Abstract: In recent years banks in banking system of Bosnia and Herzegovina (BiH) have been working very hard on adoption modern technological inovations in their business. Specially, given bank's attention to introduce these new technological inovations, e-banking, seems like distrubution channels

of their financial products to their clients. This paper will analyze using of credit cards, ATM machines, POS terminals and Internet banking in payment system of BiH and in other transitional countries. Also, this paper will analyze barriers in using of this instrument in payment system of BiH.

Key words: e-banking, low computer literancy, low income, economic development, education;

1. INTRODUCTION

Banks in thin one financial system like BiH financial systems have an important role in financial interemediation between creditors and debitors, in development of financial markets and in monetary transmission mechanism. Financial system of Bosnia and Herzergovina is "bank dominated" system which means that in financial system dominated banks (credit institution). One of the main function of banks in economy is clear and settle payments to facilitate trade and commerce (Sinkey, 2002). After reform of payment system in BiH all payments go only through banking system. In that segment of their works, now banks use technological inovations like as automated teller machines (ATMs), ponit of sale (POS), and Internet banking.

E-banking is the provision of banking services by means of electronic data transfer between participants (Mishkin, 2004). Internet and telephone are major channels of e-banking. Internet banking is a term used for performing transactions, payments etc. over the Internet through a bank's secure website. In a same way clients may use ATMs or POS by using a plastic card with a magnetic stripe, which encodes the customer's account number, and by entering a personal identification number. An important aspect of Internet technology means high initial investments cost for banks.

Our hypothesis in this paper is that clients of BiH's banks faintly use instrument of e-banking in payment system in relation with other selected transitional countries. The aim of this work is to analyze the reasons of small frequency in using e-banking in payment system. On the basis of those results we will give recommendation to improve that situation.

2. E-BANKING IN PAYMENT SYSTEM OF BiH

The Internet was introduced in BiH in 1995. through the university line UTIC (University Tele-Information Centre). Several months later, BH PTT offered the service for its users. All IPS are in the state-owned PTT monopoly. Today, in BiH exsist 46 licensed providers Internet services by BiH's Communication Regulatory Agency. The development of e-banking in banks of BiH is linked on introducing to credit and debit cards in BiH. 33 banks were operated in BiH banking system on the end of 2004., from that number 32 commercial banks are included in payment system. Five years ago, the first ATM has been installed in payment system of BiH. Using of e-banking in payment system of BiH started with opening national banking system to foreign banks. Using Internet made payment simple. Twenty one bank in BiH operate with credit cards. Between them 14 made card business operation with international cards. Analyzing frequency of using those instruments in payment system of BiH we show share of e-banking payments in total value of transaction in payment system of BiH in 2004. figure 1.

Now we will see in table 1. number of issued credit cards from banks in Bosnia and Herzegovina in last year.

From those informations, it is clear that the total number of credit cards (local and international) in BiH is increased for 95%. Same trends have other components of e-banking in payment system. Number of ATM machines was increased double if we made comparation with last analyze, number of installed POS terminals which is increased by 56% more than in previouse analyze. In table 2. we made comparation in number od issued credit cards with others selected countries at the end of 2004.

In comparation with other countries, we find that clients of BiH banks faintly use new payment instruments. In BiH exist one domestic card BamCard and those international like Visa, Euro Cards and Diners Card. During the first nine months in 2004. there were more than six milion transactions in the total value of 495 milion Euro. For example, in Estonia the total value of transaction made with e-banking instruments in the same period was 711 milion euro. At the end of 2004, in BiH cards were not a widespread payment method, used by nearly a 20% of BiH's population or each fifth. For comparation, in Croatia on one man existed 1,5 credit cards.

From this date, it is clear, referred to BiH that some of these selected countries have more than fourth to tenth times more installed ATM and POS terminal in same period. In BiH, there are only 18 banks which offer their clients Interent banking.

3. BARRIER FOR FAINTY USING E-BANKING INSTRUMENTS IN PAYMENT SYSTEM BIH

Banks in BiH have got rather small number of clients for which is performed e-banking. There are faw reasons for which e-banking instruments in payment system are fainty using in banks of BiH. The fact is that big banks mostly in foreign ownership and small banks in domestic private ownership supplay their clients with products which included technological inovation in payment system. Where are the problems than? Problems in using modern technological inovation in payment system of BiH is mostly on one side--clients. We will emphasize the main problems:

1. low computer literancy

2. low income

3. small number of Internet access

First and the most important barrier is availability, which is connected with the affluence of the population. Personal computers and mobile phones are not affordable for the most of the population in BiH. Hardware prices are high; one PC costs approximately 770 euro or more depending on the quality. Average net salary in the Federation of BiH is 284 euro and in Republika Srpska euro 232, basket of necessary products cost 237 euro, so it is obvious why the new media is not widely introduced. The users of computers are mostly:

1. high school and university students

2. primary school students

3. middle-aged people

4. foreigners.

Most Internet users in BiH are young: the average age is 27 years. The women/men ratio is 1:2 (Vockic-Avdagic, 2005). Internet access in BiH is between eight and ten computer ownership is six percent. In 2003 in BiH ware 274 mobile telephones and 26 Internet users on 1000 people what shows low development of IT sector and current economic situation (World Bank, 2005). Another barrier to the development of e-banking in BiH is the lack of client's trust in banks, and even more so in Internet banks. An important barrier to the development of this form of payment like banking services is the security barrier. We are talking about an operation risk which are resluts of using e-banking. Services provided by banks through new channels of distribution should contain security mechanisms, not allowing unauthorised individuals to perform account transactions, protecting. Furthermore, the development of e-banking may be limited by profitability, which is related to the high costs of e-banking for banks, who implement it, and for clients, who use it. Monthly price for using 20 hours of Internet in 2004. in BiH was 7 USA $, in Croatia 14 USA $, Macedonia 19 USA $, Serbia and Montenegro 13 USA $ and Estonia 14 USA $.

A certain impediment to the development of e-banking is the lack of detailed legal regulations protecting the interests of e-banking users and consequently increasing the security of concluded operations.

4. CONCLUSION

To improve use of e-banking in payment system of BiH, it's very important to formulate and to realize poverty reduction strategy which must be based on strong economy growth. On that way people in BiH will incresed demand and using e-banking. Computer literacy in BiH is very low and that is the second problem which must be solved. For that reason it's an important to rise a computer literacy in BiH. This aim may be realized with the government supported programs in secondary schools for increasing computer skills and knowladge. It's important to secure a solid information-technology infrastructure and to develope an IT service industry.

On the other side, banks in their marketing plans must work on promotion and informing their clients how to use a new techological inovation in banks business. Bank's promotion plan must show benefits of new instruments in banking supply. The most important thing in using e-banking services for clients is save their time. Also, it's impotant for supervisors to formulate and implement efficiency strategy and procedures for supervise e-banking activities of BiH banks. In that job supervisors must include standards which are given by the Bank for International Satllement Basel.

5. REFERENCES

CBBH (Central bank Bosnia and Herzegovina). (2005). Annual report of CBBH Available from: http://www.cbbh.ba Accessed:2005-06-20

BIS (Bank for International Setllement). (2003). Risk Management Principles for Electronic Banking. Available from: http://www.bis.org Accessed: 2005-05-05

Federation of Bosnia and Herzegovina, Federal Office of Statistic. Major Indicators of Economic and Other Trends, Available from: http://www.fzs.ba Accessed: 2005-06-05

Mishkin, F. (2004). The Economics of Money, Banking and Financial Markets, Addison Wesly, ISBN 0-321-20463-8, New York

Sinkey, J. (2002). Commercial Bank Financial Managment--In the Financial-services Industry, Prentice Hall, ISBN 0-13-090910-6, New Jersey

Vockic-Avdagic, J. (2005). The Internet and the Public in Bosnia-Herzegovina, Available from: http://www.soemz.euv-frankfurt-o.de Accessed:2005-05-05

World Bank, (2005). World Development Indicators, Avaliable from: http://www.worldbank.org/data/ wdi2005/wditext/section5.htm Accessed: 2005-06-20

Table 1. Number of total issued credit cards in Bosnia and Herzegovina

Time period        Number of credit cards

June 2003           348.404
Septembar 2004      678.843

Table 2. Number of issued credit cards in Croatia, Serbia and
Montenegro, Macedonia and Estonia at the end of 2004.

Country                      Issued credit cards on the end
                             of 2004.

Croatia                          6.360.954
Serbia and Montenegro            2.500.000
Macedonia                          127.905
Estonia                          1.536.135

Table 3. Number of ATMs and POS in Bosnia and Herzegovina, Croatia,
Serbia and Montenegro, Macedonia and Estonia.

Country                    Number of ATMs and POS on
                              the end of 2004.

                                ATM        POS

BiH                            253         5.697
Croatia                      1.919        41.760
Serbia and Montenegro          400        15.000
Macedonia                      131         4.860
Estonia                        779        11.113

Table 4. Number of computer and Internet users per 1000 people in 2003.
for selected countries.

Country                   Number of       Number of
                          computer per    Internet users
                          1000 people     per 1000 people

Croatia                       173,8                232
Estonia                         440                444
Macedonia                         -                  -
Serbia and Montenegro          27,1                 79

Fig. 1. Share of e-banking payments instruments in total
value of transaction in payments system of BiH.

Share of e-banking payments instruments in total value of
Transactions in payment system of BiH

value of e-banking
transactions in
payment
system of BiH               4%

value of
transactions in
payment
system of BiH             100%

Note: Table made from pie chart.