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Internet Banking: Risk management approach to e-banking and electronic money activities from financial institution´s point of view
Stockholm University, Faculty of Social Sciences, School of Business.
2006 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

The central objective of this study was to examine risks of e-banking and electronic money activities, such as credit card transactions from a financial institutions angle of view. My intention was to identify risks associated with Internet banking and electronic credit card transactions and analyze feasible risk management tools for electronic banking activities in open networks environment. In order to be able to do that, it was indispensable to first explore and generally analyze the structure of electronic banking and then examine elements of Internet banking and electronic money activities in a more profound manner. Firstly, I identified focal reason why banks have introduced electronic banking and money activities. The most important reasons discovered were enhanced cost-efficiency, considerable marketing advantages and added customer value. Then I examined the structure of electronic banking, primarily focusing on diverse distribution channels. It was acknowledged that the Internet is presently the fastest growing distribution channel of electronic banking and electronic money activities. After studying electronic and Internet banking, risks and risk management matters were examined. From financial institutions point of view the risk was defined as an unexpected, sudden incidence which may take place in the future, effecting usually in a negative way on the financial institutions business targets and can in a worst case even jeopardize the institutions existence. It was elucidated that the risk management process in enterprises consists of four phases, which are identifying, analyzing, controlling and estimating risks. Thereafter the risk management process was accomplished. Risks related with e-banking for the financial institution were identified. Due to the fast developments of technology, new risks are arising constantly. This study focused principally on identifying common risk categories and three risk categories were analyzed in more detail -operational risks, environment risks and system risks were the core of the study. Operational risks consist mainly of diverse security risks. Environment risk encompassed legal risks. System risks comprises of information system risks and risks of failure in banking system. Different risk management methods were also introduced. It was noticed that the most paramount risk management methods concerned the personnel of the financial institution. The empiric part of the study focused on analyzing risks associated with electronic credit card transactions. Risk management of operational, environment and system risks was examined more profoundly in the context of Diners Club Finland Oy. The structure of credit card payments and functioning principles of credit card issuers were analyzed in order to create necessary understanding of risks related to credit card payments in open networks environment. In my opinion the importance of constant risk management is amplifying, since the business environment is not as stable and predictable as it was before. Therefore banks and financial institutions are facing an altering environment of varying risks, and in order to continue to prevail and to better than the rivals, enterprises have to recognize the importance of continuous, active risk management process. The identified risks should be taken into consideration when designing information security cautions for financial institution. More detailed analysis of seriousness of risks is left for a further study. Behavioral finance would also be very interesting aspect when analyzing operational fraud risks of a credit card company. Behavioral finance would provide active and innovative operational risk managements solutions for a financial institution.

Place, publisher, year, edition, pages
National Category
Business Administration
URN: urn:nbn:se:su:diva-6276OAI: diva2:196270
Available from: 2007-01-05 Created: 2007-01-05

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