A WRITE UP ON COMPUTERS IN BANKING

COMPUTERS IN BANKING
Computers play a major role in the banking sector in today’s world. We have developed banking and payment systems which use the speed and efficiency of computers to process transactions involving currency, cheques, and credit cards.

Some uses of computers
Computers have become very essential to the operation of banks. They record and process cheque transactions, and also control and keep track of loans and other client services. Computers generate reports required by federal regulatory agencies and calculate up to fifty-two ratios for the ratings of CAMEL (capital asset quality, management, earnings, and liquidity).

Online banking
The advent of the Internet and the popularity of personal computers presented both an opportunity and a challenge for the banking industry. Now that its customers are connected to the Internet via personal computers, banks envision similar economic advantages by adapting those same internal electronic processes to home use. Online banking means performing banking transactions, payments etc over the internet through a bank. Banks view online banking as a powerful "value added" tool to attract and retain new customers while helping to eliminate costly paper handling and teller interactions in an increasingly competitive banking environment. Today, most large national banks, many regional banks and even smaller banks and credit unions offer some form of online banking, variously known as PC banking, home banking, electronic banking or Internet banking. Those that do are sometimes referred to as "brick-to-click" banks, both to distinguish them from brick-andmortar banks that have yet to offer online banking, as well as from

online or "virtual" banks that have no physical branches or tellers whatsoever. Online banking provides all kinds of banking services like getting bank statements, electronic bill payment, funds transfer between accounts, investment purchase or sale, loan applications and transactions such as repayment, and account aggregation.

Advantages
Convenience: Online banking sites never close; they're available 24 hours a day, seven days a week and they're only a mouse click away. Ubiquity: If you're out of state or even out of the country when a money problem arises, you can log on instantly to your online bank and take care of business, 24/7. Transaction speed: Online bank sites generally execute and confirm transactions at or quicker than ATM processing speeds. Efficiency: You can access and manage all of your bank accounts, including IRAs, CDs, even securities, from one secure site. Effectiveness: Many online banking sites now offer sophisticated tools, including account aggregation, stock quotes, rate alerts and portfolio managing programs to help you manage all of your assets more effectively. No special software or hardware is needed.

Disadvantages
Start-up may take time: In order to register for your bank's online program, you will probably have to provide ID and sign a form at a bank branch. If you and your spouse wish to view and manage your assets together online, one of you may have to sign a durable power of attorney before the bank will display all of your holdings together. Learning curve: Banking sites can be difficult to navigate at first. Plan to invest some time and/or read the tutorials in order to become comfortable in your virtual lobby.

Bank site changes: Even the largest banks periodically upgrade their online programs, adding new features in unfamiliar places. In some cases, you may have to re-enter account information. Money Laundering: Money laundering is an age-old criminal activity that has been greatly facilitated by electronic banking because of the anonymity it affords. Once a customer opens an account, it is impossible for banks to identify whether the nominal account holder is conducting a transaction or even where the transaction is taking place. The trust thing: For many people, the biggest hurdle to online banking is learning to trust it. Always print the transaction receipt and keep it with your bank records until it shows up on your personal site and/or your bank statement.

Electronic Funds Transfer (EFT)
The process of transferring funds by computer from one account to another without written cheques is known as Electronic Funds Transfer. Billions of dollars are moved daily from one account to another using computers and telecommunications without any currency exchange or paper to record and process transactions. In the private sector, many corporations deposit weekly paycheques by EFT. The use of EFT for telephone bill paying is common among banks and their corporate clients. An organization that substitutes EFT for cheques in accounts payable transactions will key accounts payable information, like the names of payees, accounts, and banks to which deposits should be sent, on tape. The information will be sent electronically to the nearest Automated Clearing House (ACH), a computerized version of the traditional cheque clearing house. The ACH then transfers funds into banks where vendors hold accounts.

Components of an EFT system
EFT systems require electronic means for authorizing transactions, communications networks to link bank accounts, and information systems capable of processing desired transactions.

Electronic Transaction Authorization: EFT requires a machine-readable identifier so that unauthorized, fraudulent attempts to transfer funds will be recognized by the electronic system as such. For example, machine-readable badges or cards or pattern recognition devices like signature, voice or fingerprint readers. Signature and voice recognition devices are too expensive to be used widely, and they have the limitation that both signatures and voices may change over time. Most EFT systems use card identifiers at the present time. System computers check lists of lost, stolen, or cancelled cards before approving transactions. However, the user of an unreported stolen card might succeed in making a fraudulent EFT transaction. Networks: EFT requires a computer network to link the person initiating the transfer, the account where funds are stored, and the recipient’s account. Network communications should be easy to initiate, transmission time should be minimal, and the cost of transmission should be low. Network security is essential since the bits of data that pass through the network can represent enormous sums of money. Electronic Processing Capability: Once a requested EFT transaction is relayed to a customer’s bank by telecommunications, the transaction is recorded and processed by computer without the use of paper media.

Benefits
Reduction of cost: One of the benefits of EFT is a reduction in the cost of making financial transactions. The cost of cheque stock, the cost of cheque writing, and the cost of cheque audits and controls are saved when organizations or individuals switch to EFT.

Home Banking: Home banking is an offshoot of EFT. A wide range of financial services is available to individuals with home computers and a telecommunications link with a bank. Home banking does more than save people trips to the banks; it is like having a financial counselor in the home. Banks benefit because they can broaden their customer base by offering home banking services. Home Shopping: With EFT, home shopping is feasible. The key to home shopping is that payment for selected purchases can be authorized from a home terminal.

Issues involved in EFT
Float: When payments are made by cheque, there is usually a twoday to seven-day period between the time the cheque is written and the time the cheque is cashed. The amount of money in transit but not yet collected is called float. Float is, in effect, an interest-free, short-term loan to the cheque writer. Instantaneous EFT payments eliminate float and the possibility of earning interest on these short-term loans. In fact, a company that pays bills by EFT but receives payment by conventional cheques stands to lose money. Security and Privacy: The reliance on new technology to provide services makes security and system availability the central operational risk of electronic banking. Security threats can come from inside or outside the system, so banking regulators and supervisors must ensure that banks have appropriate practices in place to guarantee the confidentiality of data, as well as the integrity of the system and the data. Lack of Public Confidence: The public is concerned about the reliability of EFT owing to experiences with computer errors and is therefore reluctant to eliminate the paper backup of cheques. Cost: Many banks offer free chequing account services for customers who maintain a given balance. There is, therefore, little

financial advantage to these customers in shifting to EFT since most banks charge for EFT services. Preference for cash: Many people like the feel of cash. A cashless, chequeless society might take away some of the joy of living, some of the satisfaction a worker feels when handed a weekly paycheque. Although EFT may prove to be the most efficient means of making financial transactions, it may not satisfy human needs.

Point-of-sale terminals
Point-of-sale terminals (POS terminals) are found in retail establishments to record sales transactions. This information is processed by computer to produce accounting and inventory control reports for the store’s management. Retailer swipes a customer's ATM card on the terminal and key in the payment amount. The cardholder then selects his bank account and keys in the PIN. After connecting successfully to the bank, a receipt will be printed for customer and retailer. Each transaction directly transfers the payment form payer’s bank account to receiver’s account. The service provider also collects certain percentage of payment amount from the retailer. POS terminals can also be used for cheque and credit card authorizations.

Core Banking Solutions
Core banking is a centralized banking system which is concerned with the consolidation of accounts at a central point. Under this system all operations in different branches take place through the main server at the central point. It enables customers to access and source the information about their financial accounts, transactions etc through one web site. It is convenient to customers as they can access their accounts from any branch. Almost all the new generation banks like ICICI, HDFC etc provide core banking solutions to customers.

Automated Teller Machine (ATM)
An ATM is an unattended transaction terminal to handle customer deposits and withdrawals twenty-four hours a day. The first electronic ATM was installed in Enfield Town, North London on June 27, 1967 by Barclays Bank. Users must insert a special card into the ATM to initiate a transaction. This card has the user’s account number and credit limitation encoded in the magnetic stripe on its back. The user then verifies his identity by entering a pass code, often referred to as a PIN (Personal Identification Number) of four or more digits. Upon successful entry of the PIN, the user may perform a transaction. Instructions for carrying out various transactions are displayed on the ATM screen. After the transaction is complete, a transaction record is printed, usually consisting of the action taken, date and time, location, any applicable fees, and available balance. Some ATMs are self-contained units. Others are connected in a network so that every transaction is cleared with a central computer. This prevents users from overdrawing their credit limitations by making withdrawals at a number of ATMs within s short period of time.