• Internet banking poses significant challenges for financial institutions.bank image by Pefkos from Fotolia.com
  
  Banking practices have undergone significant changes since the advent of the Internet. Banks provide many services online, which are extremely convenient for banking customers. However, Internet banking (also known as electronic or e-banking) also poses some risks to the banks and banking customers who choose to use it. Management companies and individuals have to weigh these risks against the potential benefits before they decide whether Internet banking is a good option.
  
  

Regulation and Legalities

• Internet banking makes it possible for banks and their customers to do business from anywhere in the world. This greatly increases the bank's potential client base. Nevertheless, according to Andrea Schaechter of All Business, the global approach to banking that e-banking permits makes it extremely difficult for regulatory authorities to enforce finance laws. Additionally, regulations differ from nation to nation and banks are not always proficient in the financial laws for every nation in which they have business. Schaechter asserts that this lack of proficiency opens banks and their clients up to law violations and lawsuits.
  
  

Digital and Financial Divide

• Rupa Rege Nitsure, author of "E-banking: Challenges and Opportunities," claims that a digital divide exists between banks -- i.e., not every bank has access to the hardware and software necessary to make e-banking possible. A study led by Jiaquin Yang of Georgia College and State University showed that this problem may be related to size and financial support a bank has. Smaller banks tend not to use e-banking because it is not cost-effective for them. To make Internet banking more commercially fair to banks and customers, all banks would need a sufficient funding source so that banks could eliminate this digital divide.
  
  

Security

• E-banking increases convenience, but as Schaechter points out, it also opens a bank to security issues. For example, a criminal might hack into the bank's server in order to acquire bank account data, or a software glitch might cause the bank to unwittingly distribute personal data to the wrong person. To make matters worse, technology is not static. Banks who use Internet banking have to constantly update their software and hardware to make sure that compatibility issues and increased knowledge of security systems do not increase their security risks. This can be expensive over time.
  
  

Reputation

• Schaechter asserts that problems such as governance and security have the potential to make a bank look bad to clients. Additionally, the more a bank relies on Internet banking, the more the bank may gain an impersonal feel. Both of these problems may discourage clients from choosing a bank that relies on e-banking, regardless of how convenient e-banking may be.