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Case 3.2: EC Application: Security for Online Bank Transactions 81

Online banking in general has been embraced worldwide, P2P Lending
including developing countries. For example, online banking
in China is increasing rapidly in popularity, especially among The introduction of online banking enables the move of per-
China’s new educated middle class who live in the more sonal loans to the Web in what is called online person-to-
developed cities. It is facilitated by the use of smartphones person money lending, or in short P2P lending. This model
and other mobile devices. (See hsbc.com.cn/1/2/personal- allows people to lend money and to borrow from each other
banking/e-banking/personal-internet-banking and Bank via the Internet. For how P2P loans work, see thebalance.
of China boc.cn/en.) com/how-peer-to-peer-loans-work-315730.

Examples
Online Banking Capabilities Two examples of peer-to-peer (P2P) online lending are Zopa
Limited in the United Kingdom (zopa.com) and Prosper
Banking applications can be divided into the following cat- Marketplace in the United States (prosper.com). Note that,
egories: informational, administrative, transactional, portal, despite the global credit crunch of 2008–2012 and the fact
and others. In general, the larger the bank, the more services that neither has a government-backed guarantee, both Zopa
are offered online. and Prosper are enjoying solid growth. For example, as of
May 2016, Zopa’s 53,000 active members had lent more than
£1.45 billion at negotiated rates to UK customers, mainly for
Pure Virtual Banks car payments, credit card debts, and home improvements.
The default rate of these P2P lenders is very low (e.g., Zopa’s
Virtual banks have no physical location and conduct only historical bad debt is 0.19% since 2010) since money is lent
online transactions. Security First Network Bank (SFNB) was only to the most credit-worthy borrowers. For Prosper’s
the first such bank to offer secure banking transactions on the company overview, see prosper.com/about.
Web. Amid the consolidation that has taken place in the bank- A word of caution about virtual banking, including P2P
ing industry, SFNB has since been purchased and now is a lending: Before sending money to any cyberbank, especially
part of RBC Bank (rbcbank.com). Other representative vir- one that promises high interest rates for your deposits, make
tual banks in the United States are First Internet Bank (firstib. sure that the bank is a legitimate one.
com) and Bank of Internet USA (bankofinternet.com).
However, more than 97% of the hundreds of pure-play
virtual banks failed by 2003 due to a lack of financial CASE 3.2: EC APPLICATION
viability. Many more failed during 2007–2012. The most SECURITY FOR ONLINE BANK
successful banks seem to be of the click-and-mortar type TRANSACTIONS
(e.g., Wells Fargo, City Corp, HSBC).
Virtual banking can be done with new business models, Banks provide extensive security measures to their customers.
one of which is P2P lending. The following describes some of the safeguards provided.

Bank
Website
Bank
Security System

Customer’s Encrypted External Logon Screen Bank Internal Bank
Computer SSL Session Firewall User ID Web Server Firewall Application
and Digital User Password Server
Certificate
Verification
Initiated

Figure 3.3 Security for online banking transactions