Principles and Practices of Banking Module 5
- 1. WELCOME MODULE – 5 Banking Technology 1
- 2. Banking Technology Concept of universal banking Home banking ATM’s Internet banking Mobile banking Core banking solutions Debit, credit and smart cards Electronic payment system MICR Cheque truncation ECS EFT NEFT RTGS 2 Synopsis – Module 5
- 3. • Universal banking is a multi-purpose and multi-functional financial supermarket (a company offering a wide range of financial services eg, stock, insurance and real estate brokerage) providing both banking and financial services through a single window. • Definition as per the world bank “ In universal banking, large banks operate extensive network of branches, provide many different services, hold several claims on firms (including equity and debt) and participate directly in the corporate governance of firms that rely on the banks for funding or as insurance underwriters.” • Universal banking is a combination of commercial banking, investment banking, development banking, insurance and many other financial activities. It is a place where all financial products are under one roof. • So, a universal banking is a bank which offers commercial banking functions plus other functions such as merchant banking, mutual funds, factoring, credit cards, housing finance, auto loans, retail loans, insurance etc. 3 Universal Banking
- 4. Advantages of Universal Banking 1. Economies of scale 2. Profitable diversions 3. Resource utilization 4. Easy marketing on the foundation of a brand name 5. One-stop shopping Disadvantages of Universal Banking 1. Grey area of universal bank 2. No expertise in long term lending 3. NPA problem remained intact 4
- 5. 1. Reserve requirements 2. Permissible activities 3. Disposal of non banking assets 4. Composition of the board 5. Prohibition on floating charges of assets 6. Nature of subsidiaries 7. Restrictions on investments 8. Connected lending 9. Licensing 5 10. Branch network 11. Assets in India 12. Formal or annual reports 13. Managerial remuneration of the CEO. 14. Deposit insurance 15. Authorized dealer’s license 16. Priority sector lending 17. Prudential norms Salient operational and regulatory of RBI to be addressed by the FIS (Finance Information System)for conversion in to a universal bank
- 6. • Electronic banking is a form of banking in which funds are transferred through an exchange of electronic signals rather than through an exchange of cash, checks, or other types of paper documents. Transfers of funds occur between financial institutions such as banks and credit unions. • E-banking is a product designed for the purposes of online banking that enables you to have easy and safe access to your bank account. E-banking is a safe, fast, easy and efficient electronic service that enables you access to bank account and to carry out online banking services, 24 hours a day, and 7 days a week. 6 E-Banking
- 7. Advantages of Online Banking to customers • Customer’s account is extremely accesses able with an online account • Customer can withdraw can at any time through ATMs that are now widely available throughout the country. • Besides withdrawing cash customers can also have mini banks statements, balance inquiry at these ATM • Through Internet Banking customer can operate his account while sitting in his office or home. There is no need to go to the bank in person for such matter. • E banking has also greatly helped in payment of utility bill. Now there is no need to stand in long queues outside banks for his purpose. • All services that are usually available from the local bank can be found on a single website. • The Growth of credit card usage also owes greatly to E-banking. Now a customer can shop worldwide without any need of carrying paper money with him. • Banks are available 24 hours a day, seven days a week and they are only a mouse click away. 7
- 8. Benefits to Banking Industry: • The growth of E-banking has greatly helped the banks in controlling their overheads and operating cost. • Many repetitive and tedious tasks have now been fully automated resulting in greater efficiency, better time usage and enhanced control. • The rise of E-banking has made banks more competitive. It has also led to expansion of the banking industry, opening of new avenues for banking operations. • Electronic banking has greatly helped the banking industry to reduce paper work, thus helping them to move the paper less environment. • Electronic banking has also helped bank in proper documentation of their records and transactions. • The reach and delivery capabilities of computer networks, such as the Internet, are far better than any branch network. 8
- 9. Benefits to Banking Industry: • The growth of E-banking has greatly helped the banks in controlling their overheads and operating cost. • Many repetitive and tedious tasks have now been fully automated resulting in greater efficiency, better time usage and enhanced control. • The rise of E-banking has made banks more competitive. It has also led to expansion of the banking industry, opening of new avenues for banking operations. • Electronic banking has greatly helped the banking industry to reduce paper work, thus helping them to move the paper less environment. • Electronic banking has also helped bank in proper documentation of their records and transactions. • The reach and delivery capabilities of computer networks, such as the Internet, are far better than any branch network. 9
- 10. Importance of e-banking BANKS 1. Lesser transaction costs 2. A reduced margin for human error 3. Lesser paperwork 4. Reduced fixed costs 5. More loyal customers CUSTOMERS 1. Convenience 2. Lower cost per transaction 3. No geographical barriers 10 Importance of e-banking BUSINESSES 1. Account reviews 2. Better productivity 3. Lower costs 4. Lesser errors 5. Reduced fraud Further, under Internet banking, the following services are available in India: 1. Bill payment 2. Funds transfer 3. Investing 4. Shopping
- 11. The automated teller machine (ATM) is an automatic banking machine (ABM) that allows the customer to complete basic transactions without any help from bank representatives. There are two types of automated teller machines (ATMs). The basic one allows the customer to only draw cash and receive a report of the account balance. Another one is a more complex machine that accepts the deposit, provides credit card payment facilities and reports account information. The automated teller machine consists of mainly two input devices and four output devices that are 11 ATM Input Devices: Card reader Keypad Output Devices: Speaker Display Screen Receipt Printer Cash Depositor
- 12. Advantages of Automated Teller Machine • The ATM provides 24 hours service • The ATM provides privacy in banking communications • The ATMs reduce the workload banks staff • The ATM may give customer new currency notes • The ATMs are convenient for banks customers • The ATM is very beneficial for travelers • The ATM provides services without any error 12 Features of Automated Teller Machine Transfer funds between linked bank accounts. Receive account balance Prints recent transactions list Change your pin Deposit your cash Prepaid mobile recharge Bill payments Cash withdrawal Perform a range of features in your foreign language.
- 13. 13 Mobile Banking & Net Banking
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- 15. Types of Mobile Banking Services Banks provide mobile banking services to their clients in the ways listed here: 1. Mobile Banking over Wireless Application Protocol (WAP) 2. Mobile Banking over SMS (also known as SMS Banking) 3. Mobile Banking over Unstructured Supplementary Service Data (USSD) 15
- 16. • Core Banking is a banking service provided by a group of network bank branches where customers may access their bank account and perform basic transactions from any of the member branches. • Core Banking Solution (CBS) is networking of branches, which enables • Customers to operate their accounts, and avail banking services from any branch of the Bank on CBS network, regardless of where he maintains his account. The customer is no more the customer of a Branch. He becomes the Bank’s Customer. • Another interesting fact regarding CBS is that all CBS branches are inter-connected with each other. Therefore, Customers of CBS branches can avail various banking facilities from any other CBS branch located anywhere in the world 16 Core banking
- 17. FEATURES OF CORE BANKING 1. Customer relationship management features including a 360 degree customer view. 2. The ability to originate new products and customers. 3. Banking analytics including risk analysis, profitability analysis and provisions for capital reserve allocation and collateral management. 4. Banking finance including general ledger and reporting. 5. Banking channels such as teller systems, side counter applications, mobile banking and online banking solutions. 6. Best practice workflow process. 7. Content management facilities. 8. Governance and compliance capabilities such as internal controls management and auditing. 9. Security control and audit capabilities. 10. Core banking solutions to help maximize growth, increase productivity and mitigate risk. 17
- 18. Top CBS Application software providers • 1. Infosys Technologies Ltd. Finnacle is the universal banking solution from Infosys. • 2. I-flex solutions Ltd. since late 2005 it is owned by Oracle • 3. TCS FNS (Financial Network Services Limited) is an Australian developer and supplier of banking application software, operating in world markets. Now owned and managed by TCS. 18
- 19. • A debit card is a plastic card that provides a cardholder electronic access to his / her bank account. It can be used to withdraw funds or to make purchases using money in the bank account. Since a debit card is essentially linked to a checking account (saving / current), it is also known as a Checking Card. A balance in the checking account is must for the use of debit card. • A credit card is a payment card which allows the cardholder to pay for goods and services on the basis of line of credit granted to him / her by the issuing bank. A credit card essentially creates a revolving account from which cardholder can borrow money for payment to merchant (and also withdraw cash). A credit card is not linked to a bank account but is linked to the bank / financial institution which has issued it. 19 Debit card & Credit card
- 20. 20 Parameters Debit Card Credit Card Definition Deducts money directly from your savings bank account or your current account. Allows you to borrow funds to pay for goods and services. Source of funds Your savings bank account or current account. Credit extended to you by your card issuer. It gives you access to money you otherwise do not have (like a very short-term loan). Spending advantage You can only spend how much you have. Can spend more than what you have. Who pays for the purchase You pay for your purchase. The credit card company pays the vendor for your purchase. You pay the credit card company. Bill There is no bill or statement You get a bill or statement each month with details of the transactions you have made. Payment There is no payment that needs to be made since you are using your own money. A bill needs to be paid each month since it is being borrowed. Fees and charges Annual fees and PIN regeneration fees are applicable. Credit cards have multiple fees applicable. These include joining fees, annual fees, late payment fees, and bounced cheque fees among others. Interest There is no interest that is charged. Interest is charged on the outstanding amount if it hasn’t been paid by the due date. Limit to funds that can be accessed You can access any amount up to what is currently available in your savings bank or current account. You can use the card only up to the pre-set credit limit on your card. Rewards Typically, the rewards you get are minimal Get to enjoy cash back, air miles, and reward points which can be redeemed. Privileges Doesn’t come with many privileges. Come with numerous dining, retail, entertainment, and travel privileges (depending on the type of card you have). Lost card liability Protection from theft or loss of the card is minimal. Most cards offer 100% lost liability protection. So, you are not liable for any un authorized transactions made.
- 21. • MICR code is a code printed on cheques using MICR (Magnetic Ink Character Recognition technology). This enables identification of the cheques and which in turns means faster processing. An MICR code is a 9-digit code that uniquely identifies the bank and branch participating in an Electronic Clearing System (ECS). It comprises of 3 parts: 1. The first three digits represent the city (City Code). They are aligned with the PIN code we use for postal addresses in India. 2. The next 3 digits represent the bank (Bank Code) 3. The last 3 digits represent the branch (Branch Code) 21 MICR
- 22. • Electronic Funds Transfer (EFT) is a system of transferring money from one bank account directly to another without any paper money changing hands. One of the most widely- used EFT programs is direct deposit, through which payroll is deposited straight into an employee's bank account. • According to the “Electronic Fund Transfer Act” (EFTA) released in 1978 by USC, electronic fund transfer is a transfer of funds initiated through an electronic terminal, telephone, computer (including online banking) or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit a consumer’s account. • Various modes of EFT in India are:- – NEFT (National Electronic Fund Transfer) – RTGS (Real Time Gross Settlement) – IMPS (Immediate Payment Service) 22 Electronic Fund Transfer
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