Virtual banking needs new regulations: Analysts

JAKARTA (JP): The rapid development of information technology in the banking sector means changes are required in its regulation, analysts said yesterday.

"The existing banking regulations have to be adjusted, especially to anticipate developments in electronic banking transactions," Chandra Sugiono, chief consultant at PT Sentra Konsultama, declared.

He noted that with the increasing popularity of the Internet, more and more local banks are using the information superhighway to promote their products.

A number of them, including PT Bank Internasional Indonesia, have even offered banking services through the Internet, although these are still limited to "safe" practices such as account opening.

He predicted that real cyberbanking practices -- banking transactions through the Internet -- will be commonplace globally by the end of this year.

Such virtual banking has been initiated by a number of institutions, including Visa International and Worlds Inc., Intuit Services Corp. and Securities First Network Bank -- all in the United States.

Visa International and Worlds Inc. has created virtual banks and stores on the Internet through an electronic courtyard, a three-dimensional bank with "real" tellers. Visa does the bank- end processing of information and passes it to its member banks.

Securities First Network Bank has conducted a large number of transactions on the Internet, ranging from travel agents to oil drillers, with the help of Netchex which does the encryption, authorization, and authentication through hardware keys which can identify the computer source of any transaction.

Intuit, the largest online banking and bill-paying network in the United States, is the hub where banks and their customers conduct transactions such as fund transfers, electronic bill payments and balance information -- all with fees.

"Sooner or later, those virtual banking practices will spread throughout Indonesia. However, we will face serious challenges in terms of the legal infrastructure," Chandra said at a seminar hosted by STIMIK Perbanas, an institute of information management and computer.

He noted that internationally there is no single regulation which governs virtual individual transactions across countries. However, there are efforts to establish common rules to guarantee safe virtual banking practices.

He predicted that traditional banks which do not anticipate such virtual banking practices will surely suffer when virtual banking becomes more popular.

Currently, information and transactions have become real banking products. Therefore, bankers have to tie themselves to information.

Meanwhile, Richardus Eko Indrajit, an information technology consultant at PT Price Waterhouse Indonesia Konsultan, said banks will need more funds to invest in information technology to improve their competitiveness.

"Information technology is offering opportunities to gain a competitive advantage. This should be understood by the management at the corporate level," Richard said.

He warned, however, that before acquiring the most advanced information technology, banks must ensure that the technology is reliable and compatible with their existing systems.

He noted that information technology must be embedded in banks' information system, which is supported by enough human resources, and be aligned with their business strategy to support their business objectives. (rid)