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Chapter 3.

Banking Technology in India The term banking technology refers to the use of sophisticated information and communication technologies together with computer science to enable banks to offer better services to its customers in a secure, reliable, and affordable manner, and sustains competitive advantage over other banks. In the five decades since independence, banking in India has evolved through four distinct phases. During Fourth phase, also called as Reform Phase, Recommendations of the Narasimham Committee (1991) paved the way for the reform phase in the banking. Important initiatives with regard to the reform of the banking system were taken in this phase. Important among these have been introduction of new accounting and prudential norms relating to income recognition, provisioning and capital adequacy, deregulation of interest rates & easing of norms for entry in the field of banking. Entry of new banks resulted in a paradigm shift in the ways of banking in India. The growing competition, growing expectations led to increased awareness amongst banks on the role and importance of technology in banking. The arrival of foreign and private banks with their superior state-of-the-art technology-based services pushed Indian Banks also to follow suit by going in for the latest technologies so as to meet the threat of competition and retain their customer base. Indian banking industry, today is in the midst of an IT revolution. A combination of regulatory and competitive reasons has led to increasing importance of total banking automation in the Indian Banking Industry. 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, implementation of reliable techniques for control of risks and helps the financial intermediaries to reach geographically distant and diversified markets. In view of this, technology has changed the contours of three major functions performed by banks, i.e., access to liquidity, transformation of assets and monitoring of risks. Further, Information technology and the communication networking systems have a crucial bearing on the efficiency of money, capital and foreign exchange markets. Evolution of Technology in Banking Despite the enormous changes the banking industry has undergone through during the past 20years let alone since 1943 one factor has remained the same: the fundamental nature of the need customers have for banking services. However, the framework and paradigm within which these services are delivered has changed out of recognition. It is clear that peoples needs have not changed, and neither has the basic nature of banking services people require. But the way banks meet those needs is completely different today. They are simply striving to provide a service at a profit. Banking had to adjust to the changing needs of societies, where people not only regard a bank account as a right rather than a privilege, but also are aware that their business is valuable to the bank, and if the bank does not look after them, they can take their business elsewhere. Technology in banking ceased being simply a convenient tool for automating processes. Today banks use technology as a revolutionary means of delivering services to customers by designing new delivery channels and payment systems. For example, in the case of ATMs, people realized that it was a wrong approach to provide the service as an additional convenience for privileged and wealthy customers. 12

It should be offered to the people who find it difficult to visit the bank branch. Further, the cost of delivering the services through these channels is also less. Banks then went on to create collaborative ATM networks to cut the capital costs of establishing ATM networks, to offer services to customers at convenient locations under a unified banner. People interact with banks to obtain access to money and payment systems they need. Banks, in fact, offer only what might be termed as a secondary level of utility to customers, meaning that customers use the money access that banks provide as a means of buying the things they really want from retailers who offer them a primary level of utility. Customers, therefore, naturally want to get the interaction with their bank over as quickly as possible and then get on with doing something they really want to do or with buying something they really want to buy. That explains why new types of delivery channels that allow rapid, convenient, accurate delivery of banking services to customers are so popular. Nowadays, customers enjoy the fact that their banking chores are done quickly and easily. This does not mean that the brick-and-mortar bank branches will completely disappear. Just as increasing proliferation of mobile phones does not mean that landline telephone kiosks will disappear, so also the popularity of high-tech delivery channels does not mean that physical branches will disappear altogether. It has been found that corporate and older persons prefer to conduct their business through bank branches.

Chapter 3.2 Reasons for Changes in Banking Technologies

Banking has become a very important part of any persons financial life. It is very important that most number of individuals have at least a saving account in a bank as it creates a sense of saving in peoples lives. It also provides a census to the nation about the economic strength of its population. It makes people aware of their financial position and helps them to understand how to improve it. Banking sector in India today : Currently, around 40% of the Indian population is connected to the banking system which is around 44 crore clients and is rising steadily. According To World Bank Estimates India could emerge as the third largest domestic banking market in the world by 2040and could ultimately grow faster than China. In the most recent update according to Dun & Bradstreet (D&B) Leading provider of international and Indian business information mentioned that the RBI has issued a directive to public sector banks to ensure that all villages with a population of above 2,000 are brought under the formal banking net by 2012, and this will bring in an additional 145 million customers into the banking network As mentioned above the growth of Indian banking sector and growing competition among many banks made it inevitable to bring about better and cheap services to customers. This paved the way to new technological changes to make such services financially reasonable for banking organizations. The growing I.T (Information Technology) sector helped these banks to make such new services possible. In Indian banking sector enormous and far-reaching developments have taken place along with the blurring of demarcations between different types of banking and financial industry activities as a result of the following: 13

1. Governments have implemented philosophies and policies based on an increase in competition in order to maximize efficiency. This has resulted in the creation of large new financial institutions that operate simultaneously in several financial sectors such as retail, wholesale, insurance, and asset management. 2. New technology creates an infrastructure allowing a player to carry out a wide range of banking and financial services, again simultaneously. 3. Banks had to respond to the increased prosperity of their customers and to customers desire to get the best deal possible. This has encouraged banks to extend their activities into other areas. 4. Banks had to develop products and extend their services to accommodate the fact that their customers are now far more mobile. 5. Banks have every motivation to move into new sectors of activity in order to try to deal with the problem that, if they only offer banking services, they are condemned forever to provide only a secondary level of utility to customers.

Chapter 3.3 Benefits of Modern Banking Technologies

1. Competition - Studies show that competitive pressure is the chief driving force behind increasing use of Internet banking technology, ranking ahead of cost reduction and revenue enhancement, in second and third place respectively. Banks see Internet banking as a way to keep existing customers and attract new ones to the bank. 2. Cost Efficiencies - National banks can deliver banking services on the Internet at transaction costs far lower than traditional brick-and-mortar branches. The actual costs to execute a transaction will vary depending on the delivery channel used. For example, according to Booz, Allen & Hamilton, as of mid- 1999, the cost to deliver manual transactions at a branch was typically more than a dollar, ATM and call center transactions cost about 25 cents, and Internet transactions cost about a penny. These costs are expected to continue to decline. National banks have significant reasons to develop the technologies that will help them deliver banking products and services by the most cost-effective channels. Many bankers believe that shifting only a small portion of the estimated 19-billion payments mailed annually in the U.S. to electronic delivery channels could save banks and other businesses substantial sums of money. However, national banks should use care in making product decisions. Management should include in their decision making the development and ongoing costs associated with a new product or service, including the technology, marketing, maintenance, and customer support functions. This will help management exercise due diligence, make more informed decisions, and measure the success of their business venture. 3. Geographical Reach - Internet banking allows expanded customer contact through increased geographical reach and lower cost delivery channels. In fact some banks are doing business exclusively via the Internet they do not have traditional banking offices and only reach their customers online. Other financial institutions are using the Internet as an alternative delivery channel to reach existing customers and attract new customers. 14

4. Branding - Relationship building is a strategic priority for many national banks. Internet banking technology and products can provide a means for national banks to develop and maintain an ongoing relationship with their customers by offering easy access to a broad array of products and services. Internet Banking 4 Comptrollers Handbook By capitalizing on brand identification and by providing a broad array of financial services, banks hope to build customer loyalty, cross-sell, and enhance repeat business. 5. Customer Demographics - Internet banking allows national banks to offer a wide array of options to their banking customers. Some customers will rely on traditional branches to conduct their banking business. For many, this is the most comfortable way for them to transact their banking business. Those customers place a premium on person-to-person contact. Other customers are early adopters of new technologies that arrive in the marketplace. These customers were the first to obtain PCs and the first to employ them in conducting their banking business. The demographics of banking customers will continue to change. The challenge to national banks is to understand their customer base and find the right mix of delivery channels to deliver products and services profitably to their various market segments.

Chapter 3.4 Most Revolutionary Banking Technologies

Debit Cards A debit card (also known as a bank card or check card) is a plastic card that provides an alternative payment method to cash when making purchases. Functionally, it can be called an electronic check, as the funds are withdrawn directly from either the bank account, or from the remaining balance on the card. In some cases, the cards are designed exclusively for use on the Internet, and so there is no physical card. In many countries the use of debit cards has become so widespread that their volume of use has overtaken or entirely replaced the check and, in some instances, cash transactions. Like credit cards, debit cards are used widely for telephone and Internet purchases and, unlike credit cards, the funds are transferred immediately from the bearer's bank account instead of having the bearer pay back the money at a later date. Debit cards may also allow for instant withdrawal of cash, acting as the ATM card for withdrawing cash and as a check guarantee card. Merchants may also offer cashback facilities to customers, where a customer can withdraw cash along with their purchase. Advantages 1. A consumer who is not credit worthy and may find it difficult or impossible to obtain a credit card can more easily obtain a debit card, allowing him/her to make plastic transactions.


2. For most transactions, a check card can be used to avoid check writing altogether. Check cards debit funds from the user's account on the spot, thereby finalizing the transaction at the time of purchase, and bypassing the requirement to pay a credit card bill at a later date, or to write an insecure check containing the account holder's personal information. 3. Like credit cards, debit cards are accepted by merchants with less identification and scrutiny than personal checks, thereby making transactions quicker and less intrusive. Unlike personal checks, merchants generally do not believe that a payment via a debit card may be later dishonored. 4. Unlike a credit card, which charges higher fees and interest rates when a cash advance is obtained, a debit card may be used to obtain cash from an ATM or a PIN-based transaction at no extra charge, other than a foreign ATM fee.

ATM (Automated Teller Machines) An Automated Teller Machine (ATM), also known as automated banking machine (ABM) or Cash Machine and by several other names (see below), is a computerized telecommunications device that provides the clients of a financial with access to financial transactions in a public space without the need for a cashier, human clerk or bank teller. On most modern ATMs, the customer is identified by inserting a plastic ATM card with a magnetic stripe or a plastic smart card with a chip, that contains a unique card number and some security information. Authentication is provided by the customer entering a personal identification number (PIN). Using an ATM, customers can access their bank accounts in order to make cash withdrawals, credit card cash advances, and check their account balances as well as purchase prepaid cell phone credit. ATMs started as a substitute to a bank to allow its customers to withdraw cash at anytime and to provide services where it would not be viable to open another physical branch. The ATM is the most visited delivery channel in retail banking, with more than 40 billion transactions annually worldwide. In fact, the delivery channel revolution is said to have begun with the ATM. It was indeed a pleasant change for customers to be in charge of their transaction, as no longer would they need to depend on an indifferent bank employee. ATMs have made banks realize that they could divert the huge branch traffic to the ATM. The benefits hence were mutual. Once banks realized the convenience of ATMs, new services started to be added. History of ATMs in India The first Automated Teller Machine (ATM) was introduced in the year 1967 by Barclays Bank in Enfield Town in North London. At that time a few would have anticipated excess in ATMs. Then for many years after, the aim was to shift people off the teller lines thus lowering a banks distribution costs and increase efficiency. But in the 1980s, it was noticed that people continued to visit branches, though not as frequently, so that with the added costs of ATMs, overall distribution costs were actually rising. Then, in the mid-1990s, came surcharges, which fuelled the proliferation of off-premises ATMs, which led in turn to the current overcapacity. There was a slowdown in ATM transactions, partially because of the consumers reaction to the imposition of surcharges.

16 Also by the advent of surcharging there was a massive growth in the number of ATMs as it offered ATM owners revenues making it economical to install ATMs where they might not have been placed otherwise. More people are now moving towards using the automated teller machines (ATM) for their banking needs. According to a survey by Banknet India, 95% people now prefer this modern channel to traditional mode of banking. Almost 60% people use an ATM at least once a week. Increased ATM usage is also helped by the fact that customers have now the flexibility of using ATMs of other banks, as most of the banks are part of major interbank networks like National Financial Switch (NFS), Mitr, BANCS, Cashtree and Cashnet. The interbank networks have brought together ATMs of several banks so that consumers would gain access to any of the participating banks ATMs. Banks find it cheaper to pay membership fees to these networks as against setting up additional units in expensive-to-deploy areas. ATMs are now seen to be more than mere cash dispensing machines. Customers use ATMs to recharge their mobile phone pre-paid connections, pay their utility bills, even mutual fund transactions making them at par with flexibility given in internet banking only more secure. Of the value-added services provided at ATMs, bill-payment is the most used service, followed by prepaid mobile talk-time recharges. However, still about one third of the respondents do not use any value added services at ATMs. The ATM market in India is not yet saturated. Though the concentration of ATMs is greater in metros, the demand is increasing for other cities and even rural areas. ATM's per million people approximately is 33 units are very low. Experts forecast that the growth rate (CAGR) is expected to grow 18 percent up by 2013. Banks going into a self service model can have huge saving potential for banks and may also increase the convenience for the customers.

17 Telephone Banking Telephone banking is a service provided by a financial institution, which allows its customers to perform transactions over the telephone. Most telephone banking services use an automated phone answering system with phone keypad response or voice recognition capability. To guarantee security, the customer must first authenticate through a numeric or verbal password or through security questions asked by a live representative. With the obvious exception of cash withdrawals and deposits, it offers virtually all the features of an automated teller machine: account balance information and list of latest transactions, electronic bill payments, funds transfers between a customer's accounts, etc. Usually, customers can also speak to a live representative located in a call centre or a branch, although this feature is not always guaranteed to be offered 24/7. In addition to the self-service transactions listed earlier, telephone banking representatives are usually trained to do what was traditionally available only at the branch: loan applications, investment purchases and redemptions, chequebook orders, debit card replacements, change of address, etc. Banks which operate mostly or exclusively by telephone are known as phone banks. They also help modernize the user by using special technology. This makes it possible for a customer of the bank to know account related information over a telephone. TeleBanker is a state-of-the-art interactive voice response system (IVRS) that facilitates 24hours-a-day, 365-days-a-year banking from a plain Telephone instrument! Unique Features of Tele Banking : Data input by voice/keypad Encryption of input/output data output by voice/fax/e-mail Customer authentication by password/PIN Services Available Balance enquiry Issue cheque book/DD Enquiry on last few transactions Fund transfer Inward/outward cheque status Telephone/electricity/credit card bill payment.

Chapter 3.5 Internet Banking

Internet banking (or online banking) allows customers to conduct financial transactions on a secure website operated by their retail or virtual bank, credit union or building society. History of Internet Banking The precursor for the modern home online banking services were the distance banking services over electronic media from the early 1980s. The term online became popular in the late '80s and referred to the use of a terminal, keyboard and TV (or monitor) to access the banking system using a phone line. Home banking can also refer to the use of a numeric keypad to send tones down a phone line with instructions to the bank. Online services started in New York in 1981 when four of the citys major banks (Citibank, Chase Manhattan, Chemical and Manufacturers Hanover) offered home banking services[1] using the videotex system. Because of the commercial failure of videotex these banking services never became popular except in France where the use of videotex (Minitel) was subsidized by the telecom provider and the UK, where the Prestel system was used.

18 The UK's first home online banking services were set up by Bank of Scotland for customers of the Nottingham Building Society (NBS) in 1983. The system used was based on the UK's Prestel system and used a computer, such as the BBC Micro, or keyboard (Tandata Td1400) connected to the telephone system and television set. The system (known as 'Home link') allowed on-line viewing of statements, bank transfers and bill payments. In order to make bank transfers and bill payments, a written instruction giving details of the intended recipient had to be sent to the NBS who set the details up on the Home link system. Typical recipients were gas, electricity and telephone companies and accounts with other banks. Details of payments to be made were input into the NBS system by the account holder via Prestel. A cheque was then sent by NBS to the payee and an advice giving details of the payment was sent to the account holder. BACS was later used to transfer the payment directly. Stanford Federal Credit Union was the first financial institution to offer online internet banking services to all of its members in October 1994. Today, many banks are internet only banks. Unlike their predecessors, these internet only banks do not maintain brick and mortar bank branches. Instead, they typically differentiate themselves by offering better interest rates and online banking features. Features of Internet Banking a. Funds transfer between a customer's own checking andsavings accounts, or to another customer's account b. Investment purchase or sale c. Loan applications and transactions, such as repayments of enrollments d. Non-transactional (e.g., online statements, check links, cobrowsing, chat) e. Bank statements f. Financial Institution Administration g. Support of multiple users having varying levels of authority h. Transaction approval process i. Wire transfer Security of Internet Banking Protection through single password authentication, as is the case in most secure Internet shopping sites, is not considered secure enough for personal online banking applications in some countries. Basically there exist two different security methods for online banking. The PIN/TAN system where the PIN represents a password, used for the login and TANs representing one-time passwords to authenticate transactions. TANs can be distributed in different ways, the most popular one is to send a list of TANs to the online banking user by postal letter. The most secure way of using TANs is to generate them by need using a security token. These token generated TANs depend on the time and a unique secret, stored in the security token (this is called two-factor authentication or 2FA). Usually online banking with PIN/TAN is done via a web browser using SSL secured connections, so that there is no additional encryption needed.

19 Another way to provide TANs to an online banking user is to send the TAN of the current bank transaction to the user's (GSM) mobile phone via SMS. The SMS text usually quotes the transaction amount and details; the TAN is only valid for a short period of time. Especially in Germany and Austria, many banks have adapted this "SMS TAN" service as it is considered as very secure. Signature based online banking where all transactions are signed and encrypted digitally. The Keys for the signature generation and encryption can be stored on smartcards or any memory medium, depending on the concrete implementation.

Online Banking in India The banking industry in India is facing unprecedented competition from non-traditional banking institutions, which now offer banking and financial services over 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: Throughout 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 than company information and basic marketing materials. Only 8% offer 'advanced transactions' such as online funds transfer, transactions & cash management services. Foreign & Private banks are much advanced in terms of the number of sites & their level of development. Steps To Apply For Internet Banking Step 1 You have to first acquire an online banking form from your bank. You can either get it from your bank branch or download the form online from the bank website Step 2 Fill in the necessary details in the form Step 3 Once you have deposited your form it will be verified by the bank officers and checked whether the information is correct eg the email address , customer account , phone number, etc match from the banks records.

20 Step 4 You will First Receive your USER ID via email or post as you have chosen in your form in 7 days of deposit of form Step 5 You will Receive your Password in the next 7 days of receipt of your User ID (This Procedure is important as such confidential data could be misused if your user i.d and passwords are sent together and if it falls in the wrong hands in case of transit ) Step 6 You should go to the banks website and change your Password immediately after you receive your default password as a precaution. Step 7 Once all Security firewalls are verified your account is now ready to make monetary transactions online. Benefits of online banking 1. Comfort : One of the advantages of internet banking is that you can do transactions from the comfort of your home or office. These transactions include transferring funds from your savings accounts to your checking accounts and vice versa, making credit card payments and paying bills. You can also transfer funds from your account at one bank to another bank account either yours or someone else's as long as you have the account numbers. In-house banking done online is usually free of charge. Transfer of funds to another bank may cost you a very minimum amount. 2. Cost Saving : You can do the above mentioned transactions through the ATMs but it is faster and cheaper if you do it through the internet. You save gas because you don't have to drive to the bank and save time on commuting and waiting for your turn to make the transactions. It's not significant for some people, but you do save on postage if you make check payments and mail them. It's less stressful because you don't have to take time off from work or get caught up in the traffic crawl to do all the banking and bill payments. 3. 24/7 : You can make your transactions any time during the day or night and anywhere around the globe as long as there is an internet connection and you remember your username and password. You can pay your bills individually anytime or give instructions to make an auto debit from any of your accounts. You can view your transactions and bank statements and print them if you want to. This is especially convenient if you do online shopping. 4. Comparison Of Financial Products : Another one of the advantages of internet banking is that you can also apply for loans and to redeem your rewards points by printing the application forms, fill them and fax the forms to the bank. And the other advantages of internet banking when it comes to applying for loans is that you can go the websites of several banks and make comparisons. You can view all the other services the banks provide and see their promotions.

21 5. Security : Online banking security is major concern for many people. The banks have enforced several measures to ensure that your banking transactions online are secure. You should click on the privacy policy and security arrangement and read the security measures that they enforce to avoid system abuse. Among them are secure sockets layer or SSL channel, 128-bit encryption, username and password protection and authentication, firewalls and account locking. If you need more information you click the FAQ. Most of the common questions are answered on this page and you can contact the bank via the form on the website if you need more assistance. The banks have done their part to ensure that their services are secure. It is your responsibility to avoid your account from being phished. One important thing to remember is that banks don't send you email to ask for your personal details, username or password. They may send you email to inform you that your e-statement is ready and you can view it online without any link to the website. Or some banks may send you email to let you know of their latest promotions but that's about it. 6. Updates of Changes : You will normally be notified about any changes on the banking services, interruptions and updates via your message box when you log into your account. To ensure your internet banking security, never give your username and password to anybody. And don't leave them where other people can have access. When you want to log into your account, don't follow any links. Go to your browser and key in the website address. Most secure banks have "https" with the "s" in their URLs. Disadvantages of Internet Banking 1. Internet banking services provide a number of benefits to consumers. But while it has its advantages, customers wishing to join the trend need to know its disadvantages as well. Despite the growing popularity of internet banking, it cannot be denied that some people still remain hesitant doing transactions online especially where money is concerned. Amidst the aggressive marketing made by the numerous financial institutions that have gone online, some sectors of society are still doubtful about this type of banking notably on the aspect of security. 2. Impersonal : Doing transactions on the internet can be very impersonal. In other words, you only do business with the use of a computer. No individual to receive and check your money or correct some wrong information that you might have written on a certain form. And so for people comfortable dealing with real people who provide personalized services and using paper and money, internet banking is not ideal. 3. Lack of trust : Let's face it, many people still don't trust the internet. For the new users who have performed financial transactions for only a few times, they may still have this doubt whether or not they did the right thing such as clicked the right button and so on. They can only be comfortable once they print the transaction receipt and the transaction appeared on the bank statement.

22 4. Difficult for first timers : For a first time user, navigating through a website of an internet bank may be hard and may take some time. Opening an account could also take time as some sites ask for numerous personal details including a photo identification which can inconvenience the potential customer. Because of this complexity, they may be discouraged to use this internet banking service. Tutorials and live customer support may be provided, though, to help the client in his or her needed tasks so it's best to take the time to know the virtual environment. 5. Security fraud : Many people shy away from internet banking because of the security threat. They can't help but worry about this aspect what with news on fraudulent bank transactions that pop up every now and then. However, this should not be a problem as banks that provide internet banking services prioritize security above anything else. Since they value their customers, they always use the most advanced security technology in protecting their websites. In addition, the Federal Deposit Insurance Corporation (FDIC) is also standing behind them. 6. Upgrades : Most banks upgrade their online programs on a periodic basis sometimes adding new features and products. When this happens, the bank may ask customers to re-enter account information which can be a cause of worry.

Chapter 3.6 Mobile Banking

Mobile banking (also known as M-Banking, mbanking, SMS Banking etc.) is a term used for performing balance checks, account transactions, payments, credit applications etc. via a mobile device such as a mobile phone or Personal Digital Assistant (PDA). The earliest mobile banking services were offered via SMS. With the introduction of the first primitive smart phones with WAP support enabling the use of the mobile web in 1999, the first European banks started to offer mobile banking on this platform to their customers. Mobile banking has until recently (2010) most often been performed via SMS or the Mobile Web. Apples initial success with iPhone and the rapid growth of phones based on Google's Android (operating system) has led to increasing use of special client programs, called apps, downloaded to the mobile device. The advent of the Internet has enabled new ways to conduct banking business, resulting in the creation of new institutions, such as online banks, online brokers and wealth managers. Such institutions still account for a tiny percentage of the industry. Over the last few years, the mobile and wireless market has been one of the fastest growing markets in the world and it is still growing at a rapid pace. According to the GSM Association and Ovum, the number of mobile subscribers exceeded 2 billion in September 2005, and now exceeds 2.5 billion (of which more than 2 billion are GSM). With mobile technology, banks can offer services to their customers such as doing funds transfer while travelling, receiving online updates of stock price or even performing stock trading while being stuck in traffic. Smartphones and 3G connectivity provide some capabilities that older text message-only phones do not.

23 According to a study by financial consultancy Celent, 35% of online banking households will be using mobile banking by 2010, up from less than 1% today. Upwards of 70% of bank center call volume is projected to come from mobile phones. Mobile banking will eventually allow users to make payments at the physical point of sale. "Mobile contactless payments will make up 10% of the contactless market by 2010.[3] Another study from 2010 by Berg Insight forecasts that the number of mobile banking users in the US will grow from 12 million in 2009 to 86 million in 2015. The same study also predicts that the European market will grow from 7 million mobile banking users in 2009 to 115 million users in 2015. Many believe that mobile users have just started to fully utilize the data capabilities in their mobile phones. In Asian countries like India, China, Bangladesh, Indonesia and Philippines, where mobile infrastructure is comparatively better than the fixed-line infrastructure, and in European countries, where mobile phone penetration is very high (at least 80% of consumers use a mobile phone), mobile banking is likely to appeal even more. Mobile banking in India Checking account balances is the most popular banking service used by urban Indians with almost 40 million users followed by checking last three transactions, 28 million and status of cheques with 21 million users. Mobile banking is popular among the Rs.1 to 5 lakhs per year income group with almost 60% of mobile banking users falling in the income bracket, an indicator of adoption of this service by younger generation.

Usage Used mobile banking Checking account balance View last three transactions Status of cheques Payment reminders Request a cheque book

Unique Users (In millions) 43.70 39.97 28.15 21.06 20.92 19.11

24 Steps in Applying for Mobile Banking Requirements for SMSBanking. Mobile phone which supports SMS (GSM or CDMA) Registration of Mobile numbers with our Branches by submitting an application to the Branch.

Registration Procedure : Collect SMS Banking application from your home branch, fill in and submit the same to them. After that, register for SMS Enquiry through same Mobile Phone by sending SMS Registration message as given below. Customer ID can be obtained from the Branch for the purpose of using SMS Enquiry facility. Details of Mobile numbers (With country code) from which SMS enquiry facility is accessed should be invariably mentioned very clearly in the application

Features of Mobile Banking Following facilities are available under SMS Enquiry.

Registration for SMS Banking Balance Enquiry in CASA Change of primary account Term Deposit details enquiry Issued Cheque status Cheque stop request View of last 5 transactions De-register for SMS Banking

Mobile Banking Services - Insights Based on data gathered in April 2009 for Feb/March mobile banking urban Indian customers checking account balance is the most frequently cited reason for using mobile banking. 40 million Urban Indians used their mobile phones to check their bank account balances followed by viewing last three transactions. ICICI bank continues to maintain its leadership extending in mobile space, 42% of all mobile banking users bank with ICICI, followed by HDFC (25.3%). Mobile banking report: Most popular services and income profile (Two month ended March 2009, Urban Indian Mobile Phone Users).

26 Insights :

Advantages of Mobile Banking

1. Mobile banking has an edge over internet banking. In case of online banking, you must have an internet connection and a computer. This is a problem in developing countries. However, with mobile banking, connectivity is not a problem. You can find mobile connectivity in the remotest of places also where having an internet connection is a problem. 2. You can make transactions or pay bills anytime. It saves a lot of time. 3. Mobile banking thorough cell phone is user friendly. The interface is also very simple. You just need to follow the instructions to make the transaction. It also saves the record of any transactions made. 4. Cell phone banking is cost effective. Various banks provide this facility at a lower cost as compared to banking by self. 5. Banking through mobile reduces the risk of fraud. You will get an SMS whenever there is an activity in your account. This includes deposits, cash withdrawals, funds transfer etc. You will get a notice as soon as any amount is deducted or deposited in your account. 6. Banking through cell phone benefits the banks too. It cuts down on the cost of tele-banking and is more economical. 7. Mobile banking through cell phone is very advantageous to the banks as it serves as a guide in order to help the banks improve their customer care services. 8. Banks can be in touch with their clients with mobile banking. 9. Banks can also promote and sell their products and services like credit cards, loans etc. to a specific group of customers.

27 10. Various banking services like Account Balance Enquiry, Credit/Debit Alerts, Bill Payment Alerts, Transaction History, Fund Transfer Facilities, and Minimum Balance Alerts etc. can be accessed from your mobile. 11. You can transfer money instantly to another account in the same bank using mobile banking. Disadvantages of Mobile Banking 1. Compatibility - There are a large number of different mobile phone devices and it is a big challenge for banks to offer mobile banking solution on any type of device. Some of these devices support Java ME and others support SIM Application Toolkit, a WAP browser, or only SMS. Initial interoperability issues however have been localized, with countries like India using portals like R-World to enable the limitations of low end java based phones, while focus on areas such as South Africa have defaulted to the USSD as a basis of communication achievable with any phone. The desire for interoperability is largely dependent on the banks themselves, where installed applications (Java based or native) provide better security, are easier to use and allow development of more complex capabilities similar to those of internet banking while SMS can provide the basics but becomes difficult to operate with more complex transactions. There is a myth that there is a challenge of interoperability between mobile banking applications due to perceived lack of common technology standards for mobile banking. In practice it is too early in the service lifecycle for interoperability to be addressed within an individual country, as very few countries have more than one mobile banking service provider. In practice, banking interfaces are well defined and money movements between banks follow the IS0-8583 standard. As mobile banking matures, money movements between service providers will naturally adopt the same standards as in the banking world. On January 2009, Mobile Marketing Association (MMA) Banking Sub-Committee, chaired by CellTrust and VeriSign Inc., published the Mobile Banking Overview for financial institutions in which it discussed the advantages and disadvantages of Mobile Channel Platforms such as Short Message Services (SMS), Mobile Web, Mobile Client Applications, SMS with Mobile Web and Secure SMS. 2. Security : Security of financial transactions, being executed from some remote location and transmission of financial information over the air, are the most complicated challenges that need to be addressed jointly by mobile application developers, wireless network service providers and the banks' IT departments.

The following aspects need to be addressed to offer a secure infrastructure for financial transaction over wireless network : 28 1. Physical part of the hand-held device. If the bank is offering smart-card based security, the physical security of the device is more important. 2. Security of any thick-client application running on the device. In case the device is stolen, the hacker should require at least an ID/Password to access the application. 3. Authentication of the device with service provider before initiating a transaction. This would ensure that unauthorized devices are not connected to perform financial transactions. 4. 5. User ID / Password authentication of banks customer. Encryption of the data being transmitted over the air.

6. Encryption of the data that will be stored in device for later / off-line analysis by the customer. One-time password (OTPs) are the latest tool used by financial and banking service providers in the fight against cyber fraud . Instead of relying on traditional memorized passwords, OTPs are requested by consumers each time they want to perform transactions using the online or mobile banking interface. When the request is received the password is sent to the consumers phone via SMS. The password is expired once it has been used or once its scheduled life-cycle has expired. Because of the concerns made explicit above, it is extremely important that SMS gateway providers can provide a decent quality of service for banks and financial institutions in regards to SMS services. Therefore, the provision of service level agreements (SLAs) is a requirement for this industry; it is necessary to give the bank customer delivery guarantees of all messages, as well as measurements on the speed of delivery, throughput, etc. SLAs give the service parameters in which a messaging solution is guaranteed to perform. 3. Scalability & Reliability : Another challenge for the CIOs and CTOs of the banks is to scaleup the mobile banking infrastructure to handle exponential growth of the customer base. With mobile banking, the customer may be sitting in any part of the world (true anytime, anywhere banking) and hence banks need to ensure that the systems are up and running in a true 24 x 7 fashion. As customers will find mobile banking more and more useful, their expectations from the solution will increase. Banks unable to meet the performance and reliability expectations may lose customer confidence. There are systems such as Mobile Transaction Platform which allow quick and secure mobile enabling of various banking services. Recently in India there has been a phenomenal growth in the use of Mobile Banking applications, with leading banks adopting Mobile Transaction Platform and the Central Bank publishing guidelines for mobile banking operations. 4. Application Distribution - Due to the nature of the connectivity between bank and its customers, it would be impractical to expect customers to regularly visit banks or connect to a web site for regular upgrade of their mobile banking application. It will be expected that the

mobile application itself check the upgrades and updates and download necessary patches (so called "Over The Air" updates). However, there could be many issues to implement this approach such as upgrade / synchronization of other dependent components. 29