Electronic Banking Case Study

Awad (2002) noted that while the basic types of risks generated by electronic banking and electronic money are not new, the specific ways in which some of the risks arise, as well as the extent of their impact on banks, may be new for banks and supervisors. Some of the risks and difficulties banks may face apply both to electronic money and electronic banking activities. However, there are likely to be variances in the degree to which a specific risk is applicable across diverse electronic money and electronic banking activities.

According to Kalakota and Whinston (2000), operational risk, reputational risk, and legal risk are the most important risk categories for most electronic banking and electronic money activities, especially for diversified

This means the bank may lose funds due to fraudulent activities. Security considerations are paramount, as banks may be subject to external or internal attacks on their systems or products. Operational risk can also arise from customer misuse, and from inadequately designed or implemented electronic banking and electronic money systems. Many of the specific possible manifestations of these risks apply to both electronic banking and electronic money.

2.4.6 Reputation Risks

A service provider’s operations could be interrupted due to system breakdowns or financial difficulties, jeopardizing a bank’s ability to deliver products or services therefore resulting in poor service delivery to the customers and this increases its exposure to operational risk.

2.4.7 Security

Awad (2002) noted that controlling access to bank systems has become increasingly complex due to expanded computer capabilities, geographical dispersal of access points, and the use of various communications paths, including public networks such as the Internet. It is important to note that with electronic money, a breach of security could result in fraudulently created liabilities of the bank. For other forms of electronic banking, unauthorized access could lead to direct losses, added liabilities to customers or other problems. A variety of specific access and authentication problems could occur. For example, inadequate controls could result in a successful attack by hackers operating via the Internet, who could access, retrieve and use confidential customer information. In the absence of adequate controls, an outside third party could access a bank’s computer system and inject a virus into it thereby exposing the bank to security