Electronic Banking and Online Banking

 

Electronic Banking and Online Banking

[ From chapter-2 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) ]

1.         Electronic Banking

Electronic Banking is modern banking techniques using which a Bank customer can avail banking services without going physically into a bank branch and without assistance of any bank officials. The electronic banking services are narrated below:

1.1.      ATM

ATM or Automated Teller Machine is used mainly for cash-delivery operations with plastic cards. Besides, the ATM allows the holder of a card to receive the information on the current status of the account (including an extract on a paper), and also to transfer money from one account to another.

ATM is supplied with the device for reading a card, and with the display and the keyboard for interaction with the card-holder. The ATM is equipped with the personal computer which provides management of a cash dispenser and the control of its status.

The cash dispenser is a storehouse of cash. Monetary denominations in an ATM are placed in cassettes which are in the special safe (vault). The number of cassette defines number of the denominations which are given out by an ATM.

At present the majority of models are designed for job in on-line mode with magnetic strip cards as well as smart cards.

For maintenance of communication functions ATMs are equipped with modems or LAN Card.

Banks in Bangladesh have installed ATMs in different parts of the country with a view to pass on the banking services close to the customers. As such the customers do not need to go to bank branches for withdrawal or deposit of money or other services. He can avail these services from an ATM installed close to his residence, office or shopping place. ATMs remain open 24 hours a day and 365 days a year. In this way the customers can withdraw or deposit money through out whole day and night even in the holidays. This has given freedom of banking to the customers. Now customers are not worried to withdraw money before close of cash counter at 3:00 pm or before a long holiday or before a journey to another city.

Bank customers can avail following services from ATM Network:

a)      Cash withdrawal

b)      Payment of utility bills

c)      Fund transfer from customers own account to another account

d)      Checking account balance

e)      Printing mini statement (last 5 transactions)

f)       Cash and cheque deposit

However most of the ATMs installed in Bangladesh do not have facility to deposit cash. In some ATM booths a separate deposit machine has been installed to accept cash in envelop and cheque. In such case customer inputs his account number and amount to be deposited in the deposit machine. The machine then print the account number and the amount on an envelop and present the envelop to the customer. The customer now insert the money into the envelop, close the envelop and drop it into the machine. In this way of depositing money, banks sometime may found that the amount figure inputted into the system and the money actually inserted into the envelop is not matching. This may create a dispute. Bank normally count such enveloped under the surveillance of a CCTV system to record such anomalies if any.

There are ATM machines which can accept bundles of money, count the money supplied in different denominations and check for fake notes. These types of ATM machine are called cash-in cash-out ATM. There is another type of ATM which has above functionalities and additionally it can deliver the same money received from one customer to other customers who come to the same ATM later on for withdrawing money. This type of ATM is called Recycling ATM.

To avail the ATM services by a customer, he needs a plastic card and PIN (Personal Identification Number). This plastic card and PIN is supplied by the bank to the customer after opening an account with the bank. This plastic card is called as ATM card or Debit Card. The customer first insert his card in a slot at ATM and then type his PIN using the keyboard of ATM. Then a menu appears using which the customer can do the required activities. In addition to the ATM card or debit card, a customer can also use his Credit Card and PIN for withdrawing money from ATM.

1.2.      POS terminal

A typical POS (Point of Sale) terminal has built-in devices for reading smarts-cards (micro chip) and magnetic strip, key board with a built-in PIN PAD, a printer, a port for connection with a PC or with a electronic cash register (ECR). Besides usually the POS terminal is equipped with a modem with a capability to dial to the NAC (Network Access Controller) at Data Center of the Bank.

Modern POS terminal have GPRS functionality, thus instead of modem it contains a SIM card for connection with the data center using mobile connectivity. Thus this type of POS terminal is movable. To support the mobility of the POS terminal, it has been provided with a battery for supplying power during transactions. The advantages of the GPRS POS terminals are as follows:

a)      The merchant does not require a PSTN connection for use of the POS terminal.

b)      The customer does not require to handover the card to the bearer which can lead the card to be duplicated.

c)      In case of debit card, the customer does not require to come to the cash counter for insertion of his PIN at the PIN PAD of the POS terminal.

d)      It can be used by a small floating shops who sales the goods in different places such as residences, parks, rail stations etc.

Banks buy the POS terminals and supply to a merchant (shop/restaurant) free of cost but at an agreed merchant commission. The merchant commission refers to the commission in percentage over the sale amount settled using the supplied POS terminal which the merchant pay to the bank. This normally rages from 1.5% to 3%. As per the agreement a merchant should not charge the customer for the commission amount. If a merchant do so, the bank has the right to withdraw the POS terminal from the merchant.

After selection of goods from a shop, a customer comes to the counter and handover the card to the teller for settlement of the bill. If the card is a meg-strip card, the teller swipes the card at a long slot or if the card is a chip based card, the teller deep (insert) it into a slot. The teller types the billed amount. If the card is a debit card, he asks the customer to insert his PIN and the customer types his PIN on the key board. Then the teller presses OK button. The POS terminal automatically dials to a stored number and gets connected to the data center of the bank. It then transfers the card information with amount to the bank server for debiting the customer account and crediting the merchants account. If the server can perform the operation successfully, it informs the same to the POS terminal, and the POS terminal prints an approval slip at its printer. If the card is a credit card, the PIN is not required and the teller asks the customer to put his signature on this slip. The teller must verify that the signature is same as that recorded at the back of the card. Signature is not required if the card is a debit card.

Therefore the customer authorizes a POS transaction by signing the approval slip if the card is a credit card, and by typing PIN if the card is a debit card.

1.3.      Internet Banking

Internet Banking is a way of performing some banking activities through internet by a customer himself sitting at his home or office. In some other country, this is also termed as Online Banking. For accessing the internet banking facility of a bank, the customer must have a computer and an internet connection. Then he needs to get an ID (identification) and corresponding password from his bank for accessing internet banking system.

Having all the above, the customer first visit to the website of the bank (by typing website address of the bank at the address bar of a browser) and click the link written “Internet Banking”. The internet banking page will be displayed where the customer has to type his ID and password. If these are correct, the customer will get a menu using which he can do the following activities:

a)      Check balance of all the accounts

b)      View and print the account statement for a particular period

c)      Payment of utility bills

d)      Payment of loan installments

e)      Payment of fee of the educational institutions

f)       Add / modify / delete Standing Instruction

g)      Open a FDR taking money from his SB / STD / CD account

h)      Redeem FDR at maturity or before maturity (money will be transfer to SB / STD / CD account)

i)        Creating LC and sending to the Bank for authorization

j)        Sending request for Cheque book

k)      Making stop payment on a cheque leaf

l)        Check status of a cheque deposited for clearing

m)   Apply for a personal loan

n)      Checking interest rate

o)      Checking exchange rate

p)      Change password, etc.

It may be mentioned that using internet banking system, a customer can’t receive or deposit cash.

           

1.4.      sms Banking

sms banking is a way of performing some banking activities by a customer himself using sms from his mobile phone. For accessing the sms banking system, the mobile of the customer must be registered with the bank. The bank will provide a PIN to the customer. Then the customer can perform the following activities by sending sms from his registered mobile:

a)      Checking account balance

b)      Obtaining a mini statement of his account

c)      Payment of utility bill

d)      Payment of bill against purchase of goods and services

e)      Mobile top up

f)       Fund transfer

g)      Change PIN etc

To do any of the above activities, the customer has to write a sms as per the syntax defined by the bank. For example, for checking account balance the customer may write: “Bal 1234”, where 1234 is his PIN. Then he sends the sms to the short code of the bank, say 14214. This will first go to the mobile operator’s system which knows that the short code (14214) belongs to a bank. The mobile operator will send his sms along with the mobile number to the bank server. As the key word is “Bal”, the bank server knows that the customer is looking for his account balance. System will find the corresponding account number (against the mobile number), extract the balance of the account (if the PIN is correct) from the database and send a sms including account balance to the mobile of the customer. The return sms may be as under:

            Date: 30/5/2010, Time: 2310, Account No.: 99999999, Balance: BDT 9999.99

The syntax for other activities may be as under:

i)        Mini statement:                      stm <PIN>

ii)      Utility bill payment:                ub <PIN> <biller code> <amount>

iii)    Payment against purchase:    pay <PIN> <merchant code> <amount>

iv)    Mobile top up:                        tu <PIN> <mobile number> <amount>

v)      Fund transfer:                         ft <PIN> <to account number> <amount>

vi)    Change PIN:                            pin <old PIN> <new PIN>

1.5.      Alert Banking

Alert Banking is a system which sends a sms to the customer when a debit or credit transaction of an amount more than a pre-specified amount occurs in the customer’s account. For example if a credit alert is set in a customer’s account for an amount more than Tk.1000/- and his monthly salary of Tk.27,000/- is deposited into his account, system will generate a sms as under and send to the customer’s mobile registered for this service:

“Your account has been credited for an amount of BDT 27000/- on 23/4/2010 at 2310.”

The Alert Banking is useful for the customers who receive salary or foreign remittance regularly. This is also useful for the customers as he can come to know about any fraudulent activity in his account instantly and can undertake immediate measures.

To setup an alert against an account, the bank needs to know the following from a customer:

a)      Mobile number of the customer

b)      Account number of the customer

c)      Debit amount: If the transaction amount is more than this, a debit alert will be generated

d)      Credit amount: If the transaction amount is more than this, a credit alert will be generated

1.6.      IVR

IVR or Interactive Voice Response is an automated system where a customer can call from his land phone or mobile phone and interact with the machine pressing digits to perform some banking services. These services may include obtaining information such as balance inquiry or do transactions such as fund transfer and activate/deactivate credit card.

To do banking through IVR, the customer needs to obtain a T-PIN from the Bank. Then the customer will call to a short code such as 3225. The call will be terminated to a machine in the bank. The machine will welcome the customer and ask “Press 1 for account services, 2 for Card services …...” Now if the customer presses 1 in the keyboard of his phone device, the machine will ask “Press 1 for account balance, 2 for fund transfer, 3 for cheque book request, 4 for exchange rate, …..” If the customer now presses 1, the system reads-out his account balance.

2.         Advantages and disadvantages of Electronic Banking

After introduction of the electronic banking systems, it has been a revolutionary change is the way of doing banking both by the bank officials as well as its customers. The Bank officials do not need to record all the transactions manually. The customers do not need to be in long queue at the branches. The advantages and disadvantages of electronic banking systems are mentioned below:

2.1.      Advantages:

i)          Customers do not need to go to a branch for withdrawal of money. He can go to any ATM in the city he lives or in another city and can easily withdraw money.

ii)         Customers do not need to withdraw money during office time. He can withdraw money from ATM at any time, such as during day or night, even on a holiday.

iii)        If a customer goes for a personal / official / business tour, he does not need to carry huge money with him. Thus the risk of hijacking / theft of money can be avoided.

iv)        Customers do not need to go to branch for payment of utility bills and face a long queue. The customers can pay his utility bills such as electricity bill, telephone bill, gas bill and tuition fees of the educational institutions using ATMs anytime anywhere, using internet banking system from home, office or while travelling abroad, and using sms & IVR 24 hours a day, 365 days a year from home, office or while the customer is in a vehicle.

v)         The customer does not need to go to a branch for transferring money from his account to another account. He can affect such fund transfer anytime from anywhere using ATM, Internet Banking system, sms system or IVR.

vi)        Using internet banking system, the customer can open an FDR debiting his SB/STD/CD account. The FDR will be redeemed or reinvested at maturity as per the instruction. If required, the FDR can also be redeemed before maturity.

vii)       The customer does not need to go to a market with a huge amount of money. He can use his card at the POS terminal to pay his bills. This reduces risk of carrying fund. On the other hand, the shop owners also do not need to keep huge cash at his counter which in turn reduce risk of theft at counter or hijacking during transferring money from the shop to the bank.

viii)      If the customer is a salary holder, he gets an alert message at the time of depositing salary into his account. Thus he always remains updated on the status of his account.

ix)        If a foreign remittance is deposited in the account of a customer, he gets an instant sms at his mobile phone which informs him on the remittance amount. Thus customer does not need to remain worried about the status of the remittance sent by his dear ones from abroad.

x)         If any unusual transaction happens in his account, he can come to know the same instantly and make complaint to the bank in time. He can also inform the bank to take necessary measures to avoid such fraudulent activities in his account / card in future.

xi)        After introduction of electronic banking systems, most of the customers perform banking activities themselves. Thus the bank officials can invest their time for other activities. Bank can serve more customers using lesser employees.

xii)       Customer has more control over his deposited money.

xiii)      For electronic banking services, the per-transaction cost is minimum. As such the bank can charge small amount of fees to the customers for such services.

xiv)      As the customers have better control over his money and the money is available all the time anywhere, the customer keeps all the deposit to the bank which is offering electronic banking services. As such the low cost deposit of the bank increases and consequently the profit of the bank also increases.

2.2.      Disadvantages:

i)          Customers can not withdraw more than an amount and more than a number of times from the ATM. For example, a particular bank may set the amount per withdraw at Tk.20,000/-, total withdraw per day at Tk.50,000/- and number of time the customers can withdraw per day at 5. If the customer requires more than Tk.50,000/- in a day, he must go to a branch.

ii)         Customers may not get money from ATM due to fault at ATM hardware or software or due to exhaust of the money at the ATM vault.

iii)        Cash can’t be withdrawn or deposited through Internet Banking, POS terminal, sms or IVR systems.

iv)        Customer must have a computer with internet connection to access internet banking system.

v)         If a hacker can know the password of the Internet Banking System of a customer, he can transfer money to another account and then withdraw from ATM.

vi)        If a hacker can capture the PIN and card information of a customer during travelling the information from ATM/POS to the bank data center, he can produce a duplicate card and withdraw all the money of the customer from an ATM. Hacker can also install a skimming device with the ATM and collect the card information and PIN.

vii)       sms is not a secured media of communication. As such banking activities using sms is not secured.

viii)      Electronic Banking systems are technology driven. Thus the customers need to know some basic technology-driven operations.

ix)        Bank needs a large set of skilled manpower for installation and maintenance of electronic banking systems.

x)         Setup and ongoing maintenance of electronic banking systems are very costly.

3.         Online Banking

In some of the countries, the online banking refers to the Internet Banking System. However in our country, online banking means installation of a centralized core banking system in which all the branches are connected using a WAN (wide area network) and thus the customers can do banking in any branch of the bank. This is also termed as “Any Branch Banking”. The advantages and disadvantages of online banking or Any Branch Banking are as under:

3.1.      Advantages

i)          If the online banking system is introduced in a bank, the customer of a branch becomes customer of the bank. Thus he can withdraw money from any branch or deposit money to any branch of the bank. He can also perform all the transactions from any branch of his choice such as balance inquiry, collection of account statement, placing request for cheque book, collection and preparation of Payment Order (PO) or Demand Draft (DD), opening of LC, buying/selling of foreign currency, receiving foreign remittance etc.

ii)         If a customer goes to another city for personal / official / business purpose, he does not require carrying money with him. He can withdraw money from a branch in that city.

iii)        If a customer receives money from his business partner while he is travelling another city, he does not need to carry back all the money with him. He can deposit the money to any branch of the bank in that city.

iv)        The customer does not need to send PO or DD to other parties for business purpose. He can directly deposit money to the account of his business partners.

v)         In the online banking system, all the customer information and transactions are stored centrally in a data center. Thus it is not require maintaining huge infrastructure in each of the branches and thus posting IT experts in all the branches for maintaining infrastructure and database of the customers at branch level.

vi)        Due to installation of core banking system in banks, it has become possible to debut various delivery channels such as ATM network, POS network, internet banking system, sms banking system, alert banking system, IVR etc.

3.2.      Disadvantages

i)          For introducing online banking system, all the branches need to be brought under a WAN (wide area network). Required communication infrastructure for WAN is not available in all area of the country.

ii)         After introduction of online banking system, all the banking activities become dependent on computer. Therefore if there is no electric power for a long time, all the banking activities become unavailable for that period. This becomes a challenge for the online banking system in the rural area where availability of electric power is very rare.

iii)        For operation of online banking system, all the employees of a branch must be computer literate.

iv)        Sometime, the communication network fails (break down). In such case the branch become disconnected from the data center and thus unable to do any transaction. This creates suffering to the customers.

v)         Preparation of central data center, installation of core banking software, setup of WAN and supply of computers to all the branches for each of the employees are very costly.

vi)        Setup and maintenance of online banking is a very complex activity. For this a very strong expert team is required. Such a team is not easy available. They are also very costly.

vii)       Cost of centralized software is much higher than that of a de-centralized software.