B ANKING I NFORMATION S YSTEMS

BANKING INFORMATION SYSTEMS LECTURE 6

Problematic Issues in E-BankingManagement 1. Technology related problems 2. Management problems

Technology Related Problems 1. IT and telecommunication infrastructure issues 2. Capacity/scalability problems 3. Availability and systems integration 4. Web site design and operational functionality

1. IT and TelecommunicationInfrastructure Issues •  Many developing countries do not have thenecessary telecommunications, banking,commercial, bureaucratic and legalinfrastructures to support e‐banking. •  Access to the Internet is a major problem inthe developing world, and presents anobstacle to the growth of e‐banking.

2. Capacity/Scalability Problems •  Scalability problems can give rise to a slowing down of the website, or even a website crash (temporary unavailability). •  This can cause many reputation problems and financial damage. •  Some of the ways of addressing this problem are: -  Undertake market research to predict demand -  Adopt systems with adequate capacity and scalability -  Undertake proportionate advertising campaigns -  Ensure adequate staff coverage and develop a suitable business continuity plan •  A number of other technical solutions are also available to address this problem but owing to the high cost associated with them, some banks do not implement them.

3. Availability and Systems Integration •  A basic requirements of e-banking services is their 24‐hour availability. •  This often requires e-banking applications’ integration with legacy systems, which were designed to provide services during only specifiedperiods, often with suspension of services at other times for variousreasons such as data backups and end‐of‐day processing. •  Usual legacy systems are accounting, banking, payroll, customer information, product management (such as current accounts or savingsaccounts), and inventory systems. The new business applications areoften not built from scratch and they normally rely on the functionalityof the existing legacy applications. •  Incompatibility between e-banking applications and legacy systems means that most banks require middleware to integrate these systems,which can be expensive and may bring its own set of problems.

4. Web Site Design and OperationalFunctionality •  There is considerable weight attached to the appropriate design of e-banking web-sites. •  Poor design of website has been estimated to result in the loss of up to 50 percent of potential repeat visits. •  Poor design may include: -  Use of inappropriate colors, contrast, font or navigation functions. -  Lack of proper functionality. -  Excessive use of graphic. •  Poor website design can also result in decreased trust in using online financial services as look and feel often creates a lasting impression.

4. Web Site Design and OperationalFunctionality •  Web usage barriers can also be attributed to vision, cognition, and physical impairments associated with thenormal aging process. •  Vision changes include a decline in visual acuity resulting in inability to see objects on a screen clearly, decreased capacity to focus at close range, or increased sensitivity to glare from light reflecting or shining into the eye. •  There are people who might need the online services most due to mobility issues.

Management Problems 1. Regulatory issues 2. Information management 3. Outsourcing problems 4. Security 5. Loss of personal relationship 6. Organizational structures and resistance 7. Trust issues 8. Adoption/acceptance issues 9. Clash with other services delivery channels 10. Change management issues 11. Ethical issues

1. Regulatory Issues •  As the Internet is a global medium, it creates opportunities for trading on an international basis, but every country has its own laws and regulationsconcerning the provision of financial services. •  The issue of preventing money laundering, which is considered to be the main source of finance for terrorism and other related criminal activities, has furthercomplicated the situation . •  This is one of the major problems in expansion of e‐banking services on a global basis. •  The Internet is a major source of consumer intelligence (personal information, buying patterns and behavior) which raises a number of privacy, security anddata protection issues which regulators must address effectively. •  New regulations must be put in place more quickly than in the past, leading to constant changes in laws and regulations, and complicating compliance; again amajor obstacle to the growth of e‐banking.

2. Information Management •  Good information management enables organizations to become more effective in their operations as it provides the information employees need to analyze and conceptualize information, thereby adding to the firm’s store of knowledge and making their jobs more meaningful and efficient. •  This gives employees an opportunity to add value to the organization’s products and services. •  In online services operations, good information can be a vital difference between success and failure. •  Effective e‐banking requires that management has up‐to‐date and timely information in an understandable format. Any improvements in this area can lead to significant benefits in operations and the marketing of e‐services.

3. Outsourcing Problems •  Development or implementation of e‐banking systems and other technical tasks such as upgradingand integrating existing legacy systems are verycomplex. •  They require very high levels of technical and projectmanagement competence to carry out withoutoutside help. Even the best companies need torecognize the limitations of their expertise and whento outsource certain e‐Commerce functions. •  Many banks outsource all or part of e‐banking relatedoperations owing to a lack of in‐house expertise orsimply to cut costs.

3. Outsourcing Problems •  Some aspects of outsourcing, for example the typeand number of partners, can present particularmanagement challenges. •  Outsourcing works in some cases but can create a riskof the bank losing control of its critical functions. •  For this reason, if a bank needs to outsource its e‐banking operations, it should do so with dueconsideration to outsourcing risks. General goodpractice in planning, negotiating and actualoutsourcing is applicable here.

Outsource vs. In‐house

4. Security •  Security related issues are a major source of concern for everyone both inside and outside the banking industry. •  E‐banking increases security risks, potentially exposing traditionally isolated systems to the open and risky world ofInternet. •  Security problems can mainly be categorized as: -  Hacking with criminal intent (e.g. fraud), -  Hacking by ‘casual hackers’ (e.g. defacement of web sites or ‘denial of service’ ‐ causing web sites to slow or crash), -  Flaws in systems providing opportunities for security breaches (e.g. a users is able to transact on other users’ accounts). •  These threats have potentially serious financial, legal and reputational risks associated with them.

Security Threats 1. Login detail disclosure: •  This is most basic threat to the financial system. •  Using a number of means, criminals acquire logindetails, such as a customer number, pin, and useit to access the account and steal money from it.

Security Threats 2. Computer spy viruses: •  These are computer programs which are circulated through email or other means. •  Once a customer opens a malicious email a program is automatically installed in his/her computer. •  These programs collect login id or other financial information which is used to conduct a range of criminal activities such as credit card cloning or unauthorized funds transfer. •  Spyware are small programs which discreetly install themselves on computers and send details of a user’s activities to another computer.

Security Threats 3. Dummy sites: •  Customers are lured to the dummy or look alike website. •  These website look very similar to a bank’s website, and when login details are entered,these are recorded and used for criminalactivities.

Problems associated with Implementing Security Procedures 1. Customer resentment against several layers of security which might lead to loss of customers. 2. High cost associated with them; most sophisticated systems can be implementedonly for the highest value parts of e‐bankingsystems.

Security Approaches •  A strategic approach to security, building best practice security initiatives into systems and networks as they are developed. •  A proactive approach to security, involving active testing of security systems, controls (e.g. penetration testing), planning response to new threats and vulnerabilities and regular reviews ofinternal as well as external threats. Advice from financialregulators can be sought on how to do it. •  Sufficient staff with security expertise and responsibilities. •  Regular use of system based security and monitoring tools. This may include use of digital signatures or Public Key Infrastructure. •  Continuity plans to deal with aftermaths of any security breaches.

5. Loss of Personal Relationship •  Another key barrier in e‐banking is a lack of personalcontact between customers and banks. •  E-channels erode a direct relationship with customersas compared with traditional over‐the‐counterbanking: e-banking does not offer face‐to‐facecontact in what is essentially a one‐to‐one servicerelationship. •  To compensate, e‐banks must deliver higher qualityservices in order to compete with other servicedelivery channels.

5. Loss of Personal Relationship •  Another factor in the loss of personal relationships is the convenience of Internet shopping: it is much easier now to compare products and switch between different providers. •  This creates the need for offering high value products and to cut operational costs to remain competitive, which in turn may further erode the avenues for building personal relationships with customers. •  The solution to these problems appears to be offering a multi channel experience which is better than direct competitors.

B ANKING I NFORMATION S YSTEMS