Technology in Banking

Role Of Technology In Banking
1. INTRODUCTION:
Technology has opened up new markets, new products, new

services and efficient delivery channels for the banking
industry. Online electronics banking, mobile banking and
internet banking are just a few examples.
Information Technology has also provided banking industry

with the wherewithal to deal with the challenges the new
economy poses. Information technology has been the
cornerstone of recent financial sector reforms aimed at
increasing the speed and reliability of financial operations and
of initiatives to strengthen the banking sector.
Indian banking today is witnessing drastic changes. The

liberalization of the financial sector and banking sector reforms
have exposed the Indian banks to a new economic environment
that is characterized by increased competition and new
regulatory requirements. As a result, there is a transformation
in every sphere of activities of the banks in India, especially in
Governance, nature of business, style of functioning and
delivery mechanisms.
The new generation banks brought the necessary competition

into the industry and spearheaded changes towards higher
utilization of technology, improved customer service and
innovative products. In spite of their strong and larger network,
public sector banks proved to be surprisingly quick and flexible
to meet the emerging needs of customers. Change is the order
of the day.
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1.1 Nature Of Changes And Trends In The

Banking Industry:
The changes in the political, economic, social, cultural and

environmental perspective can be seen in business
environment too. Above all, the business scenario is highly
influenced by the changes in the needs and aspirations of the
people. The human factors such as, the mindset of the people,
ethics and values, social system, lifestyle, work culture etc. are
greatly induce the different sections of the people for changing
their day-to-day requirements. But today, the degree of such
changes is so fast and more frequently experienced by them.
Therefore, the consumer status is changed from; isolated to
connected, unaware to well-informed, passive to active.
Consumers now seek to exercise their influence in every walk

of the business system, interact with firms and co-create value.
As the outreach is enlarged in the industry with the increased
number of banks and wider network, the customer demands
convenience, comfort, speed, cost- effective and quality
services in the banking operations. In the recent years the
Indian banking industry saw a host of new faces called new
generation banks entering with their innovative strategies. All
these bankers are generally slim in structure but heavily using
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the technology and multi-channel facilities to reach out to a

large section of the customers.
In this context, Information Technology and Enabled Services

(ITES) have emerged as the integrator; assisting banks in
managing transformation that takes place continuously. RBI
has taken several initiatives with the broad objective of
providing systems which impact beneficially on efficient
housekeeping in banks, better customer service and overall
systemic efficiency. The Reserve Bank has assigned priority to
the up gradation of technological infrastructure in the Indian
financial system. The RBI’s role in the transformational of IT
deployment in banking has been commendable. RBI
established in 1996 with a vision and foresight, the Institute for
Research and Development in Banking Technology (IDRBT). In
order to establish an efficient, cost-effective and dependable
communication backbone, the Indian Financial Network
(INFINET) has been set up. About 150 banks, primary dealers
and mutual funds have become members.
Technology has a definitive role in facilitating transactions in

the banking sector and the impact of technology
implementation has resulted in the introduction of new
products and services by various banks in India. During the last
decade, payment services offered by banks to the common
persons as well as the corporate bodies have improved
substantially. It is partly due to increased use of technology in
service delivery and partly due to procedural changes
necessitated in the wake of competition amongst the banks.
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With the introduction of electronic banking, banks are moving

their focus of payments from the physical presence of money to
the use of electronic money. Electronic banking refers to the
use of technology which allows customers to access banking
services electronically whether it is to pay bills, transfer funds,
view accounts or to obtain information and advices. It refers to
the electronic services that are made available to the
customers through phone, personal computer, television and
the Internet. Customers can perform banking transactions such
as balance enquiries, bill payments, transaction histories, and
transfer of money between accounts, obtain quotes and submit
equity option and mutual fund offers without having to step
into the office on the branch.
1.2 I.T. in Banking:
1). Technology has opened up new markets, new products, new

2). Information Technology has also provided banking industry

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3). The IT revolution has set the stage for unprecedented

increase in financial activity across the globe. The progress of
technology and the development of world wide networks have
significantly reduced the cost of global funds transfer.
4). It is information technology which enables banks in meeting

such high expectations of the customers who are more
demanding and are also more techno-savvy compared to their
counterparts of the yester years. They demand instant, anytime
and anywhere banking facilities.
5). IT has been providing solutions to banks to take care of their

accounting and back office requirements. This has, however,
now given way to large scale usage in services aimed at the
customer of the banks. IT also facilitates the introduction of
new delivery channels--in the form of Automated Teller
Machines, Net Banking, Mobile Banking and the like. Further, IT
deployment has assumed such high levels that it is no longer
possible for banks to manage their IT implementations on a
stand alone basis with IT revolution, banks are increasingly
interconnecting their computer systems not only across
branches in a city but also to other geographic locations with
high-speed network infrastructure, and setting up local area
and wide area networks and connecting them to the Internet.
As a result, information systems and networks are now exposed
to a growing number.
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1.3 History:
In the five decades since independence, banking in India has

evolved through four distinct phases. During Fourth phase, also
called as Reform Phase, Recommendations of the Narasimham
Committee (1991) paved the way for the reform phase in the
banking. Important initiatives with regard to the reform of the
banking system were taken in this phase. Important among
these have been introduction of new accounting and prudential
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norms relating to income recognition, provisioning and capital

adequacy, deregulation of interest rates & easing of norms for
entry in the field of banking.
Entry of new banks resulted in a paradigm shift in the ways of

banking in India. The growing competition, growing
expectations led to increased awareness amongst banks on the
role and importance of technology in banking. The arrival of
foreign and private banks with their superior state-of-the-art
technology-based services pushed Indian Banks also to follow
suit by going in for the latest technologies so as to meet the
threat of competition and retain their customer base.
Indian banking industry, today is in the midst of an IT

revolution. A combination of regulatory and competitive
reasons, have led to increasing importance of total banking
automation in the Indian Banking Industry.
1.4 Role Of Technology:
Information Technology has basically been used under two

different avenues in Banking. One is Communication and
Connectivity and other is Business Process Reengineering.
Information technology enables sophisticated product
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development, better market infrastructure, implementation of

reliable techniques for control of risks and helps the financial
intermediaries to reach geographically distant and diversified
markets. In view of this, technology has changed the contours
of three major functions performed by banks, i.e., access to
liquidity, transformation of assets and monitoring of risks.
Further, Information technology and the communication
networking systems have a crucial bearing on the efficiency of
money, capital and foreign exchange markets.
Internet has significantly influenced delivery channels of the

banks. Internet has emerged as an important medium for
delivery of banking products & services. Detailed guidelines of
RBI for Internet Banking has prepared the necessary ground for
growth of Internet Banking in India.
The Information Technology Act, 2000 has given legal

recognition to creation, transmission and retention of an
electronic (or magnetic) data to be treated as valid proof in a
court of law, except in those areas, which continue to be
governed by the provisions of the Negotiable Instruments Act,
1881.
As stated in RBI's Annual Monetary and Credit Policy 2002-

2003: "To reap the full benefits of such electronic message
transfers, it is necessary that banks bestow sufficient attention
on the computerisation and networking of the branches
situated at commercially important centres on a time-bound
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basis. Intra-city and intra-bank networking would facilitate in

addressing the "last mile" problem which would in turn result in
quick and efficient funds transfers across the country".
The precursor for the modern home online banking services

were the distance banking services over electronic media from
the early 1980s. The term online became popular in the late
'80s and referred to the use of a terminal, keyboard and TV (or
monitor) to access the banking system using a phone line.
‘Home banking’ can also refer to the use of a numeric keypad
to send tones down a phone line with instructions to the bank.
Online services started in New York in 1981 when four of the
city’s major banks (Citibank, Chase Manhattan, Chemical and
Manufacturers Hanover) offered home banking services using
the videotex system. Because of the commercial failure of
videotex these banking services never became popular except
in France where the use of videotex (Minitel) was subsidised by
the telecom provider and the UK, where the Prestel system was
used.
The UK's first home online banking services was set up by Bank
of Scotland for customers of the Nottingham Building Society
(NBS) in 1983. The system used was based on the UK's Prestel
system and used a computer, such as the BBC Micro, or
keyboard (Tandata Td1400) connected to the telephone system
and television set. The system (known as 'Homelink') allowed
on-line viewing of statements, bank transfers and bill
payments. In order to make bank transfers and bill payments, a
written instruction giving details of the intended recipient had
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to be sent to the NBS who set the details up on the Homelink

system.
2. OBJECTIVES:
The basic objective of this project is to trace the role of

technology in the banking industry in:
• Identifying the opportunities it has provided to the

industry in exploring new opportunities,
• how technology has enabled the banking industry to

identify and develop new products and services to meet
these opportunities
• the manner it has made banking a more pleasurable

activity
• how it has enabled the banking industry to use customer

relationship management to get closer to its clients
Technology will bring fundamental shift in the functioning of

banks. It would not only help them bring improvements in their
internal functioning but also enable them to provide better
customer service. Technology will break all boundaries and
encourage cross border banking business. Banks would have to
undertake extensive Business Process Re-Engineering and
tackle issues like a) how best to deliver products and services
to customers b) designing an appropriate organizational model
to fully capture the benefits of technology and business process
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changes brought about. c) how to exploit technology for

deriving economies of scale and how to create cost efficiencies,
and d) how to create a customer - centric operation model.
Entry of ATMs has changed the profile of front offices in bank

branches. Customers no longer need to visit branches for their
day to day banking transactions like cash deposits,
withdrawals, cheque collection, balance enquiry etc. E-
banking and Internet banking have opened new avenues in
“convenience banking”. Internet banking has also led to
reduction in transaction costs for banks to about a tenth of
branch banking.
Technology solutions would make flow of information much

faster, more accurate and enable quicker analysis of data
received. This would make the decision making process faster
and more efficient. For the Banks, this would also enable
development of appraisal and monitoring tools which would
make credit management much more effective. The result
would be a definite reduction in transaction costs, the benefits
of which would be shared between banks and customers.
While application of technology would help banks reduce their

operating costs in the long run, the initial investments would be
sizeable. IT spent by banking and financial services industry in
USA is approximately 7% of the revenue as against around 1%
by Indian Banks. With greater use of technology solutions, we
expect IT spending of Indian banking system to go up
significantly.
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One area where the banking system can reduce the investment
costs in technology applications is by sharing of facilities. We
are already seeing banks coming together to share ATM
Networks. Similarly, in the coming years, we expect to see
banks and FIs coming together to share facilities in the area of
payment and settlement, back office processing, data
warehousing, etc. While dealing with technology, banks will
have to deal with attendant operational risks. This would be a
critical area the Bank management will have to deal with in
future.
2.1 Advantages Of Technology:
1. From both customer and banking perspectives it shows that

the Internet is a
convenience tool available whenever and wherever customers
need it. It is also
found that the Internet has improved the factors in service
quality like
responsiveness, communication and access. It is concluded
that the Internet has an important and positive effect on
customer perceived banking services and the service quality
has been improved since the Internet has been used in banking
sector.
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2. It's generally secure. But make sure that the website you're
using has a valid
security certificate. This lets you know that the site is protected
from cyber-thieves looking to steal your personal and financial
information.
3. It gives twenty-four-hour access. When the neighbourhood

bank closes, you can still access your account and make
transactions online. It's a very convenient alternative for those
that can't get to the bank during normal hours because of their
work schedule, health or any other reason.
4. It allows us to access our account from virtually anywhere. If

we're on a business trip or vacationing away from home, we
can still keep a watchful on our money and financial
transactions – regardless of our location.
5. Conducting business online is generally faster than going to

the bank. Long teller lines can be time-consuming, especially
on a Pay Day. But online, there are no lines to contend with.
You can access your account instantly and at your leisure.
6. Many features and services are typically available online. For

example, with just a few clicks you can apply for loans, check
the progress of your investments, review interest rates and
gather other important information that may be spread out
over several different brochures in the local bank.
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7. Technology has opened up new markets, new products, new

8. Information Technology has also provided banking industry

9. The IT revolution has set the stage for unprecedented

increase in financial activity across the globe. The progress of
technology and the development of worldwide networks have
significantly reduced the cost and time of global funds transfer.
10. It is information technology which enables banks in meeting

such high
expectations of the customers who are more demanding and
are also more techno savvy compared to their counterparts of
the yester years. They demand instant, anytime and anywhere
banking facilities.
11. IT has been providing solutions to banks to take care of
their accounting and back office requirements. This has,
however, now given way to large scale usage in services aimed
at the customer of the banks.
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12. IT also facilitates the introduction of new delivery channels--

in the form of
Automated Teller Machines, Net Banking, Mobile Banking and
the like.
13. Use of de-mat account and online trading enables a person

to buy and sell shares any time. The share trading companies
and AMC’s can give improved and faster service with help of
technology.
14. There are many useful features and services available

online besides for the usual transactions. For example, you can
apply for credit cards, manage investments, and pay bills
through your online account portal. You can also perform more
mundane tasks such as ordering new checks, requesting
additional deposit slips, or reporting a lost or stolen debit card.
Certainly the above mentioned advantages if technology have
improved the quality of service in a banking and financial
sector.
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2.2 Disadvantages Of Technology:
1. Yes, online banking is generally secure, but it certainly isn't

always secure.
Identity theft is running rampant, and banks are by no means
immune. And once your information is compromised, it can
take months or even years to correct the damage, not to
mention possibly costing you thousands of dollars, as well. This
generally does not happen in case of traditional method of
banking.
2. Some online banks are more stable than others. Not all
online setups are an
extension of a brick-and-mortar bank. Some operate completely
in cyberspace,
without the benefit of a branch that you can actually visit if
need be. With no way to physically check out the operation,
you must be sure to thoroughly do your homework about the
bank's background before giving them any of your money.
3. Before using a banking site that you aren't familiar with,

check to make sure that their deposits are FDIC-insured. If not,
you could possibly lose all of your
deposits if the bank goes under, or its major shareholders
decide to take an
extended vacation in Switzerland.
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4. Customer service can be below the quality that you're used

to. Some people
simply take comfort in being able to talk to another human
being face-to-face if they experience a problem. Although most
major banks employ a dedicated
customer service department specifically for online users, going
through the
dreaded telephone menu can still be quite irritating to many.
Again, some are
considerably better (or worse) than others.
5. Not all online transactions are immediate. Online banking is

subject to the same business-day parameters as traditional
banking. Therefore, printing out and keeping receipts is still
very important, even when banking online.
6. If your bank operates only online or simply does not have a

branch office in your local area, you will not be able to reach a
representative in person for discussion of account issues.
Normally this is not a problem, but sometimes customer service
by telephone or email can be spotty and may prove to be more
of a hassle if you have a serious issue that is not easily
resolved. Some banks are better than others in this
department, so you will need to do some research if this is an
important consideration for you.
7. Using online banking effectively requires some basic

computer literacy and
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familiarity with navigating the Internet. While this is not a

problem for people like me, those who are afflicted with
technophobia or are simply inexperienced with this particular
genre may not be comfortable with this concept. There are also
a significant number of people who are suspicious of anything
having to do with the Internet because it is outside of their
comfort zone. Others are simply too stubborn to acquire the
relevant knowledge and skills.
2.3 The core issues faced by banks today are on

the fronts of customer's service expectations, cutting
operational costs, and managing competition.
Technology can help banks in meeting these objectives.
IT is central to banking. It has moved from being just a business

enabler to being a business driver. In a manner the banking
and financial services sector—being the early adopters of any
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new technology—defines the roadmap for future technology

adoption.
As it is clear for the previous story, banks are focused on three

areas: meet customer's service expectations, cut costs, and
manage competition. For this banks are exploring new financial
products and service options that would help them grow
without losing existing customers. And any new financial
product or service that a bank offers will be intrinsically related
to technology.
Automation is key:
Automation is the basic thing that banks need to have in place.

It involves a combination of centralized networks, operations,
and a core banking application. Automation enables banks to
offer 24x7x365 service using lesser manpower.
But to be really competitive, banks need to think beyond just

basic automation.
Says V Chandrasekhar, GM (Chief Technology Officer), and

Bank of Baroda, "IT has changed the way a bank reaches out to
its customers. Gone are the days where IT was deployed for
automating accounting/back office functions to remove
drudgery of employees. It is now massively being deployed for
customer interfacing/interaction."
A better way to understand the technologies that would define

the future of banking would be to start in the past.
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Evolution:
The Evolution of Banking and Financial Information Technology
1. The first applications of the computer age within banking

were the use of mainframes, and later minicomputers, to
process data such as customer accounts, bank inventories,
personnel records, and accounting packages - which ultimately
evolved into spreadsheets. Although 70% of banking
applications expenditure in the US remain mainframe based,
this reflects an old embedded base. Client/server systems
expenditure are the fastest growing at 29% p.a.
2. The idea of direct customer services was less clear, but the
first ATM (Automatic Teller Machine) came into commercial use
in 1968. By 1995 in Europe over 100,000 were in use. In Hong
Kong there are two networks, the Hong Kong Bank system
which had around 800 ATMs in September 1994 (Business Asia
Survey) and the Jetco network linking the other clearing banks
with about 1,150 ATMs.
These are ‘private’ or corporate wide-area networks run over

leased circuits. If we denote these networks as ‘C’ for corporate
we can describe the ATM system as:
C-C
that is transactions, such as EFT (Electronic Funds Transfer) or

communications take place just within the corporate WAN.
3. The next step in providing direct customer services came

logically in the extended use of debit and credit cards in the
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shops of merchants through EPOS (Electronic Point of Sale)

technology. In Hong Kong there are over 5,000 terminals, an
increasing number of them handheld wireless applications. The
authentication and direct debit functions of EPOS use the PSTN
(Public Switched Telephone Network) to connect into the
corporate networks of banks and credit card companies. If we
denote the PSTN as ‘P’ then we can describe the
interconnection of merchant system to the corporate system
as:
C-P-C
4. The latest step is the introduction of smartcard technology.

Here, for example, money can be downloaded from the ATM
into the card, and then transferred by smartphone across the
PSTN to another person’s smartcard and finally transferred to a
merchant or into another bank account. A description of this
process would be as follows:
C-P-P-C
5. We do not have time here to develop this model further,

although it would interesting to see how it enters the general
model of the circulation of commodity money and capital. What
we can point out is that the opportunities for entry into this
extended system of transactions opens up the logical possibility
of new financial service providers offering specialist services at
different points in the chain, especially where the chains cross
(nodal points) and the need for specialist carrier networks and
for specialist network management. We could begin to model
this as follows:
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C-C
C-P-P-C
C-P-P-C
C-C
The need for centralized infrastructure:
In the early days of banking technology, the network/backend

infrastructure used to be decentralized. This meant that each
branch had its own server(s), banking applications,
database(s), and other such assorted hardware/software.
Decentralized networks had their own set of problems in terms

of the cost and management fronts. The decentralized model
involves huge capital expenditure and resources (trained
manpower, hardware, etc). In the decentralized model, there is
no coordination or one central control point. "We had problems
with updating applications, troubleshooting, etc before we
opted for centralization. Technology representatives had to be
present at each branch to provide support," says P.K.Vohra,
General Manager, ICICI Bank.
This was an acceptable scenario till multi-channel came into

the picture. With these concepts came the need for a
centralized database. The database had to be updated
instantaneously irrespective of the branch or channel the
customer used. The networks had to be run and managed with
lesser costs.
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Although data centres were being used by some of the banking

majors, they were never considered as being capable of being a
central operations hub. Things changed when banks realized
the cost benefits of swapping the decentralized model to
centralized datacentre architecture.
"When one or two private sector banks showed that it can be

done efficiently, other banks began to show an interest—they
also began consolidating their databases into a single large
database," says V.K. Ramani, President (IT), UTI Bank.
Says P.K. Vohra, "Centralization using a data centre has helped

a lot in improving and simplifying the network from the
operations, user, and administration perspectives. From a cost
perspective, centralization has been very effective."
It is not just the datacenter which contributed to centralization.

The network has also evolved into a unified IP network. Says
Naresh Wadhwa, Vice President-West, Cisco Systems (India),
"Older day banking networks used to be a potpourri of several
older protocols. There used to be one network for data traffic,
another for telephony, and so on. Today, irrespective of
whether its data, voice or videoconferencing, ATMs or mobile
banking, just a single IP based network is used."
Core matters And Core Banking:
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After the turn of consolidated databases and networks come

core banking applications. Core banking applications help
provide complete front and backend automation of banks.
These applications also help banks achieve centralized

processing and provide 24-hour customer service. "Core
banking applications provide anywhere, anytime 24 by 7 non-
stop services, which is not possible with traditional localized
branch automation systems that are available only between 10
am to 2 pm," says V. Chandrasekhar.
Core banking applications help integrate the enterprise to

existing in-house applications to offer a single customer view.
These applications provide automation across multiple delivery
channels.
Adds Joseph John, Head, Banking Products Division, i-flex

solutions: "Banks are increasingly adopting core-banking
solutions for retaining customers and lowering service costs to
the customer."
Banks are reinventing themselves as marketing agencies by

selling products like life insurance, RBI bonds, credit cards, etc.
Core banking applications are able to support this.
Risk management is another area where core banking

applications can help. These systems take care of the risk
monitoring and reporting requirements. Loyalty programs can
also be monitored and managed using a core banking
application.
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Core Banking is normally defined as the business conducted by

a banking institution with its retail and small business
customers. Many banks treat the retail customers as their core
banking customers, and have a separate line of business to
manage small businesses. Larger businesses are managed via
the Corporate Banking division of the institution. Core banking
basically is depositing and lending of money.
Nowadays, most banks use core banking applications to

support their operations where CORE stands for "Centralized
Online Real-time Exchange". This basically means that all the
bank's branches access applications from centralized
datacenters. This means that the deposits made are reflected
immediately on the bank's servers and the customer can
withdraw the deposited money from any of the bank's branches
throughout the world. These applications now also have the
capability to address the needs of corporate customers,
providing a comprehensive banking solution. A few decades
ago it used to take at least a day for a transaction to reflect in
the account because each branch had their local servers, and
the data from the server in each branch was sent in a batch to
the servers in the datacenter only at the end of the day (EoD).
Normal core banking functions will include deposit accounts,

loans, mortgages and payments. Banks make these services
available across multiple channels like ATMs, Internet banking,
and branches.
Core Banking Solutions:
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Core Banking solutions are banking applications on a platform

enabling a phased, strategic approach that lets people improve
operations, reduce costs, and prepare for growth. Implementing
a modular, component-based enterprise solution ensures
strong integration with your existing technologies. An overall
service-oriented-architecture (SOA) helps banks reduce the risk
that can result from multiple data entries and out-of-date
information, increase management approval, and avoid the
potential disruption to business caused by replacing entire
systems.
Core Banking Solutions is new jargon frequently used in

banking circles. The advancement in technology, especially
internet and information technology has led to new ways of
doing business in banking. These technologies have cut down
time, working simultaneously on different issues and increasing
efficiency. The platform where communication technology and
information technology are merged to suit core needs of
banking is known as Core Banking Solutions. Here, computer
software is developed to perform core operations of banking
like recording of transactions, passbook maintenance, interest
calculations on loans and deposits, customer records, balance
of payments and withdrawal. This software is installed at
different branches of bank and then interconnected by means
of communication lines like telephones, satellite, internet etc. It
allows the user (customers) to operate accounts from any
branch if it has installed core banking solutions. This new
platform has changed the way banks are working.
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Gartner defines a core banking system as a back-end system

that processes daily banking transactions, and posts updates to
accounts and other financial records. Core banking systems
typically include deposit, loan and credit-processing
capabilities, with interfaces to general ledger systems and
reporting tools. Strategic spending on these systems is based
on a combination of service-oriented architecture and
supporting technologies that create extensible, agile
architectures.
CRM Tools:
CRM tools can be broadly classified into two categories:

Operational and Analytical.
Operational CRM provides the software support for businesses

that require customer contact. These tools are largely workflow
based to provide information to employees and document
customer interactions. This includes collaborative CRM type of
tools used to provide enterprise/customer interaction across all
contact channels such as face-to-face, telephonic, electronic,
and wireless. Operational CRM types are the major CRM tools
being used nowadays for customer support in India. For
example, say a premium customer dials your call center from
his home. Operational CRM can alert the call center executive
of his account status and other details by his home telephone.
This will help the employee in extending him the kind of service
extended to a premium customer.
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Analytical CRM helps you make sense of the information. It

helps you target customers and utilize their potential to the
maximum. For example, say an account holder withdraws Rs
10,000 every month from his account and deposits it in another
bank as EMI for a loan. Analytical CRM tools can help you track
this activity. Techniques such as data warehousing and data
mining are prominent tools used for this. Your bank could offer
a loan to the customer at a lower rate than what the other bank
offers. This will keep the customer happy since he knows that
you are giving him better service. This translates to gains for
your bank as well.
Banks tend to forget one important aspect about CRM; it is

more than just a technology implementation, it has to be a
clearly defined process with appropriate customer service
levels. This is exactly the reason why CRM implementations
meet with limited success.
Adds K. N. C. Nair: "e-transformation should not be at the

expense of the personal touch in service. This will differentiate
a bank from its competitors when the technology is available to
all sooner or later."
Mining for intelligence:
Another important issue banks face is in proper analysis of

financial data to identify business potential. This helps a bank
identify cross- sell and up-sell potentials. Technologies such as
data warehousing/mining come into play here.
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Says Ramani, "If you have an operational CRM, it streamlines

your delivery channels. If you have CRM backed with your data
warehouse solution, it not only streamlines the channels, but
also tells you where to move. It tells you which customer to
focus on."
A data warehouse can help the bank get a single view of its
data across disparate systems. This comes in handy since most
banks have data spread over several disparate, sometimes
legacy systems. If the data is spread across different systems,
a transaction done on one system will not be reflected in the
other. This is not a very desirable situation when it comes to
multi-channel banking.
3. FEATURES:
3.1 Online Banking:
Online banking (or Internet banking) allows customers to

conduct financial transactions on a secure website operated by
their retail or virtual bank, credit union or building society.
Online banking solutions have many features and capabilities in

common, but traditionally also have some that are application
specific.
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The common features fall broadly into several categories
• Transactional (e.g., performing a financial transaction such

as an account to account transfer, paying a bill, wire
transfer... and applications... apply for a loan, new
account, etc.)
o Electronic bill presentment and payment - EBPP
o Funds transfer between a customer's own checking
and savings accounts, or to another customer's
account
o Investment purchase or sale
o Loan applications and transactions, such as
repayments of enrollments
• Non-transactional (e.g., online statements, check links,

cobrowsing, chat)
o Bank statements
• Financial Institution Administration -
• Support of multiple users having varying levels of
authority
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• Transaction approval process

• Wire transfer
Features commonly unique to Internet banking include
• Personal financial management support, such as importing

data into personal accounting software. Some online
banking platforms support account aggregation to allow
the customers to monitor all of their accounts in one place
whether they are with their main bank or with other
institutions
Security:
Protection through single password authentication, as is the

case in most secure Internet shopping sites, is not considered
secure enough for personal online banking applications in some
countries. Basically there exist two different security methods
for online banking.
• The PIN/TAN system where the PIN represents a password,

used for the login and TANs representing one-time
passwords to authenticate transactions. TANs can be
distributed in different ways; the most popular one is to
send a list of TANs to the online banking user by postal
letter. The most secure way of using TANs is to generate
them by need using a security token. These token
generated TANs depend on the time and a unique secret,
stored in the security token (this is called two-factor
authentication or 2FA). Usually online banking with
PIN/TAN is done via a web browser using SSL secured
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connections, so that there is no additional encryption

needed.
• Signature based online banking where all transactions are
signed and encrypted digitally. The Keys for the signature
generation and encryption can be stored on smartcards or
any memory medium, depending on the concrete
implementation.
Attacks:
Most of the attacks on online banking used today are based on

deceiving the user to steal login data and valid TANs. Two well-
known examples for those attacks are phishing and pharming.
Cross-site scripting and key logger/Trojan horses can also be
used to steal login information.
A method to attack signature based online banking methods is

to manipulate the used software in a way, that correct
transactions are shown on the screen and faked transactions
are signed in the background.
A recent FDIC Technology Incident Report, compiled from

suspicious activity reports banks file quarterly, lists 536 cases
of computer intrusion, with an average loss per incident of
$30,000. That adds up to a nearly $16-million loss in the
second quarter of 2007. Computer intrusions increased by 150
percent between the first quarter of 2007 and the second. In 80
percent of the cases, the source of the intrusion is unknown but
it occurred during online banking, the report states.
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3.2 Electronic funds transfer:
Electronic funds transfer or EFT refers to the computer-

based systems used to perform financial transactions
electronically. An EFT is the electronic exchange or transfer of
money from one account to another, either within the same
financial institution or across multiple institutions
The term is used for a number of different concepts:
• Cardholder-initiated transactions, where a cardholder

makes use of a payment card
• Direct deposit payroll payments for a business to its
employees, possibly via a payroll service bureau
• Direct debit payments, sometimes called electronic
checks, for which a business debits the consumer's bank
accounts for payment for goods or services
• Electronic bill payment in online banking, which may be
delivered by EFT or paper check
• Transactions involving stored value of electronic money,
possibly in a private currency
• Wire transfer via an international banking network
(generally carries a higher fee)
• Electronic Benefit Transfer
• An e-commerce payment system facilitates the
acceptance of electronic payment for online transactions.
Also known as Electronic Data Interchange (EDI), e-
commerce payment systems have become increasingly
popular due to the widespread use of the internet-based
shopping and banking. In the early years of B2C
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transactions, many consumers were apprehensive of using

their credit and debit cards over the internet because of
the perceived increased risk of fraud. Recent research
shows that 30% of people in the United Kingdom still do
not shop online because they do not trust online payment
systems. However, 54% do believe that it is safe to shop
online which is an increase from 26% in 2006.
• There are numerous different payments systems available
for online merchants. These include the traditional credit,
debit and charge card but also new technologies such as
digital wallets, e-cash, mobile payment and e-checks.
Another form of payment system is allowing a 3rd party to
complete the online transaction for you.
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3.3 Electronic Bill Presentment and Payment:
Electronic bill presentment and payment (EBPP) is a fairly new

technique that allows consumers to view and pay bills
electronically. There are a significant number of bills that
consumers pay on a regular basis, which include: power bills,
water, oil, internet, phone service, mortgages, car payments
etc. EBPP systems send bills from service providers to
individual consumers via the internet. The systems also enable
payments to be made by consumers, given that the amount
that appears on the e-bill is correct. Banks in Canada have
been offering these on-line payment services for some time
now, and are growing in popularity. Other service providers
such as Rogers Communications and Aliant accept major credit
cards within the bill payment sections of their websites. This
service is in addition to the original EBPP method of a direct
withdrawal from a bank account through a bank such as Scotia
bank.
The biggest difference between EBPP systems and the

traditional method of bill payment is that of technology. Rather
than receiving a bill through the mail, writing out and sending a
check, consumers receive their bills in an email, or are
prompted to visit a website to view and pay their bills.
Three broad models of EBPP have emerged. These are:
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1. Consolidation, where numerous bills for any one recipient

are made available at one Web site, most commonly the
recipient's bank. In some countries, such as Australia, New
Zealand and Canada, the postal service also operates a
consolidation service. The actual task of consolidation is
sometimes performed by a third party and fed to the Web
sites where consumers receive the bills. The principal
attraction of consolidation is that consumers can receive
and pay numerous bills at the one location, thus
minimizing the number of login IDs and passwords they
must remember and maintain.
2. Biller Direct, where the bills produced by an organization
are made available through that organization’s Web site.
This model works well if the recipient has reasons to visit
the biller's Web site other than to receive their bills. In the
freight industry, for example, customers will visit a
carrier's Web site to track items in transit, so it is
reasonably convenient to receive and pay freight bills at
the same site.
3. Direct email delivery, where the bills are emailed to the
customer's In Box. This model most closely imitates the
analog postal service. It is convenient, because almost
everyone has email and the customer has to do nothing
except use email in order to receive a bill. Email delivery
is proving especially popular in the B2B market in many
countries.
Major providers of outsourced bill production services have

developed facilities to process bills through consolidation, biller
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direct and email delivery services, thus enabling major billers to

have all their bills, paper and electronic, processed through the
one service. Niche service providers in many countries provide
one or two of these models, but generally do not integrate with
paper bill production.
3.4 Credit Cards:
A credit card is a small plastic card issued to users as a

system of payment. It allows its holder to buy goods and
services based on the holder's promise to pay for these goods
and services.[1] The issuer of the card creates a revolving
account and grants a line of credit to the consumer (or the
user) from which the user can borrow money for payment to a
merchant or as a cash advance to the user.
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A credit card is different from a charge card: a charge card

requires the balance to be paid in full each month. In contrast,
credit cards allow the consumers a continuing balance of debt,
subject to interest being charged. Most credit cards are issued
by banks or credit unions, and are the shape and size specified
by the ISO/IEC 7810 standard as ID-1.
Collectible credit cards:
A growing field of numismatics (study of money), or more

specifically exonumia (study of money-like objects), credit card
collectors seek to collect various embodiments of credit from
the now familiar plastic cards to older paper merchant cards,
and even metal tokens that were accepted as merchant credit
cards. Early credit cards were made of celluloid plastic, then
metal and fiber, then paper, and are now mostly plastic.
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Interest charges:
Credit card issuers usually waive interest charges if the balance

is paid in full each month, but typically will charge full interest
on the entire outstanding balance from the date of each
purchase if the total balance is not paid.
For example, if a user had a $1,000 transaction and repaid it in

full within this grace period, there would be no interest
charged. If, however, even $1.00 of the total amount remained
unpaid, interest would be charged on the $1,000 from the date
of purchase until the payment is received. The precise manner
in which interest is charged is usually detailed in a cardholder
agreement which may be summarized on the back of the
monthly statement. The general calculation formula most
financial institutions use to determine the amount of interest to
be charged is APR/100 x ADB/365 x number of days revolved.
Take the Annual percentage rate (APR) and divide by 100 then
multiply to the amount of the average daily balance (ADB)
divided by 365 and then take this total and multiply by the total
number of days the amount revolved before payment was
made on the account. Financial institutions refer to interest
charged back to the original time of the transaction and up to
the time a payment was made, if not in full, as RRFC or residual
retail finance charge. Thus after an amount has revolved and a
payment has been made, the user of the card will still receive
interest charges on their statement after paying the next
statement in full (in fact the statement may only have a charge
39
for interest that collected up until the date the full balance was
paid, i.e. when the balance stopped revolving).
The credit card may simply serve as a form of revolving credit,

or it may become a complicated financial instrument with
multiple balance segments each at a different interest rate,
possibly with a single umbrella credit limit, or with separate
credit limits applicable to the various balance segments.
Usually this compartmentalization is the result of special
incentive offers from the issuing bank, to encourage balance
transfers from cards of other issuers. In the event that several
interest rates apply to various balance segments, payment
allocation is generally at the discretion of the issuing bank, and
payments will therefore usually be allocated towards the lowest
rate balances until paid in full before any money is paid
towards higher rate balances. Interest rates can vary
considerably from card to card, and the interest rate on a
particular card may jump dramatically if the card user is late
with a payment on that card or any other credit instrument, or
even if the issuing bank decides to raise its revenue.
Benefits to customers:
The main benefit to each customer is convenience. Compared

to debit cards and cheques, a credit card allows small short-
term loans to be quickly made to a customer who need not
calculate a balance remaining before every transaction,
provided the total charges do not exceed the maximum credit
line for the card. Credit cards also provide more fraud
protection than debit cards. In the UK for example, the bank is
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jointly liable with the merchant for purchases of defective

products over £100.
Many credit cards offer rewards and benefits packages, such as

offering enhanced product warranties at no cost, free
loss/damage coverage on new purchases, and points which
may be redeemed for cash, products, or airline tickets.
Additionally, carrying a credit card may be a convenience to
some customers as it eliminates the need to carry any cash for
most purposes.
Transaction steps:
• Authorization: The cardholder pays for the purchase and

the merchant submits the transaction to the acquirer
(acquiring bank). The acquirer verifies the credit card
number, the transaction type and the amount with the
issuer (Card-issuing bank) and reserves that amount of
the cardholder's credit limit for the merchant. An
authorization will generate an approval code, which the
merchant stores with the transaction.
• Batching: Authorized transactions are stored in

"batches", which are sent to the acquirer. Batches are
typically submitted once per day at the end of the
business day. If a transaction is not submitted in the
batch, the authorization will stay valid for a period
determined by the issuer, after which the held amount will
be returned back to the cardholder's available credit (see
authorization hold). Some transactions may be submitted
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in the batch without prior authorizations; these are either

transactions falling under the merchant's floor limit or
ones where the authorization was unsuccessful but the
merchant still attempts to force the transaction through.
(Such may be the case when the cardholder is not present
but owes the merchant additional money, such as
extending a hotel stay or car rental.)
• Clearing and Settlement: The acquirer sends the batch

transactions through the credit card association, which
debits the issuers for payment and credits the acquirer.
Essentially, the issuer pays the acquirer for the
transaction.
• Funding: Once the acquirer has been paid, the acquirer

pays the merchant. The merchant receives the amount
totaling the funds in the batch minus either the "discount
rate," "mid-qualified rate", or "non-qualified rate" which
are tiers of fees the merchant pays the acquirer for
processing the transactions.
• Chargebacks: A chargeback is an event in which money

in a merchant account is held due to a dispute relating to
the transaction. Chargebacks are typically initiated by the
cardholder. In the event of a chargeback, the issuer
returns the transaction to the acquirer for resolution. The
acquirer then forwards the chargeback to the merchant,
who must either accept the chargeback or contest it. A
merchant is responsible for the chargeback only if she has
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violated the card acceptance procedures as per the

merchant agreement with card acquirers.
• Mobile banking (also known as M-Banking, mbanking,
SMS Banking etc.) is a term used for performing balance
checks, account transactions, payments, credit
applications etc. via a mobile device such as a mobile
phone or Personal Digital Assistant (PDA).
3.5 Mobile Banking:
In one academic model, mobile banking is defined as:
Mobile Banking refers to provision and availment of banking-

and financial services with the help of mobile
telecommunication devices. The scope of offered services may
include facilities to conduct bank and stock market
transactions, to administer accounts and to access customized
information."
According to this model Mobile Banking can be said to consist

of three inter-related concepts:
• Mobile Accounting
• Mobile Brokerage
• Mobile Financial Information Services
Most services in the categories designated Accounting and

Brokerage are transaction-based. The non-transaction-based
services of an informational nature are however essential for
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conducting transactions - for instance, balance inquiries might

be needed before committing a money remittance. The
accounting and brokerage services are therefore offered
invariably in combination with information services. Information
services, on the other hand, may be offered as an independent
module.
Mobile phone banking may also be used to help in business

situations
Trends in mobile banking: The advent of the Internet has

enabled new ways to conduct banking business, resulting in the
creation of new institutions, such as online banks, online
brokers and wealth managers. Such institutions still account for
a tiny percentage of the industry.
Over the last few years, the mobile and wireless market has
been one of the fastest growing markets in the world and it is
still growing at a rapid pace. According to the GSM Association
and Ovum, the number of mobile subscribers exceeded 2 billion
in September 2005, and now exceeds 2.5 billion (of which more
than 2 billion are GSM).
With mobile technology, banks can offer services to their

customers such as doing funds transfer while travelling,
receiving online updates of stock price or even performing
stock trading while being stuck in traffic. Smartphones and 3G
connectivity provide some capabilities that older text message-
only phones do not.
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Mobile banking business models:
A wide spectrum of Mobile/branchless banking models is

evolving. However, no matter what business model, if mobile
banking is being used to attract low-income populations in
often rural locations, the business model will depend on
banking agents, i.e., retail or postal outlets that process
financial transactions on behalf telcos or banks. The banking
agent is an important part of the mobile banking business
model since customer care, service quality, and cash
management will depend on them. Many telcos will work
through their local airtime resellers. However, banks in
Colombia, Brazil, Peru, and other markets use pharmacies,
bakeries, etc.
These models differ primarily on the question that who will

establish the relationship (account opening, deposit taking,
lending etc.) to the end customer, the Bank or the Non-
45
Bank/Telecommunication Company (Telco). Another difference

lies in the nature of agency agreement between bank and the
Non-Bank. Models of branchless banking can be classified into
three broad categories - Bank Focused, Bank-Led and Nonbank-
Led.
Bank-focused model:
The bank-focused model emerges when a traditional bank uses

non-traditional low-cost delivery channels to provide banking
services to its existing customers. Examples range from use of
automatic teller machines (ATMs) to internet banking or mobile
phone banking to provide certain limited banking services to
banks’ customers. This model is additive in nature and may be
seen as a modest extension of conventional branch-based
banking.
Bank-led model:
The bank-led model offers a distinct alternative to conventional

branch-based banking in that customer conducts financial
transactions at a whole range of retail agents (or through
mobile phone) instead of at bank branches or through bank
employees. This model promises the potential to substantially
increase the financial services outreach by using a different
delivery channel (retailers/ mobile phones), a different trade
partner (telco / chain store) having experience and target
market distinct from traditional banks, and may be significantly
cheaper than the bank-based alternatives. The bank-led model
may be implemented by either using correspondent
46
arrangements or by creating a JV between Bank and Telco/non-

bank. In this model customer account relationship rests with
the bank
Non-bank-led model:
The non-bank-led model is where a bank has a limited role in

the day-to-day account management. Typically its role in this
model is limited to safe-keeping of funds. Account management
functions are conducted by a non-bank (e.g. telco) who has
direct contact with individual customers.
Mobile Banking Services:
Mobile banking can offer services such as the following:
Account Information:
1. Mini-statements and checking of account history

2. Alerts on account activity or passing of set thresholds
3. Monitoring of term deposits
4. Access to loan statements
5. Access to card statements
6. Mutual funds / equity statements
7. Insurance policy management
8. Pension plan management
9. Status on cheque, stop payment on cheque
10. Ordering cheque books
11. Balance checking in the account
12. Recent transactions
47
13. Due date of payment (functionality for stop, change

and deleting of payments)
14. PIN provision, Change of PIN and reminder over the
Internet
15. Blocking of (lost, stolen) cards
Payments, Deposits, Withdrawals, and Transfers:
1. Domestic and international fund transfers

2. Micro-payment handling
3. Mobile recharging
4. Commercial payment processing
5. Bill payment processing
6. Peer to Peer payments
7. Withdrawal at banking agent
8. Deposit at banking agent
A specific sequence of SMS messages will enable the system to

verify if the client has sufficient funds in his or her wallet and
authorize a deposit or withdrawal transaction at the agent.
When depositing money, the merchant receives cash and the
system credits the client's bank account or mobile wallet. In the
same way the client can also withdraw money at the merchant:
through exchanging sms to provide authorization, the merchant
hands the client cash and debits the merchant's account.
Investments:
1. Portfolio management services

2. Real-time stock quotes
3. Personalized alerts and notifications on security prices
48
4. mobile banking
Support:
1. Status of requests for credit, including mortgage approval,

and insurance coverage
2. Check (cheque) book and card requests
3. Exchange of data messages and email, including
complaint submission and tracking
4. ATM Location
Content Services:
1. General information such as weather updates, news

2. Loyalty-related offers
3. Location-based services
Based on a survey conducted by Forrester, mobile banking will

be attractive mainly to the younger, more "tech-savvy"
customer segment. A third of mobile phone users say that they
may consider performing some kind of financial transaction
through their mobile phone. But most of the users are
interested in performing basic transactions such as querying for
account balance and making bill payment.
Challenges for a Mobile Banking Solution:
Key challenges in developing a sophisticated mobile banking

application are:
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Handset operability:
There are a large number of different mobile phone devices

and it is a big challenge for banks to offer mobile banking
solution on any type of device. Some of these devices support
Java ME and others support SIM Application Toolkit, a WAP
browser, or only SMS.
Initial interoperability issues however have been localized, with

countries like India using portals like R-World to enable the
limitations of low end java based phones, while focus on areas
such as South Africa have defaulted to the USSD as a basis of
communication achievable with any phone.
The desire for interoperability is largely dependent on the

banks themselves, where installed applications (Java based or
native) provide better security, are easier to use and allow
development of more complex capabilities similar to those of
internet banking while SMS can provide the basics but becomes
difficult to operate with more complex transactions.
There is a myth that there is a challenge of interoperability

between mobile banking applications due to perceived lack of
common technology standards for mobile banking. In practice it
is too early in the service lifecycle for interoperability to be
addressed within an individual country, as very few countries
have more than one mobile banking service provider. In
practice, banking interfaces are well defined and money
movements between banks follow the IS0-8583 standard. As
mobile banking matures, money movements between service
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providers will naturally adopt the same standards as in the

banking world. On January of 2009, Mobile Marketing
Association (MMA) Banking Sub-Committee, chaired by
CellTrust and VeriSign Inc., published the Mobile Banking
Overview for financial institutions in which it discussed the
advantages and disadvantages of Mobile Channel Platforms
such as Short Message Services (SMS), Mobile Web, Mobile
Client Applications, SMS with Mobile Web and Secure SMS.
Security:
Security of financial transactions, being executed from some

remote location and transmission of financial information over
the air, are the most complicated challenges that need to be
addressed jointly by mobile application developers, wireless
network service providers and the banks' IT departments.
The following aspects need to be addressed to offer a secure

infrastructure for financial transaction over wireless network:
1. Physical part of the hand-held device. If the bank is

offering smart-card based security, the physical security of
the device is more important.
2. Security of any thick-client application running on the
device. In case the device is stolen, the hacker should
require at least an ID/Password to access the application.
3. Authentication of the device with service provider before
initiating a transaction. This would ensure that
unauthorized devices are not connected to perform
financial transactions.
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4. User ID / Password authentication of bank’s customer.

5. Encryption of the data being transmitted over the air.
6. Encryption of the data that will be stored in device for
later / off-line analysis by the customer.
One-time password (OTPs) are the latest tool used by financial

and banking service providers in the fight against cyber fraud
[6]
. Instead of relying on traditional memorized passwords, OTPs
are requested by consumers each time they want to perform
transactions using the online or mobile banking interface. When
the request is received the password is sent to the consumer’s
phone via SMS. The password is expired once it has been used
or once its scheduled life-cycle has expired.
Because of the concerns made explicit above, it is extremely

important that SMS gateway providers can provide a decent
quality of service for banks and financial institutions in regards
to SMS services. Therefore, the provision of service level
agreements (SLAs) is a requirement for this industry; it is
necessary to give the bank customer delivery guarantees of all
messages, as well as measurements on the speed of delivery,
throughput, etc. SLAs give the service parameters in which a
messaging solution is guaranteed to perform.
An automated teller machine (ATM), also known as an

automated banking machine (ABM) or Cash Machine and
by several other names (see below), is a computerized
telecommunications device that provides the clients of a
financial institution with access to financial transactions in a
52
public space without the need for a cashier, human clerk or

bank teller.
On most modern ATMs, the customer is identified by inserting a

plastic ATM card with a magnetic stripe or a plastic smart card
with a chip, that contains a unique card number and some
security information such as an expiration date or CVVC (CVV).
Authentication is provided by the customer entering a personal
identification number (PIN).
Using an ATM, customers can access their bank accounts in

order to make cash withdrawals, credit card cash advances,
and check their account balances as well as purchase prepaid
cellphone credit.
3.6 ATM:
ATMs are known by various other names including automatic

banking machine (or automated banking machine particularly
in the United States) (ABM), automated transaction machine,[2]
cashpoint (particularly in the United Kingdom), money machine,
bank machine, cash machine, hole-in-the-wall, autoteller (after
the Bank of Scotland's usage), cashline machine (after the
Royal Bank of Scotland's usage), MAC Machine (in the
Philadelphia area), Bankomat (in various countries particularly
in Europe and including Russia), Multibanco (after a registered
trade mark, in Portugal), Minibank in Norway, Geld Automat in
Belgium and the Netherlands, and All Time Money in India.
53
Financial networks:
An ATM in the Netherlands. The logos of a number of interbank
networks this ATM is connected to are shown.
Most ATMs are connected to interbank networks, enabling

people to withdraw and deposit money from machines not
belonging to the bank where they have their account or in the
country where their accounts are held (enabling cash
withdrawals in local currency). Some examples of interbank
networks include PULSE, PLUS, Cirrus, Interac, Interswitch,
STAR, and LINK.
ATMs rely on authorization of a financial transaction by the card

issuer or other authorizing institution via the communications
54
network. This is often performed through an ISO 8583

messaging system.
Many banks charge ATM usage fees. In some cases, these fees
are charged solely to users who are not customers of the bank
where the ATM is installed; in other cases, they apply to all
users.
In order to allow a more diverse range of devices to attach to

their networks, some interbank networks have passed rules
expanding the definition of an ATM to be a terminal that either
has the vault within its footprint or utilizes the vault or cash
drawer within the merchant establishment, which allows for the
use of a scrip cash dispenser.
ATMs typically connect directly to their host or ATM Controller

via either ADSL or dial-up modem over a telephone line or
directly via a leased line. Leased lines are preferable to POTS
lines because they require less time to establish a connection.
Leased lines may be comparatively expensive to operate
versus a POTS line, meaning less-trafficked machines will
usually rely on a dial-up.
3.7 Electronic Money:
Electronic money (also known as e-currency, e-money,

electronic cash, electronic currency, digital money,
digital cash or digital currency) refers to money or scrip
which is only exchanged electronically. Typically, this involves
the use of computer networks, the internet and digital stored
55
value systems. Electronic Funds Transfer (EFT) and direct

deposit are all examples of electronic money. Also, it is a
collective term for financial cryptography and technologies
enabling it.
While electronic money has been an interesting problem for

cryptography (see for example the work of David Chaum and
Markus Jakobsson), to date, the use of e-money has been
relatively low-scale. One rare success has been Hong Kong's
Octopus card system, which started as a transit payment
system and has grown into a widely used electronic money
system. London Transport's Oyster card system remains
essentially a contactless pre-paid travelcard. Two other cities
have implemented functioning electronic money systems. Very
similar to Hong Kong's Octopus card, Singapore has an
electronic money program for its public transportation system
(commuter trains, bus, etc.), based on the same type of
(FeliCa) system. The Netherlands has also implemented an
electronic money system known as Chipknip, which is based
upon the same system in Hong Kong...
A number of electronic money systems use Contactless

payment transfer in order to facilitate easy payment and give
the payee more confidence in not letting go of their electronic
wallet during the transaction.
Electronic money systems:
In technical terms, electronic money is an online

representation, or a system of debits and credits, used to
56
exchange value within another system, or within itself as a

stand alone system. In principle this process could also be done
offline.
Occasionally, the term electronic money is also used to refer to

the provider itself. A private currency may use gold to provide
extra security, such as digital gold currency. Some private
organizations, such as the United States armed forces use
independent currencies such as Eagle Cash.
Centralized systems:
Many systems—such as Paypal, WebMoney, cashU, and Hub

Culture's Ven—will sell their electronic currency directly to the
end user, but other systems only sell through third party digital
currency exchangers.
In the case of Octopus card in Hong Kong, electronic money

deposits work similarly to regular bank deposits. After Octopus
Card Limited receives money for deposit from users, the money
is deposited into a bank. This is similar to debit-card-issuing
banks redepositing money at central banks.
Some community currencies, like some LETS systems, work

with electronic transactions.
Decentralized systems:
Decentralized electronic money systems include:
• Ripple monetary system, a project to develop a distributed

system of electronic money independent of local currency.
57
• Bitcoin, an existing peer-to-peer electronic money system

with a maximum inflation limit
Offline 'anonymous' systems:
In the use of offline electronic money, the merchant does not

need to interact with the bank before accepting money from
the user. Instead merchants can collect monies spent by users
and deposit them later with the bank. In principle this could be
done offline, i.e. the merchant could go to the bank with his
storage media to exchange e-money for cash. Nevertheless the
merchant is guaranteed that the user's e-money will either be
accepted by the bank, or the bank will be able to identify and
punish the cheating user. In this way a user is prevented from
spending the same funds twice (double-spending). Offline e-
money schemes also need to protect against cheating
merchants, i.e. merchants that want to deposit money twice
(and then blame the user).
Using cryptography, anonymous ecash was introduced by

David Chaum. He used blind signatures to achieve unlinkability
between withdrawals and spend transactions.[2] In
cryptography, e-cash usually refers to anonymous e-cash.
Depending on the properties of the payment transactions, one
distinguishes between online and offline e-cash.
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3.8 E-Payments:
Online Banking ePayments (OBeP) is a type of payments

network, developed by the banking industry in conjunction with
technology providers, specifically designed to address the
unique requirements of payments made via the Internet.
Key aspects of OBeP which distinguish it from other online

payments systems are:
1. The consumer is authenticated in real-time by the

consumer financial institution’s online banking
infrastructure.
2. The availability of funds is validated in real-time by the
consumer’s financial institution.
3. The consumer’s financial institution provides guarantee of
payment to the merchant.
4. Payment is made as a credit transfer (push payment) from
the consumer’s financial institution to the merchant, as
opposed to a debit transfer (pull payment).
5. Payment is made directly from the consumer’s account
rather than through a third-party account.
Other Benefits:
For Consumers:
• use of cash-like payment encourages responsible

consumerism
• does not require set-up or registration with a third-party
payments entity
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• presents familiar interface to facilitate online payment

• awareness of funds availability
For Merchants:
• improved sales conversion / reduced abandoned carts

• real time authorization of guaranteed ACH payment (good
funds)
• offering preferred payment methods may drive repeat
transactions
For Financial Institutions:
• recapture revenue being lost to alternative payment

providers
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3.9 Online Savings Account:
An online savings account (OSA) is a savings account

managed and funded primarily on the Internet
OSAs are often characterized by a higher interest rate or lower

fees, compared with traditional savings accounts. Many of
these high-yield accounts have no minimum balance. Account
holders may link their OSAs to their existing external bank
accounts for easy transfer of funds between multiple accounts.
Some also offer ATM cards so customers can directly access the
funds in their OSAs.
Changes in banking and investing:
OSAs, combined with rising interest rates, have made cash an

increasingly attractive investment option. They provide a
relatively low risk option for investors looking for a place to
park their money, especially in uncertain economic times.
Inflation, stagflation, recessionary fears and stock market
volatility are among the economic indicators that have
encouraged more and more investors to consider cash as a way
to balance their portfolios. In fact, more than 8.5 million
customers signed up for OSAs with leading U.S. banks in 2005
alone and some industry experts estimate the Online Savings
Account market will triple in size, from $250 billion to $400
billion by 2010.
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3.10 SMS Banking:
SMS banking is a technology-enabled service offering from

banks to its customers, permitting them to operate selected
banking services over their mobile phones using SMS
messaging.
Push and pull messages:
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SMS banking services are operated using both push and pull
messages. Push messages are those that the bank chooses to
send out to a customer's mobile phone, without the customer
initiating a request for the information. Typically push
messages could be either Mobile marketing messages or
messages alerting an event which happens in the customer's
bank account, such as a large withdrawal of funds from the
ATM or a large payment using the customer's credit card, etc.
(see section below on Typical Push and Pull messages).
Another type of push message is One-time password (OTPs).

OTPs are the latest tool used by financial and banking service
providers in the fight against cyber fraud. Instead of relying on
traditional memorized passwords, OTPs are requested by
consumers each time they want to perform transactions using
the online or mobile banking interface. When the request is
received the password is sent to the consumer’s phone via
SMS. The password is expired once it has been used or once its
scheduled life-cycle has expired.
Pull messages are those that are initiated by the customer,

using a mobile phone, for obtaining information or performing a
transaction in the bank account. Examples of pull messages for
information include an account balance enquiry, or requests for
current information like currency exchange rates and deposit
interest rates, as published and updated by the bank.
The bank’s customer is empowered with the capability to select

the list of activities (or alerts) that he/she needs to be informed.
This functionality to choose activities can be done either by
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integrating to the internet banking channel or through the

bank’s customer service call centre.
Typical push and pull services offered under SMS

banking:
Depending on the selected extent of SMS banking transactions

offered by the bank, a customer can be authorized to carry out
either non-financial transactions, or both and financial and non-
financial transactions. SMS banking solutions offer customers a
range of functionality, classified by push and pull services as
outlined below.
Typical push services would include:
• Periodic account balance reporting (say at the end of

month);
• Reporting of salary and other credits to the bank account;
• Successful or un-successful execution of a standing order;
• Successful payment of a cheque issued on the account;
• Insufficient funds;
• Large value withdrawals on an account;
• Large value withdrawals on the ATM or EFTPOS on a debit
card;
• Large value payment on a credit card or out of country
activity on a credit card.
• One-time password and authentication
Typical pull services would include:
• Account balance enquiry;
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• Mini statement request;

• Electronic bill payment;
• Transfers between customer's own accounts, like moving
money from a savings account to a current account to
fund a cheque;
• Stop payment instruction on a cheque;
• Requesting for an ATM card or credit card to be
suspended;
• De-activating a credit or debit card when it is lost or the
PIN is known to be compromised;
• Foreign currency exchange rates enquiry;
• Fixed deposit interest rates enquiry.
Technologies employed for SMS banking:
Most SMS banking solutions are add-on products and work with
the bank’s existing host systems deployed in its computer and
communications environment. As most banks have multiple
backend hosts, the more advanced SMS banking systems are
built to be able to work in a multi-host banking environment;
and to have open interfaces which allow for messaging
between existing banking host systems using industry or de-
facto standards.
Well developed and mature SMS banking software solutions

normally provide a robust control environment and a flexible
and scalable operating environment. These solutions are able
to connect seamlessly to multiple SMSC operators in the
country of operation. Depending on the volume of messages
that are require to be pushed, means to connect to the SMSC
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could be different, such as using simple modems or connecting

over leased line using low level communication protocols (like
SMPP, UCP etc.). Advanced SMS banking solutions also cater to
providing failover mechanisms and least-cost routing options.
3.11 Telephone Banking:
Telephone banking is a service provided by a financial

institution, which allows its customers to perform transactions
over the telephone.
Most telephone banking services use an automated phone

answering system with phone keypad response or voice
recognition capability. To guarantee security, the customer
must first authenticate through a numeric or verbal password
or through security questions asked by a live representative
(see below). With the obvious exception of cash withdrawals
and deposits, it offers virtually all the features of an automated
teller machine: account balance information and list of latest
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transactions, electronic bill payments, funds transfers between

a customer's accounts, etc.
Usually, customers can also speak to a live representative

located in a call centre or a branch, although this feature is not
always guaranteed to be offered 24/7. In addition to the self-
service transactions listed earlier, telephone banking
representatives are usually trained to do what was traditionally
available only at the branch: loan applications, investment
purchases and redemptions, chequebook orders, debit card
replacements, change of address, etc.
Banks which operate mostly or exclusively by telephone are

known as phone banks. They also help modernize the user by
using special technology.
3.12 Video Banking:
Video banking is a term used for performing banking

transactions or professional banking consultations via a remote
video connection. Video banking can be performed via purpose
built banking transaction machines (similar to an Automated
teller machine), or via a videoconference enabled bank branch.
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Types of Video Banking:
Today, video banking has many forms, each with its own
benefits and limitations.
In-branch:
Video banking can be conducted in a traditional banking

branch. This form of video banking replaces or partially
displaces the traditional banking tellers to a location outside of
the main banking branch area. Via the video and audio link, the
tellers are able to service the banking customer. The customer
in the branch uses a purpose built machine to process viable
medias such as checks, cash, or coins.
Time Convenience:
Video banking can provide professional banking services to

bank customers during nontraditional banking hours at
convenient times such as in after-hours banking branch
vestibules that could be open up to 24 hours a day. This gives
bank customers the benefit of personal teller service during
hours when bank branches are not typically open.
Location Convenience:
Video banking can provide professional banking services in

nontraditional banking locations such as afterhours banking
branch vestibules, grocery stores, office buildings, factories, or
educational campuses.
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Technology Branches:
Video banking can enable banks to expand real-time

availability of high-value banking consultative services in
branches that might not otherwise have access to the banking
expertise.
Technology of Video Banking:
Although video banking has many different forms, they all have
similar basic components.
Video Connection:
Although termed video banking, the video connection is always

accompanied by an audio link which ensures the customer and
bank representative can communicate clearly with one another.
The communication link for that video and audio typically
requires a high-speed data connection for applications where
the tellers are not in the same physical location. Various
technologies are employed by the vendors of video banking,
but recent advances in audio and video compression make the
use of these technologies much more affordable. For an in
depth discussion on videoconferencing technologies see wiki
videoconferencing article.
Video Banking Services:
Depending on the type of video banking solution deployed

there are numerous types of services that can be offered. In
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conjunction with transaction hardware video banking can

include all of the following types of services.
• Customer authentication
• Cash Deposits
• Check Deposits
• Cash Withdrawal
• Coin Withdrawals
• Check Print
• Account Transfers
• Bill Payments
• Account inquiries
• Process New Accounts
With all types of video banking the following services are

enabled:
• Process New Loans

• Consult with banking professionals
• Process New Accounts
• Inquire about banking services
3.13 Growth In Various Aspects Of International

Banking Industry Due To Technological
Advancements:
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3.13.1 Growth in Online Banking with

Technology:
The American Banking Association estimated in 1996 that
online transaction costs $.01, ATM transaction costs of $.27
telephone transaction costs $.54 and a branch transaction
costs $1.07. New online technology would yield market control
by:
• Enhancing customers’ satisfaction and improve customers
retention;
• Gaining advantages through Intranets and Extranets
• Fundamental shift of power to consumers through information

accessibility
• Traditional branch network can be reduced and smaller staff

strength expected.
SunTrust customers exert little effort choosing a checking

account due to up-front, detailed information. Currently,
twenty-eight million households in the United States bank
online. Recent forecasts indicate that by 2010 over fifty million
U.S. homes will be banking online. Exponential growth of
Internet users since the middle of 1990s is an unequal business
phenomenon not witnessed
Or encountered
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• USA has the highest user ratio of 32%, followed by 28% for
Singapore, 23% for Australia and 19% for Hong Kong
• The fastest growth of internet users are found in East Asia:

with China at 51%, Hong Kong at 44% and Malaysia at 41%
• E-Banking has filtered fast in to commercial banks such as

Wells Fargo Banks in 1995,
• First Union Bank and Bank of America in 1996 and Citicorp

and Banc One in 1997. Not until1998, major houses such as JP
Morgan, Bankers Trust, Chase and Fist Chicago are yet to move
into this new medium of financial services (VNU Business
Publications 2004).
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3.13.2 Growth in Mortgage Banking/Loan and

Technology:
Mortgage banking is one of the last areas of consumer credit to
be affected by the Internet. Electronic commerce has been slow
to gain momentum in mortgage banking, but this is changing
rapidly.
Numerous barriers to true on-line mortgage lending remain, but

they are toppling, and online originations can be expected to
grow to more than 10% of the total market by 2005. Tower
Group estimates that in 1998 consumers completed nearly
65,000 mortgage loan applications on-line, which amounted to
US$8 billion in mortgages. While large, these numbers
represent only about 0.55% of the estimated 12 million
mortgage applications and US$1.45 trillion in mortgages
originated in 1998 (Tower Group 1999).
On-line lending has garnered considerable attention over the

last few years. Already, products such as credit cards and
second mortgages are commonly originated via on-line
channels. On-line lending began in earnest in 1996, and
originally this channel was widely dismissed by the financial
services community. On-line lending has given rise, however, to
both a new industry and a new way of conducting business.
Beginning in 1996, loan aggregators and Web banks began to
73
emerge. As traditional banks have seen margin erode in their

liability businesses (checking, savings, money market, etc.),
they have sought to expand their product offerings and
customer base on the asset side
(Loan products, like credit cards, overdraft, mortgages, auto
loans, etc.). Loan aggregators and Web banks pose a potential
threat to the asset product strategy of many financial services
institutions. In addition, financial services institutions have
increased their reliance on re-marketed and co-branded
Products, like insurance and securities. Aggregators, portals,
and Web banks have been quick to expand into these markets
as well, presenting a new and real threat to the traditional way
of banking and lending. We expect the percentage of on-line
mortgage originations to rise to just over 10% by
2005, and then to continue to rise slowly over the next decade
(Bank Technology News, Oct 2004).The number of loans
originated on-line and the number completed on-line are very
small compared to the number of loans passing through on-line
automated underwriting (AU) systems. Almost 70% of which
passed through their online systems. With some of the changes
occurring in the industry, Tower Group expects the percentage
of loans underwritten by on-line systems to climb to over 90%
within the next three years (Tower Group 1999). The Internet is
already having a profound impact on housing finance and it is
likely that we are just seeing the tip of the iceberg. The most
visible impact is on how products and services are being
delivered to the customer but perhaps the larger and more
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fundamental impact is on the competitive structure of the

housing finance industry.
The application of new Internet-based technologies is changing

the mortgage origination process. The Internet is a new
distribution channel. As discussed in the article by Richard Beidl
of the (Tower Group, March 2000) issue of Housing Finance
International, Internet originations are still a small portion of
the total market (less than 1% in 1998) but are forecast to grow
to 10% of the U.S. market by 2005. Although established
players like Countrywide Home Loans and Cendant have a
major Internet presence, new entrants like E-Loan and
Mortgage.com are attracting media and investor attention, if
not yet major market share. Aggregator sites such as Quicken
Mortgage and IOwn allow
consumers to compare price and terms of a large number of
loan products from a number of lenders.
Beidl predicts a growth in Internet origination as the number of

households connected to the Web increases, their connection
speed improves, and security concerns are alleviated. In the
US, nearly 60% percent of loans are originated through
mortgage brokers and correspondents (Tower Group, June
1999).
The Internet is opening up new competition from unexpected

sources. The web gives companies with strong brands, loyal
customers, or highly trafficked websites a chance to earn fees
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for finding mortgage leads. Microsoft, Intuit, Yahoo!, and

priceline.com have all invested in mortgage lenders, built their
own mortgage referral models, or acquired mortgage
companies. Online brokers like E-Loan and IOwn have
integrated backward into funding (i.e., they have become
mortgage bankers) in order to capture additional revenues. As
Internet companies move from marketing to fulfilment to
funding, they increase their share of total origination revenues,
leaving less for traditional lenders (HFI, June 1997).
Morgan Stanley Dean Witter, (The Internet Mortgage Report II:

Focus on Fulfilment, February 10, 2000) explained that the
Internet rate will increase the transparency of the market,
which is likely to accelerate concentration among originators.
The Internet makes it relatively easy for consumers to shop for
mortgages from hundreds of lenders, compare them on an
apples-to-apples basis, and choose the cheapest rate.
3.13.3 Effect of Technology on Bill Payment:

Free bill payment is a service that runs circles around the paper
equivalent. Users can save time, save money (postage, late
fees, and check printing fees), can improve bill tracking and
budgeting, and make their financial life easier. And, if the
electronic payment doesn't post at the biller on time, the bank
and/or processor will go to bat for them to resolve the problem.
Banks insist on providing this beneficial and costly service free
of charge because they are doing it for the "relationship" value.
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Customers love getting something for nothing. The technology

makes it simple to pay any bill to anyone from anywhere. It
saves time, money, and it's safe. That’s the main reason online
bill payment is starting to take off. By 2005, an estimated 40
million American households will pay bills online. Mailing a bill
out costs $2.00 for processing and postage, but a bill can be
presented online for 35 cents to 50 cents. Companies
promoting bill payment are just as interested as customers in
sending bill online because they see substantial costs savings.
Banking and paying bills over the Internet could help to prevent
one million cases of identity theft annually and reduce fraud by
$4.8 billion, new research has claimed. A report from market
research firm Javelin Strategy & Research challenges popular
assumptions that Internet transactions are less safe than
paper-based ones. The company argued that using the Internet
could protect consumers and businesses from two common
types of identity theft: fraudulent opening of new accounts, and
unauthorized use of existing accounts. Conducting banking
electronically, consumers and businesses eliminate common
means of identity theft, such as stealing personal information
contained in bills, bank statements, and credit card statements
delivered by post, or in a signed, outgoing check used to pay a
bill. In addition consumers who view and pay their bills online
are nearly four times more likely to monitor their transactions
on a regular basis than those who wait for paper bills and
monthly statements. This earlier detection was found to have
the potential to reduce identity theft by more than 18 per cent,
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by detecting and reporting fraud before further damage can be

done (Bank Systems & Technology, September 2003).
3.13.4 Growth in Customer Service with

Technology:
As financial institutions expand the variety of services they

offer, they rely on technology to provide them a total and
accurate customer view. Having consolidated information can
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assist in such areas as product marketing, making decisions on

check acceptance or defining the more elite customers.
Improving customer service and retention by adding or

upgrading customer relationship type solutions is a typical
activity found in banks. According to Roy, a bank COO,
technology can provide banks with the architecture for giving
better, more targeted and more effective customer service. Roy
explained: 'A uniform and integrated retail delivery strategy is
the key to success, and offers the maximum opportunity for
differentiation, value addition, higher customer loyalty and
branding.
Banks have realized they are a fundamentally a retail outlet

and are trying to differentiate in terms of customer experience
and that includes using technology to become more customer-
centric. Efficient use of technology means banks can segment
their branches by customer type, industry, profitability and
other demographics. And while the branch is an expensive
asset in terms of real estate and staff costs, it is essential to
maximize customer retention. In the 1960’'s, if you had a
personal banker you were probably working with JP Morgan and
you had $10 million in the bank or more because the cost of a
personal banker could only be rationalized by someone who
was doing that much business. As the years go on, the cost of a
personal banker will go down because the breadth of services
that a banker can cover and the number of people that banker
79
can cover is increasing thanks to technology (Bank Systems &

Technology, September 2003).
Clearly banks want a complete view of their customers so that
they can identify new marketing opportunities and better serve
their customers. To achieve this, institutions need to be able to
fully interface with the latest customer management solutions
and any relevant data available for each unique customer. The
reality is if you can use technology, you increase the expanse
that a person can cover intelligently and you're going to get a
lot of value. Technology doesn't directly replace labour in most
customer-facing situations. It enables labour to be more
productive. By using communications and information
technologies, a bank can layer its customer-facing model so
product or service experts are on call to front line people when
they are needed. Expertise can then be better leveraged across
multiple branches. Of households with checking accounts that
use a computer to "consume" financial services has risen from
4 percent in 1995, to over 6 percent in 1998, and almost 20
percent in 2001. At the same time, bank branch usage has
declined from 87 percent in 1995, to 80 percent in 1998, and
78 percent in
2001. Computers are taking over a greater percentage of day-
to-day human interactions as consumers bypass the cashier or
ticket agent and pay directly at a kiosk. These machines fitted
with touch-screens are taking over at gas pumps, airline ticket
counters, subway and train stations, grocery stores, and in the
financial sector as ATMs as the public's faith in technology
grows. The machines are becoming much easier to use as well,
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with bright and colored touch-screens replacing monochrome

displays and dirtied keypads. Research group International
Data (Research Group International, 2004) predicts the number
of retail self-checkout systems will double by the end of this
year. The machines, which at their core are customized PCs,
herald the roboticization of the service sector, say analysts
(American Banker, Bank Technology News, 2003).
Besides speed and convenience, experts also point to a more

worrying reason for self-service consumers want to avoid
human interactions with sometimes disgruntled workers. The
results could shield consumers from having to think about how
low-wage workers are getting by and allow isolationism, for
example. Another worry is that these machines are so flexible
and cost-effective that they are displacing a tremendous
number of human workers in a wide variety of industries.
Although businesses that employ self-service machines insist
they are responding to customer demand to
Improve service, the clear financial benefits of a $10,000 kiosk
over a $20,000 cashier are Unmistakable; experts also point
out that self-service machines are different from other
mechanistic Assaults on human jobs because they are so
widely applicable and the first to be able to take over functions
requiring cognitive skills.
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3.14 Future Of Technology In The Banking

Industry:
The Shape of Things To Come
1. Two diametrically opposed views have been put forward

concerning the future shape of the banking business. Everyone
agrees that information technology will change its shape.
Deloitte Touché Tohmatsu International The Future of Retail
Banking argues that because branch banking is so expensive
and telephone banking so cheap by comparison - around 40%
per customer cheaper - retail banks will cut the number of
branches by 50% by the year 2000. In contrast, Dominic
Casserley, director, McKinsey & Co. (HK)has argued that
technology will be used to maximize revenues rather than to
minimize costs, and foresees direct banking services as
complementary to rather than as a substitutes for branches.
Support for this view may come from past experience.
Technology freed up bank labour, but to extend personal
customer services - such as direct enquiries, processing loan
requests, etc - rather than cut staffing costs.
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2, an alternative analysis is to consider the economics of the

banking market. The DTT study found that profitability of small
and large banks in the UK was similar. This was explained by
the fact that while economies of scale exist in some operations,
a large branch network is very expensive to maintain. Some
activities, such as cheque clearing and credit card and debit
card authentication and settlements, are most efficiently
handled in volume and at national level. Other activities, such
as personal banking services and correspondence, either
require individual attention by a professional bank manager or
are labour intense and are better handled at the local branch
level.
Electronic banking, such as telephone banking, is typically half

the cost per customer to the bank than branch service, and
also has marketing advantages. Hence it will proliferate. The
shape of banking in the future will involve direct banking in the
form of telephone banking, personal and commercial banking
and financial management using home or office PC, kiosk
banking where the public can access a telephone line, a PC, a
fax machine, a smartphone all in one location to carry out their
transactions.
3. Increasingly, electronic commerce will take over from cash

transactions and paper-based contract signing. This is a major
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challenge for banks, but it could also be a major threat. Non-

banking institutions - i.e. those which do not have authorization
to issue new money - already have the potential to create e-
cash or electronic money and create extended credit. For
example, merchants issue Loyalty Cards which provide credit to
their customers. The rise of Internet combined with the
smartcard and an international telephone circuit offers the
scope for e-money and credit creation beyond the control of
nation states, far less within the control of banks.
4. To become competitive in the global market banks will have

to develop rapidly their capabilities in electronic money matters
and electronic commerce. But they have opportunities. The first
is they have, or are building out, their own highly reliable
networks. Without wishing to do so, they are becoming quasi-
telecommunications companies. The second is they can provide
a high level of professional support for customer services,
which perhaps remains their key advantage, but only if they
develop it before new entrants attract customers away.
Vision 2008-2010
• The vision for the ensuing three year period commencing
from 2008 holds great scope for innovation and
differentiation for the financial sector.
• One of the basic premises for this period is that IT would
continue to be the predominant factor acting as the main
catalyst in the forces of change.
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• Network based computing would be in vogue and

consequently, centralisation of certain systems, databases
etc., would be the order of the day.
• Core Banking Systems would have stabilised well and all
banks would have migrated to a large portion of their
branch operations being conducted using Core Banking
Systems.
• Sharing of costly resources would be the norm and this
would work positively for the benefit of the banking
system as a whole
• The Reserve Bank which has played a substantial
developmental role in ushering in Technology based
Banking in the initial period and for large scale
computerisation thereafter, would gradually move away
from its
Developmental role and take a participative role.
• Work would also be taken up for introduction of Extensible
Markup Language (XML) based reporting by banks to the
Reserve Bank with impetus being given to XBRL based
transaction flows, for which a Committee has been
constituted under the Chairmanship of Shri V Leeladhar,
Deputy Governor.
• As a move aimed at better Governance, one of the major
changes planned would be that the Reserve Bank would
not perform the dual role of a service provider and a
regulator. This would be achieved by hiving off of service
delivery functions wherever feasible.
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• Based on the above, the following are some of the specific

components of the plans for 2008-2010:
• Completion of the implementation of Core Banking
Systems by banks
• Integrating the Core Banking Systems with the common
interbank payment systems offered by the Reserve Bank -
such as the NEFT, RTGS etc., to facilitate ‘Straight Through
Processing (STP) ’ modes
• Approach towards centralisation so that banks and
financial institutions can benefit in terms of facilities such
as Customer Relationship Management (CRM), Customer
Profiling and Differentiation and for improved customer
service
• As measures aimed at enhancing the payment and
settlement systems of the country, the recommendations
of the Working Group on Electronification of Payments
would be implemented on time bound basis.
• Need for effective and fail safe Business Continuity Plans
by ensuring adequate Disaster Recovery Systems and the
regular, periodical testing of critical systems
• With IT becoming deeply ingrained in the normal
processing systems of banks, IS Audit gains greater
importance. IS Audit would be a regular function of the
internal processes of Inspection and Concurrent Audit in
banks as also of external / independent audit. To this end,
tools and technologies such as COBIT and conformity to
internationally accepted standards such as ISO 27001
would be made use of
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• The role of technology service providers and

intermediaries would gain greater significance in the
context of increased outsourcing; for the banks and
financial institutions, the complexities in handling in
vendor management as part of outsourcing need to be
addressed so as to ensure the risks arising out outsourcing
are minimised
• A crucial activity which needs to be completed in a time
bound manner relates to the IT related aspects pertaining
to conformity to the BASEL II requirements by banks
• The role of the IDRBT as a pure educational and research
oriented entity would get clearly defined and the service
functions currently handled by the Institute would be
taken care of by the new entity which would have to
ensure that these service offerings are made available to
users at competitive rates and are managed in a
professional manner.
• For the corporate customer and financial institutions,
SFMS would be made available through the Internet as
well so that this could be used as a facility for the
transmission of financial messages in a secure and safe
manner. Inter-linkage of SFMS and S.W.I.F.T. would be
achieved so as to provide for STP based message transfers
between the SWIFT gateway and the respective bank /
branch in the country.
• The use of mobile means of communications for banking
related transactions in general and payment services in
particular would assume greater importance. To this end,
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efforts would be channelled to provide for standards for

such systems, best practices to be followed, and suitable
regulatory / oversight framework provided for.
• The Reserve Bank would also be implementing its own
Core Banking System for the benefit of its customers. This
would provide for ‘Anywhere Access’ for the constituents
of the DAD, PAD and PDO. As far as possible, electronic
based transactions processing using an STP based process
would be provided for.
• The Integrated Computerised Currency Operations and
Management System (ICCOMS), which is being rolled out
to all locations would become the means for effective
information collation in respect of currency notes
movement in the country, which would ultimately result in
better currency management for the country as a whole.
• The processing of Government related transactions is also
envisaged to undergo substantial changes after the
acceptance of electronic modes of data and / or funds
movement is accepted by the Government. This, coupled
with the impending introduction of Cheque Truncation,
would result in changes in the processing systems and
cycles which will be facilitated by IT based systems,
wherever feasible.
• IT usage by banks would continue to exist in substantial
scales. The Reserve Bank would also be leveraging on the
facilities available through IT for improved functioning of
the central bank, commercial banks and the financial
sector as a whole.
88
• The broad outlines given in this Vision document would

form the basis for the initiatives to be taken by the
Reserve Bank during the period of this plan document.
• The Reserve Bank would also be providing detailed
guidelines and instructions, wherever necessary so as to
ensure that the constituents in the chain are fully aware of
the expectations and can also plan their own initiatives in
a manner so as to match the overall road map laid down
by the Reserve Bank for the financial sector as a whole.
• This document would be subject to regular, periodical
reviews so that changes in the environment and the IT
industry could be recognised on time and incorporated for
appropriate action.
• Although the indications made in this document apply for
the medium term, the broad approaches indicated shall be
the basis for further initiatives including those which
would have a long term effect; it shall be also ensured
that the gradual transition from the medium term to a
longer period is achieved as time progresses.
• All these would ultimately result in improved customer
service, better housekeeping and overall systemic
efficiency.
89
4. Conclusion:
Banking is in a period in which we are seeing a decrease in the

number of traditional competitors due to industry consolidation.
At the same time, we are seeing an increase in the number of
competitors for each customer and relationship. Technology-
enabled improvements and a desire to improve earnings
stability have led many banks to enter new markets (global and
national) driving increased competition in local markets by the
adoption of new technology. Local competition includes remote
banks and nonbank competitors. This, combined with a growing
appetite for customization and personalization, is driving the
need to constantly transform applications and offerings to meet
new competition and changing customer preferences,
expectations, and needs.
Banks have a growing understanding of the power of

technology and have begun leveraging advances in technology
to improve operations and enhance customer service. However,
technology is always changing and improving, and banks
90
typically and desperately adapt in order to keep their customer

base. When there is a change in the solution within a bank
policy, it affects the interaction of other solutions being used
within the same bank. Therefore, to take full advantage of
these ever changing solutions, the bank must act to make sure
it has full access to information between each solution. While
ever-changing technology can pose difficulties, it is still an
essential tool to ensure an institution’s standing in the highly
competitive financial services market.
The banking today is re-defined and re-engineered with the use

of Information Technology and it is sure that the future of
banking will offer more sophisticated services to the customers
with the continuous product and process innovations. Thus,
there is a paradigm shift form the seller’s market to buyer’s
market in the industry and finally it effected at the bankers
level to change their approach from “conventional banking to
convenience banking” and “mass banking to class banking”.
The shift has also increased the degree of accessibility of a
common man to bank for his variety of needs and
requirements.
91
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Technology in Banking

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Technology in Banking

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Role Of Technology In Banking

Technology has opened up new markets, new products, new

Information Technology has also provided banking industry

Indian banking today is witnessing drastic changes. The

The new generation banks brought the necessary competition

1.1 Nature Of Changes And Trends In The

The changes in the political, economic, social, cultural and

Consumers now seek to exercise their influence in every walk

the technology and multi-channel facilities to reach out to a

In this context, Information Technology and Enabled Services

Technology has a definitive role in facilitating transactions in

With the introduction of electronic banking, banks are moving

1.2 I.T. in Banking:

1). Technology has opened up new markets, new products, new

2). Information Technology has also provided banking industry

3). The IT revolution has set the stage for unprecedented

4). It is information technology which enables banks in meeting

5). IT has been providing solutions to banks to take care of their

In the five decades since independence, banking in India has

norms relating to income recognition, provisioning and capital

Entry of new banks resulted in a paradigm shift in the ways of

Indian banking industry, today is in the midst of an IT

1.4 Role Of Technology:

Information Technology has basically been used under two

development, better market infrastructure, implementation of

Internet has significantly influenced delivery channels of the

The Information Technology Act, 2000 has given legal

As stated in RBI's Annual Monetary and Credit Policy 2002-

basis. Intra-city and intra-bank networking would facilitate in

The precursor for the modern home online banking services

to be sent to the NBS who set the details up on the Homelink

The basic objective of this project is to trace the role of

• Identifying the opportunities it has provided to the

• how technology has enabled the banking industry to

• the manner it has made banking a more pleasurable

• how it has enabled the banking industry to use customer

Technology will bring fundamental shift in the functioning of

changes brought about. c) how to exploit technology for

Entry of ATMs has changed the profile of front offices in bank

Technology solutions would make flow of information much

While application of technology would help banks reduce their

2.1 Advantages Of Technology:

1. From both customer and banking perspectives it shows that

3. It gives twenty-four-hour access. When the neighbourhood

4. It allows us to access our account from virtually anywhere. If

5. Conducting business online is generally faster than going to

6. Many features and services are typically available online. For

7. Technology has opened up new markets, new products, new

8. Information Technology has also provided banking industry

9. The IT revolution has set the stage for unprecedented

10. It is information technology which enables banks in meeting

12. IT also facilitates the introduction of new delivery channels--

13. Use of de-mat account and online trading enables a person

14. There are many useful features and services available

2.2 Disadvantages Of Technology:

1. Yes, online banking is generally secure, but it certainly isn't

3. Before using a banking site that you aren't familiar with,

4. Customer service can be below the quality that you're used

5. Not all online transactions are immediate. Online banking is

6. If your bank operates only online or simply does not have a

7. Using online banking effectively requires some basic

familiarity with navigating the Internet. While this is not a