Virtual Banking

TABLE OF CONTENTS

01.00............ EXECUTIVE SUMMARY

02.00............ TRENDS IN RETAIL BANKING

03.00............ ABOUT THE INTERNET

04.00............ VIRTUAL BANKING AND APPLICATIONS

04.01............ SMART CARDS

05.00............ EXAMPLES

06.00............ SECURITY ON THE INTERNET

06.01............ CRYPTOGRAPHY

06.02............ FIREWALLS

06.03............ TRUSTED OPERATING SYSTEMS

07.00............. REGULATIONS AND PROBLEMS

08.00............ CONCLUSION .

09.00………. REFERENCES

01.00 EXECUTIVE SUMMARY

The Internet is emerging as an efficient delivery channel for financial services. With

Internet banking, customers do not need to have special bank-issued software. Banks maintain their identity and can differentiate themselves by customizing the services And information they provide over the Internet.

02.00 TRENDS IN RETAIL BANKING

What does better customer mean? Increasingly, customers are demanding more convenient ways to do their banking. An Ernst and Young study (Technology in

Banking Report) concluded that "nothing changes in the banking world if customers cannot get financial services when and where they wish...this means anywhere, at any time." Statistics show that ATM's, telephone banking, and home banking account for over fifty percent of all banking transactions today, and total non-branch activity is growing at fifteen percent a year. In one survey (Web-Tech, Inc., May 17, 1995), eighty-two percent of 18- to 34-year olds polled preferred banks with 24-hour service. Customers are also demanding a more sophisticated mix of products tailored specifically to their financial needs, and non-bank competitors are better fulfilling these needs. Banks today hold only 20% of household financial assets, versus 34% twenty years ago; they have 30% of business deposits, versus 42% only seven years ago.

Nonbank credit card providers have gained inroads against banks, holding a 25% market share versus 5% in 1986 (WebTech, Inc., May 17, 1995).

Internet banking offers an attractive solution to this redesigned products and services.

Customers have 24-hour graphical-interface access to their accounts and appreciate that their bank is doing something to make banking easier for them.

03.00 ABOUT THE INTERNET

The Internet has exploded in the last two years thanks to the invention of the so-called

"browser." A browser is a point-and-click software program that allows "surfers" to navigate around the Internet without knowing any UNIX commands. The first browser was developed by the National Center for Supercomputing Applications, a government agency. With a browser and access to the Internet, you can order a pizza, listen to and purchase a CD, stroll through the Louvre, or view satellite photographs of Scotland.

Although it may get congested from time to time, the Internet itself is extremely reliable. There is not actually any one network that is the Internet; it is made up of thousands of networks that connect to each other through common routes, and they all agree to carry each other's traffic. There is a lot of money flowing up from local