Rise of American Accounts."Hollywood. "

BANKING INNOVATIONS

INTRODUCTION

Banking plays a vital role in the economic growth of a country. The banking scenario has changed drastically. The changes which have taken place in the last five years are more than the changes that took place in last fifty years because of the institutionalization , liberalization, globalization and automation in the banking industry.

The main invention that is being brought in use is the computer. Today the entire world is moving hand in hand and banks and computers are two wheels of the same chariot. Today the computer is being extensively used in almost all bank branches in our country. Services to the customers have substantially improved due to easy, fast and accurate use of computers by banks. Resorting to scientific innovations lot of man-power and time has been saved on account the ATMs , the ordinery man has the opportunity of using his funds as and when he likes and anywhere. Banks provide wide range of banking services to the needs of different classes and sectors of society . Banks, today aim at bringing new areas and new classes of people into its fold. Emphasis is not only on maintaining efficiency and quality through automation but on rendering quality of services through personnel approach. The relationship between the banker and customer is not merely of debtors and creditors but also that of honouring the customer's need effectively and efficiently. Complaints of the customers are taken into consideration and are dealt sympathetically.

In today's age of industries the main necessity is of security and facility, and this necessity is mainly fulfilled by credit/debit cards, travellers cheque which provides security to a man's invaluable money. The Visa Card and Master Card are being extensively used in India and all round the world.

Banks efforts are directed not only towards identifying such customers as have needs which can be met by the bank's existing policies, schemes, systems and procedures but also towards generating healthy and socially desirable needs . In order to establish report with the customers, many banks have introduced the systems of customer call and customer meets.

Now the customer awareness has increased to a level where he percieves banking industry as a means to serve him. They expect the same range of services in Indian banks. Some new services : (1) Fast collecting centres (2) Factoring (3) Merchant banking (4) Hire purchase and leasing (5) Electronic fund transfer (EFT) (6) Automated teller machines. (ATMs) (7) Personnel banking (8) Credit/Debit cards (9) Investment counselling (10) Home finance (11) Software world wide inter bank financial tele communications (SWIFT) and (12) Net banking etc.

With the risk of information technology, modern banking has assumed a new dimension. By the introduction of "ATM" the banking operations have attained highly commendable speed in performance of business. NRI in USA has a simple way to procure any currency or Dollars at USA. His Citi Bank account in Mumbai may be assessed through an automated teller machine in USA which in turn will inform the Citi Bank Central hum in the US and Indian rupees are converted into Dollars at the prevailing exchange rate. A debit is then given to Indian account and Dollars are made available to the NRI in less than 20 seconds. The marriage of information technology and universal banking has converted banking into commodity yielding premium depending upon efficient service and effective pricing. This kind of banking is also termed as Virtual Banking. Internet banking refers to the practice of banking through the extensive induction of information technology. If covers following modalities :

1. Automated Teller Machine (ATM)

2. Shared ATM Network

3. Use of Smart and Store Value Card

4. Electronic Funds Transfer Point of Sale (EFTPOS)

E-BANKING

e-banking is the banking of the new area. Making banking products and services available to wholesale and retail customers, through an electronic distribution channel is called e-banking , e-banking is the outcome of technological innovations and competition. In fact, banks have been using electronic and telecommunication networks for delivering a wide range of value added products and services. The devices have been telephone, personal computers including Automated Teller Machine (ATM). The delivery channels have been direct dial up connections, private and public networks. To this newer editions of e-banking are being added e.g. Internet banking and mobile banking.

The use of ATMs lead to the concept of 'anywhere' and 'anytime' banking. Through the use of ATM cards, one can operate his bank account to withdraw money from any of the bank's ATM installed or available at the nearest site. This had broken down the time and space barriers. The new banks are providing some of the services exclusively through ATM's.

The growing popularity of personal computers , easy access to internet and world wide web , has increased the use of internet by banks as a channel for receiving instructions and also delivering their products and services to the customers. This is generally referred to as 'Internet banking' or I-banking or Net banking. This is one of the newer form e-banking which is gaining popularity and its other popular name is online banking.

Level of Services

The earlier form of e-banking services like telebanking were used to give information regarding previous transactions, or receiving instructions regarding insurance of cheques and other instruments. Similarly, the electronic clearance of remittances between the branches was introduced. The newer versions of software are adding new services. Primarily the services offered through Internet can be put into three categories.

Level-1. The basic level service is the banks website, which disseminates information on different products and services to customers. This is generally , combined with e-mail to receive and answer queries.

Level-2. In this level Simple Transactional web sites are used. In this type of e-banking customers are allowed to submit their instructions or applications or queries on their bank balances or status of certain transactions etc. However, fund based transactions relating to the accounts of customers are not allowed.

Level-3. This is the highest level of Internet banking services. In this case banking services are offered through Fully Transactional Web sites. This permits customer to operate their accounts through Internet. They can transfer funds, pay bills, subscribe to other products or purchase or sell other securities etc. through the medium of Internet.

These types of Internet banking services are used by traditional banks as an additional method of serving customers. Some of the new banks in the world are delivering banking services through Internet or other electronic delivery channels. Some of the banks are known as 'Virtual banks' or 'Internet only' banks as they may not have any physical presence in a country in which they are offering banking services.

The Indian Scene

Internet banking has gained wide acceptance internationally . In India also the things are changing fast. India is on the threshold of a major banking revolution with the introduction of 'Net-banking'. In the year 2002, only a dozen or so banks are providing services at different levels. However, almost double that number are ready to make entry. Others may be compelled to follow.

Expanding Business

At present the number of internet users in the country is around a million. However, this is likely to multiply by 8 to 9 times in year or so. This will also expand the use of I-banking . The expansion is likely to be exponential. For example ,in 1988 only 1 percent of internet users used it for banking services, however by 2000, the percentage of the users went upto 17.

The trend is likely to catch up as banks are also likely to discourage the physical visits by customers, by offering incentives. In any case, this will be preferred mode for non-resident Indians or others who want to operate or use their accounts, while sitting in an arm-chair.

Decreasing Costs

The e-banking channels have reduced the transaction costs significantly. For example, a transaction at the 'Teller' costs Re.1, then the ATM transaction costs paise 45 only, telebanking transactions cost paise 35 only a debit card transaction costs paise 20 only. In the case of Net banking the cost of paise 10 only i.e. only one-tenth of the cost of transaction at teller. Thus the banking through e-banking channels is going to be very less.

Services Offered

Indian banks are at different stages of web-enabled banking business. These stages are generally of the following type :

(1) First stage type banks are those, which do not have web site. However, allow its customers to communicate through e-mail. These services are only at limited branches and for limited customers.

(2) Second stage is where banks have put up their own web sites. These provide general information about products and services and allow communication through e-mail . This is more of advertising method.

(3) Third stage is where bank allow customers to transact with them electronically . They can open accounts, request for cheque books, print statement of accounts, request for opening of letter of credit etc., and at the most transfer of funds by the account holder to another account holder of the bank.

(4) In fourth stage they go a step further by allowing transfer of funds by the account holder to another account holder of the bank.

(5) In the next stage, the banks offer the facility of receipt, review and payments of bills online. These banks have tied up with utility companies.

(6) In the next stage, they allow online real time shopping.

Future Scene in India

The Indian banks lag far behind the international banks in providing online banking. In fact this is not possible without creating sufficient infrastructure or presence of sufficient number of users. The experience of ICICI Bank ltd. and HDFC Bank ltd. shows that the number of transactions carried out on the Net are very limited. Some of the reasons and problems being faced are as follows.

(1) Although security options in e-banking are available, there is no certification of the appropriate Certification Authority.

(2) The available communication bandwidth available is not enough to meet requirement.

(3) Most of the banks lack uninterupted power supply, which is essential for such services.

(4) The interact details for such services are one-sided , with banks enjoying supermacy . This does not give confidence to the customers .

(5) In Internet geographical boundaries are eliminated. Cyber crimes are difficult to control. There is urgent need to have appropriate cyber laws.

However, despite these hindrances, it is becoming popular and certain steps are being undertaken to promote I-banking .

(1) Department of telecommunications is making additional bandwith available.

(2) Steps have been initiated to appoint Certification Authority.

(3) As Chief Vigilance Commissioner is insisting on more computerisation , and Credit Information Bureau is proposed to be set up, this will help I-banking.

(4) The RBI has put the real-time funds transfer through the Real Time Gross Settlement (RTGS) system in place. The access will be through only one specified gateway. This will ensure rigorous access control.

(5) Various levels of security are being ensured by RBI.

(6) Dematerialisation of share has made significant progress, this will help I-banking.

(7) The payment gateways being created by ICICI bank and HDFC bank will give boost to i-banking.

(8) The RBI has set up a group to examine various issues regarding i-banking and technology. This will help in creating the right kind of infrastructure.

(9) In fact certain things have already been initiated.

What is Required to Make Online Banking Succesful ?

To make online banking succesful , the banks should pass on some benefits of the cost-effectiveness to the customers. The banks should offer :

(a) high rate on deposits.

(b) 24 hour access.

(c) free bill payment and rebates on ATM surchargers.

(d) credit card with low interest rates.

(e) innovative products and high quality of services.

Factors Promoting I-banking

Following factors will help i-banking :

(a) low cost electronic services.

(b) increased access.

(c) improved awareness.

(d) entry of global banks.

(e) growth of e-commerce.

(f) open standards in the banking industry.

(g) convenience.

(h) emergence of payment gateways and online shopping.

RBI Guidelines for Internet Banking

The RBI has notified guidelines applicable to internet banking within the country. These guidelines bring all entities offering online banking services to residents of the country within the existing regulatory frame work. According to these guidelines :

(a) Only banks licensed under the Banking Companies Regulation Act, and having a physical presence are permitted to offer internet banking services.

(b) Internet banking should include Indian currency products only. In cross-border transactions the existing restrictions will apply unless permitted by Foreign Exchange Management Act (FEMA).

(c) Prior approval of RBI is required to offer Internet banking. Banks already providing services have been asked to get retrospective approval.

The Recommendations of the RBI Group on Internet Banking, Technology & Security Standards

The main recommendations of the group are as follows :

Only the latest versions of the licensed software with latest patches are to be installed in the system, proper user groups with access privileges are to be created and users are assigned to appropriated groups as per their business roles. There should be a robust system of keeping log of all network activity and analyzing the same :

1.Access Control : Logical access controls should be implemented on data, systems, application software, utilities, telecommunication lines, libraries, system software,etc.

2. Firewalls. At the minimum, banks should use the proxy server type of firewall so that there is no direct connection between the internet and the bank's system . For sensitive systems, a stateful inspection firewall is recommended.

3. Isolation of Dial Up Services. All the systems supporting dial up services through modem on the same LAN as the application server should be isolated to prevent intrusions into the network.

4. Security Infrastructure. Until IDRBT or Government puts in place the PKI infrastructure , the following options are recommended.

5. Usage of SSL which ensures server authentication and the use of client side certificates issued by the banks themselves using a certificate Server.

6. The use of at least 128-bit SSL for securing browser to web server communications and in addition , encryption of sensitive data like passwords in transit within the enterprise itself.

7. Isolation of Application Servers. All unnecessary services on the application server such as ftp, tellnet should be disabled. The application server should be isolated from the e-mail .

8. Security Log (Audit Trail). All computer accesses, including message received, should be logged. All computer access and security violations (suspected or attempted) should be reported and follow up action taken as the organization's escalation policy.

9. Penetration Testing. The information security offer and the information system auditor should undertake periodic penetration tests of the system, which should include :

.Attempting to guess passwords using password-cracking tools.

.Search for back door traps in the programs.

.Attempt to overload the system using DdoS (Distributed Denial of Service) & DoS (Denial of Service) attacks.

.Check if commonly known holes in the software, especially the browser and the e-mail software exists.

.Penetration testing by engaging outside experts (often called 'Ethical Hackers').

10. Physical Access Controls. Though generally overlooked, physical access controls should be strictly enforced.

11. Back up & Recovery. The bank should have a proper infrastructure and schedules for backing up data. The backed-up data should be periodically tested. Business continuity should be ensured by having disaster recovery sites, where backed-up data is stored. These facilities should also be tested periodically.

12. Monitoring against threats. The banks should acquire tools for monitoring systems and the networks against intrusions and attacks.

13. Education and Review. The banks should review their security infrastructure and security policies regularly. They should educate on a continuous basis their security personnel and also the end-users.

14. Log of Messages. The banking applications run by the bank should have proper record keeping facilities for legal purposes. It may be necessary to keep all received and sent messages both in encrypted and decrypted form.

15. Certified Products. The banks should use only those security solutions/products which are properly certified for security and for record keeping by independent agencies (such as IDRBT).

16. Maintenance of Infrastructure . Security infrastructure should be properly tested before using the systems and applications for normal operations.

17. Apprival for I-banking. All banks having operations in India and intending to offer internet banking services to public must obtain an approval for the same from RBI.

Risks

e-banking poses some different risks as compared to the traditional banking. These risks are more pronounced in the case of Internet banking. Firstly, the risk of technological changes have to be carefully watched. This is essential to update technologies and remain cost effective and customer friendly.

The technologies are generally obtained from outside parties. The banks have to be careful about risks involved in such agreements.

The security is an important area of risk. In fact it will be very crucial for the expansion of Net Banking. Another important area will emerge out of cross-holder implications as 'Net-Banking' breaks the geographical boundaries. Imposing regulatory conditions on such transactions will be a difficult task.

The Basle Committee's Electronic Banking Group

The Basle Committee on Banking Supervision has taken note of these issues. In 1999, it constituted Electronic Banking Group (EBC)-a group having representation of 17 central banks. The task for the group has been to develop risk management guidance for Internet Banking. It has identified fourteen Risk Management Principles for sound risk management in e-bankung.

1. Effective management oversight of e-banking activities.

2. Establishment of a comprehensive security control process.

3. Comprehensive due diligence and management oversight process for outsourcing relationships and other third-party dependencies.

4. Authentication of e-banking customers.

5. Nonrepudiation and accountability for e-banking transactions.

6. Appropriate measures to ensure segregation of duties.

7. Proper authorization controls within e-banking systems, databases and applications.

8. Data integrity of e-banking transactions, records and information.

9. Establishment of clear audit trails for e-banking transactions.

10. Confidentiality of key bank information.

11. Appropriate disclosures for e-banking services.

12. Privacy of customer information.

13. Capacity, business continuity and contingency planning to ensure availability of e-banking systems and services.

14. Incident response planning.

These principles will guide all the central banks, including RBI when e-banking expands in future. The face of banking is changing very fast.

CREDIT CARDS

The development of credit card is one of recent phenomenon in the banking sector. A credit card is a charge card. It is a direct charge against the limit sanctioned. It is a debt instrument issued by some specialised companies. It is one step forward towards cashless and chequeless society. The operation is through electronic funds transfer (EFT) installations and interbank network. Credit cards are the key to the opening of bank accounts for daily payments by the card holders. It enables the card holders to have overdraft facilities ranging from Rs 2,000 to Rs 10,000 depending upon the creditworthiness of the party.

Many Indian and foreign banks have issued credit cards to their customers. The issuing bank ties up with a number of establishments including hotels, hospitals, shops petrol-pumps and departmental stores which honour the credit cards. The issuing bank provides the facility of credit cards to selected number of customers depending upon their monthly income, creditworthiness or to company executives, businessmen and high and middle income individuals etc. Basically, the use of credit cards helps the holder to take advantage of the two essential aspects of the financial services functions :

(1) transmission of payments, and

(2) the granting of credit.

The development of the credit cards had facilitated the use of these two functions together .

Credit cards have been rightly called "plastic money" . The objective is to provide convenience and security. It eluminates cumbersome cash transactions , and protects from the possible danger of pickpocketing a lot of cash. There is usually an interest-free credit for 30 to 45 days. Groceries, hotel charges, telephone bills and taxes etc. could be paid through credit cards.

These plastic cards have the photo identity and holder's signature embossed on the card. It also has the issuing bank's name and validity period of the card. The bank issuing the credit card knows well the customer and his creditworthiness.

ELIGIBILITY FOR GETTING THE CARD

The following are the factors on which depends the eligibility of an individual for obtaining the card.

1. He should have a savings current account in the bank.

2. His assets and liabilities on a particular date are reported to bank.

3. A statement of annual or monthly income.

4. He is considered credit worthy up to certain limit depending upon his income, assets and expenditure. The eligible customer is asked to fill in an application form giving the details of account number, name, address, income, wealth status and a proof of his income/wealth etc.

TYPES OF CREDIT CARD

There are mainly three broad categories of card that are used as a substitute for cash or cheques when paying for goods or services. They are all commonly referred to as 'Credit Cards' , however not all of them provide credit facilities. These are:

1. Bank Credit Cards

2. Travel and Entertainment Cards

3. In-Store Cards

1. Bank Credit Cards

Credit card is issued by a bank. It empowers the cardholder to make payment for goods and services up to a present limit at some interest rate and on payment of certain annual fee. There are three parties involved in credit card operation. These are

1. The cardholder

2. The merchant

3. The bank

Procedure

(1) Applicants have to supply details of their assets , personal particulars and financial status when applying for a credit card . The bank grants credit card subject to some rules and guidelines to the customer.

(2) The cardholder had to keep his drawal up to the limit and pay interest at stipulated rate and clear the overdraft within 30-45 days, along with interest and charges, if any.

(3) The cardholder is also given a cheque book which he can use for payment to establishment which joined the scheme and accept credit cards for any payments.

(4) The signature on the credit card can be verified with that on the cheque and honoured by proper recording of the credit card number on the back of the cheque. The cheques can be issued up to the limits of overdraft given by the bank.

(5) The bank sends monthly statements and records-

(a) the extent of the utilisation of overdraft by the cardholder.

(b) due date for repayment of overdrafts with interest etc.

The extent of overdraft limit, interest rate and other terms are made known to cardholder at the time of issue and the use of Credit or Debit Card is subject to these terms and conditions. The terms of issue vary from bank to bank.

PARTICULARS DISPLAYED ON THE CREDIT CARD

Every credit card bears the following particulars :

1. Name of the customer-Every card displays the name of customer. It shoul be spelled correctly. In case, it doesn't, the customer can contact the customer service cell/helpline and get the necessary correction done. This facility is provided free of cost by the banks.

2. 16-digit card number-A unique 16 digit number is allotted to every customer / card holder.

3.Valudity date- The card mentions the period through which it is valid. The card is usually valid from the day it is received by the customer upto and including the last day of the month indicated on the card. After that the card has to be renewed.

4. The VISA hologram and the VISA logo-The hologram and the logo ensure that all establishments throughout the world displaying the VISA logo will accept the card.

5. Name of the issuing bank-The card indicates on the top the name of the issuing bank.

6.Signature panel-The back of the card contains a signature panel . The customer must put his signature on the signature panel to prevent misuse by any other person. This identifies the card holder. Signatures on the panel would imply that cardholder has given his consent to abide by the terms and conditions governing the use of credit card. The card is valid only if signed.

7. Magnetic strip-The black magnetic strip contains important information in encoded form and needs special handling. The card should not be kept in an area where there is a continuous magnetic field. It should not be left on top of the telivision set or near any electronic appliance. The card should be kept away from the heat and direct sunlight. These simple precautions will help protect the important information stored on the magnetic strip and ensure that the holder does not face any problem while using the card .

8.PIN (Personal Identification Number)-Each cardholder is issued a password or PIN to enable use of the card for accessing his/her card account on the ATM and Internet and also for availing any privilege, benefit or service that may be offered by bank on the card. The PIN is communicated to the cardholder entirely at his/her risk who shall not disclose the PIN to any person and shall take all possible care to avoid its discovery by any person. The cardholder shall be liable for all transactions made with the use of the PIN whether with or without the knowledge of the cardholder.