Professor Vipin 2014
Unit 5
Banking Innovations
E-Banking and its Related Concepts
E-banking refers to electronic banking. It is like e-business in banking industry. E-banking is also called as
"Virtual Banking" or "Online Banking".
E-banking is a result of the growing expectations of bank's customers. E-banking involves information
technology based banking. Under this I.T system, the banking services are delivered by way of a
Computer-Controlled System. This system does involve direct interface with the customers. The
customers do not have to visit the bank's premises.
Concepts in E-Banking
a) Electronic Fund Transfer (ETF): Part of core banking solutions where funds are transferred
without the physical movement of cheques or cash. All transactions are done via computers.
Transactions are processed based on specific codes that allow movement of funds.
b) Telebanking: Accessing account information using telephones using VOIP (Voice over Internet
Protocol) is called Telebanking. Customers can get details on account balance, transfer of funds,
stop payment instructions, loan information and confirm term deposit maturity. Banks may
charge something extra for customers who opt for this facility. Customer number and ‘pass
number’ is given to the customer so as to maintain secrecy.
c) Mobile Banking: Mobile banking is for those who are unable to visit the bank or make calls to
perform their transactions. All banking activities can be performed on the go using a cell phone.
The most common transactions and inquiries done are checking balance, stop a cheque, paying
utility bills and get account information. SMS banking brings customer and banks closer by
allowing query based transactions to be done using SMS. (Account travels with customer)
d) Anywhere Banking: This is offered under core banking solution and is based on web and
internet. ATM networks can be shared allowing customers to withdraw cash anywhere in the
world. Banks and branches are networked. Account holder will be in a position to access his
account information without any delay. It brings about accessibility, transparency and freedom
to operate the account.
e) ATM (Automated Teller Machine): ATMs are electronic machines, which are operated by a
customer himself to deposit or to withdraw cash from bank. For using an ATM, a customer has
to obtain an ATM card from his bank. The ATM card is a plastic card, which is magnetically
coded. It can be easily read by the machine.
f) Credit and Debit Cards: Debit cards and credit cards are accepted at the same places. Debit
cards all carry the symbol of one of the major types of credit cards on them, and can be used
anywhere that credit cards are accepted. They both offer convenience. Debit cards draw money
directly from your checking account when you make the purchase. A credit card is a card that
www.VipinMKS.com
Page 1
Professor Vipin 2014
allows you to borrow money in small amounts at local merchants. You use the card to make
your basic transactions. The credit card company then charges you interest on your purchases,
though there is generally a grace period of approximately thirty days before interest is charged if
you do not carry your balance over from month to month.
SMS Alerts
SMS banking is a type of mobile banking, a technology-enabled service offering from banks to its
customers, permitting them to operate selected banking services over their mobile phones using SMS
messaging.
MICR and IFSC
IFSC code means Indian Financial System Code. IFSC code is being used as the address code in one user
to another user. RTGS and NEFT payment system of Reserve Bank of India (RBI) use these codes. IFSC
code consists of 11 Characters. MICR code means Magnetic Ink Character Recognition code which
contains 9 digits, like 380002006 appearing at the bottom of the cheque, following the cheque number.
Each Bank Branch has a unique MICR code.
RTGS and NEFT
Here the words 'Real Time' refers to the process of instructions that are executed at the time they are
received, rather than at some later time. On the other hand "Gross Settlement" means the settlement
of funds transfer instructions occurs individually (on an instruction by instruction basis). The settlement
of funds actually takes place in the books of RBI and thus the payments are considered as final and
irrevocable.
The full form of NEFT is "National Electronic Funds Transfer (NEFT). The NEFT is a nationwide payment
system facilitating one-to-one funds transfer. Under this system, individuals, firms and companies can
electronically transfer funds from any bank branch to any individual, firm or corporate having an
account with any other bank branch in the country participating in the system.
DEMAT
In India, shares and securities are held electronically in a Dematerialized account, instead of the investor
taking physical possession of certificates. A Dematerialized account is opened by the investor while
registering with an investment broker (or sub-broker). The Dematerialized account number is quoted for
all transactions to enable electronic settlements of trades to take place. Every shareholder will have a
Dematerialized account for the purpose of transacting shares.
www.VipinMKS.com
Page 2