The Indian Institute of Planning and Management

Ahmedabad

A project report on System Essential

E-

Banking

Submitted to: Submitted by:Prof. Arun Verghese Arush Kumar

Charmy DoshiKaushal PujaraMinouli

Khetani

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Dhaval Mehta Mansi shah

ACKNOWLEDGEMENTThrough this acknowledgement we express our sincere gratitude towards professor Arun Verghese who guided us in preparing this project report which has been a great learning experience.

We would also like to thank the managers of Westside and pantaloons for providing us information about their stores.

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PAGE OF CONTENT1. Introduction to e-banking

Definition of e-banking Evolution of e-banking Components of e-banking Benefit Drawbacks Role of e-channels in the banking sector

2. Medium of e-banking

Card world E-cash Paypal

3. Various ways to deal with e-banking

Kiosk ATM management Internet Banking Phone Banking EFT/POS Mobile Interactive T.V. Call Center

3. ATM

The money machine

How ATM works

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4. Conclusion5. Bibliography

Introduction to e-Banking

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Introduction to e-BankingIn March 1997, Wired magazine  reported that more than half of the European banks recently surveyed by management consultants at Booz-Allen & Hamilton said that they would offer banking services over the Internet within a year, and more three-quarters said they would do so within three years.

Internet banking makes good sense for financial institutions. For about £1 million, less than the cost of building a single traditional branch, a bank can set up a fully functioning operation on the Internet. Booz-Allen were reported to have estimated that the cost of depositing a cheque with a real-live bank clerk over a branch counter is around 65 pence. By post and telephone, the cost of the same transaction halves. With a dial-up PC banking service, it halves again, to about 15p. With an Internet banking system, the cost drops below 5p, and sometimes as low as 1p.

This is particularly significant because electronic commerce opportunities for small and medium sized enterprises requires a reliable and low cost electronic payment system. However, many electronic payment issues are institutional rather than technical. Creating the legal framework for a world-wide electronic payment system will require substantial co-ordination and high level priority on the agenda of monetary authorities. This framework could build upon laws governing credit card and automatic teller machine transactions. It will also need to find ways of reducing the costs of transactions and must address the technological opportunities for new ways of creating stores of value (money). The acceptance and legal status of electronic payment systems will have a major impact on confidence and trust in e-commerce.

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Definition

‘e-banking refers to theprovision of retail and small value banking products and services through electronic channels. Such products and services can include deposit-taking, lending, account management, the provision of financial advice, electronic bill payment, and the provision of other electronic payment products and services such as electronic money.’The automated delivery of new and traditional banking products and services directly to customers through electronic, interactive communication channels.e-banking is defined as the automated delivery of new and traditional banking products and services directly to customers through electronic, interactive communication channels. E-banking includes the systems that enable financial institution customers, individuals or businesses, to access accounts, transact business, or obtain information on financial products and services through a public or private network, including the Internet. Customers access e-banking services using an intelligent electronic device, such as a personal computer (PC), personal digital assistant (PDA), automated teller machine (ATM), kiosk, or Touch Tone telephone. While the risks and controls are similar for the various e-banking access channels, this booklet focuses specifically on Internet-based services due to the Internet’s widely accessible public network. Accordingly, this booklet begins with a discussion of the two primary types of Internet websites: informational and transactional.

Evolution:

The common motivation for banks to implement e-banking is to provide a faster, easier, and more reliable service to clients, to improve the bank’s competitive position and image, and to meet clients’ demands. E-banking may also provide other benefits. For instance, creating new markets, and reducing operational costs, administrative costs and workforce are increasingly important aspects for the banks’ competitiveness, and e-banking may improve these aspects as well. On the other hand, questions have been raised about the banks’ efficiency in utilizing the unique features of e-banking for improving their competitive positions and images. Indeed, there is a growing concern that e-banking is not yielding the anticipated results, creating a gap between the actual returns and the proposed objectives and thereby losing a large amount of investment. This especially concerns the interaction with clients and thereby increased and more rapid access to new markets. This has thrown the spotlight onto the problem of change from one

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particular delivery channel to another. This is highly important since the implementation of e-banking may have radical implications on a bank’s structures, business processes, products and services and value flows with clients and other parties. In practice, an appropriate mix of delivery channels will be determined by a number of factors on the supply and demand sides of the market. On the supply side, factors such as regulations technology, and the resultant change in the market structure influence the choice of delivery channels, whilst, on the demand side, client preferences and expectations are of prime importance.

E-Banking components:

E-banking systems can vary significantly in their configuration depending on a number of factors. Financial institutions should choose their e-banking system configuration, including outsourcing relationships, based on four factors:

Strategic objectives for e-banking; Scope, scale, and complexity of equipment, systems, and

activities; Technology expertise; and Security and internal control requirements.

Financial institutions may choose to support their e-banking services internally. Alternatively, financial institutions can outsource any aspect of their e-banking systems to

third parties. The following entities could provide or host (i.e., allow applications to reside on their servers) e-banking-related services for financial institutions:

Another financial institution, Internet service provider, Internet banking software vendor or processor, Core banking vendor or processor, Managed security service provider, Bill payment provider, Credit bureau, and Credit scoring company.

E-banking systems rely on a number of common components or processes. The following list includes many of the potential components and processes seen in a typical institution:

Website design and hosting, Firewall configuration and management, Intrusion detection system or IDS (network and host-based),

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Network administration, Security management, Internet banking server, E-commerce applications (e.g., bill payment, lending,

brokerage), Internal network servers, Core processing system, Programming support, and Automated decision support systems.

These components work together to deliver e-banking services. Each component represents a control point to consider. Through a combination of internal and outsourced solutions, management has many alternatives when determining the overall system configuration for the various components of an e-banking system. However, for the sake of simplicity, this booklet presents only two basic variations. First, one or more technology service providers can host the e-banking application and numerous network components as illustrated in the following diagram. In this configuration, the institution’s service provider hosts the institution’s website, Internet banking server, firewall, and intrusion detection system. While the institution does not have to manage the daily administration of these component systems, its management and board remain responsible for the content, performance, and security of the e-banking system.

Benefits:

For Firms E Commerce brings:

- different and arguably lower barriers to entry;

- opportunities for significant cost reduction;

- the capacity to rapidly re-engineer business processes;

- greater opportunities to sell cross border.

Each and all of these potential benefits provides for increased competition and the ability to wrest market leadership from established players.

For consumers the potential benefits are:

- more choice;

- greater competition and better value for money;

- more information;

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- better tools to manage and compare information;

- faster service.

And there are potential benefits even for regulators:

- better, more flexible, user friendly information for consumers and others on our own web-site;

- better, almost indestructible audit trails;

- potential to monitor advertising and advice activity more easily;

- more cost effective and efficient use of regulatory tools (for example the use of our extra net over the Y2K period).

But of course there are also risks. The risks to firms – specifically banks I will cover later.

Drawbacks :

The types of e-banking risks discussed in the bookletinclude:▪ Transaction or operations risk;▪ Credit risk;▪ Liquidity, interest rate, price, and market risks;▪ Compliance or legal risk; and▪ Strategic risk.

The role of e-channels in the banking sector:

Electronic banking (e-banking) is the newest delivery channelof banking services. The definition of e-banking varies amongstresearches partially because electronic banking refers to severaltypes of services through which a bank’s customers can requestinformation and carry out most retail banking services viacomputer, television or mobile phone

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MEDIUM OF E-BANKING

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MEDIUM OF E-BANKING

CardWorld :CR2's card issuing suite, Card World, provides a complete end-to-end card payment, management and processing service from card application, approval issuance and online authorisation to statements, payment collections and interest application. It supports the issuing and acquiring of local debits cards as well as branded debit and credit cards including Maestro, Visa and MasterCard. Card World accepts transactions from POS or ATM acquiring products.

Card Issuing : Card World is a fully functional debit card issuing and management system. Card World Card Management System carries out online transaction checks such as PIN and transaction limit verification, as well as administering card data and the control of physical plastics production through an interface with Card World Producer. Card World Producer is a powerful card personalisation system enabling card organisations to take complete ownership of the card production process including

Production Embossing EMV chip card and magnetic strip encoding PIN mailing Export to chip personalisation system for EMV

issuing

Card World Account Management System provides the core accounting functionality required for debit card (local, national, Electron and Maestro) authorisation and transaction posting

Benefits:

Low cost of ownership Rapid return on investment Increased revenue Maintain existing and develop new customers Total solution from a single provider

E-Cash :

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While many different companies are rushing to offer digital money products, currently e-cash is cash is represented by two models. One is the on-line form of e-cash (introduced by DigiCash) which allows for the completion of all types of internet transactions. The other form is off-line; essentially a digitally encoded card that could be used for many of the same transactions as cash. This off-line version (which also has on-line capabilities) is being tested by Mondex in partnership with various banks.

The primary function of e-cash is to facilitate transactions on the Internet. Many of these transactions may be small in size and would not be cost efficient through other payment mediums such as credit cards. Thus, WWW sites in the future may charge $0.10 a visit, or $0.25 to download a graphics file. These types of payments, turning the Internet into a transaction oriented forum, require mediums that are easy, cheap (from a merchants perspective), private (see Privacy), and secure (see Security). Electronic Cash is the natural solution, and the companies that are pioneering these services claim that the products will meet the stated criteria. By providing this type of payment mechanism, the incentives to provide worthwhile services and products via the Internet should increase. Another prospective beneficiary from these developments would be Shareware providers, since currently they rarely receive payments. To complete the digital money revolution an offline product is also required for the pocket money/change that most people must carry for small transactions (e.g. buying a newspaper, buying a cup of coffee, etc...).

The concept of electronic money is at least a decade old. [Hewitt 1994] demonstrates that check writing is a pre-cursor to E-cash. When one person writes a check on his bank account and gives the check to another person with an account at a different bank, the banks do not transfer currency. The banks use electronic fund transfer. Electronic money, removes the middleman. Instead of requesting the banks to transfer the funds through the mechanism of a check, the E-cash user simply transfers the money from his bank account to the account of the receiver.

The reality of E-cash is only slightly more complicated, and these complications make the transactions both secure and private. The user downloads electronic money from his bank account using special software and stores the E-cash on his local hard drive. To pay a WWW merchant electronically, the E-cash user goes through the software to pay the desired amount from the E-cash "wallet" to the merchants local hard drive ("wallet") after passing the transaction through an E-cash bank for authenticity verification. The merchant can then pay its bills/payroll with this E-cash or upload it to the merchant's hard currency bank account. The E-

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cash company makes money on each transaction from the merchant (this fee is very small, however) and from royalties paid by banks which provide customers with E-cash software/hardware for a small monthly fee. Transactions between individuals would not be subject to a fee.

E-cash truly globalizes the economy, since the user can download money into his cyber-wallet in any currency desired. A merchant can accept any currency and convert it to local currency when the cyber cash is uploaded to the bank account.

To the extent a user wants E-cash off-line, all that is necessary is smart card technology. The money is loaded onto the smartcard, and special electronic wallets are used to offload the money onto other smartcards or directly to an on-line system. Smartcards have been used successful in other countries for such transactions as phone calls for a number of years. The money could also be removed from a smartcard and returned to a bank account. Visa is developing a related product, the stored value card. This card comes in a variety of denominations, but functions more like a debit card than E-cash.

In essence, E-cash combines the benefits of other transaction mediums. Thus, it is similar to debit/credit cards, but E-cash allows individuals to conduct transactions with each other. It is similar to personal checks, but it is feasible for very small transactions. While it appears superior to other forms, E-cash will not completely replace paper currency. Use of E-cash will require special hardware, and while most people will have access, not all will. However, E-cash presents special challenges for the existing "middlemen" of the current paper currency society. More and more, banks and other financial intermediaries will serve simply as storehouses for money, lenders, and processing/verifying electronic transactions. Personal interaction with a teller, or even visits to a bank ATM will become obsolete. All one will have to do is turn on his computer.

Paypall : :

PayPal is a Web-based application for the secure transfer of funds between member accounts. It doesn't cost the user anything to join PayPal or to send money through the service, but there is a fee structure in place for those members who wish to receive money. PayPal relies on the existing infrastructure used by financial institutions and credit card companies and uses advanced fraud prevention technologies to enhance the security of transactions.

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Max Levchin and Peter Theil founded PayPal in 1998. Levchin and Theil hoped to make online shopping more appealing to the consumer by creating a secure payment system that would be as easy to use as taking money out of your wallet. To send money through PayPal, you just enter the recipient's e-mail address and the amount of money you want to send them. By mid-2003, PayPal's Mountain View, California-based offices were administering over 30 million accounts in 38 countries around the world. EBay, the popular Web-based auction enterprise, acquired PayPal in October 2002.

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Various ways to deal

with e banking

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Various ways to deal with e banking

Kiosk

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BankWorld Kiosk is a customisable software solution which provides banks with the ability to offer self service banking within branches and elsewhere such as shopping malls 24 x 7. Enquiries include:

Bill presentment and payment Standing orders Direct debits maintenance Loan mortgage application

Benefits:

Quicker and cheaper to deploy than ATMs Extremely easy and cost effective to implement - uses

features from the Internet and ATM channels Introduces customers to Internet technologies in the

safe and secure setting of a branch Allows branch staff to concentrate on more complex

tasks and business development opportunities Reduced service costs Reduced queuing time in branches Empowers customers

ATM Management: BankWorld ATM Controller is a modular, scalable ATM management solution, providing excellent network diagnostics, automated notifications and comprehensive MIS support. It is targeted at networks of between 150 and 10,000 ATMs, and deploys on Windows servers.Benefits:

Reduced cost of ownership through simplified administration and MIS reporting

Reduced maintenance call-out costs through ATM fault diagnostic information

Enhanced operational efficiency True 24 x 7 operations support Scalability through system's modular design Cost reduction - remote management of ATMs Flexible: multi-currency, multi-acquirer, multi-country

support

ATM software distribution BankWorld ATM Distributor is the software distribution tool for remote downloading, management and updating of software on the ATMs. It enables new applications, graphics, sound files and video to be distributed to the ATMs, for example to download

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new corporate logos or advertising images to the ATM network during re-branding campaigns. BankWorld ATM Distributor allows efficient central administration and distribution of software and application upgrades to the ATM network. It also enables headquarter operations staff to upload files such as electronic journals and log files for remote monitoring and fault diagnosis of ATMs. Benefits:

Reduced cost of ownership - remote software distribution requires less maintenance visits to the ATM network

Cost effective - support for remote diagnosis reduces the length of maintenance call-out visits

Maximised up-time - software upgrades can be scheduled to be carried out at off-peak times to minimise inconvenience to customers

Speed-to-market - new ATM screens, new products and services can be downloaded and configured as desired

Internet Banking :BankWorld Internet gives banks the ability to provide financial services to their customers over the Internet 24 x 7. The bank can choose to use any language or combination of languages.BankWorld Internet is built on a hardened security platform ensuring that your customers personal details communicated online remain confidential. Enhanced security also means that viewing and transaction limitations can be restricted when multiple users have access to individual or joint accounts.Benefits :

Improved levels of account information 24 x 7, for both the banks' customers and internal bank staff provides increased potential for cross selling

Complete range of configurable banking services and products supported, including funds transfer, overseas remittance, electronic bill presentment, share trading

Competitive edge - multiple profiles enabling customer segmentation and targeted marketing, differentiates the bank from its competitors

Customer loyalty - secure and reliable solution to reassure the banks' customers

Security levels can be set so that different internal groups can access their required information only

Increased revenues

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Different certifications and tokens are required for logon depending on customer's requirements

Phone Banking :IVR (Interactive Voice Response) otherwise known as phone banking, allows customers to check their balance and make account enquiries over the phoneBankWorld IVR, offered in conjunction with CR2's partner Servion, delivers a fully functional phone banking software solution integrated to the back office systems through the Channel Manager.Available services include:

Balance enquiry Cheque book, statement or draft request Funds transfer Bill payments Interest rates quotes Foreign exchange rates quotes Change PIN request

As with the other channels, phone banking solution uses the existing ATM infrastructure and so becomes very cost effective to implement.

Benefits:

Customer loyalty and convenience - customers can access their account details even when the branch is closed and without requiring access to the Internet.

Customer privacy - customers who "fear" the Internet can access their accounts from home

Increased revenue - attracts and retains high value customers who actively seek institutions providing consistently available access to information and financial services

EFT/POS NETWORKS:

EFT/POS networks process, route, clear, and settle ATM and on-line POS debit card transactions by linking financial institution card issuers and merchant acquirers, consumers, merchants, and third-party service providers through telecommunication gateways. The

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networks’ primary roles include routing transactions through central switching gateways, acting as clearinghouses to settle network member “on-us” transactions, and forwarding “foreign” non-member transactions for processing. Most financial institution and non-bank ATM networks are connected to regional and national EFT/POS networks. Most regional networks are joint ventures owned and controlled by competing financial institutions. Ownership in regional networks can either be concentrated in several financial institutions or dispersed among 100 or more member financial institutions. A few regional networks function as cooperatives, while a single firm may own and operate one as a profit-making enterprise. Visa and MasterCard own and operate the two national EFT/POS networks: Visa’s Plus and MasterCard’s Cirrus ATM networks and Visa’s Interlink and MasterCard’s Maestro POS networks. These national networks serve as a bridge between regional networks, and permit transaction information to be routed from one regional network to another. Membership in regional and national EFT/POS networks facilitates universal access to financial institution card-based electronic services, providing participant financial institutions with an interchange system offering authorization, clearing, and settlement services. The fees financial institutions charge consumers for “foreign” ATM usage help defray the cost of membership services. Acquirers collect interchange fees from network members (issuers) to cover the cost of operations. With ATM transactions, the issuer pays the acquirer, in contrast to credit and debit card networks. EFT/POS networks clear both ATM and debit card (PIN-based) transactions. Financial institutions rely on third-party service providers to conduct ATM and debit card payment processing. Third-party processors provide a range of retail payment-related services, including card issuing services, merchant services, account maintenance and authorization services, transaction routing and gateway services, off-line debit processing services, and clearing and settlement services. Although merchant acquiring financial institutions may use third parties to perform many acquiring activities, the acquiring financial institution is responsible for all third-party processor and merchant activity.Independent sales organizations (ISO) provide third-party services to install and operate ATM and POS terminals for financial institutions and merchants. Representing merchants and community financial institutions, an ISO typically contracts with third-party processors for a variety of services including ATM and POS terminal driving, transaction processing, and cash restocking. Some EFT/POS networks require an ISO to be sponsored by a financial institution member of the network.

Mobile:

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M-commerce (mobile commerce) is the buying and selling of goods and services through wireless handheld devices such as cellular telephone and personal digital assistants (PDAs). Known as next-generation e-commerce, m-commerce enables users to access the Internet without needing to find a place to plug in. The emerging technology behind m-commerce, which is based on the Wireless Application Protocol (WAP), has made far greater strides in Europe, where mobile devices equipped with Web-ready micro-browsers are much more common than in the United States.

In order to exploit the m-commerce market potential, handset manufacturers such as Nokia, Ericsson, Motorola, and Qualcomm are working with carriers such as AT&T Wireless and Sprint to develop WAP-enabled smart phones, the industry's answer to the Swiss Army Knife, and ways to reach them. Using Bluetooth technology, smart phones offer fax, e-mail, and phone capabilities all in one, paving the way for m-commerce to be accepted by an increasingly mobile workforce.

As content delivery over wireless devices becomes faster, more secure, and scalable, there is wide speculation that m-commerce will surpass wireline e-commerce as the method of choice for digital commerce transactions. The industries affected by m-commerce include:

Financial services, which includes mobile banking (when customers use their handheld devices to access their accounts and pay their bills) as well as brokerage services, in which stock quotes can be displayed and trading conducted from the same handheld device

Telecommunications, in which service changes, bill payment and account reviews can all be conducted from the same handheld device

Service/retail, as consumers are given the ability to place and pay for orders on-the-fly

Information services, which include the delivery of financial news, sports figures and traffic updates to a single mobile device

IBM and other companies are experimenting with speech recognition software as a way to ensure security for m-commerce transactions

Interactive TV:

Interactive TV (iTV) is any television with what is called a “return path”. Information flows not only from broadcaster to viewer, but also back from viewer to broadcaster. Another feature common to

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all iTV systems is the ability to offer each TV set, or each viewer who uses that TV set, a different choice of content.

There are different hardware configurations and it is possible to build a crude interactive service using analog systems. But the type of systems now being offered, that will dramatically change how viewers live, are digital – either cable or satellite.

Three Types of Interactive TV Service1. Cable 2. Satellite 3. Personal Video Recorder

Call Center:A location staffed by telemarketing, telesales, or technical support staff. Often times, call statistics are calculated and displayed on displaysA company, or department of a company, that offers operator-supported voice services. A large number of operators handle inbound calls via a hotline, with outbound calls being part of direct marketing efforts.Industry term referring to a company phone center that handles such services as help desk, customer support, lead generation, emergency response, telephone answering service, inbound response and outbound telemarketingThe part of an organization that handles inbound/outbound communications with customers.An authorization request response displayed on the credit card terminal screen, generated by the issuer or through stand-in processing. The merchant must then call for a voice authorizationa facility that answers inbound, or places outbound telephone calls. Call center sare also known as customer care centers, use sophisticated software to provide a full range of services A functional area within an organization or an outsourced, separate facility that exists solely to answer inbound or place outbound telephone calls; usually a sophisticated voice operations center that provides a full range of high-volume, inbound or outbound call-handling services, including

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ATM 23

ATM Definition :(Automatic Teller Machine machine) A banking terminal that accepts deposits and dispenses cash. ATMs are activated by inserting a cash or credit card that contains the user's account number and PIN on a magnetic stripe. The ATM calls up the bank's computers to verify the balance, dispenses the cash and then transmits a completed transaction notice. The word "machine" in the term "ATM machine" is certainly redundant, but widely used.

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The Money Machine :

Rubber rollers move one bill at a time from the currency box (each holds about 2,000 bills) to the dispenser area. A sensor determines if two or more bills are stuck together or if the wrong denomination was pulled and causes them to be inserted into the reject box.

How ATM works :

ATM cards use processors to connect to there various ATM networks. If you take your ATM card out of your wallet now, you will see network logos (also known as bugs) on the back:

Here are 4 examples of network bugs.

You might notice that the Cirrus bug looks similar to the Master Card logo. That is because it’s the ATM processing network of Master Card. The Plus network is the ATM side of Visa. Plus and Cirrus are the National ATM networks. All other logos and bugs are regional networks.

Financial Institutions commonly referred to as Banks issue both credit cards and debit cards. Debit cards can be ATM cards and/or Check Cards. When someone swipes or inserts a debit or credit card into an ATM, it asks for a PIN (personal identification number). When you process ATM transactions with ATMdepot.com your ATM machine will dial a toll free number to begin the authorization process. Your ATM will be re-programmed with a TID (terminal ID number) that will identify it on our processor so the networks will allow the transaction to complete. This TID along with other identifying information lets the cardholder's bank know that the transaction is taking place on your ATM. Your ATM will connect to the networks through our processing centre and then to the cardholder’s bank. If there are sufficient funds in the ATM cardholders account for the withdrawal request, the transaction will be completed. The ATM receives the authorization and dispenses the cash requested. Your ATM can also be used if someone just wants to check their account balance or transfer funds before or after withdrawing cash. There would be no convenience fee charged by your ATM for non-cash withdrawal transactions.

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Conclusion

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ConclusionE- Banking has truly facilitated our lives and made our transactions very easy. How E-Banking can ease your life:

1. Bill Payment Service 2. Fund Transfer 3. Credit Card Customers 4. Railway Pass5. Investing through Internet Banking 6. Recharging your Prepaid Phone7. Shopping at your fingertips

It still has lot of potential to develop and we can look forward to some more surprising innovations of E-Banking

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Bibliography

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Bibliography

www.google.comwww.livesearch.comwww.microsoftsearch.comwww.esnips.com

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