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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:

В• The world wide web

В• Various published articles in local IT magazines and other sources

В• 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 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 investor's 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 Pakistan. It is expected that online services would increase the private capital inflows at least up to the previous highest levels. The next part of the report outlines the role that the Central Bank of Pakistan (State Bank of Pakistan) will have to play in order to take the maximum benefits of E-Banking and the potential improvement that it will entail. The first and foremost activity that the SBP will have to perform is to ensure the use and availability of alternatives to Paper-Money, such as electronic funds transfer (EFT); digital cash, e-cash, and credit cards. EFT is primarily used for business to business transactions and is used for majority of transactions world-wide. The use of other systems is often limited to business to consumer transactions involving smaller amounts. This is going to be a major concern for the SBP and it will have to ensure security, authentication, anonymity, and divisibility through various regulations and policies. The study also gives some conclusions regarding the Financial Sector and it details the fact that Foreign Institutions have a presence in Pakistan and that the local institutions will have to become competitive. Their access to technology is poor and insufficient attention has been paid to human resource development. These institutions are not in a position to compete internationally and may have difficulty in protecting their market share locally over the medium term, as there will be increased competition. Electronic Commerce will retard the proliferation of financial intermediaries and create economies of scale and better quality management. Financial service products like foreign currency accounts, derivatives and bonds would have to be strictly regulated after Electronic Commerce.

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Effect Of E-Banking On Manufacturing Sector:

The other parts of the studies that do not directly relate to our research of E-Banking are discussed in the study. The effect of Electronic Commerce is studied in the Manufacturing Sector and this section specifically addresses many of the concerns of the manufacturing sector and the various benefits and efficiency improvements expected from the advent of E-Commerce in Pakistan. The impact of E-Commerce is studied on the telecommunication sector but this is not related to our research topic. For telecommunication sector two-way causality exist between telecommunication sector and electronic commerce. On the one hand development of infrastructure in telecommunication sector will determine the pace of usage of electronic commerce, and on the other hand use of electronic commerce will have different impact on telecommunication sector. The supply side of this industry firms are making their entry and traditional telecommunications firms are also purchasing and developing infrastructure for online services. The impact of E-Commerce on the Information Industries is also studied in detail and is covered in the report but is not directly related to our research and therefore is not discussed here. The next part of the report details the readiness level of various sectors of the economy. These are stated in the report and not mentioned here. The next part of the report provides guidelines to the exporters to streamline their B-B and B-C business models. We have not discussed these as they are not within the purview of our study. In the next part of the report various Tax implications of e-commerce are discussed. We have not summarized this part of the report as it falls out of the scope of our research study.

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Hurdles To Development In Pakistan:

In the next part a detailed study has been done on the different countries in different stages of development in the world. The Internet development is hampered in Pakistan due to the following hurdles as stated in the report: Poor Telecommunication Infrastructure Management, High cost of Internet subscription and telephone charges, Low Internet access and that is concentrated in urban areas, Weak Political and democratic institutions, Lack of necessary legal protection for Online Commerce and Lack of appropriate policy framed on political will. At the end of the study the author has suggested some broad guidelines for IT improvement in Pakistan. These recommendations include: Encouraging Widespread use of IT in every major segment of economy, Extensive use of IT for streamlining of government sector to improve their efficiency, muscling up the IT manpower to meet local and export requirement, Infrastructure development, the establishment of an Electronic Commerce Act with active participation of the Private Sector. Other recommendations include the formation of a strategic alliance between government, business, industry, academia, research institutions; the formation of a Cyber Law Expert Committee to be concerned about privacy issues and Internet Content, Government should support tax-free transaction in services to boost development of software industry.

Relevance Of The Research:

The basic thrust of this report was to highlight the issues related with E-Commerce in Pakistan and many of these issues remain unresolved as of today. Hence this report is still relevant for today's Pakistani environment and will help us highlight various issues in our study on electronic banking. This is an important secondary source for us as it provides us a broad overview of E-Commerce in Pakistan that is the cornerstone of Electronic Banking.

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Role of Information Technology in the development of Pakistan

The first article of the published research is the role of information technology in the development of Pakistan {2}. This is related to our research in the sense that what benefits IT can give to a developing countries like Pakistan and this acts as a base to embark on our objective to access the past, present and future of the E-banking in a country like Pakistan. With the benefits derived we can understand the level of importance for implementing the IT based processes in the banking area.

Pakistan economy is still largely based on the low-tech, low-value industries that have long been fully mechanized and running very efficiently in developed nations and, therefore, do not attract premier revenue from world markets. In order to put its economy on track to compete with the growing economies of the world, Pakistan needs to quickly take steps to train and bring its workforce to the international educational standards, incorporate new technologies and modern management practices into its existing industries, and bring intense focus on building an information-based economy by upgrading the technical and managerial skills of its people.

The world economy has already moved from low-value basic industries to a fast paced high-value information based economy. Many countries have taken concrete steps to rejuvenate their stagnated industrial base by rapidly moving to the new-age technologies to produce products and services that are in great demand in the world markets.

Information technology is the current choice of many developing and developed countries to upgrade their economies and become competitive in the global market place. To compete with the growing economies of the world, Pakistan needs to educate, train and bring its workforce to the international educational standards, incorporate new technologies and modern management practices into its industry, and

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bring intense focus on building an information-based economy by upgrading the technical and managerial skills of its people. So this article makes clear that transformation to IT based processes and implementation of IT in various industries or IT driven solution to make the industries competitive in the world is the most important thing for the developed countries and hence to streamline the banking institutions with world financial institutions and to increase their competitiveness it is necessary that they provide the same solutions and ease of services to the customers as in other countries and hence the implementation of E-banking is much necessary to satisfying the local as well as foreign customers.

Revolutionary steps in E-Banking taken by Habib Bank

The second published article or news items named Habib Bank has taken revolutionary step in E-banking {3} is central to our research because with this article we can access the level of implementation of E-banking solutions in the present as HBL is a very big bank having 1400 branches in the country. With this article we can also determine that our local banks has reached to what level of E-banking with the kind of infrastructure support and what kinds of specific solutions in the area of E-banking is provided by them and either their decision to come up with the solutions are logical that is they actually needed these solutions to serve the kind of customers they have.

The Habib Bank Limited (HBL), in one of its major revolutionary steps, injected state-of-the-art sophistication in e-banking and extended its facilities to 100 branches in 14 cities in Pakistan, providing benefit to 500,000 customers, the widest coverage in the country.

A fully-automated fast transfer system has been established to handle the foreign remittances; so that delivery of the money is made possible within 24 hours of the transfer Currently 100 branches are connected. A further 120 branches will go on-line by June 2003 with another 130 branches by first 2004. At this stage HBL will offer online

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banking in 350 of its larger branches and which will cover 100 per cent of its loans and over 65 per cent of its deposits. Currently inter branch online banking is offered to the 100 connected branches at HBL. It allows HBL's customers to operate their accounts on a remote basis from any of the inter-connected branches. HBL's e-Banking initiatives are focused on providing the following benefits to their customers. Convenience; 24 Hours Access; Cost Savings; Secured Access and Confidentiality; and User Friendly banking

PC Banking is available to the customers all corporate and commercial branches in 14 cities and Customers connect to the bank from offices. HBLEBANK Internet banking is another mode of service, which is to facilitate the HBL clients/customers. It is covering the commercial and retail customers. This is one of the very cost effective, secure and convenient modes of banking. Customer just need to dial-in, and the client software at client end fetch/deliver the information. This all is done on the normal telephone line and it provides the full security by encrypting and decrying the whole transmission including date transfers, in order to transfer data securely in between the client end and hblebank server. The HBLEBANK Internet Banking Software is developed and implemented keeping in view all the aspects of securities, which is the most concern area for any information and systems.

The above information shows that HBL has implemented online, internet and PC banking which are the major areas as well as ATMS network and it shows that banks in Pakistan are paying attention to providing technology based solutions to their clients and it shows that major areas in the E-banking are addressed and taken care off.

Implementation of WAP Banking by Habib Bank AG Zurich

The third news item named Habib Bank AG Zurich implements WAP Banking {4} allows us to analyze what type of E-banking services are offered abroad in foreign countries and either we offer the kind of service or not and this article or news item shows that in foreign countries banks are going towards WAP banking and

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we are still a step behind because no banks in Pakistan right now is offering WAP based services to clients. Habib Bank AG Zurich becomes the first bank to offer WAP-based banking services in UAE and possibly Middle East. The bank that can be accessed through Wireless Application Protocol telephony has launched many facilities.

The services that will be available through WAP telephones include web-banking, e-banking, accessing ATM Switch facilities, and GSM push banking, for both commercial and private customers. The web banking would enable customers to access accounts via their mobile phones, providing such data as consolidated account information and currency rates, and allow them to transfer funds between accounts. E banking would make Internet banking available in real time, and increase the number of transactional activities available every month. Customers from their mobiles can access the Switch facilities on the ATM units, while the GSM/SMS banking technology can be customized for every account. The facilities would be accessible via any computer medium regardless of the operating system. There was no additional cost incurred by the bank in developing and introducing the new technology since the software had been written in-house, with other overheads being minimal. With its head-office in Zurich, the bank has five branches in Dubai, two in Abu Dhabi and one in Sharjah. It also has a presence in other parts of the world, including the UK, Sri Lanka, Pakistan and Kenya.

This shows that the trend is towards WAP banking in which all the services like ATM, Online banking and other such solutions are also accessible through the mobile phones of customers so they can perform inquiries about their balance or other specific query from whatever the place they are. In Pakistan we are still lacking this but with the kind of advancement and potential for E-banking services we would also be in future offering the WAP Banking.

E-Banking Progress in Pakistan

It is gratifying to note that a lot of progress has been made in establishing the platform for Electronic banking. It is only during last couple of years, when the e-banking witnessed some growth in the country.

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With the deregulation of telecommunication sector in Pakistan, the opportunities for further value added services to underpin banking transactions have multiplied manifold.

While small and medium banks can now offer on-line services to their customers, the large banks have to move more expeditiously so that the E-Banking network can be utilized optimally. Transaction costs will become lower and customer service will improve.

Automation of Retail Banking Transactions

Now here are three key developments that will boost electronic transactions in Pakistan and will start establishing online retail banking in Pakistan:

Firstly, on the recommendation of task force on Electronic Clearing House (ECH), the SBP made it mandatory for all scheduled banks to connect to presently available (two) ATM network switches by the end of June 2003. Secondly, in order to strengthen communication infrastructure and ensure its availability at lower cost, the government reduced duty on the import of ATM machines by 50 percent and significantly cut down communication charges over the last three years. Thirdly, the government has also provided legal framework to e-banking transactions through promulgation of Electronic Transaction Ordinance 2002. {6}

On the back of these developments, not only the infrastructure supporting electronic payments, i.e., online branches and ATMs expanded, they also resulted in creating people's confidence in electronic transactions.

We can see the growth in the following:

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An analysis of the volume of transactions using ATMs, however, reveals some interesting developments. Although apparently the increase in transactions using ATMs is in line with the increasing number of ATMs, for the domestic private banks, the within group analysis suggests that the transactions and the number of ATMs is not in line with each other for banks other than the MCB. Most significant rise, however, is in the share of foreign banks only, which presumably suggests that the large city-based clientele of the foreign banks is more aware and inclined towards the usage of modern technology. Presently, ATMs in Pakistan generally offer a limited number of automated services that include cash withdrawals, balance enquiries and statements. However, in most of the countries, ATMs allow many other services that include deposits, transfer between accounts and ordering of cheque books. Citibank is the only bank in Pakistan right now that offers cash deposit through ATM and next year Union Bank is launching this service. There is a clear need for expanding existing services provided by ATMs in Pakistan.

Banking Sector Performance in the 3rd Quarter of 2004 and ATM Growth

The e-banking infrastructure continued to improve during Q3-FY04. The number of on-line branches reached to 1738 by end Q3-FY04, with an impressive rise of 157 during Q3-FY04, while the number of ATMs rose by 78 during the quarter to 630.

Banks are now investing heavily to bring their operations on modern technological grounds. To facilitate their customers, each bank is now maintaining its

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website to provide a comprehensive information regarding the services that they offer. {5}

As far as electronic payments are concerned , the State Bank of Pakistan, Securities and Exchange Commission of Pakistan (SECP, the government and the private sector have taken several steps to facilitate automation and modernization of payment system in Pakistan.

Electronic payment of utility bills through Kiosks

To make an effective system of paying utility bills for citizens, the government is encouraging the banks, utility companies and private sector firms to team up and provide a solution for payment of utility bills through a country-wide network on Kiosks. The proposed kiosks are to be multi-function capable. Any citizen should be able to make payments by cash, credit card, pre-paid card etc. Pakistan Telecommunication Company Limited(PTCL) has already invited Expression of Interest (EOI) from private sector firms for the proposed project

State Bank Governor, Dr. Ishrat Husain Inaugurates CIB On-Line Facilities

An online facility started by the State Bank of Pakistan about its Credit Information Bureau to banks and DFIs (Development Finance Institutions. It was inaugurated by Dr. Ishrat Hussain, Governor, State Bank of Pakistan on 25th April, 2003.

With the launching of this facility, the State Bank has become the first Central Bank in South Asia to offer online credit information service to its stakeholders. {7}

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Through this dynamic online facility, banks and financial institutions can now obtain credit reports from SBP electronically via dial up. Besides credit reports, financial institutions will also submit monthly credit data required by the SBP, online. Under this facility the authorized persons of the financial institutions listed with SBP, will be allowed on-line access to the CIB servers

Credit reporting systems are becoming increasingly important throughout the world. Data contained in the credit reports that are issued by the Credit Information Bureaus is very ritical for financial institutions to asses credit risk, loan processing cost and their credit appraisal administration & monitoring processes.

It may be added here that the State Bank is also working on a project under the World Bank's technical assistance for banking sector, which will further develop the national credit reporting system by enhancing the role of the private sector so that optimum benefits are provided to the participants, consistent with best international practices.

Financial Sector: A Roadmap for the future 2005-2010:

The Governor talks about promoting all aspects of the financial infrastructure including the following in the years 2005-2010. {8}

В• Broadening Access to Middle and Lower Income Groups

В• New Liability Products

В• Corporate Restructuring

В• Infrastructure Financing

В• E-Banking

В• Private Equity, Pension and Provident Funds

В• Investment Banking: Human Resource Development

В• Risk Management

В• Promotion of Islamic Banking

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Role Of Internet In Pakistan:

Of all the revolutionary innovations that science has brought us, the advent of Internet certainly stands apart in many ways. Today the information age that we live can truly be regarded as the Internet Age. No other invention has been able to change the way people work, communicate, educate and entertain like the way Internet has. In business filed, Internet has introduced some remarkable developments and terms like e-business and ecommerce has become a house hold name, at least in the developed counties .It is often asserted at various world forums that within next decade electronic media will be the only way of doing all kinds of businesses. Networks communications are bringing about a revolution that will certainly change the way we look at the world earlier. {9}

As the pattern of Internet development in Pakistan is quite similar to that in third wave economies, therefore the government of Pakistan is up-fronted with the same challenges. The Internet development is hampered in Pakistan due to the following hurdles:

В• Poor Telecommunication Infrastructure Management (Technology the Physical Structure is relatively advanced like digital lines, fiber optic cables, etc. but the management of this sector is very inefficient.

В• High cost of Internet subscription and telephone charges.

В• Low Internet access and that is concentrated in urban areas.

В• Weak Political and democratic institutions.

В• Lack of necessary legal protection for Online Commerce.

В• Lack of appropriate policy framed on political will.

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Electronic commerce offers opportunities for increasing trade efficiencies by eliminating communication delays and reducing the costs of documentation. It does so by enabling trading partners to exchange transaction data electronically.

Hence to take advantage and to remain a global trading partner Pakistan has to install the required infrastructure for electronic commerce.

Analysis of countries at various levels of development has helped in identifying the critical factors in developing a systematic national plan for implementing Ecommerce in Pakistan.

Owing to the fact that Internet is still not available to all the masses in Pakistan, we cannot fully exploit the potential of Internet like developed nations had, yet multinational have been able to achieve some good and persuasive results to limited urbane Internet users.

Most businesses these days seem to have a website and email address regardless of whether they are a major corporation or a sole operator. Every day thousands of new websites appear on the internet. Finding yours may prove difficult unless you actively promote it. This can be done online through registering your site with the various search engines or with related sites or groupings.

Pakistan is in the initial level of Internet development. The IT industry is fragmented and the development in IT is retarded due to the availability of cheap pirated software.

This article is linked to our survey as it is depicting the trends and developments in the IT industry in Pakistan and is suggesting actions to the government of Pakistan that can actually help Pakistan to develop its technology to an extent that can better support Internet Banking.

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PRIMARY RESEARCH

RESEARCH METHODOLOGY:

The research methodology we have followed is that we are going to follow the questionnaire method of research. For this purpose we have decided to have two types of questionnaires. One is for the Bank that is being researched and the Second questionnaire is for the Consumers of the researched banks.

The research also includes the analysis of their various facilities that are provided on their E-Banking platforms that is the website. We have described the various facilities provided on the website and have formed conclusions on this basis at the end.

The bank questionnaire is structured so as to determine the various bank policies that are being followed by the bank with respect to E-Banking implementation. For this purpose we have got only one questionnaire filled from each bank. We have got only one questionnaire only as it is redundant to ask the same questions to many people. It regards the policies and practices followed at the bank, and as they are the same pertaining to the bank overall, so it is not useful to get more than questionnaire filled.

The consumer questionnaire is structured to find out the perception of the various customers of the two banks. We have got 10 questionnaires each from the two banks to get some idea of the services being offered. We have only got a sample size of 10, as it is very difficult to reach the major part of the consumers as E-Banking users do not visit the bank and hence are not easily accessible.

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ANALYSIS:

The analysis has been done to deduce the level of E-Banking implementation at the two banks so that we may be able to understand the competence of the banking industry. The consumer analysis has been done keeping in view the percentage methodology; that is the number of respondents that have replied to a certain option. With respect to the Banking questionnaire, we have analyzed it according to the responses received.

PRIMARY RESEARCH:

In the first part of our primary research we have decided to survey the various services being offered online and have discussed their various features. These have been explained objectively as possible without referring offering subjective views.

SERVICES OFFERED BY UNITED BANK LIMITED:

We visited UBL and studied their online banking activities as well as doing an in-depth research of their website. UBL offers a wide variety of online banking activities and some of these are briefly described below.

1. CLICK N REMIT:

United Bank Limited has revolutionized the concept of remittances to Pakistan. UBL has brought a very Reliable, Simple, Speedy and Secure web based remittances product with the convenience of remitting money to your dear ones in Pakistan from the comfort of your home / office. It works 24 hours a day, seven days a

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week and it is inexpensive too. Now, Send money to anyone in Pakistan from your US bank account or Visa/MasterCard.

Either send money directly from your account with any bank in USA to an account with any bank in Pakistan... or UBL can also courier a check to your loved ones. UBL click n remit offers completely online service. No paper work required. No need to visit any bank. No need to open an account with UBL.

When you remit through UBL Click N Remit, you always have a greater sense of satisfaction that you are dealing with United Bank Limited - the most trusted name in banking. Coupled with extensive reach and unsurpassed reliability of United Bank's network, you enjoy excellent personalized customer service from the New York branch.

2. UBL WALLET (ATM/DEBIT CARD):

UBL Wallet ATM / Debit Card is all the convenience & security you desire and the quality you deserve. This Wallet holds all the cash in your bank account.

2a. UBL WALLET ATMs:

With UBL Wallet you can withdraw cash at ATMs any time, or make cashless purchases at outlets through the Debit Card facility. With no joining fee and an accompanying complimentary cardholder for your convenience, UBL Wallet has been designed to exhibit the best in features and facilities, as well as look & feel.

UBL is the only bank that offers the ATM and Debit Card facility to all account holders at all UBL branches, regardless of whether their branch is online or offline. UBL Wallet also gives you the facility of having up to 9 supplementary cards issued against one primary card. All supplementary cardholders will be able to conduct ATM/Debit transactions and will share the transaction limits of the primary card account.

ATM Network: UBL already has its own network of 53 ATMs, which continues to expand by the day. Moreover, UBL Wallet is part of the 1-Link switch, which is a fast expanding ATM network of more than 12 banks. This allows you to use your UBL Wallet across Pakistan at more than 300 ATMs

The following facilities are provided on UBL Wallet ATMs:

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Funds Transfer: UBL Wallet allows three kinds of instant funds transfers through UBL ATMs from your UBL account:

1. Into any of your UBL accounts

2. Into any pre-linked UBL account

3. Into any other UBL account

On confirmation, the amount from the cardholder account is instantly transferred to the beneficiary account.

Human Assistant: For the first time in Pakistan, selected UBL ATMs feature a Virtual Human Assistant, who guides you in conducting your ATM transactions.

Security: Your UBL Wallet functions on a PIN (Personal Identification Number) based system, ensuring complete security of your transactions.

Balance Enquiry: Enquire about the availability of funds or simply get a printout of your account balance.

Mini Statement: Get a printed statement of your account that shows all recent transactions.

Fast Cash: Swiftly withdraw your desired amount by selecting from one of the options of preset denominations.

2b. UBL WALLET DEBIT CARD:

With UBL Wallet as your Debit Card, you can shop all you want, eat all you can, or fill up your car tank without carrying any cash. Simply use your UBL Wallet for direct debit from your bank account. The Debit Card facility is being offered in association with the Orix network, which offers connectivity at more than 1600 outlets

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across the country. You can use your UBL Wallet to conduct a debit transaction at any outlet in Pakistan that displays the Orix logo.

Your debit transactions are safe and secure, since only you are aware of your Personal Identification Number (PIN). A debit transaction is conducted only when you type your PIN into the Point of Sale (POS) terminal located at the retailers' premises.

The focus on customer satisfaction is shown by the following message on their website:

"UBL's dedicated staff is at your service 24 hours a day, 7 days a week. You can call our contact centre at 0800-11-825 (Toll-Free), or you can simply pick up the telephone placed next to every UBL ATM and be instantly connected to our customer service representative via a hotline."

3. UBL ONLINE BANKING:

With UBL's state of the art online banking, you can access your account from more than 350 branches located in 71 cities across Pakistan. Your account gets to travel with you and can be accessed throughout Pakistan, be it Karachi, Kotli Main, Nalka Kohla or Mandara.

Now UBL enables you to do all the following transactions in minutes through designated online branches. Salient features of online banking are:

В• Cash Deposit

В• Cheque Encashment

В• Stop Payment

В• Account Statement

В• Funds Transfer (Account to account / IBCA)

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PERFORMANCE GUIDELINES:

UBL has placed great importance on the online activities and the following principles are adhered to during Online applications. The online activities are properly maintained by ensuring compliance of the following principles and guidelines:

RELIABLE: Offered by UBL - the most trusted name in banking

SIMPLE: A complete web based remittance service - easy to use and just a few clicks away.

SPEEDY: In most cases, your remittance is couriered to your loved ones or credited to their account in Pakistan in 2 business days.

SECURE: The software uses highest level of data encryption for security of your personal information and your money is protected with an FDIC - insured Bank in the US.

INEXPENSIVE: Your remittances to Pakistan in Pak Rupees are free of charge and in US Dollar are charged as low as $10.

ONLINE SERVICES OFFERED BY UNION BANK:

Union Bank Online is a state-of-the-art customer contact center, which offers you real time advantage. With Union Bank Online you no longer have to take time out to visit your branch for your routine banking needs. With just a single phone call you can now have access to a wide range of Tele-banking solutions and personalized banking services. Key benefits of Union Bank Online:

В• Simple and Convenient banking solutions over phone

В• Instant access to banking services from anywhere at anytime Saves time and money 26

Key features of Union Bank Online

By using Union Bank Online, you can:

В• Check your card and account balances

В• Instruct issuance of pay orders and demand drafts

В• Transfer funds between your own accounts and to a third party account

В• Order issuance of cheque book

В• Make your card or loan account payments

В• Check transaction history of your accounts

В• Get your account statements through fax

В• Receive information on various Union Bank products and services

В• Obtain status of your issued cheques

В• Find out status of your card or loan application

В• Request balance or reference certificate

В• Get currency exchange rates

В• Find emergency and important numbers

В• Issue stop payment instructions

В• Report loss of your chequebook

В• Request change in address and telephone numbers

В• Register your comments and suggestions regarding Union Bank products and services

ONLINE CASH

Free yourself from the hassles of carrying cash in your wallet with Union Bank Online Cash ATM. Now you can have access to your account 24 hours a day 7 days a week through more than 200 ATMs across the country. Online Cash, ATM service, is

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developed with an idea to provide you with more convenience, access and security regarding availability of your funds.

FEATURES

IT'S ABSOLUTELY FREE:

The OnlineCash ATM card and all transactions through Union Bank's OnlineCash ATMs are totally free of cost.

Card Issuance

Annual Subscribtion

TRANSACTIONS ON UNB ATMS:

CONVENIENT BANKING:

To make your banking experience more convenience-filled, we have ensured that the transactions you carry out most frequently are all available through the OnlineCash ATM service. Locate the nearest OnlineCash ATM and complete a host of banking transactions instantly and conveniently. This way you not only save your precious time, but also avoid standing in queues.

SAFER LIFE-STYLE:

Your safety and security is our priority that's why we have fashioned special vestibules for safe transactions. Free yourself from the insecurity of road-side transactions.

SLEEP WITH PEACE OF MIND:

Get exceptional peace of mind with OnlineCash ATM card because when you are issued your OnlineCash ATM card you are also given a secret PIN (Personal

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Identification Number). This PIN is your password to the ATM, incase an incorrect PIN is entered, access to the ATM service will be denied.

WIDE NETWORK COVERAGE:

You can be sure that you are never too far from your money. Your OnlineCash ATM card is accepted on more than 200 ATMs in all major cities across Pakistan (Including Union Bank & Partner Bank ATMs.)

ROUND THE CLOCK SERVICE

You can use the OnlineCash ATM service 24 hours a day, 7 days a week, 365 days a year. The ATMs are there to service your banking needs round the clock.

24-HOUR CUSTOMER SUPPORT

If at any time during your use of the ATM, you need any help or support, just pick up the hotline telephone installed next to the OnlineCash ATM and ask your Online Banker for assistance

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CONSUMER QUESTIONNAIRE ANALYSIS:

Question 1: How long have you been using the World Wide Web?

Analysis: As it is expected, those who have opened an account online or used any E-Banking facility have been using the World Wide Web for more than a year. All the respondents answered that they have been using the World Wide Web for more than a year.

Question 2: Have you performed any of the following activities online?

Analysis: This question clearly shows the inclination of the population towards using the World Wide Web, as many of the consumers have not been using the online account checking facilities or using the Web to submit billing and other information. Only 30% have replied in the affirmative to using these services.

Question 3: How frequently do you use telephone banking per month?

Analysis: 80% of the respondents have used telephone banking 1 to 3 times and the rest of the 20% have used it 3 to 8 times. The reason for using telephone banking is only for Account inquiries and not for transfers that shows the tendencies of the users.

Question 4: How frequently do you visit your bank branch per month?

Analysis: This question basically defines the use of Internet banking. 60% of the respondents said that they visit the branch less than once a month and the rest visit the branch 1 to 3 times a month.

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Question 5: How frequently do you use an Automated Teller Machine (ATM) per month?

Analysis: 30% respondents use the ATMs 3 to 8 times a month, 30% use it 3 to 12 times a month and 40 % use it more than 12 times a month. This is a fairly distributed response and therefore nothing can be concluded as such from this question.

Question 6: For what reasons do you visit the branch of the bank?

Analysis: 70% respondents replied that they visit the bank branch mainly to deposit cash and 20% replied that they visit it for inquiry and other services. This shows that consumers are not willing to trust the online system too much for deposits and withdrawals.

Question 7: Have you ever purchased any product through WWW?

Analysis: 50% of the respondents have used the Internet to purchase one thing or the other during their lifetime whereas 40% have never used the Internet for such services. This was fairly surprising, as we did not expect such widespread use of Internet for purchases in Pakistan.

Question 8: Approximately how many times have you purchased any product through the Internet in the last 12 months?

Analysis: In the last 12 months only 30% of the respondents have purchased anything online 1 to 3 times while only 10 persons have done it 3 to 8 times. This shows that although the web is used for online purchases, the frequency is much low as compared to developed countries.

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Question 9: In the past five years, other than for geographical relocation, how many times have you switched to a different bank?

Analysis: Only 20% of the respondents have changed their banks in the last five years due to factors other than geographical relocation. This means that unless due to any severe reason the population is less inclined to change their relationships with banks.

Question 10: Have you used (or are currently using) any off-the-shelf personal finance management software programs (such as Quicken, MS Money, or Meca software)?

Analysis: Only 20% of the respondents have ever used any off-the-shelf personal finance management software programs. This shows that softwares are rarely used in the Pakistani environment.

Question 11: Do you have a bank account for which you interact with your bank mostly through a WWW browser?

Analysis: Only 30% of the respondents use Internet banking seriously for deposits and withdrawals online, otherwise they are still using the traditional banking channels. But online banking is catching up as Technology use is spreading throughout Pakistan.

Question 12: What are the main reasons that you have not opened an Internet bank account yet?

Analysis: This is a detailed question asking the reasons due to which Internet Banking is or is not being used. 20% of the respondents have only heard of Internet Banking, 20% are too concerned with security issues to use Internet Banking, 10% of respondents are not getting enough time to open an account online and 10% of the respondents do not see any value in it to open an online account.

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Question 13: How likely is it that you will open an Internet bank account with in the next 12 months?

Analysis: This question assesses the likelihood of respondents to open an account online or not. 20% of the respondents say that it's very unlikely that they will open an internet bank account within the next 12 months, another 20% say that it's not likely or unlikely, 10% say that it is somewhat likely and 10% say that it's very likely that they will undertake such action in the future.

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CONCLUSIONS

We have classified our conclusions into the conclusions based on the Consumer Survey and the Banking Survey. These are presented below.

CONSUMER QUESTIONNAIRE CONCLUSIONS:

From the Consumer Survey we can draw the following conclusions:

�� The thinking of the Consumers hinders the use of E-Banking facilities.

�� Security concerns remain the number one reason to the widespread use of E-Banking applications.

�� Use of ATMs is widespread and is going to be the major way to transact with money.

�� There is a growing awareness of E-Banking implementations and the population is getting educated in this regard as well.

�� People are beginning to use E-Banking and doing so would increase the number of transactions on the Internet and Financial Sector can benefit from this.

CONCLUSIONS FROM UNION BANK SURVEY:

In an effort to gauge the current level of E-Banking implementation we conducted a meeting with Union Bank's IT personnel and also asked them to fill out a questionnaire. Although we weren't given much time and not much interest was shown

34

(as even the questionnaire was filled partially), we were able to draw the following observations from their survey:

They do have various policies and plans in place. ��

��

Their website is hosted by a third-party (whose name was not disclosed).

��

ISDN line is used for connection to the Internet.

��

The firewall is installed at the bank's location.

��

Various precautionary policies exist to prevent the misuse of and harm to information systems and website activities.

��

There are training activities in place for IT employees.

��

There is no electronic banking committee in place to look over the whole electronic banking activity.

��

Customer handling policies and practices are also in place to ensure maximum customer satisfaction.

��

The E-Banking activities are divided into responsibilities for various departments such as Remote Banking, Telephone Banking and the IT department.

��

The major reason for going online was to ensure competitiveness in the industry.

��

The thrust for various online activities and plans for introduction of new online services are driven by the Marketing department.

CONCLUSIONS FROM UNITED BANK SURVEY:

IN an effort to gauge the current level of E-Banking implementation we conducted a meeting with United Bank's IT personnel and asked them to fill out a questionnaire. Within the short time that we were allowed (by the Bank), we were able to draw the following observations from their discussions with us:

The bank's website became active in 2002. ��

��

The bank's website is hosted in-house.

35

ISDN line is used for connection with the Internet. ��

��

The service and quality department quarterly, internally reviews the website.

��

The system owners themselves check links and interactive programs frequently.

��

Verisign certificate is used for website protection and security.

��

Personnel of the IT department do automatic scheduling of virus updates.

��

The IT department handles all of the updates.

��

Firewalls are in place at the bank's location.

��

The customer can submit forms and applications online, in-mail and in person.

��

The customers have to be account holders of the bank to ensure legitimacy.

��

The bank also has an electronic banking committee.

��

No legal problems have yet occurred for the Online Banking activities.

��

The transactional services included on the website are: Bank statements, Funds transfer, Bill Payment, SMS alerts.

��

The Internet baking environment is updated real time.

��

No loan advances or lending is done over the website.

��

Data is encrypted at 128 Bits.

��

IT personnel are given due training in IT skills and activities.

��

Manuals have been distributed to operation personnel regarding Online Banking implementation and practices.

��

The reason for offering Internet Banking was to become more competitive in the Market.

��

Proper testing was done with employees before offering it to customers.

��

Mobile banking is a potential area of growth identified by the management.

��

Marketing department provides the thrust and campaigns and applications for future implementation.

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RECCOMENDATIONS

Based on the Conclusions drawn from the consumer survey and the bank survey, we have drawn the following list of recommendations so that E-Banking may become widespread and be used by the consumers in Pakistan. The financial sector can benefit from this as well as transaction costs can be reduced. The recommendations are as follows:

�� There needs to be a major education program to be conducted by the Banks in Pakistan to increase knowledge about the various E-Banking implementations that are being offered.

�� Security concerns about the various E-Banking products should be minimized so that the consumers may have more confidence in this medium.

�� The government has to play a more active role to support this movement and to ensure smooth functioning of this platform throughout the country.

�� The IT department needs to play a more leading role in the development of E-Banking products and the method of delivery.

�� The senior management of the respective Banks should ensure proper representation of IT personnel in their major product decisions.

�� Innovative products should be offered online.

�� The awareness of value in using the E-Channel should be promoted so that the consumers may feel the need to engage with such a channel.

�� The banks should consider moving in to Wireless Access Protocol and Mobile Banking, as these are the products of the future.

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FUTURE TRENDS AND PROSPECTS FOR E-BANKING

The focus in our study was on two major banks in Pakistan namely United Bank Limited and Union Bank and hence the future prospects for these two banks in the specific area of E-Banking are discussed below:

UBL is offering many services such as Click N Remit, UBL Wallet ATM, UBL Wallet Debit Card and Online Banking and it's on a level that is satisfactory considering the services offered by other banks. Therefore UBL is looking in future to embark on the WAP Banking areas, which is an untapped and untouched area right now. As discussed with the IT personnel, the future as evident from the services offered at foreign countries UBL is looking to come up with Mobile and WAP banking. The prospect for UBL in future is bright and it is evident by the history of their commitment to the Online and E-banking. The problem area is the less attention paid to the IT staff and on their views in the new services offered, more of the marketing staff input is taken while launching a new service. This problem can be dealt with easily by focusing more attention to the IT staff view before launching a new service. Overall the future for UBL is bright and prospective is great for growth and profits.

As of now Pakistan is still emerging in the field of online or Internet banking. Presently there are only a few banks that are offering such services. Among the other services being offered ATM is the one that has been really successful, but here too due to the low confidence level and security concerns only limited services are offered. ATM has been used as a tool to allow the customer to withdraw cash from wherever he wants to. It could also be used do deposit cash by customers but they are not offered this facility as they might claim later that they submitted a greater amount and it becomes a real challenge for the bank then, as they have to prove the customer wrong or bear the loss.

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This could well result in losing a customer. Therefore to offer such services you really need technology of high level. Citibank is the only bank in Pakistan that is offering this facility to its customers. Union bank has plans to start this service in the second quarter of next year.

In short the future is bright. Although there are difficulties and hindrances as here you not only have to offer services but also to create awareness that there exists any such services and tell people about the benefits. Banks have to convince them, win there confidence and then also to motivate them to perform online transactions. For example while conducting this survey we found out that ABN AMRO Bank charges extra Rs 50 to those customers who come in branch and withdraw or deposit cash, while they are not charged this fee if they perform the same transaction online.

Although this industry is going to bring in changes at irregular intervals, but one thing is for sure that new and new services and changes are going to come in. State Bank of Pakistan is also expected to play a very vital role in the near future by laying down ground rules and regulations for conducting online banking activities. This will take some time but the future is bright.

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REFERENCES

1. Economic and Financial Implications of Electronic Commerce for Pakistan

April 2000, Center for Computer Studies, Institute of Business Administration Karachi

2. Role of information technology In the development of Pakistan

Wajahat Mahmood Qazi, Assistant professor,

Preston university Lahore Wajahatmqzi@hotmail.com

3. Habib Bank Limited takes revolutionary steps in e-banking

The News, By Ibrahim Khan 1/7/2003

4. Habib Bank Introduces Wap Banking

Business News, By Sunil Rao

5. http://www.sbp.org.pk/reports/quarterly/fy04/thirdQtr/Banking%20Developments.pdf

6. http://www.sbp.org.pk/publications/fsa-2001-2002/Chapter%202.pdf

7. http://www.sbp.org.pk/press/2003/25-apr-03.pdf

8. http://www.sbp.org.pk/about/speech/financial_sector/2004/ROADMAP_2005_2010_14_OCT_04.pdf

9. Internet in Pakistan, by Waleed Khalid, IBA Internet Research Portal, Keyword: E-Commerce.

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