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.
