ONLINE TRADING: Is it the Right Choice?

Welcome

to a new era in banking--Internet banking. With over 25 million

users already (according to a survey by the Hyderabad-based

MBL Research and Consultancy Group) and the Internet revolution

underway, India is an exciting growth market with tremendous

business opportunities for Internet banking.

A clearer

picture of how quickly the Internet usage could increase is

beginning to emerge. By mid 2000, India is expected to have

2.5 million users-a number that will swell to 4.5 million by

the end of that year. Internet technology has made it possible

to do banking sitting in your home enjoying a cup of coffee

and watching TV simultaneously. No more travelling all the way

to your bank premises simply to check your bank balance. No

constrains to use the services only during the business hours-usually

maximum eight hours per day. You can check your account balances

even at 2.00 a.m. at night or send a stop payment order by just

filling up a form on the bank's Internet site.

Perhaps

you will be excited to know that many of the leading banks are

in the process of offering Internet banking and users will appreciate

the service. After all every bank wants to improve its reputation

as a "customer friendly bank". Those who miss the

bus will lose an edge. TD Waterhouse Group is teaming up with

Indian conglomerate-the Tata Group-to bring on-line trade to

India. ICICI and many other financial houses have already jumped

in the bandwagon of on-line banking.

Most banks

want to expand their horizon and increase their customer base.

Internet Banking has enough potential to help them in servicing

a customer base spread across the globe. This service is the

first step towards futuristic banking and offers convenient

remote banking facility. It provides you an easy access to your

accounts. With just a PC connected to the Internet, you can

have your account information at your fingertips-from anywhere

in the world, anytime. So, if you don't want brick and mortar

bank timings to hassle you, Internet banking is just the service

for you.

But How

Secured Is it? And How Reliable?



Many claim "All this in an extremely safe and secure environment.
You can rest assured that your financial transactions are carried

out safely and with confidentiality." Do you believe this?

We all are aware of encryptions being hacked and packets being

leaked. Before we decide whether on-line banking is good for

us let us see what are its components. Typically Internet banking

service consists of options like viewing bank statements, bank

balances, issuing order for stop payment of cheque, order for

demand draft, sending a fax to the bank manager, transferring

funds from within different accounts of the bank, etc. Enhancements

planned for future versions include third party transfers, request

for demand drafts and pay orders, and many more to bring you

the ultimate in banking



convenience.

The customer

points his browser to the home page containing a front-end or

client software (normally Java Applet) for the banking solution.

The software contains a Graphic User Interface for the transactions.

The Transaction Processing Server (TPS) receives the requests

from the client software and processes the request. It implements

the Secure Socket Layer for connections. Connector application

acts as a connector between the TPS and the bank's database.

On account of varied nature of banking applications in different

banks, the connector needs to be tailor-made according to the

Bank Database Architecture so that it can be integrated to the

Transaction Processing Server.

Even though

the electronic tools are inexpensive and readily available,

the bigger issue is using them properly. Many individuals will

discover that lack of know-how is a serious handicap.

After Internet

banking service, the road ahead promises on-line trading. Take

an inexpensive PC, log on, open a trade account with your virtual

broker, and make your fortune the easy way. Sounds good, and

many people in India will aim to do just that in the expectation

of hitting the jackpot quickly and scrapping their day jobs.

The reasoning behind the approach had some merit. In many cases

traditional brokers, the human intermediaries charge fairly

hefty fee for their services and bring little, if any, value-addition

to the equation. Why pay more to trade with a broker whose main

function is to parrot what comes over the morning's complaint

box and write customers' tickets? It does not take much savvy

to properly assess that value, or lack thereof. Just because

you are overpaying for undervalue does not mean you should take

things into your own hands, especially if you are a novice investor.

Even if

you have exposure to the media, and access to correct information,

it is hard to escape the barrage of advertising for on-line

trading. Anyone with adequate competency with a computer can

get started quickly. Still, never an untrained soul would have

the courage to try his hand at this kind of endeavor, which

makes us wonder why so many willingly embarked on the do-it-yourself

path of investing, oblivious of the potentially devastating

results.

The point

is whatever path you follow it is a good idea to have prior

experience or a map to follow. In the absence of this guidance,

you are apt to be up a blind and costly alley. Compounding,

or perhaps exacerbating, the problem is the fact that the ostensible

rush for gold just happens to get under way while the market

is rising. So, all cocktail party-talks about stock-picking

prowess are accompanied by occasional digs on not needing brokers

anymore.

The answer

to whether Internet banking and on-line trading are for you

is the same as the answer to whether do-it-yourself investing

is for you. When it comes to Internet banking the answer is

YES-if you have time to develop and follow a sensible discipline

and the patience to wait for the rewards of that discipline.

If and when that is in place, all you will need is a PC and

an on-line account. But when it comes to on-line trading in

India, my opinion is, NO, not yet. We may have to wait for the

dawn of 2002 or 2003 for on-line trading to be an investor's

choice.

Network

infrastructure will have to be stabilized. The Internet and

computers will have to penetrate further in day-to-day life

of investors. When security and accessibility issues are resolved

and technology stabilizes successful investor will find the

actual time spent trading will be minimal. Nearly all the effort

involved will relate to monitoring the standards that have been

set. Not so hard, but not so easy.