JOSE

THOPPAN

COMMERCIAL E-Banking

BANKING SYSTEM
UNIT III – E-BANKING
• Centralized Online Real Time Electronic Banking (CORE)

• Electronic Clearing Service (ECS)

• Electronic Fund Transfer (EFT)

• Real Time Gross Settlement (RTGS)

• National Electronic Fund Transfer (NEFT)

• Society for Worldwide Interbank Financial Telecommunications (SWIFT)

• E-Cheque, Any Time Money, ATMs

• Credit Cards, Debit Cards, Smart Cards

• Internet Banking, Phone Banking, Mobile Banking.

JOSE 2
THOPPAN
 Electronic Banking

UNIT II
JOSE 3
THOPPAN
ELECTRONIC BANKING

• Banking activities through traditional channel (branches) are on the decline

• Customers prefer banking from homes/office using modern electronic channels
• The popular electronic delivery channels are the following:
▪ ATMs
▪ Smart Cards/ Credit Cards
▪ Tele Banking/ Mobile Banking
▪ Internet Banking

JOSE 4
THOPPAN
CORE BANKING

• One of greatest developments in banking technology

• Replaced cumbersome and time-consuming EoD consolidation between branch
banks and centralized banks
• Centralized banks worldwide mandate implementation of core banking
technology for fast, efficient, and secure banking
• Core Banking drives improved customer satisfaction and retention, provides
comprehensive business functionality, and helps meet regulatory requirements.
• Core banking solutions offer a layered Service Oriented Architecture (SOA),
straight-through processing (STP) capabilities, web-enabled technology,
• and support for true 24 x 7 operations JOSE 5
THOPPAN
CORE BANKING

• Core Banking Solution (CBS) is centralized Banking Application software.

• It has several components designed to meet demands of banking industry
• CBS is supported by advanced technology infrastructure
• Has high standards of business functionality, provides banks a competitive edge
• Major CBS vendors inclue Infosys (Finacle), TCS (BaNCS), Oracle-Iflex
(FlexCube), Temenos (T24) etc
• Apart from the above, some institutions have developed the software in house
• Database servers and other servers, application server and Software that resides
in Central application server, all are located in Central Data Centre
• The application software is remotely accessed from the branches JOSE 6
THOPPAN
CORE BANKING
Broadly speaking, the customer is no longer a customer of the branch but a customer of the bank.

JOSE 7
THOPPAN
CORE BANKING
• Core banking solutions (CBS) is a
combination of an application software
and network devices.

• There is a Central Data Centre

• Data Centre is a large data housing

infrastructure that provides high band
width access to its clients.

• The Data Centre houses many

services, Networking devices,
Firewalls and other related equipment
JOSE 8
THOPPAN
COMPARISON OF TBA WITH CBS

• Total Branch Automation System (TBA) was in existence before Core Banking
Solution (CBS) was implemented
• TBA itself was a technology development to its predecessor ALPMS (Advanced
Ledger Printing Machines)
• In TBS system each branch performed operations in totality at respective branch
• The final output was transmitted to the head office in CD or a Floppy.
• The information was processed at Central Office for consolidation of accounts and
preparation of reports.
• As each branch was self reliant in as much as all the information regarding the
branch operations was available at the server located at the branch JOSE 9
THOPPAN
ADVANTAGE OF CORE BANKING
Advantages to the bank
• Improved operations which address
customer demands and industry
consolidation
• Errors due to multiple entries eradicated
• Easy ability to introduce new financial
products and manage changes in existing
products
• Seamless merging of back office data
and self service operations
Advantages to the customer
• The entire range of banking products
including savings, deposit accounts etc are
available from any location
• Accessibility through multiple channels,
• including mobile banking and web
• Accurate, timely and actionable
information about customer relations
• Single view between bank and customers
• Redefining the concept of ‘anywhere,
anytime’ banking JOSE 10
THOPPAN
MODERN CORE BANKING SYSTEMS

JOSE 11
THOPPAN
 JOSE 12
THOPPAN

THE CORE
BANKING
IMPLEMENTATION
AT SBI
• SBI was on a branch system, -
business with branch, not bank
• All records of account activity
resided in the branch
• Competitive disadvantage to
global banks (Citi, Stan Chart,
HSBC) and private banks
(ICICI Bank and HDFC Bank)
• Corporate customers were
moving to other banks that
could work with a single bank
operating across the country
rather than multiple branches
that couldn’t offer real time
consolidation of positions.
• Issues with Existing System
• Reconciliation was painful.
• There was no network connectivity across branches.
• Since the whole system was decentralized, the bank had
little control over branch activities and their decisions
• Bank was facing numerous governance issues
• End of day (EOD), start of day (SOD), and report
generation were repeated across all the branches
• Duplication of effort and a drain on resources.
• The TCS Solution
• „24 x 7 availability leading to continuous customer service.
• „Online real time Internet banking, ATM, POS, RTGS,
SWIFT, for multiple channel operations.
• „Message-based interfaces.
• „Browser-based front end providing easy manoeuvrability
for users and ease of operations.
• „Offline branch functionality for key transactions (in case
of network failure).
• „Parameterized product setup and cloning, allowing faster
product launches.
JOSE 13
THOPPAN
TCS BΑNCS
IMPLEMENTATION
• Largest CBS project ever
• Contract awarded May 2002;
completed in July 2008.
• Interfaces with more than 50
other systems
• Process more than 100 million
accounts daily
• Business/ employee increased • Reversed trend of customer attrition and gaining market share
by 250% in last five years
• Allowed undertaking initiatives to improve service and support
• Ability to consolidate affiliate
banks into SBI • Deployment of more than 3,000 rural sales staff
• Real-time posting of 1,577 tps • Redesign of over 2,200 branches in the last fiscal year
• Month end Loan batch: 1.05hrs • Opening of more than 1,000 new branches
• Month end deposit batch: 2 hrs • Establishment of a call center, and an active plan to migrate
27 minutes JOSE 14
customers to electronic delivery channels THOPPAN
ELECTRONIC PAYMENT SYSTEM
Cash / Paper Electronic
Physical Movement of cash / paper Electronic Message movement
instruments

Fraud prone as paper moves outside the Message moves inside the banking system
banking system hence less prone to frauds

Geographical restrictions No such restrictions. Payment anywhere in

India possible

Time required to move paper makes the Electronic movement of messages makes the
system slow system real time

Operational cost of running the system Operational cost is very low

very high

As volume increases, logistics to be No such requirement

increased
JOSE 15
THOPPAN
PAYMENT SYSTEM – MILESTONES TILL 2010
HV Close /
Directives on
Settlement,
Defaults and
Disputes

2008

RTGS CTS / NECS /

2005 Mobile / NPCI /
Act Notification

IT ACT DPSS /
2002 NEFT /
EFT / NFS
IDRBT
CCIL

MICR 1994
INFINET
ECS
1986 JOSE 16
THOPPAN
PAYMENT SYSTEM – MILESTONES 2010 TO TODAY
• Refer to NPCI website

JOSE 17
THOPPAN
EPS VARIANTS
• Electronic Clearing Service (ECS)
• ECS – Credit and Debit
• National ECS
• Regional ECS – Credit and Debit
• National Electronic Funds Transfer (NEFT)
• Real Time Gross Settlement (RTGS)
• Alternate Payment Channels
• Internet Banking
• ATMs
• Mobile Banking
• Pre-paid Payment Instruments
JOSE 18
THOPPAN
ELECTRONIC CLEARING SERVICE
• ECS is an electronic mode of payment / receipt for transactions that are
repetitive and periodic in nature.
• ECS is used by institutions for making bulk payment of amounts towards
• Distribution of dividend, interest, salary, pension, etc., or
• Bulk collection of amounts towards telephone / electricity / water dues, cess / tax
collections, loan instalment repayments, periodic investments in mutual funds,
insurance premium etc.
• Essentially, ECS facilitates bulk transfer of monies from one bank account to
many bank accounts or vice versa.
• ECS includes transactions processed under National Automated Clearing
House (NACH) operated by National Payments Corporation of India (NPCI).
JOSE 19
THOPPAN
ELECTRONIC CLEARING SERVICE
• Primarily, there are two variants of ECS – ECS Credit and ECS Debit.
• ECS Credit – used for affording credit to large number of beneficiaries (employees,
investors etc.) having accounts with branches at various locations within jurisdiction
of a ECS Centre by raising a single debit to bank account of user institution.
• Enables payment of amounts towards distribution of dividend, interest, salary, pension, etc.
• ECS Debit – used for raising periodic / repetitive debits to a large number of
accounts maintained with bank branches at various locations within jurisdiction of a
ECS Centre for single credit to the bank account of the user institution.
• ECS Debit is useful for payment of telephone / electricity / water bills, cess / tax
collections, loan installment repayments, periodic investments in mutual funds, insurance
premium etc., payable to user institution by large number of customers etc.

JOSE 20
THOPPAN
ELECTRONIC CLEARING SERVICE
• 3 broad categories of ECS schemes based on geographical location of branches
– Local ECS, Regional ECS and National ECS, either operated by RBI or by
designated commercial banks
• Local ECS – Operating at 81 locations restricted to geographical coverage of
the clearing house, generally one city and/or satellite towns and its suburbs
• Regional ECS – Operating at 9 locations across the country facilitating all core-
banking-enabled branches in a State or group of States.
• Takes advantage of core banking system in banks - inter-bank settlement takes place
centrally at one location whereas actual customers may have their accounts at
various bank branches across the length and breadth of the State / group of States.

JOSE 21
THOPPAN
ELECTRONIC CLEARING SERVICE
• National ECS – Centralized version of ECS Credit launched in October 2008.
Operated at Mumbai and facilitates coverage of all core-banking enabled
branches located anywhere in the country.
• Banks are free to add any of their core-banking-enabled branches in NECS
irrespective of their location.
• NACH is also one of the form of ECS system operated by NPCI
• How will you gain from ECS?
• Non-issuance of multiple cheques
• Timely payment of bills /installments /premium without remembering the due dates
• No late payment charges
• Beneficiary to furnish a mandate to user institution giving consent to avail ECS
JOSE 22
Credit facility. THOPPAN
ECS PROCESS FLOW
Sponsor Banks
SBI SBI UBI UBI
Imphal Agartala Itanagar Dispur

SBI RECS Service Centre UBI RECS Service Centre

Secure Web
Server (SWS)

Processing Guwahati
NCC, GUW

SWS

IDBI RECSSC BOB RECSSC CITI RECSSC UBI RECSSC YES RECSSC

Destination Banks
JOSE 23
THOPPAN
ELECTRONIC CLEARING SERVICE - ADVANTAGES
• Advantages to beneficiary
• Need not visit bank for depositing paper
instruments otherwise received
• Need not be apprehensive of loss / theft of
physical instruments or fraudulent encashment
• Cost effective
• Receives the funds right on the due date
• Advantage to bank
• Freedom from paper handling
• Ease of processing and return
• Smooth reconciliation for sponsor banks.
• Cost effective.
• Advantages to User Institutions
• Savings on administrative machinery and
costs of printing, dispatch and reconciliation
of paper instruments
• Avoid chances of loss / theft of instruments in
transit, likelihood of fraudulent encashment of
paper instruments, etc. and subsequent
correspondence / litigation.
• Efficient payment mode ensuring beneficiaries
get credit on a designated date
JOSE 24
THOPPAN
MICR
• MICR is an acronym for Magnetic Ink Character Recognition
• The MICR Code is a numeric code that uniquely identifies a
bank-branch participating in the ECS Credit scheme.
• This is a 9 digit code to identify the location of bank branch
• The first 3 characters represent the city
• The next 3 the bank and
• The last 3 the branch
• The MICR Code allotted to a bank branch is printed on the
MICR band of cheques issued by bank branches.

JOSE 25
THOPPAN
REVISITING TECHNOLOGY IN BANKING

Banking sector early adopters of technology

Improve Enable Allow data

Minimise
operational high-speed capture and
costs
efficiency processing data mining

Improve customer experience with enhanced internal

efficiency

JOSE 26
THOPPAN
NEFT
• National Electronic Funds Transfer (NEFT) is a nation-wide centralised payment
system owned and operated by the Reserve Bank of India (RBI).
• Covers 101 banks and about 75,000 branches
• No filling in of forms or writing cheques and operates on a Batch basis
• Same day availability of funds and returns within two hours of the settlement
• Highly Secured – smart card based access – PKI security
• Positive confirmation of credits to the originator
• Highly popular mode of payment system
• However, since the launch of more consumer-centric payment solutions like IMPS
and UPI, fewer consumers are using NEFT to facilitate their transactions

JOSE 27
THOPPAN
NEFT
• National Electronics Fund Transfer (NEFT) was launched in 2005
• Nationwide electronic payments system from one account to another
• Individual customers, small firms and large corporates use NEFT
• Offers features that make it ideal for large and small transactions alike
• Available round clock throughout the year 24x7x365 basis
• Presently operates in batches on half-hourly intervals throughout day
• Features for NEFT
• Saves Time and Effort
• Payment occurs electronically
• Payment occurs in a secure mode
• No Transaction fee
JOSE 28
• Since Dec. 2019, NEFT payments is allowed round the clock THOPPAN
NEFT STEPS – USER END
• To carry out a NEFT Transaction
• Fill application with details on beneficiary (Name, bank, IFSC code, account
number, and account type)

• Enter amount to be transferred to beneficiary

• Depending on bank, verify identity by PIN, OTP, or other verification means

• Once these steps are followed, the bank authorizes the payment.

• NEFT payments occur in hourly batches.

• Beneficiary may receive payment within a set number of hours

JOSE 29
THOPPAN
WHAT IS IFSC
• IFSC or Indian Financial System Code is an alpha-numeric code that uniquely
identifies a bank-branch participating in the NEFT system

• It’s a 11-digit code with the first 4 alpha characters representing the bank, and
the last 6 characters representing the branch

• The 5th character is 0 (zero)

• IFSC is used by the NEFT system to identify the originating / destination banks
/ branches and also to route the messages appropriately to the concerned banks
/ branches.

JOSE 30
THOPPAN
NEFT STEPS – BANK END
• Following process takes place when bank authorizes the NEFT payment:
• Bank branch will prepare a standard message regarding details of transaction

• This message sent to a pooling center also known as the NEFT Service Centers

• Pooling center forwards same message to NEFT Clearing Center, operated and
maintained by RBI through National Clearing Cell located in Mumbai

• Message ensures that payment is included in the upcoming hourly batch

• Clearing Center sort all requests for payments bank-wise, creates accounting entries
that specify amount of money to come from originating bank and remittance
messages are sent to destination banks through their pooling centers

• Once destination bank receives information, it forwards message to beneficiary’s

account and the transfer takes place once all of these steps are completed
JOSE 31
THOPPAN
ADVANTAGES OF USING NEFT SYSTEM
• Round the clock availability on all days of the year.
• Near-real-time funds transfer to beneficiary account and settlement is secure
• Pan-India coverage through large network of branches of all types of banks.
• Positive confirmation to remitter by SMS / e-mail on credit to beneficiary
• Penal interest provision for delay in credit or return of transactions
• No levy of charges by RBI from banks
• No charges to savings bank account customers for online NEFT transactions
• Besides funds transfer, NEFT system can be used for a variety of transactions
including payment of credit card dues to the card issuing banks, payment of
loan EMI, inward foreign exchange remittances, etc
• Available for one-way funds transfers from India to Nepal JOSE 32
THOPPAN
CHARGES FOR NEFT
• W.e.f January 01, 2020, banks have been advised to not levy any charges from
their savings bank account holders for NEFT funds transfers initiated online.
• Maximum charges which can be levied for outward transactions at originating
bank for other transactions –
• For transactions up to ₹ 10,000 : not exceeding ₹ 2.50 (+ GST)
• For transactions above ₹ 10,000 up to ₹ 1 lakh: not exceeding ₹ 5 (+ GST)
• For transactions above ₹ 1 lakh and up to ₹ 2 lakhs: not exceeding ₹ 15 (+ GST)
• For transactions above ₹ 2 lakhs: not exceeding ₹ 25 (+ GST)

JOSE 33
THOPPAN
RTGS
• RTGS stands for Real Time Gross Settlement, a fund settlement process used
for bank transfers that are high-value
• The minimum transaction amount is Rs 2 lakh
• Once these settlements are made, the amount transferred is irrevocable
• Features of RTGS
• The fund transfer occurs in real time and transfer can occur online
• RTGS is predominantly used for high-value transactions
• The system is highly safe and reliable and is powered by the RBI
• It offers an immediate clearing organized by RBI
• The process follows a one-to-one basis for crediting the funds
• One can execute these transactions on an individual basis
• Organizations can execute these transactions on a gross basis
JOSE 34
THOPPAN
RTGS STEPS – USER END
• To carry out a RTGS Transaction
• Log into net banking account by entering the relevant details

• Select Funds Transfer Option (RTGS) from available options

• Enter beneficiary details accurately

• Review details entered to eliminate errors and click Submit

• The funds are generally credited on an immediate basis.

• As a means to promote digital transactions, RBI has scrapped transaction fees

for all RTGS transactions, irrespective of your bank.

• Unlike UPI or NEFT, RTGS can only take place within certain banking hours.
Weekdays - 7:00 am and 6 pm JOSE 35
THOPPAN
TRANSACTION FEES
• Inward transactions – Free, no charge to be levied.

• Outward transactions – ₹ 2,00,000/- to 5,00,000/- : not exceeding ₹ 24.50/-

(exclusive of tax, if any)

• Above ₹ 5,00,000/- : not exceeding ₹ 49.50/-. (exclusive of tax, if any)

• Unique Transaction Reference (UTR) number is a 22 character code used to

uniquely identify a transaction in RTGS system.

JOSE 36
THOPPAN
THE BENEFITS OF USING RTGS
• It is a safe and secure system for funds transfer.
• RTGS transactions / transfers have no amount cap.
• Available on all days when most bank branches are functioning, including Sat.
• There is real time transfer of funds to the beneficiary account.
• The remitter need not use a physical cheque or a demand draft.
• The beneficiary need not visit a bank branch for depositing the paper instruments.
• The beneficiary need not be apprehensive about loss / theft of physical
instruments or the likelihood of fraudulent encashment thereof.
• Remitter can initiate the remittances from his / her home / place of work using
internet banking, if his / her bank offers such service.
• The transaction charges have been capped by RBI.
• The transaction has legal backing.
JOSE 37
THOPPAN
CHOOSING BETWEEN NEFT AND RTGS
• Transfer Amount: If transfer amount exceeds Rs. 2 lakhs, then RTGS as you
can transfer the entire amount in one go, rather than in batches of Rs 50,000, in
NEFT.
• Settlement Speed: In the event of an emergency, an hourly settlement period
can become too much. If the settlement speed is not an issue, turn to other
factors to help you decide
• Timing: If you need to transfer funds before 7:00 am or after 6:00 pm, then
there’s no doubt that NEFT is the way to go. However, if you can transfer funds
within banking hours, then you can consider RTGS payments
• Settlement Type: RTGS payments offer a one-on-one settlement while NEFT
works in hourly settlements. JOSE 38
THOPPAN
RTGS VS. NEFT VS. IMPS

JOSE 39
THOPPAN
 JOSE 40
THOPPAN
SWIFT
• Founded in 1973, to create a cooperative utility, a global financial messaging
service, and a common language for international financial messaging
• 239 banks from 15 countries got together to solve a common problem: how to
communicate about cross-border payments.
• The Society for Worldwide Interbank Financial Telecommunication is
headquartered in Belgium and its messaging services went live in 1977
• SWIFT replaced Telex technology and is a reliable and trusted global partner
• Main components included a messaging platform, a computer system to validate
and route messages, and a set of message standards.
• The standards developed allow a common understanding of data across linguistic
and systems boundaries for seamless, automated transmission, receipt and
processing of communications exchanged between users
JOSE 41
THOPPAN
SWIFT
• Less than 12 months after operations began, SWIFT processed a total of 10
million messages.
• The connection of the first central banks in 1983 reinforced SWIFT's position
as the common link between all parties in the financial industry.
• In the 2000’s SWIFT entered into regional integration projects such as SEPA
and TARGET2 in Europe and opened offices in Brazil, Mumbai, Dubai and
Johannesburg.
• Consistently exceed 99.99% availability for FIN & SWIFTNet services
• SWIFT is now a global financial infrastructure spanning every continent
• 200+ countries and territories
• Services more than 11,000 institutions around the world
JOSE 42
THOPPAN
FIN TRAFFIC EVOLUTION

In YTD September 2020, SWIFT recorded an average of 37.2 million FIN messages per day.
Traffic grew by +9.9% versus same period of previous year.

SWIFT recorded the latest peak day on Mar 17 at 43.9 mil messages, higher than the
previous peak on Feb 28 by +1.9%. The peak was driven by securities market which
achieved 24.1 mio messages, a new peak in the market itself. JOSE 43
THOPPAN
SWIFT
• Overseen by a committee composed of US Federal Reserve, Bank of England,
European Central Bank, Bank of Japan and other major banks
• SWIFT does not facilitate funds transfer: It sends payment orders, which must
be settled by correspondent accounts that institutions have with each other.
• Internationally standardized messaging means every transaction between every
financial institution is recorded in exactly same way, providing all the details
• Every financial institution has unique code with information on name and
location of bank. Each transaction contains a unique reference number, bank
operation code and details of charges incurred during the transaction.

JOSE 44
THOPPAN
SWIFT MESSAGE IMPORTANT PAYMENT MESSAGE TYPES
• MT101 A request for electronic transfer of funds from ordering customers
account to receiving financial institution / account servicing the FI
• MT103 Message format used for making payments like international wire
transfers, telegraphic transfers, standard EU payments (SEPA payments) etc.
• MT202 Requests movement of funds between FIs, except if transfer is related to
underlying customer credit transfer that was sent with the cover method
• MT202 COV Format for FI funds transfer between financial institutions.
• Implemented in 2009 to create traceability of origination of funds through to
destination of funds in response to AML and other banking requirements.
• Prior to MT202 COV, when a combination of MT103 & MT202 were used to transfer
to beneficiary account, intermediate banks in MT202 had no ability to understand and
perform risk analysis/AML/compliance checks on the funds transfer JOSE 45
THOPPAN
REVIEW OF CORRESPONDENT BANK
• A correspondent bank provides services on behalf of another financial institution
• Facilitate wire transfers, conduct business transactions, accept deposits and gather
documents on behalf of another financial institution.
• Used by domestic banks to service transactions that either originate or are
completed in foreign countries, acting as a domestic bank's agent abroad.
• Generally speaking, reasons domestic banks employ correspondent banks include:
• Limited access to foreign financial markets and inability to service client accounts
without opening branches abroad
• Act as intermediaries between banks in different countries or as an agent to process
local transactions for customers abroad,
• Accept deposits, process documentation and serve as transfer agents for funds.
• Ability to execute these services relieves domestic banks of the need to establish a
physical presence in foreign countries.
JOSE 46
THOPPAN
TRANSFERRING MONEY USING CORRESPONDENT BANK
• International wire transfers often occur between banks that do not have established
financial relationship and a correspondent bank must act as an intermediary.
• Most if not all international wire transfers are executed through SWIFT
• If there is no working relationship with destination bank, originating bank can
search SWIFT network for correspondent bank that has arrangements with both
• Sometimes the order needs to be transferred through several, sometimes many,
distinct banking institutions through the SWIFT network
• These intermediate banks are called routing banks
• VOSTRO and NOSTRO accounts (refer to same account but different perspective)
• NOSTRO account is a reference used by Bank A to refer to "our" account held by Bank
B. NOSTRO, is a shorthand of talking about "our money on deposit at your bank."
• VOSTRO is the term used by Bank B, where bank A's money is on deposit. VOSTRO is
a reference to "yours" and refers to "your money that is on deposit at our bank." JOSE 47
THOPPAN
BENEFITS OF SWIFT
• Transparency. SWIFT payments clearly detail and allows all parties involved
to track transaction and understand costs and time period involved covering
• Amounts involved in the transaction
• Route it takes between banks
• Details of all charges and
• Nature of payment (along with many other details)

• Traceability. Because SWIFT details route of transaction between banks and

amount of money involved, it provides clear and recognized proof of payment

• Consistency. Due to consistency of how messages are structured, payment

information is easy to decipher regardless of country or language barriers

JOSE 48
THOPPAN
SWIFT MESSAGING PROCESS

JOSE 49
THOPPAN
 JOSE 50
THOPPAN
SWIFT MESSAGING PROCESS EXPLAINED
• Customer can request fund transfer on his behalf using either a bank native channel (email,
eBanking, branch, etc.) or sending an MT101 to the bank
• Mostly, on reception of an MT101 by bank, it issue an MT103 to proceed further with Fund
Transfers. But if account to be debited is not with the bank, it can as well transfer MT101 further to
other institution owning account to be debited
• MT103 are sent following a customer request to transfer funds further (serial method) or announce to
receiving institution that funds will be coming following an MT202.COV (cover method)
• MT202 is sent on behalf of bank itself and not following a customer request, in contrary to MT103.
• If the bank is a routing bank in the middle of a routing chain, MT103 and MT202 are sent further
• Actually new messages are sent, the sent MT103 or MT202 can be different than the received one.

JOSE 51
THOPPAN
MESSAGE STRUCTURE

JOSE 52
THOPPAN
COMBINING MULTIPLE MESSAGES

JOSE 53
THOPPAN
 JOSE 54
THOPPAN
SWIFT BIC CODE
• BIC code contains identity and location of participants used to find out and reach the
message destination.
• SWIFT BIC code is composed of exactly 8 or 11 alphanumeric characters

JOSE 55
THOPPAN
SWIFT BIC CODE STRUCTURE
• Alphabetical characters that indicate identification of institution (bank or corporate)
• 2 alphabetical characters for ISO code of country in which the institution is located
• 2 alphabetic or numeric characters used to locate institution head office in the country or head
office in a particular region in the country.
• If 2nd character takes value "0", it is typically a test BIC used in test systems as opposed to a BIC used on
the live network (also production)
• If 2nd character takes value "1", it denotes a passive participant in SWIFT network
• If 2nd character takes value "2", it indicates a reverse billing BIC, where recipient pays for message as
opposed to the more usual mode where the sender pays for the message
• 3 alphabetical or numeric characters to indicate a branch or agency of the institution.
• These last 3 are not mandatory. They are mainly used by banks and less by corporations
JOSE 56
THOPPAN
SWIFT BIC CODE
Passive participants cannot be contacted directly over the SWIFT Network
These BICs are sometimes referred to as ‘BIC1', ‘non-SWIFT BIC' and ‘non-connected BIC‘
A non-connected BIC is not allowed in the header of a SWIFT message, otherwise the message is
rejected by the SWIFT system.
• Eg:
• DEUTDEFF – Deutsche Bank (DEUT) / in Germany (DE) / Main office of Frankfurt (FF)
• DEUTDESS – Deutsche Bank (DEUT) / in Germany (DE) / Main office of Stuttgart (SS)
• DEUTDESS648 – Deutsche Bank (DEUT) / in Germany (DE) / Main office of Stuttgart (SS). 648 is the
branch located in Vaihingen-Enz in the same region.
• DEUTDES0 and DEUTDES0648 are test BIC for DEUTDESS and DEUTDESS648

JOSE 57
THOPPAN
AUTOMATED TELLER MACHINE (ATM)
• Automated Teller Machine or ATM is a specialized computer making it
convenient for bank account holders to manage money
• Allows users to check account balances, withdraw or deposit money, transfer
money from one account to another, print statement of account transactions etc.
• By inserting an ATM/debit card in machine and entering a Personal Identification
Number (PIN), one can access services 24x7x365
• First ATM was set up in June 1967 on a street in Enfield, London at a branch of
Barclays Bank, credited to a British inventor named John Shepherd-Barron.
• Social backdrop in 1960s & 70s played pivotal role in furthering use of ATMs.
• It revolutionized banking & changed way banks interacted with their customers.

JOSE 58
THOPPAN
HISTORY OF ATM
• By 1960s, several teams around world were working independently to devise a
method for withdrawing cash from a bank after hours without committing a crime
• The timeline for the advent and spread of the ATM is given below:
• 1960 – American Luther George Simjian invented Bankograph, a machine that
allowed customers to deposit cash and checks into it
• First ATM was set up in June 1967 in London by Barclays bank
• British inventor named John Shepherd-Barron is credited with its invention
• The machine allowed customers to withdraw a maximum of GBP10 at a time.
• In U.S., deployment of ATM was pioneered by Donald Wetzel
• First US ATM was installed in 1969 at Chemical Bank branch in New York with the
slogan, “On September 2, our banks will open at 9 am and never close again.”
JOSE 59
THOPPAN
HISTORY OF ATM
• In 1970, British engineer James Goodfellow, proposed concept of a personal
identification number (PIN), for automated verification of identity of customers
• In 1977, National Cash Register, a software tech company in U.S., launched NCR
Model 770, an easy-to-operate ATM that allowed the banks to offer services 24/7.
• By 1984, the number of ATMs installed worldwide totaled 100,000.
• As of 2018, more than three million ATMs operated around the world and is
projected to cross four million by 2021
• 1st decade of 21st century saw a rise in ATM frauds via sophisticated malware or
technologies, such as skimming devices
• Digital payment services are gaining popularity in 21st century but cash is still
preferred in most parts of the world for transactions in the foreseeable future. JOSE 60
THOPPAN
HISTORY OF ATM IN INDIA
• HSBC introduced ATM concept in India in 1987 at Andheri East, Mumbai
• Their takeoff took time. In 1999, there were only around 800 ATMs in India
• But in just a few years, the number would explode, crossing 10,000 in 2003.
• Daily transactions per ATM had shot up from 50 in 1999 to 140 in 2003
• Cash dispensed went up from Rs1,900 crore in 1999 to Rs 57,000 crore in 2003
• First floating ATM was installed in Kochi, Kerala by SBI and supervised by
Kerala Shipping & Inland Navigation Corporation (KSINC) Company.
• World's highest ATM is placed in Nathu-La at 14,300 feet above sea level and
is operated by Union Bank of India for Army personnel on Indo-China border

JOSE 61
THOPPAN
HISTORY OF ATM IN INDIA
• In 1997, IBA set up Swadhan, a network of shared ATMs in India which was
managed by India Switch Company (ISC) for five years
• In 2002, Swadhan connected over 1000 ATMs of 53 member banks with a capacity
of 250,000 tpd, but only 5000 tps worth about ₹100,000, took place each day
• In contrast, ICICI Bank's network of 640 ATMs handled ₹20,000,000 each day
• After contract with ISC expired, IBA failed to find a bidder to manage the
operationally uneconomical network, and shut it down on 31 December 2003.
• BoI, Union Bank of India, IB, United Bank of India and Syndicate Bank formed an
ATM-sharing network called CashTree.
• Citibank, IDBI, StanChart and Axis formed a similar network called Cashnet.
• Punjab National Bank and Canara Bank also created such networks. JOSE 62
THOPPAN
HISTORY OF ATM IN INDIA
• In August 2003, IDRBT announced the setup of National Financial Switch (NFS)
to link together the country's ATMs in a single network.
• IDRBT collaborated with Euronet Worldwide and Opus Software to build a
platform to allow banks to connect their own switches to the NFS
• The NFS consisted of an inter-ATM switch and a e-commerce payment gateway.
• NFS was launched by IDRBT on 27 Aug 2004, connecting ATMs of three banks,
Corporation Bank, Bank of Baroda and ICICI Bank
• By Dec 2009, network had grown to connect 49,880 ATMs of 37 banks, thereby
emerging as the largest network of shared ATMs in the country
• RBI granted authorisation to NPCI to take over operations of NFS from IDRBT on
a ‘as is where is basis’ on 15 October 2009. JOSE 63
THOPPAN
WHITE LABELLED ATM
• ATMs set up, owned & operated by non-bank entities are called white label ATMs
• Authorized under Payment and Settlement Systems Act, 2007, by the RBI.
• Cash in ATMs provided by sponsored bank while ATM does not have branding
• Their role is confined to enabling the transactions of all banks customers by
establishing technical connectivity with the existing authorized, shared ATM
Network Operators or Card Payment Network Operators.
• Operators are entitled to receive a fee from the banks for the use of ATM resources
by the bank’s customers and are not permitted to charge bank customer directly.
• Tata Communications Payment Solutions Limited (Indicash) is the first company
authorized by RBI to open WLAs in the country.
• White label Companies have to separately get license from RBI to run business JOSE 64
THOPPAN
BROWN LABEL ATMS
• Brown Label ATM are those ATMs where hardware and lease of ATM machine
is owned by a service provider–but cash management and connectivity to
banking networks is provided by a sponsor bank
• Private company owns & operates the ATM machine, pays office rent. They
negotiate with the landlord, electricity company, telecom company and so on.
• The bank (which has outsourced this work) provides cash for that ATM.
• ATM has logo of that bank (which has outsourced this work).
• RBI not involved directly. These outsourcing companies have contractual
obligation with their respective banks.

JOSE 65
THOPPAN
DIGITAL PAYMENTS
• Digital Payments: A digital payment
occurs when goods or services are Payment
Cards (Debit
purchased using various electronic / Credit)
Electronic
mediums. There is no use of cash or or Digital
Cash
cheques in this type of payment method. Methods
of
• Cashless Economy: All transactions are ePayments Electronic
carried out using different types of or Digital
Wallet
payment methods and this does not
Stored Value
involve the physical use of money for the Cards

purchase of various goods and services

JOSE 66
THOPPAN
CREDIT CARDS

• Credit card are very commonly used as a tool for electronic payment
• It is a thin plastic card that can be used to buy items, pay food or restaurant
bills, booking of airline tickets etc.
• It allows a user to pay later for the items bought, or services availed by process
of known as charging, where user pays for items using credit card and
promises to settle with the issuer by signing the credit card receipt
• Credit cards are normally issued from a bank or any authorized authority.

JOSE 67
THOPPAN
DEBIT CARDS

• A debit card (also known as a bank card, plastic card or check card) is a plastic
payment card, that can be used instead of cash when making purchases.
• It is like a Credit card, but unlike a credit card, the money comes directly from
the user's bank account, when performing a transaction.
• Debit card payments are immediately transferred from cardholder's designated
bank account if sufficient balance is available, else the transaction will fail
• Debit cards usually also allow for instant withdrawal of cash, acting as an ATM
card for withdrawing cash.

JOSE 68
THOPPAN
STORED VALUE CARDS

• A stored-value card is a payments card with a monetary value stored on the

card itself, not in an external account maintained by a financial institution
• Stored-value cards differ from debit cards, where money is on deposit with
the issuer, and credit cards which are subject to credit limits set by the issuer
• Debit and credit cards are usually issued in the name of individual account
holders, while stored-value cards may be anonymous, as in case of gift cards
• Stored-value cards are prepaid money cards and may be disposed when value is
used, or card value may be topped up, as in case of telephone calling cards or
when used as a fare cards.
• Eg: Amazon gift card, Metro ticket cards, Big bazar cards. JOSE 69
THOPPAN
CREDIT CARD TRANSACTION

JOSE 70
THOPPAN
ENTITIES IN THE CARD NETWORK
• Merchant: an entity authorized to accept Card Associations-branded cards for
payment of products/services.
• Acquirer (merchant bank): Financial institution and Card Association member
that contracts with merchants to accept cards for payment for goods / services.
• Cardholder: An authorized user of Card Association branded cards.
• Issuer: A member institution that issues cards for use in transactions and enters
into agreements with cardholders for billing and payment of these transactions
• Card Association (VISA or Mastercard): Act as custodian and clearing house
for their respective card brand. Works with financial institutions, which issue
Visa cards (the issuers) and / or sign merchants to accept Visa-branded cards for
payment of goods and services (the acquirers). JOSE 71
THOPPAN
VISA NETWORK
• Visa provides card products, promotes Visa brand and establishes rules and
regulations governing the processing of payments involving its cards
• It operates world’s largest retail electronic payments network to facilitate the flow
of transactions between acquirers and card issuers.
• VisaNet — part of Visa’s retail electronic payment system, VisaNet includes:
• An authorization service through which card issuers can approve or decline individual
Visa card transactions.
• A clearing and settlement service which processes transactions electronically between
acquirers and issuers to ensure that:
• Visa transaction information sent from acquirers to issuers for posting to cardholders’ accounts
• Payments for Visa transactions are facilitated from issuers to acquirers to be credited to the
merchant accounts. JOSE 72
THOPPAN
 JOSE 73
THOPPAN
VISA PAYMENT PROCESS
• A typical Visa transaction involves three stages:

Authorization, Clearing and Settlement

• Authorization is the process of approving or rejecting a transaction by the issuer

• Clearing is the process of transmitting final transaction data from acquirers to

issuers for settlement.
• During this stage are calculated the fees and charges that apply to the transaction.

• Settlement is the actual exchange of funds between acquirers and issuers for all
transactions that are cleared.

JOSE 74
THOPPAN
 JOSE 75
THOPPAN
CARD ACCEPTANCE PROCEDURE AT POS

JOSE 76
THOPPAN
 JOSE 77
THOPPAN
 JOSE 78
THOPPAN
INTERCHANGE FEES

• Interchange fees are the costs associated with

interchange categories

• They can range from less than a percent for

some debit cards all the way up to 2.95% for
downgrade categories.

• Interchange has been imposed on businesses to

reimburse issuing banks for lost interest
resulting from a cardholder’s grace period for
repaying their debt
JOSE 79
THOPPAN
INTERCHANGE FEES
• When a merchant accept a card as payment, money doesn’t come from customer’s
account right away. However, the merchant get a deposit of funds in 1-2 days
• Issuing bank (the cardholder’s bank) removes money from cardholder’s account.
• Issuing bank deducts interchange fees and gives the rest to the acquiring bank
• Exchange between issuing bank and acquiring bank is less than original amount
• Acquiring bank (processor) deposits funds in merchant’s account after charging
difference between Sale amount and amount Issuing bank credited plus a markup
• Essentially, acquiring bank pays interchange costs to issuing bank first, and later
collects a fee from merchant that is greater than what it paid in interchange
• Merchant ultimately receives gross amount of sale minus costs and markups
that include interchange, dues, assessments and processor’s markup JOSE 80
THOPPAN
INTERNET BANKING
• Internet Banking allows an individual or firm to conduct bank transactions online,
instead of finding a bank and interacting with a teller

• In a broad sense, it is the use of electronic means to transfer funds directly from
one account to another, rather than by cheque or cash.

• A system allowing individuals to perform banking activities at home, via internet.

• The automated delivery of new and traditional banking products and services
directly to customers through electronic, interactive communication channels

• Some online banks are traditional banks which also offer online banking, while
others are online only and have no physical presence.

JOSE 81
THOPPAN
DEVELOPMENT OF INTERNET BANKING
• The concept of Internet banking evolved simultaneously with the development of
the world wide web
• Programmers working on banking databases came up with ideas for online
banking transactions, some time during the 1980’s
• Online services started in New York in 1981 when four of the city’s major banks :
Citibank, Chase Manhattan, Chemical, Manufacturers Hanover offered home
banking services using the videotext system

JOSE 82
THOPPAN
DEVELOPMENT OF INTERNET BANKING
• The concept of Internet banking evolved simultaneously with the development of
the world wide web
• Programmers working on banking databases came up with ideas for online
banking transactions, some time during the 1980’s
• Online shopping promoted the use of credit cards through Internet
• The first online banking service in the US was introduced, in October 1994, by
Stanford Federal Credit Union, which is a financial institution
• In May 1995, Wells Fargo - the first bank in the world to offer customer access to
their accounts over the internet (allows customer to see their accounts online)
• The online banking services are becoming more and more prevalent due to the
well-developed systems JOSE 83
THOPPAN
DEVELOPMENT OF INTERNET BANKING IN INDIA
• ICICI was the first bank to initiate the Internet banking revolution in India as
early as 1997 under the brand name ‘Infinity’

• ICICI Bank kicked off online banking way back in 1996

• But even for the Internet as a whole, 1996 to 1998 marked the adoption phase,
while usage increased only in 1999 - due to lower ISP online charges, increased
PC penetration and a tech-friendly atmosphere

JOSE 84
THOPPAN
RBI & INTERNET BANKING
• The Reserve Bank of India constituted a working group on Internet Banking
which divided internet banking products in India into 3 types based on the
levels of access granted
• Information Only System
• Electronic Information Transfer System
• Fully Electronic Transactional System:

JOSE 85
THOPPAN
RBI & INTERNET BANKING
Information Only System:
• General purpose information like interest rates, branch location, bank
products and their features, loan and deposit calculations are provided
• There exist facilities for downloading various types of application forms
• The communication is normally done through e-mail.
Uses
• There is no interaction between the customer and bank's application system
• No identification of the customer is done
• In this system, there is no possibility of any unauthorized person getting into
production systems of the bank through internet.

JOSE 86
THOPPAN
RBI & INTERNET BANKING
Electronic Information Transfer System

• Provides customer specific information in the form of account balances,

transaction details, and statement of accounts

• Information is still largely of the 'read only' format

• Identification and authentication of the customer is through password

• Information is fetched from the bank's application system either in batch

mode or off- line

• The application systems cannot directly access through the internet.

JOSE 87
THOPPAN
RBI & INTERNET BANKING
Fully Electronic Transactional System

• This system allows bi-directional capabilities

• Transactions can be submitted by the customer for online update

• This system requires high degree of security and control

• In this environment, web server and application systems are linked over
secure infrastructure

• It comprises technology covering computerization, networking and security,

inter-bank payment gateway and legal infrastructure

JOSE 88
THOPPAN
SERVICES PROVIDED BY INTERNET BANKING
• Different services provided under internet banking include
• ACCOUNT INFORMATION

• NEW ACCOUNT OPENING

• THIRD PARTY TRANSFERS

• ONLINE BILL PAYMENT (E.g. Utility Bills, Insurance Premium, Credit Card dues)

• SHOPPING

• TICKET BOOKING

• PRE PAID MOBILE RECHARGE

• INVESTMENT SERVICES

• ONLINE APPLICATIONS (E.g. Cheque Book Request)

JOSE
• TAX PAYMENTS AND DONATIONS THOPPAN 89
ADVANTAGE OF INTERNET BANKING
• Benefits for Banks
• Larger customer coverage Reducing
the costs of operations
• Promoting their services and
products internationally
• Increasing the customer satisfaction
and providing a personalized
relationship with customers
• Benefits for Small to Medium
• To run its operations more
effectively
• Lower cost than traditional financial
management mechanisms
• Benefits for Customers
• Convenience 24 hours a day, seven
days a week
• Cost Reducing transfer fees
• Faster circulation of assets
• Competitiveness - Fostering
competition in financial market
• Communicate easily
• Abolishing the uses of paper JOSE 90
THOPPAN
DISADVANTAGES OF INTERNET BANKING
• A need for customer skill to deal with computers and browsers

• Many people who are not comfortable with computers and the Internet, often
find it difficult to use internet banking

• For beginners, internet banking is really time consuming

• In many instances, a simple mistake, like clicking a wrong button, may create a
big problem.

JOSE 91
THOPPAN
SECURITY RISK OF INTERNET BANKING
• Increasing number of fraudulent bank websites, for Eg. A suspicious bank
website: www.sbionline.com Original bank websitewww.onlinesbi.com

• Fake emails purporting to be sent from banks

• Email send from Fraudulent bank

• Verify the personal information

• Guide customer enter the fraud link

• Disclosing their ATM card numbers and their passwords

JOSE 92
THOPPAN
INTERNET BANKING SECURITY MEASURES

JOSE 93
THOPPAN
END USER LEVEL IDENTIFICATION

JOSE 94
THOPPAN
 JOSE 95
THOPPAN
MOBILE BANKING

JOSE 96
THOPPAN
MOBILE TECHNOLOGY IN BANKING

JOSE 97
THOPPAN
HOW DOES IT WORK

JOSE 98
THOPPAN
NEED FOR BANKS TO ADOPT MOBILE BANKING

JOSE 99
THOPPAN
TECHNOLOGY LANDSCAPE

JOSE 100
THOPPAN
CUSTOMER SIDE DRIVERS FOR ADOPTION

JOSE 101
THOPPAN
USSD BASED MOBILE BANKING
• NUUP (National Unified USSD Platform) is a USSD based mobile banking
service from NPCI, that is as easy as dialing a number from a GSM phone

• Anyone can access mobile banking services by pressing *99# from a GSM phone

• Do not need any internet for using mobile banking via a USSD code

• Can check account balance, mini statement and transfer money from one account
to another just by entering a simple code MMID

• It is applicable for only small value transactions up to Rs. 5000 as per RBI
guidelines

JOSE 102
THOPPAN
USSD BASED MOBILE BANKING
• USSD stands for ‘Unstructured Supplementary Service Data’ with have codes
that directly communicate with server of a telecom company

• This code have special characters, starts with some ‘*’ (asterisk) while ends
with ‘#’ (hash)

• The access to your bank account and the transaction is allowed only to
registered mobile number.

• The connection to your banking server goes within the telecom companies
servers which are handled by the NPCI technicalities of this USSD service.
This system of banking transaction is known as NUUP.

JOSE 103
THOPPAN
TRANSFER MONEY USING USSD EXAMPLE
• Step 1: Dial *99# from registered mobile number for
mobile banking. Follow instructions available - type,
Bank shot name, Digit numeric code or IFSC code of
your bank.
• Step 2: Find another flash message, with many
options like Account Balance, Mini Statement, Send
money using MMID or IFSC, show MMID or change
pin. Select and send the command, then on new flash
message, type beneficiary mobile number
• Step 3: Enter Beneficiary MMID or IFSC code
• Step 4: On next screen, enter the amount to send and
remarks (separated by space). E.g. To transfer Rs 500,
type “500 Gift”.
• Step 5: Enter your MPIN to authorize the transaction
including last four digits of your account number
(separated by space) and click on send. Once, your
transaction is approved, the money will be
immediately credited to the recipient’s account. JOSE 104
THOPPAN
PHONE BANKING
• Perform over phone a wide range of
transactions easily, quickly and
conveniently by putting bank in your
hand
• Enables customers to perform a range
of financial transactions over telephone,
without visiting a branch or ATM
• Enables to manage Account, transfer
money, pay your utility bills, invest in
MF or check Demat balance.
• Access account by making a call,
sending SMS, through Mobile Banking
app or via your mobile browser
• Phone banking are usually longer than
branch opening times, and may offer the
service on a 24-hour basis
• Most FI’s have restrictions on which
accounts may be accessed through
telephone banking, as well as a limit on
the amount that can be transacted
JOSE 105
THOPPAN
END OF UNIT III
JOSE 106
THOPPAN