E-banking
The acceleration in technology has produced an extraordinary effect upon our economy in general has had a particularly profound impact in expanding the scope and utility of financial products over the last ten years.
Information technology has made possible the creation, valuation, and exchange of complex financial products on a global basis and even that just in recent years.
Derivatives are obviously the most evident of the many products that technology has inspired. But the substantial increase in our calculation capabilities has permitted a variety of other products and, most beneficially, new ways to unbundle risk.
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What is really quite extraordinary is that there is no sign that this process of acceleration in financial technology is approaching an end.
We are moving at an exceptionally rapid pace, fueled not only by the enhanced mathematical applications produced by our ever rising computing capabilities but also by our expanding telecommunications capabilities and the associated substantial broadening of our markets.
All the new financial products that have been created in recent years contribute economic value by unbundling risks and reallocating them in a highly calibrated manner.
The rising share of finance in the business output of India and other countries is a measure of the economic value added by the ability of these new instruments and techniques to enhance the process of wealth creation. The reason, of course, is that information is critical to the evaluation of risk.
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The less that is known about the current state of a market or a venture, the less the ability to project future outcomes and, hence, the more those potential outcomes will be discounted.
A. Meaning of e-banking
E-bank is the electronic bank that provides the financial service for the individual client by means of Internet.
B. Functions of e-bank
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At present, the personal e-bank system provides the following services:
1. Inquiry about the information of account:
The client inquires about the details of his own account information such as the card’s/account’s balance and the detailed historical records of the account and download the report list.
2. Card accounts’ transfer:
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The client can achieve the fund transfer between his own cards and transfer the fund to another person’s Credit Card in the same city.
3. Bank-securities accounts transfer:
The client can achieve the fund transfer between his own bank savings accounts or his own Credit Card account and his own capital account in the securities company. Moreover, the client can inquire about the present balance at real time.
4. The transaction of foreign exchange:
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The client can trade the foreign exchange, cancel orders and inquire about the information of the transaction of foreign exchange according to the exchange rate given by our bank on net.
5. The B2C disbursement on net:
The client can do the real-time transfer and get the feedback information about payment from our bank when the client does shopping in the appointed web-site.
6. Client service:
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The client can modify the login password, information of the Credit Card and the client information in e-bank on net.
7. Account management:
The client can modify his own limits of right and state of the registered account in the personal e-bank, such as modifying his own login password, freezing or deleting some cards and so on.
8. Reporting the loss of the account:
The client can report the loss in the local area (not nationwide) when the client’s Credit Card or passbook is missing or stolen.
C. Types of e-banking
1. Deposits, withdrawals, inter-account transfers and payment of linked accounts at an ATM;
2. Buying and paying for goods and services using debit cards or smart cards without having to carry cash or a cheque book;
3. Using a telephone to perform direct banking – make a balance enquiry, inter-ac- count transfers and pay linked accounts;
4. Using a computer to perform direct banking – make a balance enquiry, inter-account transfers and pay linked accounts.
D. Advantages of e-banking
The following are the important benefits of e-banking:
1. Account Information:
Real time balance information and summary of day’s transaction.
2. Fund Transfers:
Manage your Supply-Chain network, effectively by using our online fund transfer mechanism. We can affect fund transfer on a real time basis across the bank locations.
3. Request:
Make a banking request online.
4. Account Information:
The complete database that the bank has about our company is available to us at our terminal. It provides us:
(i) Current balance in our account on real-time basis.
(ii) Day’s transactions in the account.
(iii) Details of cash credit limit, drawing power, amount utilized, etc.
5. Downloading of account statements as an excel or text files:
The statements can be integrated with your ERP system for auto-reconciliation.
6. Fund Transfers:
Manage our Supply-Chain network, effectively by using our online fund transfer mechanism. We can affect fund transfer on a real time basis across the bank locations. The product facilitates:
(a) One-to-one fund transfer between two linked accounts.
(b) Bulk fund transfers: In bulk fund transfers, we upload a flat file containing payment/collection information. Our systems take care of processing the entire file and once the file is processed we can integrate the processed file to our ERP for auto reconciliation.
7. The real life situation of user-wise limits and multilevel signatories can be mapped in the net-based fund transfer module too. We can specify user-wise cap for funds transfer and the number of approvals needed for each fund transfer. The fund transfer will not take place unless the required number of signatories has approved it.
8. With a Power of Attorney from our dealers, we can link the dealer’s accounts to our account in order to have an online fund transfer, saving us time and money involved with cheque collection systems. Alternatively, the dealer can credit our account through this channel. Similarly, we could also affect vendor and other payments online.
9. Customers can also submit the following requests online: Registration for account statements by e-mails either daily/weekly/fortnightly/monthly basis.
(i) Stop payment of cheque
(ii) Cheque book replenishment
(iii) Demand Draft/Pay-order
(iv) Opening of fixed deposit account
(v) Opening of Letter of credit
10. The company does not have to spend anything extra to avail such facilities. All it requires is Internet connectivity. The product enables the company to pro-actively manage its cash flows, ease reconciliation efforts as all the MIS is available at the click of the mouse.
11. Customer can Integrate the System with his Own ERP: The customer can download the account statements either as a text file or as an excel file. The bank can help him in integrating the account statements and bulk payment files with his ERP system. The Bank may charge a nominal fee depending upon the nature of work involved.
12. Bill Payment through Electronic Banking: Internet has thus ushered the concept of anytime and anywhere banking. To the individual the onerous task of visiting several places to settle his service bills like telephone, water, electricity, etc., can be overcome through the electronic Bill Pay service provided by the bank.
He can pay his regular monthly bills (telephone, electricity, mobile phone, insurance, etc.) right from his desktop. No more missed deadlines, no more loss of interest. He can schedule his bills in advance, and thus avoid missing the bill deadlines as well as earn extra interest on his money.
13. The Electronic Shopping Mall: The customer can also make his shopping payment through the Bank’s secure website-so that he can shop online without any security worries, as the bank can provide online real time shopping mail services through partner shopping sites.
14. Effecting Personal Investments through Electronic Banking: The bank’s website can also allow the customer to invest in shares, mutual funds and other financial products.
15. Trading in shares:
(i) Cash Trading:
This is a delivery based trading system, which is generally done with the intention of taking delivery of shares or monies.
(ii) Margin Trading:
Customer can also do an intra-settlement trading normally up to 4 times his available funds, wherein he can take long buy/ short sell positions in stocks with the intention of squaring off the position within the same settlement cycle.
(iii) Spot Trading:
When looking at an immediate liquidity option, ‘Cash on Spot’ may work the best for him. On selling shares through “cash on spot”, money is credited to his bank a/c the same evening and not on the exchange payout date. This money can then be withdrawn from any of the Bank’s ATMs.
(iv) The customer can also trade directly at the recognised stock exchanges of the country through his bank.
16. Investing in Mutual funds:
Electronic banking also brings the customer the same convenience while investing in Mutual funds – Hassle free and Paperless Investing. He can invest in mutual funds without the hassles of filling application forms or any other paperwork. He needs to provide no signatures or proof of identity for investing. Once he places a request for investing in a particular fund, there are no manual processes involved. His bank funds are automatically debited or credited while simultaneously crediting or debiting his unit holdings.
17. Trade in Derivatives:
Trading in derivatives includes the following:
(i) Futures:
Through electronic banking the customer can also trade in index and stock futures on the approved stock exchange. In futures trading, he takes buy/sell positions in index or stock(s) contracts having a longer contract period of up to 3 months.
(ii) Options:
An option is a contract, which gives the buyer the right to buy or sell shares at a specific price, on or before a specific date. For this, the buyer has to pay to the seller some money, which is called premium. There is no obligation on the buyer to-complete the transaction if the price is not favorable to him.
To take the buy/sell position on index/ stock options, he has to place certain percentage of order value as margin. With options trading, he can leverage on his trading limit by taking buy/sell positions much more than what he could have taken in cash segment.
18. Initial Public Offers Online:
The customer could also invest in initial public offers online without going through the hassles of filling ANY application form/ paperwork. Get in-depth analyses of new initial public offer issues, which are about to hit the market and analysis on these. Initial public offer calendar, recent initial public offer listings, prospectus/offer documents, and initial public offer analysis are few of the features, which help a customer to keep on top of the initial public offers markets.
‘There can be no end to the variety of services that can be provided through the electronic channel by banks and financial institutions. Every Institution is trying constantly to innovate and offer new products to woo the customer.
The benefit to the customer on account of the Internet is that he is able to know at a time the types of facilities being provided by different Institutions and he is able to make the best choice suited for his needs.
The benefit to the employee is equally amazing. From being earlier a dumb worker filling up forms and copy from books, he is now a regular service provider and one who directly cares for the customer.
Earlier he was dealing with particular process, but today he handles customer’s demands, which are functions for the bank/financial institution.
In turn the knowledge resources required of him has grown and he is able to secure the same through better training and other organizational development programmes like organising work groups and functional teams, where persons with different skills and qualifications pool their knowledge and carry out high-tech services and operations.
19. Other benefits:
The e-banking provides some other benefits also. They are:
(i) Convenience.
(ii) Speed of concluding transactions.
(iii) Safety – banking from own home.
(iv) Economy – banking without visiting your bank.
(v) Cheaper service fees.
(vi) Seamless Integration with existing environment (IDM – Intelligent Data Module).
(vii) Highly Saleable.
(viii) Easy Customization.
(ix) Lower Costs of both Installation and Maintenance.
(x) Platform Independence.
(xi) Round-the-Clock and Cross-Border Availability.
(xii) Remote Authorization.
E. Limitations of e-banking
1. Safety situations around ATMs.
2. Abuse of bank cards by fraudsters at ATMs.
3. Danger of giving your card number when buying on-line.
The modern technology has influenced the financial sector to a large extent. It increases the competitive efficiency of the firms and provides sophistication to the end users. It makes everyone fittest to survive.
Computerization of Bank Branches
The reforms in the 1990s, which led to expansion, consolidation and liberalization of the banking and financial sector in India, brought in many changes and challenges.
A number of private and foreign players entered the Indian market with superior technologies that helped them service their customers efficiently through multiple channels such as ATMs and online banking.
Indian banks on the other hand have been using IT more out of compulsion and primarily for transaction processing. They now need to adopt IT to reposition banks into the integrated financial services market.
The need for providing improved customer service, reducing transaction costs and increasing productivity, shall be the main drivers for banking sector to adopt IT. These considerations are particularly important for public sector banks in India, who are facing immense competition from private and foreign banks.
IT can help them move from the present scenario where they are working as isolated islands to providing a centralized banking experience. There is a need today for IT and the financial community to come together and develop customized IT solution to make the Indian Banking sector globally competitive.
IT adoption in the banking sector will provide real time availability of transaction processing through multiple channels. It would enhance a bank’s ability to cross sell products, ensure better management and security and safety of funds and increase efficiency through integration of systems across various locations.
It would also ensure efficient management of Non Performing Assets (NPAs), minimize transaction costs, enhance ability to conduct in-depth financial analysis and gather business intelligence. Enhanced use of IT would also encourage the use of Internet to provide access for online bill payments, funds transfers and e- statements in addition to encouraging wireless mobile banking and e-commerce.
With growing competition faced by foreign banks and financial institutions, the public sector banks in co-operation with the Indian IT industry would need to equip themselves for the next phase of introducing the benefits of IT to their customers by providing a centralized banking solution.
Opportunity for Indian banking sector in branch computerization
1. IT Networking
2. System Integration and Management
3. Customer Relationship Management (CRM) Applications
4. Back Office processing and Call Centres
5. Data warehousing/ Data mining
6. Mobile and e-banking.
Computerization of Banks In India
E-commerce and e-banking are the buzz words in the global commercial activities today. E-banking or Electronic banking refers to conducting banking activities with the help of information technology (IT) and computers.
Computerization of banking functions in India was resisted by labour unions for fear of loss of job opportunities. Secondly, computerization needs IT savvy personnel which require intensive technical training. Thirdly, computerization needs heavy capital outlay for purchase of machines.
Fourthly, to have effective computerization of banks a large number of bank branches situated in rural areas need to be connected. Telecommunication facility at rural areas is slow to reach. For the reasons mentioned above, computerization made a slow entry in Indian banks.
A. Rangarajan Committee
In the early 1980s, a high level committee was formed under the chairmanship of Dr. Rangarajan, the then Governor of Reserve Bank of India to suggest measures for phased introduction of computers and mechanization of banking activities in India.
However, the focus of computerization at that time was on customer service in banks. Accordingly during 1985 – 89 two models of branch automation were developed for implementation in banks.
They were (a) front office mechanization, and (b) back office automation. In the front office mechanization front desk operations were computerized leaving back office activities carried under manual system.
In the back office automation, back office operations like maintenance of General Ledger accounts, etc., were computerized while front office work was done manually.
Under both the systems, customers were given regular and timely statement of accounts without any errors. Having achieved the basic objective of introducing elements of automation in banks, the second committee constituted in 1988 under the chairmanship of same Dr. Rangarajan drew up a detailed plan for computerization of banks in India.
Accordingly automation, i.e., use of machines like computers, use of IT, etc., were extended to other areas of banking activities like funds transfer, Automated Teller Machines (ATM ), transmission of messages through electronic mail system, etc.
B. Present position of computerization in banks in India:
Based on the suggestions made by Rangarajan Committee, banks started initiating measures to computerize their various operations. Public Sector Banks (PSU banks) started identifying important / large branches for full branch computerization.
Banks which had fully computerized some of their branches started inter-connecting their computerized branches using leased telephoned lines or through satellite system. This enabled banks to have a better centralized control over branches besides ensuring comprehensive service to their customers.
In the third stage, banks started providing for sizeable funds for computerization of their operations. It was necessitated due to financial sector reforms initiated in the early 90s through Narasimham Committee recommendations.
Further globalisation and liberalisation measures introduced during 1990s allowed setting up of new private sector banks and free entry of foreign banks into India. This brought in a different and new operating environment to banks.
The deregulation of interest rate regime, phased reduction in Cash Reserve Ratio / Statutory Liquidity Ratio, introduction of universal banking system, permission to start new banks in the private sector, etc., by Reserve Bank of India encouraged competition among banks.
These measures had pushed the Indian banks to go for state-of-art IT and services and products like ” anywhere banking “, ” tele- banking” etc. Simultaneously the importance of effective Management Information System (MIS) for control of operations, maintenance of data base, good customer relationship was felt.
Accordingly banks presently cover performance monitoring, decision making, control of branches, administrative matters, submission of statutory returns to RBI, inter branch transactions, reconciliation of outstanding entries in various accounts, funds transfer, credit related information, investment management, treasury operations through money market, fore market, securities market, employees personal data and scores of other operations with the use of IT and computers.
Yet the level of computerization may differ from banks to banks. Today, we may say that 80 per cent of banking operations in cities are computerized. The process is fast picking up even at rural branch level.
Today, the number of computers in use with banks in India had crossed 1, 00,000. The total number of ATMs is more than 2000.