E-Banking Rashedul Hasan. Online Banking Online banking or Internet banking allows customers to...

E-Banking

Rashedul Hasan

Online Banking

Online banking or Internet banking allows customers to conduct financial transactions on a secure website operated by their Bank or virtual bank. Online banking allows members 24/7 access to their accounts, not just during typical banking hours.

Common Features of Online Banking

• The common features fall broadly into several categories:

• Transactional

• Non-transactional

• Financial Institution Administration

• Personal financial management support


• Transactional features includes, – Electronic bill presentment and payment

[EBPP] – Funds transfer between a customer's own

checking and savings accounts, or to another customer's account

– Investment purchase or sale – Loan applications and transactions, such as

repayments.

What is Electronic bill payment

• Electronic bill payment is a now-common feature of online banking. It is allowing a depositor to send money from his demand account to a creditor or vendor such as a public utility or a department store to be credited against a specific account.

• Most large banks also offer various convenience features with their electronic bill payment systems, such as the ability to schedule payments in advance to be made on a specified date, the ability to manage payments from any computer with a web browser, and various options for searching one's recent payment history: when did I last pay Company X? To whom did I make my most recent payment? In many cases one can also integrate the electronic payment data with accounting or personal finance software.

• Direct Deposit lets you authorize specific deposits, such as paychecks to your account on a regular basis. You also may pre-authorize direct withdrawals so that recurring bills, such as insurance premiums, mortgages, and utility bills, are paid automatically.


• Non-transactional (e.g., online statements, check links, co browsing, chat) – Bank statements

• An account statement or a bank statement is a summary of all financial transactions occurring over a given period of time on a deposit account, a credit card, or any other type of account offered by a financial institution.

Bank statement


• Financial Institution Administration - features allowing the financial institution to manage the online experience of their end users.


• Personal financial management support: such as importing data into personal accounting software. Some online banking platforms support account aggregation to allow the customers to monitor all of their accounts in one place whether they are with their main bank or with other institutions.

Advantages of E-Banking

• Online banking allows members 24/7 access to their accounts, not just during typical banking hours. As we know banks will not be open for 24 hours. We cannot withdraw money if the bank has closed. But ATM’s are always open for 24hours. This is the greatest advantage of Internet banking.

• Internet banking reduces man power. Few years back we have seen many clerks and cashiers helping clients. But internet banking has become so useful that it can deal with 1000’s of customers at a time and it is cost effective. There is no need to have many workers in banks .Higher officials made everything online and reduced the work of man power drastically with Internet Banking.


• Real-time Banking : You will be able to access e-Banking services anytime and anywhere to conduct your banking transactions. e-Banking will extend the banking services to your home or office. You can make banking transactions via Internet without queuing up in bank for a long time every day. It will definitely save your money and energy.

• Access to the Records: e-Banking will provide customers with the complete and detailed records on all of their Internet transactions. You can track the whole process of an Internet transaction by yourselves and access important account information on a real-time basis.


• We can easily transfer funds from one bank to another bank with zero percent interest. This facility helps when we are away from our station. For example if you are in some Y station and you don’t find your bank in Y station. What will you do? You just transfer your money from your bank to any bank which presents in Y station. Everything happens in seconds.

• Massage to Bank: This feature allows you to send message to Bank.


• Applying for loan: You can also trade using Internet banking and you can also apply for loan without visiting bank. Internet banking has made life much easier and simpler. It is more pleasant for bankers as well as for customers.

• E-statements offer a logical first e-communication tool, especially One doesn't have to go to the bank's branch to request a financial statement. You can download it from your online bank account, which shows you up-to-the-minute updated figures. Moreover it can strengthening member connections while reducing postage and printing costs.

• Download account information to Microsoft Money, a text file or spreadsheet.


• Bill payment offers another way to draw members to your website, while allowing them to safely and efficiently pay bills at their own convenience.

• Credit Card: We can buy any product through online using credit facility. This is also great advantage of Internet banking.


Cost Effectiveness: Another advantage of Internet banking is that it is cost-effective. Thousands of customers can be dealt with at once. There is no need to have too many clerks and cashiers. The administrative work gets reduced drastically with Internet banking. Expenditures on paper slips, forms and even bank stationery have gone down, which helps raise the profit margin of the bank by a surprisingly large number.

E-Banking Products

Credit CardDebit CardATM Card

Credit card

• A credit card is a system of payments named after the small plastic card issued to users of the system. It is a card entitling its holder to buy goods and services based on the holders promise to pay for these goods and services. The issuer of the card grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant.

Features of Credit card

• Credit cards are issued after an account has been approved by the credit provider,

• When a purchase is made, the credit card user agrees to pay the card issuer. The cardholder indicates his/her consent to pay, by signing a receipt with a record of the card details and indicating the amount to be paid or by entering a Personal identification number (PIN).


• Electronic verification systems allow merchants to verify that the card is valid and the credit card customer has sufficient credit to cover the purchase in a few seconds.

• The verification is performed using a credit card payment terminal or Point of Sale (POS) system with a communications link to the merchant's acquiring bank.


• Each month, the credit card user is sent a statement indicating the purchases undertaken with the card, any outstanding fees, and the total amount owed.

• the cardholder must pay a defined minimum proportion of the bill by a due date, or may choose to pay a higher amount up to the entire amount owed. The credit provider charges interest on the amount owed if the balance is not paid in full

Benefits to customers

• Credit cards are accepted worldwide, and are available with a large variety of credit limits, repayment arrangement, and other perks

• Credit cards in ATMs : Many credit cards can also be used in an ATM to withdraw money against the credit limit extended to the card,

Benefits to customers

• Because of intense competition in the credit card industry, credit card providers often offer incentives such as points, gift certificates, or cash back (typically up to 1 percent based on total purchases) to try to attract customers to their programs.

• A credit card's grace period is the time the customer has to pay the balance before interest is charged to the balance. Grace periods vary, but usually range from 20 to 40 days depending on the type of credit card and the issuing bank.

• credit cards offer consumers an easy way to track expenses, which is necessary for both monitoring personal expenditures and the tracking of work-related expenses for taxation purposes.

Benefits to merchants

• For merchants, a credit card transaction is often more secure than other forms of payment, such as checks, because the issuing bank commits to pay the merchant the moment the transaction is authorized, regardless of whether the consumer defaults on the credit card payment

• In most cases, cards are even more secure than cash, because they discourage theft by the merchant's employees and reduce the amount of cash on the premises.

Parties involved

• Cardholder: The holder of the card used to make a purchase; the consumer.

• Card-issuing bank: The financial institution or other organization that issued the credit card to the cardholder. This bank bills the consumer for repayment and bears the risk that the card is used fraudulently. American Express and Discover were previously the only card-issuing banks for their respective brands, but as of 2007, this is no longer the case. Cards issued by banks to cardholders in a different country are known as offshore credit cards.

Parties involved

• Merchant: The individual or business accepting credit card payments for products or services sold to the cardholder

• Acquiring bank: The financial institution accepting payment for the products or services on behalf of the merchant.

• Independent sales organization: Resellers (to merchants) of the services of the acquiring bank.

• Merchant account: This could refer to the acquiring bank or the independent sales organization, but in general is the organization that the merchant deals with.

Parties involved

• Credit Card association: An association of card-issuing banks such as Visa, MasterCard, Discover, American Express, etc. that set transaction terms for merchants, card-issuing banks, and acquiring banks.

• Transaction network: The system that implements the mechanics of the electronic transactions. May be operated by an independent company, and one company may operate multiple networks. Transaction processing networks include: Cardnet, Nabanco, Omaha, Paymentech, NDC Atlanta, Nova, TSYS, Concord EFSnet, and VisaNet.

Transaction steps

• Authorization: The cardholder pays for the purchase and the merchant submits the transaction to the acquirer (acquiring bank). The acquirer verifies the credit card number, the transaction type and the amount with the issuer (Card-issuing bank) and reserves that amount of the cardholder's credit limit for the merchant. An authorization will generate an approval code, which the merchant stores with the transaction

Transaction steps

• Batching: Authorized transactions are stored in "batches", which are sent to the acquirer. Batches are typically submitted once per day at the end of the business day.

• Clearing and Settlement: The acquirer sends the batch transactions through the credit card association, which debits the issuers for payment and credits the acquirer. Essentially, the issuer pays the acquirer for the transaction.

Transaction steps

• Funding: Once the acquirer has been paid, the acquirer pays the merchant. The merchant receives the amount totaling the funds in the batch minus the "discount rate," which is the fee the merchant pays the acquirer for processing the transactions.

• Chargeback: A chargeback is an event in which money in a merchant account is held due to a dispute relating to the transaction. Chargeback are typically initiated by the cardholder. In the event of a chargeback, the issuer returns the transaction to the acquirer for resolution. The acquirer then forwards the chargeback to the merchant, who must either accept the chargeback or contest it.

Revenue

• Interchange fee

In addition to fees paid by the card holder, merchants must also pay interchange fees to the card-issuing bank and the card association. These fees are typically from 1 to 6 percent of each sale, but will vary not only from merchant to merchant

Revenue

• Interest on outstanding balances • Fees charged to customers• The major fees are for:• Late payments or overdue payments • Charges that result in exceeding the credit limit on the card (whether

done deliberately or by mistake), called overlimit fees • Returned cheque fees or payment processing fees• Cash advances and convenience cheque• Transactions in a foreign currency. A few financial institutions do not

charge a fee for this. • Membership fees (annual or monthly), sometimes a percentage of the

credit limit.

Debit card

• A debit card (also known as a bank card or check card) is a plastic card which provides an alternative payment method to cash when making purchases. Functionally, it can be called an electronic check. Debit cards can also allow for instant withdrawal of cash, acting as the ATM card for withdrawing cash and as a cheque guarantee card.

Features of Debit Cards

• Debit cards work like plastic checks. When you make a purchase with a debit card, the payment for the purchase is taken directly from your bank account. If your account has insufficient funds to cover the expense, your card payment will be declined.

• Debit cards come in two varieties, online and offline. Online cards function like ATM cards, requiring you to enter a personal identification number (PIN) to initiate the immediate transfer of funds from the your bank account to the merchant's bank account. In some countries, such as Canada, online debit cards are the only variety of debit cards that are accepted.

Features of Debit Cards

• Offline cards do not require you to enter a PIN. Instead, when you make a purchase, you sign for it in the same way you do for traditional credit card purchases. Several days later, funds to cover the purchase are transferred from your bank to the merchant's bank. The distinction between online and offline cards is often blurred because most cards can be used in both online and offline capacities.

• There are no monthly bills, no interest charges, and generally no fees to obtain a debit card from your local bank. Visa and MasterCard affiliates issue most debit cards, so merchants that accept Visa and MasterCard credit cards also accept the debit cards.

Debit Vs. Credit Card

• the debit card deducts the balance from a deposit account, like a checking account, whereas the credit card allows the consumer to spend money on credit to the issuing bank. In other words, a debit card uses the money you have and a credit card uses the money you don't have.

• A credit card is, in essence, a loan. A debit card, on the other hand, is not a loan.

Debit Vs. Credit Card

• The "debit" networks usually require that a personal identification number be supplied. The "credit" networks typically require that purchases be made in person and often allow cards to be charged with only a signature, and/or picture ID.

Advantages

Debit cards, as they have become widespread, have revealed numerous advantages and disadvantages to the consumer and retailer alike. Advantages are as follows (most of them applying only to a some countries, but the countries to which they apply are unspecified):

• A consumer who is not credit worthy and may find it difficult or impossible to obtain a credit card can more easily obtain a debit card, allowing him/her to make plastic transactions.

• Use of a debit card is limited to the existing funds in the account to which it is linked, thereby preventing the consumer from racking up debt as a result of its use, or being charged interest, late fees, or fees exclusive to credit cards.

Advantages

• For most transactions, a Debit card can be used to avoid check writing altogether. Debit cards debit funds from the user's account on the spot, thereby finalizing the transaction at the time of purchase, and bypassing the requirement to pay a credit card bill at a later date, or to write an insecure check containing the account holder's personal information.

• Like credit cards, debit cards are accepted by merchants with less identification and scrutiny than personal checks, thereby making transactions quicker and less intrusive. Unlike personal checks, merchants generally do not believe that a payment via a debit card may be later dishonored.

• Unlike a credit card, which charges higher fees and interest rates when a cash advance is obtained, a debit card may be used to obtain cash from an ATM or a PIN-based transaction at no extra charge, other than a foreign ATM fee.

ATM Card

• It is a plastic card which can be used at an Automated Teller Machine for deposits, withdrawals, account information, and other types of transactions, often through inter-bank networks

Features of ATM Card

• On most modern ATMs, the customer is identified by inserting a plastic ATM card with a magnetic stripe or a plastic smartcard with a chip, that contains a unique card number and some security information, such as an expiration date. Security is provided by the customer entering a personal identification number (PIN).

Automated teller machine

• An automated teller machine (ATM) is a computerized telecommunications device that provides the customers of a financial institution with access to financial transactions in a public space without the need for a human clerk or bank teller.


• Most ATMs are connected to inter-bank networks, enabling people to withdraw and deposit money from machines not belonging to the bank where they have their account or in the country where their accounts are held (enabling cash withdrawals in local currency). Some examples of inter-bank networks include PULSE, PLUS, Cirrus and LINK.

• ATMs typically connect directly to their ATM Controller via either a dial-up modem over a telephone line or directly via a leased line.

Hardware

An ATM is typically made up of the following devices:

• CPU to control the user interface and transaction devices.

• Magnetic and/or Chip card reader in order to identify the customer

• PIN Pad similar in layout to a Calculator keypad, often manufactured as part of a secure enclosure.

• Secure crypto processor generally within a secure enclosure.

• Display used by the customer for performing the transaction.

An ATM is typically made up of the following devices:

• Function key buttons usually close to the display or a Touch screen used to select the various aspects of the transaction.

• Record Printer to provide the customer with a record of their transaction.

• Vault to store the parts of the machinery requiring restricted access.

• Housing for aesthetics and to attach signage to

E-Banking Rashedul Hasan. Online Banking Online banking or Internet banking allows customers to...

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