As today’s busy world is changing rapidly due to various technological advancement in society, we are left to find minimal time to do the basic activities such as shopping, banking & relaxing. So along came e-Shopping, and e-Banking. The internet has become a more globally known form of communication around the world these days and it’s used largely in conjunction with personal/business tools to expand the horizons of e-commerce. E-commerce plays a major role in how the internet is used in terms of a consumer business, or B2B relationship.

E-commerce is buying and selling of goods and services on the internet, through which transactions or terms of sale are performed electronically. Some examples of e-commerce are online shopping, electronic payments, online auctions, internet banking, online ticketing, etc.

The advantages of e-commerce are:

  1. Expanded geographical reach
  2. Expanded customer base
  3. Increased visibility through search engine marketing
  4. Provide customer valuable information about business
  5. Available 24/7/365
  6. Build customer loyalty
  7. Reduction of marketing and advertising costs
  8. Collection of customer data
  9. Cheaper advertising & marketing
  10. Helps build brand credibility
  11. Gathers feedback from customers
  12. Conducts cheap market research
  13. Increases efficiency, profitability and growth opportunity

Types of E-commerce

  • B2B (Business-to-Business)

Companies doing business with each other such as manufacturers selling to distributors and wholesalers selling to retailers.

  • B2C (Business-to-Consumer)

Businesses selling to the general public typically through catalogs utilizing shopping cart software. There are five classifications of B2C electronic commerce: direct sellers, manufacturers, online intermediaries, advertising-based models and community-based models. Direct sellers are the most well-known B2C companies. B2C can be used to sell virtually any type of product online. B2C electronic commerce offers the following advantages: convenience, real-time changes in products and price and an enhanced buying experience. B2C also faces some challenges. The two main B2C issues are building traffic and sustaining customer loyalty. Those who have mastered B2C electronic commerce know the value of effective communication and also the value of the B2C customer.

  • C2B (Consumer-to-Business)

A consumer posts his project with a set budget online and within hours companies review the consumer’s requirements and bid on the project. The consumer reviews the bids and selects the company that will complete the project. This empowers consumers around the world by providing the meeting ground and platform for such transactions.

  • C2C (Consumer-to-Consumer)

There are many sites offering free classifieds, auctions, and forums where individuals can buy and sell thanks to online payment systems like PayPal where people can send and receive money online with ease. eBay’s auction service is a great example of C2C e-commerce.

Apart from these, B2E (Business-to-Employee) ecommerce. G2G (Government-to-Government), G2E (Government-to-Employee), G2B (Government-to-Business), B2G (Business-to-Government), G2C (Government-to-Citizen), C2G (Citizen-to-Government) are other forms of ecommerce that involve transactions with the government–from procurement to filing taxes to business registrations to renewing licenses.

The internet era has significantly changed the way people and organizations around the world interact with each other. What was earlier only a medium of transferring data or communication has now become the gateway for trade and commerce. Buying products and services are now just a click away. Secure online transactions provided by vendors like Visa and MasterCard as well as net-banking have only added to the confidence of audiences willing to participate in online commerce. The emergence of web 2.0, social networks and group buying has further fuelled this trend. Vendors around the world have started setting up shops over the web.

Entire market places for trade and commerce have sprung up online. The story in India is no different. Slowly trade portals and online travel portals joined the bandwagon. Although by most references India only accounts for approximately 2% of the ecommerce in the Asia-Pacific region, the amount in figures is staggering ($24 billion). It is likely to touch $55 billion by 2018.

E-commerce in Banking

E-banking is defined as the automated delivery of new and traditional banking products and services directly to customers through electronic, interactive communication channels. E-banking includes the systems that enable financial institution customers-Individuals or businesses, to access accounts, transact business, or obtain information on financial products and services through a public or private network including the Internet.

Electronic banking is an activity that is not new to banks or their customers. Banks have been providing their services to customers electronically for years. In the past however, banks have been very reluctant to provide their customers with banking via Internet due to security concerns.

However, advances in networking technology have enabled banks to streamline their transactions with customers through the electronic exchange of information. Now, banks are taking steps to expand the use of networking technology in their all business operations. Now a days banks have started using Internet to deliver traditional banking products in more efficient ways.  Some banks have taken the further step of developing new products designed specifically to facilitate e-commerce participation by their customers.

E-commerce is creating new forms of competition and compelling the banks to make choices about the services they offer, the size of their branch networks, regulatory issues and the extent of their support for interbank payment networks. Indian banks have been very successful in adopting  EC and EDI technologies to provide customer with real time account status, transfer of funds between accounts, account opening,

Banking as a business can be sub-divided into five types –

  • Retail (Domestic)
  • Corporate (Domestic)
  • International
  • Investment and
  •  Trust

Of all these types, retail and investment banking are most affected by online technological innovations and are the ones that stand to profit most from electronic commerce.

Payment Options

And the most of the  payment options for Indian online users would fall into the following categories:

  • Net Banking
  • Credit Card
  • Debit Card
  • Cash on Delivery
  • Cash Cards
  • Pre-paid Cards
  • Virtual Cards

The role of electronic commerce in banking is multifaceted impacted by changes in technology, rapid deregulation of many parts of finance, the emergence of new banking institutions and basic economic restructuring. Given these environmental changes, banks are reassessing their cost and profit structures. Now a days all banks promoting e-banking in a big way. The first reason is because of the improved security and encryption methods developed on the Internet. The second reason is that banks do not want to lose a potential market share to the  banks that are quick to offer their services on the Internet. Almost all the banks like SBI,ICICI, HDFC, IndusInd, IDBI, Citibank and UTI are offering E-banking services.                            

Banks have established an Internet presence with various objectives

  • Most of them are using the Internet as a new distribution channel
  • To market information
  • To deliver banking products and services
  • To improve customer relationship

Higher usage of credit and debit cards, mobile banking, internet banking and other electronic payment products make the economy more efficient, yielding a meaningful boost to economic growth.  As banks venture into the electronic arena, they are finding that new opportunities bring new operational and strategic risks. Many companies are embracing “e-commerce,” or business conducted on-line over computer networks, as a means of expanding markets, improving customer service, reducing costs, and enhancing productivity.

RBI wants banks to build a robust mechanism to prevent incidents of fraud in areas of mobile / Net banking and electronic fund transfer. “With greater infusion of technology, the incidence of frauds in Internet banking has increased in recent times. Banks need to improve customer awareness to contain incidents of frauds involving customers.” RBI said in its latest report on Trend and Progress of banking in India. Making the banking sector efficient via technological infusion while minimizing the occurrences of frauds, has become one of the major objectives of RBI in recent years.  

We can benefit immensely and take business to a new height by exploiting the huge potential of   e-commerce. We can leverage e-commerce

  • To migrate customers to alternate channels, say, ATM, Internet Banking, Mobile Banking, etc.
  • To provide convenience of anytime banking, anywhere banking to the customers
  • To use our staff members for marketing and business development
  • To reduce transaction cost
  • To increase profitability

Risk Management

To manage strategic and operational risks effectively, banks need to develop information systems to monitor the financial exposure resulting from their involvement in e-commerce.

On the wholesale side, banks have made advances in setting up risk management systems that model how much value is at risk under alternative assumptions about interest rates, the relative values of financial instruments, and other market conditions.. In addition, e-commerce is still a relatively new phenomenon without a long history of results from which to formulate expectations about risk.

Banks do have considerable experience, however, in managing certain aspects of operational risk. For example, if banks draw on their experience with wholesale payments systems, they will establish back-up computer systems for their on-line activities. These systems will be located at remote contingency sites that do not rely on the same infrastructure support as the primary site.

Furthermore, in monitoring e-commerce systems and transactions for evidence of tampering or fraudulent activities, banks might look to the technology they use in checking credit card transactions for unusual patterns that could indicate a lost or stolen card.

Credit card issuers in the country are stepping up efforts to prevent swindlers from gaining access to customers’ card details. The move follows rising instances of phishing and skimming attacks, through which fraudsters steal card information and make purchases using those details.

American Express has introduced  a new solution, ‘ezeClick’, for its customers in India to ensure their card data is not shared with merchants while making online transactions. Currently, an individual has to share information such as card number, expiry date and card verification value during online credit card transactions. It uses secure socket layer technology to transmit and receive the card members’ personal information, which is then encrypted in such a way that it is virtually impossible for anyone other than American Express ezeClick to read it. The solution also makes e-commerce transactions simple and swift.

Most bankers blame the weak technology platforms of merchant outlets for incidents of frauds apart from oversights, deviation from existing controls and collusion between employees and outsiders. A few private banks are already taking steps to strengthen the systems and processes at merchant establishments to reduce the scope of skimming frauds.

The biggest worry, however, is the absence of 3-D secure authentication protocol across many nations in southeast Asia, Europe and Americas. The 3-D secure is mandated in India for all online transactions. It provides an additional layer of security as the customer has to key in a password apart from card details to complete an online transaction.

Indian banks have often found that fraudulent transactions in their clients’ accounts have taken place on sites that do not have 3-D secure mechanism. The situation is serious. There is an urgent need for all stakeholders to sit together and plug the points of frauds. We hope that when central banks meet, there will be a discussion on this and mandating 3-D secure across the globe will be considered. Then the  scope of frauds will come down drastically .

As a preventive measure, some of the Indian banks have started replacing the cards of their customers, who have recently travelled to countries that do not have 3-D secure protocol. Lenders are also substituting the magnetic strip-based cards with chip-based cards as it is difficult to steal data from the latter.


Banks now have a variety of technological means to initiate online banking programs without incurring the investments needed to develop their own system. The reach and delivery capability of computer network such as the internet far exceeds any proprietary bank network ever built, and makes it continually easier for customers to manage their money anywhere anytime.

If banks do not offer online banking services, affluent customers will be stolen away by software companies, online access services, brokerages or global entertainment companies. In addition to wanting to protect their existing franchises, banks hope online banking will win them new business. However, few managers have clear vision of tomorrow’s banking environment. In fact, few banks have strategic plans in place that anticipate the future of electronic banking. The challenge for banking industry lies in creating the right atmosphere and providing the right incentive for consumers to use personal computer regularly for banking  and in making sure that they provide attractive and affordable services.

E-commerce is spreading much faster and the old window shopping  is taking the backseat. Due to this more and more people are shopping online. To increase the share in the billions of dollars spent on line every year, it is important that bank should take full benefit of e-commerce.

Our bank has already put in place a cost-efficient electronic access channel for traditional banking products. In addition, it is also planning to offer new products designed specifically for e-commerce. If these initiatives are widely adopted, the composition of banks’ business activities will change.  We need to devote more resources to the development and maintenance of system networks and software. It will also be equally important to manage the strategic and operational risks associated with doing business in the electronic marketplace.

To exploit the huge potential of e-commerce:

  1. We need to make huge investment in technology and R&D, so that we can fully secure our Internet Banking, ATM and Mobile Banking operations. We need to train our people and equip them fully to handle alternate channels efficiently.
  2. We should invest time to identify who our target customers are. Once we understand our target customers, we should make sure that our website is visible to them from search engines, affiliate sites, relevant blogs, directories, and other online sources. Our goals in this stage of the funnel are to identify our target market and drive visitors to our Bank.
  3. We need to provide more and more channels of payment. More channels means more business, for ex., we need to explore social media wallets which is a new platform for consumer payments and its commercial value
  4. We can create payment integration of pay pal, chase account integration & innovative gateway integration.
  5. It is always better to use credit card and pay pal integration as many users don’t have the pay pal account.
  6. We need to develop smart and user friendly interface.
  7. The navigation should be fast and robust.
  8. We need to make processes as quick as quick and as smooth as possible.
  9. We can have customer reward programs by offering discounts and offers.
  10. We should be in constant touch with our customers to assess their actual needs and come up with suitable products and services related to e-commerce.
  11. We need to promote mobile applications as a bridge to mobile payments – easing consumers.


  • Online Marketing by Lorrie Thomas
  • Brand Media Strategy by Antony Young
  • Content is Cash by Wendy Montes de Oca
  • E-Commerce best practices by Thomas M McFadyen
  • Building the E-Empire by Steffano Corper
  • Managing your E-commerce business Brenda Kienan
  • RBI and Ministry of Commerce websites
  • IIBF Vision, Internet and various Journals

Deenanath Jha
M.( Research)

This is Deenanath Jha, Chief Manager (Research) at SBIICM Hyderabad. I have over four years of experience in IT Research in SBI and over 18 years of experience in Banking. My seven papers are already published in leading banking journals like Indian Banker (IBA), Bank Quest (IIBF), Colleague, Prayas & Gurukul (SBI). I am also the second prize winner in IIBF’s Micro Research competition (2014-15).



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