9/28/2018 Role of IT in

cashless
transactions in
banking sector

Assignment by
Akshay Bali, Roll no-06
Karan Singh, Roll no-20
Role of Information Technology in cashless transaction of money in
banking sector
What is Information Technology (IT)?
The terms "information technology" and "IT" are widely used in business and the field of
computing. People use the terms generically when referring to various kinds of computer-related
work, which sometimes confuses their meaning.
Information technology refers to the acquisition, processing, storage and dissemination of all
types of information using computer technology and telecommunication systems. Technology
includes all maters concerned with the furtherance of computer science and technology and with
the design, development, installation and implementation of information system and
applications.
In simple words, Information technology is the study, design, development, implementation,
support or management of computer-based information systems—particularly software
applications and computer hardware.

What is cashless transaction of money?

When payments are made using any electronic method rather than physical money, it is known
as cashless transaction. In other words ,Exchange of money takes place via cheque , RTGS,
NEFT, IMPS, demand draft, debit card, credit card or through UPI. Electronic means of
exchange in money is called as cashless transaction.

Information technology and banking sector

Banking environment has become highly competitive today. To be able to survive and grow in the
changing market environment banks are going for the latest technologies, which is being perceived
as an ‘enabling resource’ that can help in developing learner and more flexible structure that can
respond quickly to the dynamics of a fast changing market scenario. It is also viewed as an
instrument of cost reduction and effective communication with people and institutions associated
with the banking business.

The Software Packages for Banking Applications in India had their beginnings in the middle of
80s, when the Banks started computerizing the branches in a limited manner. The early 90s saw
the plummeting hardware prices and advent of cheap and inexpensive but high powered PC’s and
Services and banks went in for what was called Total Branch Automation (TBA) packages. The
middle and late 90s witnessed the tornado of financial reforms, deregulation globalization etc.
coupled with rapid revolution in communication technologies and evolution of novel concept of
convergence of communication technologies, like internet, mobile/cell phones etc. Technology
has continuously played on important role in the working of banking institutions and the services
provided by them. Safekeeping of public money, transfer of money, issuing drafts, exploring
investment opportunities and lending drafts, exploring investment being provided.
Information Technology enables sophisticated product development, better market infrastructure,
implementation of reliable techniques for control of risks and helps the financial intermediaries to
reach geographically distant and diversified markets. Internet has significantly influenced delivery
channels of the banks. Internet has emerged as an important medium for delivery of banking
products and services. The customers can view the accounts; get account statements, transfer funds
and purchase drafts by just punching on few keys. The smart card’s i.e., cards with microprocessor
chip have added new dimension to the scenario. An introduction of ‘Cyber Cash’ the exchange of
cash takes place entirely through ‘Cyber-books’. Collection of Electricity bills and telephone bills
has become easy. The upgradeability and flexibility of internet technology after unprecedented
opportunities for the banks to reach out to its customers. No doubt banking services have
undergone drastic changes and so also the expectation of customers from the banks has increased
greater.

IT is increasingly moving from a back office function to a prime assistant in increasing the value
of a bank over time. IT does so by maximizing banks of pro-active measures such as strengthening
and standardizing banks infrastructure in respect of security, communication and networking,
achieving inter branch connectivity, moving towards Real Time gross settlement (RTGS)
environment the forecasting of liquidity by building real time databases, use of Magnetic Ink
Character Recognition and Imaging technology for cheque clearing to name a few. Indian banks
are going for the retail banking in a big way.

Role of information technology in cashless transaction of money in banking sector

In cashless economy every transaction will be done through electronic channels like EFT, mobile
fund transfers, Debit cards, Credit cards, E-banking, UPI, etc. In this, money will be not travel
physically for any transaction. So the financial system will be totally dependent on information
technology because payments will be done electronically.
For a country’s socio-economic growth and development information technology plays an
important role because future of service industry is in the information technology. Because of
information technology the cost of bank will reduce that will result in lower service charges for
customers. Recycling and production of new currency notes will be reduced and cash related
crimes will also be reduced.

There are so many solutions for cashless transaction being provided by the banks using the
information system, some are discussed below:

Electronic fund transfer: An Electronic funds transfer (EFT) is a funds transfer initiated
through an electronic terminal, telephone, computer (including on-line banking) or magnetic tape
for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit a
consumer’s account.
EFT are electronic transfer of money from one bank account to another, either within a same
bank or across multiple banks, via computer-based systems, without the direct intervention of
bank staff.
EFT transactions are known by a number of names across countries and different payment
systems. For example, in the United States, they may be referred to as "electronic checks " or "e-
checks". In the United Kingdom, the term "bank transfer" and "bank payment" are used, while in
several other European countries "giro transfer" is the common term.
 Internet Banking: - Internet Banking allows the user to conduct financial transactions
via the internet. It is also known as online banking or web banking. An Internet bank will
offer customers just about every service that is traditionally available through a local branch.

 Through Internet Banking, basic banking transactions such as paying bills and
transferring funds between accounts can easily be performed at times convenient to
consumers.

 Internet banking provides an array of services including functional budgeting and

forecasting tools, financial planning capabilities, investment analysis tools, loan
calculators and equity trading platforms.

 Online accounts are easy to arrange and require lesser information than a traditional bank
account. While working through internet banking, you have the option of you calling
customer care or emailing the bank directly, if any problem arises.

 Architecture of Internet banking

The architecture of internet banking is quite simple. There is a server which connects both the
customer and the bank database .The customer access the application server through internet ,the
application is linked to the bank database .The customer sends a request(transaction) to the server
which uses data base to complete the request .The last step is the modification of database with
new entries.

 Mobile banking:-refers to the use of a smartphone or other cellular device to

perform online banking tasks while away from your home computer, such as
monitoring account balances, transferring funds between accounts, bill payment and locating
an ATM.

HOW IT WORKS:

Mobile Banking typically operates across all major mobile providers in the world. through one of
three ways: SMS messaging; mobile web; or applications developed for iPhone, Android or
Blackberry devices.

Mobile text and alert is the simplest, allowing the user to transfer funds or access account
information via text message. Texting terminology varies from bank to bank, but the overall
function is generally the same. For example, texting "Bal" will obtain the account balance while
"Tra" will allow inter-account transfers. Users need to first register and verify their phone
numbers with their bank, but once that's completed, they can also set up alerts to let them know
about negative balances or deposit confirmations.

Mobile web is the second mobile banking option. Similar to online account access from a home-
based computer, this option allows for checking balances, bill payment and account transfers
simply by logging into the user's account via a mobile web browser.

Mobile banking applications for Android, iPhone and Blackberry, connect the user directly to the
bank server for complete banking functionality without having to navigate a mobile web
browser. These applications can be downloaded either through the bank's website or through the
iTunes store.

Some banks are taking the technology one step further with account rewards
confirmation, person-to-person payments (P2P) and, more importantly, remote deposit capture
(RDC) capability.

Simply put, RDC is a service allowing users to scan checks and transmit the scanned images to a
bank for posting and clearing. In the case of mobile banking, a customer takes pictures of both
sides of a check and forwards the photos to the bank, which then deposits the funds in the same
way as if the deposit was made through a teller. RDC capability means customers have faster
access to their money, while automating yet another deposit feature.

 Architecture of Mobile Banking

Mobile banking architecture consists of 3 main steps
 The customer having a mobile device (smartphone, tablet etc.) uses the banking
application .The banking application works on the internet and connects the user with the
servers of the banks .The customer with the use of mobile application send a request to
the server.
 The server receives the request and start working on the request .After analyzing the
request the serves uses the existing legacy system or the database of the bank to examine
the account number of the customer, money in the account, and account number of the
receiver.
 As per the request the server modifies the database .In the last step the changes has been
permitted by the mobile banking management and the new entries has been made.

 Debit card-A debit card is a payment card that deducts money directly from a
consumer’s checking account to pay for a purchase. Debit cards eliminate the need to carry
cash to make purchases. In addition, debit cards, also called check cards, offer the
convenience of credit cards and many of the same consumer protections when issued by
major payment processors like Visa or MasterCard.

Debit cards serve a dual purpose: They allow the user to withdraw money from his or her
checking account through an ATM or through the cash-back function many merchants offer
at the point of sale. In addition they also allow the user to make purchases. ATM cards, by
contrast, only allow the user to withdraw money from an ATM, while credit cards only allow
purchases unless the credit card holder has a PIN-enabled cash advance feature (and the cash
advance will incur interest, unlike withdrawing cash from a checking account).

Debit card purchases can usually be made with or without a personal identification number
(PIN). If the card has a major payment processor’s logo, it can be run as a credit card, and the
cardholder won’t need to take the risk of exposing their PIN number. The money will still
come directly out of the cardholder’s checking account, and there won’t be any finance
charges when the debit card is run as a credit card. Some debit cards also offer reward
programs, similar to credit card reward programs, such as 1% back on all purchases.
 Debit cards uses smart chips technology for the payments

Smart chips: These tiny metal processors make cards more secure than traditional magnetic-
stripe-only cards. They make it harder for thieves to use stolen credit card numbers. While
common (and sometimes a necessity) overseas, banks in the United States have been slow to
adopt smart cards. After 2015, banks and retailers got more motivation to add these security
features. Those who have yet to embrace chip technology may face more risk of fraud with
magnetic stripe transactions.

If your card has a chip, use it whenever possible by inserting your card instead of swiping. The
chip adds a single-use code to every transaction, which makes stolen data much less useful.
Preventing fraud can keep costs down for everybody, and it means you’re less likely to have to
replace cards and update card numbers when your information gets stolen. Read more about how
chip-enabled cards work.

How a debit card works

When someone swipes a debit card through a merchant’s terminal, the terminal reads the
magnetic strip on the back of the card and transmits the data to a card-processing network. Visa
is a card-processing network as are MasterCard, Pulse, STAR Network, Interlink and Maestro.

The network ensures the pieces of transaction data are correctly formatted. Then, it performs a
fraud analysis and forwards the information to the bank that issued the debit card. The issuer
then validates that the card hasn’t been reported as stolen or lost, confirms whether funds are
available in the cardholder’s account and then notifies the merchant, again through the network,
whether the transaction has been approved.

The transmitted data typically include the card number, transaction amount and date. The data
will also include the merchant’s name and location and a merchant category code, or MCC,
that’s used for rewards programs, among other purposes. If the consumer entered a personal
identification number, or PIN, that would be encrypted and sent as well,

At the end of the day or several times throughout the day, the merchant sends all the authorized
transactions back to the network, which splits up and recompiles those transactions and then
sends them back to the issuers. In turn, the issuers post the transactions to their customers’
accounts.

Structure of debit card:

 Front side-

1. Bank branding: This section identifies your card issuer. Cards typically show your
lender’s name, but they may display a logo for a specific program instead
2. Card number: The card number is one of the most important parts of a card. It is the
16-digit number linked to your account with the card issuer, and those are the digits
you’ll need to provide when making purchases online or by phone. If you use American
Express, the card number is only 15 digits.
3. Cardholder’s name: This is the person authorized to use the card. That person didn’t
necessarily open the account—they might simply have permission to spendfrom the
account as an “authorized user”. Only authorized card users can make purchases with a
debit or credit card, and merchants are encouraged to ask for ID before accepting
payment with a card.
4. Expiration date: From time to time, you’ll need to replace your card. The move to
smarter cards is just one reason banks issue new cards. Your expiration date is important
because it’s required for purchases you make online or over the phone—you’ll need to
provide the correct expiration date for your payment to be approved. Banks typically mail
out new cards shortly before old cards expire.
5. Payment network logo: It’s essential to know what type of card you have. Common
examples include MasterCard, Visa, and Discover. If making purchases online, there’s
usually a drop-down menu that requires you to select which network your card belongs
to. These logos are also helpful when you plan to use your card to pay for goods or
services—merchants often display stickers or placards that tell you which cards they
accept (you can always just ask about additional cards as well)

Back side-
1. Magnetic stripe: This black strip contains information about you and your card, which
can be read by specialized devices known as card readers. Every time you swipe your
card at a merchant, you’re running the magnetic stripe through a card reader so that your
card can be charged. Magnetic stripes include your name, card number, expiration date,
and other details. If that information is stolen—whether hackers steal the data or a
dishonest merchant runs your card through a card skimming device)—it can be used to
create a fake card with a magnetic stripe that matches your card
2. Hologram: Some cards display a hologram, or a mirror-like area showing a three-
dimensional image that seems to move as you change your viewing angle. Holograms are
security features which help merchants identify valid cards—holograms are not easy to
fake. Sometimes holograms appear on the front of your card.
 3. Bank contact information: If you need to get in touch with your bank, use the contact
information on the back of your card. This is not only convenient—it’s also an excellent
way to prevent fraud. When you use the contact information on your card, you know that
you’re really talking with somebody from your bank. This is especially important if you
get a call or email that might be from your bank, but might also be from a con artist.
Instead of returning their call or email using the contact information they provide, call the
number on the back of your card so there’s no doubt that you’re calling a legitimate
number.
4. Signature panel: Your card must be signed before you can use it, so sign your name in
this area. It’s not easy to fit a signature in that small box, but do your best. Signatures are
a requirement for card issuers, and merchants should also verify that you’ve signed the
card. Some people write “SEE ID” in this area hoping that merchants will demand
identification from anybody who tries to use the card. Technically, that’s usually against
your card issuer’s rules, and merchants don’t always notice or honor that request.
5. Security codes: Cards are printed with an additional code to help ensure that anybody
using the card number has a legitimate, original card. For payments online or by phone,
merchants require more than just the card number and expiration date from the front of
your card. The security code on the back creates an additional hurdle for hackers who
may have stolen your card number from merchant systems or with the help of a skimmer.
Security codes might be referred to as CVV, CVV2, CVC, CSC, CID, or other similar
names. Most websites just ask for a “security code” and provide a small box for you to
type the code into. On Visa, MasterCard, and Discover cards, the code is a three-digit
code on the back of your card. The preceding four digits (“3456” in the image above) are
the last four digits of your card number. On American Express cards, the security code is
a four-digit code on the front of the card. Look above your card number on the right side
of the card.

 Credit card-A credit card is a plastic card issued by a financial institution that allows its
user to borrow pre-approved funds at the point of sale in order to complete a purchase.

HOW IT WORKS

Credit cards have a maximum amount or credit limit -the user can borrow during a given
period. The credit limit is pre-determined by the card issuer based on the cardholder's credit
rating and credit history.

When an individual uses a credit card to make a purchase, he or she is authorizing the credit
card issuer to pay the merchant on their behalf. Merchants are required by law to verify that
the individual using the card is its rightful owner by obtaining proper identification via a
Personal Identification Number (PIN), and/or a driver's license or state-issued ID card.

Merchants generally prefer payment by credit card because they are immediately paid by the
card issuer – despite the fee the merchant must pay to the card processing company for each
transaction.
 Credit card issuers require the cardholder to pay his or her balance in full, usually on a
monthly basis. If the user does not pay the balance in full, the issuer adds interest to the
balance, and this interest compounds for as long as the balance is outstanding.

As with credit limits, the cardholder's credit rating and credit history can influence the
interest rate on the card. In some cases, the issuer can raise the interest rate. There is no
federal limit on the interest rates credit card issuers can charge, although many states impose
different caps. Many card issuers offer "teaser rates" that start out very low and increase over
time.

Issuers use several methods to calculate interest, and it is important for the cardholder to read
and understand the issuer's disclosure statement in order to avoid unpleasant surprises. Many
credit cards also charge an annual fee, late payment fees, fees for going over the credit limit,
cash-advance fees and foreign-currency conversion fees.

The structure and working of credit card is similar to that of a debit card, the only difference
is that debit card allows to make transactions of the money that is available in the bank
account of the user whereas credit card allows to make transactions on credit by the bank.

 Unified payment interface (UPI)-

A Unified Payment Interface (UPI) is a single-window mobile payment system developed by the
National Payments Corporation of India (NPCI). It eliminates the need to enter bank details or
other sensitive information each time a customer initiates a transaction.

The Unified Payment Interface is a real-time payment system. It is designed to enable peer-to-
peer inter-bank transfers through a single two-click factor authentication process. The interface is
regulated by the Reserve Bank of India (RBI), India's central bank. It works by transferring
money between two bank accounts along a mobile platform.

The system is said to be a safe and secure method of transferring money between two parties,
and cuts out the need to transact with physical cash or through a bank.

The pilot system was launched in India on April 11, 2016. Banks across the country started to
upload their interface in August 2016.

According to NPCI, 97 banks were using the interface as of April 2018. More than Rs. 270
billion was exchanged through the UPI that same month

How the Unified Payments Interface Works

UPI will use existing systems such as Immediate Payment Service (IMPS) and Aadhaar Enabled
Payment System (AEPS) to ensure seamless settlement across accounts. It facilitates push (pay)
and pull (receive) transactions and even works for over-the-counter or barcode payments, as well
as for multiple recurring payments such as utility bills, school fees and other subscriptions.
Once a single identifier is established, the system allows mobile payments to be delivered
without the use of credit or debit cards, net banking or any need to enter account details. This
would not just ensure greater safety of sensitive information, but connect people who have bank
accounts via smartphones to carry out hassle-free transactions. Overall, UPI implies fewer cash
transactions, and it could potentially reduce the unbanked population.

Sending Money on the UPI

Sending money on the UPI is called a "push."

In order to send money, the user will log into the interface and select the Send Money/Payment
option. After entering the recipient's virtual ID and the amount desired, he will choose the
account from which the money will be debited. The user will then enter a
special personal identification number (PIN) and receive a confirmation.

Receiving Money

Receiving money through the system is called a "pull."

Once the user has logged in to the system, she will select the option to collect money. The user
will then need to enter in the virtual ID for the remitter, the amount to be collected and the
account in which she will deposit the funds. A message will then go to the payer with the request
to pay. If he decides to go through with the payment, he will enter his UPI PIN to authorize the
transaction. Once the transfer has been completed, both the sender and the recipient will receive
a confirmation by text message to their smartphones.

Services Offered by UPI

There are a number of key features that are offered by the interface. The user can access balances
and transaction histories along with sending and receiving money. In order to send money, the
user will require an account number, the Indian Financial System Code (or IFSC, which is an
alphanumeric code that facilitates electronic transfers), mobile number of the recipient, a virtual
ID or Aadhaar number (which is like a Social Security number).

What UPI environment includes-(architecture of UPI)

Level 0
People who build the UPI switch. A switch handles authentication and communication between
the issuing and acquiring banks. ‘Generation Two’ switches were card machines on the
merchants’ premises; authentication was handled by the machine and the bank customers’
private PIN was keyed into the merchant’s machine, and needed an expensive leased line to
operate. ‘Generation Three’ switches are UPI ones—they enable customers to key in PIN/OTP
(one-time password) on his/her smartphone, while authentication happens centrally. One big
worry is how to get banks to agree to connect to the switch.

Level 1
Those who connect to the switch. In UPI’s case, they are called PSPs. (Old players were called
Payment Gateways but these are now passe.) There will be many PSP builders—some inside
banks, many outside as start-ups and merchants.

Technology worry: How to build a good PSP? What should I be focussing on?
Business worry: How to get a bank to “adopt” my PSP as the primary PSP?
Banks and customers are free to engage with multiple PSPs. The bank may have costs associated
each time, while customers will only need to note down different addresses that will be
associated with their identities on different PSPs.

Level 2
They connect to the UPI PSP, Visa/Master Card networks, RuPay or International payment
gateways. They have to manage the user experience from the card to transaction completion.

Technology worry: How to reduce failure in the underlying system? How to handle refunds?
How to handle COD (cash on delivery)?
Level 3
They are called on-boarders. They have to sign up new UPI, or new wallet, customers. On-
boarding has high failure rates and lots of clever hacks go into making that less painful.

Technology worry: How to outwit others?

Business worry: How to find touch points before the consumer gets to the cart to make on-
boarding happen?
Level 4
They are the application guys. They bring new cash-out (e.g. recharge players like PayTM),
cash-in (e.g. Eko) and social payments (e.g. MyPoolin). In the future, this is where the action
will be. They have to be a destination site or integrate into existing payment experiences.

Technology worry: How to integrate with others?

Business worry: Are they “allowed” (as they are initially in the grey area from RBI
perspective)?
Enabler’s Innovative authentication collectors, E-sign, and digital consent are third-party systems
that are needed by Level 1-4 people.

Glossary
AEPS
An NPCI product, the Aadhaar Enabled Payment System (AEPS) offers instant, 24X7, interbank
electronic fund transfer service through mobile phone. It allows Aadhaar biometric
authentication-based transactions from a bank account that is linked with the Aadhaar number.

APBS
The Aadhaar Payments Bridge System (APBS) is a system allowing remittances to be made to
an Aadhaar number without providing any other bank or account details. It uses the NPCI central
mapper as a part of National Automated Clearing House (NACH) to enable government user
departments to electronically transfer subsidies and direct benefit transfers to individuals on the
basis of their Aadhaar number. Currently, the NPCI central mapper has about 160 million
Aadhaar to bank mappings in its database. As part of large scale adoption of Direct Benefits
Transfer (DBT) across all subsidy systems, it is expected that mapping database will have about
200-250 million Aadhaar mappings within next 12-18 months.

PSPs
Payment Support Providers (PSPs), as defined by RBI, collectively cover all RBI-regulated
entities under the Payments and Settlement Act of 2007. These include banks, payments banks,
PPIs, and other regulated entities. In addition to the Aadhaar and the mobile number as global
identifiers (mapped by NPCI), PSPs can offer any number of virtual addresses to customers so
that they can use the virtual address for making and receiving payments.

IMPS
Immediate Payment Service (IMPS), launched on 22 November 2010, is now available to the
Indian public from over 65 banks.

USSD
Unstructured Supplementary Services Data

NPCI
National Payment Corporation of India

UIDAI
The Unique Identification Authority of India (UIDAI) which issues digital identity (called
Aadhaar number) to residents of India and offers online authentication service

Conclusion

Indian public sector banks that hold around 75 % of market share do have taken initiative in the
field of IT. They are moving towards the centralized database and decentralize decisions making
process. They possess enviable quality manpower. Awareness and appreciation of IT are very
much there. What is needed is a ‘big push’ the way it was given in the post nationalization period
for expansionary activities. IT and India have become synonymous. Whether India becomes a
destination for outsourcing or it becomes a development Centre is matter of debate. As far as
banking industry in India is concerned it can be said that although the Indian banks may not be as
technologically advanced as their counterparts in the developed world, they are following the
majority of international trends on the IT front. The strength of Indian banking lie in withering
storms and rising up to the expectations from all the quarters-catching up with all the global
trends is a matter of time.