RETAIL BANKING

CREDIT CARDS AND THEIR IMPORTANCE

Credit - cards are an easy method to buy now and pay Later. The credit card is a double
edged tool. The credit - card enables one to pay for purchases with the card instead of paying
cash on the spot. Thus, they are extremely convenient as they can do away with the necessity
of carrying large sums of cash around. Further, the card comes handy when a person on travel
or outside the banks' business hours, finds that he has run out of cash but has to pay for a bill
incurred which can be defrayed by using the credit-card. Another feature of the usage of the
card is that the risk of loss of money is totally absent and the card, even if lost (from the time
loss of credit card is reported) can be obtained again provided it is intimated to the issuer
immediately. If one is strapped for cash, he can withdraw money at specified branches of the
bank upto a specified (about Rs.26,000 per month) limit. Credit card is a tool at the hands of
its holders to tide over a budget deficit for a short period of time. It is an useful service offered
by banks in India. Credit cards are issued by banks to approved persons with sound financial
standing (called card - holders) for purchasing goods and availing services from authorised
dealers (called member - establishments . ME) on credit on the security of card issuers and or
banks.
Credit card is a payment mechanism through which payments are settled without using
cash through bank accounts. Thus handling of cash is avoided both by the purchaser as well as
seller of goods. This also enables the purchaser of goods to avail credit to a specified level for
a specified period (about 37 days). Thus the cards which provide credit facility is called, Credit
Card.
Credit cards had their origin is the U.S.A. in the year 1958. Bank Americard issued by
Bank of America and Barclays Bank issued Barclay card were the beginning of such cards.
Such cards were issued to avail overdraft or advance on certain terms and conditions, by
customers. Bank Americard were later converted to VISA cards in 1977, to make it in
circulation in international market. Master cards were issued in 1967 by New York Bank and
California bank. In India, Diners card were in operation since 1964, till it was taken over by
Citibank. First attempt by any bank in India was made by Central Bank of India in 1980.
Eligibility for becoming a Card holder: Any major person can get a credit card provided
the credit worthiness of the applicant is trustworthy. The applicant has to apply for the kind of
card needed. The cards are different for high income and middle income groups. The cards
differ in relation to the credit limit allowed. For example BOB Exclusive (issued by Bank of
Baroda) is for the higher income group whereas BOB card is for the middle income group.
Similarly Citibank's Gold card is for the affluent individual while Citibank classic is for the
middle income group.
Mechanism of the System: The seller after checking whether the card is genuine and that
it is not a HOT one (against which transactions have been prohibited by the card issuer)
prepares a charge slip against the purchase amount, which the card holder signs. After

verification of signature (which is available on the card itself), the goods are delivered by the
seller to the card holder. The Merchant Establishment (ME) retains a copy of the charge slip
and one copy is sent to the concerned bank which has issued the card for getting the amount of
the bill reimbursed, which is done by any branch of the issuing bank deducting the appropriate
commission (2.5 to 4%). The both the seller and purchaser of goods get the respective
transaction complete with the involvement of credit card.
Benefits to issuer of Cards
(i)

Lower cash turnover and reduction of pressure in cash handling

(ii)

Increased advances at higher rate of interest, 24%

(iii)

Customers built up movable assets through credit of credit cards.

Benefits to Card - Holders

(i)

Convenience in not carrying cash.

(ii)

Availability of credit from 37 days to 69 days without any interest.

(iii)

No Loss due to theft.

(iv)

Availability of discounts and insurance cover to card holders starting from - one lakh
and above.

(v)

Adjustment for unforeseen expenses can be met

(vi)

Impulse purchase is possible.

Benefits to Merchant Establishment (Sellers)

(i)

The sales amount is promptly reimbursed by the issuing bank hence question of bad debts does not arise (unless there is mistake is verification of signatures)

(ii)

Increase in business, at small commission payable to issuing bank

Precautions to be Taken before Getting Issued Credit Card

(i)

Annual renewal fees chargeable by bank be known in advance

(ii)

Rate of interest, per annum, to be charged for late payment and other charges if
levied. Banks are charging exorbitant interest rate of 35% p.a. for late payment, while
the rate of interest charged in USA is 16%, Japan 13% and Thailand and Tiwan it is
19%.

(iii)

Interest free period, which is allowed by banks for credit card payments.

(iv)

Annual fees should be between Rs.200 to Rs.300. If it is Rs.1000 - 1500 then such
cards should not be taken. Some banks call their cards as free, but in fact it is not a
free availability.

(v)

When cheque is issued before due date, for payment, the late payment continues till
cheque is cleared by bank. For such intervening period, banks charge minimum lump

sum interest in between Rs.300 to Rs.600 towards interest amount. Some banks claim
discount on petrol filling cash memo. But it is possible if there is any tie-up with
those petrol pumps, otherwise you will have to pay surcharge of 2.5% on the total bill
amount.

Types of Cards
There are different types of Cards. Some of which, are discussed below:
(i)

Charge Cards: The transactions are accumulated over a period of time, generally a
month and the total amount charged i.e. debited to the account. The credit card
holder is given about 10 to 15 days time to credit his account in case there are
insufficient funds in his account at the time of debit. Since the transactions are only
accumulated, it is only charged i.e. not debited to the account immediately such
cards are called CHARGED Cards.

(ii)

Credit Cards: Under it the card holder gets credit limit on per day basis, upto
which limit he / she can avail credit and make purchases of goods and services. The
limit is set, on the worth of the card holder. Presently it is between Rs.20, 000 to
Rs.50,000 under various cards. This overdraft is available from 23 days to 37 days.
Payment of such overdraft is also possible in some credit cards, to pay in monthly
installments later. However, a service fee is charged on the overdraft amount

(iii)

Debit Cards: Under it the account of the card - holder is debited as soon as the
transaction is notified to the issuer. All merchants (sellers) are provided with
telephone type of equipment, known as point of sale Terminal. As soon as the sale is
affected, the seller connects the bank for connectivity to the card holder's account.
The transaction is complete immediately

(iv)

ATM - Cards: This card is similar to the debit card except for the fact that the card
is operated by the holder (not by the member establishment) for drawing cash from
his / her account. By drawing the amount, upto limit, the instant payment can be
made to any person. This facility is available, even on holidays / after banking
hours. The system is being now operated through Shared Payment Network Services
(SPNS) operated by IBA. All nationalised banks, foreign banks and many
cooperative banks have started this facility.

(v)

Smart Cards: Under this system, microprocessor and memory. chips are used (as
against magnetic strip used in other cards) which stores information about the holder
and the credit limit available. Through a modem provided to member establishment
(seller) is able to find out the details about the card holders and credit limit
available, hence misuse of card is prevented. This way smart card possesses features
of cash withdrawal, entering of deposits and debits for purchases in one card. This is
more secured as against ATM cards, credit cards debit cards etc. In smart card, it can
be known.
Advantages of Smart Card System :

Incorporates a secure identification system to use in an offline mode.

The system can have "manual/ATMS", the terminal performs the card
processing and security functions, printing a slip which au tho rises the
cashier to make the payment manually ..

Can be used for cash deposit as manual ATMS.

Can store data and cannot be misused by any unauthorised person.

Can be used during electronic funds transfer at the point of sales

(EFTPOS). At a retailer's check out the card is placed in the reader,
where it automatically goes through authentication sequences to
authorise payments, the customer types in the Pin and the cardholder's
bank account is automatically debited and the retailer's account
credited. Also a record of the transaction is stored in the card.

Future of Smart Card

The future of smart card is very bright and it is evident that leading players is electronic
funds transfer have already realized this. Earlier in 1993, NAT West Bank of the UK
announced its Mondex system based on Smart Cards. In India, Dena Bank launched the smart
card in Mumbai in 1999.

EMERGENCE OF E-BANKING AND E-COMMERCE

Emergence and development of e-Banking and e-Commerce
The Banking Industry is one of the oldest in the world. There have been gradual
developments in the industry and the emergence of paper currency as a medium of exchange
revolutionized the banking industry. By 1600 AD use of cheques became widespread and by
mid- 1900's, banks started using the telegraph technology to "wire" money from one location to
another. The growth of technology has enhanced the banking business world over during the
past two decades and the intense competition has forced banks to rethink the way they operated
their business. Banks had to reinvent and improve their products and services to make them
more beneficial and cost effective. With the introduction and implementation of advanced
technology in banking, electronic devices are making has made it possible to find alternate
banking practices at lower costs. Most and more people are using electronic banking products
and services and because a larger section of the bank's future customer base will be made up of
computer literate customers, banks must be able to offer these customers products and services
that allow them to do their banking by electronic means. If they fail to do this will, simply, not
survive.
The digital revolution is currently transforming our society, trade and commerce into an
electronic world and e-commerce is emerging as a global reality that will have a significant
impact on banking. As we enter 21st century, the business world is consumed by questions
about e-Commerce. India is also moving slowly but definitely towards electronic commerce
(e-Com.) and all indications point to the fact that e-com will be the new mantra of business in
the next few years. There would hardly be any business, which would survive without
adoption of e-Com and web technologies. e-Com has been made possible by Internet and

World Wide Web, that has growth beyond all expectations and even today growing at the rate
of one million new users every year. e-commerce offers enormous opportunities in every
sphere of business. It allows trade at low costs worldwide and offers enterprises and banks a
chance to enter global market at the right time. Time has come where the organization is either
in e-Com or is out of business. It is therefore, essential for bankers to understand about e-Com.

Electronic Banking
The banks first use of computers was strictly a back office affair, transferring the
accounting and record keeping activities from branch "ledgers on to centralized or
decentralized computer systems. With the rapid improvements in electronic technology and
availability of higher computer power and faster communication technology the demand for
more efficient banking system with efficient payment methods has grown, which has resulted
in more competition among banks. There is continuous increase in the use of electronic
technology to meet the ever increasing competition in banking which is virtually transforming
brick and mortar banking (banking at a fixed branch premises) to Electronic Banking.
Customers need not necessarily visit banks to carry out their banking transactions and can
meet their requirements through the means of electronic banking facility. With the
arrangements of Shared Payment Network System (SPNS), the services can be provided
across various banks.
Put in simple words, banking done electronically is electronic banking. Delivery of bank's
services to a customer at his office or home by using Electronic Technology can be termed as
Electronic banking. The quality, range and price of the electronic services decide bank's
competitive position in the industry.

Electronic Banking Products/Services

Among the principal types of financial services rendered in the electronic form are:-

1) Electronic Payment Systems

Significant advantages can be availed from computerizing day-to-day banking operations
in the bank such as counting of cash, verifying the signature, updating the ledger and passbook
etc. These are the reasons why electronic payment system has been adopted. The growth of
technology has changed the Payment Systems world over during the past two decades. More
and more innovations are being introduced in both cash payment systems and non-cash
payment systems. Cash in the form of notes and coins were the principal method of payment
system before the popularity of banking. Paper instruments such as 'Cheques' and 'Credit
Transfer' later became a part of the payment system with the popularity of banking. With the
introduction and implementation of recent technology in banking, electronic devices are
making the job of cash payment as well as non-cash payments easy and efficient. The
introduction of Automatic Teller Machines (ATMs) and the Plastic Cards have given the
banking customers the facility of round the clock (24 hours) banking. In this Unit, we will
discuss about the various types of teller machines prevalent in the banking industry and how
they are instrumental in replacing our traditional payment systems.
The major routine processing in day-to-day banking operations originates at the cash
counter or teller counters in the banks. Essentially, the idea behind the electronic payment
system is that one or few activities related to the payment should be done with the help of a

computer. Let us take a look at the various ways in which it can be done.

2) Teller Machines - Branch Teller Machine & Automatic Teller Machine

Teller machines are those machines, which are used within, or outside the bank premises
for cash payments and other transaction related services without intervention of human, being.
Basically there are two types of teller machines:
Bank Teller Machines (BTMs); and
Automatic Teller Machines (ATMs).
BTMs arc installed within the fully automated bank premises. There are other devices like
cash dispensers, chequc dispensers etc. to perform specific functions unlike the comprehensive
functions handled by ATMs. BTMs though make the job easier and customer friendly but
requires the presence of employee of the bank to operate. If we take a look at a specific type of
BTM, for instance, there are two terminals, the customer terminal and the teller terminal. The
customer will use his card first at the customer Terminal located with in the bank to enter the
details of his withdrawals and subsequently he will hand over the card to the teller. The teller
by inserting same card in the teller terminal will be able to generate 'cash delivery note' as a
debit cheque and accordingly pay cash. The card is returned to the customer after the
transaction. The time involved in receiving the customer cheque, verifying the signature and
posting the same in the respective ledger, etc., is saved by using BTMs.

3) Cash Dispensers
In the manual payment system, the actual cash counting and handing over of cash has to be
done by the teller himself. Since this is also a time-consuming activity, a cash dispenser was
designed to overcome the problem. The first generation cash dispenser was only designed to
perform a simple task based on the token inserted by the customer, it would release the prepacked packets of money. This type of cash dispenser was not actually able to count the cash,
the notes had to be counted by the staff and put into the machine. The customer was given a
token by the staff in advance, so that he could withdraw even at odd hours. The above
obviously did not save much teller time.
The latest generation Cash dispensers help cashiers dispense cash and basically are used in
Teller Machines. It contains 4 or more trays and each tray capable of holding one denomination
of currency notes. The cash dispenser is connected to the computer of the cashier and is
controlled by the cashier. Once the cashier authorizes the dispensing of cash, the computer
calculates the required denomination, finds out if they are available in the cash dispenser and if
so, ejects the required currency notes just like a toaster.
The cashier has only to pick up the cash from the tray and hand over to the customer. The
system completely eliminates the need for manual counting, thus speeding up the customer
service. The system operates at high speed and can significantly reduce the queues at peak
hours. Besides providing convenience, and accuracy, the cash dispenser provides one
additional level of physical security for the cash as well. The cash dispensers also offer
excellent security measures. For instance, if a bank robber is forcing the cashier to provide
cash at gunpoint, the cashier can insert a simple code along with request for cash. This code
will activate video cameras and also send an automatic message to the nearest police station,
while machine processes the cash demand and, if required, the process can be delayed too.

4) Automatic Teller Machines (ATMs)

The introduction of Automatic Teller Machines has given facility to the bank customers
for banking beyond the banking hours. ATM is a device that allows customers who have an
ATM card to perform routine banking transactions without interacting with a human teller.
ATM enables a customer to withdraw cash, know latest balance in account, and order for
statement of account and payment to third parties. ATMs are currently becoming popular in
India that enables the customers to withdraw their money 24 hours a day and 7 days a week.
ATMs are installed in different forms as wall unit, window unit or lobby unit depending
upon the location and the need of target customers. An ATM is a device located on or off the
bank's premises to receive and dispense cash round the clock. Customers can also use ATMs
for depositing cash, cheques, obtaining balance, obtaining statement of last few transactions in
his account, requesting cheque books, payment of card bills and for transferring funds from
one account to another.
A Customer who wishes to utilize the service of A TMs will have access to it only with an
ATM card. The ATM card consists of a Personal Identification Number (PIN), which is known
only to the Customer. A Customer who wishes to transact through the ATM will have to place
the ATM card in the slot before starting his operation and he will be able to transact his
business through interactive visual display unit and the keyboard.
The ATM card is different from a credit card. The essential difference between the credit
card and the ATM card is that the former offers credit as the name suggests, whereas the latter
in a networked environment allows the account of the cardholder to be directly debited
There are two types of ATMs
(1) Exterior ATMs and
(2) Interior ATMs.
Exterior ATMs are located in various places like shopping centres, airports, railway
stations with or without drive-in facility, while the interior ATMs arc located within the bank
premises. ATMs, which are directly interactive with the Bank's Computers, are known as online ATMs and the others are known as off-line ATMs. On-line ATMs require the support of
effective telecommunication facility. In some foreign Banks' ATMs the conversion of currency
is also possible. Interactive and voice recognizer ATMs are also installed to facilitate the
customers to interface in multi-language.
The structure of ATMs
The following modules are the part of any standard ATM
1. Processor: The processor is the main brain behind an ATM. All the necessary interfaces
with the various ATM modules are handled by the processor. It receives commands
through the Consumer Interface Panel (CIP) and decides on further action/processing. If
the ATM is in off-line mode, the processor will authorize the transaction based on the
balance available on the card, while if it is on-line mode, the authorization will be based
on the validation check carried out by ATM by interacting with the central computer.
2. Consumer Interface Panel: Consumer Interface Panel consists of set of devices
provided to the user/consumer of ATM service. It consists of (a) Key pad, (b) display,
(c) recess for card, (d) printing unit and e) envelopes. The CIP guides the consumer

3.

4.

5.

6.

through the transaction and allows the consumer to enter the data. The display unit is a
high-resolution monitor which displays messages/pictures. The display is visible only
for the consumer and not to the person nearby. Consumer keypad is recessed for privacy
and it has 10 numeric keys and a cancel key.
Card Reader: Motorized card reader is provided on the ATMs. The magnetic track on
the cards, as soon as inserted by the consumer, is read by the card reader. The consumer
can take back the card after completing the transactions. There is a retained card bin
provided inside the ATM, where the retained cards and the cards left behind by the
consumer by mistake are deposited.
Printers: There are two printers provided in the ATMs. One printer is for the consumer
and the other one is a journal printer. Both are not visible to the consumer. After the
transaction is over, the details of transactions carried out is printed and sent out through
a slot provided for the purpose and consumer picks it up. The journal printer provides
an audit trail of all completed transactions. The transaction data is also available in
electronic media.
Dispenser: The currency notes are stored in cassettes in the Dispenser. The dispenser
picks the currency and delivers the same to the consumer through slot provided in the
front panel. The currency dispensers uses either friction pick or vacuum pick technology
depending upon the technology available with the ATM. Earlier generation ATMs were
dispensing only currency. Now ATMs are available with Multi-Media Dispensers. The
Multi-Media Dispenser is based on the friction pick technology and can dispense other
media such as traveller cheques, demand drafts, tickets etc. Further, if a consumer
leaves behind the currency by mistake and walks out, the dispenser times out and
retrieves the currency back into the ATM and deposits into a separate bin.
Depositor: The depositor accepts envelopes with cash or other documents and provides
security for deposited material. The deposit is made through a separate slot provided for
the purpose and the details of deposit are entered by the consumer through the keypad.
The envelopes meant for the deposits are provided by ATM with the envelope
dispenser.

Security Aids
There are various security aids provided in ATMs. There are Access Locks which covers
the key pads, monitors etc. and will open only with the ATM Cards. There are also video
surveillance and recording systems as a precaution against ATM crimes.
Advantages of ATMs
TO the Customers

ATMs provide 24 hours, 7 day a week and 365 days a year service
Service is quick and efficient
Privacy in transaction
Free from errors
On networking, cardholder can access cash and service at any location regardless of
where he maintains account
Wider flexibility in withdrawals.

 Fund transfer across the branches/banks.

Anywhere banking facility.
To Banks
Alternative to extend banking hours
Crowding at bank counter considerably reduced
Alternative to new branches and to reduce operating expenses
Cash transportation and cash handling is avoided
ATMs can be located in any convenient location in the city
Can be installed in any form as wall unit, window unit or lobby unit
Relieves bank employees to focus on more analytical and innovative work
Increased market penetration
Banks chafe at RBI's ATM move
Set to Join issue with regulator through IBA in December 2007, The Reserve Bank of
India's (RBI) proposal to cap automated teller machine (ATM) usage charges for
customers at Rs.20 per transaction from April 1,2008, and the subsequent phaseout of
all fees by April 2009 could be challenged by banks through the Indian Bank's
Association (1BA). However, the RBI has started free ATM facility at any of ATMs
from 1st April, 2009.
The RBI suggestion could be particularly uncomfortable for large banks which have a
vast ATM network such as the State Bank of India, ICICI Bank and HDFC Bank.
All of them have invested crores of rupees to build a network and now the regulator
wants them to de facto hand over this platform for free
This instantly affords a huge advantage to smaller banks as their reach expands.
Bankers said the clampdown on fees will dissuade banks from investing in new ATMS
in future, "which will be totally contrary to the RBI's own aim of increasing ATM usage
across the country".
A senior IBA official, who did not wish to be named, conceded that banks will have
some issues and could petition the RBI through the association. "There is a cost
attached to maintaining an ATM and banks try to recover a part of this by charging the
customer. For any service there has to be a payment and if customers don't pay the bank
will have to recover it from the customer's bank or find another route such as hiking the
minimum balance norm," the IBA official said.
The official said the RBI proposal does not say anything on sharing the costs between
banks either.
It also has asked them not to charge customers for balance inquiries.
The RBI noted that ATM transaction charges vary from 0 to RS.57 and a customer is
not aware, beforehand, of the charges that will be levied for a particular ATM
transaction.
The RBI's move is aimed at increasing the use of ATMs. However, bankers say that
some banks already waive ATM charges and in order to reduce costs banks have also
been forming ATM sharing groups.

5) Anytime Banking
ATMs have surpassed the time limitations of only limited / fixed hours of customer
service, and offer a host of banking services, including deposits. withdrawals requisitions,
instructions and transfers. ATMs are currently becoming popular as these enable the customers
to withdraw their money 24 hours a day and 7 days a week. The customer need not be
concerned about security, as most ATM locations have guards, or alternately are located in
lobbies, access to which is electronically controlled by means or customer's ATM card.
Besides, access to the account is through a Personal identification Number (PIN), which is
strictly supposed to be only known to the cardholder.

6) Tele Banking
Telephonic Banking (Tele - banking) is another electronic banking product, which carries
the concepts of 24 hour banking to the customer's home or business place. Tele-banking
service function based on the voice processing facility available with the bank computers. The
caller generally, a customer of the bank will be able to call the bank anytime and inquire
balances or transaction history, and to transfer funds between accounts. In this system
computers at the bank end is connected to a telephone linked with modem. The voice
processing facility provided in the software identifies the caller, by keyword and provides him
services with suitable reply whenever necessary. Some banks use a telephone answering
machine, in which case the service is not really "Tele-banking" per se, but simply a telephone
answering system.
Apart from Tele-banking, another system, and simple and for limited service is also
available - known as voice mail facility. There are several foreign banks now offering very
advanced touch-tone telephone answering services which route the customer's call directly to
the department concerned of the bank. It also allows the customer to leave a message for the
concerned desk or department if the person is not available. In this system each service
representative has his or her "Voice-Mail" Postbox in which massages are stored and retrieved
on return of the desk's person.

7) Anywhere Banking
With the introduction of Automated Teller Machines (ATMs) and Tele-banking, financial
details can be accessed from remote locations and basic transactions can be effected even
outside the bank. Inter-station connectivity of ATMs has also facilitated withdrawals from other
stations, a service particularly useful for frequent travellers. The facility of using credit cards
on ATMs is also available and more recently, mutual arrangements between banks allow for the
use of ATM card on the other bank's ATMs as well, which is known as Shared Payment
Network System (SPNS). Setting up of ATMs at non-bank locations, such as airports, shopping
malls and office complexes, as is prevalent in other countries will revolutionize the banking in
Indian pretext. In some of the Indian public sector Banks remote banking is being further
extended to the customer's office and home.

8) Shared payment Network System (SPNS)

Under SPNS arrangement participating banks issue universal cards to the customers for
transacting on this network. The objective is to provide anytime and anywhere electronic

banking services to the customers of these areas through the state-of-art electronic funds
transfer system shared by different participating banks. Any customer possessing the ATM card
issued by SPNS can go to any ATM linked to SPNS, whether situated in the same bank branch or another branch of another bank and transact some basic essential banking business
like cash withdrawal, deposit, balance enquiry etc.

9) Internet Banking - Electronic Banking in relation to the Internet

Internet banking is accessible to anyone using the Internet & not just to the bank's
customers. Internet is basically a massive network that is publicly accessible from a computer
via a modem over telephone lines. It is accessible by anyone and presents banks a large
network where opportunities for operating and marketing their products are large. The Internet
provides banks with the ability to deliver products and services to consumers at a cost that is
lower than any existing method of delivery. Internet banking is easy to use and cost effective.
The product allows consumers to open accounts, pay bills, view account balances, complete
loan applications, calculate interest, view and print copies of cheques and deposits, exception
reporting on overdrawn accounts, stop payment, order cheque books and statements, receive
banking industry news, send and receive messages to / from the bank through e-mail etc.

10) Electronic Clearing Services

Credit Clearing
It is a simple, reliable and cost effective solution for bulk and repetitive payment
transactions like salary, pension, interest, commission, dividend etc through banks. Under the
said system the customers who want to avail ECS facility have to get them registered with the
sponsor bank. The sponsor bank will forward a copy of the registration form to the controlling
authority for ECS (e.g., Reserve Bank of India) after allotting a registration number.
Customers, who have to make bulk payments to a large number of beneficiaries, prepare the
credit instructions on the magnetic media and submit the same to the controlling authority
through their bankers, who processes the data, arrives at inter-bank settlement and provides
bank and branch-wise reports containing the details of payments to facilitate fast payment to
the beneficiaries. Clearing house debits the account of the bank effecting payment and credits
to the accounts of destination banks i.e. the accounts of the banks where the beneficiaries of the
transactions maintain their accounts.

Debit Clearing
Electronic Debit clearing covers the payment of bills to utility companies like telephone
and electricity bills etc. where consumers are large in numbers. These utility companies are
collecting their periodical bills from their customers. Under this facility, the customers on
receipt of the bill from the utility company and having satisfied himself of its correctness can
approach the banker and authorize the bank branch to debit his account for the amount of the
bill and transfer the amount to the bank account of the utility company. The bank in turn will
prepare a consolidated floppy file or all such transfers through a tabletop MICR reader and
tenders to the clearinghouse who would debit the individual bank. and credit to the account of
the sponsor bank of the utility company.

11) Virtual Banking

Electronic Banking, in its different forms provides an easy and convenient alternative to a
visit to a brick and mortar branch. Consumers can undertake different tasks through this media
including payments, money transfers, cash withdrawals etc. In fact, the increasing use of
electronic banking which has obviated the need for brick and mortar branch has come to be
termed as "Virtual Banking." Virtual banking is creating a 3D environment on a computer that
is similar to that of a bank. It is a remote place away from the actual branch location. It can be
found in various places. For example, a railway station, an airport, or more commonly at the
customer's work place or home. Most of the dealings with the bank arc on-line or by phone. An
individual is able to do all the transactions he would normally do in a bank. The only difference
is not dealing with cash for which he would have to use ATM. In various advanced countries
this virtual reality has been created and the concept is gradually developing in other countries
around the world.

Benefits of e-Banking
To the Customer
Anywhere Banking - no matter wherever the customer is in the world, he can transact
business through e-Banking. Customers can make some of the permitted transactions
from his office or from his house or while travelling via mobile telephone. Generates
greater customer satisfaction by offering unlimited access to the bank, not limited by the
walls of the branch.
By connecting all the branches through Wide Area Network (WAN) anybranch banking
can be provided to the customers.
Anytime Banking - Managing funds in real time and most importantly, E-banking
provides 24 hours a day, 365 days a year services to the customers of the bank.
It inculcates a sense of financial discipline by recording each and every transaction.
Convenience acts as a tremendous psychological benefit all the time.
It makes utility payments easier.
Cash withdrawal from any branch/ATM brings down 'cost of banking' to the customer
over a period of time.
On-line purchase of goods and services including on-line payment for the same.

To the banks
Innovative, secured, addresses competition and presents the bank as technology driven
in the banking sector market. E-banking provides competitive advantage to the bank
and helps in establishing better customer relationship and retaining and attracting
customers.
E-banking provides unlimited network to the bank and is not limited to the number of
branches. Any PC connected to modem and telephone having Internet connection can

provide banking facility to the customer. Any ATM on the roadside can meet cash
withdrawal needs of the customer.
By connecting ATMs and Point of Sale terminals on-line, risk of overdrawal can be
eliminated in case of ATM; credit and debit cards. ATM can be better monitored and
planned by-establishing a centralized data warehouse and using latest data mining tools.
E-banking reduces customer visits to the branches and thereby human intervention and
the establishment costs for the bank.
Inter-branch reconciliation becomes easy reducing thereby the chances of frauds and
misappropriation.
On-line banking - an effective medium of promotion of various schemes of the bank and
acts as a marketing tool.
Load on branches can be considerably reduced by establishing centralized database and
by taking over some of the accounting, functions and beginning of the day and end of
the day operations jobs by the centralized database. Integrated customer data paves way
for individualized and customized services.
Scope and potential of better profitability increases.

Bottleneck in development of e-Banking

With so many benefits from electronic banking, let us see what are the bottlenecks? Some
of them arc discussed hereunder:
Adoption of Technology - Old established banks with vast network of branches and
existing work culture/legacy makes it difficult for banks to adopt technology and banks
are required to make strenuous efforts for providing e-banking services to their
customers.
Customer Acceptance - The level of acceptance of e-banking channels by average
customers remains low due to certain psychological factors and fear of technology.
Cost of Technology - The cost of acquiring a PC, Internet connection and other
equipment is also a limiting factor in development of e-banking facility as such
facilities remain out of the reach of the middle class or even the upper middle class
customers.
Lack of preparedness on the part of banks and blissful unawareness of changes in
banking is also one of the bottlenecks.
Security issues and Cyber laws - security is one of the major issues required to be
addressed before implementing e-banking solutions. The security threat may come
from unauthorized access/loss or damage of data by hackers, loss or damage of data by
virus, unauthorized access within the net work. Banks need to address the security
threats to reduce the risk of implementing new and advanced technology. Enactment of
proper cyber laws is also required to take care of cyber crimes in the area of e-banking.