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:
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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.
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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
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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.
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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.
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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.
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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
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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
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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
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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
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