Alternate channels of Banking

Alternate Channels are technology based

self service channels where data entry is
done by the customer himself and
processing is automated.

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 Core Banking Solutions (CBS)
• Core Banking is a Centralized branch computerization model where the
branches are connected to a Central host, which incorporates branch
automation modules and online multiple delivery channels like ATMs, Debit
Cards, Internet banking, Mobile banking etc. In CBS, there is a Central Data
base for the bank and transactions are done centrally online.
• Modern banking services are integrated with CBS and one single software
for all branches is operated on the bank’s intranet infrastructure using a
WAN. Connectivity in WAN is established through Leased Telephone lines or
Satellite links through a VSAT. A VSAT (Very Small Aperture Terminal) is a
satellite ground station with a small Dish Antenna of about 3.8 meters.
• Logically, any two computers connected through a telephone line need a
modem at each end that converts the digital signals into analogue signals
at the transmitting end and then reconverts the analogue signals into
digital signals at the receiving end.

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 Alternate Channels of Banking
• 1. ATMs
• 2. Phone Banking
• 3. Internet Banking
• 4. Mobile Banking
• 5. POS (Point of Sale ) Terminals
• High efficiency of transactions, any time- any where
banking, freedom from dependence on bank staff,
decongestion of bank branches and improved
profitability of banks as these channels are cheaper, are
the main advantages of alternate channels banking.

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 ATMs
• Automated Teller Machines function like a robotic teller (Cash dispensing
machines) round the clock, 24 hours in a day.
• ATMs started off as a cash dispensing system but have gradually been
updated to deliver more complex banking services like cash deposit, funds
transfer, bill payment, etc.
• ATMs of different banks are being networked together to enable
customers to collect cash from any bank in its vicinity.
• IDRBT has set up National Financial Switch to provide ATM Switch services
to banks in India through NPCI. IDRBT is the Institute for Development &
Research in Banking Technology established by RBI in 1996 and located at
Hyderabad.
• NPCI (National Payments Corporation of India) is an umbrella organization
for all retail payments in India. It was set up under the aegis of RBI and IBA.

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 ATM Operational Mechanism
• An ATM is a small computer with a cash
dispensing mechanism attached to it.
• The ATM is linked to a Central Computer called
Switch through leased phone lines or VSAT
which is, in turn connected to the CBS Network
of the Bank.
• The ATMs are also connected to a Host Security
Module or HSM which verifies the card numbers
and PINs and generates PINs for new accounts.
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 ATM Operational Mechanism (contd)

• Operational data travels,

• from ATM > Switch > HSM > Switch
(confirmation of PIN number )
• Then Switch > CBS (to debit the customer’s
account) > Switch (that customer’s account
has been debited)
• Switch > ATM ( to dispense cash)

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 ATM Operational Mechanism (contd)
• To be functional, ATMs need to be stacked with cash
throughout. Cash Replenishment process of ATMs is
being outsourced by all banks.
• Technical malfunction is the biggest hurdle in smooth
functioning of ATM service. Maintenance agencies are
providing round the clock maintenance service of ATMs.
• The status of ATMs is monitored by all banks round the
clock at a central location called Help Desk. Whenever
an ATM is down the Help Desk gets into action to
resolve it.

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 National Financial Switch (NFS)
• NFS is a national infrastructure with pan India presence
and provides switching service with connectivity across
ATMs.
• The NFS enables customers of all connected banks to
perform their transactions using ATMs (under the NFS
network) without reference to the Card issuing banks.
• As a measure of customer service, RBI has mandated that
customers should be permitted to use any ATM set up by
any bank and they should not be charged for the first 5
transactions. However, the Card issuing bank has to pay a
fee of Rs 20 per withdrawal to the ATM owner bank.

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Other services dispensed by ATMs
• Cash Deposit Machines (CDMs).. These are sophisticated ATMs
that have sensors and can recognize the characters of currency
notes, count them and credit the customers account immediately.
• Cheque Deposit.. Many ATMs have Cheque collection devises
attached. Many banks have E Corners where all these automated
services are available.
• Mini Statements can be requested for on ATMs.
• Cheque Book requests can be placed on ATMs.
• Fund Transfer requests can be made on ATMs among linked
accounts.
• Payment of Utility bills and Mobile recharge etc are also possible
through ATMs

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 Viability of ATMs
• Banks have calculated that in a metro city, the
average cost of an ATM transaction works out
to Rs 11 to Rs 15 per transaction and an ATM
is viable if it handles over 300 transactions
per day.
• There are ATMs that handle 700-800
transactions per day. Hence these are
considered highly profitable.

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 Phone Banking
• Select banking services can be provided through phone
banking, like
• Check your account balance
• Enquire on a cheque status
• Order a cheque book
• Give Stop Payment instructions
• Report loss of ATM/Debit Card
• Loan related queries etc.
• Learn about Bank’s products
• Phone Banking is secured by T PIN .
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 Internet Banking
• Internet Banking leverages the power of the internet to help
customers access their bank accounts. The transactions possible on
INB are the following;
• Viewing the account
• Fund transfer
• Request for services
• Pay utility bills
• Create Term deposits
• Request for debit card/PIN thereof
• Manage Demat account.
• Online shopping payments
• Payments for booking Air/Rail tickets.

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 Internet Banking Technology
• The Internet banking system of the Bank interfaces with the
Core Banking Solutions (CBS) system of the Bank to make
transactions possible.
• The customers are not allowed to access the CBS system of the
bank directly. Hence they have to access it through the Internet
Banking System.
• The Net Banking system is protected through Firewalls to
prevent unauthorized access, hacking or virus or malware
attack.
• Advanced Encryption technology is used to ensure that
messages from/to customers are not intercepted or misused.

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 Internet Banking security
• Customer access is controlled through
Customer ID and Password.
• Customers are advised not to reveal their
passwords and not to access their accounts
through insecure locations like cyber cafes etc.
• Phishing means making the customers reveal
their Net Banking ID and Password by tricking
them with unauthorized e mails. Banks guard
their customers against such attempts.
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 POS Terminals
• Point of Sale (POS) Terminals are the devices on which shopkeepers swipe
debit/credit cards for completing a payment transaction.

• These electronic devices are provided with magnetic reading Heads that read
the information encoded in the magnetic stripe behind the card and transmit it
to the switch of the acquiring bank (ie Bank which has installed the POS
machine).
• The procedure is as follows;
• Merchant swipes the card and enters the amount
• The POS dials the switch of the acquiring bank and transmits the details
• The Switch transmits the data to VISA or Mastercard.
• The VISA or Mastercard system will route the transaction to the Switch of the
issuing bank, which in turn will route it to its CBS and carry out the transaction.

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 POS Terminals contd
• The CBS of the issuing bank will approve or reject the
transaction depending upon balance in the customer’s account.
• This data will be transferred to the VISA or Mastercard system
who will in turn send it to the Merchant Terminal through the
Switch system of the Acquiring (installing) bank.
• The amount of transaction will be paid to the merchant by the
Acquiring bank.
• POS is only a Reading and Transmitting device.
• EMV Chip based Cards use Cryptographic Encryption Methods
which are more secure as they don’t share the data with the
ATM Machine unlike Magstripe based cards.

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 Functioning of POS Machines
• POS machine> Switch of the Acquiring bank
(ie Bank which has installed the POS
Machine) > Visa/Mastercard system> Switch
of the Card Issuing Bank> CBS of the Card
issuing Bank> Approval message will go to
VISA/Mastercard> Switch of the
Acquiring/installing Bank> Payment to be
made to the Acquiring Bank

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 Micro ATMs
• POS Machines used for cash dispensation are called Micro
ATMs
• Initially RBI had permitted only payment of goods
purchased to be done through Debit Cards at POS
machines at merchant locations.
• Later RBI permitted cash payments upto Rs 2000 to be
made by merchants by swiping debit cards of customers.
• Since merchants giving cash against debit cards is a service
provided by the merchant on behalf of the Bank, they get
a commission for each such payment. This way the
merchants can also offload their cash.
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 Mobile Banking
• Mobile phones being messaging devices can be used
to do all that internet banking can do.
• Technology to encrypt mobile phone messages was
not available till 2007. Hence there was the fear that
messages sent through mobile phones may be
intercepted and security information leaked.
• Now banks use SMS (Short Message Service), GPRS
(General Packet Radio Service) & USSD (Unstructured
Supplementary Service Data) platforms to offer mobile
banking services.
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 Mobile Banking (contd)
• The messages for Balance Enquiry, Fund Transfer etc.
sent by the customer are encrypted by the Mobile
Banking application installed in the smartphone and
transmitted to the Bank’s system through the mobile
service provider (Idea, Airtel etc)
• The Bank’s mobile banking system decrypts the
message and transmits it to the CBS.
• On completion of the transaction, the return
message is encrypted and sent to the mobile phone.

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 IMPS
• Immediate Mobile Payment Service was introduced by
NPCI (National Payments Corporation of India Ltd) in
November 2010 to facilitate immediate funds transfer
through mobile phones on 24x7 basis.
• The IMPS is a Switch that connects the messages received
from the remitter’s mobile to the mobile service provider
(say Airtel) to the remitter’s bank for debiting his account
and from there to the beneficiary’s bank to credit the
beneficiary’s account and thereafter to the beneficiary’s
telecom service provider (say Idea) to inform the
beneficiary about the credit received.

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