Bank Computerization approaches

Bank Computerization approaches

[ From chapter-7 of the book "Information Technology in Banking" written by Abul Kashem Md. Shirin and Nusrat Tamanna Prianka and published by Institute of Bankers, Bangladesh (IBB) ]

There are various approaches for automation of Banking activities. The initial automation starts with use of stand-alone computer in Banks. Thereafter gradually LAN, WAN with distributed database and WAN with centralized database were introduced in different Banks. Introduction of centralized database facilitate the Banks to start e-banking. E-banking covers different electronic banking channels like ATM, POS, Internet Banking, sms and Alert Banking, e-commerce, m-commerce and Call Center. Using these electronic channels, the Banks can offer different banking services to their customers. These electronic channels are also collectively called as Alternative Delivery Channels. To use many of the Alternative Delivery Channels the customer needs a plastic card. The plastic card can be a debit card, a credit card or a smart card. These cards are collectively known as Plastic Money. For production and management of plastic cards, banks need to install various software and be member of various local and international payment associations like Q-Cash, MasterCard and VISA card.

The following paragraphs narrate the various approaches to Bank Automation. Next chapters will discuss the Plastic Money and Alternative Delivery Channels.

1.         Stand-alone System

In eighties, Banks in Bangladesh started computerizations just to replace the customer ledger. The software used for replacement of customer ledger, was used by the branch for posting debit and credit entries at the customer accounts during receipt and payment at bank counter. No other banking activities like credit and foreign trade functionalities, and back office activities like calculation of interest, service charges, fees and commissions, maintaining general ledger, preparation of chart of accounts, statement of income-expenses and other reports were not included in the software.

The software was stand-alone, that is, it was not sharable by more than one computer. It should be installed in one computer of a branch. One computer operator was posted for data entry. The Teller receives the check and passes to the Computer Operator for posting. After the posting was made successfully, the Teller handed over money to the customer. However the receipt vouchers could be posted after close of the transaction hours.

The big disadvantage of the stand alone system is that it could not be used for the large branch where number of transaction is huge. Another disadvantage is the absence of all banking functionalities in the system.

Beximco Computers was pioneer in developing the first stand-alone banking software in Bangladesh in the name of “BexiBank”.

2.         LAN-based System

In the nineties, the LAN-based Core Banking Software comes into picture. In a LAN-based system, the software was installed on a Computer Server. The Computer Server was connected to a HUB or Network Switch. All other computers called work stations were connected to the Server through this HUB or Network Switch. Each of the Tellers and Back Office Officers were given a work station for posting. All the customer and account related information and transactions were recorded in the hard disk with the Server.

	Figure: A LAN-based Core Banking System

 

For establishing LAN among the computers, Unix or Novel operating system was used. The data was stored in the Server in a flat file or a database – either FoxPro or dBase. The software was written in COBOL, FoxPro or dBase.

LAN-based core banking software was developed by various companies in Bangladesh, a list of which is given below:

SL	Name of Software	Name of Developer
1	PcBank PcBank/M PcBank2000	Leads Corporation Ltd.
2	BexiBank3000, BexiBank3000+ BexiBank4000 BexiBank5000	Beximco Computers Ltd.
3	A-Z Banking Software	A to Z Computers Ltd.
4	EaseBank	Computer Ease Limited
5	IBS	Infinity Technology International Ltd.
6	E-Banking	Desktop Computer Connection Ltd.
7	Kernel	Kernel Software  limited
8	FloraBank	Flora Limited
9	Millennium	Southtech Limited
10	TIBS	Technoheaven Limited

In the LAN-based software, many banking features were included. However, the accountholders data was stored and available in a branch only and thus on-line banking was not possible using such software.

The costing of such software was very low, only Taka 50,000 – 70,000 per branch.

3.         WAN-based System with distributed database

In 2000, Bangladesh Telephone and Telegram Board (BTTB) installed the DDN (Digital Data Network) switch at its Mogbazar Exchange. DDN is a data communication media using normal telephone line at a maximum speed of 256 Kbps and was available at district towns in Bangladesh. Using this communication media, some banks started establishing WAN among the branches at district towns.

Figure: A WAN-based core banking system with distributed database

 

The WAN thus established was used to connect different LANs in different branches and thus provided facilities for the customer to go into another branch and withdraw or deposit money. This had started an era of semi-online banking. The customer needed to declare the name of branches from where he wanted to get on-line services. The home branch of the customer would make copies of the customer’s signature card and photograph, and send to the declared branches for authentication during on-line transactions. The Tellers of other branches entered into the server of the customer’s home branch using WAN connectivity and a special password, and made the posting.

The software used for WAN-based transactions was exactly same as one used for LAN-based transactions except a minor customization to accept transaction from other branch.

However this system was not considered as a complete solution for on-line banking. This system does not support inclusion of various delivery channels like ATM, POS, Internet Banking system, sms & Alert Banking system. Using this system, if a bank wants to include ATMs, it will need to keep all the branches open 24 hours a day and 7 days a week. This is not possible, as the servers are not sized for 24-hours of operation, and many other factors like expert manpower, proper electric power, adequate air conditioning system may not be feasible at all the branches.

True on-line banking can be achieved by installing a centralized core banking system. Among the local banks, the AB Bank, at that time, was using a centralized core banking system named “Equation”. However only the branches at Dhaka city were connected to this centralized core banking system.

4.         WAN-based System with centralized database

In 2004, the centralized core banking system was installed simultaneously by Eastern Bank, Dhaka Bank and Dutch-Bangla Bank. All the three banks procured a core banking software named “Flexcube” from i-flex solutions limited, India. The software was installed centrally at the “Data Center” of the bank. LANs were installed at each of the branches and all the LANs were connected to Data Center using VSAT, Radio Link, DDN or Fiber Optic Cable or a combination of them. Two redundant links were used for connecting each of the branches.

In the centralized core banking system, all the customers’ information and transactions are recorded centrally at a storage system connected with a group of clustered servers at Data Center. Clustered Servers provides redundancy to the system, thus if one server fails, another server takes over the control of the system and serves all the branches. However in this type of solution, Bank needs to establish Disaster Recovery Site (DRS) in a distant location for maintaining an online copy of the database and also for housing a redundant set of servers and equipments. 

In the centralized core banking system, alternative delivery channels like ATM/POS can be integrated easily as the ATM/POS system will be connected to the Central Server, not to the individual branches. And the central servers, equipments and environments are sized to run 24 hours a day, 265 days a year. Expert IT professional can be made available at the Data Center and the roaster duty can be arranged for 24-hour’s monitoring of the Data Center.

Thereafter the ‘One Bank’ moves to Centralized Core Banking System using “Microbanker” of i-flex solutions ltd, India; BRAC Bank and City Bank using “Finacle” of Infosys Limited, India; Prime Bank and EXIM Bank using T24 of Globas Pvt Ltd. Switzerland; AB Bank and IFIC Bank using Equation of Misys Plc, UK; and BASIC Bank using “Kastle Core Banking” of 3i Infotech Limited, India.

Meantime the local software companies like Flora Systems, Leads Corporation, Millennium Software and ERA Infotech have developed Centralized Core Banking Software in the name of “Flora Bank Online”, “Bank Ultimas”, “Ababil” and “Stealer” respectively.

Rest of the Banks started using locally developed Centralized Core Banking Software after 2007.