Virtual Banking


01.00............ EXECUTIVE SUMMARY
02.00............ TRENDS IN RETAIL BANKING
03.00............ ABOUT THE INTERNET
04.01............ SMART CARDS
05.00............ EXAMPLES
06.00............ SECURITY ON THE INTERNET
06.01............ CRYPTOGRAPHY
06.02............ FIREWALLS
08.00............ CONCLUSION .



The Internet is emerging as an efficient delivery channel for financial services.
With Internet banking, customers do not need to have special bank-issued
software. Banks maintain their identity and can differentiate themselves by
customizing the services and information they provide over the Internet.


What does better customer mean? Increasingly, customers are demanding more
convenient ways to do their banking. An Ernst and Young study (Technology in
Banking Report) concluded that "nothing changes in the banking world if
customers cannot get financial services when and where they wish...this means
anywhere, at any time." Statistics show that ATM\'s, telephone banking, and home
banking account for over fifty percent of all banking transactions today, and
total non-branch activity is growing at fifteen percent a year. In one survey
(Web-Tech, Inc., May 17, 1995), eighty-two percent of 18- to 34-year olds polled
preferred banks with 24-hour service.

Customers are also demanding a more sophisticated mix of products
tailored specifically to their financial needs, and non-bank competitors are
better fulfilling these needs. Banks today hold only 20% of household financial
assets, versus 34% twenty years ago; they have 30% of business deposits, versus
42% only seven years ago. Nonbank credit card providers have gained inroads
against banks, holding a 25% market share versus 5% in 1986 (WebTech, Inc., May
17, 1995).

Internet banking offers an attractive solution to this redesigned products and
services. Customers have 24-hour graphical-interface access to their accounts
and appreciate that their bank is doing something to make banking easier for


The Internet has exploded in the last two years thanks to the invention of the
so-called "browser." A browser is a point-and-click software program that allows
"surfers" to navigate around the Internet without knowing any UNIX commands. The
first browser was developed by the National Center for Supercomputing
Applications, a government agency. With a browser and access to the Internet,
you can order a pizza, listen to and purchase a CD, stroll through the Louvre,
or view satellite photographs of Scotland.

Although it may get congested from time to time, the Internet itself is
extremely reliable. There is not actually any one network that is the Internet;
it is made up of thousands of networks that connect to each other through common
routes, and they all agree to carry each other\'s traffic. There is a lot of
money flowing up from local access providers to these national players,
guaranteeing that the infrastructure will continue to expand to meet demand.

Because so many resources are shared, the Internet is also very efficient. It
costs a lot less to connect a business to the Internet than to lease telephone
lines that customers dial into with their modems. Most likely Internet users
will continue to be charged for the size of the "pipe" connecting them to the

The number of commercial entities with an Internet presence doubled in the first
three months of 1995. Modems will keep getting faster, allowing more information,
better graphics, and full-motion video to be downloaded more easily. However, in
five years most households will probably buy their Internet access from their
cable company, who will provide them with a 10 megabit-per-second connection
through their cable wire. A 10-MB connection would download in one second a file
that takes a 28.8K modem five and a half minutes to download (WebTech, Inc., May
17 1995).


Picture a bank without any branches. No tellers. No rows of desks. no racks of
brochures, no automated teller machines outside. Picture, in fact, a virtual
bank, one that for the customer exists only in his or her office or home, as
images on a computer screen. US financial institutions are moving towards
"virtual banking." This strategy is about making bank products and services
available to customers any time and any place they want them. As virtual banking
becomes more popular, it is very likely that more customer service will be seen
while the number of traditional teller-staffed branches will decline. Bank
customers will move away from traditional banking and will become more dependent
on electronic transactions using ATMs or PCs (Britt, Savings&Community Banker,
February 1995, p.9).

Thanks to the revolution, financial institutions are using software programs,
online services, and even the Internet to allow customers to check balances, pay
bills, and transfer funds among accounts, Bankers promise that, in