Key Issues for E-Banking

Moreover, the Internet poses a range of risks and threats. Some of them are:

Security risks that may arise due to unauthorized access to a bank's key information like the accounting system, risk management system and portfolio management system. A breach of security could result in direct financial loss to the bank. In addition to external attacks, banks are exposed to security risk from internal sources e.g. employee fraud. Employees can acquire the authentication data in order to access customer accounts, causing losses to the bank.

Operational risks that may arise due to inaccurate processing of transactions. nonenforceability of contracts, compromises in data integrity, data privacy and confidentiality, unauthorized access/intrusion to bank's systems and transactions, etc. These risks may arise due to weaknesses in design, implementation and monitoring of banks' information system, inadequate technology, negligence by customers and employees, fraudulent activity by employees and hackers.

Banks face the risk of the wrong choice of technology, improper system design and inadequate control processes. Technology, which is outdated, not scalable or not proven, may lead to the loss of bank's investment and risk its business. Many banks rely on outside service providers to implement, operate and maintain their e banking systems since they do not have the requisite expertise. However, it adds to the operational risk.

Legal risk arises when violation of laws, rules and regulations or prescribed practices takes place, or when the legal rights and obligations of parties to a transaction are not well established. These risks may also arise due to uncertainty about the validity of some agreements formed via electronic media and law regarding customer disclosures and privacy protection.

E banking extends the geographic reach of banks and customers beyond national borders which may lead to cross border risks. This risk involves legal and regulatory risks, as there may be uncertainty about legal requirements in some countries and jurisdiction ambiguities with respect to the responsibilities of different national authorities. Such considerations may expose banks to legal risks associated with non compliance of different national laws and regulations. Crossborder transaction also involves credit risk, since it is difficult to appraise an application for a loan from a customer in another country. Banks accepting foreign currencies in payment for electronic money may be subjected to market risk because of movements in foreign exchange rates.

Reputational risk is the risk of getting significant negative public opinion, which may result in loss of funding or customers. The main reasons for this risk may be the system or product not working to the expectations of the customers, system deficiencies, security breaches, inadequate information to customers about product use and problem resolution procedures, problems with communication networks that impair customers' access to their funds or account information. This may cause the customer to discontinue the use of product/service.

As e banking transactions are conducted remotely, banks may find it difficult to apply traditional method for detecting and preventing undesirable criminal activities, which may lead to money laundering risk. Application of money laundering rules may also be inappropriate for some forms of electronic payments. This may result in legal problems for non complying to 'knowing your customer' laws.

Banks, international organizations, governments and financial institutions have to work together to manage all the risks mentioned above which requires a proper regulatory framework to be put in place. It is critical that partnerships should continue to enhance consumer trust towards e banking. Banks conducting business online have to consider security and reliability as their first business priority for customer retention.

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