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CHAPTER – III
I.T. BASED PRODUCTS AND SERVICES OFFERED IN SBI AND ICICI BANKS
In this chapter an attempt is made to study the conceptual framework
of the selected Information Technology based products and services of SBI and
ICICI bank and the need for innovation in customer service in their retail
banking.
3.1. INTRODUCTION
The tremendous advances in technology and the aggressive infusion
of Information Technology had brought in a paradigm shift in banking
operations. With the development of information technology, the world has
become a global village and it has brought a revolution in the banking industry.
The banks appear to be on fast track for I.T. based products and services. Bank
customers are becoming very demanding and it is the extensive use of
technology that enables banks to satisfy adequately the requirement of
customers. Technology has become the fuel for rapid change. The Information
Technology facilitates the development of retail banking activities.
The retail banking refers to the dealing of commercial banks with
individual customers by offering products and services in the form of fixed,
current, savings account and mortgages, loans (personal, housing, vehicle and
educational) and also services like Debit card, Credit cards, ATM card and
depository services etc. In addition to the multiple products, it also emphasises
multiple channels of distribution like call centre, branch, internet, mobile /
SMS, Core banking services etc., through which products are delivered and
provide service to multiple consumer groups (customer, small business and
corporate).
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The issue of retail banking is considered extremely vital and the
growth of retail banking is mainly attributable to the rapid advancement in
information technology. In India both the private and public sector banks too
experienced a surge in retail banking. Therefore, in this competitive and
globalized banking scenario, the customers are the priority for banking
companies and they are considered as assets that banking company should
preserve and continuously expand.
As customers are the significant importance, it is essential for the
banking companies to satisfy their needs and requirements by providing wide
variety of products and services through the increasing power and precision of
information technology. Now a day’s banks are providing a variety of products
and services and adopting new techniques to satisfy their customers.
It is true that technology has provided a unique competitive
advantage to both public and private sector banks in India, since they have
taken a lead in offering technology based products and services to their
customers. Adopting the latest technology with constant upgradation is leading
to a huge investment of capital in technology and high cost of skilled and
trained man power. Therefore, to contain the phenomenon, a number of new
private banks and foreign banks with large volumes of business have started
out-sourcing some of their activities.
Learning operations and ATM maintenance are handed over to
outsourcing agencies, whereas marketing functions for deposit mobilization,
retail loans and credit card business are done through Direct Selling Agents
(DSAs), Routine back office jobs are either centralized or completely out-
sourced leading to branch staff taking up more marketing functions with a
customer centric approach at the branch level.
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Based on the above facts, both State Bank of India in public
sector and ICICI bank in private sector understood the impact of the
introduction of electronic system for the delivery of products and services to
their customers, which ultimately provides enormous benefits in their
operations. It helps to streamline and standardize the work flow to attend the
work in the required manner and provide complete security to office documents
and also helps in the following ways:
Increase the speed to process the cases due to reduction in
procedures and providing clear-cut responsibility to persons
involved.
Easy tracking of documents
Easy retrievability of documents
No loss or misplacement of documents
Optimal utilization of man power
Measure the performance ultimately
Even though the above benefits are identified, the technology has its
own risks. In order to avoid such risks, there is a need to ensure the availability
of the network and other services for users without any interruption. To provide
such uninterrupted services, banks have to concentrate on proper information
technology planning, preventive maintenance, availability of facility managers
and technological capability to manage the system. In order to ensure
continuous business, it is necessary to have trained and capable database
administration.
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3.2. PRUDENT TECHNOLOGY INVESTMENT AND ITS
COMPETITIVE LEAD IN THE BANKING SECTOR
“Technology has changed the face of banking sector. It is
helping the banks to ease cost pressure, improve quality, and be
competitive. While the major objective of IT investment in
banks is to offer services to customers which bring convenience
and value, to get greater benefit, IT strategy should be aligned
with business plan. Prudent technology investment decision is
one which brings positive return on technology investment.
The major IT competitive edges in banks are improved
distribution, enhanced operational efficiency, better
management of risks and efficient payment system” 1.
Thus, technology facilitates the organization / business
to compete in the present modernized environment;
to cut cost pressures;
for better productivity and volume;
to enhance speed and ease in production; and
to improve quality.
Fig.3.1 Implementation of Technology
__________________ 1Anu Anna Thomas (2005) “Present Technology investment and its competitive lead in the banking sector” – Information Technology in Banks – ICFAI University Press, p.98.
Manual System
Batch processing
systems
Online systems
Real-time system
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OBJECTIVES OF INFORMATION TECHNOLOGY INVESTMENT IN
BANKING
Offer services to customer, which will bring convenience and value
addition to customers.
Help the bank in retaining the existing customers and to further increase
customer base.
Improve operational efficiency, decrease operational costs and to
enhance the wealth of owners (stakeholders)
Use operational data for providing a Management Information System
and Decision support system.
Derive necessary inputs for Customer Relationship Management
operational data.
Provide necessary tools to launch new products and new business
initiatives.
Provide support for determining and managing risk in operations.
Meet regulatory / statutory requirements.
Secure information of Assets as Information is a vital resource for
Bank’s continued operations.
Augment Non-interest income, especially through technical products
such as ECS / E-Money / Money Transfer / Utility payments / Direct
Taxes / Cash Management Services etc.
Based on the above facts it is understood that Skills must be matched
by flexibility. Public and private sectors must join hands as partners in the
development of promotion of productivity, and innovation, on an increasingly
larger scale.
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3.3. INNOVATION IN CUSTOMER SERVICE IN BANKS:
“Satisfied customers are the best guarantee for stability and
growth. Customers will be satisfied only when the banks
provide the customized and innovative products and services at
reasonable costs. This article focuses on the kind of services
provided by developed countries and the level of innovative
services provided by Indian banks. Many innovative services
are currently available from Indian banks like e-banking,
ATMs, anywhere banking etc. But there is a vast scope for
improvement”2.
Technology is rapidly transforming the banking industry – and
expanding its ability to reach the unbanked. Banking services are unique in the
sense that diverse customers have multifaceted needs and therefore,
benchmarking of banking services becomes a difficult task. No doubt, a
system of Citizen’s Charter has been introduced in various banks but this only
deals with the time limit within a service would be rendered to the customers.
Are Banks Serving the Common Man?
Banks have been changing their mindset and are offering their
services effectively and efficiently. Besides, RBI’s efforts, IBA is
also making efforts to improve the customer services. Banks have
been advised to review their existing policies and procedures with
regard to delivering of various services3.
___________________ 2Sharathkumar (2005), “Innovation in customer service in Banks” – Innovation in Banks, p.No.20 – ICFAI University Press.
3Government of India – (2005-2006) Economic survey, p.63.
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Acquisition / Satisfaction
Fig.3.2 Acquisition / Satisfaction
Technology encourages innovative applications with product
manufacture design and control. Thus it means for a rapid change especially as
the banks take to the fast track, besides this development, technology of
telecommunication and electronic data processing have accelerated these
changes. So the new technology has altered the ways of banking business
through improving product selling, customer identification, customer
acquisition and customer satisfaction.
Recent Technology Innovation by Indian Banks
State Bank of India and seven of its associate banks got more than
2,500 of their branches connected under the second phase of the
$29 mn project assigned to Data craft.
State Bank of India launched a mobile ATM, using Reliance
CDMA technology, on a boat near Vypeen islands in the Kochi
Backwaters.
IT in banks provide
Customer identification
Cross selling / Up selling
Customer satisfaction and
Delight
Customer Acquisition
Customer Retention
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ICICI bank deployed a mobile ATM using Reliance Fixed Wireless
Terminal (FWT) outside the Wankhede stadium during the India-Australia one-
day cricket match.4
It has been established that increasing the role of technology in a
banking service can reduce costs and often improve customer’s satisfaction.
This study elucidates the customers’ preference and satisfaction with
technology based products and services of SBI in public sector and ICICI in
private sector. However the customer satisfaction has been linked with the
Computerized services
Internet banking
Core banking
ATM services
Mobile and SMS services
____________________
4Ashok Singh (Jun 2010) “Data centre energy efficiency’ The Indian Banker, vo.5, p.2.
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3.4 CLASSIFICATION OF PRODUCTS AND SERVICES OF
COMMERCIAL BANKS
Banking products can be dived into two types. Those are Traditional
and I.T. based products. Traditional products also know as mass banking
products.
Traditional products consist of Savings Deposits Account, Current
Account, Fixed Deposit Account Recurring Deposit Account, Overdraft
Account, Loan Account, PPF Account. All these components of traditional
product is operated through channels such as internet, phone services, ATM
and Core banking technology as a transformation from traditional banking
to technological banking.
The remaining Informational Technology based products and services
which customers extract through the same channels are as follows:
1. Term Deposits,
2. Special Term Deposits,
3. Tax Saving Scheme,
4. MODS (Multi Option Deposit Scheme),
5. Flexi Deposit Scheme,
6. Basic Banking – No Frills Account and
7. Premium Savings Account.
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In view of several developments in the 1990s, the entire banking
products structure has undergone a major change. As part of the economic
reforms, banking industry has been deregulated and made competitive. New
players have added to the competition. IT revolution has made it possible to
provide ease and flexibility in operations to customers. Rapid strides in
information technology have, in fact, redefined the role and structure of
banking in India. Further, due to exposure to global trends after Information
explosion led by Internet, customers - both Individuals and Corporates - are
now demanding better services with more products from their banks. Market
focus also shifted from mass banking products to class banking with
introduction of value added and customised products and these are named as
I.T. based products.
I.T. based products & services and their working mechanism :
E-Rail (Electronic rail booking): under this scheme, an individual can book
their railway ticket online. All internet banking customers can use this facility.
The payment amount will include ticket fare including reservation charges,
courier charges and bank service fee. Customer’s account will be debited to the
extent of the payment as soon as the payment option is selected by the
customer over the on-line. The ticket may be delivered or collected by the
customer from the reservation counter.
NEFT: It is another electronic payment system. The payment instructions
between the banks is processed and settled at fixed time during the day. There
is no limit for the transactions value. Both systems work on all days except on
Sundays and common National holidays across the states.
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E-Pay
This system will let you pay your telephone, mobile, electricity,
insurance and credit card bills electronically over the on line bank website.
On-Line Trading Services
Through the internet banking a customer can enter into a world wide
online share trading and transaction of products world wide.
ATM Cum Debit Card
This is the card used by the customers to withdraw cash and make
purchases anytime as their wish.
ATM is a device that allows customers who have an ATM card to
perform routine banking transactions without interacting with a human teller.
ATMs are currently becoming popular in India since they enable the customers
to withdraw their money 24 hours a day, 7 days a week. They allow a customer
to withdraw cash up to a specified amount by operating the machine via a
magnetic card to a host computer. While new private sector banks and foreign
banks had more off-site ATMs, nationalized and old private sector banks had
more on-site ATMs. The percentage of off-site ATMs to total ATMs were the
highest in case of foreign banks followed by SBI groups, new private sector
banks, nationalized banks and old private sector banks.
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The following are services provided through ATMs by the banks :
ATM credit card and Debit card acceptance
ATM card issue duration
Cash Withdrawal Duration
Balance Enquiry
Receipt Of Mini Statement
Maximum limit per withdrawal
ATM locations
Guidelines for card usage
Charges for card usage
Lost card request to make Hot card
Replacement of Lost / damaged ATM card
Validity of ATM card
Maintenance of secrecy of PIN
Providing Tips for taking precautions about safe keeping of card
Change of PIN as and when required.
Rural ATMs
Rural ATMs having the ability to handle used and soiled currency
notes. Sensors are used to detect and correct false dispensation. They provide
the depositor with secure antiphishing mechanism, secure chest with e-lock
activated only by remote-bank server. They have got smart-card based
identification, biometric authentication, encrypted secure communication over
the internet and real time online communication for ‘anywhere banking’.
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Biometric ATMs for Rural India
ATMs with biometric devices are the latest solution in the ongoing
effort to offer banking services to the rural masses. To reach the rural masses,
and to boost micro financing initiatives, banks are deploying biometric ATMs.
Establishing the identity of a rural depositor through biometrics, it makes it
convenient for the illiterate to become part of the banking user community.
Biometrics establishes identification via face, voice, retina or iris.
The benefits are:
It provides strong authentication.
Can be used instead of a PIN
Fingerprint verification and voice guided animated screens with one
touch enabled transaction, eliminating complex navigating menace.
Hidden costs of ATM card management like card personalization,
delivery management, re-issuance, PIN generation, help desk, can be
avoided.
Ideal for Indian rural masses.
It is accurate.
Smart Card
It is also considered as that of any other credit card. The only
difference is that, it carries a chip embedded on the reverse below the magnetic
strips. The purpose of the smart card is to replace the multiple number of cards
with one or two storable information.
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Broking Services
This is the service provided to the investors to carryout broking
transactions with confidence. The retail broking network helps investors to
locate the branches to whom they should approach for their broking needs.
Vishwa Yatra Foreign Travel Card
A prepaid plastic card issued in association with visa international is
presently available in three different currencies namely US dollars, Euro and
GBP. It is a safer method of carrying funds in a safe, convenient and cost
effective way by customers who visit abroad. It takes away the hassles of
going around money changers and loosing valuable foreign currency by way of
high exchange margins. It also relieves the customers from the annual fees,
joining fees, credit limits, unusual transaction charges etc.
RBIEFT refers to Inter-bank electronic funds transfer facility of the Reserve
Bank of India (RBI – EFT) which is (technology) available in the branches to
clear the financial settlement between the branches and banks, within a real
time.
Yuva Card
This is the card exclusively designed for vibrant youth of India
between 18 and 30 years of age. It is also an international debit card on visa
platform.
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Safe Deposit Locker Remittance
Online banking helps the customers to give standing instructions to
their bank, towards the remittance of rent for the safe deposit locker facility
availed.
Foreign Inward Remittance
Funds can be transferred from anywhere. Drafts in Indian rupees can
be purchased from exchange companies or bank correspondents and it could be
mailed to the branch, where a customer has an account. Telegraphic or wire
transfers can be made through the branches of their bank abroad. Through the
Automated Clearing House (ACH) over the online, the money could be
credited in customer’s account even from USA within 4 days.
Demat Services
Demat service facilitates to maintain security balance, in electronic
form. This service ensures free of transferability of securities with speed
accuracy and security. It also provides service towards the conversion of
electronic balances to physical (share certificate) form. It facilitates faster and
direct credit or security balances in DP (Depository) account on allotment
through public issue of companies. Both buying and selling of securities will
take place through the Demat account.
Gift Cards
The advancement of bank introduces gift cheques, allowing the
beneficiary to use the money according to their wishes. These cheques are
accepted at the issuing bank branches only. But the gift card issued in
association with visa international gives the comfort of convenience and
acceptability. It is a prepaid plastic card supported by magnetic strip based
technology. It is a perfect substitute for gift vouchers. It is usable at all visa
enabled merchant establishments at POS (Point of Scale) by signature.
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EZ-Pay Card
It is a prepaid plastic card issued in Indian currency in association
with visa international. It is an ideal product for making periodical payments,
where Payment of salaries to employees, who are required to work at different
locations. In that situation, cards can be loaded from a single point and the
funds are available to the employees immediately. The card holder can
withdraw his money from any ATM and balance enquiry can be made through
the ATM, at free of charge.
Multi City Cheques (MCC)
It is a cheque, that can be written by the customer in favour of his
client and is payable at par, at all branches of the bank. MCC can be issued in
cheque operated accounts (SB and current) in addition to normal cheque books.
The MCC facility is to be used only for genuine transactions / bonafide
remittances. No cash payments will be made to this and parties at other
branches.
Mobile Phone Banking
This service is available on all phones in a Wireless Application
Protocol (WAP) over Unstructured Supplementary Service Data (USSD) and
over SMS. The following services are provided to the customers.
Balance enquiry / mini statement.
Funds transfer (within and outside bank)
Cheque book request
Demat enquiry service
Bill payments (utility bills, credit cards, insurance premium)
Mobile top-up
Mcommerce (Top up of Tata sky, Sun Direct, Dish TV connections, and
so on)
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NRT Services
These customers are availed with transaction details and account
balance round the clock. NRI’s can open different types of accounts and avail
various loans as per the banking rules and regulations.
e-invest
Bank has introduced this supplementary process for applying in the
public issues. Bank will mark a lien on the deposit account of the e-investor to
the extent of the application money. Under this system customer funds will
continue earning interest during the application processing period. Once the
allotment is over, the lien will be removed and the shares allotted to the
customers will be transferred to the Demat account.
Travel Card
This card is powerful and a new concept for international travelers. It
provides convenience and safety to the travelers who are in abroad. Some of
the features are, replacement card, SMS alerts for every transaction, online
access both to the customers and corporate. Card usable over the internet and
so on. Making the travel totally hassle-free.
Investment Services / Cash Management Services
The above service refers to the financial advice offered by banks to
their customers. This service is considered as high value and high specific
oriented. The advisor (bank) has to gather all information necessary and
provide all such information to their customers, who need the banker’s advice
to take a decision on their investment. It is necessary to note that the advisor
must provide a customised recommendation from the information collected.
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Bank Travel Cards
The ICICI bank Travel Card has made travel abroad convenient and
safe. Available in US Dollars, Australian Dollars, Canadian Dollars, Swiss
Francs, Euros and Pound Sterling, the international traveler gets the widest of
the choices. Some of the powerful features are Replacement Card (part of kit),
SMS alerts for every transaction, online access both to customers and
corporate, card useable over the internet etc. making travel totally hassle-free5.
3.5. COMPUTERISED SERVICES (GENERAL):
Nowadays customers are viewed by the banks as financial partners
rather than custodian of their customers’ money. In order to provide better
services to their customers both private and public sector banks introduced a
high level of computerization to insure efficient services. The high speed
computer mediated, communication networks set up helps to reduce to
communication cycle time. As a result, employees could attend to the
customer proposal and problems, while computer processes all the transactions
and displays the options and assists the employees to provide customized
solutions. The new technology has radically altered the traditional ways of
doing banking business. Increasingly, the customer in retail sector is doing
business with their banks. 5
___________________ 5www.orpci.org.in C July 15, 2010.
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The payment system is effectively carried out through the use of E-
payment technology which allows customers to access banking services
electronically, to pay various bills towards, telephone charges, electricity, and
mobile. It refers to electronic services through the computers that are made
available to the customers for pass book entries, electronic clearing services.
There is no uniform standard for presentment and payment of bills under this
system, getting of paper and plastic and typing to replace it by electrons. By
using the electronic device the banks can extend the following retail services to
their customers. The improved availability of customer data will help to speed
transaction processing cycle and automate the more time consuming customer
interactions; including form completion and other cumbersome application
processes. Extending the banking services infrastructure into these e-financing
domains will also help to keep customers satisfied.
The following are the practices adopted to provide services through
computers with banks:
Computerized Services at Branch Level
I. The Payment System
Utility Bills Payments
Passbook entries
Electronic Cheque Clearances
FD receipts issue
ATM statement availability
Withdrawal of Cash
MICR clearing system
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II. The Settlement System
Electronic Debit Clearing
Electronic Credit Clearing
Electronic Documents Management
RTGS (Real Time Gross Settlement)
Credit card Payments
Debit Card payments
Smart cards
Draft Issue(Purchase of Drafts)
III. Centralized funds management system
24 hrs banking service
Ac to AC transfer of funds
Branch to Branch transfer of Funds
Bank to Bank transfer of Funds
Preparation of vouchers
Electronic Funds Transfer
IV. Structured financial messaging solutions
Interactive voice response
Telephone banking system
Securing message for funds transfer
V. Internet system
To view accounts
Remote banking services
EDI (Electronic Data Information) Developments
email management
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VI. Debit card management solution (manages the lifecycle of ATMs and
Debit cards)
To Get account statements
Biometric ATMs for Rural Banks
Network based fraud deduction system
The Settlement System
Electronic payment and settlement system
The most accepted forms of payment for settling transactions are
cheques. Through the system of clearing houses, the inter-bank cheques could
be cleared. The service of clearing house is a common phenomenon, which is
provided by RBI in metro cities and the similar service is provided by other
banks in smaller cities. The MICR / OCR (Magnetic Ink Character / Optic
Character Recognition) technology adoption leads to automate the clearing
process.
MICR / OCR Clearing System
The Automated clearing system consists of Magnetic ink and optic
ink character recognition technology MICR technology is used in clearing of
cheques in India. Under this system, the specific types of papers are processed
in a high speed machine and the cheques have two white bands at the top and at
the bottom. These bands carry the details of the cheque which are enclosed
with special magnetic ink. These banks should be free from any marking or
impressions as such. The cheques should not be folded in the middle and either
end should be free from any tabs.
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Electronic Debit Clearing
It is a process through which, a user of the utility services like,
telephones, electricity, gas etc. can make the regular and periodic payments to
the service provider. In order to make the payments easy the service provider
obtains an authorization letter from the user and it will be submitted to the
banker as in the case of normal clearing. Later, the customers account will be
debited in the respective branches to the extent of the amount payable by the
customers.
Credit Clearing System
Credit clearing system is applicable where a company is required to
make payments to a large number of shareholder/ investors, periodical dividend
/ interest, which are generally of smaller amounts. In this case, the company
prepares a list of customers city-wise, bank wise and branch wise. The amount
is also handed over to the bankers along with the list. The list is distributed to
the various bankers along with the amount, which is credited to the
shareholders account by the individual bank / branches.
Real Time Gross Settlement (RTGS)
“RTGS influences speed, financial risk, reliability and costof
domestic and international transactions”6
RTGS system is defined as a gross settlement system in which both
processing and final settlement of funds transfer instructions can take place
continuously (i.e. in real time).
____________________
6R K Patkar – (2004) – Chartered Financial Analysit – January 2004 – ICFAI University Press (original source) - (p.141 Indian banking in the 21st Century – Amit Sing Sidodiya).
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RTGS systems are typically electronic systems, using
telecommunications network, which transmit and process information in
realtime. As it is a gross settlement system, transfers are settled individually,
that is without netting debits against credits. It is a real –time settlement
system, the system affects final settlement continuously rather than periodically
at pre-defined times provided that the sending bank has sufficient covering
balances or credit. The RTGS was first operationalised on March 26, 2004. Its
use for the transfer of funds, especially for large values and for systematically
important purposes, has increased since then. The interbank paper-based
clearing was discontinued at all the RBI centres from June 2005. All inter-
bank transactions are now settled through RTGS. Apart from inter-bank funds
transfer, the RTGS system facilitates customer transactions. This facility is
available for a transaction value of Rs.2 lakhs and above.7
Structured Financial Messaging System (SFMS)
SFMS like SWIFT is an Electronic Data Interchange system for
banks. It allows exchange of structured messages prepared in conformity with
published standards.8
___________________________
7 Amit Singh Sidodhya (2006) – Indian Banking in the 21st Century – “Emerging Perception” – The ICFAI University Press. 8Swati Anand, Blywel.R.C & Kailash Sakiani – (Jun-2009) “Impact of technology upgradation and the functioning of banks – Journal of Banking Information
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3.6. E-BANKING : GROWING POWERFUL
“Banking being highly information – intensive, it is only
logical to use IT as an effective enabler and facilitator for
meeting the requirement of banks and their customers. With
the changing lifestyle of customers, they need new products
and convenient delivery channels, which can be provided only
be enabling technology”9
The tremendous advances in technology and the aggressive infusion of IT had
brought in a paradigm shift in banking operations. For customers, it was the
realization of their ‘anywhere, anytime, anyway’ banking dream. For the
banks, technology has emerged as a strategic resource for achieving higher
efficiency, control of operations, productivity and profitability.
That most ‘brick-and-mortar’ banks are shifting from a ‘product-centric’ model
to a ‘customer-centric’ model as they develop their new E-banking capabilities.
Banks are now realizing that Internet banking is most successful if they tailor
their websites to their customers’ needs rather than providing and promoting
individual products.
Traditional banks – both in public and private sectors – have been
facing constraints like heavy initial investment, inadequate infrastructure in
rural and semi-urban branches, excess manpower etc., in achieving total bank
automation. Also there is the issue of total business re-engineering, without
which the infusion of technology alone may not yield the required business
benefits to banks. Again, it may neither be required nor viable to cover the
large number of small and rural branches in total bank automation.
___________________ 9K.N.C. Nair – Professional Banker- 2003 – ICFAI University Press (Original source) – p.151 – IT in banks –Katuri Nageswara Rao, IT in Banks, – 2005 ICFAI University Press, Hyderabad.
112
The biggest hurdle in popularizing e-banking is the security
perception among the customers. This needs to be addressed by establishing
highly secure system of architecture for the Net-based services.
The terms e-banking refers to a process by which a customer may
perform banking transactions electronically without visiting a brick –
and – mortar institution. There are different forms of e-banking, which
can be used interchangeably. They are named as PC banking (Personal
Computer Banking), Internet banking, Virtual banking, On-line banking,
Home banking, Remote electronic banking and Phone banking.
PC banking and Internet or online banking are the most frequently used
designations.
These different types of electronic banking are often used
interchangeably.
Banks are transforming their websites into full fledged finance portals
through which the banking companies have gained the opportunity to
offer personalized services to their customers on one-to-one basis by
means of which banks can build (or develop) long-term customer
relationship 10
E-banking utilized technology to allow bank customers and other
stakeholders to interact and transact with the bank through a variety of channels
such as internet, wireless devices, ATMs and physical branches technology and
the same are used for increased knowledge sharing within the bank and
between the bank and its vendors.
_________________________ 10Peter Spencer (2002) “E-Banking” – e-finance, Vol.1 pp.66-67 – ICFAI University
Press.
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The latest wave in I.T. is internet banking. Internet is an
interconnection of computer communication networks spanning the entire
globe, crossing all geographical boundaries. Touching lifestyles in every
sphere the internet has redefined methods of communication, work, study,
education interaction, health, trade and commerce. The net is changing
everything from the way we conduct commerce, to the way we distribute
information. Being an interactive two-way medium, the net, through
innumerable websites, enables participation by individual, in B2B and B2C
commerce, visits to shopping malls, books-stores, entertainment sites and so
on.
To achieve customer satisfaction banks eliminated the constraint of
time and distance by expanding the banking hours from eight to twenty four
and reducing the distance from infinity to new zero. RBI has provided the
following guidelines for internet banking services:-
Only banks licensed under the banking regulation Act and having a
physical presence are permitted to offer internet banking services.
Internet banking should include Indian currency products only, with
regard to cross border transactions, wherein an Indian bank transactions
with a foreign resident and vice versa, existing restriction would
continue to apply, except where permitted by FERA.
Prior approval of RBI is required to offer internet banking. Banking that
already offers such services requires post facts approval 11
_____________________ 11 Jha. S.M. (2000) – Bank Marketing – 2000 Millenium Edn. – pp.14-23.
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The customer can become an e-customer of a bank, when the branch
is e-enabled. All that the customer has to get is only the internet connectivity
after submitting an application form for registration to his branch. The
customer will shortly receive the user ID and password then he has to log on to
the web of the respective bank (either SBI or ICICI) and change his user name
and password and he can make banking a hassle free routine. This system has
been characterized with simple, fast and convenient, any time- any-where
service. The following services have been carried out through this system.
Today customers are demanding fast, accurate and reliable services.
They expect a reasonably high standard of services. So it is inevitable for the
banks to enable them to respond to the customers’ needs at all times and at
competitive prices. In the changed socio-economic condition the customers no
longer want to be restrained by the physical place, where their funds and
information are stored and wish the banking facility to come to their home
rather them in branches of banks.
The internet has the power to effect a major increase in the level of
competition within the banking industry. The costs of an internet banking
system are pretty much fixed, regardless of the size of the bank. With the
extensive use of computer and internet, banks have now started transactions.
The customer having an account in the bank can log onto the bank’s website
and access his bank account. He can make payments for bills; give instructions
for money transfers to fixed deposits and collection of bill etc. In addition to
the above, the following are the further services provided by internet banking
to their customers.
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Consumers can use their computers and a telephone modem to dial in
from home or any site where they have access to a computer.
The services are available seven days a week, 24 hrs a day.
Transactions are executed and confirmed almost instantaneously.
Also, the range of transactions available is fairly broad. Consumers can
view the accounts, get account statements, transfer funds, have quick
and continuous access to information availability and a large variety of
cash management instruments at internet sites by just making a few key
punches.
Time saving and convenient.
Availability of inquiry and transaction Services around the clock
World wide connectivity
Easy access to account data both recent and historical
Give instructions for third party transfers in the same branch
Having direct customer control of international movement of funds
without intermediator
Paying bills
Viewing and checking savings account balances
Paying mortgages
Purchasing financial instruments and certificate of deposits
Booking tickets (E- Ticketing)
E- Tax payments
EZ Trade
RTGS (Real time gross settlement)
E – Payment
E – Invest (IPO)
RBI EFT (Inter banking electronic fund transfer of the RBI)
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Standing instructions could be provided by customers.
Credit card dues payments
Remittance to PPF account
Utility bills payments
Insurance premium payments
Payment of donations to religious organizations
Setting SMS alerts for transaction details
Mutual funds investments
De –mat account services
Submission of on – line request for the following.
Stop payment of cheque
Cheque book replenishment
Demand draft / Pay order.
Benefits to Organisations
Improve customer access.
Facilitate the offering of more services
Increase customer loyalty
Attract new customers
Increase customer satisfaction.
Reduction in costs, as the need for physical branches is reduced.
Reduction in cost, as the need for manpower is reduced.
Transparent and fast response.
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Various Activities Under E-Banking and their execution
1. Pass book entry
As the pass book is the conclusive evidence of transactions between a
banker and customer, it needs utmost perfection. With the introduction of
electronic media, all the entries in the pass book are carried out by an
electronic printer. For this purpose, banks have changed the account numbers
of their customers and the size of pass book. Whenever, a customer transacts
with the banks, his pass book entries will be updated which enable the
customer to know his current balance as on date. Thus, the delay which was
very frequently occurring in manual operations earlier has been overcome. E-
banking has also eliminated any arithmetic mistakes and has ensured accuracy.
Most of the banks have an electronic printer connected to the computer which
prints the entries in the pass book.
2. Simultaneous Entry of Transactions
The foremost advantage of banking operations due to e-banking is
evident from the following – a single transaction of any customer is
simultaneously reflected / undertaken at different points. For example, when a
cheque is presented, the entry in the ledger, pass book, cash book, master
register and daily register is entered simultaneously. By this, the bank will be
in a position to know the current position of its customer. Even the bank
manager, sitting in his cabin, can know the current balance of any customer.
This helps in phone-banking also wherein the customers can dial a particular
number and through on-line computer, they can know their current balance
position. Current account holders are more benefited as there will be a number
of cheque deposits as well as withdrawals and up-dating of entries is done
accurately.
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3. Home Banking
For the benefit of aged people and for persons living in far-off
distances from the branch, home banking is a big advantage. The customers is
given a code number which he can operate through his personal computer at
home and it will activate his account in the bank. He can give instructions for
transfer of money or for payment through his computer network, thus enabling
him to conduct his banking operations by staying at home.
4. MICR Cheques
The modern banks use MICR cheques, called Magnetic Ink
Characteristic Recognition. These cheques contain a white patch at the bottom
in which you have various numbers given, representing name of the bank,
branch and the cheque number. By decoding, the computer will be able to find
out the name and the branch of the bank. When banks send cheques for
clearance at the clearing house, various cheques are fed into the computer
which decodes the MICR cheques and prepares a statement of every bank that
has presented cheques for clearance. Thus, clearing activity is speeded up.
5. Zero System
Under this system, when all the banks and branches are connected by
a network, the transactions will take place in a much more speedy manner.
Instead of taking cheques for clearance, they may be cleared through the
network itself and the customers are given instantaneous credit for their other
bank cheques. This is possible only due to the network the banking industry
enjoys because of the electronic media.
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6. Identification of Customer’s Signature
In certain countries, it is not merely the specimen signature which is
obtained but the index finger impression of the customer is also taken as part of
specimen signature. So, even if there are two identical signatures, the bankers
can match their index finger impressions to find out the genuineness of the
cheque and thus avoid forgery.
7. Transfer of funds through Electronic Clearance System (ECS)
Banks help customers by providing mail transfer and telegraphic
transfer by way of remittance. But these may lead to delay in receipt of funds
at the receiving end. But, in e-banking, we have electronic clearance system
which is called ECS. The customer has to provide a cancelled specimen
cheque to the bank along with his signature, which will be used by the bank for
remittance of various purposes, such as telephone charges, insurance premium
etc.
The customer has to simply provide the telephone bills or insurance
premium and the bank will undertake to remit the funds through the electronic
clearance system by debiting the account of the customer. Of late, companies
are sending their dividend, warrants and debenture warrants to lakhs of
shareholders through this system.
8. Interbank Transfer, Intercity Transfer and International Transfer
All these are carried out by a new modern system called SWIFT, i.e.
Society for the Worldwide Interbank Financial Telecommunication. Under
this system, funds can be transferred from any part of the world within 24
hours. The sender will give the code number of the institution through which
the funds will be remitted to the receiver. This process is kept highly
confidential. Hence there is safe remittance.
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9. Demat Account
As the transactions in stock exchanges are carried out through on-line
basis, and the stock exchanges are insisting on dematting of shares, banks are
acting as depository agents and have opened a dematt account for their
customers. Under this system, the customer will hand over to the bank the
physical form of shares which is held by a shareholding corporation. The
customer is given a personal identification number through which his
transactions are carried out. His sale and purchase of shares are done by bank
through demat account. This prevents bogus and benami transactions and also
blank transfer of shares.
10. Debit and Credit Card
Most of the banks have provided for their customers debit card as
well as a credit card. In debit card, the customer is debited with his transaction
immediately and if there is a credit balance in his account, it will be adjusted
towards the debit entry. Otherwise, the bank will charge interest for
outstanding debit. In the case of credit cards, the transactions enjoy a
minimum credit of one month after which the customer has to pay, failing
which interest will be charged on the outstanding balance. All these
transactions are done through the electronic media and the banks prepare the
bill at the end of a month and send it to the customer. Thus, the credit card is
not only beneficial to the banker but also to the customer and the seller.
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11. Foreign Exchange Transactions
Banks are able to take advantage of different rates in the foreign
exchange markets by the use of e-banking. Even a very minor change in the
foreign exchange rates will enable the banks to earn profits in Spot market,
forward market, future market, option and swap market transactions.
Credit Card Payments through ATM
LIC
Shopping bills
Offering of freedom points
Regarding redemption of points
3.7. CORE BANKING
“Some of the most common issues around core banking Implementations are organizational, not technical” 12
Core means “Basic”, hence the basic services provided by the internet
worked branches of bank is called “Core Banking”. Core banking is normally
defined as the business conducted by a banking institution with its retail and
small business customers. Many banks treat the retail customers as their core
banking customers, and have a separate line of business to manage small
business. Larger businesses are managed via the Corporate Banking division
of the institution. Core banking basically is depositing and lending of money.
Nowadays, most banks use core banking applications to support their
operations where CORE stands for “Centralized Online Real-time Exchange”.
This basically means that the entire bank’s branches access applications from
centralized data centres.
____________________ 12 Ramkumar.V. – A Chartered financial analyst – October 2005 – ICFAI University (original source) – (p.115 Indian banking in the 21st Century – Amit Sing Sidodiya)
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Normal core banking functions will include deposit accounts, loans,
mortgages and payments. Banks make these services available across multiple
channels like ATMs, Internet banking, and branches.
Core banking solutions are banking applications on a platform
enabling a phased, strategic approach that lets people improve operations,
reduce costs, and prepare for growth. Implementing a modular, component –
based enterprise solution ensures strong integration with your existing
technologies. An overall Service – Oriented –Architecture (SOA) helps banks
reduce the risk that can result from multiple data entries and out-of-date
information, increase management approval, and avoid and potential disruption
to business caused by replacing entire systems.
Core banking solutions is a new jargon frequently used in banking
circles. The advancement in technology, especially internet and information
technology has led to new ways of doing business in banking. These
technologies have cut down time, working simultaneously on different issues
and increasing efficiency. The platform where communication technology and
information technology are merged to suit core needs of banking is known as
Core banking solutions. Here, computer software is developed to perform core
operation of banking like recording of transactions, passbook maintenance,
interest calculations on loans and deposits, customer records, balance of
payments and withdrawal. This software is installed at different branches of the
bank and then interconnected by means of communication lines like
telephones, satellite, internet, etc. It allows the user (customers) to operate
accounts from any branch if it has installed core banking solutions. This new
platform has changed the way banks are working.
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3.8. MOBILE PHONE BANKING
The governor of the Reserve Bank of India strongly favoured the idea
of using mobile phones as instruments for bank account transactions. The
integration of existing technologies like smart card with mobile phones holds
exciting promises for the future. With drastic fall in cell phone tariff and
emergence of seamless connectivity between fixed and mobile lines, mobile
banking is set to emerge as one of the most cost-effective delivery channels in
the near future.
Mobile Banking or Banks on Wheels
According to the new government directive, every PSU is expected to
adopt a particular district for financial inclusion, which means that the
respective bank will have to ensure that all the residents of that area have a
bank account. The most efficient and cost-effective way to do this is by setting
up ATMs in mobile banking units, or, ‘Branch on-wheels’. The Bank –on-
wheel would carry a rural ATM from village to village. It will be deployed in
communities to eliminate the need for customers to travel long distances to
conduct their day-to-day banking.
Green Channel Counter Facility
State Bank of India has launched its 'Green Channel Counter' facility
on July 11, 2010, at select branches of the Bank spread across the country as an
innovative step towards paperless 'Green Banking' for deposit, withdrawal and
remittance transactions in connection with its 204th Birth Day. This facility
would give customers ease and comfort in transacting their business at
branches. The customers need not fill up any pay-in slips or draw cheques for
depositing or withdrawing money from their accounts, saving paper, and
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thereby contributing to the concept of 'Green Banking'. This facility would be
a reducing process time, as duplication in writing/feeding account details and
transaction details by the customer as well as the person behind the counter, by
simply capturing these details by swiping the SBI Shopping cum ATM Card on
a device available at the Single Window (SW) Operator's counter. At the Green
Channel counter, there is a Point of Sale Machine (POS), on which the
customer swipes his card. He is then asked by the machine to select the type of
transaction, viz. (0) Cash Deposit, (1) Cash Withdrawal and (2) Funds
Transfer. Once the customer selects the type of transaction by entering the
option, the message ‘Enter the Amount’ is displayed. The customer is asked to
confirm the input amount followed by a message “Please Enter the PIN’. When
the PIN is entered by the customer, the transaction gets transferred to the
terminal of SWO who after entering the denomination of the cash to be paid /
received, pays / receives cash and the transaction gets completed. Three types
of transactions have been enabled through this facility viz. Cash Deposits, Cash
Withdrawals and Funds Transfer. The transaction amount has been fixed as Rs
40,000/-. This would be the most economical alternate channel for the Bank as
the device used to capture the customer transaction data is also inexpensive.
3.9. NEED FOR INNOVATIVE PERSONALIZED SERVICES:
Bank customers are today more informed than ever before and have a
high level of confidence in choosing products and service providers for
themselves. As a result of the recent crisis and the reduced trust in banks,
customers are now much more willing to purchase products and services from
various banks than they were in the past, and are consequently banking with
multiple providers. Managing different banking relationships and comparing
products and services between different providers is becoming easier for
customers through direct channels, Internet blogs, and forums, and social
networks. Consequently, customers have increased the number of their banking
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relationships. At the same time, the use of self service and direct channels has
become a top priority for the majority of banking customers. This trend is
accompanied by the customers’ need for better and more personalized services.
In addition, customers have become more price-sensitive as indicated by the
change in customer reactions to pricing strategies for banking products and
services. As a result of this changing customer behaviour banks need to offer
innovative and more personalized services investing in the digital channels in
order to attract and retain customers. Only by doing so can they gain a
competitive edge in the fight for new customers and win back the trust of their
existing customers.
Conclusion: The tremendous advances in technology and the aggressive
infusion of Information Technology had brought in a paradigm shift in banking
operations. With the development of information technology, the world has
become a global village and it has brought a revolution in the banking industry.
The banks appear to be on fast track for I.T. based products and services. Bank
customers are becoming very demanding and it is the extensive use of
technology that enables banks to satisfy adequately the requirement of
customers. Technology has become the fuel for rapid change. I.T. is no longer
considered as mere transaction processing or confined to management
information system. The wind of liberalization, globalization, and privatization
has opened new vistas in the banking industry in the generation of an intensely
competitive environment. The post-liberalized banking industry in India has
been witnessing a discernible shift from the sellers’ to the buyers’ market.
Further the banking sector reforms and introduction of E-banking has made
very structural changes in service quality, managerial decisions, operational
performance, profitability and productivity of the banks. E-banking is one of
the emerging trends in the Indian banking and is playing a unique role in
strengthening the banking sector and improving service quality. It has enabled
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the banks to handle the payments electronically and inter-bank settlement faster
and in large volumes. There is increase in customer satisfaction level, reduction
in cost of banking operations, increased productivity and as such there is a
tremendous scope for Indian banks to enlarge their E-banking services which
could enhance their competitiveness. Further, new technology has rapidly
altered the traditional ways of doing banking business. Customers can view the
accounts, get account statements, transfer funds, purchase drafts by just making
a few key punches. Availability of ATMs and plastic cards, EFT, electronic
clearing services, Internet banking, mobile banking and phone banking; to a
large extent avoid customers going to branch premises and has provided a
wider range of services to the customers.
Though the sample banks have been offering so many I.T. based
products and services towards improving customer services they need to
implement innovative personalized services to attract and retain the customers
and also the banks need to invest in the digital channels in order to attain
maximum level of satisfaction of the customers with respect to changing
behavior of the customer. Only by doing so they could gain a competitive edge
in the fight for new customers and win back the trust of their existing
customers.