Many researchers expect rapid growth in customers using online banking products and services. The challenge for banks is to make sure the savings from Internet banking technology more than offset the costs and risks associated with conducting business in cyberspace. The unprecedented speed with which new technologies are being adopted, the ubiquitous and global nature of electronic networks, the integration of e-banking platforms with legacy systems and the increasing dependence of banks on third party information service providers, all dramatically amplify the magnitude of risks to which banks are exposed. Internet banking does not open up new risk categories, but rather accentuates the risks that any financial institution faces. These are some of the risks that are facilitated by internet banking:
· Strategic risk
· Transaction risk
· Compliance risk
· Reputation risk
· Information security risk
· Credit risk
· Interest rate risk
· Liquidity risk
· Price risk
· Foreign exchange risk
Spurred by competitive and peer pressures, banks may seek to introduce or expand Internet banking without an adequate cost-benefit analysis. The organization structure and resources may not have the skills to manage Internet banking. This leads to strategic risks. Most Internet banking platforms are based on new platforms which use complex interfaces to link with legacy systems, thereby increasing risk of transaction errors. Third-party providers also increase transaction risks, since the organization does not have full control over a third party. Again, the compliance risks are amplified when the customer, the bank and the transaction are in more than one country. Moreover, reputation risk also arises when a bank's reputation can be damaged by Internet banking services that are poorly executed for instance, limited availability, buggy software, and poor response. Furthermore, the information security risk is the risk to earnings and capital arising out of lax information security processes, thus exposing the institution to malicious hacker or insider attacks, viruses, denial-of-service attacks, data theft, data destruction and fraud. Internet banking also leads to credit risk as it enables customers to apply for credit from anywhere in the world and find it extremely difficult to verify the identity of the customer. Again, as it is easy to compare rates across banks, pressure on interest rates is higher, accentuating the need to react quickly to changing interest rates in the market which lead to interest rate risk. The other important risk is liquidity risk that is the risk to earnings or capital arising from a bank's inability to meet its obligations. Banks may be exposed to price risk, if they create or expand deposit brokering, loan sales or securitization programs as a result of Internet banking activities. Lastly, internet banking also facilitates the foreign exchange risk as it encourages residents of other countries to transact in their domestic currencies.
· Strategic risk
· Transaction risk
· Compliance risk
· Reputation risk
· Information security risk
· Credit risk
· Interest rate risk
· Liquidity risk
· Price risk
· Foreign exchange risk
Spurred by competitive and peer pressures, banks may seek to introduce or expand Internet banking without an adequate cost-benefit analysis. The organization structure and resources may not have the skills to manage Internet banking. This leads to strategic risks. Most Internet banking platforms are based on new platforms which use complex interfaces to link with legacy systems, thereby increasing risk of transaction errors. Third-party providers also increase transaction risks, since the organization does not have full control over a third party. Again, the compliance risks are amplified when the customer, the bank and the transaction are in more than one country. Moreover, reputation risk also arises when a bank's reputation can be damaged by Internet banking services that are poorly executed for instance, limited availability, buggy software, and poor response. Furthermore, the information security risk is the risk to earnings and capital arising out of lax information security processes, thus exposing the institution to malicious hacker or insider attacks, viruses, denial-of-service attacks, data theft, data destruction and fraud. Internet banking also leads to credit risk as it enables customers to apply for credit from anywhere in the world and find it extremely difficult to verify the identity of the customer. Again, as it is easy to compare rates across banks, pressure on interest rates is higher, accentuating the need to react quickly to changing interest rates in the market which lead to interest rate risk. The other important risk is liquidity risk that is the risk to earnings or capital arising from a bank's inability to meet its obligations. Banks may be exposed to price risk, if they create or expand deposit brokering, loan sales or securitization programs as a result of Internet banking activities. Lastly, internet banking also facilitates the foreign exchange risk as it encourages residents of other countries to transact in their domestic currencies.
No comments:
Post a Comment