Online Banking

Online banking is the practice of making bank transactions or paying bills via the Internet. Thanks to technology, and the Internet in particular, we no longer have to leave the house. We can shop online, communicate online, and now, we can even do our banking online. Online banking allows us to make deposits, withdrawals and pay bills all with the click of a mouse. It doesn't get much more convenient than that.

History:
The precursor for the modern home online banking services were the distance banking services over electronic media from the early '80s. 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. 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 using the videotex system. Because of the commercial failure of videotex these banking services never became popular except in France where the use of videotex) was subsidised by the telecom provider and the UK, where the Prestel system was used.

The UK's first home online banking services
was set up by the Nottingham Building Society (NBS) in 1983 The system used was based on the UK's Prestel system and used a computer, such as the BBC Micro, or keyboard connected to the telephone system and television set. The system (known as 'Homelink') allowed on-line viewing of statements, bank transfers, and bill payments. Stanford Federal Credit Union was the first financial institution to offer online internet banking services to all of its members in Oct, 1994

Difference between online banking and traditional banking: Online Banking and traditional banking are very much similar to each other but the main difference between the two is in online banking, you can access your information and account, make payments and reconcile statements with the help of your computer rather than through phone or paper work. Instead of visiting your local bank branch, you can visit the website of your bank and accomplish various tasks with only a few clicks of the mouse. Online banking has become extremely popular among the customers and almost all the banks are providing these services to their account holders.

The functioning of online bank is same as a traditional bank which aims at holding the money of the account holders and lending it out to people respectively. Their function is to manage the loans and keep a track of finances of the account holders. A large number of people are now giving preference to online banking procedures because it saves a lot of time and effort for the account holders. Online banking is also beneficial for the frequent travelers who need to monitor their finances from a foreign place. If you want to take a debt from an online bank, you can make your application online and wait for its approval. Usually, the services of online banking are quicker as compared to traditional banking. This is because all the data is stored on the computers and accessing them is more convenient than searching all the paper work and documents of the bank.

Common Features of Online banking: Today, most large national banks, many regional banks and even smaller banks and credit unions offer some form of online banking, variously known as PC banking, home banking, electronic banking or Internet banking. The common features of online Banking includes….

• Transactional (e.g., performing a financial transaction such as an account to account transfer, paying a bill, wire transfer... and applications... apply for a loan, new account, etc.)
  
  • Electronic bill presentment and payment- EBPP
    
  • Fund Transfer between a customer's own checking and savings accounts, or to another customer's account
    
  • Investment purchase or sale
    
  • Loan applications and transactions, such as repayments
    

• Non-transactional (e.g., online statements, check links, cobrowsing, chat)
  
  • Bank statements
    

    
    

• Financial Institution Administration - features allowing the financial institution to manage the online experience of their end users
  
• ASP/Hosting Administration - features allowing the hosting company to administer the solution across financial institutions
  

Types of Internet Banking: Getting an idea about the various types of Internet banking products will help examiners review the associated risks. Currently, in the market place, the following three basic types of Internet banking are being employed.

• Informational - This is the fundamental level of Internet banking. Typically, on a stand-alone server, the bank has marketing information about the bank's products and services. Since informational systems naturally have no path between the server and the bank's internal network, the risk is comparatively low. This level of Internet banking can be offered by the bank or outsourced. While the risk to a bank is rather low, the server or Web site may be susceptible to adjustment. To prevent unauthorized alterations to the bank's server or web site, appropriate controls therefore must be in place.
  
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  Communicative - Interaction between the bank's systems and the customer would be allowed by this type of Internet banking system. The interaction may be confined to electronic mail; account inquiry, loan applications, or static file updates (name and address changes). The risk is higher with this configuration than with informational systems since these servers may have a path to the bank's internal networks.
  
• Transactional - Customers can execute transactions with this level of Internet banking. This is the highest risk architecture and must have the strongest controls, since a path normally exists between the server and the bank's or outsourcer's internal network. Accessing accounts, paying bills, transferring funds, etc are the customer transactions that would be included.
  

Advantages of online banking:

• Convenience: Unlike your corner bank, online banking sites never close; they're available 24 hours a day, seven days a week and they're only a mouse click away.
  
• Ubiquity: If you're out of state or even out of the country when a money problem arises, you can log on instantly to your online bank and take care of business, 24/7.
  
• Transaction speed: Online bank sites generally execute and confirm transactions at or quicker than ATM processing speeds.
  
• Efficiency: You can access and manage all of your bank accounts, including IRAs, CDs, even securities, from one secure site.
  
• Effectiveness: Many online banking sites now offer sophisticated tools, including account aggregation, stock quotes, rate alerts and portfolio managing programs to help you manage all of your assets more effectively. Most are also compatible with money managing programs such as Quicken and Microsoft Money.
  

Disadvantages of online banking:

• Start-up may take time: In order to register for your bank's online program, you will probably have to provide ID and sign a form at a bank branch. If you and your spouse wish to view and manage your assets together online, one of you may have to sign a durable power of attorney before the bank will display all of your holdings together.
  
• Learning curve: Banking sites can be difficult to navigate at first. Plan to invest some time and/or read the tutorials in order to become comfortable in your virtual lobby.
  
• Bank site changes: Even the largest banks periodically upgrade their online programs, adding new features in unfamiliar places. In some cases, you may have to re-enter account information.
  
• The trust thing: For many people, the biggest hurdle to online banking is learning to trust it. Did my transaction go through? Did I push the transfer button once or twice? Best bet: always print the transaction receipt and keep it with your bank records until it shows up on your personal site and/or your bank statement.
  

  
  

  
  

Security Threats in Online Banking:
Banks and service providers require guarding against various types of online attacks. The purpose of an attack may vary. In operating systems of particular kind, attackers may try to exploit known vulnerabilities. During a short time frame, they also may try to make an unauthorized entry into a Web site repeatedly thus denying service to other customers. Types of attacks may include:

• Sniffers
  - Also familiar as network monitors, this software is used to capture keystrokes from a specific PC. Logon Ids and passwords may be captured with this software.
  
• Guessing Passwords - We can test all possible combinations to enter into a network using this software.
  
• Brute Force - A technique to capture encrypted messages then using software to break the code and gain access to messages, user ID's, and passwords.
  
• Random Dialing - To dial every number on a known bank telephone exchange, this technique is used. The purpose is to find a modem connected to the network. This could then be used as a point of attack.
  
• Social Engineering - To gain information about the system along with changing password, an attacker calls the bank's help desk impersonating an authorized user.
  
• Trojan horse - A programmer can insert code into a system that will let the programmer or another person illegal entrance into the system or network.
  
• Hijacking - Attempting to deduce information from them there by intercepting transmissions. Internet traffic is particularly susceptible to this threat.
  

Online banking is the modern day banking.
Online banking isn't out to change your money habits. Instead, it uses today's computer technology to give you the option of bypassing the time-consuming, paper-based aspects of traditional banking in order to manage your finances more quickly and efficiently.