E-BANKING PRODUCTS AND SERVICES IN...
Transcript of E-BANKING PRODUCTS AND SERVICES IN...
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CHAPTER-III
E-BANKING PRODUCTS AND SERVICES IN INDIA
3.1 INTRODUCTION
Banks and other financial entities in India entered the world of information
technology and computer networking only very recently. The introduction of
liberalization measures in the banking sector and the emergence of new private
sector and foreign banks equipped with latest technology, led to increased
competition in the banking sector. With the introduction of the new technology in
banking sector, customers are fast moving away from the traditional branch
banking system to the convenience and comfort of remote electronic banking
services or virtual banking. With E-banking, the brick and mortar structure of the
traditional banking gets converted into a click and portal model thereby giving real
shape and form to the concept of virtual banking. In virtual banking, brick and
mortar structure or physical bank branch is no more required for rendering
banking services.
E-banking is a generic term for delivery of banking services and products
through electronic channels such as telephone, internet, cell phone, etc. The concept
and scope of E-banking is still evolving. It facilitates an effective payment and
accounting system thereby enhancing the speed of delivery of banking services
considerably. While E-banking has improved efficiency and convenience, it has
also posed several challenges to the regulators and supervisors.
Several initiatives taken by the Government of India, as well as the Reserve
Bank of India (RBI), have facilitated the development of E-banking in India.
The government of India enacted the Information Technology (IT) A, 2000, which
provides legal recognition to electronic transactions and other means of electronic
commerce. The RBI has been preparing to upgrade itself as a regulator and
supervisor of the technologically dominated financial system. It issued guidelines
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on risks and control in computer and telecommunication system to all banks,
advising them to evaluate the risks inherent in the systems and put in place
adequate control mechanisms to address these risks. The existing regulatory
framework over banks has also been extended to E-banking. It covers various
issues that fall within the framework of technology, security standards, and legal
and regulatory issues1.
Improved customer service has become very important for public and
private sector banks to survive and to grow in the emerging deregulated financial
market. Consequently, banks are under increasing pressure to ‘offer today what
customers would expect tomorrow’. The banks now compete with one another to
offer value-added services to customers to expand their customer bases. In this
chapter, the various types of E-banking products and services offered by the
Indian banks have been enumerated with latest statistical data available.
Types of E-Banking Products and Services offered in India
The following are the important up-to-date e-banking products and services
offered by the Indian banks.
1. ATM
2. Credit Card
3. Internet Banking
4. Mobile banking
5. Phone Banking
6. Tele Banking
7. Utility Bill Payment and other regular periodical payment facilities
1 R.K. Uppal & Rimpi Jatana,” E-banking in India - Challenges and Opportunities, Eastern
Book Corporation (Online Book Seller), 2007.
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8. Electronic Fund Transfer ( NEFT / RTGS/ MICR )
9. Electronic Clearing Services
10. E-Commerce Transactions
11. MICR/OCR Clearing System
12. Pre-Paid Instruments
13. Truncation of Cheques System
The above products and services are discussed in detail in the following
paragraphs.
3.2. AUTOMATED TELLER MACHINES (ATM)
These are the cash dispensing machines which are frequently seen at banks
and other locations such as shopping centres and building societies. Their main
purpose is to allow customer to draw cash at any time and to provide banking
services where it would not have been viable to open another branch, e.g. on a
college campus.
By the end of 1990, private and public sector banks in India came up with
their own ATM networks under the initiative of the Indian Banks Association in
Mumbai. The Bank of India was the first nationalised bank to render ATM
facilities to its customers in Mumbai.
ATM has become the most popular and convenient delivery channel used
by people in rural and in urban areas. ATM is the most accepted and popular user-
friendly technology for even the rural customers. An Automated Teller Machine is
one, which a customer can use with a card having PIN to withdraw cash and for
other services. ATM is a modern device introduced by the banks to have access to
money day in day out without visiting the bank branches in person.
ATMs have already become popular in India and they enable the customers
to withdraw their money 24 hours a day, 7 days a week and round the year.
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The system is known as ‘Any Time Money’ or ‘Anywhere Money’, because it
allows the customers to withdraw money from the bank from any of its ATMs
round the clock even on Sundays and National holidays. Through this facility,
customers of the bank are not restricted to remain a customer of the branch where
the account is maintained.
The services of ATMs are made available by the banks both at the bank
premises (On-site ATMs) and also at convenient locations (Off-site ATMs) viz. at
public places like petrol bunks, markets, railway stations, bus stands air ports, etc.
Depending upon the volume of business, banks install required number of ATMs
for their customers at convenient places in the same town.
Another significant milestone in this mode of delivery channel was the
introduction of the Shared Payment Network System (SPNS) of ATMs by the
Indian Banks Association, Mumbai. Under this system the banks having no ATM
facility in a locality provide ATM services to their customers in that locality
through a tie up with other banks with ATM to share their ATM. The ATM
sharing in India across banks started with SWADHAN.
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Services Offered Through ATM
Following are the important services offered by the Indian banks through
their ATM:
a) Cash and Cheque deposit
b) Transfer of funds between accounts
c) Printing of mini-statement
d) Paying of insurance premium
e) Balance enquiry
f) Product information
g) Change of Personal Identification Number (PIN)
h) Ordering of Cheque book
i) Receipt of cash
j) Recharge of prepaid mobile card
k) Option for mobile banking etc.
Progress of ATM
Table 2.1 discloses the number of ATMs installed by scheduled commercial
banks by the end of March 2010. During 2009-10, the total number of ATMs
installed by the banks increased to 60,153. The spread of ATMs has increased
from 34,789 in March 2008 to 60,153 in March, 2010. The ATM installed by
foreign banks and new private sector banks were four and three times of their
respective branches.
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Table 3.1
Branches and ATMs of Scheduled Commercial Banks
(As at end-March 2010)
Bank Group Branches Total
ATMs On-site
ATMs Off-site Total
Off-site ATMs % to Total ATMs
ATMs as % to Total
Branches
Nationalised Banks 41596 12655 7047 19702 35.8 47.4
SBI Group 17229 11142 9836 20978 46.9 121.8
Old Private Sector Banks 4952 2266 1124 3390 33.2 68.5
New Private Sector Banks 5075 6337 8720 15057 57.9 296.7
Foreign Banks 308 279 747 1,026 72.8 333
Total 69160 32679 27474 60153 45.7 86.97
Source: Trend and progress of RBI Annual Report - 2009-10
The ATM to branch ratio was much lower for public sector (47.4 per cent)
and old sector banks (68.5 per cent). At individual bank level, the number of
ATMs exceeded branches in respect of all new private sector banks, except
centurion bank of Punjab Ltd., which was later merged with HDFC Bank Ltd.
In the case of old private sector banks, the ATM to branch ratio was less than
100 per cent for nationalised banks and old private sector banks. As most foreign
banks are operated with limited branches in urban and metropolitan areas, the
number of ATMs operated by them, in general, far exceeded the number of
branches. Of all the ATMs installed in the country at the end March 2010, SBI
Group had the largest share in off-site ATMs while Nationalised banks had the
largest share in on-site ATMs.
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3.3 NATIONAL ELECTRONIC FUND TRANSFER (NEFT)
It is a national wide funds transfer system to facilitate transfer of funds from
any branch to any other bank branch. The operationalisation of the NEFT in
November 2005 was a major step in the direction of setting up and operating a
National Level Payment System. There is no restriction of centre or of any
geographical area inside the country. The system uses the concept of centralised
accounting system and the bank’s account that is sending or receiving the funds
transfer instructions gets operated at one centre viz. Mumbai only. The individual
branches participating in NEFT could be located anywhere across the country.
NEFT facility is available with all Core Banking Branches (CBS). The beneficiary
gets the credit on the same day or the next day depending on the time of settlement.
Available across a longer time window, the NEFT system provides for batch
settlements at hourly intervals, thus enabling near real-time transfer of funds.
Certain other unique features viz. accepting cash for originating transactions,
initiating transfer requests without any minimum or maximum amount limitations,
facilitating one-way transfers to Nepal, receiving confirmation of the date / time of
credit to the account of the beneficiaries, etc., are available in the system.
Operation of NEFT System
Step-I: The remitter fills in the NEFT application form giving the particulars of
the beneficiary (Bank-branch, beneficiary’s name, account type and account number)
and authorizes the branch to remit the specified amount to the beneficiary by
raising a debit to the remitter’s account. This can also be done by using net
banking services.
Step-II: The remitting branch prepares a Structured Financial Messaging System
(SFMS) and sends it to its service branch for NEFT.
Step-III: The service branch forwards the same to the local RBI (National
Clearing Cell, Mumbai) to be included for the next available settlement. NEFT is
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settled in six batches at 09.30, 10.30, 12.00, 13.00, and 16.00 hours on weekdays
and 09.30, 10.30, and 12.00 hours on Saturdays.
Step-IV: The RBI at the clearing centre sorts the transactions bank-wise and prepares
accounting entries of net or credit for passing on to the banks participating in the
system. Thereafter, bank-wise remittance messages are transmitted to banks.
Step-V: The receiving banks process the remittance messages received from RBI
and effect the credit to the beneficiaries’ accounts.
There is no value limit for individual transactions. The scheme had
originally no restrictions in the transfer of amounts. However, banks impose
certain restrictions in the number of transfer and amount transferred per day for
reasons of security. It is necessary to have a bank account to originate the NEFT
transaction and the beneficiary too should have an account at the destination bank-
branch. There is no acknowledging of money credited to the beneficiary account.
But electronic acknowledgement is generated for the customer that his money is
received by the beneficiary at the sender branch. Foreign remittances cannot be
effected through NEFT. The remitting customer gets back the money if it is not
credited to the beneficiary account.
RBI publishes the list of bank branches participating in the NEFT on its
website with. Indian Financial System Code (IFSC). It is an alpha numeric code
designed to uniquely identify the bank-branches in India. This is 11 digit code
with first four characters representing the bank code, the next character reserved as
control character (presently 0 appears in the fifth position) and remaining six
characters to identify the branch.
The essential information that the remitting customer has to furnish is
beneficiary details such as beneficiary name and account number, name and IFSC
of the beneficiary bank branch. The service charges for outward remittance is
Rs. 1.50 per Rs. 1,000 or a part thereof subject to a minimum charge of Rs.25 and
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a maximum of Rs. 1,500. The service charges for outward remittance is
Rs. 1.50 per Rs. 1,000 or a part there of subject to a minimum charge of Rs.25 and
a maximum of Rs. 1,500. For inward remittance Rs. 50 is charged irrespective of
the amount.
Table 3.2 Growth of National Electronic Fund Transfer (NEFT)
(Number in Lakh and Amount in Crores) Year Volume Percentage Amount Percentage
2003-04 8.19 100 17,124 100
2004-05 25.49 311 54,601 319
2005-06 30.67 374 61,288 358
2006-07 47.76 583 77,446 452
2007-08 133.15 1625 1,40,326 820
2008-09 321.61 3926 2,51,956 1471
2009-10 663.38 8095 4,09,507 2391
Source: Trend and progress of RBI Annual Report 2009-10
Table 2.2 depicts the growth of transferring funds by using EFT/NEFT
technology. There is a tremendous growth in transfer of funds both in terms of
value and volume. The percentage of growth rate in volume of transactions in the
financial year 2003-04 was 100. The growth rate in volume of transactions had
increased gradually up to the financial year 2006-07 (583%) and it had extraordinary
growth rate in the financial years 2007-08 (1625%), 2008-09 (3926%) and 2009-10
(8095%). In the case of value of money transferred, it was 17,124 crore (100 %) in
the financial year 2003-04 and it had raised to 4,09,507 crore (2391 %) in the
financial year 2009-10. With the advent of EFT/NEFT technology, people are
changing from traditional methods of fund transfer to modern technologies.
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3.4 REAL TIME GROSS SETTLEMENT (RTGS)
RBI introduced Real Time Gross Settlement (RTGS) system with a view to
enhance the efficiency of the Cheque clearing system. The Real Time Gross
Settlement was implemented by the RBI after a comprehensive audit and review
of the software and also by conducting extensive training of users at commercial
banks on March 26, 2004. The Real Time Gross Settlement system is being
designed to provide large volume funds transfer and settlement in an on-line real
time environment to the banking industry, with settlement on a gross basis.
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 transactions. Considering that money transfer takes place in the books of the
Reserve Bank of India, the payment is taken as final and irrevocable. The RTGS
service window for customer’s transaction is available from 9.00 hours to 16.00
hours on week days and from 9.00 hours to 12.00 noon on Saturdays i.e., to accept
the customer transactions for settlement at the RBI.
The RTGS system is primarily for large value transactions. The minimum
amount to be remitted through RTGS is Rs.1,00,000. There is no upper ceiling for
RTGS transactions. No minimum or maximum stipulation has been fixed for EFT
and NEFT transactions. The time taken for effecting funds transfer from one
account to another account under normal circumstances is that the beneficiary
branches are expected to receive the funds in real time as soon as funds are
transferred by the remitting bank. The beneficiary bank has to credit the
beneficiary’s account within two hours of receiving the funds transfer message.
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The remitting bank receives a message from the RBI that money has been credited
to the receiving bank. Based on this, the remitting bank can advise the remitting
customer that money has been delivered to the receiving bank.
It is expected that the receiving bank will credit the account of the
beneficiary instantly. If the money cannot be credited for any reason, the receiving
bank would have to return the money to the remitting bank within two hours. Once
the money is received back by the remitting bank, the original debit entry in the
customer’s account is reversed. The payments are settled through a transaction by
transaction. The settlement of funds is final and irrevocable.
The remitting customer has to furnish the following information to the bank
for effecting a RTGS remittance:
1. Amount to be remitted 2. His account number which is to be debited 3. Name of the beneficiary bank 4. Name of the beneficiary customer 5. Account number of the beneficiary customer 6. Sender to receiver information, if any 7. The IFSC code of the receiving branch
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The beneficiary customer can obtain the IFSC code from his branch.
The IFSC code is also available in the Cheque leaf. This code number and bank
branch details can be communicated by the beneficiary to the remitting customer.
With a view to rationalize the service charges levied by banks for offering
various electronic products, a broad framework has been mandated as under:
a) Inward transactions – Free, no charge to be levied
b) Outward transactions –
Rs. 2 lakh to Rs. 5 lakh - not exceeding Rs. 25 per transaction
Above Rs. 5 lakh – not exceeding Rs. 50 per transaction
RTGS system which was initially started (March 26, 2004) with four banks,
besides the RBI, as participants, at present has 109 direct participants ( the RBI, 94
scheduled banks and 14 primary dealers) of which 84 banks are offering RTGS
based customer services from more than 11,280 branches in 508 towns/ cities
across the country. Performance of the RTGS based settlement system for the last
six financial years are given in Table 2.3.
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Table 3.3
Growth in RTGS Based Settlement (2003-09)
(Number in Lakh and Amount in Crore)
Source: Trend and progress of RBI Annual Report 2009-10
Table 2.3 reveals that RTGS scheme, introduced in the year March 2004,
has shown a spectacular growth both in terms of volume and in value. The volume
of transactions (Number in Lakh) and value of transfer cleared (Amount in crore)
are given separately with cumulative percentage of growth. As the RTGS system
was introduced on March 26, 2004 that year was not taken into consideration for
analysis. The financial year 2004-05 was taken as the base year for the purpose of
analysis. During the year 2004-05, the total number of transactions was 4.60 Lakh,
(100%), and it increased to 332.53 (7217%) lakh transactions in the last financial
year 2009-10. Every year the growth rate, both in volume of transactions and
value of money transferred, was twice of the previous year’s figures. The total
volume of amount transferred through the RTGS system was Rs. 40, 66,184 crore,
(100%), in the year 2004-05 and it had raised to Rs. 10,11,69,930 crore (2488 %)
in the year 2009-10. The table further reveals that RTGS scheme contributes about
50 per cent of the overall payment values in the year 2009-10.
Year/
Period
Total Customer Remittance
Number % Amount % Number % Amount %
2003-04 0.001 - 1,965 - 0.00 - 0.00 -
2004-05 4.60 100 40,66,184 100 0.68 100 2,49,662 100
2005-06 17.67 383 1,15,40,836 283 7.13 1048 25,70,212 1029
2006-07 38.80 842 2,46,19,179 605 24.82 3649 71,67,807 2871
2007-08 58.54 1271 4,82,94,558 1187 41.46 6097 1,61,00,172 6448
2008-09 133.84 2907 6,11,39,912 1503 112.34 16520 2,00,04,107 8012
2009-10 332.53 7217 10,11,69,930 2488 304.40 44765 2,95,16,777 11823
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As far as the customer remittance is concerned, the total number of
transactions during the year 2004-05 was 0.68 lakh (100%) and it had raised to
304.40 lakh (44765 %) in the financial year 2009-10. The value of amount
transferred among the customers through RTGS system was 2, 49,662 crore
(100%) during the base year and it had increased to 2, 95, 16,777 crore, (11823 %)
during the year 2009-10.
It can be concluded from the above analysis that the customers and banks
are considerably using the RTGS system for transferring the funds. The customers
are switching over from the traditional methods of payments, like Cheque, demand
draft, mail transfer, etc., to electronic methods of payment system, like EFT,
NEFT, RTGS, etc.
With the implementation of RTGS, the paper-based inter-bank clearing had
been discontinued in a phased manner beginning with the closure of inter-bank
clearing at Mumbai in November 2004. The inter-bank paper-based clearing was
terminated in eleven centres from June 2005. High value clearing available to both
wholesale and retail customers, based on Deferred Net Settlement (DNS) system
would be phased out slowly and should be transferred to RTGS. All RTGS
member banks have now been settling their inter-bank transactions only through
RTGS. Non-RTGS member banks have been asked to make use of the electronic
platform as customers of some RTGS participants.
3.5. ELECTRONIC CLEARING SERVICE (ECS)
Indian banks are competing with one another to offer new products and
services to their customers. Banking services and products in India witnessed
transformation on a large scale in the last few years. Technology has played a
significant role in facilitating the transformation in the banking sector. Electronic
clearing service is one of the new electronic banking services.
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Electronic clearing service is a mode of electronic funds transfer from one
bank account to another bank account using the services of a clearing house. This is
normally for bulk transfers from one account to many accounts or vice versa. This can
be used both for making payments like distribution of dividend, interest, salary,
pension etc. by institutions or for collection of amounts for purposes such as
payments to utility companies like telephone, electricity or charges such as house
tax, water tax etc. or for loan instalments of financial institutions/banks or regular
investments of persons.
Electronic Clearing Service (ECS) is a non-paper based movement of funds
which is encouraged by the Reserve Bank of India on a wide scale. Indian banking
sector has made a quantum leap forward in terms of switching over from paper-
based transactions like use of currency notes, cheques, drafts or challans to
electronic means like Real Time Gross Settlement (RTGS), National Electronic
Fund Transfer (NEFT) and other electronic modes.
There are two types of (ECS) called
Electronic Credit Clearing Service (ECS) (Credit)
Electronic Debit Clearing Service (ECS) (Debit)
1. Electronic Credit Clearing Service (ECS) (Credit)
RBI introduced the Electronic Clearing Services in April, 1995. At the time
of introduction, the facility was available only at National clearing Centre Mumbai
and Kolkata. However, at present this facility is available across the country at 58
centres. All banks and branches in these locations are mandatory participants.
Organizations, which desire to make bulk payments frequently to a large number
of beneficiaries, can avail the ECS facility by registering for it with their bank.
Electronic Credit Clearing Service is a reliable device used for bulk and
repetitive credit-push payments such as salary, pension, dividend, commission,
IPO refunds, interest etc. ECS facility is largely utilized by the public and private
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limited companies and Government departments which make bulk and recurring
payments. Electronic Credit Clearing Service brings down administration cost and
ensures more profitability and productivity to the bank. It is an electronic bulk
transfer, using the values in T+3- process cycle.
2. Electronic Debit Clearing Service (ECS) (Debit)
Electronic Debit Clearing facility was initially introduced by the RBI in
Chennai in August, 1994 and at Mumbai in March, 1996 and later was extended to
New Delhi and Kolkata. At present, this facility is available at 43 centres across
the country and all banks and branches in these locations are mandatory
participants. Electronic debit clearing service was introduced by RBI to facilitate
the payment of credit-pull transactions such as payment of utility bills, insurance
premium and repayment of loans instalments.
In this scheme, the branch has to prepare a floppy file through a table top
MICR reader of all such transfer advices and this floppy is received by the service
branch which would consolidate it for onward submission to the clearing house.
The RBI would debit the individual bank and credit the sponsor bank of the utility
company. The system facilitates electronic transfer of bulk amounts using T+3-
process cycle. Dates are to be fixed in advance for bulk debits. Only after the cycle
is complete, final of the settlement would be known.
With effect from June 14, 2005, processing charges for all electronic
transactions under EFT, NEFT and ECS facility amounting to Rs. 2 crore and
above were waived up to the period ended March 31, 2007. It has been decided to
extend the waiver of charges for processing electronic payment products
(ECS/NECS/NEFT/RTGS) for a further period of one year, i.e., up to 31st March,
2010. As of March 31, 2009 as many as 114 banks with 26,275 branches participate
in NECS local ECS (credit) at Mumbai was merged with NECS-credit effective
from March 24, 2009.
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Table 3.4
Progress in ECS (Credit) and ECS (Debit) Transactions
(Number in Lakh and Amount in Crore)
Electronic Clearing services (ECS)
ECS (credit) ECS (Debit)
Year Volume % Amount % Volume % Amount %
2003-04 203 100 10,228 100 79 100 2,253 100
2004-05 400 197 20,179 197 153 194 2,921 130
2005-06 442 218 32,324 316 359 454 12,986 576
2006-07 690 340 83,273 814 752 952 25,440 1130
2007-08 783 386 7,82,222 7647 1271 1609 48,937 2172
2008-09 883 435 97,486 948 1600 2025 66,975 2972
2009-10 981 483 1,17,612 1150 1492 1888 69,523 3085
Source: Trend and progress of RBI Annual Report 2009-10
From Table 2.4, it is clear that there is a considerable progress in ECS
(Credit) and ECS (Debit) both in value of transactions and number of transactions.
In the financial year 2003-04, the number of credit transactions was 203 Lakh
(100%) and increased to 981 lakh transactions (483 %) in the year 2009-10. It is
interesting to note that in the financial year 2007-08, the value of transactions
registered were Rs. 7,82,222 crore (7647%). In the case of ECS (Dr), 79 Lakh
transactions (100%) were cleared in the financial year 2003-04 and increased to
1492 lakh transactions (1888 %) in the financial year 2009-10. The value of
transactions cleared were increased from Rs. 2253 crore (100%) in the financial
year 2003-04 to Rs. 69, 523 crore (3085 %) in the financial year 2009-10. So, it
can be concluded that there is a considerable progress in ECS (credit) and ECS
(Debit) both in value of transactions and number of transactions.
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3.6 CARD BASED PAYMENT SYSTEMS
There are three types of card based payment system. They are 1.Credit card
2.Debit card and 3. Smart card. Here, they are explained in detail with latest data.
Credit Cards
Credit card is the modern system of payment which has to a large extent
replaced the traditional forms of payment by cash, cheque etc. VISA and MASTER
CARD, MAESTRO, CIRRUS DINEKS are associations of banks, which dealt in
credit cards. Bank credit cards are a type of consumers’ loan, revolving in nature
i.e. automatically renewing itself with in specific limits. The holder has the option
to utilize it in part or full depending upon his needs. The credit so availed has to be
paid with in a period and with repayment, the limit gets renewed automatically.
It is a cute card made of plastic. It has a method of identification of users by
means of either signature identification or a stamp size photo of the card holders.
It authorises the holder to charge goods and services to his account for
which he is billed. Credit card is otherwise called 'Plastic money'. The most
important difference between a credit card and a debit card is that while credit card
is a 'post paid' one the latter is a 'pre paid'.
Application of credit cards
The application process is a continuous cycle involving the following steps:
The card holder makes purchase from the authorized merchants producing
his credit card and obtains the goods and services.
The merchants submit a claim to the bank. The bank makes payment to the
merchants for the value of goods and services.
The bank sends notice to the customer to make payment for the goods and
services purchased.
The card holder makes payment to the bank.
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Credit cards began to be used in USA as early as 1920's and their use began
to increase after 1950. Diners Club introduced their credit card in 1950 and the
American company in 1958 and Bank of America in1959.
In India, the Central Bank of India was the first bank to introduce the credit card
known as 'Central Card' in the middle of 1981. Credit card facility became immensely
popular among customers in India by 1990. With the introduction of credit card system,
the concept of every-where and any-where banking became a reality.
Table 3.5
Growth and Progress of Credit Cards in Indian Banks
(No. of cards in Lakhs & Rs. in crores)
Year No. of Cards % Volume % Value %
2003-04 - - 1001 100 17662 100
2004-05 - - 1294 129 25686 145
2005-06 173.27 100 1560 156 33886 191
2006-07 231.23 133 1695 169 41361 234
2007-08 275.47 159 2282 228 57984 328
2008-09 246 142 2595 259 65355 370
2009-10 183 105 2342 234 61824 350
Source: Trend and progress of RBI Annual Report 2009-10
From Table 2.5, it is seen that the percentage of volume of transactions
increased to 234 % during the year 2009-10 over the base year 2003-04 (100%).
The table also shows that there is a growth in the volume of transactions year by
year. In case of value of transactions, it raised to 350% in the FY 2009-10 when
compared to the base year 2003-04. With regard to number of cards used, it raised
to 142% in the FY 2008-09 from 100% in the FY 2005-06. The above Table also
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shows that there has been a steep decline in the number of credit cards issued
during the year 2009-10 as compared to the previous years 2006-07, 2007-08 and
2008-09.
Hence, it can be concluded that there is an overall growth in volume of
transactions and the value of transaction and negative growth in number of cards
issued.
2. Debit Cards
Debit card is a pre paid card with some stored value, which optimizes
conveniences for the customers. A customer possessing a debit card need not carry
cash. It is like carrying cash from the bank account, without the inconvenience or
risk of carrying liquid cash. In other words, debit card allows 'any where any time
access' to the customer with their savings or current account.
To receive a debit card, an individual need only to open an account, either
current or savings with the issuing bank. However, debit card facility does not
extent to cash credit and other loan account.
The banks should issue cards to its customers only having good financial
standing with satisfactory record on accomplishment for at least six months.
A Personal Identification Number (PIN) will be issued to the customers for using a
debit card. Debit card can be used at all outlets that accounts such card for payments
viz., departmental stores, petrol bunks, jewellery shops, restaurants, textile shops,
hospitals, airlines, railways, etc.
Debit card works in the same way as a credit card for purchase transactions
at merchant outlets, the only difference is that the transaction amount is directly
debited to the bank account of the customers.
After finishing the purchases, card holder has to submit the card to the
business outlet. The card holder enters the personal identification number on the
shop's pin pad. The merchant on an electronic data capture terminal for authorization
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swipe the debit card. When the card is swiped through the electronic terminal, it
dials the acquiring bank system, which validates the PIN and finds out from the
issuing bank whether to accept or not the transaction. The terminal wills sure
approval regarding the availability of balance in the account from the card issuing
bank. After a successful authorization or an approval from the bank, the terminal
will print a charge slip. The transaction generated by the point of sale will be
conclusive and binding on the cardholder.
Table 3.6
Growth and Progress of Debit Cards in Indian Banks
(No. of cards in Lakhs & Rs. in crores)
Year No. of Cards
% Volume % Amount %
2003-04 - - 377 100 4873 100
2004-05 - - 415 110 5361 110
2005-06 497.63 100 456 120 5897 121
2006-07 794.76 160 601.77 160 8171 167
2007-08 1024 206 883 234 14521 257
2008-09 1374 276 1276 338 18547 380
2009-10 1819 365 1701 451 26418 542
Source: Trend and progress of RBI Annual Report 2009-10
Table 3.6 explains the growth of card based payment system. There were
377 Lakh transactions in the FY 2003-04. The number of transactions increased to
1701 lakh (451%) in the FY 2009-10. As far as the volume is concerned, it raised
to Rs.26418 crore (542 %) in the FY 2009-10 from Rs.4878 crore in the FY 2003-04. In the FY 2005-06, 497 lakh (100%) cards were used and is raised to 1819 lakh
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cards (365%) in the year 2009-10. So, it can be concluded that there is a sharp
growth in the using of debit card system in all the years.
3. Smart Cards
Banks are adding chips to their current magnetic stripe cards to enhance security
and offer new service, called Smart Cards. Smart cards are plastic cards just in the
shape of visiting cards. It looks like any other credit cards. Smart card contains a
small microprocessor or computer chip on the face of the card. Smart Cards
allow thousands of times of information storable on magnetic stripe cards. Smard
card is actually a debit card loaded with a sum of money. It can be used for both
small payments and pre paid telephone card. The aim of the smart card technology
is to replace multiple numbers of cards with one or two smart cards with storable
information. In addition, these cards are highly secure, more reliable and
perform multiple functions. They hold a large amount of personal information,
from medical and health history to personal banking and personal preferences.
Benefits
Smart cards can provide identification, authentication, data storage and
application processing. The benefits of smart cards are directly related to the
volume of information and applications that are programmed for use on a card.
A single contact/contactless smart card can be programmed with multiple banking
credentials, medical entitlement, driver’s license/public transport entitlement,
loyalty programs and club memberships to name just a few. Multi-factor and
proximity authentication can and has been embedded into smart cards to increase the
security of all services on the card. For example, a smart card can be programmed to
only allow a contactless transaction if it is also within range of another device like
a uniquely paired mobile phone. This can significantly increase the security of the
smart card.
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Governments gain a significant enhancement to the provision of publicly
funded services through the increased security offered by smart cards. These
savings are passed onto society through a reduction in the necessary funding or
enhanced public services.
Individuals gain increased security and convenience when using smart
cards designed for interoperability between services. For example, consumers only
need to replace one card if their wallet is lost or stolen. Additionally, the data
storage available on a card could contain medical information that is critical in an
emergency should the card holder allow access to this.
3.7. PHONE BANKING
Phone banking includes mobile banking, tele banking and banking via
landline phone network.
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1. Mobile banking: Mobile banking refers to provision and availment of banking and financial
services with the help of mobile telecommunication devices. The scope of offered
services may include facilities to conduct bank and stock market transactions, to
administer accounts and to access customized information. Thus, mobile banking
is the usage of mobile phone as a platform for banking transactions. The high
penetration of mobile phones in India is the biggest drive for mobile banking in
India. The various modes available to Indian users for mobile banking are:
Short Message Service (SMS) is the simplest form of mobile banking. It is
largely used for information based services. But, the biggest challenge in SMS
based mobile banking is that it is the least secure form of mobile banking.
Interactive Voice Response (IVR): IVR allows a caller to select options from a
voice menu and interact with the phone system. The IVR system would then take
the necessary instructions from the customer by recording the tones of the number
selections that the customer enters on the keypad or through spoken commands,
and creates an instruction that is given to the service provider/bank. The security
in IVR systems is relatively higher than SMS.
Wireless Internet Protocol: (WAP) It is the usage of internet on mobile for
mobile banking applications. It is similar to internet banking. The customer’s
handset needs to be WAP enabled. WAP banking is open to similar threats as
internet banking.
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Rapid expansion in the use of mobile phone as a mode of communication has
created new opportunities for barriers to use their mode for banking transactions.
Many countries have adopted this delivery channel as a means of financial
inclusion as it facilitates smart value payments at a very low cost.
Predominantly, two distinct models are in vogue in countries where mobile
banking has taken of the bank led model and the telecom company led model. The
telecom company led model is preferred in countries which have relatively less
coverage of formal banking facilities (e.g. Kenya). After taking into account
various users involved, India has developed the bank led model.
M-banking is cheaper than ATM banking, and more likely to be popular in
Net banking. A bank source reports the costs of these transactions as Rs.150 at a
branch, Rs.30 at an ATM, Rs.15 with phone banking and Rs.10 for internet and
m-banking1.
Mobile phones as a delivery channel for extending banking services have
off-late been attaining greater significance. The rapid growth in users and wider
coverage of mobile phone networks have made this channel an important platform
for extending banking services to customers. With the rapid growth in the number
of mobile phone subscribers in India (about 261 million as at the end of March
2008 and growing at about 8 million a month), banks have been exploring the
feasibility of using mobile phones as an alternative channel of delivery of banking
services. Some banks have started offering information based services like balance
enquiry, stop payment instruction of cheques, transactions enquiry, location of the
nearest ATM/branch etc. Acceptance of transfer of funds instruction for credit to
beneficiaries of same/or another bank in favor of pre-registered beneficiaries have
also commenced in a few banks. In order to ensure a level playing field and
considering that the technology is relatively new, Reserve Bank has brought out a
set of operating guidelines for adoption by banks.
1 The Economic Times, Nov.11,2009, p.13
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Mobile banking transactions are undertaken by using mobile phones by
bank customers that involve credit/debit to their accounts. It also covers accessing
the bank accounts by customers for non-monetary transactions like balance
enquiry etc.
Regulatory & Supervisory Issues
Only banks which are licensed and supervised in India and have a physical
presence in India will be permitted to offer mobile banking services.
The services shall be restricted only to customers of banks and holders of
debit/credit cards issued as per the Reserve Bank of India guidelines.
Only Indian Rupee based domestic services shall be provided. Use of
mobile banking services for cross border transfers is strictly prohibited.
Banks may also use the services of Business Correspondent appointed in
compliance with RBI guidelines, for extending this facility to their customers.
The guidelines issued by the Reserve Bank on ‘Risks and Controls in
Computers and Telecommunications’ vide circular DBS.CO.ITC.BC. 10/ 31.09.001/
97-98 dated 4th February 1998 will apply mutatis mutandis to mobile banking.
The guidelines issued by Reserve Bank on “Know Your Customer (KYC)”,
“Anti Money Laundering (AML)” and combating the Financing of Terrorism (CFT)
from time to time would be applicable to mobile based banking services also.
Only banks who have implemented core banking solutions would be
permitted to provide mobile banking services.
Banks shall file Suspected Transaction Report (STR) to Financial Intelligence
Unit – India (FID-IND) for mobile banking transactions as in the case of normal
banking transactions.
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Registration of customers for mobile service Banks shall put in place a system of document based registration with
mandatory physical presence of their customers, before commencing mobile
banking service.
On registration of the customer, the full details of the Terms and Conditions
of the service offered shall be communicated to the customer.
Technology and Security Standards Information Security is most critical to the business of mobile banking
services and its underlying operations. Therefore, technology used for mobile
banking must be secure and should ensure confidentiality, integrity, authenticity
and non-repudiability.
The security controls/guidelines mentioned in this document are only
indicative. However, it must be recognised, the technology deployed is fundamental
to safety and soundness of any payment system. Therefore, banks are required to
follow the Security Standards appropriate to the complexity of services offered,
subject to following the minimum standards set out in this document. The guidelines
should be applied in a way that is appropriate to the risk associated with services
provided by the bank and the system which supports these services.
Banks are required to put in place appropriate risk mitigation measures like
transaction limit (per transaction, daily, weekly, monthly), transaction velocity
limit, fraud checks, AML checks etc. depending on the bank’s own risk perception,
unless otherwise mandated by the Reserve Bank.
Authentication Banks providing mobile banking services shall comply with the following
security principles and practices for the authentication of mobile banking transactions:
a) All mobile banking shall be permitted only by validation through a
two factor authentication.
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b) One of the factors of authentication shall be mPIN or any higher standard.
c) Where mPIN is used, end to end encryption of the mPIN shall be
ensured i.e. mPIN shall not be in clear text anywhere in the network.
d) The mPIN shall be stored in a secure environment.
Proper level of encryption and security shall be implemented at all stages of
the transaction processing. The endeavor shall be to ensure end-to-end encryption of
the mobile banking transaction. Adequate safe guards would also be put in place to
guard against the use of mobile banking in money laundering, frauds etc. The
following guidelines with respect to network and system security shall be adhered to:
a) Implement application level encryption over network and transport layer
encryption wherever possible.
b) Establish proper firewalls, intruder detection systems (IDS), data file and
system integrity checking, surveillance and incident response procedures
and containment procedures.
c) Conduct periodic risk management analysis, security vulnerability assessment
of the application and network etc at least once in a year.
d) Maintain proper and full documentation of security practices, guidelines,
methods and procedures used in mobile banking and payment systems and
keep them up dated based on the periodic risk management, analysis and
vulnerability assessment carried out.
e) Implement appropriate physical security measures to protect the system
gateways, network equipments, servers, host computers, and other
hardware/software used from unauthorized access and tampering. The Data
Centre of the Bank and Service Providers should have proper wired and
wireless data network protection mechanisms.
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The dependence of banks on mobile banking service providers may place
knowledge of bank systems and customers in a public domain. Mobile banking
system may also make the banks dependent on small firms (i.e mobile banking
service providers) with high employee turnover. It is therefore imperative that
sensitive customer data, and security and integrity of transactions are protected.
It is necessary that the mobile banking servers at the bank’s end or at the mobile
banking service provider’s end, if any, should be certified by an, accredited
external agency. In addition, banks should conduct regular information security
audits on the mobile banking systems to ensure complete security.
For channels which do not contain the phone number as identity, a separate
login ID and password shall be provided to ensure proper authentication. Internet
banking login IDs and Passwords shall not be allowed to be used for mobile
banking.
Inter-operability
Banks offering mobile banking service must ensure that customers having
mobile phones of any network operator is in a position to avail of the service.
Restriction, if any, to the customers of particular mobile operator(s) is permissible
only during the initial stages of offering the service, up to a maximum period of
six months subject to review.
The long term goal of mobile banking framework in India would be to
enable funds transfer from account in one bank to any other account in the same or
any other bank on a real time basis irrespective of the mobile network a customer
has subscribed to. This would require inter-operability between mobile banking
service providers and banks and development of a host of message formats.
To ensure inter-operability between banks and between their mobile banking
service providers banks shall adopt the message formats like ISO 8583, with
suitable modification to address specific needs.
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Clearing and Settlement for inter-bank funds transfer transactions
To meet the objective of a nation-wide mobile banking framework, facilitating
inter-bank settlement, a robust clearing and settlement infrastructure operating on a
24x7 basis would be necessary. Pending creation of such a national infrastructure,
banks may enter into bilateral or multilateral arrangement for inter-bank settlements,
with express permission from Reserve Bank of India, wherever necessary.
Customer Complaints and Grievance Redressal Mechanism
The customer /consumer protection issues assume a special significance in
view of the fact that the delivery of banking services through mobile phones is
relatively new.
Transaction limit
A transaction limit of Rs. 2500/- shall be imposed on all Mobile Banking
transactions subject to an overall cap of Rs. 5000/- per day, per customer. Banks
may also put in place monthly transaction limit depending on the bank’s own risk
perception of the customer.
Board approval
Approval of the Board of Directors (Local Board in case of foreign banks)
for the product as also the related security policies must be obtained before
launching the scheme.
Approval of Reserve Bank of India
Banks wishing to provide mobile banking services shall seek prior one time
approval of the Reserve Bank of India, by furnishing full details of the proposal.
Customer Protection Issues
Any security procedure adopted by banks for authenticating users needs to
be recognized by law as a substitute for signature. In India, the Information Technology
Act, 2000, provides for a particular technology as a means of authenticating
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electronic record. Any other method used by banks for authentication is a source
of legal risk. Customers must be made aware of the said legal risk prior to sign up.
Banks are required to maintain secrecy and confidentiality of customers'
accounts. In the mobile banking scenario, the risk of banks not meeting the above
obligation is high. Banks may be exposed to enhanced risk of liability to customers
on account of breach of secrecy, denial of service etc., on account of hacking/ other
technological failures. The banks should, therefore, institute adequate risk control
measures to manage such risks.
As in an Internet banking scenario, in the mobile banking scenario too,
there is very limited or no stop-payment privileges for mobile banking transactions
since it becomes impossible for the banks to stop payment in spite of receipt of
stop payment instruction as the transactions are completely instantaneous and are
incapable of being reversed. Hence, banks offering mobile banking should notify
the customers the timeframe and the circumstances in which any stop-payment
instructions could be accepted.
The Consumer Protection Act, 1986 defines the rights of consumers in
India and is applicable to banking services as well. Currently, the rights and
liabilities of customers availing of mobile banking services are being determined
by bilateral agreements between the banks and customers. Taking into account the
risks arising out of unauthorized transfer through hacking, denial of service on
account of technological failure etc. banks providing mobile banking would need
to assess the liabilities arising out of such events and take appropriate counter
measures like insuring themselves against such risks, as in the case with internet
banking.
Bilateral contracts drawn up between the payee and payee’s bank, the
participating banks and service provider should clearly define the rights and
obligations of each party.
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Banks are required to make mandatory disclosures of risks, responsibilities
and liabilities of the customers on their websites and/or through printed material.
The existing mechanism for handling customer complaints / grievances
may be used for mobile banking transactions as well. However, in view of the fact
that the technology is relatively new, banks should set up a help desk and disclose
the details of the help desk and escalation procedure for lodging the complaints, on
their websites. Such details should also be made available to the customer at the
time of sign up.
In cases where the customer files a complaint with the bank disputing a
transaction, it would be the responsibility of the service providing bank, to
expeditiously redress the complaint. Banks may put in place procedures for
addressing such customer grievances. The grievance handling procedure including
the compensation policy should be disclosed.
Customers’ complaints / grievances arising out of mobile banking facility
would be covered under the Banking Ombudsman Scheme, 2006 (as amended up
to May 2007).
The jurisdiction of legal settlement would be within India1.
Mobile banking in India is in a budding stage, with the high penetration of
mobile phones acting as a growth driver. The increasing adoption of mobile web-
enabled devices such as smart phones across the world has created a “fertile
environment” in which mobile banking can grow. The use of mobile technologies
is a win-win proposition for both the banks and the bank’s customers. The mobile
phone is obviously a communication tool but it has enormous potential to aid other
value added services especially financial services. In India, mobile banking is
largely driven by SMS and other nascent data services. In Japan and Korea,
mobile banking has taken the bank into the mobile phone: Customers can use their
1 http://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=1660
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mobile to pay for transactions at subways, convenience stores and movie tickets.
The ultimate aim is to replace the wallet with the mobile phone. India has a long way
to reach that level of mobile banking; however it is an easier path to treat now as the
security standards and the transaction protocols have been developed and tested1.
Mobile phones as a medium for providing banking services have been
attaining increased importance. Reserve Bank brought out a set of operating
guidelines on mobile banking for banks in October 2008, according to which only
banks which are licensed and supervised in India and have a physical presence in
India are permitted to offer mobile banking after obtaining necessary permission from
Reserve Bank. The guidelines focus on systems for security and inter-bank transfer
arrangements through Reserve Bank's authorized systems. On the technology front
the objective is to enable the development of inter-operable standards so as to
facilitate funds transfer from one account to any other account in the same or any
other bank on a real time basis irrespective of the mobile network a customer has
subscribed to.
2. Telebanking Telebanking is innovative form of electronic banking introduced by banks
through which banking services or products are rendered through telephone to its
customers. Company can access customer’s account through the telephone at any time
or at any place throughout the country with the same telebanking PIN they desire.
Customers can carry on a number of transactions from their own home or
office; in fact from anywhere they have access to a phone and in a very convenient
and comfortable manner.
1 Kamini Shah, Sandip Bhatt and Nirmal Jain, “Awareness and Perceptions of Customers about
Mobile Banking”, The Indian Journal of Commerce, Vol.64, No.1, Jan-Mar 2011, pp. 13-26.
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Telebanking is offered by the banks through a technology known as
Interactive Voice Response Service (IVRS). Besides delivering information
related to the customers account, bank also provide the following information
under telebanking services
Information on deposit interest rates
Information on location of branches and ATM
Receiving of following forms by fax or e-mail:
Debit card application form
Travel currency card application form
Registration form for LIC premium payment through ATM.
BSNL bill payment registration form
Exchange declaration form etc.,
3.8. INTERNET BANKING
Banks have traditionally been in the forefront in making use of technology
to update their products, services and efficiency. They began using electronic and
telecommunication networks for delivering a wide range of value added products
and services for a long time. With the popularity of personal computers, easy and
better access to internet and World Wide Web (WWW) is highly possible. It is
being used increasingly by banks as a channel of receiving instructions and
delivering their products and services to their customers.
Internet banking also called on-line banking is nothing more than traditional
banking services delivered through an electronic communication device viz. the
internet. It demolishes the traditional geographical barriers and thus reaches out to
customers across the world. It is an efficient and cost effective delivery mechanism
for banking service. Through internet banking, banks are in a position to offer
extensive range of products and services of varied content and sophistication.
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Internet banking enables customers to open accounts, pay bills, know
account balances, forward loan applications, calculate interest, view and print
copies of cheques and deposits, transfer funds, stop payments, recording of stop-
payment instructions, reorder Cheque books and statements, receive banking
industry news, send and receive messages to and from the bank through e-mail and
other forms of traditional banking services. Different banks have different levels of
such services offered, starting from level-1 where only information is disseminated
through Internet to level-3 where on line transactions are put through.
Information only systems- Level-I
General purpose information like interest rates, branch locations, ATM
locations, product features , loan and deposit calculations etc., are provided on the
banks website with facilities for downloading various types of application forms.
The communication is normally carried on through e-mail. There is no interaction
between the banks application systems and the customer. No identification or
authentication of customers is done. In this case, the possibility of any hacking or
an unauthorised persons getting access to the protection system of the bank
through the internet will be minimized.
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Electronic information transfer system- Level-II
These systems provide customer-specific information in the form of
account balances, transaction details; statement of accounts etc. The information is
mainly in the 'read only' format. Identification and authentication of the customer
is through a password. The information is drawn from the bank’s application
systems either in batch mode or off-line. In this also, the application system is not
be directly accessed through the internet.
Fully electronic transactional system- Level-III
These systems have transactional capabilities of a bi-directional nature.
The customers for on-line update can forward transactions. They require a high
degree of security and control. In such an environment, web server and the
application systems are linked over secure infrastructure, which comprise the basic
requirements in terms of technology covering computerization, networking and
security; inter-bank payment gateway and legal infrastructure for introduction of
internet banking with a fully electronic transactional system in India.
Types of risks associated with internet banking
Even though internet banking is a highly cost effective channel for delivery
of banking services, it is not free from risks. Apart from reductions in cost of
transactions, internet banking also brought about a new set of risks that too in new
forms. Regulators and supervisors all over the world are aware of different types
of risks in internet banking. An important and distinctive feature of internet banking
is that here technology lays significant part as a source and tool for control of risks.
Because of faster and speedier information technology, there is no finality either in
the types of risks or measures to control them. Very often, they evolve continuously.
Some of the risks in internet banking are the following:
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Operational risk (transactional risk )
Security risk
Reputation risk
Legal risk
Money laundering risk
Cross border risk
Strategic risk
Other risks
1. Credit risk 2. Liquidity risk 3. Interest rate risk 4. Risk of unfair competition
3.9. MICR/OCR CLEARING SYSTEM
The two types of technology being adopted in clearing are the Magnetic Ink
Character Recognition (MICR) and Optic Character Recognition (OCR) technology.
This is also known as Automated Clearing System (ACS). In India, MICR
technology is used in clearing of cheques. Under this system, specific type of paper
is used for printing the cheques. These cheques are processed in a high- speed
machine. The cheques should conform to the required specification as laid down.
MICR cheques have two white bands one at the top and another at the
bottom. In these bands, the details of the Cheque are encoded with special
magnetic ink. These bands should be free from any marking or impression.
Further, the cheques should not be folded in between and either end should be free
from any tabs. Cheque number, centre code and transaction code are usually
printed at the time of printing the Cheque itself. Before presentation of the Cheque
only the amount column is required to be encoded.
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Table 3.7 Growth and Progress in Cheque Clearing through MICR
(No. of cards in Lakhs & Rs. in crores)
TOTAL MICR CENTRE TOTAL NON- MICR CENTRE
YEAR NO. % AMOUNT % NO. % AMOUNT %
2001-02 5377 100 1,09,47,391 100 3638 100 16,27,863 100
2003-03 5980 111 1,09,78,762 101 4159 114 24,45,551 150
2003-04 6241 116 91,78,751 84 3987 110 24,17,209 148
2004-05 9414 175 93,56,252 86 2253 62 11,02,642 68
2005-06 10,318 191 94,74,370 87 2549 70 18,54,762 113
2006-07 11,441 213 1,04,35,436 96 2231 61 16,06,989 99
2007-08 12229 227 1,15,28,690 105 2376 65 18,67,375 115
2008-09 11,623 216 1,04,00,308 95 2335 64 20,60,892 127
2009-10 11497 213 85,31,516 78 2305 63 18,78,424 115
Source: Annual Reports of RBI from 2001-02 to 2009-10
Table 2.7 depicts the number of cheques and amount of cheques were
cleared in the MICR centres and Non-MICR centres. The financial year 2001-02 is
taken as base year for analysis and assigned 100%. The number of cheques cleared
in the MICR centres increased from 5377 lakh transactions (100%) in the financial
year 2001-02 to 11,497 lakh transactions (213%) in the financial year 2009-10.
But the amount cleared in the MICR centres was almost constant thought out the
above period. In the Non-MICR centres, the number of cheques cleared were
increased up to financial year 2003-04 and declined there after for two years.
There has been a steady increase in the value of MICR transactions from the years
2006-07 to 2007-08 and started to decline in the rest years.
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The reasons for increasing in number of cheques cleared and decreasing in
the amount of cheques cleared were due to introduction of NEFT and RTGS
methods of electronic payment systems. Customers might have used MICR
cheques for small payments and used NEFT and RTGS systems for higher
payments. So, it can be concluded that customers are shifting from traditional
payment methods to electronic payment methods.
3.10. PRE-PAID INSTRUMENTS
Pre-paid payment instruments are payment instruments where value for use
is stored in advance, such as smart cards, magnetic strip cards, internet accounts,
internet wallets, mobile accounts, paper vouchers etc. Pre-paid payment instruments
enhance convenience as a mode of payment in lieu of cash. Also this facilitates
E-payments for goods and services purchased through internet/ mobile. The maximum
loss on account of fraudulent use is limited to balance available on the card.
3.11. TRUNCATION OF CHEQUE SYSTEM
All instruments like cheques, drafts, dividend warrants, internet warrants
drawn on other banks are presented in clearing to obtain payment. With the
increase in economic activity the volume of cheques handled in the clearing house
has constantly increased over the years.
The system of Cheque truncation i.e. instead of presenting a Cheque
physically to the drawee bank on which it is drawn the presenting bank captures the
image of the Cheque and send it electronically to the clearing house. The clearing
house in tern submits the Cheque image electronically to payee branch. The payee
branch verifies the image and takes decision to pay.
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3.12 SUMMARY
In this chapter, an attempt has been made to study the various e-banking
products and services offered by the Indian banks. Due to competition, banks have
started to introduce the techno-based banking products and services such as
internet banking, phone banking, RTGS, ATM, Card system of payments and
other electronic based banking services. Among them, ATM, RTGS, Card systems
are familiar e-banking products and services which public frequently use for their
banking transactions.
ATM
This is the largest utilized ebanking service by the majority of the bank
account holders in India. As far as on-site ATM is concerned, the nationalised
banks have the maximum of 12655 ATMs as compared to other groups of banks.
In case of off-site ATMs, the SBI groups come first with the maximum of 9836
ATMs as compared to other groups of banks.
NEFT
This is a national wide funds transfer system to facilitate transfer of funds
from any branch to any other bank branch. In terms of volume of transactions,
there has been a sharp growth (with an increased percentage of 8095) over the
years. In terms of value of transactions, there has been a tremendous growth since
inception (2391 %).
RTGS
This is the fastest money transfer system through the banking channel on a
‘Real time’ and on ‘Gross’ basis. The total volume of amount transferred through
the RTGS system had been raised to Rs. 10, 11, 69,930 crore (2488 %) in the year
2009-10. The total number of transactions through RTGS had been increased to
332.53 (7217%) lakh transactions in the last financial year 2009-10. As far as the
customer remittance is concerned, the total number of transactions had been raised
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to 304.40 lakh (44765 %) in the year 2009-10 from 0.68 lakh during the year
2004-05. The value of the amount transferred among the customers through RTGS
system had been increased to 2, 95, 16,777 crore, (11823 %) during the year 2009-10.
ECS
This is a mode of electronic funds transfer from one bank account to another
bank account using the services of a clearing house. The number of credit transactions
had been increased to 981 lakh transactions (483 %) in the year 2009-10. %). ECS
(Dr) transactions had been increased to 1492 lakh transactions (1888 %) in the
financial year 2009-10. In terms of value of ECS Dr&Cr transactions, there has
been a steady increase over the years. Overall, it could be said that there has been
a considerable progress in ECS (credit) and ECS (Debit) both in value of
transactions and Number of transactions.
Credit Cards Credit card is the modern system of payment holder. It has the option to
utilize it in part (or) full depending upon his needs. The credit so availed has to be
paid with in a period and with repayment, the limit gets renewed automatically.
Issuance of cards has been showing a poor growth with a minimal increase of
105% since 2005-06. The percentage of volume of transactions had been increased
to 234 % during the year 2009-10 over the base year 2003-04 (100%). In case of
value of transactions, it raised to 350% in the FY 2009-10 when compared to the
base year 2003-04.
Debit Cards Debit card is a pre paid card with some stored value, which optimizes
conveniences for the customers. A customer possessing a debit card need not carry
cash. The number of transactions increased to 1701 lakh (451%) in the FY 2009-10.
As far as the volume is concerned, it had been raised to Rs.26418 crore (542 %) in
the FY 2009-10 from Rs.4878 crore in the FY 2003-04. Issuance of debit cards
had also been raised to 365 % as compared to the year 2005-06.
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MICR
MICR technology is used in clearing of cheques. Under this system, specific
type of paper is used for printing the cheques. These cheques are processed in a
high- speed machine. The number of cheques cleared in the MICR centres
increased from 5377 lakh transactions (100%) in the financial year 2001-02 to
11,497 lakh transactions (213%) in the financial year 2009-10. There has been a
steady increase in the value of MICR transactions from the years 2006-07 to 2007-08
and started to decline in the rest years. From the foregoing discussions, it could be
concluded that the electronic based banking services and products are yet to be
used to the full extent by the customers.
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