Information Technology- Dinesh

8/3/2019 Information Technology- Dinesh

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INFORMATION TECHNOLOGY ON BANKING SECTOR

UNIVERSITY OF MUMBAI

A PROJECT ON

INFORMATION TECHNOLOGY IN BANKING SECTOR

SUBMITTED BY

MR.HADKAR DINESH SHRIKANT

HADKAR HOUSE, NR.PINTO CHAWL, MULGAON DONGRI,

ANDHERI-KURLA ROAD, ANDHERI (E),

MUMBAI - 400093.

PROJECT GUIDE: PROF. S KANNAN

SEMESTER V

BACHELOR OF COMMERCE (BANKING & INSURANCE)

ACADEMIC YEAR 2011-2012

SUBMISSION DATE:

TOLANI COLLEGE OF COMMERCE

SHER-E-PUNJAB, MUMBAI-400 093

TELEPHONE-022- 6152 5455

TOLANI COLLEGE OF COMMERCEPage 1


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ACKNOWLEDGEMENT

With great pleasure I would like to thank Prof. S. Kannan, of Tolani College

of Commerce, for giving me the opportunity to do this project on

INFROMATION TECHNOLOGY IN BANKING SECTOR. I would also

like to thank her for being an inspiration in the completion of this project. He gave

me his valuable advice and help without which this project would not have

materialized.



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CERTIFICATE

I, Prof. S Kannan, Tolani College of Commerce, hereby certify that Mr.

Hadkar Dinesh Shrikant student of T. Y. Banking and Insurance, 5 th Semester, has

completed his project on _________________ in the academic year 2011 - 12.

This information submitted is true and original copy to the best of my

knowledge.

Signature

(Prof. S. Kannan)



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DECLARATION

I, Mr. Hadkar Dinesh Shrikant, student of Tolani College of Commerce,T. Y. Banking and Insurance, 5th semester, hereby declare that I have completed

this project on ________________ in the academic year 2011 - 12.

This project submitted is true and original copy to the best of my knowledge.

SIGNATURE OF STUDENT



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SUMMARY

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

development, better market infrastructure, and implementation of reliable

techniques for control of risks and helps the financial intermediaries to reachgeographically distant and diversified markets.

In view of this, technology has changed the contours of 3 major functions

performed by a bank that is 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.

Information technology has benefited the banking sector to a significant

extent so far and holds forth further potential. According to top officials in the

banking sector, technology is the engine, which is driving the banking industry

towards the path of growth.



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CONTENTS

NO. REMARK

1. INTRODUCTION

2. ROLE OF EXPERTS SYSTEM IN BANKING

3. CORE BANKING SOLUTIONS

4. FUNCTIONAL OVERVIEW

5. RETAIL BANKING

6. CORPORATE BANKING

7. TRADE FINANCE8. MOBILE BANKING

9. REGULATORY AND SUPERVISORY ISSUES

10. REGISTRATION OF CUSTOMERS FOR

MOBILE SERVICES

11. CLEARING AND SETTLEMENT FOR INTER-

BANK FUNDS TRANSFER TRANSACTION

12. CUSTOMER COMPLAINTS AND GRIVANCE

REDRESSAL MECHANISM

13. LIST OF ABBREVIATIONS

14 ANNEX:

I. INTERNATIONAL EXPERIENCE

II. TECHNOLOGY AND STANDARDS

III. CUSTOMER PROTECTION ISSUES

15. COMMON MODULES

16. ROLE OF EXPERT SYSTEMS IN BANKS

17. AUTOMATIC TELLER MACHINES



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18. ELECTRONIC BANKING

19. ELECTRONIC BANKING WORKS

20. ELECTRONIC-BANKING FUNCTIONALLY

21. SMART CARDS

22. CREDIT CARD

23. GOING GLOBAL

24. DEBIT CARD

25. TWO TYPES OF DEBIT CARDS

26. DIFFERENCE BETWEEN DC AND CC

27. ELECTRONIC WALLET

28. ELECTRONIC COMMERCE

29. INTERNET MERCHANT ACCOUNT

30. INDIAN BANKS ON WEB

31. MAIN CONCERNS IN INTERNET BANKING

32. CONCLUSION

33. BIBLIOGRAPHY

INTRODUCTION

Banks and financial institutions are the backbone of the economy of the

country. Implementation of Information Technology and communication

networking has brought revolution in the functioning of the banks and the financial

institutions. For the sound implementation of Information Technology in banks and

financial institutions, necessary legal support is a must. Legal issue relating to

electronic transactions processing at banks is very much and there was a need to

address them by amending some of the existing Acts and introduction to new act.



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Necessary legislative support is essential to protect the interests as much of the

customers as of the banks in several areas relating to electronic banking and

payment system. This is specially required to establish the credibility of Electronic

Clearing System and Electronic Funds Transfer schemes based on the electronic

massage transfer.

ROLE OF EXPERTS SYSTEM IN BANKING

Financial Institutions and Banks are continuously searching for new ways to

use technology to deliver increasing number of products and services to their

customers on one hand, on the other putting technology in use for problem solving

and decision support. Expert system represent in the major areas that have found

promising and strategic role in majority of the banks and financial institutions.

Banks in the USA and Canada are developing or investing expert system for

commercial applications although there are few known expert system currently in



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use but the future will see emergence of expert system in to the computing

environment of the corporate world.

Expert system is a computer program designed to model the knowledge and

experience of human experts. This expertise is the key ingredient used for solving

complicated problems or assessing or evaluating a plan or proposal. Thus expert

systems are well suited to services organizations. They can emulate the intricate

through process of experts and make the expertise available to less performing the

type of tasks of highly aid experts. Experts system does not replace people but

assists them to be more effective typically they are advice giving or decision

support systems.

The finance domain can clearly benefit from the application of experts

system technology.

The benefits thus derived could be listed as follows:

Increase in speed of complex task accomplishment.

System reduced a 3-hour system configuration task to 15 minutes.

Increased quantity

Reduced errors

Decrease personnel required

Canons Optex camera lens designed system has made scarce highly skilled

lens designers, 12 times more productive.

Reduced cost

Reduced training time

Improved decisions



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CORE BANKING SOLUTIONS

Core banking solution is designed on a customer centric, completely web

based paradigm. The multi-lingual, multi currency CRM-enabled core banking

solution addresses the end-to-end requirements of banks. Based on open systems,

this extensively parameter sable solution comes with comprehensive out-of-the-

box features and packs several unique features like 24*7 operations, STP,workflow, multiple delivery channel support and the e-extensibility tool kit-all to

deliver unparalleled value to banks. Core banking solution is fully multichannel

alerts-enabled and facilities banks customers through their channel of choice. In a



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recent scalability audited by Ernst and young, core banking solution also emerged

as one of the worlds most scalable core banking solution by achieving an

unparallel performance of over 11,180 TPS (transaction per second) translating

into 40 million transaction per hour.

FUNCTIONAL OVERVIEW

Core banking solution offers comprehensive retail, corporate and trade

finance features-all in a highly secure and reliable environment.

RETAIL BANKINGCore banking solution supports product management and account

management for the full range of retail banking products such as savings,



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current/checking, overdraft, revolving overdraft, term deposits and all types of

retail loans [personal loans, auto loans and mortgages].

CORPORATE BANKINGCore banking solution provides comprehensive product management and

account management for corporate banking products such as commercial loans,

syndications [participation], securitization, term loans, demand loans, overdrafts,

non performing asset management, limit management, debt consolidation through

replacements, collateral management, interest rate management and loan modeling.

TRADE FINANCE

Core banking solution offers powerful trade finance features covering

business areas like bills (foreign and inland), documentary credits/letter credit, pre-

shipment credits, bank guarantees, forward contracts and foreign remittances

among others.

MOBILE BANKING

Mobile phones as a delivery channel for extending banking services have off-latebeen attaining greater significance. The rapid growth in users and wider coverageof mobile phone networks have made this channel an important platform forextending banking services to customers. With the rapid growth in the number of

mobile phone subscribers in India (about 261 million as at the end of March 2008and growing at about 8 million a month), banks have been exploring the feasibilityof using mobile phones as an alternative channel of delivery of banking services.Some banks have started offering information based services like balance enquiry,stop payment instruction of cheques, transactions enquiry, location of the nearestATM/branch etc. Acceptance of transfer of funds instruction for credit to



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beneficiaries of same/or another bank in favor of pre-registered beneficiaries havealso commenced in a few banks. In order to ensure a level playing field andconsidering that the technology is relatively new, Reserve Bank has brought out aset of operating guidelines for adoption by banks.

For the purpose of these Guidelines, mobile banking transactions is undertaking banking transactions using mobile phones by bank customers that involvecredit/debit to their accounts. It also covers accessing the bank accounts bycustomers for non-monetary transactions like balance enquiry etc.

REGULATORY AND SUPERVISORY ISSUES

1. Only such banks which are licensed and supervised in India and have a

physical presence in India will be permitted to offer mobile payment

services to residents of India.

2. The services should be restricted to only to bank accounts/ credit card

accounts in India which are KYC/AML compliant.

3. Only Indian Rupee based services should be provided.

4. Banks may use the services of Business Correspondents for extending this

facility, to their customers. The guidelines with regard to use of business

correspondent would be as per the RBI circular on Business correspondents

issued from time to time.

5. The guidelines issued by RBI on Risks and Controls in Computers and

Telecommunications vide circular DBS.CO.ITC.BC. 10/ 31.09.001/ 97-98

dated 4th February 1998 will equally apply to Mobile payments, since

Mobile devices used for this purpose have embedded computing and

communication capabilities.



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6. The RBI guidelines on Know Your Customer (KYC) and Anti Money

Laundering (AML) as prescribed by RBI from time to time would be would

be applicable to customers opting for mobile based banking service.

REGISTRATION OF CUSTOMERS FOR MOBILE SERVICES

1. Banks should offer mobile based banking service only to their own

customers.

2.Banks should have a system of registration before commencing mobile based

payment service to a customer.

3.There can be two levels of mobile based banking service - the first or basic

level in the nature of information like balance enquiry, SMS alert for credit or

debit, status of last five transactions, and many other information providing

services and the second or standard level in the nature of financial transactions

such as payments, transfers and stop payments. The risk associated with the

basic level of information services is much less compared to the standard level

of actual payment services. Prior registration of the customers would be

necessary irrespective of the type of service requested. For the standard level

service one time registration should be done through a signed document.

TECHNOLOGY AND SECURITY STANDARDS

1. The technology used for mobile payments must be secure and should ensure

confidentiality, integrity, authenticity and non-repudiability.



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2. The Information Security Policy of the banks may be suitably updated and

enforced to take care of the security controls required specially for mobile

phone based delivery channel.

INTER-OPERABILITY

1. When a bank offers mobile payments service, it may be ensured that

customers having mobile phones of any network operator should be in a

position to request for service. Restriction, if any, to the customers of

particular mobile operator(s) may be only during the pilot phase.

2. To ensure inter-operability between banks and between their mobile

payments service providers, it is recommended that banks may adopt the

message formats being developed by Mobile Payments Forum of India

(MPFI). Message formats such as ISO 8583 , which is already being used by

banks for switching of ATM transactions , may be suitably adapted for

communication between switches where the source and destination are credit

card/ debit cards/pre-paid cards.

The long term goal of mobile payment framework in India would be to enable

funds transfer from account in one bank to any other account in the same or any

other bank on a real time basis irrespective of mobile network a customer has

subscribed to. This would require inter-operability between mobile payments

service providers and banks and development of a host of message formats.

Banks may keep this objective while developing solution or entering into

arrangements with mobile payments solution providers.



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CLEARING AND SETTLEMENT FOR INTER-BANK FUNDS

TRANSFER TRANSACTION

For inter-bank funds transfer transactions, banks can either have bilateral ormultilateral arrangements.

To meet the long term objective of a nation-wide mobile payment framework in

India as indicated at para 5.3 above, a robust clearing and settlement infrastructure

operating on a 24x7 basis would be necessary. Pending creation of such an

infrastructure on a national basis, banks may enter in to multilateral arrangement

and create Mobile Switches / Inter-bank Payment Gateways with expressed

permission from RBI.

CUSTOMER COMPLAINTS AND GRIVANCE REDRESSAL

MECHANISM

The customer /consumer protection issues assume a special significance in view of

the fact that the delivery of banking services through mobile phones is relatively

new.

NEED FOR BOARD LEVEL APPROVAL

Banks should get the Mobile payments scheme approved by their respective boards

/ Local board (for foreign banks) before offering it to their customers. The Board

approval must document the extent of Operational and Fraud risk assumed by the

bank and the banks processes and policies designed to mitigate such risk.



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banks who have already started offering mobile payment service may review the

position and comply to these guidelines within a period of three months from

issuance of these guidelines.

LIST OF ABBREVIATIONS

AML Anti Money Laundering

CDMA Code Division Multiple Access

GPRS General Packet Radio Service

GSM Global System for Mobile

IDS Intruder Detection System

IRDA Infrared Data Association

ISO International Standards Organization

IVR Integrated Voice Response

KYC Know Your Customer

MNO Mobile Network Operator

MPIN Mobile Personal Identification Number

MPFI Mobile Payment Forum of India

NFC Near Field communication.

OTP One Time Password

PCI-DSS Payment Card Industry Data Security Standard

PIN Personal Identification Number

RFID Radio Frequency Identification

SIM Subscriber Identity Module

SMS Short Messaging Service

USSD Unstructured Supplementary Service Data



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ANNEX I

INTERNATIONAL EXPERIANCE

There is very little material available on the regulatory frame work for mobile

payments by central banks. Although there are a number of research articles



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available, they refer to the practices available rather than regulatory guidelines.

Efforts to collect specific regulatory guidelines, from a few countries where person

to person remittance through mobile channel has been implemented, have not been

a success. Mobile payment framework in most countries is covered under the

General Electronic Banking Guidelines. However, on the website of Consultative

Group for Assisting the Poor(CGAP), there are several discussion papers on

mobile payments. Examples of Kenya, Philippines, South Africa and Tanzania

have been described in great detail. In these countries, cash-in and cash-out for the

purpose of remittance is permitted to be done by the distributors of mobile

companies. State Bank of Pakistan has also placed a 'Draft policy paper on

Regulatory Framework for Mobile Payments in Pakistan' on their website for

public comments.

ANNEX II

TECHNOLOGY AND STANDARDS

The security controls/guidelines mentioned in this document are not exhaustive.

The guidelines should be applied in a way that is appropriate to the risk associated

with services provided by the bank through the mobile platform, the devices used,

the delivery channels used (SMS, USSD, WAP, WEB, SIM tool kit based, Smart

phone application based, IVR, IRDA, RFID, NFC, voice, etc) and the system

which processes the mobile transactions and enables the interaction between the

customers, merchants, banks and other participants.

The mobile payments could get offered through various mobile network operator

based channels (SMS, USSD, WAP, WEB, SIM tool kit, Smart phone application



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based, IVR, voice, etc) and non MNO based proximity or contactless channels

(IRDA, RFID, Optical, NFC, etc) and these various mobile channels offer various

degrees of security and interaction capability. While the objective of the RBI is to

have a fully functional digital certificate based inquiry/transaction capabilities to

ensure the authenticity and non-repudiability, given the complexities involved in

getting this through all the channels and given the need for enabling mobile

payments to facilitate financial inclusion objectives, it is suggested that the banks

evaluate each of these channels in terms of security and risks involved and offer

appropriate services and transactions. Banks are also advised to provide

appropriate risk mitigation measures like transaction limit (per transaction, daily,

weekly, monthly), transaction velocity limit, fraud checks, AML checks etc. per

channel depending on the nature of the security features, risk perception by the

bank offering the services and interaction capabilities.

It is suggested that the banks issue a new mobile pin (mPIN). To facilitate the

mobile payments mPIN may be issued and authenticated by the bank or by a

mobile payment application service provider appointed by the bank. Banks and the

various service providers involved in the m-banking should comply with the

following security principles and practices with respect to mPIN :

a) Implement a minimum of 4 digit customer mPIN (6 digit mPIN may be the

desirablegoal)

b) Protect the mPIN using end to end encryption

c) Do not allow the mPIN to be in clear text anywhere in the network or the system



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d) Authenticate the mPIN in tamper-resistant hardware such as HSM (hardware

security modules)

e) Store the PIN in a secure environment

f) In case of offline authentication, the banks should ensure that a proper process is

put in place to positively identify the customer the first time when the service is

being enabled. An offline PIN may be used as the authentication parameter with

security levels being as strong as in the case of online authentication. The bank

may choose to issue its own offline PIN or adopt a customer-defined PIN.

g) A second factor of authentication may be built-in for additional security and as

such the second factor can be of the choosing of the bank

All transactions that affect an account (those that result in to an account being

debited or credited, including scheduling of such activity, stop payments, etc)

should be allowed only after authentication of the mobile number and the mPIN

associated with it in case of MNO based payment service. In case of Non-MNO

based mobile proximity payment, specific static or dynamic identifier should be

used as second factor authentication along with mPIN.. Two factor authentication

may be adopted even for transactions of information nature such as balance

enquiry, mini statements, registered payee details. ,

Proper system of verification of the mobile phone number should be implemented,

wherever possible. This is to guard against spoofing of the phone numbers as

mobile phones would be used as the second factor authentication. It may also be



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suggested but not mandatory, that either card number or OTP (one time passwords)

be used as the second factor authentication rather than the phone number.

Proper level of encryption should be implemented for communicating from the

mobile handset to the banks server or the server of the mobile payments service

provider, if any. Proper security levels should be maintained for transmission of

information between the bank and the mobile payments service provider. The

following guidelines with respect to network and system security should be

adhered to:

a) Use strong encryption for protecting the sensitive and confidential informationof bank and customers in transit

b) Implement application level encryption over network and transport layer

encryption wherever possible.

c) Establish proper firewalls, intruder detection systems ( IDS), data file and

system integrity checking, surveillance and incident response procedures and

containment procedures.

d) Conduct periodic risk management analysis, security vulnerability assessment of

the application and network etc at least once in a year.

e) Maintain proper and full documentation of security practices, guidelines,

methods and procedures used in mobile payments and payment systems and keep

them up to date based on the periodic risk management, analysis and vulnerability

assessment carried out.



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f) Implement appropriate physical security measures to protect the system

gateways, network equipments, servers, host computers, and other

hardware/software used from unauthorized access and tampering. The Data Centre

of the Bank and Service Providers should have proper wired and wireless data

network protection mechanisms.

The dependence of banks on mobile payments service providers may place

knowledge of bank systems and customers in a public domain. Mobile payment

system may also make the banks dependent on small firms ( i.e mobile payment

service providers) with high employee turnover. It is therefore imperative that

sensitive customer data, and security and integrity of transactions are protected. It

is necessary that the mobile payments servers at the banks end or at the mobile

payments service providers end, if any, should be certified appropriately, say

through a PCI DSS certification or in compliance with each participant banks

security guidelines. In addition, banks should conduct regular information security

audits on the mobile payments systems to ensure complete security. Further, if a

mobile payments service provider aggregates and processes transaction, including

verification of mPINs, additional security measures such as a Hardware Security

Module (HSM) must be deployed over and above link encryption to ensure that

mPIN data is protected adequately.

It is recommended that for channels such as WAP and WEB which do not contain

the phone number as identity, a separate login ID and password be provided as

distinct from the internet banking either by bank or the payment service provider.

It is recommended that Internet Banking login ids and passwords may not be

allowed to be used through the mobile phones. Allowing Internet banking login id



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and password usage on the mobile phone may compromise their usage on the

Internet banking channel. This restriction may be communicated to the customers

while offering mobile payments service. However, Internet Banking login ids and

passwords can allowed to be used through the mobile phones provided a) https

connectivity through GPRS is used and b) end to end encryption of the password

and customer sensitive information happens.

Plain text SMS is the simplest form of communication through mobile phones, but

is vulnerable to tampering. As long as there is a second level of check on the

details of the transaction so as to guard against data tampering this mode of

communication can be used for financial messages of micro payment transactions

(say about rupees One thousand five hundred) and repetitive utility bill payment

transactions (say not exceeding rupees two thousand five hundred).

ANNEX III

CUSTOMER PROTECTION ISSUES

Considering the legal position prevalent, there is an obligation on the part of banks

not only to establish the identity but also to make enquiries about integrity and



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reputation of the prospective customer. Therefore, even though request for opening

a savings / current account can be accepted over Mobile Telecommunication, these

should be opened only after proper introduction and physical verification of the

identity of the customer using prevalent KYC norms.

From a legal perspective, security procedure adopted by banks for authenticating

users needs to be recognized by law as a substitute for signature. In India, the

Information Technology Act, 2000, provides for a particular technology as a means

of authenticating electronic record. Any other method used by banks for

authentication should be recognized as a source of legal risk. Customers must be

made aware of the said legal risk prior to sign up.

Under the present regime there is an obligation on banks to maintain secrecy and

confidentiality of customers accounts. In the mobile payments scenario, the risk of

banks not meeting the above obligation is high on account of several factors.

Despite all reasonable precautions, banks may be exposed to enhanced risk of

liability to customers on account of breach of secrecy, denial of service etc.,

because of hacking/ other technological failures. The banks should, therefore,

institute adequate risk control measures to manage such risks.

As in an Internet banking scenario, in the mobile payments scenario too, there is

very limited or no stop-payment privileges for mobile payments transactions since

it becomes impossible for the banks to stop payment in spite of receipt of stop

payment instruction as the transactions are completely instantaneous and areincapable of being reversed. Hence, banks offering mobile payments should clearly

notify the customers the timeframe and the circumstances in which any stop-

payment instructions could be accepted.



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The Consumer Protection Act, 1986 defines the rights of consumers in India and is

applicable to banking services as well. Currently, the rights and liabilities of

customers availing of mobile payments services are being determined by bilateral

agreements between the banks and customers. Considering the banking practice

and rights enjoyed by customers in traditional banking, banks liability to the

customers on account of unauthorized transfer through hacking, denial of service

on account of technological failure etc. needs to be assessed and banks providing

Mobile payments should consider insuring themselves against such risks, as is the

case with Internet Banking.

Bilateral contracts between the payee and payees bank, the participating banks

and service provider and the banks themselves will form the legal basis for mobile

transactions. The rights and obligations of each party must be clearly defined and

should be valid in a court of law. It is likely that there will be two sets of contracts;

one would be a commercial contract between service providers and the second, a

contract between the customer and the bank, to provide a particular service/ s. At

all time, legal obligations of each party must be made clear through these contracts.

Banks must make mandatory disclosures of risks, responsibilities and liabilities of

the customers in doing business through Mobile phone, through a disclosure

template on their websites and/or through printed material.

The existing mechanism for handling customer complaints / grievances may be

used for mobile payment transactions as well. However, the technology isrelatively new, banks offering mobile payment service should set up a help desk

and make the details of the help desk and escalation procedure for lodging the



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complaints, if any public on their websites. Such details should also be made

available to the customer at the time of sign up.

In cases where the customer files a complaint with the bank disputing a

transaction, it would be the responsibility of the service providing bank, to address

the customer grievance. Banks may formulate chargeback procedures for

addressing such customer grievances.

Banks may also consider covering the risks arising out of fraudulent/disputed

transactions through appropriate insurance schemes.

The jurisdiction of legal settlement would be within India.

COMMON MODULES

Core banking solutions offers extensive common modules which include

support for clearing (including electronic and RTGS), standing instructions,

general ledger, signature display and management, document tracking, limits andcollateral management, delinquency management and the whole range of day to

day and year end reports. Core banking solution has the capability of interfacing

with various payment gateways, anti money laundering solutions, regulatory

reporting systems, statements management and distribution systems and

consolidation packages.

ROLE OF EXPERT SYSTEMS IN BANKS

Financial institutions and banks are continuously searching for new ways to

use technology to deliver increasing number of products and services to their

customer on one hand, on the other putting technology in use for problem solving



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and decision support. Expert system represent in the major areas that have found

promising and strategic role in majority of the banks and financial institutions.

Banks in the USA and CANADA are actively developing or investing expert

system for commercial applications although there are few known expert system

currently in use but the future will see emergence of expert system in to the

computing environment of the corporate world.

Expert system is a computer program designed to model the knowledge and

experience of human experts. This expertise is the key ingredient used for solving

complicated problems or assessing or evaluating a plan or proposal. Thus expert

systems are well suited to service organization. They can emulate the intricate

through process of experts and make the expertise available to less performing the

type of task of highly aid experts. Experts system does not replace people but assist

them to be more effective typically they are advice giving or decision support

system.

E-CHEQUE SYSTEM

A Cheque is a signed paper document that orders the signers bank to pay an

amount of money to a person specified in the cheque or a bearer from the signers

account on or after a specified date. Cheque has the advantage that payers (drawer)



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and payees can be individuals, small businesses, brokerages, corporations,

governments or almost any other type of organization. They pass directly from the

payer to the payee, so that the timing and the purpose of the payment are clear to

the payee. While cheques are usually very simple, business cheques can require

multiple signatures and can be accompanied by list of invoices been paid. The

payee can deposit a cheque in an account of his choice or cash it. Banks operate

extensive facilities to accept cheque for deposit, process them initially and clear

and settle between banks.

The electronic cheque, or e-cheque based on the idea that electronic

documents can be substituted for paper and public key cryptographic signatures

can be substituted for handwritten signatures. There fore the e-cheques can replace

paper cheques without the need to create a new payment instrument, along with the

commercial practice changes that a new payment instrument would imply. Instead

the e-cheque is designed to fit into current cheque practices and systems with

minimum impact on payers, payees, banks and the financial systems. The payer

writes an e-cheque by structuring an electronic document with the information

legally required to be in a cheque and cryptographically signs it. The payee

receives the e-cheque, verifies the payers signature, writes out a deposit, and signs

the deposit. The payees bank verifies the payers and payees signature, credits the

payees account forward the cheque for clearing and settlement. This credit will

not be a clear credit; it will be a float or temporary credit, to be confirmed only

after it has been cleared by the paying bank, in the settlement process. The payers

bank verifies the payers signature and debits the payers account. The advantage

of e-cheque is that cryptographic signatures on every e-cheque can be verified at

all points, while in paper cheques handwritten signatures are rarely verified.



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The electronic cheque is designed to perform the payment and other

financial functions of paper cheques, by using cryptographic signatures and secure

messaging over the Internet. The electronic cheque system is designed with

message integrity, authentication and non-repudiation properties sufficient to

prevent fraud against their banks and their customers. It is compatible with either

interactive web transactions or with electronic mail. Since the electronic cheque

does not depend on real-time interactions or on third party authorizations,

electronic cheques are better able to survive outages of network links and

computing nodes.

The result is highly efficient electronic payments system, with a technology

base that is extensible to a variety of financial instruments and other high integrity

document processing applications needed by the financial industry.

AUTOMATIC TELLER MACHINES (ATMs):



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ATM is a device; that allows customers who have an ATM card to perform

routine banking transactions without interacting with a human teller. ATMs are

currently becoming popular in India that enables the customer to withdraw their

money 24 hours a day, 7 days in a week. The simplest ATM allows a customer to

withdraw cash up to specified amount by operating the machine via a magnetic

card to a host computer. Updating of operations can be either off-line or on-line.

In addition to cash withdraws, ATMs can handle deposits and enquiries,

arrange loans and insurance, arrange the buying and selling of stocks and

customers on different savings and investment schemes. Terminals can be special

task terminals such as cash deposit terminal or statement printer terminal or fullfunction terminals which can perform all the tasks.

An ATM is operated through the customers magnetic card. A personal

identification code allotted to a customer is magnetically needed by the ATM.



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When this identity is established, he is allowed to carry out the operations.

Generally 3 tracks are used for transaction processing:

Track 1 for account code any bank code

Track 2 for credit card (shop centers)

Track 3 for debit cards purchaser/ATM card)

In the case of cash deposits, ATMs can issue a receipt to the customer

acknowledgement receipt of the cash. Cash withdraws can be made only in

specified denominations. An ATM could handle as many 5000 cash transactions

without needing replenishment of notes or journal paper.

ADVANTAGES OF AUTOMATIC TELLERMACHINE:-



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ATMs also called 24-hours tellers are electronic terminals which gives

consumer the opportunity to bank at almost any time, like withdraw cash, make

deposits or transfer funds accounts, a personal identification number. Some ATM

charge a usage fee for these services, with a higher fee for consumer, who has an

account at their institution. If a fee is charged, it must be revealed on the terminal

screen or on a sign next to the screen. In addition to cash with drawls, ATMs canhandle deposits and enquiries, arrange loans and insurance and arrange the buying

and selling of stocks and advice customers on different savings and investment

schemes.

The invention of the Automated Teller Machines or ATMs have made

banking more convenient as people would not have to go inside the bank and wait

for tellers to help them. In addition to this, people can also access these ATMs all

day long and they are located in various locations such as the mall or parks, which

saves time since people would not have to go to the bank incase they run out of

cash. However, using these machines has some risks. People who use them are not



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given the same security they would usually get when they are inside a bank.

Fortunately, there are some steps people can take which can give them a certain

level of security as they withdraw their hard earned money.

ELECTRONIC BANKING

The growth of internet and e-commerce is dramatically changing everyday

life with the world-wide-web and e-commerce transforming the world into a digital

global village. Customers and users have become netizen, and these are people

who expect every thing to happen at the click of the mouse. In this new digital

marketplace banks and financial institutions are not lagging behind and have

started providing service electronically over the Internet. These types of service

provided by the banks on Internet, called e-banking, lower the transaction cost, add

value to the banking relationship and empower customers. The study investigated

the response of the bank customers regarding the working of e-banking as

compared to manual banking system.

Electronic Banking is an integrated Internet Banking that empowers the

financial organization to extend the existing bouquet of services and process in to

the Internet age. E-Banking presents a single face to the customer by

consolidating multiple services on to a common platform, thus doing away with the

need to maintain diverse online applications. E-Banking is the result of systematic

analysis of the business and technology needs of financial institution and has

evolved in to a truly global institutions in providing a secure online platform,

capable of integrating with multiple back end process systems.



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E-Banking utilizes a Single Platform Multiple-Components framework

and comes packaged with a ready suite of web components for servicing banking

needs across.

HOW ELECTRONIC BANKING WORKS

Net banking makes it easy to transfer ones money from one branch in a

particular city to any other branch in other city.One can open a FD account via the net. One needs to provide data regarding

the amount and term of the deposit and also the branch in which the account is to

be opened.

One can order for an issue of demand draft or a bankers cheque. However,

the draft can be delivered only to the customers address and not to any other third

party.

One can inquire on the balance of ones savings, current and FD account and

also on the tax deducted at source of ones FD account for the current and previous

financial year. One can give instructions over the net for stopping payment on

cheques.

You can request for a cheque book via the internet, which will take three

days to come.

One can view all the transactions completed on an account for a specified

period and get a copy via e-mail.

E-Banking has component based modular architecture and is built on open

standards. The solution leverages industry standard protocols and methodologies to



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seamlessly interface with multiple back office systems and enable banks to offer

single point access to various products and services.

ELECTRONIC-BANKING FUNCTIONALLY

E-Banking the Internet Banking solution empowers financial institutions to

address complex challenges through a ready suite of web applications in various

banking areas.

Corporate:-

International and domestic fund transfers, account transfers

Trade finance; Documentary credits/Letters of credit, bank guarantees

Cash management: single/bulk payments, collections, cash pooling

Forex requests

Retail:-

Electronic bill presentment and payments (EBPP): Bill reception, Bill

payments (online and scheduled)

Credit card payment

Loan: Application and status monitoring

Account services: Cheque book request, card re-issue request

Trading:-



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Online trading: Mutual funds, Equity, Bonds

Portfolio Management

Information services:-

Customer statements

Alerts

News

Reports

These powerful business services are designed to meet the requirements of

any virtual bank. E-Banking provides a comprehensive set of functionality that

enables financial institutions to deliver to their customers, products and services

that traditionally were only available by visiting the branch in person. E-Banking

has been developed on point and click Internet standard, which relieves the bank

from the process of client training and frees the bank resources to do what they do

best.



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SMART CARDS

It is a standard plastic card, except that it contains a micro processor and a

storage unit. It can hold a lot of information about the card holder, including digital

certificates. It can be used in all banking transactions. It can also be used as an

Electronic Purse in to which monetary value has been loaded. Bank of America [5]

has recently launched a new security and encryption process for corporate clients

who use WANDA electronic service to transfer funds, initiate payments and

manage global accounts. The smart card given to WANDA users offers

encryption and authentication capabilities. Full range of cash management and

foreign exchange services are available over the Net to corporate users through theuse of smart cards.

Smart Card sometimes called stored-value, have a specific amount of credit

embedded electronically in the card. A credit card with a built in microprocessor

and memory use for identification or financial transaction. When inserted into a

reader, it transfers data to and from a central computer. It is more secure than a

magnetic stripe card and can be programmed to self-destruct if the wrong password

is entered too many times. As a financial transaction card, it can be loaded with

digital money and used like a travelers cheque, except that variable amounts of

money can be spent until the balance is zero. These cards make the transaction fast,

easy and convenient.



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CREDIT CARD

Credit is a privilege and a convenience. Credit lets you charge a meal on a

credit card, pay for an appliance on an installment plan, and take out a loan to buy

a house, or pay for schooling. Credit allows you to make a purchase without ready

cash.

A credit card enables you to buy things now and pay for them later. You get

credit by promising to pay in the future for something you receive in the present.

Credit usually costs something, and what is borrowed must be paid back.

Credit can be defined as a small plastic card that allows its holder to buy

goods and services on credit to pay at fixed intervals through the cards issuing

agency. Carrying a lot of cash on you can be cumbersome, risky and sometimes,

you run short of it, just when you most need it. Credit card is the smart solution to

these problems. It is a convenient and safe alternative for cash.

Besides, it says things about you. Most people associate a credit card with a

prestige, which it most certainly bestows on you, but more importantly, it says that

you have taken the onus of being responsible-to be extended credit! So During



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1914, oil companies in the USA issued the first credit card to their customers to

purchase gas, oil, accessories, etc at the gas stations. Thereafter, local department

stores, airlines and railway companies also started issuing their own credit cards.

BENEFITS

Convenient, hassle-free shopping: When you use a credit card to

make a purchase, you dont have to carry a lot of cash, pay by check, or present

additional identification. A credit card also simplifies and speeds up catalog

ordering and currently is virtually the only way to make interest purchases.

Emergency help: Credit cards are the ultimate financial security

blanket. They can get you through nearly any emergency situation.

Easier budgeting: With a credit card, you can make purchases and pay

them off on a schedule that fits your budget. Credit cards also allow you to take

advantages of sales and special offers.

Security: if you lose cash, it can be used by anyone. If you lose a credit

card and report the loss to the cards issuer before it is used, the issuer cannot hold

you responsible for any responsible for any unauthorized charges. If a thief uses

your card before you report it missing, the most you will owe is $50.

Travel expenses: youll find that a credit card is almost essential for

renting a car, purchasing an airplane ticket, or booking a hotel room. Whether

youre across town or on another continent, a credit card is the universal guarantee

of your good financial standing. And if you need cash, you can get it at ATMs or

bank around the World that accepts your credit card.



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DRAWBACKS

Greed: Just because you have credit being extended to you doesnt mean

that you should go on a rampage! Use your card with discretion and caution.

Remember, it is an extremely expensive way to borrow money! View it as a

convenient and safe way to carry cash, a timely help in an emergency or taking

advantage of an opportunity that you would have otherwise lost out on, like an

investment!

Tendency to overspend.

Cardholder responsible for loss and misuse of his card till after 24 hours of

reporting loss. Might lead to profligacy which ends up in huge debts.

GOING GLOBAL

A credit card which can be used to pay for products and services worldwide-

a global card- makes travel abroad, whether on business or vacation, a pleasure.

There is no need to carry travelers cheques or foreign currency any more.

Guidelines recently introduced in India allow institutions to issue a single

credit card that can be used to pay for products and services all over the world

(over 200 countries at present) and to settle the accounts in Indian rupees. This is a

vast improvement over the previous system which allowed a few select cardholders

to repay the outstanding amount in dollars only, while the regular credit cards were

valid additionally only in NEPAL and BHUTAN.

However, the use of global cards is still governed by RBI guidelines on

Foreign Exchange permitted for official and personal trips. These rules remain the



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same irrespective of whether you choose to pay by travelers cheques, cash or the

new global credit cards.

DEBIT CARD

Debit cards are also known as check cards. Debit cards look like credit cards

or ATM (automated teller machine) cards, but operate like cash or personal

cheques. Debit cards are different from credit cards. While a credit card is a way to

pay later, an debit card is a way to pay now. When you use a debit card, your

money is quickly deducted from your checking or savings account.

Debit cards are accepted at many locations, including grocery stores, retail

stores, gasoline stations, and restaurants. You can use your card any where

merchants display your cards brand name or logo. They offer an alternative to

carrying a chequebook or cash.



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How debit transactions work?



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TWO TYPES OF DEBIT CARDS

Debit card Credit card

On-Line Debit Cards: These cards usually are enhanced ATM

(automated teller machine) cards which work the same as they would in an ATM

transaction. It is an immediate electronic transfer of money from your bank

account to the merchants bank account.

To access your account at a store terminal, you must punch in your personal

identification number (PIN), as you would at an ATM. The system checks your

account to see if it has enough money available to cover the transaction.

Off-Line Debit Cards: these cards usually look like a credit card

and resemble a credit card transaction. The merchants terminal reads your card,

identifies it as a debit rather than a credit card and creates a debit against your bank

account. However, instead of debiting your account immediately, it stores the debit

for processing laterusually within 2-3 days.



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Most, but not all, transactions are verified to see if there are adequate funds.

Instead, of using a PIN number, the customer must sign a receipt, as he or she

would be with a credit card.

The On-Line and Off-Line distinction may not matter to you unless:

Your financial institution charges transactions or monthly fees.

You prefer the security of a PIN required transaction.

You prefer that both options not be on one card.



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DIFFERENCE BETWEEN A DEBIT CARD AND A CREDIT CARD

Its the difference between debit and credit. Debit means subtract. When you

use a debit card, you are subtracting your money from your own bank account.Debit cards allow you to spend only what is in your bank account. It is a quick

transaction between the merchant and your personal bank account.

Credit is money made available to you by a bank or other financial

institution, like a loan. The amount the issuer allows you to use is determined by

your credit history, income, debts, and ability to pay. You may use the credit with

the understanding that you will repay the amount, plus interest if you do not pay in

full each month. You will receive a monthly statement detailing your charges and

payment requirements.



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ELECTRONIC WALLET

With the growth of banking business on internet, new electronic payment

methods are evolving. As the new payment methods are evolving quite rapidly, it

is becoming highly difficult for the end user to manage his payment instruments.

Internet wallet helps the user in managing his payment instruments.

A number of electronic commerce applications allow end-users to purchase

goods and services using electronic wallets. The importance of internet wallets is

growing as buyers shift their purchases to the internet. Wallets benefit each

participant of an online transaction. The core function is to enable consumers

(business or individual) to pay online more conveniently and accurately than is

otherwise possible. This is done by storing the users payment instruments



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(typically e-cheques, credit or debit card, addresses, etc.) securely within the wallet

for easy use. In addition, they can also provide transaction management for users.

In response to the needs of the electronic commerce community, the

Electronic Wallet (EW) has been developed to support nearly unlimited variety of

payment mechanisms, protocols, and electronic commerce operations for secure

online banking transactions. Once a user decides to make an online purchase, EW

guides the user through the transactions by helping him to choose a payment

method and hide the complexity of how the payment is executed.

EW developed using the java programming language, and runs on anycomputer platform, realizing the java credo write once, run anywhere. EW is

extensible, providing a framework into which new payment methods can be

integrated easily. It provides an easy-to-use graphical user interface to add new

payment methods. EW works with popular web browsers and holds payment card

accounts and digital certificates. It is robust and easy to use, reducing support costs

and increasing customer satisfaction. It makes web shopping more convenient for

consumers and much more efficient for merchants and financial institutions.



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FEATURES

Works with all popular web browsers (which support JAWA 2.0).

Allows consumers to make purchases on the web quickly, conveniently, andwith greater security.

Features an easy-to-use graphical user interface.

Supports multiple users with protected individual accounts.

Supports multiple payment types and brands.

Provides for easy installation of new payment protocols.

Supports electronic commerce modeling language, a standard defined for

maintaining user information such as his billing and shipping addresses.



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ELECTRONIC COMMERCE

Electronic commerce, commonly knows as e-commerce or e-commerce,

consists of the buying and selling of products or services over electronic systemssuch as internet and other computer networks. The amount of trade conducted

electronically has grown dramatically since the wide introduction of the internet. A

wide variety of commerce is conducted in this way, including things such as

electronic funds transfer, supply chain management; e-marketing, online

transaction processing, electronic data interchange (EDI), automated inventory

management systems, and automated data collection systems. Modern electronic

commerce typically uses the World Wide Web at least at some point in the

transactions lifecycle, although it can encompass a wider range of technologies

such as e-mail as well.

A small percentage of electronic commerce is conducted entirely

electronically for virtual items such as access to premium content on website, but

most e-commerce eventually involves physical items and their transportation in at

least some way.

E-commerce is generally considered to be the sales aspect of e-business.



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INTERNET MERCHANT ACCOUNT

The internet Merchant account is not at all like a bank account it is more

like a credit line. When your customers order online from your Web Site, theCredit Card information provided will be used to process the transaction. When the

approval is obtained you arte notified, through e mail confirmation and it will be

posted to your Web-based administrative interface. Then, upon settlement,

Merchant Bank is informed and funds will be transferred to business bank account,

usually within a day.

Without an internet Merchant account, you would have to wait for the

cardholder to make their monthly payments to their credit card company, and then

receive your sales proceeds of course this would be a night mare since you have

to wait for the cardholder to pay, whether all in one go, or a little each month

Merchant Banks understand that this is just not sensible and

merchant/business like your self cant wait indefinitely until they receive the

proceeds from sales. Therefore banks (for a fee) take on the responsibility of

collection and transfer of funds to your account. This is the function of an Internet

Merchant Account.



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INDIAN BANKS ON WEB

The Banking industry in India is facing unprecedented competition from non

1trading Banking Institutions, which now offer Banking and Financial Serviceso`ver the Internet. The deregulation of the Banking Industry coupled with the

emergence of new Technologies, are enabling new competitors to enter the

financial services market quickly and efficiently.

Indian Banks are going for the Retail Banking in a big way. However, much

is still to be achieved. This study which was conducted by students of IIML shows

some interesting facts:

Through out the country, the internet banking is in the nascent stage of

development (only 50 banks are offering varied kind of Internet Banking Services).

In general, these Internet sites offer only the most basic services. 55% are so

called entry level sites, offering little more then company information and basic

Marketing materials. Only 8% offer advanced transactions such as online fundstransfer, transactions and cash management services.

Foreign and Private Banks are much advanced in terms of the number of

sites and their level of development.



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MAIN CONCERNS IN INTERNET BANKING

In a survey conducted by the online Banking association, member

institutions rated security as the most important issue of online banking.There is a dual requirement to protect customers privacy and protect against

fraud. Banking securely: Online Banking via the World Wide Web provides

an overview of internet commerce and how one company handles secure

Banking for its Financial Institution clients and their customers. A multi

layered security architecture comprising firewalls, filtering routers,

encryption and digital certification ensures that your account information is

protected from unauthorized access:

Firewalls and filtering routers ensures that only the legitimate Internet users

are allowed to access the system.

Encryption techniques used by the Bank (including the sophisticated public

key encryption) would ensure that privacy of data flowing between the

browser and the infinity system is protected.

Digital certification procedures provide the assurance that the data you

receive is from the infinity system.



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CONCLUSION

On the basis of the above survey we can conclude that as an Indian scenario

on the basis of a sample of these 60 participants or members we can conclude thatthe Indian customers as compared to the western trend do not relay more on the

innovative services through electronic medium or we can say services related to

Banking and IT.

But the trend shows that as and when these kind of services are getting more

and more popular, they are gradually being accepted by the Indian customers who

otherwise do not prefer to use extra services with a myth of paying more or some

say its hard getting adjusted with new changes so they prefer to go on with t e same

trends for years but the coming generation is surely not going to accept the same

trends. Now a day we see more and more teenagers using Debit Cards thus making

them more popular as it is a kind of card which will offer services only till you

have balance in your Bank account

So finally I would like to conclude that in India, as a developing economy

these kinds of innovative IT and Banking Services will be welcomed by more and

more people, they get educated about the new products and their utilities. The IT

and Banking products which are expected to hit the Indian market in the coming

years, are like Advanced Core Banking Solutions, Centralized Data Monitoring

System (partly existing), Storage Area Management, Innovative Software for

Banking assistance and security, etc and as far as customers are concerned products like payments through mobile phones, any where and everywhere

Banking, and other customer friendly services.



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BIBLIOGRAPHY

ROLE OF INFORMATION SYSTEM IN INDIAN BANKING

BANK QUEST-MAGAZINE

INDIAN BANKING INDUSTRY AND INFORMATION

TECHNOLOGY



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WEB SITE VISITED

WWW.RBIGUIDELINES.COM

WWW.TIMESOFINDIA.COM

WWW.ITBANKING.COM
http://www.rbiguidelines.com/http://www.timesofindia.com/http://www.itbanking.com/http://www.rbiguidelines.com/http://www.timesofindia.com/http://www.itbanking.com/

Information Technology- Dinesh

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