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Technology in Banks
• Changes in banking in the last decade is unparalleled when compared to the entire period of banking history in India.
• Competition fuelled by technology drives banking today
• Cornputerisation of branches, introduction cash management products, remote access login, mobile banking, internet banking and ATM banking are few ways by which bankers use technology today.
• Computerization of banks in India
started in 1980-81 and gained pace after 1983-84.
• Next a cornmittee was set-up in 1988 to
draw up a five year plan on
computerization of banks (1990-94)
Objective of Computerization
o To improve Housekeeping
o To improve Decision i'1aking
o To improve Productivity and Profitability
• The four objective of bank computerization were:
o To improve Customer Service
-Reconcillatlon of inter-branch accounts
-Reconcillatlon of inter-bank accounts
-Reconcillatlon of nostro accounts, and
-Status of balancing of ooks of accounts
-Reconcillatlon of clear ing differences
A banking term to describe an account one bank holds with a bank in a foreign country, usually in the currency of that foreign country.
• At the branch level:
o Improve customer service
o Quality of housekeeping
o Generation of data for better management control
• At Regional and Head Office:
o To store, analyze, and retrieve data received from branches so as to generate information speedily for strengthening control over branches for policy formulation
Stand alone Computer System
• This was in the initial stage of Bank Computerization
• Also called ALPMs (Advanced Ledger Posting Machines)
• Their main function 'was to maintain the individual ledger accounts of the customers of the branch.
• The daily transactions of deposits, withdrawals, and transfers were entered and the account updated.
• This was not suitable for multi-user environment, but these systems can be connected for existing user.
n. Computer~ on which several people car. work at ~ the same time.
Multi-user Computer Networking
• This is based on centralized processing concept.
• Here the server stores huge amount of information and has high processing speed
• Large number of users are connected to the main computer Iserver.
• Advantages: availability of corporate level
information at one location, purchase and operations of hardware, software is profitably and efficiently managed.
• Emphasis on branch level computerization IS for two important reasons:
o Customer interface is maximum at branch level so computerization and advanced technology reduces waiting time, improves accuracy and faster processing or transfer of funds.
o Online transactions processing at the branch level helps data capture at the initial stage itself which enhances processing.
• Security measures play an important role in branch level computerization because of online applications.
• Various security features like passwords at various levels, various access rights to system and data, locking facilities, transaction tracking systems etc.
Total Branch Automation (TBA)
• All the customers and business transactions are done with the help of computers. This is a real time online banking.
• Whenever a transaction is entered through terminal, the transaction is recorded, then it is verified and authenticated and all the corresponding updations are reflected instantly.
• Using the TBA concept, it is possible to provide 'single window' transactions concept. That means a customer can approach any counter for completing all his/her transactions.
Computerization at Regional/Zonal
• RO/ZO acts in between branches and head office - exercising effective control over the functioning of branches, collection of data and implementation of corporate strategy.
• The most common job performed by the RO/ZO are:
o Branch Profiling
• Fixed particulars: branch location details, type, area details etc.
• Variable particulars: budget, actual performance, income and expenditure data, various statistical reports etc.
Computerization at Regional/Zonal
o Inter-branch reconciliation:
• Matching of inter-branch transactions
o Credit Monitoring:
• Monitoring of loans and advances
o Person nel Data Management:
• Detail database about the employees working in the region, transfer, posting, training, manpower planning, performance evaluation etc.
Computerization at HO level
• Responsible for Corporate level planning and control and determining policy decisions.
• Various functions like personnel and
administrative support, funds
management, investment portfolio
management, credit information system etc. are evolved.
History of ATM Banking
• Barclays Bank in the UK was the first to install cash dispensers in June 67 (Voucher based) by 1969 US, Japan and France started with the same technology
• The next breakthrough was in 1972, when Lloyds bank in UK introduced the first on line "cash point" machines developed by the IBM. These machines used plastic card with magnetic strips which identified customer's account.
• The total number of AT~1s in the world today can be roughly be estimated at over 30 lacs.
• There are mere than 10 prominent manufacturers of ATMs in the world. NCR is still the market leader with around 48% share followed by Wincor Nixdort (about 15%), Diebold is another reputed vendor whose market share is about 9%
The I ndian Scene:
The first ATM was installed in India by HSBC in 1987. There has been significant proliferation in the expansion of ATM networks in Indian cities but still it is very poor in comparison with networks in foreign countries.
• By the end of 2009 there may be about 50,000 ATMs across India. (RBI- 31 march 2009-44,857)
What can ATMs do?
• It can perform both cash and non-cash transactions in a totally secured environment
• Cash transactions for both deposits and withdrawals
Mini statement of last 5/ 10 transactions Balance enquiry
Stop Payment instructions
Transfer of funds between accounts
In addition to cash withdrawal,ATMs can be used for payment of utility bills, funds transfer between accounts, deposit of cheques and cash into accounts, balance enquiry and several other banking transactions which the bankls owning the ATM's might want to offer.
• Requisition for cheque book or draft
• Bill payments
• DispensingTraveliers' cheques
• Smart card based application
• Web enabled activities
• Issue of railways/ air ticket
_/ Besides the above, all banks
(provide special boxes in all ATM outlets for deposit of cheques in the bank.
• The withdrawal in an ATM is restricted to certain limit per
transaction per card as fixed by individual banks based on the need for cash replenishment, product differentiation and th rough-put.
Offline ArMs have lower ceiling for cash withdrawal as compared to
Functioning of an ATM
ATM (Automated Teller Machine)
• How Do ATMs Work?
An ATM is simply a data terminal with two input and four output devices. Like any other data terminal, the ATt~ has to connect to, and communicate through, a host processor. The host processor is analogous to an Internet service provider (ISP) in that it is the gateway through which all the various ATM networks become available to the cardholder (the person wanting the
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~.I Most host processors can support either leased-line or dial.,IW
- machines. Leased-line machines connect directly to the host
( processor through a four-wire. point-to-point. dedicated telephone line. Dial-up ATMs connect to the host processor through a normal phone line using a modem and a toll-free number, or through an Internet service provider using a local access number dialed by modem.
• Leased-line ATMs are preferred for very high-volume locations because of their thru-put capabilit~, and dial-up ATMs are preferred for retail merchant locations where cost is a greater factor than thru-put. The initial cost for a dial-up machine is less than half that for a leased-line machine. The monthly operating costs for dialup are only a fraction of the costs for leased-line.
• The host processor may be owned by a bank or financial institution, or it may be owned by an independent service provider. Bank-owned processors normally support only bank-owned machines, whereas the independent processors support merchant-owned machines.
• When a cardholder wants to do an ATM transaction, he or she provides the necessary information by means of the card
(reader and keypad. The ATM forwards this information to the host processor, which routes the transaction request to the cardholder's bank or the institution that issued the card. If the cardholder is requesting cash, the host processor causes an electronic funds transfer to take place
from the customer's bank account to the host processor's account.
• Once the funds are transferred to th~ host processor's bank account. the processor sends an approval code to the ATM authorizing the machine to dispense the cash. The processor then ACHs the cardholder's funds into the merchan't's bank account, usually the next bank busine da. In this way, the merchant is reimburse for all funds dispensed by the ATM.
So when you request cash, the money moves electronically from your account to the host's account to the merchant's account.
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Automated Clearing House
_~ CORE BANKING SOLUTIO
 A ~~~r~ized branch computerization model in which branches are connected to a central host.
• It incorporates branch automation modules and online multiple delivery channels like ATM, ABB(Any branch Banking), Debit Card, Telebanking, Internet Banking, etc., under one roof.
CORE BANKING SOLUTION (CBS)
• In core banking there is a central database for the bank and transactions are done centrally, online.
• It offers integrated products and services to customers round the clock. It provides scope for induction of modern banking services and one single software for all the branches and is operated on the bank's WAN infrastructure.
The Business components of CBS
• The core banking software covers almost ali the banking business modules as well as MIS and other decision support system
o Retail customer modules
o Deposits, loans, bills, remittances, locker, clearing
o Trade finance and forex modules
o Government business modules
o Corporate finance and service modules
o Enhanced MIS modules
o Business Intelligence Modules
The Business components of CBS
o Integrated with ATMs, tele-banking, debit card, kiosks and other delivery channels.
o Facilities like any branch banking, Internet banking and call centre.
o Interface with existing corporate systems like treasury, IBR (inter branch reconciliation), ALM (asset liability management), credit appraisal and management, credit monitoring and NPA management etc.
o interface with systems like SFMS (structured financial messaging solution), RTGS (real time gross settlement system), CMS(cash management system) etc.
-~ Benefits of CBS
rn Facilitate customer convenience and service, products ~ with new features like auto-sweep facility, utilities bill payments etc,
• New technological products like debit card,ATM, Internet Banking etc ..
• Establishes a reliable centralized data for the bank.
• Facilitate data warehousing and data mining technologies for business intelligence.
• Easy implementation of integrated customer centric services like online ATMs, tele-banking, internet banking, any branch banking, cash management services etc.
• Enable centralized management information, decision support and executive information system.
• Efficient and effective MIS,ALM, risk management, etc., using central data pool.
• Enabled centralized management and control with centralized data
• Standardization of branch automation software using single version
• Quick adoption of changes as it is done centrally
• Facilitates Business Process Reengineering (BPR) to streamline existing business process
• Relieves branches from various back office [obs, data back up , MIS generation etc.
• Although initial cost is high but reduces operational cost and increase manpower productivity.
Infosys provides banks a wide range of services that support and complement Finacle. Drawing on its expertise in the banking domain, strong quality orientation, technology expertise and ability to successfully transform large and complex banks, Finacle can help your bank move from planning to seamless implementation.
Application Development and Maintenance
• Finacle application development and maintenance services are designed to offer banks the freedom and cost-efficiencies of reliably outsourcing the maintenance and enhancement of Finacle solutions. Aimed at maximizing the functionality of Finacle, these services ensure that the bank's solutions evolve as its business does.
• Application Management
• Finacle application management services are designed to offer banks the freedom and cost-efficiencies 0 reliably outsourcing the maintenance and enhancement of Finacle solutions.
• Independent Validation
• Independent validation from Infosys focuses on enabling banks to function with minimal disruption. These services optimize business outcome by ensuring that solutions have near-zero defects.
Migration services from Finacle focus on enabling banks to upgrade their technology platforms to the latest version of Finacle, with minimal business disruption. They are differentiated by the business-driven approach adopted.
Performance Tuning (PTServ)
Performance tuning from Finacle is designed to enable the customer to derive optimal system performance from the Finacle suite of solutions. These services help identify potential performance bottlenecks and recommend changes, for immediate implementation.
Software Performance Engineering
Software performance engineering from Finacle provides performance and availability validation solutions for the production environment. These enable banks to make critical decisions regarding investments, go-live readiness, new product introduction, mergers, acquisitions and business portfolio expansions.
System integration from Finacle is based on an integrated approach to building responsive IT infrastructure and meeting the critical needs of the banking business.
Finacle value mining services enable banks to align business parameters in the Finacle environment to meet the rigours of their continually optimizing business processes. This is facilitated by conducting structured studies in conjunction with the bank's operations and IT teams. The service culminates in the submission of a detailed analysis report and the advisory proposal.
Surround Services Program Management
Business and Technical Consulting Application-led BPR
Delivery Channel Strategy Custom Development
Electronic Funds Transfe
• It is a system whereby anyone who wants to make payment to another personlco can approach his bank and make cash payment or give instructions or authorisation to transfer funds directly from his own alc to the bank alc of the receiver/beneficary.
• As of now, EFT facility is available for transfer of funds between bank braches in about 15 major cities and towns across the country. Under another special scheme called Special EFT many more select branches in over 200 cities have been brought into the fold of funds transfer electronically
• Time duration: it generally takes place within the same day at the most, the next working day.
Real time gross settlement
• RTGS system is a funds transfer mechanism where transfer of money takes place from one bank to another on a "real time" and on "gross basis". This is the fastest possible money transfer system through the banking channels.
• Settlement in "Real Time" means payment transaction is not subject to any waiting period. The transaction is settled as soon as they are processed.
• "G ross Settlement": means transaction is settled on one-to-one basis without bunching with any other transaction.
RTGS Vs EFT system
• EFT and NEFT are electronic funds transfer mode that operate on a deferred net settlement (DNS) basis which settles transactions in batches.
• In DNS the settlement takes place at a particular point of time. All transactions are held uptil that time. For Eg. NEFT settlement takes place 6 times a day (9:30 AM, 10:30 A.t'1, 12 Noon, 1,3 and 4 PM and sat: 9:30, I 0:30 & 12Noon.) Any transaction entered after a designated settlement time would have to wait till the next settlement time. Contrary to this RTGS transactions are processed continuously throughout the RTGS business hours.
• It is primarily for large value transactions.
The min. amount is Rs. I Lakh. There is no upper ceiling for RTGS transactions.
• Time: Under normal circumstances
beneficiary branches are expected to receive the funds in real time as soon as funds are transferred by remitting bank. The beneficiary bank has to credit the beneficiarie's alc within 2 hrs of reciving the funds transfer message.
• Acknowledgement: The remitting bank receives a message from the RBI that money has been credited to the receiving bank. Based on this the remitting bank can advise the remitting customer that money has been delivered to the receiving bank.
• The RTGS service window for customer's transaction is available from 9:00 hrs to 15:00 hrs on week days and to 12:00 hrs on
• Processing Charges: While RBI had waived its processing charges for all electronic payments till March 3 1st 2008, levy of service charges by banks is left to the discretion of the respective banks.
Advantages of RTGS
• Advantages for COs: Aparat from cutting down of paper costs, big companies are expected to save over Rs. 2000 per Rs. I crore worth of transaction using RTGS.
• It reduces the risk of counter party default and boosts investor's confidence.
• Also helps Cos manage their working capital requirements more effectively.
• Advantages to investors: With its main hub at RBI headquarters in Mumbai, it enables settlement of stock market deals the next day instead of the current 2 days. This boosts trading volume.
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