1. Financial Institution Econ 310 Group 7 Can traditional bank be replaced?

2. Background Hong Kong : International financial center Banking Industry : a significant position Local banking community Foreign banking community over 300 banks from 40 countries

3. Background Foreign bank provides competition new ideas distinctive banking products Advanced technology in 21 st century electronic money products electronic delivery channels

4. Background Electronic money consumers pay conventional funds store the value on a computer device purchase goods E.g. Octopus

5. Background E.g. Visa Cash Mondex

6. Background This project : Internet Banking Future development

7. Traditional Bank- Credit Rating C redit Risk A sset quality Risk M anagement Risk E arnings Risk L iquidity Risk

8. Internet Bank- Special Risk L iquidity risk O peration risk C redit risk A reputation risk L egal risk

9. 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

10. 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

11. 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

12. 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

13. 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

14. Basel II - A Reputation Risk YearNumber of fraudulent website, emails or telephone system 0622 0526 0432

15. A Reputation Risk - clipping

16. 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”.

17. 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.

18. 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

19. Development of Internet Banking in Hong Kong

20. 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

21. Hong Kong i-banking Practices Three management arrangements should be considered: Internal communication management Web development management Customer relation management

22. 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

23. Internal communication On-site examination programme by HKMA focus on authorized institutions’ e-banking activities, 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

24. 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.

25. Customer relation a critical factor affecting the success of any business i-banking shifts the relation of contact customers and bank tellers ↓ customers and network linked with banks

26. 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

27. A case study of HSBC I- banking

28. HSBC I-banking is called online@hsbconline@hsbc 8 main functions: Money transfer Time deposit management View & pay bills Investment management Credit cards services MPF Accounts Insurance services Personal loans approval

29. 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

30. Time deposit management 2 types of time deposit: HK dollars Foreign currency Current interest rate and details of time deposit can be check anytime

31. 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

32. 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

33. 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

34. MPF Accounts Balance and contributions can be viewed and switched Fund performance can be checked Claim can be made by just doing some simple clicks in online@hsbc Real time process is used Update information on banking services and on many financial activities is provided

35. Insurance services Insurance services of HSBC in online@hsbc including:online@hsbc Travel Home Accident insurances Details of the insurance can be obtained Claim can also be made

36. 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

37. Security system of online@hsbc 128-bit Secure Sockets Laver (SSL) encryption technology is installed Firewalls is set up within online@hsbc online@hsbc Correct combination of i-banking ID and password is needed for accession Online access will be disabled if 3 consecutive incorrect passwords have been attempted Inactive accounts will be logged off automatically Advices are given to the users

38. Future Development of Banking Internet Banking However, Problems arisen on Deposit of Money

39. 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

40. Multi-purpose Card Concept of Electronic money  Issuer of the electronic money can earn interest on the investment of the funds received  Issuer incurs a liability to make good claims on it by holders of electronic value such as merchants

41. 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

42. Multi-purpose Card

43. Future Development Sources of Fund ( Input )

44. At the last Stage Traditional bank can be replaced!

45. Q & A