E-Banking in Pakistan Current Scenario

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INSTITUTE OF BUSINESS ADMINISTRATION

MIIS FIINAL PROJJECT

E-BANKING IN PAKISTAN: CURRENT SCENARIO

FINAL REPORT

SUBMITTED BY:

ADNAN AHMED

ANZAR FASEEH

KAMRAN MEMON

M NABEEL KHAN

10TH DECEMBER 2004 TH DATED:

Acknowledgement

First of all we would like to thank ALMIGHTY ALLAH, the most Beneficent and the most

Merciful for giving us the courage and capability enabling us to complete this Final Project

on E-Banking, Past, Present and Future. .

We would like to thank IT Personal at Union Bank and United Bank Limited for sparing

their valuable time from extremely busy schedule.

Last but not the least we would like to our Project Instructor Mrs. Fehmida Hussain for

providing us the guidance and ample support in completing this project report.

TABLE OF CONTENTS

TOPIC PAGE NO

ACKNOWLEDGEMENT 1

ABSTRACT 3

CHAPTER 1 4

Introduction

CHAPTER 2 6

Literature Review

CHAPTER 3 21

Primary Research

CONCLUSION 34

RECOMMENDATION 37

REFERENCES 40

APPENDIX 41

ABSTRACT

This is a research report and an attempt to look into the issues and concerns in the Banking

Sector and tries to analyze the views of the consumers and the banking environment.

We have analyzed the current offerings of E-Banking solutions offered by two major

Pakistani banks and the consumers responses to these efforts. The overall research findings

have been presented as objectively as possible and it points to the Security concerns

hampering the growth of E-Banking within Pakistan. There is also a dearth of awareness in

this mode of implementation.

Although E-Banking is one of the major ways to reduce transaction costs for the

consumers, the consumers are vaguely aware of that. Similarly, the Banks also have a lot

to gain from this platform but there seems to be not enough of an effort in this regard as

the IT Department has been reduced to just a support unit of the organization. In this

research report we have highlighted the various consumer responses and products being

offered to present a view of the various technologies in use within Pakistan.

INTRODUCTION

RESEARCH OBJECTIVE:

The purpose of this research is to gauge the current implementation status of E-Banking in

Pakistan. We intend to identify major trends and objectives of current E-Banking activities

in Pakistan. The basic thrust of the research is that it offers a brief insight into the

E-Banking activities being performed. The major flaws and improvements will be

highlighted and future prospects for growth will also be outlined. This research basically

tries to give a brief look into the E-Banking implementation by looking at the services

being offered and their potential usage.

We will now briefly describe our research topic. Our research can prove to be beneficial

for the educational institutions and for the Financial sector, as it would provide them with

an insight into the various E-Banking aspects in Pakistan.

WHAT IS E-BANKING

With e-banking through the internet, you have your finances under control at all times

whether you are making payments, issuing stock exchange orders or simply require

account and custody account information.

For many consumers, electronic banking means 24-hour access to cash through an

automated teller machine (ATM) or Direct Deposit of paychecks into checking or savings

accounts. But electronic banking now involves many different types of transactions.

Electronic banking, also known as electronic fund transfer (EFT), uses computer and

electronic technology as a substitute for checks and other paper transactions. EFTs are

initiated through devices like cards or codes that let you, or those you authorize, access

your account. Many financial institutions use ATM or debit cards and Personal

Identification Numbers (PINs) for this purpose. Some use other forms of debit cards such

as those that require, at the most, your signature or a scan. The federal Electronic Fund

Transfer Act (EFT Act) covers some electronic consumer transactions.

RESEARCH METHODOLOGY:

IN our research we followed the use of both primary and secondary research to reach our

conclusions. Secondary research will be from literature whereas primary research will be

from surveys and questionnaires from various sources. In primary sources we will visit

banks and inquire about the current status of implementation and the various technologies

in use. We will also endeavor to collect information on customer response to the

E-Banking effort.

SOURCES:

The secondary research will consult the following sources:

The world wide web

Various published articles in local IT magazines and other sources

Current Scenario and Future Prospects for E-Commerce and E-Business in Pakistan by

Waleed Khalid (December 2003) submitted to the IBA research portal

REFERENCES:

For primary research we will visit the major banks in Pakistan, namely United Bank

Limited (UBL) and Union Bank Limited (UNB). We will conduct in depth interviews and

meetings with their IT personnel and senior executives for getting all the required

information on our research topic.

LITERATURE REVIEW

Economic and Financial Implications of Electronic Commerce for Pakistan

This report has been authored by Dr. Irfan Hyder, who at the time of this report was the

Chairman, Center for Computer Studies at IBA and is currently the Dean and Director of

Pakistan Air force Karachi Institute of Information and Economic Technology

(PAF-KIET). The purpose of including this report, despite it being a bit outdated, is that it

is still the only authentic report done on the Pakistani Environment by a Pakistani

Academic. Although this report covers many aspects of the Pakistani Economy related to

e-commerce, we will cover only those parts that deal basically in E-Banking. The

importance of this report is also due to the fact that it is a definitive study on e-commerce

and the Internet that are the basic building blocks of e banking.

In the early part of the report the author {1} has defined the terms and terminologies of

e-commerce and the terms related to it such as information revolution. The initial part of

the report also shows the pervasiveness of the Internet through various facts and figures.

The benefits of The Internet revolution are also outlined. The two E-Commerce models

B-B (Business to Business) and B-C (Business to Consumer) models are explained in the

report. The next part of the report laments the Pakistani export performance in the whole

economy and describes through facts and figures that the Export Performance of Pakistan

is quite poor compared to other Asian Emerging Economies. The next part of the report

discusses the major risks that Pakistan

faces with respect to trade and the way E- commerce can help to reduce those risks and

help Pakistan achieve positive developments in trade.

Effect Of E-Banking On The Financial Sector:

The part that deals with the financial sector and the effect of E-Commerce on this sector

forms the major part of the study that is pertinent to our research. It basically discusses the

impact of electronic commerce on the internal efficiency of financial markets and the

impact of electronic commerce on the relative competitiveness of the financial sector of

Pakistan with respect to the rest of the world. With respect to Capital Markets, Computer

Networks are now starting to replace the open outcry sales system on commodity and

derivative markets. Online trading not only increases efficiency but also the vulnerability

of any capital market to the rest of the world. Offering services online can be a major

factor in determining competitiveness. Internet use in trading securities in Pakistan will

revolutionize the retail share trading industry. Online trading in Karachi Stock Exchange

has increased the productivity of brokers, lowered the prices for the consumers and

enabled online retail investors to trade shares more often. After the introduction of the

automated trading system, in Karachi Stock Exchange, the efficiency and transparency of

transactions has increased, that has resulted in greater investors confidence. In near future

when all the trading will be online, the speculative risk will be exacerbated. As regards to

the Impact of Electronic Banking, that is the purpose of our research, the study states that

Online banking provides extensive provision of services through Internet and can reduce

cost and increase internal efficiency. To reduce the overheads of traditional branch-based

banking, many banks are opting for virtual banking. In case of Pakistan, the internal

efficiency of the banks always receives serious criticism. It is expected that in Pakistan the

use of Internet will reduce costs by at least up to 10 percent that highlights the great impact

of E Banking on the Pakistani banking environment in the near future. The study also

states that with the introduction of online banking, Pakistani banks may find good business

in other countries. The benefits to Pakistan of greater access to global capital markets

include lower funding costs as a result of diversification of funding sources, and improved

liquidity and market depth. In this part of the study the various implications of electronic

commerce on financial services have been identified. The main implications stated are that

Local Institutions will gradually increase activities in Electronic Banking and that this will

increase competitiveness as the foreign banks are going to reply likewise. Although the

profit margins may be lowered but the net effect will be positive to the banking industry as

a whole. Foreign investment will be encouraged as the foreign banks operating within

Pakistan would be able to invest internationally and also the fact that within the country,

physical location would also no longer is a problem. The role of foreign institutions and

investors will increase and a large capital base will be available for local operators within