Distance Banking Services (DBS) Maria Gorchakova (BSUEL, Russia) Introduction of Distance Banking Services 1. Definition

1. Distance Banking Services (DBS) Maria Gorchakova (BSUEL, Russia) Introduction of Distance Banking Services 1. Definition of Distance Banking Services 2. Forms of Distance Banking Services Internet Banking 1. Main principles of Internet Banking 2. Internet Banking for legal entities 3. Internet Banking for individuals Telephone Banking Mobile Banking 1. A mobile banking conceptual models 2. Mobile banking business models 3. Mobile Banking Services 4. SMS-Banking PC-banking (Bank Systems «Customer – Bank») Some peculiarities of Distance Banking Services management in foreign countries Problems and Prospective of Distance Banking Services development in the Russian Federation

2. There are many remote distribution channels banks have beendeploying for more than 20 years, to complement branch and call centers to interactwith their customers, as illustrated in Fig. 1.

4. E-banking is defined as the automated delivery of new and traditionalbanking products and services directly to customers through electronic, interactivecommunication channels. E-banking includes the systems that enable financialinstitution customers, individuals or businesses, to access accounts, transact business, orobtain information on financial products and services through a public or privatenetwork, including the Internet. Customers access e-banking services using an intelligentelectronic device, such as a personal computer (PC), personal digital assistant (PDA),automated teller machine (ATM), kiosk, or Touch Tone telephone.

5. The functions provided by banks on the Internet have evolved from simpleconsultation of account to a full range of banking services. In the most developedapplications, one can access on the Internet nearly all services accessible at thebranch or by phone. In addition to offering all ‘‘branch-based’’ services, technologyallows banks to offer new added value services only available online such as personalisedfinancial information menus, e-mail alerts, electronic commerce, real-timebrokerage and third party services (management of electricity bills, tax payment orportals) which increase the benefits and interest of the service. Fig. 2 below shows apossible classification of Internet banking services.

7. Telephone banking is a service provided by a financial institution which allows its customers to perform transactions over the telephone. • Most telephone banking use an automated phone answering system with phone keypad response or voice recognition capability. To guarantee security, the customer must first authenticate through a numeric or verbal password or through security questions asked by a live representative (see below). With the obvious exception of cash withdrawals and deposits, it offers virtually all the features of an automated teller machine: account balance information and list of latest transactions, electronic bill payments, funds transfers between a customer's accounts, etc. • Usually, there is also the possibility to speak to a live representative located in a call centre or a branch, although this feature is not guaranteed to be offered 24/7. In addition to the self-service transactions listed earlier, telephone banking representatives are usually trained to do what was traditionally available only at the branch: loan applications, investment purchases and redemptions, chequebook orders, debit card replacements, change of address, etc.

8. The main components of the solution are:

9. Mobile Banking (also known as M-Banking, mbanking, etc.) is a term used for performing balance checks, account transactions, payments etc. via a mobile device such as a mobile phone. Mobile banking today (2008) is most often performed via SMS or the Mobile Internet but can also use special programs downloaded to the mobile device. A mobile banking conceptual model. In one academic model, mobile banking can be said to consist of three inter-related concepts: • Mobile Accounting • Mobile Brokerage • Mobile Financial Information Services Most services in the categories designated Accounting and Brokerage are transaction-based. The non-transaction-based services of an informational nature are however essential for conducting transactions - for instance, balance enquiries might be needed before committing a money remittance. The accounting and brokerage services are therefore offered invariably in combination with information services. Information services, on the other hand, may be offered as an independent module.

10. Trends in mobile banking • The advant of the Internet has revolutionized the way the financial services industry conducts business, empowering organizations with new business models and new ways to offer 24x7 accessibility to their customers. • The ability to offer financial transactions online has also created new players in the financial services industry, such as online banks, online brokers and wealth managers who offer personalized services, although such players still account for a tiny percentage of the industry. • Over the last few years, the mobile and wireless market has been one of the fastest growing markets in the world and it is still growing at a rapid pace. According to the GSM Association and Ovum, the number of mobile subscribers exceeded 2 billion in September 2005, and now exceeds 2.5 billion (of which more than 2 billion are GSM). • According to a study by financial consultancy Celent, 35% of online banking households will be using mobile banking by 2010, up from less than 1% today. Upwards of 70% of bank center call volume is projected to come from mobile phones. Mobile banking will eventually allow users to make payments at the physical point of sale. "Mobile contactless payments” will make up 10% of the contactless market by 2010.

11. Mobile banking business models • A wide spectrum of Mobile / branchless banking models is evolving. These models differ primarily on the question that who will establish the relationship (account opening, deposit taking, lending etc.) to the end customer, the Bank or the Non-Bank / Telecommunication Company (Telco). Another difference lies in the nature of agency agreement between bank and the Non-Bank. Models of branchless banking can be classified into three broad categories - Bank Focused, Bank-Led and Nonbank-Led.

12. Bank-focused model • The bank-focused model emerges when a traditional bank uses non-traditional low-cost delivery channels to provide banking services to its existing customers. Examples range from use of automatic teller machines (ATMs) to internet banking or mobile phone banking to provide certain limited banking services to banks’ customers. This model is additive in nature and may be seen as a modest extension of conventional branch-based banking.

13. Bank-led model • The bank-led model offers a distinct alternative to conventional branch-based banking in that customer conducts financial transactions at a whole range of retail agents (or through mobile phone) instead of at bank branches or through bank employees. This model promises the potential to substantially increase the financial services outreach by using a different delivery channel (retailers/ mobile phones), a different trade partner (telco / chain store) having experience and target market distinct from traditional banks, and may be significantly cheaper than the bank-based alternatives. The bank-led model may be implemented by either using correspondent arrangements or by creating a JV between Bank and Telco/non-bank. In this model customer account relationship rests with the bank

14. SMS banking is a technology-enabled service offering from banks to its customers, permitting them to operate selected banking services over their mobile phones using SMS messaging. • SMS banking services are operated using both push and pull messages. Push messages are those that the bank chooses to send out to a customer's mobile phone, without the customer initiating a request for the information. Typically push messages could be either Mobile marketing messages or messages alerting an event which happens in the customer's bank account, such as a large withdrawal of funds from the ATM or a large payment using the customer's credit card, etc.

15. Another type of push message is One-time password (OTPs). OTPs are the latest tool used by financial and banking service providers in the fight against cyber fraud. Instead of relying on traditional memorized passwords, OTPs are requested by consumers each time they want to perform transactions using the online or mobile banking interface. When the request is received the password is sent to the consumer’s phone via SMS. The password is expired once it has been used or once its scheduled life-cycle has expired. • Pull messages are those that are initiated by the customer, using a mobile phone, for obtaining information or performing a transaction in the bank account. Examples of pull messages for information include an account balance enquiry, or requests for current information like currency exchange rates and deposit interest rates, as published and updated by the bank.