Introduction to Banking Unit 5 Technology in Banking

By Parimol / Introduction to Banking

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Introduction to Banking Unit 5 Technology in Banking

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Introduction to Banking Unit 5 Technology in Banking Notes cover all the exercise questions in UGC Syllabus. Introduction to Banking Unit 5 Technology in Banking provided here ensures a smooth and easy understanding of all the concepts. Understand the concepts behind every Unit and score well in the board exams.

Technology in Banking

INTRODUCTION TO BANKING

(A) VERY SHORT TYPES QUESTION & ANSWERS

(A) Multiple Choice Questions:

1. Cash which is stored electronically on a microchip is called Credit Card.

(a) True.

(b) False.

(d) none.

Ans: (a) True.

2. E-payments are increased due to online shopping.

(a) True.

(b) False.

(d) none.

Ans: (a) True.

3. EFT stands for _________.

(a) Electronic Fund Transmission.

(b) Electronic Fund Transfer.

(d) None of these.

Ans: (b) Electronic Fund Transfer.

4. Which bank was introduced first ATM machine in India?

(a) RBI.

(b) HSBC.

(d) ICICI bank.

Ans: (b) HSBC.

5. CDM refers to _________.

(a) Cash Deposit Machine.

(b) Credit Development Method.

(d) Cash Development Machine.

Ans: (a) Cash Deposit Machine.

6. ECS refers to _________.

(a) Easy Cash Service.

(b) Electronic Clearing Service.

(d) Easy Clearing Service.

Ans: (b) Electronic Clearing Service.

7. Credit Information Bureau India Limited is India’s first credit rating agency which was incorporated in the year _________.

(a) 1988.

(b) 2000.

(d) 1995.

Ans: (b) 2000.

8. KYC refers to _________.

(a) Know Your Customer.

(b) Know Your Credit.

(d) Know Your Company.

Ans: (a) Know Your Customer.

9. Delivery of banks service to a customer at his office or home by using electronic technology is called _________.

(a) ATM.

(b) EFT.

(d) None of these.

Ans: (c) E-Banking.

10. The amount is instantly credited to the account of the customer in _________.

(a) ATM.

(b) EFT.

(d) None of these.

Ans: (c) CDM.

11. Virtual banking is also called __________.

(a) Internet Banking.

(b) Home banking.

(d) None of these.

Ans: (a) Internet Banking.

12. Plastic money is __________.

(a) Debit card.

(b) Credit card.

(d) None of these.

Ans: (b) Credit card.

(B) Fill in the Blanks:

1. KCC is ___________.

Ans: Kissan credit card.

2. _____________ is based on the voice processing facility available with the bank computers.

Ans: Tele Banking.

3. _______________ bank can accept deposit only, but cannot lend.

Ans: Payment Bank.

4. ___________ banks accept deposits but customer balance should not exceed Rs.1 lakh.

Ans: Payment Bank.

5. RuPay Card has been launched by __________.

Ans: NPCI.

6. No. of ATM transactions allowed per day in Visa Platinum Debit Card is ___________.

Ans: ten (10).

7. Information Technology Act was introduced in the year _____________.

Ans: 2000.

8. Core banking is a _________ branch computerisation model.

Ans: decentralised.

9. ATMs are primarily used for performing the _________ functions.

Ans: banking.

10. Expansion of ECS _________.

Ans: Electronic Clearing System.

SHORT TYPE QUESTION & ANSWERS:

1. What is the meaning of the term Banking Technology?

Ans: The term “banking technology” refers to the use of sophisticated information and communication technology together with computer science to enable banks to offer better services to its customers in a secure, reliable, and affordable manner, and sustain competitive advantage over other banks. Banking technology also subsumes the activity of using advanced computer algorithms in unravelling the patterns of customer behaviour by sifting through customer details such as demographic, psychographic, and transactional data.

2. What is the role of technology in Banking?

Ans: Technology has taken the banking system to the level of greater transformation.The introduction of computers and other electronic devices has made banking easier for everyone. Technology has its impact on all the sectors have transformed the lives of the people to another level. Efficient and quick services not like before with burdens of lots of paperwork and maintenance of files. New banking has helped the industrial, agricultural system to such an extent by providing loans to the small farmers at small rates and also taught and helped them in making an investment. With the globalisation of trade, the bank provides the funds to the customers, if they require foreign currency and that too with safety measures.

3. How technology has improved banking system?

Ans: Technology has improved banking system in the following ways:

(i) Remote Banking: Through technology advancements, Banks have stationed ATMs in most towns countrywide. Remote banking makes it easier for its customers to make withdrawals or deposits without having to visit the main branch. It also promotes a saving culture.

(ii) Plastic Money: Introduction of cards such as visas has made it possible for customers to make payments of purchases only by swiping. Through plastic money, clients can now easily borrow specific amounts from the bank.

(iii) Signature Retrieval Facilities: This technology is used to scan signatures before making withdrawals in a bank. It helps reduce counterfeiting.

(iv) Centralised information: It enables banks in different branches to share information easily no matter the distance.

4. What is E-Banking?

Ans: E-Banking is commonly addressed as Online banking, Internet Banking, Electronic banking, or Virtual Banking. E-Banking or Online Banking refers to all the financial transaction undertaken by any financial institutions over the Internet. E-Banking uses telecommunication and electronic networks to deliver numerous banking services and products. A customer can access their account and conduct several transactions through e-banking with a computer or a mobile phone.

Objectives of E-Banking:

(a) Attract Customers: E-Banking provides customers with online services and makes the banking system easier.

(b) Boosts Economy: Online Banking maintains cash-flow in the economy, which is the primary source during the economic recession.

(c) Provides Liquidity: Due to increasing online transactions, Internet Banking provides liquidity to the Banks.

5. What are the various types of E-Banking or Electronic Banking?

Ans: The different types of E-Banking are as follows: Corporate Banking, Personal Banking, Tele-Banking, Mobile Banking, Card Based Banking, and Internet Banking.

6. What are the objectives of E-Banking?

Ans: The functions or objectives of E-Banking are:

(a) To enable the customer to operate their bank account from anywhere in the world.

(b) To help the customers to avail banking services round the clock i.e., 24 hours in a day and 365 days in a year.

(d) To provide on-line purchase and payment of goods and services to the customers.

(e) To provide general information to the customers about the products and services of a bank, new bank branches, bank schemes, etc.

7. What are the facets of E-Banking?

Ans: The facets of E-Banking are as follows:

(a) Central Bank to Bank E-Banking: Central bank is the apex monetary organisation of a country. It is the friend, philosopher and guide of the commercial banks. Central banks render a wide variety of services to the commercial banks, which include cheque clearing, cash reserve management, open market operations, bills discounted and other aspects of credit control. To facilitate these transactions, all the banks under the jurisdiction of the central bank are inter connected on extranet. Further the central bank is also connected with the government treasury and the multilateral financial institutions like IMF, world bank on extranet to facilitate the transactions with these multilateral organisations.

(b) Bank to Bank E-Banking: Different types of banks are also interconnected on extra net to facilitate the mutual transactions such as interbank call and short notice loan.

(c) Customer to Bank E-Banking: It includes the various forms of banking services rendered to the customers such as deposit, withdrawal, card based services, remittance facilities etc. through different e-banking delivery channels.

(d) Intranet Procurements: Intranet procurements of banking is required for the transactions that are internal to a bank, as well as the transactions with its subsidiaries and the branches. Extranet permits a bank to exercise full control over those who are using the intranet and the information which are transmitted/accrued.

8. What are the features of E-Banking?

Ans: The features of E-Banking are as follows:

(a) E-banking lowers the cost involved in financial transactions.

(b) It helps in continuous monitoring of accounts and reduces frauds in transactions.

(d) E-Banking plays a vital role in expanding the productivity of businesses.

(e) With the inception of Internet Banking, the chances of human errors have reduced.

(f) Virtual Banking facilitates the instant transfer of funds nationally and internationally, thus breaking all the geographical barriers.

(g) The most crucial feature of Online Banking is that customers can access their accounts round the clock from anywhere holding no limitations.

9. What are the advantages of E-Banking?

Ans: The advantages of E-Banking are as follows:

(a) Convenience: E-banking provides great convenience to customers for performing various financial transactions. People can easily access their bank accounts anytime just sitting at their homes without visiting their bank.

(b) Faster Service: It provides speedy as peoples do no need to stand in queues for paying their bills or transferring funds. Funds get transferred instantly from one account to another in less time using online payment systems.

(c) Higher Interest Rate: Online banking services provide higher interest rates to customers. It has reduced the operational cost of banks which helps them in providing better interest rates on deposits of customers.

(d) Quality Service: Internet banking has improved the service quality to customers. It is efficient, safe and easy to do payments using online banking. Customers are able to monitor all transactions related to their accounts using e-banking apps.

(e) 24×7 Facility: E-banking services are available to customers at all times that are 24 hours a day and on all 7 days during a week. Customers can have access to banking products and services from anywhere at any point of time.

(f) Liquidity: It provides better liquidity of funds to customers. They can easily withdraw money from ATM machines at any time and from anywhere.

10. What are the disadvantages of E-Banking?

Ans: The disadvantages of E-Banking are as follows:

(a) Insecurity: E-banking services face various insecurity issues resulting from hacking done by online hackers. Customers may lose their credentials while doing payments and may cause huge financial loss.

(b) High Start-up Cost: It requires huge expenditure for installing various hardware components, software, computers, modem, and internet network. Banking organisations need large expenditures for starting internet banking services.

(c) Lack of Personal Contact between Customer and Banker: Online banking faces a barrier of direct interaction between clients and banks. Customers interacts with bank using their websites online. Sometimes customers are not able to resolve their issues by connecting with the bank virtually.

(d) Transaction Problems: Many times banking servers are down thereby leading to transaction failure. Customers face difficulty in doing payments online which causes inconvenience.

(e) Training and Development: Banks need to provide training to their staff providing better online service to their customers. It requires huge amount of investment for maintaining qualified and trained staff.

11. Explain the functions of E-Banking?

Ans: The functions of E-Banking are as follows:

(a) Transfer Funds: E-Banking allows customers to transact money transfers between their accounts, or to a third party account. Customers must have enough funds and a recipient or payee information to make the transaction.

(b) Manage and Purchase CD Accounts: Through Online Banking, customers can invest and purchase a certificate of deposit from their respective bank. Internet Banking allows customers to compare the availability of all the offers and their terms, for example, Maturity periods or APY.

(c) Manage all accounts from one place: online Banking is a time saver as it provides customers with the opportunity to handle several bank accounts such as CDs, Checking, IRAs and savings from one location.

(d) Pay Bills: E-Banking fosters electronic bill payment for depositors to send money from their online account to creditors, for example, a departmental store or public utility.

(e) View Images of Checks: Online Banking gives customers the freedom to view their paid checks and even allows them to take a scanned print of images.

12. Write a short note on ATM.

Ans: An automated teller machine (ATM) is an electronic banking outlet that allows customers to complete basic transactions without the aid of a branch representative or teller. Anyone with a credit card or debit card can access cash at most ATMs. ATMs are convenient, allowing consumers to perform quick self-service transactions such as deposits, cash withdrawals, bill payments, and transfers between accounts. Fees are commonly charged for cash withdrawals by the bank where the accounts is located, by the operator of the ATM, or by both. Some or all of these fees can be avoided by using an ATM operated directly by the bank that holds the account. ATMs are known in different parts of the world as automated bank machines (ABM) or cash machines.

13. What are the Types of ATMs?

Ans: There are primarily 6 types of ATMs:

(a) Green Label ATMs: These ATMs are used for agricultural purposes.

(b) Orange Label ATMs: These ATMs are used for share transactions.

(c) Pink Label ATMs: These ATMs are specifically designed for females to help in skipping long queues.

(d) Yellow Label ATMs: These ATMs are used for e-commerce transactions.

(e) White Label ATMs: These ATMS are an alternative to bank owned ATMs and are primarily used to expand the ATM network in areas where it is not economically feasible for banks to set up their ATMs.

14. What are the functions of ATM?

Ans: Some of the functions of ATM include:

(I) Cash withdrawals.

(ii) Cheque deposits.

(iii) Transfer of funds.

(iv) Account balance check.

(v) Provide other banking services such as bill payments, mobile recharges, and ticket bookings.

(vi) Authenticate customers using bank cards and PINs Securely process transactions through encrypted communication channels.

15. Discuss the procedure of using ATM.

Ans: The procedure of using ATM are as follows:

(a) First, need to visit the nearby ATM centre & place your ATM card within the machine.

(b) Select your language which appears on the ATM monitor like your local language, Hindi, and English.

(d) Choose the account type like savings or current.

(e) Enter your 4-digit ATM pin number and enter the required amount to withdraw.

(f) Gather the money and collect your receipt.

(g) For further transactions, you can perform another also by selecting the option.

16. What are the features of ATM?

Ans: The following are the main features of ATM:

(i) ATMS are versatile devices that have many functions. Though its main function is cash withdrawal, customers can make deposits, transfer money, and check account information using modern ATMs.

(ii) Banks charge a service charge on cash withdrawals, deposits, etc. An advantage of using the customer’s bank-operated ATM is that the fee will be lesser.

(iii) ATMS can also offer maximum security, at least more than internet banking which is subject to data threats, hacking, etc. Moreover, the adoption of newer technologies like biometric scanners, and one-time password (OTP) systems, keep customers safe.

(iv) They are user-friendly and can be used by anyone, despite being a sensitive process. It also operates in multiple languages, which helps everyone adopt the technology.

(v) ATMS restrict the withdrawal amount. For example, many ATMs limit the amount drawn in a single drawing and on a single day. This ensures sufficient cash for other customers.

(vi) They use credit or debit cards to authenticate the user. Using card systems to identify customers securely has helped ATMs flourish greatly. OTP systems and biometric scanners are currently being used to secure the process further.

(vii) ATMS are becoming helpful in eliminating paper use by sending alerts and receipts to email and phone numbers.

17. What is Debit Cards?

Ans: A card which allows customers to access their funds immediately, electronically. Banks are now providing Debit Cards to their customers having saving or current account in the banks. The customers can use this card for purchasing goods and services at different places in lieu of cash. The amount paid through debit card is automatically debited to (deducted from) the customers’ account.

18. What is Credit Cards?

Ans: A card issued by a financial company giving the holder an option to borrow funds, usually at point of sale. Credit cards charge interest and are primarily used for short-term financing. Interest usually begins one month after a purchase is made and borrowing limits are pre-set according to the individual’s credit rating. Credit cards are issued by the bank to persons who may or may not have an account in the bank. Just like debit cards, credit cards are used to make payments for purchase, so that the individual does not have to carry cash. Banks allow certain credit period to the credit card holder to make payment of the credit amount. Interest is charged if a cardholder is not able to pay back the credit extended to him within a stipulated time period. The interest rate charged is generally quite high.

19. Are debit cards the same as credit cards?

Ans: While they may look the same and feature similar features like 16-digit card numbers, expiration dates, and branded Visa or Master Card logos, credit cards and debit cards differ in important ways. The key difference is that debit cards are linked to a bank account and drawn directly from those funds (similar to a check). A credit card, on the other hand, does not draw any money immediately and must be paid back in the future, subject to any interest charges accrued.

20. What are the advantages and disadvantages of Credit Cards?

Ans: The advantages of Credit Cards are:

(a) It enables us to buy goods and services and make payments anytime and anywhere.

(b) It is universally acceptable. It can be used anywhere in the world.

The disadvantages of Credit Cards are:

(a) Every card has a particular limit of payments for a particular period.

(b) The cost of operating a credit card is very high.

21. What is Telebanking?

Ans: Telebanking expands to Telephone Banking. It is basically an automated facility, in which the customer can access information and also perform various routine transactions using a keypad or touch-tone telephone without actually going to the bank branch or ATM, or accessing a mobile application/website. It is the first technology-based banking services that initially used classic telephone lines for the purpose of communication. Prior to the provision of the requested banking service information, the identity of the customer is verified. Telebanking uses Interactive Voice Response (IVR) system to perform the banking transaction. Initially, the service involves manual intervention by an executive, in which the customers make a call to the bank’s specified toll-free number through the landline or mobile device from anywhere. Thereafter they need to follow the user-friendly menu and answer the questions to verify their identity and access the account, then the call is connected to the representative, to whom they submit their queries or requests, which is then processed accordingly. Further, this facility is available 24/7 and it is mainly offered by banks, credit unions, and credit card companies. Also, for availing this service, nominal charges may apply and the charges vary from bank to bank.

22. What are the benefits of Telebanking?

Ans: The benefits of Telebanking are:

(i) Reduces the queue of the customers at the bank counters, for the customers seeking information related to the accounts.

(ii) Medium to sell a range of banking products and services to its customers.

(iii) Fast, safest, and convenient banking service, offered by the banks.

(iv) Enables its customers to get instant feedback regarding their accounts while staying at their home or office.

(v) Reduces transaction handling cost.

(vi) Receive information anytime and anywhere.

(vii) Reduction in the workload of the bank staff.

(viii) Information customers about the new activities or special events of the bank.

(ix) Mass market delivery mechanism of financial services.

23. What are the services available with Telebanking?

Ans: There is a range of services available with telebanking which are discussed here:

(i) Account Balance status: Access to real-time account balances for the various account linked with the same customer ID.

(ii) Last five transactions: Obtain details of the last five transactions of their account.

(iii) Inquiry about cheque: Verify the status of the cheque issued or deposited.

(iv) Renewal of term deposit: Instant and automatic renewal of term deposit.

(v) Order placement: Customer can place an order for issuance of the new cheque book, demand draft, etc.

(vi) Account statement: Make a request for obtaining an account statement any time and anywhere.

(vii) Stop payment: Stop payment of a cheque or series of cheques that are issued to someone.

(viii) Fax of last 15 transactions: Obtain a mini statement of the last 15 transactions via fax.

24. What is Interactive Voice Response (IVR) System?

Ans: An Interactive Voice Response System or IVR implies an automatic phone banking system, that facilities the incoming callers through a voice response system that contains pre-recorded or digitised messages. For this purpose, the customer needs to enter an automated system using their telephone or mobile device. This system helps human beings to interact with computer-based technology with the use of voice or Dual-tone multi-frequency signalling (DTMF) tones. To interact with callers and collect information from them, it provides a user-friendly menu without directly talking to a representative and the customer has to select the right option using their touch-tone keypad or speech recognition, to get their call directed transferred to the concerned department or specialist.

25. Write a brief note on Mobile Banking.

Ans: Mobile Banking refers to provision of banking and other financial services with the help of mobile telecommunication devices. Mobile banking comes with features like 128 bit encryption,Open internet technology that is, it is not dependent on any specific service provider or the handset company. Through mobile banking, a wide variety of services are made available to the customers like checking account balances, order a demand draft, request for a cheque book, stop cheque payment etc.

Mobile banking business models:

(i) Bank-focused model: The bank-focused model emerges when a traditional bank uses non-traditional low-cost delivery channels to provide banking services to its existing customers. Through ATMs, internet banking or mobile phone banking, banks render certain limited banking services to bank’s customers. This model is additive in nature and may be seen as a modest extension of conventional branch-based banking.

(ii) Bank-led model: The bank-led model offers a distinct alternative to conventional branch-based banking in that customer conducts financial transactions at a whole range of retail agents (or through mobile phone) instead of at bank branches or through bank employees. This model can substantially increase the financial services outreach by using a different delivery channel (retailers/mobile phones). The bank-led model may be implemented by either using correspondent arrangements or by creating a joint venture between Bank and Telco/non-bank. In this model customer account relationship rests with the bank.

(iii) Non-bank-led model: The non-bank-led model is where a bank does not come into the picture (except possibly as a safe keeper of surplus funds) and the non-bank performs all the functions.

26. What is Net banking?

Ans: Net banking, also known as internet banking, is a service offered by banks that allows customers to access various banking, customers can complete a range of banking tasks, including money transfers, creating fixed deposits and recurring deposits, and tracking transactions, without the need to visit a physical bank branch.

27. What is Internet banking?

Ans: The Internet provides a secure medium for transferring funds electronically between bank accounts, and also for making banking transactions over the Internet. All banking activities that were conventionally carried by visiting a bank can now be done through a computer with Internet access. Credit cards transactions are a form on Internet Banking. With Net-Banking, you can not only view your account balance but also open a Fixed Deposit, transfer funds, pay your electricity, telephone or mobile phone bills and much more. Presently, through Net Banking, you can view not only your in Bank account but also your account (s) in other Banks. So you can actually view your Bank accounts in different Banks at the same time on one screen. Thus, when banking transactions such as transfers, payments and often home loan applications can be made via the Internet, then it is known as Net Banking. Net Banking allowing individuals to perform banking activities at home, via internet. Online banking through traditional banks enable customers to perform all routine transactions, such as account transfers, balance inquiries, bill payments, and stop payment requests, and some even offer online loan and credit card applications.

28. What are the features of Net Banking?

Ans: The following are some of the features of net banking that make this electronic system so popular:

(i) Net banking allows convenient access to a variety of banking services.

(ii) Customers can easily check account balances and transaction history.

(iii) Online bill payments and fund transfers are simple and efficient.

(iv) Net banking provides a secure environment for conducting banking transactions.

(v) Customers have a unique login ID and password for their account.

(vi) Net banking enables customers to apply for loans or insurance online.

(vii) Customers can manage their debit/credit cards and update addresses through internet banking.

(viii) It is easy to block a card or update primary and secondary addresses through net banking.

29. What are the types of fund transfers available on Net Banking?

Ans: Net-banking allows the transfer of fund from one account to another through three different ways-NEET, RTGS and IMPS.

Let us understand these three methods in details-

(i) NEET: National Electronic Fund Transfers (NEET) is one of the most commonly used payment methods which enables one-to-one fund transfer. It is a time-restricted process at the bank, but available 24×7 on the net-banking portals. Generally, it takes about 30 minutes for the funds to be successfully transferred via NEFT. However, the time can even stretch to 2-3 hours.

(ii) RTGS: Real-Time Gross Settlement (RTGS) refers to a continuous settlement of funds individually on an order-by-order basis. This implies that the RTGS system ensures that the beneficiary’s account is credited with the funds immediately. Transactions via RTGS are monitored by the RBI which suggests that successful transfers are irrevocable. This method is used to transfer a minimum of Rs. 2 lakh. Just like NEFT, RTGS is also a time-restricted service at the bank, but accessible 24×7 via net-banking.

(iii) IMPS: Immediate Payment System (IMPS) also deals in the real-time transfer of funds. It is most commonly used to transfer funds instantly within banks across India via mobile, internet and ATM. One can transfer funds via IMPS just with the mobile number of the beneficiary.

30. What is a Core banking solution?

Ans: A core banking solution (CBS) is a software system banks use to conduct and manage their primary operations. It allows customers to perform transactions from any branch rather than being limited to the branch where they opened their accounts. CBS systems handle various banking activities, including deposit accounts, loans, mortgages, payments, and customer information. They also enable real-time updates, current and up to date. Core Banking Solution (CBS) is the networking of bank branches, which allows customers to manage their accounts, and use various banking facilities from any part of the world.

In simple terms, there is no need to visit your own branch to do banking transactions. You can do it from any location, any time. You can enjoy banking services from any branch of the bank which is on the CBS network regarding of the branch you have opened your account.

For the bank which implements CBS, the customer becomes the bank’s customer instead of the customer of a particular branch. Execution of Core banking system across all branches helps to speed up most of the common transactions of bank and customer. In Core banking, all branches access banking applications from a centralised server which is hosted in a secured datacenter. Banking software/application performs basic operations like maintaining transactions, the balance of withdrawal & payment, interest calculations on deposits & loans, etc. This banking application is deployed on a centralised server & can be accessed using the internet from any location.

31. Explain the important types of core banking systems.

Ans: Several core banking solutions cater to different needs and aspects of banking operations.

Here are some of the main types:

(i) Retail banking systems serve individual consumers rather than businesses. These systems manage personal accounts, loans, mortgages, and other retail banking services. They’re customer-centric and designed to manage massive transaction volumes.

(ii) Corporate banking systems empower corporate or business banking to handle services such as corporate credits, treasury operations, and trade finance. They cater to large transaction volumes and more complex needs of corporate clients.

(iii) Universal banking systems manage both retail and corporate banking services. They are ideal for large banks that serve a variety of customer types and offer a wide range of services.

(iv) Private banking/wealth management systems handle services such as tax planning, investment management, and estate planning, and they often need to support high customisation levels to meet the needs of high-net-worth individuals.

32. What is Phone banking?

Ans: Phone Banking: Phone banking is a service provided by a bank, which allows its customers to perform transactions over the telephone. Most telephone banking uses an automated phone answering system with phone keypad response or voice recognition capability. To guarantee security, the customers must first authenticate through a numeric or verbal password or through security questions asked by a live representative. Except cash withdrawals and deposits, it offers almost all the services rendered by Automated Teller Machine viz. account balance information and list of latest transactions, electronic bill payments, can also speak to a live representative located in a call centre or a branch, but this feature is not guaranteed to be offered round the clock. In addition to the self-service transactions, telephone banking representatives are usually trained to do what was traditionally available only at the branch loan applications, investment purchases and redemptions, cheque book orders, debit cards replacements, change of address, etc. Banks which operate mostly or exclusively by telephone are known as phone banks.

LONG TYPE QUESTION & ANSWERS:

1. Explain the Benefits/Importance/Needs of Technology Banking.

Ans: Introduction of computer and other electronic technologies in banks has the following advantages which state the importance of such new technology in banking:

(i) Convenience- one of the biggest advantages of online banking technology is that it allows you to handle transactions and monitor your bank statements anytime and anywhere. Mobile banking apps make it possible to check your balance with the convenience of being able to access your account 24/7 and when it is best suitable for your schedule, not the normal 8-5 banking hours.

(ii) Fewer bank visits: another great advantage is a new technology know as Remote Deposit Capture. It’s an online service that lets you scan and deposit checks from your home, office or other locations without having to go to your bank. This is a convenience of being able to make deposits faster and with less time driving to your bank. An increasing number of remote technologies will allow you to interact with your bank right from the plam of your hand.

(iii) Instant bill paying- another key benefit of technology in banking is that you are able to pay your bills online quickly and easily. You can schedule your bills to be paid by direct debit every month at a time that suits you, or you can make online transfers as the bills come in. This eliminates the travel time from mailbox to facility when mailing a check. Instead, everything is instant and handled with the click of a button. This advantage also means that bills are more likely to be paid on time.

(iv) Faster transactions- when you conduct your banking online, your transactions are processed almost instantly. Having transactions show up on your account immediately allows you more control of timing for transactions and a more accurate view of your current account balance. Gone are the days of waiting for a check to clear. Now you can use a debit card and see the transaction on your account instantly.

(v) Customer Service: With internet facility, the customers need not go to the bank office. All banking transactions and updating of accounts can be done while at home or in transit. Networking means sharing of information, giving messages and being in face to face contact even when apart. It is the meeting without moving.

(vi) Handling of Information: Creation of up-to-date monitoring and information system and strengthening internal control and housekeeping and reporting functions are provided. Sorting of information becomes easy.

(vii) Accuracy: The clearing of cheques, pass book entries, inter-branch and inter-bank reconciliation and such other functions can now be carried out quickly, correctly and legibly with modern technology.

(viii) Easy Communication: Internet connects thousands of computers which can work 24 hours a day throughout the year. There is no more the tyranny of working hours. The business of banks with customers, head office, other banks, branches is being fully computerised in Western countries and India has also to move in that direction to service in international competition.

2. Explain some of the current technology trends driving the banking sector.

Ans: Banking technologies had a major impact on the banking sector. People’s daily interactions and business practices are being transformed by the widespread adoption of digital technology. When it comes to digitisation and technology utilisation in the banking industry, both the epidemic and technological advancements have had a role in the process. According to the Reserve Bank of India’s annual report for 2020-21, India’s total digital transaction volume was around 4,371 crores in 2020-21, whereas it was 3,412 crores in 2019-20.Technology and digitalisation in banking have created a wide range of innovative and speedier solutions for clients’ banking-related challenges.

Following are some of the current technology trends driving the banking sector:

(i) Open Banking: Banks in open banking systems employ third-party software to integrate their financial solutions, giving their clients a single point of entry to all their banking needs and the bank’s services. In order for financial institutions to compete and expand, open banking is an essential approach. Fintech businesses and banks work together to make it easier for clients to make quick and easy payments using mobile apps. Online payments for buying meals from Zomato or reserving an Uber with an online payment are just a few examples of this type of transaction.

(ii) Blockchain: When numerous parties need access to the same data at the same time, they can use blockchain technology to ensure the integrity and immutability of the data are preserved. Banks are increasingly relying on blockchain technology to keep their critical information safe from hackers. In order to increase efficiency, boost security, and speed up transactions, banks are continually experimenting with this new technology.

(iii) Biometrics: If you’ve ever wanted to make a quick payment by scanning your fingerprint or using face recognition technology, biometric payments are for you. It’s becoming increasingly popular as more and more people want to avoid carrying around cash. Whatsapp and Google are among the firms that have already developed these kinds of solutions.

(iv) Cloud Banking: For many banks, cloud banking is transforming their cost-efficiency and allowing them to create new experiences for their clients while maintaining the traditional model in place. In the cloud, banks are able to synchronise the enterprise and break down operational and data silos across customer care, finance, risk, and other areas of the business.

(v) Artificial Intelligence And Machine Learning: These days, AI and ML don’t require an introduction, and banks are quickly adopting them in order to provide consumers with just-in-time, personalised service. They automate banking operations to improve customer care and credit services as well as prevent fraud.

(vi) Chatbots: Speech-based engagements are becoming increasingly popular with clients. Therefore chatbots rely on a voice interface. Financial chatbots have been shown to save banks over four minutes eash transaction and allow them to gather client feedback more quickly and cost-effectively.

(vii) ‘Zero Trust’ Security Model: The zero-trust security concept is utilised to prevent cyber fraud to the greatest extent feasible. Secures the company by taking away implicit trust and requiring the user to authenticate their identity and their device’s identification in a stringent manner throughout the whole network.

(viii) Wearables: Increasingly popular among customers, wearable gadgets such as smartwatches are transforming bdigital payment methods and creating a more engaging shopping experience.

3. Write a short note on E-Banking in India.

Ans: Reserve Bank of India has played an important role in the implementation of e-banking services; Dr. Rangarajan Committee had drawn up in 1983-84 the first blue print for computerisation and mechanisation in banking industry and looked into modalities of drawing up a phased plan for mechanisation for the banking industry-covering period 1985-89.The Committee in its report in1984, recommended introduction of computerisation and mechanisation at Branch, Regional Office/Zonal Office and Head Office levels of banks. In 1988 another committee was constituted under the Chairmanship of Dr. Rangarajan for making plans for computerisation for the next five years from 1990 to 1994 for the banking industry. It identified the purpose of computerisation as improvement in customer service, decision-making, house keeping and profitability. The Committee observed that ‘Banking is a service industry and improved efficiency will lead to a faster rate of growth in output and help to expand employment all around’. The workforce in the banking industry must, therefore, look upon computerisation as a means to improve customer service and must welcome it in that spirit’. The Governor of the Reserve Bank of India appointed a Committee on technology issues under chairmanship of Shri W. S. Saraf, Executive Director to look into different aspects of e-banking including technological issues relating to payment system and to make recommendations for widening the use of modern technology in the banking industry. The Saraf Committee recommended institution of Electronic Funds Transfer Systems in India. It also reviewed the telecommunication system like use of BANKNET and optimum utilisation of SWIFT by the banks in India.

Reserve Bank of India in 1995 constituted a committee under the chairmanship of Smt. K. S. Shere, to study all aspects relating to Electronic Funds Transfer and propose appropriate legislation.

The Shere Committee had recommended framing of RBI (EFT System) Regulations under Section 58 of the Reserve Bank of India Act 1934 (RBI Act), amendments to the RBI Act and to the Bankers’ Books Evidence Act, 1891 as short term measures and enacting of a few new Acts such as the Electronic Funds Transfer Act, the Computer Misuse and Data Protection Act etc; as long as long term measures.

The Committee on Banking Sector Reforms (Narasimham Committee II) in its Report forwarded some important recommendations in regard to technology up-gradation and observed that the most of the technology that could be considered suitable for India in some form or the other has been introduced in some diluted form as a pilot, but the desired success has not, however, been achieved because of the reasons inter-alia lack of clarity and certainty on legal issues.

The Committee also suggested implementation of necessary legislative changes keeping in view the recommendations of Shere Committee.

The need for addressing the following issues was also emphasised:

(a) Encryption on Public Switching Telephone Network (PSTN) lines.

(b) Admission of electronic files as evidence.

(d) Record keeping.

4. Discuss the various risk in E-Banking.

Ans: The various risk in E-Banking are as follows:

(i) IT Environment Risk: It represents the inherent risks that arise in the commercial and business environment within which the computer and telecommunication systems are operating. This Category of risks includes Regulatory Risk, Strategic Risk, Organisation Risk, Location Risk and Outsourcing Risk.

(a) Regulatory risk: This type of risks arises due to weak regulatory infrastructures. The banks operate within a set of regulatory framework. The design and operation of computer systems must comply with the regulatory framework in place. The lack of or inadequacy of legal framework covering electronic transactions can increase the likelihood of dispute arising relating to banking transactions.

(b) Strategic risk: Selection of right type of technology for the right type activity is mug to achieve strategic business needs. When a bank adopts inappropriate IT strategy, strategic the bank may not be able to achieve its effectiveness and lose competitive edge and may place undue pressure on the banks. The failure of IT strategies to take into account the changing needs of the bank may lead to the current systems becoming obsolete in short time.

(c) Organisation risk: The organisational structure of a bank can determine the effectiveness of the banks use of IT. When the organisational structure fails to provide and define reporting lines and responsibilities for the IT functions, this can lead to misunderstanding of responsibility and a poor distribution of human and financial resources.

(d) Location risk: The technology resources are subject to the risks of unforeseen and sometimes naturally occurring events such as floods, earthquakes, storms and other events like riots or sabotage.

(e) Outsourcing risk: Outsourcing some or all of their data processing-activities are common practice followed by banks. Outsourcing exposes banks to some additional risks, which need to be considered. Without proper management control and documentation, the responsibilities and liabilities of vendor and client may not be clear. Over reliance on single vendor/supplier increases the risks from their failure and may lead to unacceptably high costs. There is also risk of disclosure of some strategic business information and strategy.

(ii) Computer fraud risk: A computerised environment provides new opportunities to fraudsters. It is imperative that the banks are aware of the vulnerable points within its system and take appropriate measures to prevent fraud, which may materialise, especially during times of business and system change. Such risks are more likely when the security and control systems are weak or not properly implemented.

(a) Disclosure risk: Information held on a banks computer and passed around its communication network includes very sensitive financial and other data about the banks customers. Unwarranted disclosure of this information can have a negative impact on banks reputation and may result into loss to its customers and legal litigation.

(b) Interruption risk: The failure of computer and/or communication systems due to power supply failure or mechanical reasons may result into interruption of banks operations and business. The discontinuity of computer operations may lead to customers’ dissatisfaction, loss of business and reputation, etc.

(iii) Product/service risk: Banks may implement technology-based products to improve operational efficiency and effectiveness. The way in which management design and implement a control framework to mitigate against operational risks is an important issue. The services like ATMs, Electronic Funds Transfer (EFT), Computer based dealing services, etc. must be made available to customers without any disruption.

5. Discuss the advantages and disadvantages of E-Banking.

Ans: The advantages of E-Banking are as follows:

(b) Faster Service: It provides speedy service as peoples do no need to stand in queues for paying their bills or transferring funds. Funds get transferred instantly from one account to another in less time using online payment systems.

(f) Liquidity: It provides better liquidity of funds to customers. They can easily withdraw money from ATM machines at any time and from anywhere.

The disadvantages of E-Banking are as follows:

(a) Insecurity: E-banking services face various insecurity issues resulting hacking done by online hackers. Customers may lose their credentials while doing payments and may cause huge financial loss.

(d) Transaction Problems: Many times banking servers are down thereby leading to transaction failure. Customers face difficulty in doing payments online which causes inconvenience.

(e) Training and Development: Banks need to provide training to their staff for providing better online service to their customers. It requires huge amount of investment for maintaining qualified and trained staff.

6. What are the different types of E-Banking.

Ans: The different types of E-Banking are as follows:

(a) ATM: Automated Teller Machine, i.e., ATM definition includes being electronic banking outlet which allows customers to complete basic transactions without the aid of any representative from the bank. Convenience and accessibility are the key benefits of ATMs. Services like deposits, cash withdrawals, transfers between payments and bill payments can be performed by an ATM. There are primarily two types of ATMs. The basic ATM allows customers to withdraw cash and receive information about updated account balances. The more advanced ATMs allow further complex services like account deposits, facilitating payments, access to account information and line of credit payments.

(b) Debit card: Also known as a bank card or check card, debit cards are plastic cards which can be used instead of cash to make purchases. While both card types enable the cardholder to make cash-free purchases, debit cards differ from credit cards because the money being spent with each purchase comes from the funds in the cardholder’s bank account, instead of an issued line of credit.

(c) Credit Card: A credit card is a card that allows you to borrow money against a line of credit, otherwise known as the card’s credit limit. You use the card to make basic transactions, which are reflected on your bill; the issuer pays the merchant, and later, when you receive your bill, you pay the issuer. You will be charged interest on your purchases if you carry a balance from month to month. Credit cards have high interest rates compared to most loans, and your credit card balance and payment history can affect your credit score.

(d) Tele Banking: Telephone banking is a service provided by a bank Or other financial institution, that enables customers to perform over the telephone a range of financial transactions which do not involve cash or financial instruments (such as cheques), without the need to visit a bank branch or ATM. Telephone banking is a service provided by a bank or other financial institution, that enables customers to perform financial transactions over the telephone, without the need to visit a bank branch or automated teller machine. Telephone banking times can be longer than branch opening times, and some financial institutions offer the service on a 24 hour basis. From the bank’s point of view, telephone banking reduces the cost of handling transactions by reducing the need for customers to visit a bank branch for non-cash withdrawal and deposit transactions.

(e) Mobile Banking: Mobile banking is a facility that enables customers to initiate and/or perform banking tasks on their mobile phones. This is provided by most of the banks in India and abroad. Customers can use mobile banking to view their account balance, make instant fund transfers and pay bills, etc. There are various types of mobile banking, viz. via SMS, USSD and mobile apps. Some of the banks like SBI, have incorporated services like loan approval and linking of Insurance policy in their mobile banking apps.

(f) Internet Banking: The Internet provides a secure medium for transferring funds electronically between bank accounts, and also for making banking transactions over the Internet. All banking activities that were conventionally carried by visiting a bank can now be done through a computer with Internet access. Credit cards transactions are a form on Internet Banking. With Net-Banking, you can not only view your account balance but also open a Fixed Deposit, transfer funds, pay your electricity, telephone or mobile phone bills and much more. Presently, through Net Banking, you can view not only your in Bank account but also your account (s) in other Banks. So you can actually view your Bank accounts in different Banks at the same time on one screen. Thus, when banking transactions such as transfers, payments and often home loan applications can be made via the Internet, then it is known as Net Banking. Net Banking allowing individuals to perform banking activities at home, via internet. Online banking through traditional banks enable customers to perform all routine transactions, such as account transfers, balance inquiries, bill payments, and stop payment requests, and some even offer online loan and credit card applications.

(g) Phone Banking: A system in which customers can access their accounts and a variety of banking services up to 24 hours a day by telephone or it is a facility enabling customers to make use of banking services, such as oral payment instructions, account movements, raising loans, etc., over the telephone rather than by personal visit. In case of phone banking, a customer of the bank having an account can get information of his account, make banking transactions like, fixed deposits, money transfers, demand draft, collection and payment of bills, etc. by using telephone. As more and more people are now using mobile phones, phone banking is possible through mobile phones. In mobile phone a customer can receive and send message (SMS) from and to the bank in addition to all the functions possible through phone banking.

(h) Any Time Banking: A machine at a bank branch or other location which enables a customer to perform basic banking activities (checking one’s balance, withdrawing or transferring funds) even when the bank is closed. Banks have now installed their own Automated Teller Machine (ATM) throughout the country at convenient locations. By using this, customers can deposit or withdraw money from their own account any time.

(i) SMS banking: SMS banking is a technology-enabled service offered by banks to its customers. They permit the customers to operate banking services over mobile phones using SMS message. SMS banking is more advantageous than Internet banking because people carry mobile phones everywhere. SMS banking reduces the distances between banks and the customers.

7. Discuss the various services of E-Banking.

Ans: Information and Communication technology has brought ‘tremendous banking industry. With the use of electronic network, banking services can be provided across national by click of a computer key and this creates tremendous impact on the economy. The banks can provide e-banking services by using this electronic network.

The following are the some of the services coming under E-BankingE-Banking:

(a) Electronic data interchange.

(b) Automated Teller Machine.

(d) Card base banking Services.

(e) E-payments.

(f) Electronic Fund Transfer etc.

Below we explain briefly about these services:

(a) Electronic Data Interchange (EDI): An important service available under e-banking is Electronic data interchange (EDI). EDI is a technique used to communicate business, financial and transaction information between computer systems of different Organisations at different places. Unlike email, it is structured communication and sent in machine processable form. It was first used in North America by retail industries in the late 1960s. In mid-1980s EDI was introduced in other areas including automotive, manufacturing, distribution and tourism sectors. In banks, a variant of EDI namely Financial EDI (FEDJ) is used to settle the bills with the objective of ‘making the right financial resources available at the right time’. Banks can play a vital role in FEDI for the payments in real time. Banks have to interact with the systems of customers on one side and the service providers on the other side. It enables the customers to view/download account details. EDI implementation in banks results in reduced cost, improved efficiency and customer satisfaction resulting in improved growth and profitability.

(b) Automated Teller Machine, (ATM): The history of ATM goes back to 1939 when a mechanical cash dispenser was developed and built by Luther George Simjian in New York and the machine was installed by the City Bank of New York, but removed after 6 months due to the lack of customer acceptance. Thereafter, the history of ATMs paused for over 25 years, until De la Rue developed the first electronic ATM, which was installed first in Enfield Town North London, UK. The modern, networked ATM was invented in Dallas, Texas, by Don Wetzel in 1968. ATMs first came into wide UK use in 1973; the IBM 2984 was designed at the request of Lloyds Bank. In India, the Bank of India was the first Indian bank to introduce ‘automated teller machine in Bombay in 1988.

Automated Teller Machine (ATM) is a computerised telecommunications device. It provides the customers of a financial institution with access to financial transaction in a public space without the need for a human clerk or bank teller. Modern ATMs identify the customer through a plastic ATM Card with a magnetic strip or a plastic smartcard with a chip, that contains a unique card number and some security information, such as an expiration date or CVC (CVV). Security is provided by the customer entering a Personal Identification Number (PIN). ATMs are known by various casual terms including automated banking machine, money machine, bank machine, cash machine, hole-in-the-wall, cashpoint or Bancomat (in Europe and Russia).

Most ATMs are connected to interbank networks, enabling people to withdraw and deposit money from machines not belonging to the bank where they have their account or in the country where their accounts are held (enabling cash withdrawals in local currency). Some exai of interbank networks include PLUS, Cirrus, Interac and LINK. ATM rely On authorisation of a financial transaction by the card issuer or other authorising institution Via the communications network. This is often performed through an ISO 8583 messaging System.

(c) Electronic Clearing Services, (ECS): An important e-banking service used for retail payment is Electronic clearing System (ECS). It can be used to make bulk payments/receipts of a similar nature especially where each individual payment is of a repetitive nature and of relatively smaller amount. This facility is meant for companies and government departments to make/receive large volumes of payments rather than for funds transfers by individuals. The ECS facility is available in more than 68 centres across India operated by RBI at places where it manages the clearing houses and by SBI in other centres. The ECS is further divided into two types ECS (Credit) to make bulk payments to individuals/vendors and ECS (Debit) to receive bulk utility payments from individuals.

(i) ECS-Credit: Through ECS (Credit) one entity/company can make payments from its bank account to a number of recipients by direct credit to their bank accounts. For instance, companies make use of ECS (Credit) to make periodic dividend/interest payments to their investors. Similarly, employers like banks, government departments, etc make monthly salary payments to their employees through ECS (Credit). Payments of repetitive nature to be made to suppliers can also be made through this mode. For this purpose, the company or entity making the payment has to have the bank account details of the individual beneficiaries. The payments are affected through a sponsor bank of the company making the payment and such bank has to ensure that there are enough funds in its accounts on the settlement day to offset the total amount for which the payment is being made for that particular settlement. ECS Debit: Through ECS (debit) an entity/company can collect the payments made by the customers or the creditors directly from their bank account. ECS (Debit) is widely used by utility companies like telephone companies, electricity companies etc. to receive the pill payments directly from the bank account of their customers. Instead of making electricity bill payment thru cash or by means of cheque, a consumer individuals as well as companies) can opt to make bill payments directly into the account of the electricity provider/company/board from his own bank account. For this purpose, the consumer have to give an application to the utility company (provided the company has opted for the ECS (Debit) scheme), providing details of bank account from which the monthly/bi-monthly bill amount can be directly deducted. Such details have to be authenticated by the bank of the customers who opts for making payments through this mode. ‘Once this option is given, the title company would advise the consumer’s bank to debit the bill amount to his account on the due date of the bill and transfer the amount to the company’s own account. This is done by crediting the account of the sponsor bank, which again is generally the bank with whom the company receiving the payments msintains the account with. The actual bill would be sent to the consumer as usual at his address as before.

(ii) Charges for using the ECS: As in the case of EFT, RBI bas waived all its processing charges to the banks for the present. The banks, however, are free to charge a fee from their corporate customers for use of this facility. At present different banks charge different amounts for ECS transactions.

(d) Card base banking Services: The concept of using a card for purchases was described in 1887 by Edward Bellamy in his utopian novel Looking Backward. Bellamy used the term credit card eleven times in this novel. The modern credit card was the successor of a variety of merchant credit schemes. It was first used in the 1920s, in the United States, specifically to sell fuel to a growing number of automobile owners. In 1938 several companies started to accept each other’s cards. The concept of paying merchants using a card was invented in 1950 by Ralph Schneider and Frank X. McNamara in order to consolidate multiple cards. The Diners Club, which was created partially through a merger with Dine and Sign, produced the first “general purpose” Charge Card, which is similar but required the entire bill to be paid with each Statement; it was followed by American Express and Carte Blanche. Western Union began issuing charge cards to its frequent customers in 1914. Bank of America created the ‘Bank Americard’ in 1958, a product which eventually evolved into the Visa system. Master Card came to being in 1966. In 1966 Barclaycard in the UK launched the first credit card outside of the US. There are now countless variations on the basic concept of revolving credit for individuals including organisation branded credit cards, corporate-user credit cards, store cards and so on.

(e) E-payments: Message transfer system mainly include the following:

(i) Banknet: Banknet is a communication network connecting various centres of a country to facilitate the transfer of inter-bank or inter-branch messages. Most of the centres of a country are linked to this network. The main objective of the Banknet is to speed up the process of transfer of funds from one bank to another bank and one branch to another branch.

(ii) SWIFT: The Society for Worldwide Inter-bank Financial Telecommunication (SWIFT) provides reliable, secured and expeditious telecommunication facilities for exchange of financing) message all over the world. This network provides round the clock services to the users. The banks have to become the member of International Financial Messages Communication Network to avail the networking facilities of the SWIFT. Through SWIFT banks can carry on foreign exchange business safely and in a secured mode. The foreign exchange business, which the banks are conducting today, would not have been possible without SWIFT.

(f) Electronic Fund Transfer (EFT): Electronic Funds Transfer (EFT) is a system whereby one person or company can make payment to another person/company etc. through electronic mode. The person or company intending to make payments can approach his bank and make cash payment or give instructions/authorisation to transfer funds directly from his own account to the bank account of the receive/ beneficiary. Complete details such as the receiver’s name, bank account number, account type (savings or current account), bank name, city, branch name etc should be furnished to the bank at the time of requesting for such transfers so that the amount reaches the beneficiaries’ account correctly and faster. RBI is the service provider for EFT.

EFT is one of the fastest modes of fund transfer. Funds transfer normally takes place on the same day or at the most the next working day depending upon the time of requesting/effecting such funds transfers. The banks generally charge some processing charges for EFT just as in the case of other services like demand drafts, pay orders, etc. The charges depend upon the amount and the banker-customer relationship. However, for the present, the RBI has waived all its charges on EFT that were being recovered from the banks for processing such funds transfer transactions at the clearing houses run by RBI. This has reduced the processing cost for the banks also.

(g) RTGS: RTGS stands for Real Time Gross Settlement. RTGS system is a funds transfer mechanism where transfer of money takes place from one bank to another on a “real time” and on “gross” basis. This is the fastest possible money transfer system through the banking channel. Settlement in “real time” means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed. “Gross settlement” means the transaction is settled on one to one basis without bunching with any other transaction. Considering that money transfer takes place in the books of the Reserve Bank of India, the payment is taken as final and irrevocable. Earlier, the large-value RTGD system was available for customers from 7.00 am to 6.00pm on all working days of a week (except the 2nd and 4th Saturdays of the month), Pa mice December 2020, the Real Time Gross Settlement System was made available put 5. The National Electronic Funds Transfer (NEFT) system was made available on 24/7/365 basis from December 2019 and the system has been operating smoothly since than-

(i) Strong technical support: The RTGS solution aims at being state-of-art solution with the use of INFINET (Indian Financial Network) as the dedicated and secured communication backbone, SFMS (Structured Financial Messaging System) as the secured messaging and a mainframe system as the robust platform at the back-end for implementation Quaestor, a product from solution developer.

(ii) Message Flow Structure: The solution provides a single gateway interface (Participant Interface or PI) to the RTGS system for each participant. All encrypted payment message of the participant emanate from the PI and message emanating from the PI will ensure confidentiality, integrity and non-repudiation.

(iii) Dedicated Settlement Account: Each participant of the RTGS system will be required to open a dedicated settlement account for putting through its RTGS transactions. This account is for outward and inward RTGS payment. It enables the participants to have easy monitoring, tracking and reconciliation of the transactions as well as more efficient liquidity management.

(iv) FIFO processing/transactions priority: Payment transaction emanating from a participant’s payment system gateway are processed by the RTGS system strictly in first-in-first-out basis. However, to take care of urgent or time critical payments, bypassing a queue is permitted to the participant.

(v) Transactions: The RTGS system provides a wide array of transaction types (with code words) which can be flexibly deployed to meet varying requirements. It provides the facility of Inter-bank transactions and also separate transaction types for customer payment.

Benefits of RTGS:

(a) Speed: The beneficiary branch is expected to receive the funds in real time, soon after the funds are transferred by the remitting bank.

(b) Quicker settlement: It ensures quicker settlement of the transaction taken place between the banks. It cuts across inter-bank and clearing house settlement issues.

(c) Wide boundaries: There is no geographical limitation for participating banks in the RBI:s RTGS System.

8. What are the advantages and disadvantages of ATM?

Ans: The advantages of ATM are as follows:

(a) Provide convenience to customers: Customers are able to do financial transactions conveniently with the use of ATMs. They can avail various banking services and can do payments seating at their home comfort. Various payments for online shopping, at restaurants and various other places payment can be made using ATM.Nowayas ATM are installed at all important places like railway station, airports, hospitals etc. which facilitate the people in withdrawing their money whenever they want.

(b) Offer 24×7 Service: ATMs provides 24 hours a day, 7 days a week and 365 days a year to all its customers. Unlike bank branches, it does not have any time schedule for its operations. Customers can access their bank accounts and withdraw their money at any time of day or night as per their convenience.

(c) Reduce Banks Workload: ATMs have an efficient role in reducing the workload of the banking industry. It has relieved customers as they can avail various banking services by using ATM without visiting the bank branches. Customers are not required to stand in long queues and fill up various forms for availing basic withdrawal and deposit facilities. It helps in reducing the work pressure on bank staff and provides flexibility to its operations.

(d) Access To Bank Account From Anywhere: Account can be accessed by customer using ATM from any part of the country or even worldwide. ATM machines are installed in different parts of the country at all convenient places. Customers don’t need to carry cash while travelling and they can easily withdraw money any place they are travelling.

(e) Minimises Transactions Cost: ATM has reduced the manpower need as all transactions are processed and monitored using automated computerised systems. There is less human intervention in work operations which reduce overall cost.

(f) Cheaper to Maintain: Compared to brick and mortar, ATM machines are cheaper to build and maintain. Most of the services that can be obtained from a bank teller can be accessed on an Automated Teller Machine. This reduces a bank teller’s workload in addition to labour costs. Thus the other advantage of ATM Machines is that they are cheaper to maintain.

The disadvantages of ATM are as follows:

(a) Charges Fees: Usage of ATMs by customers invites charging various fees for using it. Bank charges routines charges as per their standard rates for providing them ATM facility. Customers are also required to pay various taxes while doing transactions online using the ATM.

(b) Limitation on Cash Withdrawal: Bank imposes restrictions on withdrawal limit of their customers using ATM. There are limitations on both no. of free transactions and the amount of money that can be withdrawn per transactions. Banks set withdrawal amount limit for their customers. Most of the banks do not allow withdrawal of more than 25,000 at a time.

(c) Possibility of frauds: Customers performing online transactions using ATM are likely to be affected by various frauds. There is a chance of stealing various account information by online hackers while doing online transactions. These online hackers through various suspicious activities can get access to your account and loot your money.

(d) Non-Reachable in Rural Areas: Banks in rural areas of our country have limited computerised branches and depends mainly on manpower for its various operations. There are limited ATM machines installed in rural areas which also do not operate properly. Therefore ATM services are not properly available in rural areas.

(e) Lack of Personal service: Lack of personal service is a disadvantage of ATM Machines. There are no bank assistants to help you or to ask questions to.

(f) Costly for the Users: Setting up ATM machines can be affordable for financial institutions, but it is not the same for the users. Banks and machine owners obtain a lot of revenue from ATM machines in the form of fees that users are charged for using them. The transaction costs are a huge disadvantage of ATM Machines.

(g) Technology Issues: ATMs are machines that can sometimes encounter technical issues, such as running out of cash, being temporarily out of service, or experiencing errors. This can cause inconvenience and frustration, especially when we urgently need access to our money.

9. What are the benefits of Debit Cards?

Ans: The benefits of debit cards are as follows:

(a) Convenient to Use: Debit Cards are extremely simple to use. Since the payment is deducted directly from your bank account, a place where the money already exists, it can be done instantly. It is much quicker than having to wait for a credit transaction to go through or having to worry about having an adequate amount of cash in the account, to cover your expenses. Debit Cards make transactions fast, easy and convenient to use.

(b) Works as an emergency fund: Debit Cards have the ability to give you cash. They double up as ATM cards and allow you to withdraw money from an ATM. Therefore, working as an emergency fund for you. In addition to the ATM use, a majority of stores offer cash back options at checkout. You can shop conveniently and reasonably using your Debit Card.

(c) Self Protected: Debit Cards are protected by a four-digit pin number or PIN (Personal Identification Number) which you set yourself. This PIN is essential when making almost any purchase with your Debit Card. It gives you a great deal of safety against theft. You also receive a notification every time a transaction goes through, double verifying the transaction. These cards can also be frozen very easily and quickly. So if you lose it, you can prevent damage by freesing it within no time.

(d) Easy to Obtain: The only and most important thing that you must have, in order to have a Debit Card is have a bank account. Anyone can open a bank account with a minimum deposit. So, you can use a Debit Card with the only prerequisite being a bank account that is linked to your card.

(e) Sets a Budget: One of the best things about a Debit Card is that you cannot spend more money than you have, which means you cannot go into debt. This helps you to budget, since every time you transact, the money is deducted from your account.

(f) Very convenient to use: One of the advantages of a debit card is that it can be swiped for transactions as well as withdrawal of cash from ATMs.

(g) No more debts: When you have a credit, you are more likely to make impulsive purchases. But a debit card keeps you in check as it is linked to your bank account. You are only able to spend the amount that is in your account. You don’t have to worry about the mounting credit card bills anymore.

10. What are the disadvantages of Debit cards?

Ans: The disadvantages of debit cards are as follows:

(a) Unprotected against identity theft: Debit cards are protected only by an encrypted number, known as PIN. This PIN cannot give protection against identity theft. Anyone carrying the card can access the account if the PIN is known.

(b) Incapable of business Transactions: In most cases, the issuing banks limit the maximum amount that can be withdrawn or transferred by the customer. This hinders business transactions where the volume and the value of the amount involved are considerably high.

(c) Terminal Dependent: Only merchants having an electronic terminal can perform transactions through debit cards. Moreover, a customer can access account only from the place where the issuing bank’s outlet terminal exists.

(d) No credit allowed: A debit card is linked to your bank account. There is no possibility of making any transaction on credit. All transactions and withdrawals are limited to the balance available in your account.

(e) Difficult to dispute fraudulent use: It is easier to fraudulently use your debit card. In case someone steals the details of your card, especially the PIN and CVV, the chances of a fraudulent transaction are very high. It is difficult to dispute such transactions with the bank.

(f) Additional fees on ATM withdrawals: Every bank offers you a limited number of free ATM transactions and other non-financial transactions per month at the branches of other banks. Once you exceed the limit of free withdrawals/ non-financial transactions, fees are levied.

11. What are the benefits of Credit Cards?

Ans: The benefits of Credit Cards are as follows:

(a) Shopping experience: Credit cards have redefined the shopping experience for cardholders. The cards make shopping easier. One can make big purchases for home needs and appliances using a credit card without having to take a hit on their monthly budget. Credit cards let consumers buy products on low-cost EMIs. Credit cards operate on the ‘buy now, pay later’ principle which works well for salaried individuals with fixed monthly salaries.

(b) Alternative to cash: Credit cards eliminate the need for carrying cash around for shopping. In fact there is no need to pay for any product or service using cash if you have a credit card. You can swipe it at a point of sale machine or use online or mobile banking to make payments.

(c) Rewards, cashbacks and offers: All credit cards offer special discounts, cashbacks or reward points for the purchases made using a credit card. Some cards are offered in association with some retailers and shopping website. They offer special discount on shopping or travel tickets and accommodation. So paying with a credit card may ultimately be cheaper than paying with a debit card or cash. Many credits also have lucrative welcome offers that the customer gets upon joining.

(d) ATM withdrawals: Much like a debit card, the credit card allows its customers to withdraw cash in case of need. A small fee is charged for cash withdrawals on credit cards. However, many banks and financial institutions also award reward points for cash withdrawals.

(e) Accepted worldwide: Credit cards are a commonly accepted mode of payment across the world. The world is your oyster if you have a credit card. With a credit card in hand, you can pay with ease in foreign countries. This makes travelling around the world convenient as the card holder need not worry about currency conversions.

(f) Immediate exigencies: In case of a medical emergency for you or your family, the credit card comes in handy. You need not worry about arranging funds for medical bills as you can pay using credit cards.

(g) Credit score: Credit cards are also a great way of improving your credit score. The credit score is a three-digit score calculated based on your credits and how well you pay them back. Most banks and financial institutions take into account an individual’s credit score while deciding whether the individual is eligible for a loan. If you have a credit card and you pay your credit on time, it is likely to improve your credit score.

12. What are the disadvantages of Credit cards? Explain.

Ans: Disadvantages of Credit Cards are:

(a) Minimum due trap: The biggest con of a credit card is the minimum due amount that is displayed at the top of a bill statement. A number of credit card holders are deceived into thinking the minimum amount is the total due they are obliged to pay, when in fact it is the least amount that the company expects you to pay to continue receiving credit facilities.

(b) Hidden costs: Credit cards appear to be simple and straight forward at the outset, but have a number of hidden charges that could rack up the expenses overall. Credit cards have a number of taxes and fees, such as late payment fees, joining fees, renewal fees and processing fees. Missing a card payment could result in a penalty and repeated late payments could even result in the reduction of your credit limit, which would have a negative impact on your credit score and future credit prospects.

(c) Easy to overuse: With revolving credit, since your bank balance stays the same, it might be tempting to put all your purchases on your card, making you unaware of how much you owe. This could lead to you over spending and owing more than you can pay back, beginning the cycle of debt and high interest rates on your future payments.

(d) High interest rate: If you do not clear your dues by your billing due date, the amount is carried forward and interest is charged on it. This interest is accrued over a period of time on purchases that are made after the interest-free period. Credit card interest rates are quite high, with the average rate being 3% per month, which would amount to 36% per annum.

(e) Credit card fraud: Though not very common, there are chances you might be victim of credit card fraud. With advances in technology, it is possible to clone a card and gain access to confidential information through which another individual or entity can make purchases on your card. Check your statements carefully for purchases that look suspicious and inform the bank immediately if you suspect card fraud. Banks usually waive off charges if the fraud is proven, so you will not have to pay for purchases charged by the thief.

(f) Surcharges: Upon making a certain specific payment using a credit card, you might have to incur an additional fee known as surcharge. This fee, is however, generally applicable on expenses made on fuel and railway bookings.

(g) Limited Cash Withdrawal: Unlike debit cards, cash withdrawals from credit cards charge a fee. There is an applicable annual interest rate of around 40% (3.35% per month) on withdrawing cash using a credit card.

13. How to use a credit card in the right way?

Ans: The right way to use the credit card are given below:

(i) Never skip a payment: Missing a credit card payment can result in penalties and late fees and can also harm the credit score. Therefore, ensure that you never miss a payment, even if you can afford to pay only the minimum due.

(ii) Pay the balance in full: In case you don’t pay the credit card balance in full, you will have to pay interest on the balance amount. The interest charges can be as high as 36% per annum. If you miss even one payment, you might pay a lot more than you owe. Hence it is best to spend only what you can afford to pay. This way, you can avoid interest charges.

(iii) Use the card for wants and not needs: Always use a credit card for planned purchases or for emergencies. Don’t use it for your wants. A credit card should be a loan for yourself that you must pay back as soon as possible. This way, you can avoid overspending and also avoid interest charges.

(iv) Avoid impulse buys on credit cards: Every time you go out of control and shop impulsively, avoid taking out your credit card. Use a debit card instead. This way, you will limit your impulse buys and avoid damaging your financials.

(v) Limit your credit usage to 30%: Always keep your credit card utilisation ratio below 30%. By doing so, you can improve your credit score, pay back the balance on time, and also manage your finances in a better way. If your credit limit is Rs 1 lakh, use only Rs 30,000 (30%) to ensure your credit history is good and improve your credit score.

14. What are the various card based service providers?

Ans: The various card based service providers are as follows:

There are different companies providing card based banking services in India. Some of these are as follows:

(i) Maestro debit card: Maestro (stylized as maestro) is a brand of debit cards and prepaid cards owned by Master Card that was introduced in 1991. Maestro de cards are obtained from associate banks and are linked to the cardholder’s current account while prepaid cards do not require a bank account to operate. Maestro cards can used to withdraw cash in ATMs across the world. Payment for online purchases and transactions at domestic and international POS outlets can also be done through card. Payments are made by swiping cards through the payment terminal, insertion interchip and PIN device or by a contactless reader The payment is authorised by the card issuer to ensure that the cardholder has sufficient funds in their account to make the purchase. The cardholder then confirms the payment by either signing the sales receipt or entering their 4 to 6-digit PIN, except with contactless transactions below a specified amount for which no further verification is required.

(ii) Visa Debit: Visa Debit is a major brand of debit card issued by financial institutions in many countries around the world. Numerous banks and financial institutions issue Visa Debit cards to their customers for accessing their bank accounts. Such types of debit cards are issued by banks that have tied up with the international Visa Payment System network. Online transactions taken place are verified by Visa payment platform. In many countries the Visa Debit functionality is often incorporated on the same plastic card that allows access to ATM and any domestic networks like EFTPOS (Electronic funds transfer at point of sale) or INTERAC (a Canadian interbank network). The cardholders also have an overdraft facility. There are different types of Visa Debit cards. Usually, banks issue Visa Classic Debit Card, Visa Gold Debit Card Visa Platinum Debit Card, Visa Signature Debit Card, and Visa Infinite Debit Card. Each card has its own unique features.

(iii) Payment cards: Payment cards are part of a payment system issued by financial institutions, such as a bank, to a customer that enables its owner (the cardholder) to access the funds in the customer’s designated bank accounts, or through a credit account and make payments by electronic funds transfer and access automated teller machines (ATMs). Such cards are known by a variety of names such as bank cards, ATM cards, MAC (money access cards), client cards, key cards or cash cards.

(iv) RuPay Debit card: RuPay is an Indian multinational financial services and payment service system, conceived and launched by the National Payments Corporation of India (NPCI) on 26 March 2012. It was created to fulfil the vision of establishing a domestic, open and multilateral system of payments of the Reserve Bank of India’s (RBI). RuPay card facilitates electronic payment at all Indian banks and financial institutions. NPCI maintains ties with Discover Financial, JCB to enable RuPay card scheme to gain international acceptance. RuPay debit card can be used to make a variety of domestic transactions, you can pay for purchases on online and retail outlets as well utility bill payments.

(v) Mastercard: It is a brand of debit card provided by Mastercard, a US multinational financial services corporation headquartered in Purchase, New Work. Throughout the world, its principal business is to process payments between the banks of merchants and also between the card-issuing banks or credit unions for the purchasers who use the “Mastercard” brand debit, credit and prepaid cards to make purchases. Mastercard Worldwide has been a publicly traded company since 2006.

15. Difference between Credit card and Debit cards.

Ans: Following are the difference between credit card and debit card are a follows:

(i) A Credit card is issued by banks and a few non-banks, and it can also be issued by various approved enterprises. As against, Debit card is issued by banks and are linked to the bank account.

(ii) With a Credit card, the payment is deferred by the card user. On the contrary, immediate payment is made for the purchase whenever the card is swiped or dipped at POS terminals, and the amount is deducted from the customer’s account linked to it.

(iii) A Credit card is just like a loan extended from the bank, which implies pay later for the purchases made now. Conversely, Debit Card is similar to a cheque which indicates instant payment for the purchases made.

(iv) When it comes to credit period, Credit cards generally have a credit period of 45 days within which the customer must repay the amount, else interest will be charged on the amount due. In contrast, there is no credit period in the case of a debit card, as the amount is instantly deducted from the customer’s account.

(v) One must have a bank account with the concerned bank, which issues a debit card, whereas there is no such condition with the credit card, as a person can apply for the credit card even if he does not have an account with the bank.

(vi) With a debit card, one can have direct access to the account tied to it, be it a current account or savings account. Oppositely, as no account is linked to the credit card, it is quite obvious one cannot access the account.

(vii) Credit Score helps in creating and improving the CIBIL score, whereas the use of the debit card has no impact on the CIBIL score.

16. What are the services offered by Mobile Banking?

ans: Mobile banking can offer services such as the following:

(i) Account Information:

(a) Mini-statements and checking of account history,

(b) Alerts on account activity or passing of set thresholds, Monitoring of term deposits.

(d) Access to card statements.

(e) Insurance policy management.

(f) Pension plan management.

(g) Status on cheque, stop payment on cheque.

(ii) Payments & Transfers:

(a) Domestic and international fund transfers.

(b) Micro-payment handling.

(d) Commercial payment processing.

(e) Bill payment processing.

(iii) Investments:

(a) Portfolio management services.

(b) Real-time stock quotes.

(iv) Support:

(a) Status of requests for credit, including mortgage approval, and insurance coverage.

(b) Cheque book and card requests.

(d) ATM Location.

(v) Content Services:

(a) General information such as weather updates, news.

(b) Loyalty-related offers.

17. What are the features of Mobile banking? Explain.

Ans: The key features of mobile banking are:

(i) Accessibility: M-banking offers 24-hour access to all customers. Customers can log in to their app and view and track their account balances anytime. Besides, they can engage in fund transfers even during bank holidays.

(ii) Security: The banks recognize the importance of providing a secure environment to customers for transactions based on the banking app. Hence, m-banking asks for SMS access, location access, biometric access, and application password from the customers to ensure their privacy and security.

(iii) Transferability: Transferring funds from one bank account to another is the most basic m-banking activity. All the banking app-based transfers are now secured using two-step verification via app password and OTP-based transactions. The two-step verification is applicable in fund transfers, utility bill payments, and online shopping for the safety and convenience of customers.

(iv) Investment Management: Many big banks offer the facility of securities trading through their banking app. It makes it easier for the customers to trade hassle-free. Also, m-banking enables customers to track their deposits and other investments from the convenience of their homes.

(v) Digital Payments: At present, all m-banking apps have a QR code reader for payment at merchant locations. So the customer has to point at the QR code of the merchant at their shops and pay the price of the goods using the account details from the QR code.

(vi) Customer Service: M-banking provides personalised service to customers through live chat, phone, notifications, etc. This helps customers to get the required assistance without visiting the bank directly.

18. Explain the advantages and disadvantages of Mobile banking.

Ans: Advantages of Mobile Banking:

(a) Always on 24×7 Accesses: Banks are able to provide services to the customers for 24 hours per day and 7 days per week. It enables the consumers to be transaction-ready much as cable access has facilitated online PC access and reduced consumer dialup delays.

(b) Advanced Penetration of Mobile Networks: The 2G networks already cover more than 90% of the population in the western world and this number is growing steadily.

(c) Personalisation: Through Subscriber Identify Module (SIM) cards, mobile customers have a specific profile that enables customised functionality to directly reflect the way they want to transact business over mobile devices. Through the convenient addition of a multi- application, relationship card, mobile customers will also have a built- in platform for a host of other application services, including security keys, virtual credit cards and other customised payment instruments.

(d) WAP: Rapid evolution of global protocols such as Wireless Application Protocol (WAP) enables the communication channel between computers and mobile devices.The WAP component essentially provides the facility of reforming data for display in wireless handsets.

(e) Faster Data Processing Speed: Increase in bandwidth and data transmission speeds makes mobile data services efficient and cost- effective in a real time environment.

(f) Security: In addition to the above mentioned smart card, a private key stored on the SIM card can protect e-banking transactions. Effectively, the mobile phone can become a wireless wallet to protect proprietary purchase and financial information.

(g) Mobile Payment: Mobile payment means executing a payment transaction using a wireless device such as mobile phone or personal digital assistant. The mobile device becomes the electronic payments device. Its mobility is its big advantage. It enables payments to be transacted regardless of place and time.

Disadvantages of Mobile Banking:

(a) Restricted Plans: Though there were many plans to enhance mobile banking offerings and services, in reality the initiatives were very restricted. Most applications are informative such as bank balances or credit card or bank amounts rather than interactive services like buying or trading.

(b) Technical Problems: There are problems of technical issues, security concerns and cost constraints. WAP proved to be too slow and cumbersome to satisfy the customer. People think about security. But, their concerns are not adequately fulfilled by purveyors of m-banking.

(c) High Charges: The most significant problem of m-banking is that costs exceed perceived benefits.The charges for data transmitted are still too high to develop mobile banking in several countries.

(d) Negative Experience in European Countries: Experience about m-banking in European countries has not been positive. e.g. the British leader in on-line banking decided to abort its mobile offering. It saw little enthusiasm for mobile banking among its customers.

(e) Fees: While mobile banking can help users save money, some banks may charge fees for certain services or transactions. It is important to read the fine print and understand the fees associated with mobile banking before signing up.

(f) Security Concerns: One of the main concerns with mobile banking is the potential for security breaches. Cyber criminals may attempt to steal personal information or access bank accounts through mobile apps, which can leave users vulnerable to identity theft and financial fraud.

19. Explain the advantages and disadvantages of Internet Banking.

Ans: The advantages of Internet banking are as follows:

(i) Availability: You can avail the banking services round the clock throughout the year. Most of the services offered are not time-restricted; you can check your account balance at any time and transfer funds without having to wait for the bank to open.

(ii) Easy to Operate: Using the services offered by online banking is simple and easy. Many find transacting online a lot easier than visiting the branch for the same.

(iii) Convenience: You need not leave your chores behind and go stand in a queue at the bank branch. You can complete your transactions from wherever you are. Pay utility bills, recurring deposit account instalments, and others using online banking.

(iv) Time Efficient: You can complete any transaction in a matter of a few minutes via internet banking. Funds can be transferred to any account within the country or open a fixed deposit account within no time on net banking.

(v) Activity Tracking: When you make a transaction at the bank branch, you will receive an acknowledgement receipt. There are possibilities of you losing it. In contrast, all the transactions you perform on a bank’s internet banking portal will be recorded. You can show this as proof of the transaction if need be. Details such as the payee’s name, bank account number, the amount paid, the date and time of payment, and remarks if any will be recorded as well.

The disadvantages of Internet banking are as follows:

(i) Internet Requirement: An uninterrupted internet connection is a foremost requirement to use internet banking services. If you do not have access to the internet, you cannot make use of any facilities offered online. Similarly, if the bank servers are down due to any technical issues on their part, you cannot access net banking services.

(ii) Transaction Security: No matter how much precautions banks take to provide a secure network, online banking transactions are still susceptible to hackers. Irrespective of the advanced encryption methods used to keep user data safe, there have been cases where the transaction data is compromised. This may cause a major threat such as using the data illegally for the hacker’s benefit.

(iii) Difficult for Beginners: There are people in India who have been living lives far away from the web of the internet. It might seem a whole. new deal for them to understand how internet banking works. Worse still, if there is nobody who can explain them on how internet banking works and the process flow of how to go about it. It will be very difficult for inexperienced beginners to figure it out for themselves.

(iv) Securing Password: Every internet banking account requires the password to be entered in order to access the services. Therefore, the password plays a key role in maintaining integrity. If the password is revealed to others, they may utilise the information to devise some fraud. Also, the chosen password must comply with the rules stated by the banks. Individuals must change the password frequently to avoid password theft which can be a hassle to remember by the account holder himself.

20. Explain the key differences between Mobile Banking and Internet Banking.

Ans: The difference between mobile and internet banking can be drawn clearly on the following grounds:

(i) Internet banking is nothing but a banking transaction, carried out over the internet, via, respective bank or financial institution’s website, under a personal profile, with a personal computer. Conversely, mobile banking is a service that enables the customer to perform banking transactions using a cellular device.

(ii) Mobile banking can be performed with the help of mobile telecommunication devices, i.e. Mobiles or Tablets. On the contrary, for conducting internet banking transactions, one needs to use devices like computers or laptops.

(iii) Mobile banking uses Short message service, mobile application or the web. In contrast, Internet Banking uses bank’s website.

(iv) In mobile banking, fund transfer is possible with the help of IMPS (Immediate Payment Service), NEFT (National Electronics Funds Transfer System) or RTGS (Real Time Gross Settlement). As against, in internet banking, funds can be transferred from one bank or branch to another, with the help of NEFT (National Electronics Funds Transfer System) or RTGS (Real Time Gross Settlement).

(v) While the number of functions performed by Mobile banking systems is limited, internet banking offers an array of services to their customers.

21. Explain the advantages of Core Banking to Customers and Businesses.

Ans: Both businesses and customers benefit from different core banking solutions:

(A) Advantages for Customers:

(i) Internet banking, mobile banking etc. are among the multiple channels that prove effective for faster payment processing.

(ii) CBS (Core Banking Solution) benefits those who are living in rural areas. For instance, farmers can easily get e-payments towards subsidies directly in their accounts.

(iii) Customers can get expedited service for routine transactions which includes withdrawals, passbooks, demand drafts, cash deposits etc.

(iv) The provision of a 24×7 banking service is another notable advantage of core banking solutions. Moreover, the provisions can be opted at any time and any where.

(v) Every bank branch uses applications from the data centre or central servers, hence deposits done in one branch get displayed instantly.

(vi) Customers or any business owners can withdraw funds from any branch across the world.

(vii) Core banking solutions curb the need for filling out multiple entries, thereby reducing errors and ensuring accuracy.

(viii) It facilitates a hassle-free merging of self-service operations and back-office data.

(B) Advantages for Businesses:

(i) Core banking solutions facilitate standardisation and transparency within business bodies and branches of banks. Since all the branches are connected to a central server, transactions can be viewed anytime. Instant projection of the transactions helps businesses to deal with inaccurate transactions or fraud.

(ii) Core banking solution emerged to be a saviour helping businesses cater to the increasing needs of customers. It ensures better customer retention via prompt customer service.

(iii) This banking mode has led to the minimization of errors, thereby facilitating accurate transactions.

(iv) It helps to bring down and manage operational costs involving lesser manpower for process execution.

(v) With the emergence of different core banking solution types, submission of reports to regulatory boards and the government has become convenient.

(vi) Core banking solutions help in efficient documents and record management.CBS incorporates a centralised database that helps in the faster collection of data.

(vii) It has become convenient for businesses to process cash,compute interest,open accounts, incorporate policy changes etc.

(viii) In addition, businesses can offer services and products to customers at nominal rates. For instance, automating different parts of financial transactions has curbed the need for multiple staff, helping to save on wages and related costs.

22. What are the components of core banking solutions?

Ans: CBS consists of several components, each addressing a specific aspect of banking operations.

Here are some critical components:

(i) Customer relationship management (CRM) helps manage all aspects of a bank’s customer relationships. It identifies potential customers, manages existing relationships, and provides superior customer service.

(ii) Deposit and loan management handles all aspects of deposit and loan products, including account creation, interest calculation, payment processing, and more.

(iii) Payment and transaction processing covers all monetary transactions, including deposits, withdrawals, fund transfers, and bill payments. It ensures that all transactions are processed accurately and efficiently.

(iv) Risk management and compliance help banks identify, assess, and manage various risks, including credit, market, and operational risks. It ensures compliance with various banking regulations and standards.

(v) Financial reporting and analysis allow banks to generate financial reports for internal and external use. It provides insights into the bank’s financial health and helps in decision-making.

(vi) Security module ensures the security of the banking operations, data, and transactions. It includes encryption, user authentication, and access control to prevent unauthorised access and fraud.

23. What are the essential core banking features?

Ans: After analysing the top banking software vendors, we’ve figured”out the core banking features indispensable in a decent solution.

(i) Centralised dashboard: Bankers need a single-view dashboard to visualise the system in real time. Also, bankers and clients should have access to the same dashboard view, this will help diagnose and solve issues faster.

(ii) Onboarding (with KYC features): Before using the dashboard, the client must sign in to their account with a unique username and password. With KYC features, banks can verify identities of prospective customers when they register. The onboarding process should also be simple enough for users to complete without stress.

(iii) Two-factor authentication: The solution needs to offer two-factor verification to boost security and protect clients’ sensitive data.

(iv) Push notifications: When building a core banking solution for mobile, use push notifications to deliver timely account updates to clients.

(v) Loan management: The core banking solution must allow customers to monitor their loans and schedule payments according to the specified plan.

(vi) Interest calculators: For loan and mortgage payments, users need access to real-time calculators to help them make informed decisions.

(vii) Live chat: Live chat feature must be on the platform to help users contact support agents when they need assistance. Automated chatbots can also provide templated answers to frequently asked questions.

(viii) Transaction management: Clients can customise their popular payments and P2P transfers to ensure that their contact lists remain updated. They can also use multi-currency exchanges to trade on their preferred currencies.

24. Discuss the challenges of implementing core banking solutions.

Ans: Implementing a core banking solution (CBS) can bring about numerous benefits. Still,

it is also a complex process with its own challenges:

(i) Data migration: Migrating old system data to the new CBS is challenging. It should be managed carefully to ensure that all data is transferred accurately and securely and no data is lost or corrupted.

(ii) Integration with existing systems: Banks often use various technologies for different functions. Integrating the new CBS with these existing systems can be complex, and errors could disrupt banking operations.

(iii) Training staff: Employees must be trained to use the new CBS. It could be time-consuming and costly, and there’s always the risk that employees will need help to adapt to the new system.

(iv) Business disruption: Implementing a new CBS can disrupt normal banking operations. It’s essential to manage this process carefully to minimise customer impact.

(v) Regulatory compliance: The new CBS must comply with all relevant banking regulations. It can be tricky, especially if rules change during implementation process.

(vi) Vendor dependence: Banks rely heavily on the CBS vendor for support and updates. It creates challenges if the vendor’s performance is not upto par or if the vendor goes out of business.

(vii) Scalability and future-proofing: The new CBS must be scalable to support the bank’s growth and adaptable to future changes in banking technology and practices. Predicting these future needs can be difficult.

25. Explain the disadvantages of CBS in banking.

Ans: While the CBS in banking has revolutionised how we manage our money and bank today, it still has its disadvantages.

Some of them are as follows:

(i) Technology-reliant: The CBS-led banking industry is technology-reliant. Any technical disruption is enough to bring banking transactions to a halt on a national and worldwide scale. This is enough to bring the bank into disrepute among its consumers.

(ii) Rigid: The CBS in banking industry covers all aspects of the industry today. However, it lacks the flexibility to adapt to future industry changes and demands. It continues to run on COBOL-based software, one of the oldest software language programs.

(iii) Expensive: While CBS in banking may be scaled up to meet market demand, it is costly. Even if they are scaled up, small and medium-sized banks find it challenging to maintain them.

(iv) Need for Cyber resilience: A cyberattack on the central server can bring the entire bank to a halt. As a result, the bank must be cyber resilient and attentive in the face of such attacks, incurring significant costs.

(v) High maintenance: Legacy banking core systems, while reliable, are high maintenance. One needs specialists to take care of them regularly. Furthermore, updating them to stay up with current events is also costly.

(vi) Impersonal: Though there are chatbots and IVRs to address customer queries, one misses the personal interaction they had with the bank officials.

Introduction to Banking Unit 5 Technology in Banking

Technology in Banking

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