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BankingBankingTechnologyTechnology

B

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Technology in BanksTechnology in Banks Changes in banking in the last decade is

unparalleled when compared to the entireperiod of banking history in India.

Competition fuelled by technology drivesbanking today

Computerisation of branches, introductioncash management products, remote accesslogin, mobile banking, internet banking andATM banking are few ways by which bankersuse technology today.

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BANK COMPUTERISATIONBANK COMPUTERISATION

Computerization of banks in Indiastarted in 1980-81 and gained pace after1983-84.

Next a committee was set-up in 1988 todraw up a five year plan oncomputerization of banks (1990-94)

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Objective of ComputerizationObjective of Computerization

The four objective of bankcomputerization were:◦ To improve Customer Service◦ To improve Housekeeping◦ To improve Decision Making◦ To improve Productivity and Profitability

•Reconciliation of inter-branchaccounts•Reconciliation of inter-bankaccounts•Reconciliation of nostroaccounts, and•Status of balancing of booksof accounts•Reconciliation of clearingdifferences

A banking term to describe anaccount one bank holds with abank in a foreign country,usually in the currency of thatforeign country.

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At the branch level:◦ Improve customer service◦ Quality of housekeeping◦ Generation of data for better management

control

At Regional and Head Office:◦ To store, analyze, and retrieve data received from

branches so as to generate information speedilyfor strengthening control over branches forpolicy formulation

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Stand alone Computer SystemStand alone Computer System This was in the initial stage of Bank

Computerization Also called ALPMs (Advanced Ledger Posting

Machines) Their main function was to maintain the individual

ledger accounts of the customers of the branch. The daily transactions of deposits, withdrawals,

and transfers were entered and the accountupdated.

This was not suitable for multi-user environment,but these systems can be connected for existinguser.

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MultiMulti--user systemsuser systems Computers on which several people can work at

the same time.

Multi-user Computer Networking This is based on centralized processing concept. Here the server stores huge amount of information

and has high processing speed Large number of users are connected to the main

computer /server. Advantages: availability of corporate level

information at one location, purchase andoperations of hardware, software is profitably andefficiently managed.

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BranchBranch--Level ComputerizationLevel Computerization Emphasis on branch level computerization is

for two important reasons:

◦ Customer interface is maximum at branch level socomputerization and advanced technology reduceswaiting time, improves accuracy and faster processingor transfer of funds.◦ Online transactions processing at the branch level

helps data capture at the initial stage itself whichenhances processing.

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BranchBranch--Level ComputerizationLevel Computerization Security measures play an important role in branch level

computerization because of online applications. Various security features like passwords at various levels,

various access rights to system and data, locking facilities,transaction tracking systems etc.

Total Branch Automation (TBA) All the customers and business transactions are done with

the help of computers.This is a real time online banking.

Whenever a transaction is entered through terminal, thetransaction is recorded, then it is verified and authenticatedand all the corresponding updations are reflected instantly.

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BranchBranch--Level ComputerizationLevel Computerization

Using the TBA concept, it is possible toprovide ‘single window’ transactionsconcept. That means a customer canapproach any counter for completing allhis/her transactions.

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Computerization at Regional/ZonalComputerization at Regional/Zonal

RO/ZO acts in between branches and headoffice – exercising effective control over thefunctioning of branches, collection of dataand implementation of corporate strategy.

The most common job performed by theRO/ZO are:◦ Branch Profiling Fixed particulars: branch location details, type, area

details etc. Variable particulars: budget, actual performance, income

and expenditure data, various statistical reports etc.

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Computerization at Regional/ZonalComputerization at Regional/Zonal

◦ Inter-branch reconciliation: Matching of inter-branch transactions

◦ Credit Monitoring: Monitoring of loans and advances

◦ Personnel Data Management: Detail database about the employees working in the

region, transfer, posting, training, manpowerplanning, performance evaluation etc.

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Computerization at HO levelComputerization at HO level

Responsible for Corporate level planningand control and determining policydecisions.

Various functions like personnel andadministrative support, fundsmanagement, investment portfoliomanagement, credit information systemetc. are evolved.

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History of ATM BankingHistory of ATM Banking Barclays Bank in the UK was the first to install cash

dispensers in June 67 (Voucher based) by 1969 US, Japan andFrance started with the same technology

The next breakthrough was in 1972, when Lloyds bank in UKintroduced the first on line “cash point” machines developedby the IBM. These machines used plastic card with magneticstrips which identified customer’s account.

The total number of ATMs in the world today can be roughlybe estimated at over 30 lacs.

There are more than 10 prominent manufacturers of ATMsin the world. NCR is still the market leader with around 48%share followed by Wincor Nixdort (about 15%), Diebold isanother reputed vendor whose market share is about 9%

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The Indian Scene:The Indian Scene:

The first ATM was installed in India by HSBC in 1987.There has been significant proliferation in the expansionof ATM networks in Indian cities but still it is very poor incomparison with networks in foreign countries.

By the end of 2009 there may be about 50,000 ATMsacross India. (RBI- 31 march 2009-44,857)

What can ATMs do?

It can perform both cash and non-cash transactions in atotally secured environment

Cash transactions for both deposits and withdrawals

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Some Non Cash Transactions Include:Some Non Cash Transactions Include:

• Mini statement of last 5/10 transactions• Balance enquiry• Stop Payment instructions

• Transfer of funds between accounts• Requisition for cheque book or draft• Bill payments

Other Functions:• DispensingTravellers’ cheques

• Smart card based application

• Web enabled activities

• Issue of railways/ air ticket

In addition to cashwithdrawal, ATMs can beused for payment ofutility bills, funds transferbetween accounts,deposit of cheques andcash into accounts,balance enquiry andseveral other bankingtransactions which thebank/s owning the ATM'smight want to offer.

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Besides the above, all banksprovide special boxes in all ATMoutlets for deposit of cheques inthe bank.

The withdrawal in an ATM isrestricted to certain limit pertransaction per card as fixed byindividual banks based on theneed for cash replenishment,product differentiation andthrough-put.

Offline ATMs have lower ceilingfor cash withdrawal ascompared to

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Functioning of an ATMFunctioning of an ATM

ATM (AutomatedTeller Machine)

How Do ATMs Work? An ATM is simply a data terminal with two input

and four output devices. Like any other dataterminal, the ATM has to connect to, andcommunicate through, a host processor. The hostprocessor is analogous to an Internet serviceprovider (ISP) in that it is the gateway throughwhich all the various ATM networks becomeavailable to the cardholder (the person wanting thecash).

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Most host processors can support either leased-line or dial-upmachines. Leased-line machines connect directly to the hostprocessor through a four-wire, point-to-point, dedicatedtelephone line. Dial-up ATMs connect to the host processorthrough a normal phone line using a modem and a toll-free number,or through an Internet service provider using a local access numberdialed by modem.

Leased-line ATMs are preferred for very high-volume locationsbecause of their thru-put capability, and dial-up ATMs arepreferred for retail merchant locations where cost is a greater factorthan thru-put. The initial cost for a dial-up machine is less than halfthat for a leased-line machine. The monthly operating costs for dial-up are only a fraction of the costs for leased-line.

The host processor may be owned by a bank or financial institution,or it may be owned by an independent service provider. Bank-ownedprocessors normally support only bank-owned machines, whereasthe independent processors support merchant-owned machines.

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Settlement FundsSettlement Funds When a cardholder wants to do an ATMtransaction, he or she provides thenecessary information by means of the cardreader and keypad. The ATM forwards thisinformation to the host processor, whichroutes the transaction request to thecardholder's bank or the institution thatissued the card. If the cardholder isrequesting cash, the host processor causesan electronic funds transfer to take placefrom the customer's bank account to thehost processor's account.

Once the funds are transferred to the hostprocessor's bank account, the processorsends an approval code to the ATMauthorizing the machine to dispense thecash. The processor then ACHs thecardholder's funds into the merchant's bankaccount, usually the next bank business day.In this way, the merchant is reimbursed forall funds dispensed by the ATM.

So when you request cash, the money moveselectronically from your account to thehost's account to the merchant's account.

Automated Clearing House

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CORE BANKING SOLUTIONCORE BANKING SOLUTION(CBS)(CBS)

A centralized branch computerization model inwhich branches are connected to a centralhost.

It incorporates branch automation modules andonline multiple delivery channels like ATM,ABB(Any branch Banking), Debit Card, Tele-banking, Internet Banking, etc., under one roof.

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CORE BANKING SOLUTIONCORE BANKING SOLUTION(CBS)(CBS) In core banking there is a central database

for the bank and transactions are donecentrally, online.

It offers integrated products and servicesto customers round the clock. It providesscope for induction of modern bankingservices and one single software for allthe branches and is operated on thebank’s WAN infrastructure.

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The Business components of CBSThe Business components of CBS

The core banking software covers almost allthe banking business modules as well as MISand other decision support system◦ Retail customer modules◦ Deposits, loans, bills, remittances, locker, clearing

etc.◦ Trade finance and forex modules◦ Government business modules◦ Corporate finance and service modules◦ Enhanced MIS modules◦ Business Intelligence Modules

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The Business components of CBSThe Business components of CBS

◦ Integrated with ATMs, tele-banking, debit card, kiosksand other delivery channels.◦ Facilities like any branch banking, Internet banking

and call centre.◦ Interface with existing corporate systems like

treasury, IBR (inter branch reconciliation), ALM(asset liability management), credit appraisal andmanagement, credit monitoring and NPAmanagement etc.◦ Interface with systems like SFMS (structured financial

messaging solution), RTGS (real time grosssettlement system), CMS(cash management system)etc.

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Benefits of CBSBenefits of CBS Facilitate customer convenience and service, products

with new features like auto-sweep facility, utilities billpayments etc,

New technological products like debit card, ATM,Internet Banking etc..

Establishes a reliable centralized data for the bank. Facilitate data warehousing and data mining

technologies for business intelligence. Easy implementation of integrated customer centric

services like online ATMs, tele-banking, internetbanking, any branch banking, cash management servicesetc.

Enable centralized management information, decisionsupport and executive information system.

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Efficient and effective MIS, ALM, riskmanagement, etc., using central data pool.

Enabled centralized management andcontrol with centralized data

Standardization of branch automationsoftware using single version

Quick adoption of changes as it is donecentrally

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Facilitates Business Process Re-engineering (BPR) to streamline existingbusiness process

Relieves branches from various backoffice jobs, data back up , MIS generationetc.

Although initial cost is high but reducesoperational cost and increase manpowerproductivity.

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FinacleFinacle

Professional Services

Infosys provides banks a wide range of services that support and complement Finacle. Drawing on itsexpertise in the banking domain, strong quality orientation, technology expertise and ability tosuccessfully transform large and complex banks, Finacle can help your bank move from planning toseamless implementation.

Core Services

Application Development and Maintenance

Finacle application development and maintenance services are designed to offer banks the freedom andcost-efficiencies of reliably outsourcing the maintenance and enhancement of Finacle solutions. Aimed atmaximizing the functionality of Finacle, these services ensure that the bank’s solutions evolve as itsbusiness does.

Application Management

Finacle application management services are designed to offer banks the freedom and cost-efficiencies ofreliably outsourcing the maintenance and enhancement of Finacle solutions.

Independent Validation

Independent validation from Infosys focuses on enabling banks to function with minimal disruption. Theseservices optimize business outcome by ensuring that solutions have near-zero defects.

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Migration services Migration services from Finacle focus on enabling banks to upgrade their technology platforms to the latest

version of Finacle, with minimal business disruption. They are differentiated by the business-driven approachadopted.

PerformanceTuning (PTServ) Performance tuning from Finacle is designed to enable the customer to derive optimal system performance

from the Finacle suite of solutions. These services help identify potential performance bottlenecks andrecommend changes, for immediate implementation.

Software Performance Engineering Software performance engineering from Finacle provides performance and availability validation solutions for

the production environment. These enable banks to make critical decisions regarding investments, go-livereadiness, new product introduction, mergers, acquisitions and business portfolio expansions.

System Integration System integration from Finacle is based on an integrated approach to building responsive IT infrastructure

and meeting the critical needs of the banking business.

Value Mining Finacle value mining services enable banks to align business parameters in the Finacle environment to meet

the rigours of their continually optimizing business processes. This is facilitated by conducting structuredstudies in conjunction with the bank’s operations and IT teams. The service culminates in the submission of adetailed analysis report and the advisory proposal.

Surround Services Program Management Business andTechnical Consulting Application-led BPR Delivery Channel Strategy Custom Development

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Electronic Funds TransferElectronic Funds Transfer It is a system whereby anyone who wants to make

payment to another person/co can approach his bankand make cash payment or give instructions orauthorisation to transfer funds directly from his own a/cto the bank a/c of the receiver/beneficary.

As of now, EFT facility is available for transfer of fundsbetween bank braches in about 15 major cities andtowns across the country. Under another specialscheme called Special EFT many more select branchesin over 200 cities have been brought into the fold offunds transfer electronically

Time duration: it generally takes place within the sameday at the most, the next working day.

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Real time gross settlementReal time gross settlement RTGS system is a funds transfer mechanism

where transfer of money takes place from onebank to another on a “real time” and on “grossbasis”. This is the fastest possible money transfersystem through the banking channels.

Settlement in “Real Time” means paymenttransaction is not subject to any waiting period.The transaction is settled as soon as they areprocessed.

“Gross Settlement”: means transaction is settledon one-to-one basis without bunching with anyother transaction.

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RTGS Vs EFT systemRTGS Vs EFT system EFT and NEFT are electronic funds transfer mode

that operate on a deferred net settlement (DNS)basis which settles transactions in batches.

In DNS the settlement takes place at a particularpoint of time. All transactions are held uptil thattime. For Eg. NEFT settlement takes place 6 timesa day (9:30 AM, 10:30 AM, 12 Noon, 1,3 and 4 PMand sat: 9:30,10:30 & 12Noon.) Any transactionentered after a designated settlement time wouldhave to wait till the next settlement time.Contrary to this RTGS transactions areprocessed continuously throughout the RTGSbusiness hours.

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RTGS TransactionsRTGS Transactions It is primarily for large value transactions.

The min. amount is Rs. 1Lakh. There is noupper ceiling for RTGS transactions.

Time: Under normal circumstancesbeneficiary branches are expected toreceive the funds in real time as soon asfunds are transferred by remitting bank.The beneficiary bank has to credit thebeneficiarie’s a/c within 2 hrs of recivingthe funds transfer message.

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Acknowledgement: The remitting bankreceives a message from the RBI that moneyhas been credited to the receiving bank.Based on this the remitting bank can advisethe remitting customer that money has beendelivered to the receiving bank.

The RTGS service window for customer’stransaction is available from 9:00 hrs to15:00 hrs on week days and to 12:00 hrs onsat.

Processing Charges: While RBI had waivedits processing charges for all electronicpayments till March 31st 2008, levy of servicecharges by banks is left to the discretion ofthe respective banks.

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Advantages of RTGSAdvantages of RTGS Advantages for COs: Aparat from cutting down of

paper costs, big companies are expected to saveover Rs. 2000 per Rs. 1crore worth of transactionusing RTGS.

It reduces the risk of counter party default andboosts investor’s confidence.

Also helps Cos manage their working capitalrequirements more effectively.

Advantages to investors: With its main hub at RBIheadquarters in Mumbai, it enables settlement ofstock market deals the next day instead of thecurrent 2 days.This boosts trading volume.