be delivered through shared networks like the ATM and the Internet. In view of this, security of the information will become increasingly important. Moreover, the legal rights and obligations of the banks and the customers in the event of security failure and the resultant potential loss incurred by the customers assume importance.

Hence, security of bank information from the hackers is very important.

The risks involved in the security aspect are:

Earlier, many banks had established web sites which gave general information about the bank and the various services offered. This represented a limited type of electronic banking, which was relatively risk free as the web sites were not linked to the bank’s internal systems. These internal systems hold actual account information of the bank’s customers.

Many banks have now established “fully transactional” web sites for their retail banking services. Using these sites, customers can obtain account information, transfer funds among accounts, file various applications, make payments and transact other routine business. These transactional sites increase the risks as they provide a path to the bank’s internal network and systems holding confidential information about the customer’s account.

In order to ensure security of online banking transactions, banks must:

• Construct firewalls to protect inside information from hackers
• Customer account information must be made available by means of passwords and encryption technology
• Safety of information must be assured during its transmission via the Internet
  
  
• Proper authority to conduct E-business

Banks must provide a certification, that they have the authority to conduct E-business. While conducting banking business via the Internet, both the banker and the customer must be guaranteed of dealing with only the authorised party. This guarantee may be given in the form of digital certificates.

Issues to be considered in this respect:

• Will the bank, which has the authority (backed by a digital certificate) be liable for any financial loss suffered by the client?
• Will the bank be in a position to gauge the extent of imminent loss, and accordingly be insured for the same value?
• How often must the bank check the identity of the customer while transacting banking business like processing a loan via the online application form or credit card transactions? Identity of the customer can be established via the personal identification number (PIN) allocated to each customer.
• Should the bank limit its loss, by specifying the maximum extent to which the liability/loss of the customer will be borne by it? This would help the customers make informed decisions about transacting on the Internet.