INTRODUCTION

What is banking?

A bank is a financial institution where people keep their money to keep it safe. A French word ‘Banco’ is the derivation for the modern day English word ‘Bank’ which is a money exchange system. Historically, money lenders/ changers used to display coins for exchange or lending on tables for people. Banks deal in deposits, advances and other services. A simple way to look at a bank is: it receives money from depositors and pays that money to borrowers. Whenever a customer needs money, a bank is there to provide it.

Types of banks

There are different types of banking institutions[1]:

1. Commercial banks – Takes permission from the government to handle the public’s money.
2. Savings banks – People save their money in these banks, and the money is used to lend out to people who need to buy a house.
3. Savings and loans associations – Similar to savings banks, the people’s money saved with these banks are lent out to others and profits are made out of this ‘money business’ (from interest).

Characteristics of banks

There are many characteristics of a bank, some of which are:[2]

1. A bank is an organization that accepts deposits for a fixed period of time or on demand and gives the guarantee that the money deposited will be safe.
2. A bank maybe one person or a legally separate entity.
3. A bank lends out money to those who need it.
4. A bank provides various facilities to customers from utility services and agency services.
5. A bank is a profit-seeking institution that sells its service.
6. A bank is a mediator between borrowers and lenders of money. They collect from those who don’t need money to those who do need it.
7. A bank is an organization that keeps valuable assets safe and does money exchanges.

Some of the different facilities available from major banks to customer are:

1. Checking/Current Account
2. Savings Account
3. Internet/ Mobile Banking
4. ATM Cards
5. Check Books
6. Deposit accounts
7. Loans
8. Credit Cards

In general we have landed ourselves in a world where it is impossible to talk about modern banking facilities without referring to each of these services as an integral part of the system. Not only have they facilitated the transfer of money from household to households but they have also managed to improve a large proportion of digital communication among the public.

A significant growth in digital communication has been the use of plastic money (debit cards and credit cards). These cards have enabled consumers to buy goods on credit and pay later (credit cards) or simply transfer their bank balance from their account onto the seller’s account easily with one swoosh of the card. Other significant changes in the banking horizon have come from the ability to check account balances from ATM machines or the customer’s mobile phones, withdraw money from ATM machines most importantly, something that has taken the public sphere by storm, Internet banking. E-banking or Internet/ Mobile banking is a new way of life. You transfer your funds from your bank account balance to another person’s bank account balance simply from your personal computer, or your mobile phone.[3]

FUNCTIONS OF MODERN BANKS

Let us analyze what the basic functions of a modern bank are:[4]

1. One of the most basic functions of modern banking is its storing of money facility. This is where people feel the security that they get out of having their money stored in a safe location within the premises of an institution dedicated to the sole purpose of managing their money. Money is stored in vaults which are considered fireproof and nearly impenetrable. Another important fact is that banks are insured against losses due to theft of money or fraudulent activities.
2. Banks offer many ways of saving money such as:
   1. Savings Accounts
   2. Checking Accounts
   3. Money Market Accounts
   4. Certificate of Deposit (Fixed Deposit Accounts)

            Banks generally pay interest, which is a percentage of the original money you deposited,   for using your money.

1. Banks also offer loans or the opportunity to borrow money from them, for a predetermined time period in exchange for interest payments to them for the use of their money. Because of fractional reserve system, banks cannot issue all their money for loans, because they must keep a certain percentage on hand as deposits.
2. Banks provide real estate purchasing facilities. They offer mortgages (special types of loans on buying real estate) which generally come in the form of 15, 25 or 30 years. A borrower’s creditworthiness is considered important in determining the terms of the mortgage and the interest payments. It reflects how good of ability the borrower has in repaying the loan successfully.
3. Credit cards are plastic machine-readable cards that allow their cardholders to purchase goods and services on credit. In such a scenario, the credit card provider actually pay offs the amount outstanding immediately with a certain added interest charge and cardholder pays off the amount they owe to the credit card company, along with a certain added interest charge. The maximum limit of a credit card is a determined by the cardholder’s creditworthiness.
4. Banks use electronic media to conduct many of their operations. These include:
   1. Automated Teller Machines (ATMs)
   2. Debit Cards
   3. Home Banking
   4. Automatic Clearance Houses (ACH)
   5. Stored Value Cards
   6. ATMs are used to replace bank tellers in performing the most basic bank functions such as deposits, withdrawals and account-related inquiries. The best part about ATMs are that they are available 24 hours, they reduce labor costs and they are easily available at one’s nearest locations, instead of going all the way to the bank.
   7. Debit cards are used to function electronically withdraw funds directly from the cardholder accounts. A Personal Identification Number (PIN) is used to verify accounts and transactions of cardholders.
   8. Automatic Clearing Houses (ACH) creates monthly bill payments so that the payer does not have to initiate the monthly bill payments.
   9. Home banking is a completely revolutionary form of banking which includes transferring money, making account inquiries, pay bills, apply for loans and direct deposits from your home. Internet banking is an alternate term that is used instead of home banking.

ANALYSIS OF BANKING AND DIGITAL COMMUNICATION

A look into Home Banking

Nowadays we have seen that bill paying has become more of a hassle going from our homes to banks. Instead of facing the turmoil of everyday life and traffic and the long drive to the reach our bank branches; we simply pay through online banking.[5] The most important advancement in digital communication has been internet banking because through home banking, we are able to do the following from the comfort of our computers or mobile phones:[6]

1. Cash deposits
2. Cash withdrawal
3. Merchant payment
4. Utility payment
5. Salary disbursement
6. Remittance inflow and outflow
7. Government allowance disbursement through mobile gadgets

In 2011, the Bangladesh Bank Governor Atiur Rahman said: ““Mobile banking is an alternative to the traditional banking through which banking service can be reached at the doorsteps of the deprived section of the society,”[7] He was talking ahead of DBBL’s launch of internet banking in Bangladesh as the first bank to do so. In order to make lives more simpler and less stressful people are now able to calculate and pay off through their bank accounts what they owe to other people simply from their mobile phones or through the use of their personal computers.

A very important aspect of internet banking is its security. While it might be easy to transfer funds from the comfort of a person’s home, there are some security concerns that might prohibit people from using internet banking. Some of these concerns include hacking your ID and password and transferring all your money to the hackers account. With such enormous risk at hand, banks come with regular security measures to prevent or at least reduce the number of such incidents occurring:[8]

1. Regular system checks to make sure they are reliable
2. Providing internet security measures
3. Using encryptions, firewalls, automatic log-off and monitoring tools
4. Periodic review every six months

The best part about internet banking is the ease with which you can access it. All you need is a computer with an operating system, internet connection and a web browser in order to access it. You might need to pick up a form from your bank to apply. [9] Mobile banking is even simpler. It allows for the following facilities:

• Instant Account Balance & Mini Statement
• Fixed Deposit Maturity Alarm
• High Value Transaction Alert
• Account status change alert
• Welcome alert (for account opening)
• Payment (loan) failure alert
• Cheque clearing failure alert

Again, you need to apply through your bank, by filling out a registration form.

The Growth in Internet Banking

There have been many factors that have led to the growth in internet banking. [10] Some of these market factors that have led banks towards internet banking are as follows:

1. Competition: Attract new customers and keep hold of existing ones. It is an even bigger factor that reducing cost and maximizing revenue.
2. Cost efficiencies: Banking services on the internet can be delivered at lower transaction costs than traditional ways. The actual costs to execute a transaction will vary depending on the delivery channel used. These costs are expected to continue to decline.
3. Geographical Reach: Internet Banking allows larger geographical reach and lower cost of delivery channels. In fact some banks are doing business exclusively via the internet – they do not have traditional banking offices and only reach their customers online.
4. Branding: Offering easy access to a broad array of products and services builds relationships with customers by easing their lives a little. By capitalizing on brand identification and by providing a broad array of financial services, banks hope to build customer loyalty, and enhance repeat businesses.
   1. Customer Demographics: Internet banking allows banks to offer a wide array of options to their banking customers. Some customers will rely on traditional branches to conduct their banking business. Other customers are early adopters of new technologies that arrive in the marketplace. The challenge to banks is to understand their customer base and find the right mix of delivery channels to deliver products and services profitably to their various market segments.

Constraints on Internet banking growth in Bangladesh

Though we have seen some sharp rise in the growth of internet and internet users, there

are some impediments on the way to the growth of internet in Bangladesh. Some of the

reasons4 are listed below:

1. Underdeveloped IT industry
2. Lack of efficient use of IT network
3. No direct access to the information super highway
4. Limited skilled human resources
5. Poor telecommunication infrastructure
6. Low-level of computer literacy
7. Widespread poverty
8. Low telephone penetration
9. Lack of software in the Bengali language

Let us take a look at a few important ones in a bit more detail.

The IT industry in Bangladesh has not grown at the rate that will enable internet banking to become an instant hit. [11] Our software industry growth has risen to $32.91 million in 2008-09 but the internet banking systems that we see today utilized at Dutch Bangla Bank Limited and BRAC Bank are all foreign softwares. These softwares also break down regularly causing problems to the ATM cardholders who are unable to make deposits or withdraw money from the machines.

Limited skilled human resources is a massive problem faced by our country as far as IT sector goes. There are limited technicians and engineers available who are handling these frequent breakdowns that our ATMs are facing and it takes a while for them to be operational again. Therefore training and retraining facilities provided by the banks should be undertaken straightaway in order to groom more technicians and engineers so that home banking facilities can be operated more efficiently.

There is a poor telecommunication infrastructure in Bangladesh which is pretty obvious from the lack of mobile phone network coverage that we get in certain areas by certain mobile phone operators. This also applies to the internet facilities that are provided. Even though we have come far into the digital communication world in terms of broadband and wireless internet, we still have a lot of internet connection problems that we face that should be fixed as soon as possible in order to facilitate internet banking more easily.

Low-level of computer literacy is another obvious indicator of problems with internet banking.[12] If we as a nation are to create internet banking on a mass scale, we need to make sure that we the country’s citizens are aware of operating a basic computer in the most simplest of ways. Computer coaching classes should become publicly available on a wider scale, not like they are now, in the nook and crannies of Dhaka city charging abnormal fees for a few months course.

Widespread poverty is another basic problem of internet banking in Bangladesh.[13] We are a poor country by far and our GDP per capita is around $500 a year for most average income earners. Most average Bengalis cannot afford to buy a personal computer for internet banking or afford the mobile phone bills in order to facilitate mobile banking. In order to get hold of these facilities the government needs to subsidize the price of computers or start assembling computer parts locally in order to make computers available to the general public at a cheaper and of course, more affordable price.

The country also suffers from low telephone penetration in that few people have access to a mobile phone. Even though the number has increased a lot since the past decade, there are still plenty of people (around 50% of them) that do not have access to mobile phones. [14]

Lastly another very basic problem is the lack of translated ATM softwares in Bengali. The average Bengali is not well acquainted with English and therefore would have preferred their internet banking facilities to come in their mother tongue rather than English.

CONCLUSION

Banks have been a facilitator of our lives transactions forever. They have provided the utmost ease with which we’ve used their services in order to be benefitted elsewhere. We deposit our money in banks in order to make sure it is kept safe. Not only has our money been kept safe, but it has also been utilized by the banks for a more useful function, like lending to someone who needs money but does not have it, investing in businesses where the returns benefit not only the company and employees where the money has been invested, but also the banks, who make a substantial amounts of profit from these motives. Such motives include investing 30% or more of their liquid reserves into the stock exchange (70% or more in the case of Bangladesh unfortunately, which has led ultimately to a stock market demise over and over again)[15], government T-Bills and preference shares in various companies. They also deal with real estate investments themselves, investing in land in various parts of the country, allow for mortgages, car loans and various other special lending schemes for consumers like hire-purchase, credit cards, etc. By bringing in home banking facilities to the world banks have generalized the transfer of funds from one account to another simply from the click of a button. Internet/ Home  banking has not only provided the basis for people to rapidly make transactions in the blink of an eye, it has also improved digital communication by giving you the ability to check account balances, pay salaries, pay utility bills, and many other forms of services. Mobile banking has allowed  you to do the same but from your mobile phone. However the most common problems with internet banking are the country’s infrastructure. In a poor country such as Bangladesh we do not have the necessary technicians and engineers to a great extent in order to maintain our ATMs and internet banking accounts. For example, Dutch Bangla Bank Limited’s internet banking service as well as ATMs are frequently out of order and take a bit of a time to be running again. Also, poverty, poor computer literacy and many other problems have not allowed internet banking to be as successful as it should have been in a country where 160 million people depend on quick, cheap forms of getting their bills paid instead of plowing through the jammed up roads.

Bibliography

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