EMERGING TRENDS IN BANKING

CONTENTS

1] Introduction to e- Banking

2] Meaning

3] Features

4] Facets

5] Procedure of e- Banking

6] Advantages

7] Limitations

8] Traditional Banking V/S E- Banking

INTRODUCTION TO E- BANKING

Major changes & shifts in Indian Commercial Banking Sector

Brick & mortar banking TO click of the mouse banking Banking activities are easily digitalized & automated IT – a strategic resource for banks Technology aiding globalization &

integration of financial markets across the globe

MEANING OF ELECTRONIC BANKING

“Application of electronic technology towards transfer of funds through an electronic terminal, computer or magnetic tape to conduct various transactions like cash receipts, payments, transfer of funds etc. is called Electronic Banking.”

FEATURES OF E-BANKING

1] Anywhere, Anytime Banking2] Cashless Banking3] Promptness in Services4] Globalization of Services5] Better Services for

Customers 6] Helps to face Competition

FACETS OF ELECTRONIC BANKING

1] Computerisation 2] Telephone Banking (Home Banking) (a) Client Advisors (b) Automated Telephone System3] Automated Teller Machines (ATMs) {Shared Payment Network System (SPNS) of

ATMs}

4] Personal Computer Banking

5] E-Mail Banking

6] Network Banking or Online Banking

7] Electronic Funds Transfer (EFTs)

PROCEDURE OF E- BANKING

1] LOG ON THE WEBSITE

2] VERIFICATION OF PASSWARD

3] PROCESSING OF INFORMATION

4] CREDIT CARD REQUEST

5] FINAL APPROVAL

ADVANTAGES OF E-BANKING

A. Benefits to Banks B. Benefits to Customers C. Benefits to traders D. Benefits to Govt. & Nation

A] BENEFITS TO BANKS

1] It reduces cost 2] Global coverage 3] Central data base 4] Increase in customer

base5] Improvement in

quality of services 6] Opportunities to cross-

sell

7] Sharing of Cost 8] Opportunities for Making Profits 9] Reduction of Risk 10] Reduction in Paper Work11] Adequate Marketing Tool 12] Reduction in Fraud & Misappropriations

B] BENEFITS TO CUSTOMERS

1] Prompt in service 2] Anywhere & Anytime Banking3] Cashless Banking4] Online Shopping5] Saving in Time 6] More Convenience7] More Customer

Satisfaction

C] BENEFITS TO TRADERS 1] Promotion of Business 2] Immediate Settlement3] Avoid Risk

D] BENEFITS TO GOVT. & NATION

1] Clarity over various Transactions

2] Global Coverage of Product

3] Risk attached with handling cash

LIMITATIONS OF E-BANKING

1] High Infrastructural Cost

2] Lack of Awareness

3] Security & Privacy Problems

4] Access Problem

5] No Major Participation by Govt. & RBI

6] Lack of Proper Cyber Laws

7] Not Suitable for Small Concerns8] Lack of Initiative on the Part of Employees

9] Hesitation on the Part of Users 10] Lack of Computerization 11] Problem of Inter Bank Transfer 12] Lack of Accurate Account Servicing13] Unauthorised Transactions

TRADITIONAL BANKING V/S E-BANKING

BASIS TRADITIONAL BANKING

E- BANKING

1] MEANING IN THIS RELATIONSHIP B/W BANK & CUSTOMER ESTABLISHES THROUGH BRANCH NETWORK

IT REFERS TO BANKING ON INTERNET

2] MARKETING TOOL

IT DOES NOT PROVIDE PROPER MARKETING TOOL

IT PROVIDES THE FACILITY OF MARKETING OF PRODUCTS EASILY

3] COVERAGE

IT HAS LIMITED COVERAGE

IT INVOLVES GLOBAL COVERAGE WHILE SITTING AT HOME OR AT OFFICE THROUGH INTERNET

4] CHECK ON FRAUDS OR ERRORS

IT DOES NOT PROVIDE COMPLETE CHECK ON BANKING TRANSACTION

WITH THE INTER- BRANCH RECONCILIATION SYSTEM, FRAUDS & ERRORS COULD BE DEDUCTED EASILY

5] PROMPTNESS IN SERVICE

IT INVOLVES PROCESSES WHICH REQUIRE MORE TIME

IT SAVES A LOT OF TIME AS WE NEED NOT TO STAND IN LONG QUEUES

6] REDUCTION IN PAPER WORK

IT INVOLVES A LOT OF PAPER WORK WHICH INCREASES BOTH TIME & COST

IN THIS, COST & TIME COULD BE REDUCED AS EVERYTHING IS PERFORMED ELECTRONICALLY

7]RISK OF CARRYING CASH

IT INVOLVES RISK OF CARRYING CASH AS A PERSON REQUIRES CASH AT EACH POINT OF TIME

WITH THE HELP OF VARIOUS E-BANK PRODUCTS THIS RISK IS NOT THERE IN THIS CASE.

CREDIT CARD FACILITY :-

Commercial banks introduced Credit Card Facility in the EARLY 1980s……

Since then this facility has become increasingly popular among the banks as well Public.

FEATURES :- It is a Document of cardholder’s

CREDITWORTHINESS which minimises the use of Hard Cash in Day to Day Transactions.

A convenient medium of exchange which enables holder to buy goods and services without using money.

The cardholder need not have to worry about to carry enough money for his purchases, no matter wherever he is .

Helps holder to buy when he want to buy and pay when he can.

Cards are issued to people having a certain minimum income.

Cardholder is not required to pay any interest or any higher price for the goods purchased.

Banks also bears risk of default on cardholder’s part.

For all this, banks gets commission from sellers around 2.5% to 5% of value of GOODS.

Credit limit is specified for every Credit Card.

They can either buy goods or draw cash up to the LIMIT.

Banks meets cost of this Facility from increased sales which results from use of CREDIT CARDS .

Credit cards operates quite differently from CHEQUE CARDS.A cheque card Guarantees payment of a cheque, whereas a credit card guarantees payment against a sales voucher signed by Credit Card Holder.When goods or services are supplied, the holder gives his card to the suppliers who has agreed to join the scheme.Supplier places the card in a special imprinter machine, which records Holder’s name and number on a sales voucher.

OPERATION OF THE CREDIT CARD :-

Holder

In special imprinter Machine……

Supplier

When goods are supplied

Places CARD

Gives his CARD

Signatures with that on CARD.

Supplier

Signs

VOUCHER

Compares

Holder

Fully item-wised statement

Bank

Sends voucher TO

Bank , which pays amount claimed

Sends

Supplier

To

Card holder

Benefits To Bank :-Attract new customers.Trained staff.Yield direct profit.Provide additional customer services.Improves national business growth.Better network increases popularity of banks.Increases customer base .Increases interest income on loan facility.Minimizes credit risk .

Benefits to Cardholder

Purchase goods and services at large number

Avoid Risk factor of carrying and storing cash.

He has a period of free credit between 30 – 50 days.

Availing credit with minimum formality.

Option of taking extended credit.

Saves trouble and paper work to travelling businessmen.

Provides proof of spending through banking channels.

Convenience for making single payment for purchases.

Extends additional facilities .

Credit card is considered as a status symbol.

Benefits To Merchant :-Carry a prestigious weight to outlets.

Increase in sales due to increase in purchasing power of cardholder.He can offer credit without botheration of cost or book keeping and bad debts.Cards ensures timely and certainty of payments.Systematic accounting routed through banking channels.Development of prestigious clientele base.Avoids all cost and security problems in handling cash.Losses through bad debts are reduced .

Only a few outlets accepts the card.Some card transactions take longer time than cash transactions due to formalities.Customer tends to overspend out of immense happiness.Discounts and rebates rarely obtained.Cardholder is responsible is responsible for charges due to loss or theft of card.Customers may be denied cash discount for payment through card.

DISADVANTAGES OF CREDIT CARD :-

DEBIT CARD :-

A card that has a direct access to our bank account. Unlike Credit Cards, debit cards do not

enjoy credit period. They does not have a minimum income eligibility criteria.

Types :- 1.Direct debit cards allow “on-line”

transactions.2.Deferred debit cards allow “off-line”

and “on-line” transactions.

FEATURES :-

Combination of cheque and ATM card. Meant for withdrawals against

balance available in account. It’s the cardholder obligation to

maintain sufficient balance in account. More affordable than a credit card. No credit period.Card’s use is terminated without any notice. Spending is limited to bank balance.

OPERATING CONDITIONS :-

Personal identification number (PIN):

Used for withdrawing cash or for purchasing goods and services. It should be safeguarded carefully.

Loss of card : Cardholder should

immediately inform the bank branch if card is lost or stolen.

Debits to Customer’s Account: Bank has authority to debit account of

cardholder for withdrawals effected by using card as evidenced.

Cardholder authorizes bank to debit account with service charges notified by bank from time to time.Transaction : Record generated by bank is binding and conclusive unless verified and corrected by bank.Closing of Account : If cardholder wishes to close the account and surrender the card, ha can give a bank notice in writing and surrender card alongwith notice.

Benefits :-No background check.Cash withdrawals.Convenience.Fair exchange.Statement of account.Freely available with bank.

DisadvantagesOver – limit fees.Limited Protection.Lower level of Security.Limited Laws.No overdraft facility.No encouragement to buy if sufficient funds are not available.

An Electronic Information Carrier System that uses plastic cards ,

about the size of credit card.Can be used to store Personal Identification.Has its own MICRO PROCESSING CHIP.Contains an integrated circuit that gives Used in variety of ways :

IdentificationEncode information.

SMART CARDS :-

Strong identity verification.Secure network access credentials.Optional biometrics.Electronic signatures.Data encryption keys.

WHY SMART CARDS ???

Types :

APPLICATION OF SMART CARDS :-Its applications are divided into three broad categories :

Data Carrier.

Applications :

Identification.

Financial.

Mobile Banking :-Term used for performing balance checks, account transactions, payments.Performed via SMS or Mobile Banking, use special programmes downloaded to mobile devices.Mobile banking can take a form of following types:

SMS BankingGSM-SIM Toolkit.

Advantages :-Account information.Payments, Deposits, Withdrawals, and Transfers.Investments.Support.Content services.

Limitations :-Higher possibility of error than internet banking.Slow transmission of data.M- banking services are risky and insecure.Insufficient information available regarding M- banking.

Electronic Fund Transfer :-

Electronic Fund Transfer :-Computer based system

used to perform transaction electronically.This is done through Electronic Data Interchange (EDI).Customer has to provide details of beneficiary account at centers.

Services offered by EFT :-Sale.Refund.Withdrawal.Deposit.Inter-account transfer. Cash back.Payment.Mini- statement.Administrative.

Benefits :-Transfer of funds to or from an account.Immediate payment in bank account.Provides variety of services for customers.Chances of errors, frauds.Free authorization facility permits periodical payments.Recurring monthly payments are facilitated. customer’s monthly credit statement shows itemized payments.

Growth due to Services offered

by EFT :-

E-CHEQUES: E- Cheque is a system which provides more security and reduction in overall cost. E-Cheque facilitate on-line payment which can be complemented with the paper cheque. ADVANTAGES I). Reduction in cost. II). Increasing in security. III). Flexibility in payment system. IV). Facilitating on-line payment.

TELEPHONE BANKING/IVRS

Telephone Banking is a service provided by a financial institution which allows its customers to perform transactions over the telephone.

ADVANTAGESI) Access to information.II) Processing of transactions.III) Security.

REAL TIME GROSS SETTLEMENT (RTGS)

RTGS is an automated system to transfer money from quickly and safely from one account to another.

This system is applicable between banks/branches who are on core Banking Solutions (CBS).

PROCESS : This computer system will ask for the details of

beneficiary such as name, account number, IFRS code of the receiving branch, name of beneficiary banks etc.

Then the transfer is done immediately and the beneficiary branch/bank should receive the funds immediately or latest within 2 hours of receiving the funds transfer message.

If in any case the amt. doesn’t get credited then funds have to returned to the originating branch within two hours and a entry is passed.

ADVANTAGES OF (RTGS)

This system helps banks to settle interbank as well as forex settlements.

It also helps in transferring large amount.

There is no (very less) credit risk involved in the transactions.

There is no float time system. In this system the remitter’s account is debited first and then only the funds are transferred.

NATIONAL ELECTRONIC FUND TRANSFER (NEFT)

NEFT is a system similar to RTGS with certain differences RTGS deals in large account transactions but NEFT handles smaller size transactions.

FEATURES: 1. NEFT can be used by an individual customer to

transfer his money. The customer will have to apply with the bank for the internet banking facility. The bank will give the customer password to carry on the transactions.

2. It allows both intra and inter -bank fund transfer. It is also possible that both the customers have their account in different banks.\

3. Their is no transfer of entry rather there is just transfer of entries. Thus it is quick.

4.Th e amt. transferred is received and settled on same day or at the earliest on the next day.

5. it is essential that both the originated and destinated bank branches should be NEFT platform .

6. the originating bank branch can keep track of the status of the NEFT transactions.

7. If the amt. is not credited then the money has to return to the originating branch within two hours.

8. It is an easy method to transfer money but difficult for illiterate people to deal with these method.

INDIAN FINANCIAL SYSTEM (IFSC) IFSC is an alpha-numeric code that

identifies a bank-branch participating in the RTGS/NEFT system. IFSC has 11 code and the first four alpha characters represents the bank, 5th . last six digits are numeric characters is 0(zero), which is reserved for future use and the last six digits are numeric characters represents the branch correct IFSC code is essential for identifying the beneficiary’s branch and destination for fund transfers.

CORE BANKING SOLUTIONS Core banking solution is a system

which provides efficient and effective services to the customers. It is centralized online life-time electronic banking”. This is on the basis of the services [provided by the banks with the help of core banking.

SOFTWARE SOLUTIONS CBS works on internet and information

technology. This has lead to new ways of doing business in banking.

INTERNET BANKING Internet banking means any user with a

personal computer and a browser can get connected to his bank’s website to perform any of the virtual banking functions(electronic delivery of services).

The six primary drivers of Internet banking, in order to primacy, are:

a. Improve customer access.b. Facilitate more services.c. Increase customer loyalty.d. Attract new customers.e. Provide services offered by competitors.f. Reduce customer attrition.

ONLINE BANKING ; FEATURES & BENEFITS

i. Account information.ii. Fund transfersiii. Requestiv. Account informationv. Downloading of statement of accountsvi. Registration of accountsvii. Stop payment a chequeviii. Cheque book replenishmentix. Demand draft/pay orderx. Opening of fixed deposit account.xi. Opening of a letter of credit xii. Electronic bill presentment and payment(IBPP)xiii. Investment purchase & salexiv. Re[paymentsxv. Account aggregation

VIRTUAL BANKING

They are new instruments such as credit cards, telebanking ,ATMs, Retail Electronic Funds Transfer(EFT) and Electronic Clearing services.

Types of services under Virtual Banking:

1.ATMs-ATM Networks-Shared ATM Networks. 2.Electronic Fund Transfer at point of sales(EFTPOS). 3. Remote banking & Home banking. 4. Smart Cards or chip cards. 5.Stored Value Cards (SVC). 6.Super Smart Cards. 7. Internet Banking.

FOR LONG-TERM SUCCESS, A BANK MAY FOLLOW:

Adopting a web mindset. Catching on the first movers advantage. Recognizing the core competencies. Ability to deal multiplicity with simplicity. Senior mgt. Initiative to transform the org.

from inward to outward looking. Aligning roles & value propositions with the

customer segments. Redesigning optimal channel portfolio. Acquiring new capabilities through strategic

alliances.

SERVICES OFFERED : BY VIRTUAL BANKING1.E-MAIL COMMUNICATION (FOR WHICH DO NOT HAVE WEBSITE).2.PROVIDES GENERAL INFORMATION & ALLOWS COMMUNICATION THROUGH E-MAIL (HAVE THEIR OWN WEBSITES).3.ALLOWS CUSTOMERS TO TRANSACT WITH THEM ELECTRONICALLY.4.ALLOWS TRANSFER OF FUNDS BY THE ACCOUNT HOLDER TO ANOTHER ACCOUNT HOLDER.5.OFFER THE FACILITY OF RECEIPT, REVIEW, & PAYMENTS OF BILLS ONLINE.6.ALLOW ONLINE REAL TIME SHOPPING, E .G HDFC BANK HAS MADE E-SHOPPING ONLINE AND REAL TIME BY LAUNCHING ITS PAYMENT GATE WAY’.

REQUIRMENT TO MAKE ONLINE BANKING SUCCESS-FUL

To make online banking successful, the bank should pass of some benefits of the cost – effectiveness to the costumer.

(a) higher rate of deposits.(b)24 hour access.(c)Free bill payments and rebates on ATM

surcharges.(d)Credit card with low interest rates.(e)Innovative products and high quality

of services.

FACTORS PROMOTING I-BANKING Following factors will help I-banking: Low cost electronic services. Increased access. Improved awareness. Entry of global banks Growth of e-commerce Open standards in banking industry Convenience Emergence of payment getways and

online shopping.

RBI Recommendation on I- Banking, Technology &

Security Standards1. Access Control2. Firewalls3. Isolation of dial up services4. Security Infrastructure5. Usage of SSL6. The use of at least 128-bit SSL7. Isolation of application servers8. Security log(Audit Trial)

9. Penetration Testing 10. Physical Access Control 11. Back up & Recovery 12. Monitoring against threats 13.Education & Review 14.Log of messages 15.Certified Products 16.Maintainance of infrastructure 17.Approval for I-Banking