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E-BANKING - April 6th, 2008

INDEX
SR.NO PARTICULARS PAGE NO.
1 EXECUTIVE SUMMARY
2 INTRODUCTION
3 EVOLUTION
4 WHY IS E-BANKING IMPORTANT?
5 DEFINITION OF E-BANKING
6 TRADITIONAL BANKING v/s E-BANKING
7 FACETS OF E-BANKING
8 MODELS OF E-BANKING
9 ADVANTAGES OF E-BANKING
10 CONSTRAINTS OF E-BANKING
11 ELECTRONICS DELIVERY CHANNELS
¬ AUTOMATED TELLER MACHINE
MOBILE BANKING¬
TELE BANKING¬
¬ INTERNET BANKING
12 IMPACT OF I.T ON BANKING
13 E-BANKING TRANSACTIONS
14 ELECTRONIC FUND TRANSFER
15 CLEARING SYSTEM
16 SECURITY MEASURES
17 CONCLUSION
18 CASE STUDY ON ICICI BANK
19 ARTICLE
EXECUTIVE SUMMARY

‘Electronic banking’ means banking done through electronic systems for customer’s transactions (front office
computerization) and/or internal accounting and book-keeping (back office computerization), as against the
traditional manual system. The new private sector banks, which began operating since 1994 with front office
and
Back office computerization, spurred a trend towards complete-computerization and electronic banking in
public sector banks. Today, most of the public sector banks have computerized front office computerization
in metros/cities and their back office computerization and information management systems are also fast
getting computerized.
Recent advancements in information and communication technologies have virtually replaced manual
banking by electronic banking.
Electronic banking has enabled banks to improve their customer service quality by speeding up most the
routine banking transaction and by providing ‘anywhere, anytime banking’. New banking channels have
been open up in the form of ATMs, Tele-Banking and Internet Banking, although the conventional ‘brick and
mortar’ banking is also available at all branches.
Electronic Banking has also improved internal bookkeeping and management information systems of the
banks. Inter-connectivity between the branches is also being sought to achieve, to centralized the core
banking operations on a common electronic platform, to be achieved economies of scale and to further
improvise upon ‘anywhere banking’.
Automated Teller Machines (ATMs) have become very popular for dispensing cash to customers on-site and
off-site, 24 hours a day, 365 days a year. However, these have certain limitations as regards quantum of
withdrawals and denomination of notes disbursed. Further, these cannot issue cheques books or drafts, like
a teller/assistant at the bank counter, nor can these respond to an un-programmed query of a customer.
These do not have a human face, nor can these show any empathy to a customer who has run into some
problem.
Mobile Banking goes to the customers for banking transactions, rather than the other way round (as in
conventional banking). Mobile banks can have either computerized system or manual banking system. In
either case, it reaches the customers on designated days/hours on specified places. It involves less capital
investment, but has problems of security and safety, unlike a conventional branch, which provides safety,
security and comfort coupled with complete banking facilities.
Tele banking provides ‘anywhere and anytime’ banking, but only to a limited extent. It can provide general
information about the account to a customer, but it cannot issue a cheques book or a draft instantly, which
is possible in branch banking.
Internet banking enables customers to access and view their ledger accounts and make limited transfer of
funds from one account to another. However, Internet banking has not yet gained momentum in India, as it
requires certain infrastructure, which is not yet possessed by most customers. There are certain issues that
require to be tackled before it can become more popular in cities and towns.
Electronic Funds Transfer has made fund-transfer from one center to another in the same country or to
another country faster and safer.
Electronic Clearing system has enabled the banks abroad to handle the clearing of cheques and inter-banks
settlement faster and in large volumes. In India the clearing system is not fully automated. This result in
credit clearance to customer’s accounts being done on the third day after the cheques is deposited.
Electronic credit/debit systems have saved the customers from the tedium involved in receiving/making
payments by cheques. The corporate and banks have also preferred to adopt this hassle-free, cheques-less
system of payments and receipts, by issuing mandates to the bankers for making periodic payments from
their accounts of the specified company.

INTRODUCTION

The information technology has revolutionized various aspects of our life. The world at large is entering into
the “Net Age”. Internet or simply “net” is an inter connection of computer communication networks covering
the whole world.
Electronic banking is conducted by using Automatic Teller Machines (ATMs), telephones or debit cards. Debit
cards look like a credit card. But unlike a credit card, using a debit card removes funds from your bank
account immediately. Electronic banking is using electronic means to transfer funds directly from one
account to another. Some electronic banking services are ATMs, direct deposit and withdrawal services, pay
by phone systems, point-of-sale transfer terminals, Web banking or PC banking services, even banking from
your mobile phone.
Electronic banking makes use of electronic currency. Check cards or debit cards, smart cards or stored-value
cards, digital cash and digital checks are the different types of electronic currency. If you use a check card
to make purchases, the funds are transferred immediately from your account to the store's account. Smart
cards have a specific amount of credit embedded in it. The chip in the card contains both personal and
financial information. Digital checks are used with electronic bill paying services. Consumers can use
personal finance software packages or they can use software provided by a bank.. On line banking or PC
banking offers a wider outreach for smaller institutions. Electronic banking offers consumers the
convenience of accessing and transferring funds between their accounts, paying their bills and other
purchases, twenty four hours a day, seven days a week.

EVOLUTION

The Rangarajan Committee report in early 1980s was the first step towards computerization of banks. Banks
then started exploring the idea of 'Total Bank Automation (TBA)'. Although titled 'Total Bank Automation,'
TBA was in most cases confined to branch automation. It was only in the early 1990s that banks started
thinking about tying-up disparate branches together to facilitate information sharing. At the same time,
private banks entered the banking arena with radically different strategies.
Given the huge IT budgets at their disposal and with almost no legacy IT equipment to worry about; private
banks hastened the adoption of technology. The philosophy for private banks was very clear: to provide a
whole new range of financial products and services at minimal costs, and technology made this possible.
K.N.C. Nair, Head (IT), Federal Bank, "The new generation banks showed the way and others had no option
but to follow the tech infusion to retain and attract profitable customers."
The improved connectivity and falling costs offered by leased lines provided a booster to inter-branch
automation. With centralized infrastructure and numerous connectivity options, banks started exploring
multiple delivery channels like ATM, Net-banking, mobile banking, and Tele-banking thus driving down cost
per transaction.

WHY E-BANKING IS IMPORTANT?

Over the past several years the Internet has grown tremendously, both in scope and number of users. .
More people are using their computers to do tasks they had done manually in the past. In addition to the
usual work that computers do, new uses like home automation and personal entertainment are become
more common uses for the home PC. People are turning to their computers to manage their financial lives as
well, and this is why electronic banking by computer is important both now and in the future.
Consumers will take advantage of the convenience that electronic banking offers them in their busy
schedules. The average person does not have time to visit stand in line at the bank to make transactions
and electronic banking eliminates the need for most time-consuming trips to the bank.
Not only does electronic banking encompass traditional cash accounts, but can allow a user to make
investment transactions electronically as well. Web services allow users to login via their web browser and
buy and sell stocks and other investments online. Electronic banking will continue to grow along with the
rest of electronic commerce in the future.
"Our Internet banking base has been growing at an exponential pace over the last few years. Currently
around 78 per cent of the bank's customer base is registered for Internet banking."

DEFINITION OF E-BANKING

There is no official definition of this term, but it generally implies a service that allows customers to use
some form of computer to access account-specific information and possibly conduct transactions from a
remote location - such as at home or at the workplace. The obvious advantage to the consumer is
convenience—
Electronic banking is an umbrella term for the process by which a customer may perform banking
transactions electronically without visiting a brick-and-mortar institution. The following terms all refer to one
form or another of electronic banking: personal computer (PC) banking, Internet banking, virtual banking,
online banking, home banking, remote electronic banking, and phone banking. PC banking and Internet or
online banking are the most frequently used designations. It should be noted, however, that the terms used
to describe the various types of electronic banking are often used interchangeably.
Electronic Banking is the delivery of banking services through the use of electronic communication, primarily
the Internet. You may also see or hear E-Banking called Internet banking, on-line banking or PC banking. E-
Banking may include ATMs, wire transfers, telephone banking, electronic funds transfers and debit cards.
Safeguarding the privacy of personal confidential information and security can be concerns with E-Banking
services. Many government organizations offer publications and other materials related to E-Banking and the
Internet, including privacy and security.

TRADITIONAL BANKING v/s E-BANKING

1. TRADITIONAL BANKING - In traditional banking, the customer has to visit the branch of the bank in
person to perform the basic banking transactions viz. account enquiry, funds transfer, cash withdrawals etc.
the brick and mortar structure of a bank is essential to perform the basic functions.
E BANKING - E-banking enables the customers to perform the basic banking transactions by sitting at their
office or at homes through PC or LAPTOP. The customers can access the banks website for viewing their
Account details and perform the transactions on account as per their requirements.

2. TRADITIONAL BANKING - It has a “BRICK AND MORTAR” structure.


E-BANKING - In E-banking the “brick and mortar” structure of the traditional banking gets converted into
“CLICK AND PORTAR” model, thereby giving a virtual banking a real shape.

3. TRADITIONAL BANKING - Traditional banking is confined to branches. It provides the normal banking
facilities to customers like accepting deposits, opening accounts, account enquiries, bank statements etc.
E-BANKING - E-banking is no longer confined to branches. It provides additional delivery channels to
customers, which is more convenient and cost-effective. These delivery channels include ATM, Telebanking,
Internet banking, Mobile banking, home banking.

4. TRADITIONAL BANKING - it operates and provides services only during the working hours of the banks.
(i.e. e.g.- 8am to 8 pm).
E BANKING - E-banking facilitates banking transactions by customers round the clock globally (i.e. 24 hours
a day).

5. TRADITIONAL BANKING - Conventional banking is an art. It is a paper-based transaction


E-BANKING - E-banking is more of a science than art. E banking is knowledge based and mostly scientific in
using the electronic devices of the computer revolution. It calls for elimination of the paper-based
transaction.
FACETS OF E-BANKING

E-banking means the conduct of banking electronically. It calls for eliminating of paper based transactions
and radical change in the banking operations. E-Banking will operate through internet, extranet and
intranet. E-Banking is therefore a banking on the information superhighways on the frontier of the internet.
Parameters involved with e-banking are: customer acceptance and satisfaction, service rendered, value
added for both the organization and consumer, privacy issues, profitability, operational risk, and competition
from non-banking institutions. Implementation of the online strategy is a given for large banking
institutions, but still being considered by smaller community banks. E-Banking must have at least the
following dimensions:-
1) Customer to Bank E-Banking.
2) Bank to Bank E-Banking
3) Electronic Central Banking
4) Intranet Procurement.

(1) CUSTOMER TO E-BANKING. E-banking is basically Internet based. Banking products and services such as
deposits, remittances, credit cards etc. as well as all important banking information can be made available
with easy access to customers on Internet. Customers can make use of these services with no restricted
office hours, no queues, no tellers and waiting. Several network innovations of E-banking can be visualized
such as smart cards, Electronic data Interchange etc. of course, the banking operations have to be guarded
against unauthorized access by intruders.
(2) BANK TO BANK E-BANKING. This form of electronic banking is for transacting inter-bank transactions
such as money at call etc. This type of E-Banking is driving extranets, which is restricted to banks only.
Hence it is well secured and unauthorized access is less.

(3) ELECTRONIC CENTRAL BANKING. Under this E-central banking all the banks within the purview of a
central bank are interconnected on extranet to facilities clearing of cheques, management of cash reserves,
open market operations, discounting of bill etc. in fact, the central bank has to be connected with the
government treasury on extranet to carry out its function as an agent of the government. Again, the central
bank of all countries can be inter-linked with the I.M.F World Bank and other international financial
institutions through extranets.

(4) INTERNET PROCUREMENT. For the transactions that are internal to a bank, between the bank and its
branches and subsidiaries, Intranet procurements of banking are required. On the other hand, Extranet
permits a bank to have full control over the users of intranet and information to be transmitted. The
Extranet-Intranet-Internet relationship that exists in the process of E-Banking. Extensive work is required to
integrate internal and external communications of banking related information through banking internet and
intranet for the development of the financial sector.

MODELS OF E-BANKING

To implement effectively E-banking and augment the level of technology the following models have been
suggested:-

1) Complete Centralised Solution (CCS).


2) Cluster Approach.
3) High Tech Bank within Bank.

(1) COMPLETE CENTRALISED SOLUTION (CCS).

This is an ideal branch network model on which E-banking activities can be implemented uniformly and
effectively. Under this model, the bank has to provide web-server and the requisite software which is
connected to the main server. Once the required hardware and software are set in, the customers can
access the web-server for their basic banking operations using any standard browser at any location.
FEATURES : The following are the features of complete centralized solution:-
• The entire system software, data for the entire bank etc are stored in a centralised server with its hot
standby server being replaced at different location and connected through high speed and efficient network.
• Branches are provided online nodes to receive requests from customers and provide them services across
the counter.
• The nodes provided at remote branches are connected through effective satellite links with enough
redundancy to provide reliability as well as adequate bandwith.
• The skilled manpower is required only at the centralized location.

(2) CLUSTER APPROACH.

Under this model, computerized branches of each city are connected with Regional Processor located at each
such city which are then connected through reliable media to a centralized High end server. Under this
approach, it is necessary that an integrated computerization is available at all branches so that connectivity
amongst various branches can be established through Regional clusters.

FEATURES: The following are the important features of the cluster approach.
• The entire branch network of the bank should be computerized through integrated software.
• All these branches should be interconnected with Regional servers through reliable network media.

(3) HIGH TECH BANK WITH BANK:

Under this model, complete computerization of all branches is avoided. Within each bank, two different
types of banks would function concurrently. High Tech banking providing E-Banking facilities through
selected branches and traditional bank offering traditional services through other branches. This approach
enables the banks to play a balanced role to offer state of the art service to ever demanding customers of
major cities and simultaneously continue to offer traditional personalized services to the mass customers
who still dominate the banking scene.

FEATURES: The following are the features of High Tech Bank within bank:-
• Out of the entire branch network of the bank, only certain branches are selected to offer E-banking
depending upon the customers needs, business potential, infrastructure facilities available etc.
• The accounts of all the customers in those branches should be automated under a centralized system
offering various electronic channels including Internet Banking.
• The High network customers may be encouraged to use E-Banking services through these selected
branches.
• It would not impose any technological burden on the customers who do not want to enjoy E-banking
services.
• The banks could get a gestation period to cover more branches under the umbrella of High-Tech bank in a
phased manner.

ADVANTAGES OF E-BANKING

E banking has the following advantages-


1. ROUND THE CLOCK BANKING-
E-banking facilities performing of basic banking transactions by customers round the clock globally.
Worldwide 24 hours and 7 days a week banking services are made possible. Infact, there are no restricted
office hours for E-banking.
2. CONVENIENT BANKING-
E banking increases the customer’s convenience. No personal visit to the branch is required. Customer can
perform basic banking transactions by simply sitting at their office or at home through PC or LAPTOP.
Customers can get drafts at their doorsteps through e-mail call. Thus E-banking facilitates Home Banking.
3. LOW COST BANKING (SERVICE)-
The operational costs have come down due to technology adoption. The cost of transactions through
Internet banking is much less than any other traditional mode.
4. PROFITABLE BANKING-
The increased speed response to customer requirements under E-banking vis-à-vis branch banking can
enhance customer satisfaction and, consequently can lead to higher profits via handling a larger number of
customer accounts. Banks can also offer many cash management products for the existing customers
without any additional cost.
5. LOW COST BANKING (ESTABLISHMENT)-
Brick and mortar structure of banking gets converted into Click and Portal Banking. Banks can access to a
greater number of potential customers without the commitment cost of physically opening branches. Hence,
there is much saving on the cost of infrastructure. Moreover, requirements of staff at the banks get reduced
to a greater extent.
6. QUALITY BANKING-
E banking opens new vistas for providing efficient, economic and quality service to the customers. E banking
allows the possibility of improved quality and an enlarged range of services being made available to
customers.
7. SPEED BANKING-
The increased speed of response customer requirements under E-banking will lead to greater customer
satisfaction and handling a larger number of transactions at a lesser time. Thus, it increases the customer’s
convenience to a greater extent and facilitates better customer retention.
8. SERVICE BANKING-
E-banking creates strong basic infrastructure for the banks to embark upon many cash management
products and to venture in the new fields like E-Commerce, EDI etc. instant credit, one day credit,
immediate payments of utility bills, instant transfer of funds etc. would be made possible under E-banking.
In brief, it adds conveniences to the entire banking services apart from widening the range.

CONSTRAINTS IN E-BANKING
[
With the obvious benefits emerging out of E-banking mentioned above the following factors contribute as
major impediments in the smooth implementation of E-banking:
1. START UP COST-
Many banks have expressed their concern about the huge initial start-up cost for venturing into E-banking.
The start up cost includes-
a. The connection cost to the Internet or any other mode of electronic communication. The network should
be robust, secured, efficient and scalable with inbuilt redundancy.
b. The cost of sophisticated hardware, software and other related components including Modem, Routers,
Bridges, and Network Management System etc.
c. The cost of maintenance of all equipment, websites, skill level of employees etc.
d. The cost of setting up organizational activities to implement E-Banking.
For a successful E-Banking, bankers need to develop a coherent perspective of the role of network
technologies and advancement of their EFT departments with a competitive introspection of their banking
business.
2. TRAINING AND MAINTENANCE
The introduction of E-Banking involves 24 hours support environment, quality service to end users and other
partners, which would necessitate a well, qualified robust group of skilled people to meet external and
internal commitments. Hence the bank has to spend a lot on training. What is more important is their
retention in their organization after necessary training. Moreover, the bank has to outsource certain
functions and services to maintain the level of standards and state of readiness. The training and retaining
of skilled manpower is a major cause of concern.
3. LACK OF SKILLED PERSONNEL
It is a well-known fact that there is an acute scarcity of web developers, content providers and
knowledgeable professionals to route banking transactions through Internet. In a fast changing technological
scenario, the obsolescence of technology is fast and hence there is always shortage of skilled personnel.
4. SECURITY
In paperless banking transaction, many problems of security are involved. A security threat is defined as a
circumstance decision or event with potential to cause economic hardship to data or network resources in
the form of destruction, disclosure, modification of data, denial of services, fraud, waste and abuse. There
are chances that documents such as cheques, passbook etc. can be modified without leaving any visible
trace. Distortion of information is also possible. Providing appropriate security may require major initial
investments in the form of application encryption techniques, implementation of firewalls etc. Inspite of
implementation of several securities measures, the possibility of a security breach cannot be ruled out.
5. LEGAL ISSUES
Legal framework for recognizing the validity of banking transactions conducted through the NET is still being
put in place. Though initial legal framework has been devised for E-banking activities, it is uncertain as to
what possible legal issues may pop up in future as banking on internet progresses. What may happen if a
customer sensitive data falls into the hands of a stranger or if his account shows a Nil balance all in a
sudden without his knowledge? The legal issues should cover unauthorized access and authorized
modification of data, wrongful communication, and punishment to be meted out to combat computer crimes.
To prevent computer crimes, the country’s banking legislation needs to make suitable provisions with a
thorough consultation and discussion among the legal as well as technical experts.
6. RESTRICTED CLIENTELE AND TECHNICAL PROBLEMS
The user of E-Banking needs a computer and time to log on to the site. It means that the target clientele is
restricted to those who have a home PC or can access the ‘NET’ through the office or cyber cafés. Moreover,
phone connections are not always perfect and, on a home PC, the modem connection often breaks off,
requiring another seditious log-on. Navigating around websites on home computers is often slow and
frustrating. Moreover, local calls are not free generally and so the customer has to pay every time he checks
his balance.
7. RESTRICTED BUSINESS
Not all transactions can be carried out electronically. Many deposits and some withdrawals require the use of
postal services. Some banks have automated their front-end process for the customers, but still largely
depend upon manual processes at the back-end. For example, the INTERNET customers receive their
statements online, but paper statements are also sent by mail. Mail and distribution costs are still necessary
as the statements, cheques etc. are still mailed.

8. DESTRUCTION OF PRICING MECHANISM


The Internet may also destroy the basic business pricing models. The Internet creates perfect market
conditions where prospective consumers have access to more information and can more readily compare
rates and financial products offerings. Now players in the field have lower costs than old banks. Hence, they
can under cut the prices and provide stiff competition to established banks.
Moreover, banks marketing programme and products are generally based on product or physical location.
The web allows customers to easily compare all the products and their prices and sign-up for the products
irrespective of location.

ELECTRONIC DELIVERY CHANNELS


AUTOMATED TELLER MACHINE¬
• INTRODUCTION
An automated teller machine or automatic teller machine (ATM) is an computerized telecommunications
device that allows a financial institution's customers a secure method of performing financial transactions in
a public space without the need for a human bank teller or a clerk.
ATM is a cash rending teller machine. It is a user-friendly, computer driven system, which operates 24 hours
a day, 7 days a week. A totally menu driven system, it displays easy-to-follow, step-by-step instructions for
the customer.
Using an ATM, customers can access their bank accounts in order to make cash withdrawals (or credit card
cash advances) and check their account balances. Many ATMs also allow people to deposit cash or cheques,
transfer money between their bank accounts, pay bills, or purchase goods and services.
• USAGE

On most modern ATMs, the customer identifies him or herself by inserting a plastic card with a magnetic
stripe or a plastic smartcard with a chip, that contains his or her account number. The customer then
verifies their identity by entering a passcode, often referred to as a PIN (Personal Identification Number) of
four or more digits. Upon successful entry of the PIN, the customer may perform a transaction. After the
transaction is complete, a transaction record is printed, usually constisting of the action taken, date and
time, location, any applicable fees, and available balance.
If the number is entered incorrectly several times in a row (usually three attempts per card insertion), some
ATMs will attempt retain the card as a security precaution to prevent an unauthorised user from discovering
the PIN by guesswork. Captured cards are often destroyed if the ATM owner is not the card issuing bank, as
non-customer's identities cannot be reliably confirmed.
In some cases, a transaction may be performed at the ATM that allows the customer's PIN to be changed
securely.
Types by physical characteristics
There are two main types of ATMs that have developed over time:
Mono-function devices, which only one type of mechanism for financial transactions is present (such as cash
dispensing or statement printing)
Multi-function devices, which incorporate multiple mechanisms to perform multiple services (such as
accepting deposits, dispensing cash, printing statements, etc.) all within a single footprint.
Mono-function and multi-function devices are manufactured both regular "interior grade" and weather-
resistant "exterior, through-the-wall grade" variants. Some ATMs are also built as fully self-contained
exterior units designed to sit alone without the protection of a building and be completely exposed on all
sides to the elements.
Reasons for selecting either mono-function or multi-function and "interior" versus "exterior" ATMs include
device cost, installation location, customer wait times, desired reliability, and historical preference.
Types by installation locations
ATMs are placed not only near or inside the premises of banks, but also in locations such as shopping
centres/malls, grocery stores, gas stations and restaurants. These represent two types of ATM installations,
on and off premise. On premise ATMs are typically more advanced, mutli-function machines that
complement an actual bank branch's capabilities and thus more expensive. Off premise machines are
deployed by financial institutions and also ISO's (or Independent Sales Organizations) where there is usually
just a straight need for cash, so they typically are the cheaper mono-function device.
• Hardware

A block diagram of an ATM.

An ATM typically is made up of the following devices:


1. CPU (to control the user interface and transaction devices)
2. Magnetic and/or Chip card reader (to identify the customer)
3. PIN Pad (similar in layout to a Touch tone or Calculator keypad), often manufactured as part of a secure
enclosure.
4. Secure cryptoprocessor, generally within a secure enclosure.
5. Display (used by the customer for performing the transaction)
6. Function key buttons (usually close to the display) or a Touchscreen (used to select the various aspects of
the transaction)
7. Record Printer (to provide the customer with a record of their transaction)
8. Vault (to store the parts of the machinery requiring restricted access)
9. Housing (for aesthetics and to attach signage to)
Recently, due to heavier computing demands and the falling price of computer-like architectures, ATMs have
moved away from custom hardware architectures using microcontrollers and/or application-specific
integrated circuits to adopting a hardware architecture that is very similar to a personal computer. Many
ATMs are now able to use operating systems such as Microsoft Windows and Linux.
• Software

With the migration to commodity PC hardware, standard commercial "off-the-shelf" operating systems and
programming environments can be used inside of ATMs. Typical platforms used in ATM development include
RMX, OS/2, and Microsoft operating systems (such as Windows 98, Windows NT, Windows 2000, Windows
XP, or Windows XP Embedded). Sun Microsystem's Java may also be used in these environments.
Linux is also finding some receiption in the ATM marketplace
FUNCTIONS OF ATM
1. Cash dispensing
2. Generating statement of account
3. Account balance enquiry
4. Request for a cheque book
5. Deposit of cash/ cheques
6. Issue of gift cheques/ travellers cheques
7. Utility payments like telephone bills, electricity bills etc.

ADVANTAGES OF ATM
1. Round the clock banking for 365 days a year, banking can be done by the customer at any time on any
day of the week.
2. Quick and efficient service
3. Response is uniform and fixed for all the customers as per the programme set, thus leaving no scope for
discourteous or subjective behaviour as may happen with human interaction at bank’s counters.

DISADVANTAGES OF ATM
1. Cash withdrawals are restricted to certain amounts as fixed by the bank and notified to atm cash holders.
2. Cash dispensation is restricted to certain denomination of currency notes usually rs. 50/ 100/ 500.
3. ATM can perform only particulars functions. For other functions , the customer has to visit the branch or
direct one’s enquiries to the concerned call centre.

• Security
Security, as it relates to ATMs, has several dimensions. ATMs also provide a practical demonstration of a
number of security systems and concepts operating together and how various security concerns are dealt
with.
Customer security while using ATMs

Security guards watching over ATMs that have been installed in a van.
In some areas, multiple security cameras and security guards are an ubiquitous ATM feature.
Critics of ATM operators assert that the issue of customer security appears to have been abandoned by the
banking industry; it has been suggested that efforts are now more concentrated on deterring legislation
than on solving the problem of forced withdrawals.
At least as far back as July 30, 1986, critics of the industry have called for the adoption of an emergency
PIN system for ATMs, where the user is able to send a silent alarm in response to a threat.
Alternative uses
Although ATMs were originally developed as just cash dispensers, they have evolved to include many other
bank-related functions. In some countries, especially those which benefit from a fully integrated cross-bank
ATM network, ATMs include many functions which are not directly related to the management of one's own
bank account, such as:
1. Deposit currency recognition, acceptance, and recycling
2. Paying routine bills, fees, and taxes (utilities, phone bills, social security, legal fees, taxes, etc.)
3. Printing bank statements
4. Updating passbooks
5. Loading monetary value into pre-paid cards (cell phones, tolls, multi purpose stored value cards, etc.)
6. Ticket purchases (train, concert, etc.).
7. Purchasing postal stamps.
8. Lottery ticket purchases
9. Games and promotional features
10. Donations to charity
11. ATMs can also act as an advertising channel for companies to advertise their own products or third-party
products and services

¬ MOBILE BANKING
The last time that technology had a major impact in helping banks service their customers was with the
introduction of the Internet banking. Internet Banking helped give the customer's anytime access to their
banks. Customer's could check out their account details, get their bank statements, perform transactions
like transferring money to other accounts and pay their bills sitting in the comfort of their homes and offices.

However the biggest limitation of Internet banking is the requirement of a PC with an Internet connection,
Mobile banking addresses this fundamental limitation of Internet Banking, as it reduces the customer
requirement to just a mobile phone.
Still, the main reason that Mobile Banking scores over Internet Banking is that it enables ‘Anywhere
Banking'. Customers now don't need access to a computer terminal to access their banks, they can now do
so on the go – when they are waiting for their bus to work, when they are traveling or when they are
waiting for their orders to come through in a restaurant.
MOBILE BANKING SERVICES
Banks offering mobile access are mostly supporting some or all of the following services:
1. Account Balance Enquiry
2. Account Statement Enquiries.
3. Cheques Status Enquiry.
4. Cheques Book Requests.
5. Fund Transfer between Accounts.
6. Credit/Debit Alerts.
7. Minimum Balance Alerts.
8. Bill Payment Alerts.
9. Bill Payment.
One way to classify these services depending on the originator of a service session is the ‘Push/Pull' nature.
‘Push' is when the bank sends out information based upon an agreed set of rules, for example your banks
sends out an alert when your account balance goes below a threshold level. ‘Pull' is when the customer
explicitly requests a service or information from the bank, so a request for your last five transactions
statement is a Pull based offering. .
The other way to categorize the mobile banking services, by the nature of the service, gives us two kind of
services – Transaction based and Enquiry Based. So a request for your bank statement is an enquiry based
service and a request for your fund's transfer to some other account is a transaction-based service.
Types of Mobile Banking
Technically speaking most of these services can be deployed using more than one channel. Presently, Mobile
Banking is being deployed using mobile applications developed on one of the following four channels.
1. IVR (Interactive Voice Response)
2. SMS (Short Messaging Service)
3. WAP (Wireless Access Protocol)
4. Banking through a mobile van
5. Atm on ship or airliner
1.IVR or Interactive Voice Response service operates through pre-specified numbers that banks advertise to
their customers. Customer's make a call at the IVR number and are usually greeted by a stored electronic
message followed by a menu of different options. Customers can choose options by pressing the
corresponding number in their keypads, and are then read out the corresponding information, mostly using
a text to speech program.
Mobile banking based on IVR has some major limitations that they can be used only for Enquiry based
services. Also, IVR is more expensive as compared to other channels as it involves making a voice call which
is generally more expensive than sending an SMS or making data transfer (as in WAP or Standalone clients).

One way to enable IVR is by deploying a PBX system that can host IVR dial plans. Banks looking to go the
low cost way should consider evaluating Asterisk, which is an open source Linux PBX system
2. SMS (short messaging services) uses the popular text-messaging standard to enable mobile application
based banking. The way this works is that the customer requests for information by sending an SMS
containing a service command to a pre-specified number. The bank responds with a reply SMS containing
the specific information.
For example, customers of the hdfc bank in India can get their account balance details by sending the
keyword ‘HDFCBAL' and receive their balance information again by SMS. Most of the services rolled out by
major banks using SMS have been limited to the Enquiry based ones.
However there have been few instances where even transaction-based services have been made available to
customer using SMS. For instance, customers of the Bank of Punjab can make fund transfer by sending the
SMS ‘ TRN (A/c No)(PIN No)(Amount)'.
One of the major reasons that transaction based services have not taken of on SMS is because of concerns
about security and because SMS doesn't enable the banks to deliver a custom user interface to make it
convenient for customers to access more complex services such as transactions.
The main advantage of deploying mobile applications over SMS is that almost all mobile phones, including
the low end, cheaper one's, which are most popular in countries like India and China are SMS enabled.
An SMS based service is hosted on a SMS gateway that further connects to the Mobile service providers SMS
Centre. There are a couple of hosted IP based SMS gateways available in the market

SMS Network Architecture


How it works?
The message sent by you travels from your mobile phone to the SMS Center of the Cellular Service Provider,
and from there it travels to the Bank's systems. The information is retrieved and sent back to your mobile
phone via the SMS Center, all in a matter of a few seconds.
Mobile Banking Alerts
Some banks also provide the facility of Mobile Banking Alerts where you can get regular updates of
transactions in your account as they happen. These include:
Credits to your account (you choose a threshold credit amount, above which you'd like to be alerted)
Debits to your account (you choose a threshold debit amount, above which you'd like to be alerted)
Cheques returned (Get to know every time a cheques deposited in your account is returned)
3.WAP (wireless access protocol) uses a concept similar to that used in Internet banking. Banks maintain
WAP sites which customer's access using a WAP compatible browser on their mobile phones. WAP sites offer
the familiar form based interface and can also implement security quite effectively..
Once you log onto your Bank's WAP site through your WAP/GPRS enabled mobile phone, all you need to do
is enter your Customer ID and Net Banking IPIN. Then go to the Transactions Menu after selecting your
account. Select any one of the Transactions like Balance Inquiry, Mini Statement, Statement Request( A
Statement of Accounts for the selected account for the current period will be mailed to your address on
record with the bank), Cheques Book Request (It will be mailed to your address on record with the bank),
Stop Payment, Cheques Status Inquiry(will tell you if the cheques has been paid/unpaid/stopped/invalid),
Fixed Deposit Inquiry( can get information on account number, principal amount, rate of interest, maturity
date and maturity amount) etc
A WAP based service requires hosting a WAP gateway. Mobile Application users access the bank's site
through the WAP gateway to carry out transactions, much like Internet users access a web portal for
accessing the banks services

WAP Network Architecture for Mobile Applications


The following figure demonstrates the framework for enabling mobile applications over WAP. The actually
forms that go into a mobile application are stored on a WAP server, and served on demand. The WAP
Gateway forms an access point to the Internet from the mobile network.
4. Banking through a mobile van with or without computerized banking system
The mobile van moves from place to place on designated routes as designated hours and the customers can
transact the banking business, such as cash deposit, withdrawals, draft issuances, cheques collection,
cheques book issue, pass book update etc.
Main advantages of a mobile bank are-
Lower capital investment as compared to a “BRICK AND¬ MORTAR” bank.
Larger area coverage¬
It’s a novel concept with a banker¬ visiting the customers for banking rather than the other way round
It¬ serves as a tool for marketing on special events, like exhibitions, melas, etc.
The issues connected with mobile bank are-
• Safety and security of cash. Equipments and records.
• Online communication with base office
• Wireless technology for data communication and online backup for transactions

5. FAST NET MOBILE BANKING


Fast Net Mobile will allow you to bank on your mobile phone while you are on the move - and to see your
transactions on-screen. Fast Net Mobile is like a mini website, letting you view and control your bank
account on your mobile phone screen. Fast Net Mobile lets you check your account balances and view mini
statements (up to your last 10 transactions on each account). You can transfer money between your
accounts and you can see what's happening every step of the way on your mobile phone screen.
How it works
Your mobile phone allows you to get immediate access to you accounts, just enter your Fast Net Mobile
Access Code and Password, select an account from the list and you'll have the information you need.
Fast Net Mobile is password protected so only you can access it. You won't need to remember all your
account numbers though, as your accounts will be displayed on the screen of your mobile phone once you
sign on to use the service. So you can access your accounts quickly without fuss – a real plus when you are
on the move.

What are mPayment?


ASB and Telecom have launched a world-leading mobile payment service that, in the future, will enable
consumers to pay for goods and services from their bank account using their mobile phone.

The mPayment solution joins your mobile phone directly with your bank account, unlike micro-payment
solutions, which simply charge costs to a mobile phone account. Emerging examples of micro-payment
solutions worldwide include vending machine purchases and prepaid parking tickets.
MPayment delivers a secure service, as it requires an alphanumeric password for authentication of your
identity. In addition, by providing payment direct from your bank account, mPayment means your spending
power is not limited to the amount of credit available on your phone account.
Security
The solution has all of the following security features:
1. ID when accessing information services
2. PIN when initiating transaction
3. Usage of dynamic SMS passwords
4. Blocking access of the service if a PIN is entered incorrectly three times
5. Setting of transaction limits
6. Electronic receipts (notification of transfers, payments, cash withdrawals)
7. Encrypted communication.

TELE BANKING¬
In the current fast and active pace of our society, most people have less or no time to go through the
hassles of going to the bank just to perform some simple transactions/inquiries. As such, Telebanking
through the telephone is the perfect solution for people on the go.
Telebanking system is an Interactive Voice Response (IVR) application, which uses a telephone to access
information from a database. It is an easy to use, cost effective and innovative solution designed to meet
user needs for electronic banking application.
It provides communication between information in IVRS system and off-site telephone caller/customer. This
solution will bridge the gap between digital data and human modality of listening and speaking.
Telebanking ease users the hassle of going to the Bank or any Automatic Teller Machines to perform day-to-
day banking transactions

Telebanking is of two kinds:


Public enquiry¬
General information about banking services/ facilities can be obtained by customers and the non-customers
alike, by dialing a special enquiry number of the bank (call center) and the desired information can be
obtained after reaching the concerned extension number/desk.
Private enquiry¬
This relates to account specific information and can be accessed only by the account holder by disclosing
his/her secret PERSONAL IDENTIFICATION NUMBER (PIN) and customer ID.
Features of Telebanking
1. Check your account balance
2. Enquire on the status of your cheques
3. Transfer funds between accounts (including third party funds transfer)
4. Open a time deposit accounts
5. Change maturity instructions for your time deposit
6. Request for a cheques book or statement
7. Pay your credit card bills by transferring funds from any of your deposit accounts (except time deposit) to
your credit card account
8. Make enquiries on your credit card statement
9. Check your credit card account balance

Telebanking System advantages to users: 1 Provides round-the-clock availability of information and conduct
banking
transactions over the telephone
2 Improves services levels to off-site customers with efficiency of information release
3 Offers new ways to serve off-site customers and facilitate caller-specific or personalized information
through TPIN or access number
4 Offer flexibility for change and growth through open system architecture
5 Improve efficient use of human resources
6 Project an affluent and service-oriented image
Security
1. ID when accessing information services
2. PIN when initiating transactions
3. Usage of code pages when transaction is authorized
4. Usage of dynamic SMS passwords
5. Blocking access to the service if a PIN is entered incorrectly three times
6. Setting of transaction limits

INTERNET BANKING¬
INTERNET BANKING means online banking from home or anywhere. It provides ‘anywhere, anytime”
banking access to one’s account as well as to the public information updated by the bank on its website.
It has been introduced in India by most commercial banks, which have fully computerized their operations.
Just as the bank staff accesses the account of a customer online, the customer can also access his/her
account online via Internet
Operations of Internet Banking
The following steps illustrate the operations of Internet banking:
1. The customer connects his/her computer to the Internet.
2. The customer accesses the homepage for the Internet banking services by typing the bank's URL.
3. The customer enters his/her user ID and PIN.
4. This information will be encrypted (i.e. coded) and transferred to the bank computer through the
Internet.
5. When the bank computer receives this encrypted information, it will decrypt (i.e. decode) it. All the
information transferred between the customer computer and the bank computers are encrypted. The sender
encrypts the information while the receiver decrypts it. This process is required in order to ensure no third
party can reveal and use the information.
6. The bank computer will check if both the user ID and PIN are valid.
7. If so, the customer can proceed with the transaction, otherwise he/she is asked to re-enter the
information again.
What Internet Banks Do?
What to Internet Banks do? The same things traditional banks do. They hold onto our money and lend it out
to others respectively. The manage loans and help us keep track of
our finances. Chances are if you own a bank account at a traditional bank they offer some type of Internet
banking or online services. The next time you step into your branch office you should ask them about online
banking. You may find once you start you have no desire to go back to traditional banking.
For those that have a hard time keeping track of paper statements, Internet banking is a lifesaver. Internet
banking is also advantageous for frequent travelers that need to keep a close eye on their finances from
abroad
How Internet Banking Works
Internet banking works much like traditional banking. The primary difference is you are accessing your
account and information, making payments and reconciling statements using your computer rather than
paper or the phone to complete transactions. Instead of going down to your local branch office when you
bank online you can accomplish multiple tasks at once with the click of a button.
Online banking is rapidly becoming more and more popular as consumers recognize the advantages online
banking has to offer. For one most banks charge fewer fees if you take advantage of their online banking
services. You can also stop receiving paper statements if you like in many cases and conduct 95% of your
business over the Web when you take advantage of Internet banking.
Features of Internet banking
1. Check account balances
2. Balance a checkbook
3. Transfer money between accounts
4. Track recent account activity
5. Authorize electronic bill payments
6. Request copies of past statements and processed checks
7. Order traveler's, cashier's, and regular checks
8. Apply for auto, mortgage, home equity, student, or personal loans
Customer Advantages of Internet banking
1. Account balances and history, including year-to-date information
2. Cross-account fund transfers
3. Check history, inquiry, images, withdrawals, and stop payments
4. Credit card and statement imaging
5. Online loan payments
6. Online loan applications
7. PIN changes
8. Wireless access
9. Secure interactive messaging with staff
Financial Institution Advantages of internet banking
1. Affordable flat-fee pricing with no hidden charges or transaction fees
Multiple choices of host connectivity, Frame Relay, VPN or DSL
Customs look and feel
2. Available in three different layout versions
3. Dedicated banking server and communications hardware Robust online security systems to protect
customers' confidential information complete set-up and installation at no additional cost
4. Detailed Internet banking statistics and reporting
Security issues in Internet banking-
1. Confidentiality of transactions has to be ensured as the account can fall prey to Internet hackers. Hence,
the banks prescribe stringent log in procedures in this regard.
2. Integrity of transactions. This is done by following encryption standards.
3. Non-repudiation of the transactions by the customers. This is done by building a suitable certificate
authority.
4. Privacy when the account is accessed by the customers from some public places like the cyber cafe. Once
the customer logs out of his account. There are some traces of the transaction in the form of history files.
These need to be removed by certain programme, e.g. cookies or other devices, in order to ensure privacy
by the customer’s transactions. However, this can be only by the customer, and not by the bank, thus
making the account vulnerable to fraudulent practices
5. Data exchange security is enabled by SSL protocol
6. Static user authentication (ID, passwords, PIN, etc)
7. Blocking access to the service if a pin, user ID, other passwords, etc are entered incorrectly several times
in a row
8. Option to specify that the PC used for this season is not owned by the owner
9. Setting of transaction limits

IMPACT OF INFORMATION TECHNOLOGY ON BANKING

‘ELECTRONIC BANKING’ means banking done through electronic systems for customers’ transactions (front
office computerization) and/or internal accounting and book keeping (back office computerization), instead
of using the traditional manual system of banking. It may also include the decision support system for
various level of management and marketing/cross-selling through electronic medium.
Advancement achieved in the Information Technology and Communication Technology in the last two
decades has resulted in the successful implementation of Electronic Banking in India.
Let us briefly talk about communication systems.
Communication channel can be of three types-BIT SERIAL, BYTE SERIAL AND PARALLEL. Data compressions
techniques are used for faster communication. Encryption techniques are used for secret transmission of
data. E-mail is used for transmission of data from one place to another with speed, accuracy and security. E-
mail can be used over dial-up line or a dedicated line. Dedicated leased line connectivity can be established
via satellite link or terrestrial link. VSAT networks are used across the banking industry for many on-line
applications.
Advancements in information technology have had far reaching effects on Indian banking, which can be
identified mainly in the following areas:
1. Customer service: This has been enhanced considerably in the following ways:
Introducing new banking¬ channels such as ATMs, Internet Banking and Tele-Banking.
Enhancing¬ costumer convenience through initiatives such as ‘anywhere and anytime’ banking and ‘24*7
days banking’, home banking.
Making routine banking transactions¬ speedier, safe and secure.
Achieving banking service through¬ inter-connectivity of branches.
Making banker customer communications fast¬ and neat, and providing Information service ‘24*7 days’
basis via calls centres.
Carrying out non-banking services for the customers¬

2. Integrated internal accounting system Bank’s book keeping has been made automated, fast and accurate,
which saves considerable time. Staff time thus can now be invested in marketing and such other work after
the banking hours.
3. Management information systems meant for the middle and top management has improved due to data
classification and retrieval, integrated accounting system, communication and conferencing system and
inter-connectivity of branches.
4. Cross selling of various financial products has been made easy due to data Mining and electronic
marketing channels.
E-BANKING TRANSACTIONS

Though any type of transactions can be handled through e banking, in the initial phase most of the basic
banking transactions can be performed conveniently through Internet banking. The following are some of
the basic functions
Account enquiry¬
Fund transfer¬
Payment of¬ electricity, water, telephone bills etc
Online payments for transactions¬ actually performed through Internet
Request for issuance of cheques book,¬ draft etc
Statement of accounts¬
Access to latest schemes¬
Access¬ to rates of interest and other service charges
Transactional websites provide customers with the ability to conduct transactions through the financial
institution’s website by initiating banking transactions or buying products and services. Banking transactions
can range from something as basic as a retail account balance inquiry to a large business-to-business funds
transfer
First, one or more technology service providers can host the e-banking application and numerous network
components as illustrated in the following diagram. In this configuration, the institution’s service provider
hosts the institution’s website, Internet banking server, firewall, and intrusion detection system. While the
institution does not have to manage the daily administration of these component systems, its management
and board remain responsible for the content, performance, and security of the e-banking system.

This diagram illustrates the transaction flow for one possible configuration where the bank relies on a
technology service provider to host its Internet banking application.
1. Internet banking customer sends an e-banking transaction through their Internet Service Provider (ISP)
via a phone, wireless, or broadband connection.
2. The customer’s ISP routes the transaction through the Internet and sends it to the e-banking service
provider's ISP, which routes it to the provider.
3. The transaction enters the provider's network through a router, which directs the e-banking transaction
through a firewall to the application running on the Internet banking server.
4. The website server and Internet banking server may have host-based intrusion detection system (IDS)
software monitoring the server and its files to provide alerts of potential unauthorized modifications
5. Network IDS software may reside at different points within the network to analyze the message for
potential attack characteristics that suggest an intrusion attempt
6. The Internet banking application processes the transaction against account balance data through a real
time connection to the core banking system or a database of account balance data, which is updated
periodically from the core banking system
7. The Internet banking server has a firewall filtering Internet traffic from its internal network
Second, the institution can host all or a large portion of its e-banking systems internally. A typical
configuration for in-house hosted, e-banking services is illustrated below. In this case, a provider is not
between the Internet access and the financial institution’s core processing system. Thus, the institution has
day-to-day responsibility for system administration.

This diagram illustrates the transaction flow for one possible configuration in which the bank hosts the
Internet banking application
Internet banking customer sends an e-banking transaction¬ through their Internet Service Provider (ISP)
via a phone, wireless, or broadband connection
The customer’s ISP routes the transaction through the¬ Internet and sends it to the e-banking service
bank's ISP, which routes it the provider
The transaction enters the bank's network through a router, which¬ directs the Internet-banking
transaction through a firewall to the application running on the Internet banking server.
The bank typically has several¬ Internet application servers that could include a website server, e-mail
server, proxy server, and domain name server (DNS) in addition to the Internet banking application server
The router will typically send the transaction around¬ the other application servers directly to the Internet
banking server unless it is a non-banking transaction
The website server and Internet banking server¬ may have host-based intrusion detection system (IDS)
software monitoring the server and its files to provide alerts of potential unauthorized modifications
Network IDS software may reside at different points within¬ the network to analyze the message for
potential attack characteristics that suggest an unauthorized intrusion attempt.
The Internet banking application¬ processes the transaction against account balance data through a real
time connection to the core banking system or a database of account balance data, which is updated
periodically from the core banking system.
The Internet¬ banking server has a firewall filtering Internet traffic from the bank's internal network.

ELECTRONIC FUND TRANSFER

Electronic funds transfer or EFT refers to the computer-based systems used to perform financial transactions
electronically.
The term is used for a number of different concepts:
1. cardholder-initiated transactions, where a cardholder makes use of a payment card
2. electronic payments by businesses, including salary payments
3. electronic check (or cheque) clearing
4. electronic fund transfer at point of sale
5. card based electronic fund transfer

Transaction types
A number of transaction types may be performed, including the following:
Sale: where the cardholder pays for goods or service.
Refund: where a merchant refunds an earlier payment made by a cardholder.
Withdrawal: the cardholder withdraws funds from their account, e.g. from an ATM. The term Cash Advance
may also be used, typically when the funds are advanced by a merchant rather than at an ATM.
Deposit: where a cardholder deposits funds to their own account (typically at an ATM).
Cashback: where a cardholder withdraws funds from their own account at the same time as making a
purchase.
Inter-account transfer: transferring funds between linked accounts belonging to the same cardholder)
Payment: transferring funds to a third party account
Inquiry: a transaction without financial impact, for instance balance inquiry, available funds inquiry, linked
accounts inquiry, or request for a statement of recent transactions on the account.
Administrative: this covers a variety of non-financial transactions including PIN change.
EFTPOS (Electronic Funds Transfer at Point of Sale) is a device by which sales transactions can be directly
debited to the customer's bank account at the point of sale, through the use of a debit card (sometimes the
same card used with Automatic Teller Machines). Merchants using EFTPOS can also offer cashout facilities to
customers, where a customer can withdraw cash along with their purchase. EFTPOS are sometime also
called POS Terminal or Payment Terminal and must not be confused with traditional Point of sale.
The customer's card is swiped through a card reader or inserted into chip reader and the merchant usually
enters the amount of the transaction before the customer enters their account and PIN. There is usually a
short delay while the EFTPOS terminal contacts the server (over a phone line or mobile connection) before a
message of Accepted or Declined is returned. Often, at peak shopping times , the system can become
overloaded and the delay will become extended or even time out.

Card-based EFT

Credit cards
EFT may be initiated by a cardholder when a payment card such as a credit card or debit card is used. This
may take place at an automated teller machine (ATM) or point of sale (POS), or when the card is not
present, which covers cards used for mail order, telephone order and internet purchases.
The transaction types offered depend on the terminal. An ATM would offer different transactions from a POS
terminal, for instance.
Card-based EFT transactions are often covered by the ISO 8583 standard.
Traditionally, funds are transfer by banks from one place to another by mail transfer and telegraphic
transfer, the latter being faster. In both kinds of transfer, banks use post and telegraphic departments
services and use certain codes to ensure confidentially and safety in transmission of the messages.
Now, in the electronic system of communication, transmission is much faster and safer. Several banks have
started the following system for funds transfer:
1. State bank of India has electronic payment system called STEPS whereby funds can effectively be
remitted electronically from one customer’s account at one center on the same day.
2. Under core banking solutions, where the technology platform connects several branches of a bank located
at distant places, transfer of funds from one account to another account at different places can be easily
done between the inter-connected branches.
3. SWIFT: The Society of worldwide Inter-bank Financial Telecommunication is an International Society for
enabling inter-national electronic funds transfer between member banks worldwide. State Bank of India and
several other banks in India are members of this society. Member banks are connected through a high-
speed closed user group communication system. Structured and codified messages are sent by the remitting
bank to the receiving bank for crediting the beneficiary’s account situated with it. The inter-bank settlement
of account is done via the correspondent banks. The funds transfer system is fast, secure and effic
ient
THE ELECTRONIC PAYMENT SYSTEM
Internet shopping is a two-way electronic system. Two-way means interactive systems that allow the user to
request specific information and to conduct transactions from a computer terminal (Strauss 1983).
Because using a computer to do shopping is not a person-to-person business, how to pay is a big problem.
There are many different types of electronic payment systems. The most common method of paying, since
Internet shopping emerged, is customers giving their credit card numbers to the merchants. However, many
customers worry that their credit card information will be divulged over the net or misappropriated by the
merchants. Therefore, software developers, banks, and credit card companies are pushing to deliver
transaction systems that are trusted, affordable, and easy to use.
THE SET STANDARD
In a SET transaction, the buyer has the equipment of an electronic wallet. In the electronic wallet, the buyer
may have many different electronic credit cards issued by different banks. When the buyer wants to
purchase something on the Internet, he can choose any of his credit cards to pay. (Actually it means that he
chooses a credit card number to pay, but on the computer screen, he can see his different virtual credit
cards.)
Buyers also have digital IDs for each SET-enabled credit card—provided by the bank that issued the card.
When a purchase is made, the transaction details, the buyer’s card information and digital ID, and the
merchant’s digital ID are encrypted and sent to the merchant’s bank. A verification check is made from the
merchant’s bank to the issuing bank. Confirmations are sent back to all parties down the line and the goods
are then delivered. Transactions via SET are encrypted all the way from the customer to the bank, so
merchants do not see the customer’s identity, nor do the malefactors who might lurk on the Net who pry on
credit card information.

CLEARING SYSTEM

Clearing House System:


Inter-bank cheques drawn on branches of a city/town are cleared/paid through a system of ‘clearing house’.
Out-station cheques are sent for collection through a different system. Clearing house is a common service
provided by RBI in metros and by scheduled banks in other cities. Clearing house functions in all cities
/towns where there are 5 or more banks. In big cities and metros, service branch of each bank carries out
the clearinghouse operations and also the centralized draft payment function. Conduct of clearing house
operations requires huge expenditure by way of premises, equipment and staff.
The number of cheques in clearing house transactions is very large and the volume of transactions is huge.
For speedier processing, manual systems have been replaced by Automated Clearing System (ACS). The
main elements of ACS are as follows:
MICR Cheques: Magnetic Ink Character Recognition (MICR) cheques are used for clearing system in India.
As these are processed on high-speed machines, the cheques are printed on a specific type of paper and
meet other specifications, including two white bands on top and bottom, which should be free from any
marking or impressions. In these bands details are encoded with special magnetic ink. The details encoded
on the lower band are as follows:
1. First 6 digits - Cheques no. In a 6 digit code is pre-printed.
2. Center code in 9 digits: first 3 digits represent city code, next 3 digits represent the bank code and the
last 3 digits are for the branch code.
3. A 2 digit Transaction code indicating the type of account (e.g. savings/current)
Encoder:
This machine is used to write details of the cheques in the lower band with magnetic ink. In power encoder,
the data on cheques is keyed at the branches and sent to the service branch along with floppy/CD
containing the information. When the cheques are passed through the power encoder, the data on the
floppy get encoded on the cheques.
Cheques Reader cum Sorter:
Cheques in the clearinghouse are run through this machine, which records the drawee bank-wise/branch-
wise presentation of cheques from the magnetic ink impression on the lower white band. The sorter portion
of the machine automatically sorts the cheques, drawee bank-wise/branch-wise and also list out the
cheques in the same order. Cheques segregated into packets that are sent to the service branch of each
bank for further processing.
Payee branches process the payments on the next day and all returns are submitted to the clearinghouse in
the next day clearing. The customers therefore get the credit on the third day.
Debit Clearing System:
Under this system, the utility service provider (like telephone, electricity, gas, and insurance company)
obtains an authorization from the customer to debit his specific bank account with the amount of the bills at
regular intervals. The letter of authority is submitted by the service provider to his banker, which raises a
debit for the amount listed on the other bank maintaining the client account.
How does ECS(Debit) work?
1. Utility Companies, banks/institutions receiving periodic/repetitive payments towards electricity
bills/telephone bills/loan installments/insurance premier initially collect mandates from their customers /
subscribers for collection of amounts due from them by direct debit to their accounts with banks. The
mandate provides details such as the name, account number, name of bank/branch etc. duly certified by the
bank concerned.
2. Based on the details furnished in the mandates, the user company prepares transaction data on electronic
media and submits the encrypted data to the local Clearing House, through its Sponsor bank.
3. After due validation of the data, the local clearing house processes the same and arrives at the inter-bank
settlement as also generates bank-wise/branch-wise reports (hard copies)
4. NCC debits the destination banks' accounts with clearing house and simultaneously affords a consolidated
credit to the sponsor bank's account and furnishes the bank-wise and branch-wise reports to the service
branches of destination banks.
5. Service branches forward the branch-wise reports to the respective branches for debiting the accounts of
customers with the indicated amounts.
Advantages of the Debit Clearing System are as follows:
1. Customer is not required to keep a track of his bills for ensuring that he pays before the due date.
Customer also need not take effort of writing the Payments cheques.
2. The service provider need not print out the bills and send it to the customers for payment.
3. The system helps the banker in cutting down on expenses, as cheques are not used for payment of the
bills.
Credit Clearing House:
This is a total contrast to the Debit Clearing System. It is used by the company for paying the
dividends/interest of its shareholders/depositors at periodic intervals. Instead of sending out cheques to the
investors, the company directly credits the amount through the clearing system of its bank, to the
customer’s accounts, in keeping with the letter of authority (or mandate) obtained from the customers. The
letter of authority contains all the relevant particulars, e.g. bank, branch, account number.
How does ECS (Credit Clearing ) work ?
Step-1: The corporate body institution (called "User”) which has to make payments to a large number of
customers/investors would prepare the payment data on a magnetic media (i.e., tape or floppy) and submit
the same to its banker (Sponsor Bank).
Step -2: The Sponsor Bank would present the payment data to the local Bankers' Clearing House (managed
by Reserve Bank of India at 15 centres and by State Bank of India or Associate banks at other centres)
authorizing the Manager of the Clearing House to debit the Sponsor Bank's account and credit the accounts
(Destination Bank) of the banks where the beneficiaries of the transactions maintain their accounts.
Step -3: On receiving this authorization, the Clearing House will process the data and work out an inter-
bank funds settlement.
Step - 4: The Clearing House will furnish to the service branches of the destination banks branch-wise credit
reports indicating the beneficiary details such as the names of the branches where the accounts are
maintained, the names of the beneficiaries, account type, account numbers and the respective amounts.
Step - 5: The service branches will in turn pass on the advices to the concerned branches of their bank,
which will credit the beneficiaries'
Advantages of Credit Clearing system to various parties:
1. The company need not print the dividend/interest warrants and reconcile the paid and outstanding
amounts.
2. The investors need not deposit the cheques to their bankers every time and wait for the credit clearance.
Under the credit clearing system, credits to the Customer’s accounts are made on the fixed date.
3. The bank saves a lot of time spent in processing the large number of
Cheques/warrants deposited by the customers, as is done in the manual system.
Authentication
EFT transactions may be accompanied by methods to authenticate the card and the cardholder. The
merchant may manually verify the cardholder's signature, or the cardholder's Personal identification number
(PIN) may be sent online in an encrypted form for validation by the card issuer. Other information may be
included in the transaction, some of which is not visible to the cardholder (for instance magnetic stripe
data), and some of which may be requested from the cardholder (for instance the cardholder's address or
the CVV2 value printed on the card).
Caveat Emptor
As with any other personal information, the consumer should always be wary of potential problems and take
measures to prevent them from happening. Here are a few guidelines and warnings to those who may be
interested in electronic banking services.
1. Fees & Charges: Be sure to find out exactly what it might cost for the service you are interested in and if
there are special charges for certain types of transactions or a limit to the amount of transactions that can
occur in a month. Also be sure to find out any charges that could be assessed from a mistake in a
transaction such as NSF charges or over limit fees.
2. Time Periods: Ask your bank about the time periods required for transactions. Some banks do not process
electronic transactions past banking hours until the next business day so be sure to find out when your
service is available and when transactions will be posted to your account. In addition, electronic bill payment
services require different time limits than a regular account transfer. If the merchant does not accept
electronic payments, the bank will have to prepare and mail manual cheques to the merchant, which could
take as much as 7 business days to receive and be posted on your account with the merchant. In some
cases it might be faster for the user to prepare a manual cheques themselves. Electronic bill payment does
not give you an excuse to delay paying your bills on time, and most banks are not liable if you do not give
them enough notice of your payment.
3. Transaction Limits: Find out exactly what your bank offers and what a user can and cannot do online.
4. Security: Although it is safer to transmit your credit card information over the internet than speak it over
a cordless or cellular phone, be sure that the bank uses appropriate security measures to protect your
information, especially those that offer web-based services. Also make sure to take the appropriate
measures to protect yourself.
5. What if there is a problem?? Find out what the bank's policy is on errors and mistakes. The bank may not
be liable if you make a mistake and transfer too much money, or someone breaks into your account without
authorization. The bank will send a packet of legal notices and terms that bind the customer when they sign
up for the service. Read through all of the information that the bank provides thoroughly.
6. Floats Disappear: As electronic banking becomes more accepted, merchants will begin accepting more
payments from customers electronically rather than via cheques. When this happens, the usual seven-day
float that a check grants will be eliminated or reduced to perhaps a few hours. Be aware of the time that a
transaction may take place and plan accordingly. It is just as easy to bounce an electronic check as paper
cheques.

SECURITY MEASURES
Most of the problems mentioned above are in the nature of teething problems and hence they can be
eliminated over a period of time. However, for venturing into E-Banking, the following major controls must
be assured:
1. Authenticity controls: to verify identity to individuals like Password, PIN
2. Accuracy controls: to ensure the correctness of the data flowing across the Network
3. Completeness controls: to make sure that no data is missing.
4. Redundancy controls: to see that data is traveled and processed only once and there is no repetitive
sending of data.
5. Privacy controls: to protect the data from inadvertent or unauthorized access
6. Audit Trail controls: to ensure keeping chronological role of events that is accrued in the system.
7. Existence controls: to make sure that on going availability of all the System resources with the same
throughout
8. Efficient controls: to ensure that the system uses minimum resources to achieve the desired goals.
9. Fire Wall controls: to prevent un-authorized users accessing the private Network, which are connected to
Internet
10. Encryption controls: to enable only those who possess secret key to decrypt the cyber
CONCLUSION
As the Internet grows and people's lives become busier, the need for efficient and fast methods to handle
our daily necessities will become more important. Personal finance has long been a burden on the average
person, from standing in line to deposit a paycheque to balancing a chequebook. New forms of electronic
banking hold promise to alleviate some of these problems by providing a technology solution.
Through instant 24-access to accounts, customers will be able to more accurately plan their finances and
see exactly where their money is being spent instead of waiting for the bank statement to arrive at the end
of every month. Investors can take advantage of breaking news to make instant online trades of securities
to maximize their profit or minimize their loss. Parents may be able to more accurately plan for their child's
future. Overall, electronic banking is one of the most important aspects of the upcoming electronic age.
Without reliable financial methods, future electronic commerce would be impossible.

CASE STUDY ON ICICI BANK


ICICI BANKS PROFILE
Established in 1994, ICICI Bank is today the second largest bank in India and among the top 250 in the
world. In less than a decade, the bank has become a universal bank offering a well-diversified portfolio of
financial services. It currently has assets of over USD 41 billion, a market capitalization of USD 9 billion and
provides services to over 14 million customers through a network of about 570 branches, 2000 ATMs and a
3200-seat call center (as of June 2005). The hallmark of this exponential growth is ICICI Bank’s unwavering
focus on technology.

Case Study on ICICI BANK.


For instance, in 1997, ICICI Bank was the first bank in India to offer Internet banking with the help of
Finacle’s e-banking solution and established itself as a leader in the Internet and e-commerce space. The
bank followed it up with several e-commerce services like bill payments, funds transfers and corporate
banking over the Net.
ICICI is one of the leading private sector banks in India, which combines financial strength with a reputation
for innovation and a universal culture that embraces change. On March 31, 2002 ICICI formally merged with
ICICI bank and emerged as India's first Universal Bank. ICICI banks retail distribution network continues to
expand and it now has 570 branches and extension counters and 2,000 ATMS across about 460 locations.
The Internet is a critical element of ICICI Bank’s award-winning multi-channel strategy and is one of the
main engines of growth for the bank. Between 2000 and 2004, the bank has successfully been able to move
over 70 percent of the routine banking transactions from the branch to other delivery channels, thus
increasing overall efficiency.
Currently, only 25 percent of all transactions take place through branches and 75 percent through other
delivery channels.
ICICI bank offers a wide spectrum of domestic and international banking services to facilitate trade,
investment, cross border business, treasury and foreign exchange services ICICI bank has been quick to
realize that E- banking has changed from a somewhat experimental delivery vehicle into an increasingly
mainstream one for delivery of broad spectrum of banking products and services. Basic E- banking services
are rapidly changing from competitive differentiator to competitive necessity.
The group has leveraged on a number of tie-ups to come up with its various offering. For its Internet
banking offering the ICICI bank uses Infinity from Infosys, for its credit card business its uses Vision Plus
from Pay Sys, USA, for WAP services the tie-up with cellular service providers Orange and Airtel helps reach
out to these users, while the WAP technology is being implemented by the in-house ICICI Infotech service.
To leverage the Net for its marketing initiatives ICICI bank and Satyam Info way have jointly set up a
"COM" company to promote banking products on the Net. The bank has also entered into agreements with
leading corporate like BPL, Rediff.com., Usha Martin and Tata Communications for B to C solutions in a bid
to further strengthen its Internet banking product offering and services.
The Bank has been offering phone banking free of charge and was first to launch an Internet Banking
service in the country named Infinity.

Electronic fund transfer System


ICICI has already started a portal called BillJunction.com. Banks are planning to use the Net for payment of
utility bills. They are entering into tie-ups with utilities like MTNL, Airtel, Orange, and BPL Mobile etc. Right
now, a customer who's received a bill in the physical form logs into the network in order to make an online
payment. In the future, these bills will be sent to customers through the Net.
Services provided by ICICI Bank- E-Seva
E-Seva - an online community bill payment system, is Andhra Pradesh Government initiative to deliver
government information and services online to the state's citizens. The service will provide real-time utility
bill payments for water, electricity, telephone, municipal taxes, birth and death certificates, passport
applications, permits and licenses, transport department services and other G2C (government-to-citizen)
services . In August 2001 19 centres were started in the cities of Hyderabad and Secunderabad. At present
there are 35 E-Seva centres (with 280 service counters) The whole concept is based on real-time utility
payment system, which is very common in western world. eSeva has tied-up with ICICI bank, HDFC bank,
Global Trust bank and UTI bank for online payments. The main data centre for E-Seva is at Khairatabad,
which is used to store all information, facilitate transaction and update local department servers. The citizen
service centre and governmental departments are linked to main WAN through a LAN. eSeva is based on
three-tier network architecture. Transactions are conducted on a real-time basis. Departmental servers are
connected to the data centre, which in turn is connected to the eSeva centres. Leased lines, with back-up
ISDN lines, connect the departmental servers to the eSeva data centre. Transactions done at the eSeva
centres are recorded directly on the server of the department concerned.

SWOT analysis of ICICI bank


Strengths Weakness
Advanced Technology Too many subsidiaries
Providing innovative products & Services High cost of funds
Leverage technology to satisfy customer demands
Add value to the shareholders

Opportunities Threats
Higher capital base rivals like HDFC Competition from other industry
First mover advantages Concern over NPA despite – provisioning

Thus, ICICI has been able to use technology to provide value-added service to its customers during the last
few years. For ICICI, technology is an integral part of their business. However, their overall progress could
have been smoother but for certain internal and extraneous factors and also a pressure on spreads due to a
competitive market.
Strengths Weakess
FOREIGN BANK ICICI bank FOREIGN BANK ICICI bank
(1) Established brand name 1) First mover advantage as innovation leader in Internet banking. i) Slow
adaptation to Internet banking i) Slow moving regulatory reform in the banking sector especially with net
banking
(2) Developed Infrastructure (2) Branded as technology leader ii) Lack of demand due to saturation ii)
Infrastructure issues at micro and macro levels
(3) Responsiveness to consumer demand (3) Consumer relationships built on demand iii) Speed limitation
due to telecom carriers
(4) Increasing consumer conversion rate to Internet banking (4) Online banking growth driven by consumer
perceptions iv) Cultural and distance barriers limiting the spread

Opportunities Threats
FOREIGN BANK ICICI BANK FOREIGN BANK ICICI BANK
(1) Leverage the brand name i) Leverage the first mover advantage i) Market share loss to industry rivals
as well as new players i) Market share loss to industry rivals as well as new players
(2) Capitalise on infrastructure ii) Capitalise on innovation leader image ii) Threat of being acquired by
multinational bank or public sector corporation

Conclusion
E-banking has become a necessary survival weapon and is fundamentally changing the banking industry
worldwide. To day, the click of the mouse offers customers banking services at a much lower cost and also
empowers them with unprecedented freedom in choosing vendors for their financial service needs. No
country today has a choice- whether to implement E-banking or not given the global and competitive nature
of the economy. Banks have to upgrade and constantly think of new innovative customized packages and
services to remain competitive. ICICI has realized that survival in the new e-economy depends on delivering
some or all of their banking services on the Internet while continuing to support their traditional
infrastructure. The rise of E-banking is redefining business relationships and the most successful banks will
be those that can truly strengthen their relationship with their customers.
With rapid advances in telecommunication systems and digital technology, E-banking has become a
strategic weapon for ICICI to remain profitable.

ARTICLES

• Electronic Banking Faces Numerous Hurdles By. Ken Sheldon in Byte Digest.
Much as vendors of imaging and electronic-forms software want to create the paperless office, developers of
personal-finance software are introducing on-line services that let you handle financial transactions without
paper. These electronic links have many benefits for consumers: faster and more accurate data entry, PC-
based transaction verification and funds transfers, and the ability to download data like current stock prices.
Microsoft and Intuit, which recently announced plans to merge, say they want to broaden the electronic-
commerce services they will offer their customers. But both companies also admit that only a small
percentage of their current customer base takes advantage of these features. Software developers and
financial institutions must overcome hurdles that are both cultural and practical.
``Electronic banking is a ship that's been coming in for a long time,'' says Tom Smith, a certified financial
planner and moderator of the financial conference on BIX, an on-line service. ``People that don't use
computers are afraid of them, and the people that do use computers know that they can break.
Smith says there are other practical reasons why users haven't yet eagerly embrac ed electronic banking.
Electronic bank statements do not include the canceled check, which can be needed as a backup. ``The
average ATM is capable of much more than just dispensing cash,'' Smith notes. ``But many people don't
trust it for after-hours bank deposits.'' Smith says ATMs are analogous to electronic banking.
There is something about having all of those tangibles under your control that automated systems may
never be able to address.''
Another problem is that electronic statements are not universally provided by banks. To address that
problem, Microsoft and Intuit are actively recruiting banks to do so. Matt Glickman, product manager of
Quicken for Windows, says the company plans to offer a wide variety of electronic services. Says Glickman,
``We're putting all the building blocks in place so that we can deliver these services at a cost that people
will want to use them.'' Still, vendors acknowledge that widespread acceptance of electronic financial
services is not imminent. ``I thin k we're at the start of a many-year task toward automating financial
services for individuals,'' says Glickman. ``But there's no question that in the long term it saves people
money and time and hassle.''

BIBLOGRAPHY
BOOKS
1. BANKING, LAW AND PRACTISE – GORDAN AND NATRAJAN
2. BANKING PRODUCTS AND SERVICES - INDIAN INSTITUTE OF BANKING AND FINANCE
3. RETAIL BANKING – RAGHU PALAT
4. E-FINANCE – V.C. JOSHI
5. INTERNET BANKING – SINGHAL.
6. BASICS OF BANKING
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