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Financial Institution
Econ 310
Group 7
Can traditional bank be replaced?
BackgroundBackground
Hong Kong : International financial center
Banking Industry : a significant position
Local banking community
Foreign banking community over 300 banks from 40 countries
Background
Foreign bank provides competition new ideas distinctive banking products
Advanced technology in 21st century electronic money products electronic delivery channels
Background
Electronic money consumers pay conventional funds store the value on a computer device purchase goods
E.g. Octopus
Background
E.g. Visa Cash
Mondex
Background
This project :
Internet Banking
Future development
Traditional Bank- Credit Rating
C redit RiskA sset quality RiskM anagement RiskE arnings RiskL iquidity Risk
Internet Bank- Special Risk
L iquidity riskO peration riskC redit riskA reputation riskL egal risk
Which risk can be controlled?
Liquidity risk
not able to meet its obligations to settle full value when they come due result in opportunity costs, defaults on obligations or costs associated with obtaining the funds
from other source lead to operational failure
Which risk can be controlled?
Credit risk risk of a borrower or counterparty failing to meet its obligations increased by a loan through an internet banking channel approving loans electronically
Basel II - Operations Risk
Operation Inadequacies or failings in the processes or systems Lack of control to detect damage from hacker, fraud,
Trojan Horse Arises from fraud, processing errors, system
disruptions or other unanticipated
Basel II - Legal Risk
differences between electronic and paper-based processes
uncertainty over laws govern a specific internet banking transaction
legally binding electronic agreements overseas?
Legal actions or uncertainty in the applicability or interpretation of contracts
Basel II - A Reputation Risk
Unauthorized activity on customer accounts
Disclosure or theft of confidential customer information
Failure to deliver on marketing claims Loss of trust
A Reputation Risk
Basel II - A Reputation Risk
Year Number of fraudulent website, emails or telephone system
06 22
05 26
04 32
A Reputation Risk - clipping
Security of Internet Banking
The liability for loss of customers
In accordance with the Code of Banking Practice, “unless a customer acts fraudulently or with gross negligence such as failing to properly safeguard his device(s) or secret code(s) for accessing the e-banking service, he should not be responsible for any direct loss suffered by him as a result of unauthorized transactions conducted through his account”.
Security of Internet Banking How customers safeguard their data security
Do not use your Online Banking Customer ID and Password for any other internet banking accounts, on-line memberships or internet services.
Do not share your online banking customer ID or Password with anyone.
Do not make up Your Password with easily recognizable combinations, such as your birthday, phone number or vehicle license plate number.
Do not use the same password for different online services, and change your password regularly.
Security of Internet Banking From June 2005, individual banks offered different two-factor
authentication methods to customers. The Two-factor authentication is a security measure recognized by the information security industry to combat Internet banking frauds.
Three common methods:• Digital certificate• Security token-based one-time password
• SMS-based one-time password
Development of Internet Banking in Hong Kong
Hong Kong i-banking Practices
Services provided by the Hong Kong i-banking: account management fund transfer investment management E-IPO services insurances services loads services MPF account management
Hong Kong i-banking Practices
Three management arrangements should be considered: Internal communication management Web development management Customer relation management
Internal communication
The senior management has kept clear communication with the technical and operational staff on the system
design the policies and procedures of i-banking
operations
Internal communication
On-site examination programme by HKMA focus on authorized institutions’ e-banking activiti
es, technology risk management and business continuity planning
update with the skills and knowledge related to e-banking
→Improvement on the security and services quality of i-banking in Hong Kong
Web development
Characteristic of Hong Kong i-banking sites: easy to use sufficient assistance and guidelines. convenient
The security systems of most of the bank advance information protection system personal identification system.
Customer relation
a critical factor affecting the success of any business
i-banking shifts the relation of contactcustomers and bank tellers
↓
customers and network linked with banks
Customer relation
Traditional banking: budget a large portion of money train up their staffs to be polite and patient and be
able to work efficiently i-banking
upgrade their i-banking system new services are always introduced I-banking hotlines to eliminate confusing or for
assistance
A case study of HSBC I-banking
A case study of HSBC I-banking
HSBC I-banking is called online@hsbc 8 main functions:
Money transfer Time deposit management View & pay bills Investment management Credit cards services MPF Accounts Insurance services Personal loans approval
Money transfer
Transfer money regardless of the regions Transfer in 45 days advance can be set Reference number is given after each
transaction. If problem arose from the money transaction,
reference number can be used to ask for assistance from HSBC
Time deposit management
2 types of time deposit: HK dollars Foreign currency
Current interest rate and details of time deposit can be check anytime
View & pay bills
Over 100 bills types available 45 days advance bills payment operations
can be set Auto pay function for the bills can also be set
Investment management
Different local securities, bonds and unit trust can be bought and sold online.
Update quotes and market information is available
Subscription for IPOS is available with a lower handling fee
Credit cards services
HSBC credit cards and Octopus Automatic Add-Value Serviceonline can be applied freely online
Application forms are pre-filled with customers’ information
Credit cards limits, balance, bonus points left and statement can be viewed online
Personal data can be updated and request to increase their credit cards limit
MPF Accounts
Balance and contributions can be viewed and switched
Fund performance can be checked Claim can be made by just doing some simpl
e clicks in online@hsbc Real time process is used Update information on banking services and
on many financial activities is provided
Insurance services
Insurance services of HSBC in online@hsbc including: Travel Home Accident insurances
Details of the insurance can be obtained Claim can also be made
Personal loans approval
Interest rates of personal loans package can be checked
Personal loans can be applied online Mortgage calculate is provided for customers
to easily calculate their mortgage rates
Security system of online@hsbc
128-bit Secure Sockets Laver (SSL) encryption technology is installed
Firewalls is set up within online@hsbc Correct combination of i-banking ID and password is
needed for accession Online access will be disabled if 3 consecutive incor
rect passwords have been attempted Inactive accounts will be logged off automatically Advices are given to the users
Future Development of Banking
Internet Banking However, Problems arisen on
Deposit of Money
Multi-purpose Card
Concept of Electronic money consumers pay conventional funds to an issuer of
electronic money in return for storing the value of those funds on an
computer device (chips) held by the consumer. Use the electronic value to purchase
Multi-purpose Card
Concept of Electronic money Issuer of the electronic money can earn interest o
n the investment of the funds received Issuer incurs a liability to make good claims on it
by holders of electronic value such as merchants
Multi-purpose Card
Issuer of a multi-purpose Card is taking money from the public investing it, in return for providing a means of payment
in electronic form.
Electronic Purse
Function
Multi-purpose Card
Future Development
Sources of Fund ( Input )
At the last Stage
Traditional bank can be replaced!
Q & A