Banking In 21st Century*

(*Ashish Kumar Chaurasia, Lecturer, Faculty of Commerce, Sunbeam College For

Women,Varanasi U.P.)

The banking industry is undergoing a rapid transformation world wide propelled by two
major factors: global convergence and information technology. The power of information
technology is driving the banking industry as never before, leading to faster, better and
cheaper banking services. The banking sector considers no boundary in the present
economic scenario. ‘Universal Banking’ has become a common phenomenon in the
present economic environment.

In the wake of the liberalization policies, the traditional and conservative face of Indian
banking has undergone a significant change. The Indian banking industry is undergoing a
paradigm shift in scope, context, structure, functions and governance. The information
and communication technology revolution is radically changing the operational
environment of the banks. “Technology driven” products have now become very
common in the present banking arena.

Modern Age Banking Services

1. Automated Teller Machine (ATM)

It is an electronic machine, which allows the user to withdraw and lodge cash, pay bills,
request statements and other banking transactions. The customer requires ATM card and
ID No. to gain access to the machine. Some ATM cards are also debit cards, which can be
used in shops and other markets. The banking transactions such as withdrawal of cash up
to the daily limits, cash deposit, transfer of funds between accounts, check balances and
request for statements etc. can be done through the ATM. As per RBI directions, a
customer can use services of any other bank’s ATM without paying extra service charge
from 1st April’2009.

2. Tele Banking
Tele banking facility is made available with the help of a voice response system (VRS). It
is one of the most popular products. Tele banking, i.e. the round the clock, ‘Bank on
phone’ service allows the customer to enter phase via telephone. Customers can perform
a number of transactions from their home or office. Facilities offered by tele banking are
Information on balance, cheque book requisition, money transfer, queries on new
schemes, etc.

3. Electronic Funds Transfer (EFT)

The EFT automatically transfers money from one account to another. In this system, the
sender and the receiver of funds, may be located in different cities and may even bank
with different banks. This system also makes possible payments for credit cards, private
level cards, charge cards, etc. Payments of insurance premium, mortgage instalments are
also electronically transferred from the bank to the respective accounts periodically.

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4. ATM Card
It is issued to the customer by the bank in order to make cash withdrawals at cash
machines. It provides exchange services. This service helps the customer to withdraw
money even when the banks are closed.

5. Credit Card
The credit card is a small card containing a means of identification, such as a signature
and a small photo. These cards enable the holder to buy goods and services on credit from
different outlets. The bank receives the bills from the merchants and pays on behalf of the
cardholders. The bank charges from the customers for the services. The cardholder had
not to carry money with him when he travels or goes for purchasing.

6. Debit Card
A debit card is a plastic card which provides an alternative payment method to cash when
making purchases. Every time a person uses the debit card, the merchant, can get the
money transferred to his account from the bank of the buyer, by debiting an exact amount
of purchase from the card. To get a debit card, an individual has to open an account with
the issuing bank.

7. Point of Sale (POS) Terminal

The point of sale is initiated by using a payment card at a retail location. The POS system
identifies the cardholders and checks whether his account has sufficient funds to cover
the purchase. This is done through the debit card. To get these cards, the customer has to
deposit money in the bank. But there is a risk in this debit card system. If the customer
losses the card, there is the danger of emptying the account with no resources for him.

8. Demat Accounts
Demat accounts have been introduced by the Securities and Exchange Board of India to
regulate and to improve stock investing. The investor opens an account called ‘demat
account’ with the depository participants (DP). These DP transact business through
electronic media. They get the shares in an electronic form. Then, they send the actual
shares to the investor. The investor has to pay charges for opening of account maintaining
and for collection. One of the major benefits is that, it requires less paper work, no loss of
share certificate, no bad deliveries, lower transaction cost, etc.

9. Online Banking
Online banking is doing banking business through home PC. The customer demands
necessary application form through the net and the bank sends a UPP (Unique Personal
Password) for accession. The complete database that the bank has about the customer’s
account is available to the customer at his terminal. It also provides current balances in
the customer’s account on real time basis, day’s transaction in the account, details of cash
credit limit, drawing power, amount utilized, etc.

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10. Clearing House Automated Payment System (CHAPS)
CHAPS is an electronic messaging system in which all transactions are transmitted in
code to help reduce the risk of fraud. Under this system, customers could be assured that
local transfers of funds world be cleared on the same day, and this allows customers to
treat amounts so transferred to them as cash available.

11. Electronic Data Interchange

Electronic data interchange (EDI) is an automated system of business-to-business data
exchange. Two primary areas of EDI are data interchange and electronic funds transfer
used among banks. The transfer of information related to commercial trade through the
banking system, sometimes called financial EDI, includes payment orders, remittance
information, statements of account and message linked to documentary payments. It will
be beneficial in areas such as inventory management, transport and distribution,
administration and cash management.

12. Society for World Wide Inter-banking Fast Transfers (SWIFT)

Swift is a computerized message system which links banks around the world. They are
aiming to improve the speed and service in order to present the individual banks setting
up their own computerized messaging system in operation.

13. Digital Payment System (DPS)

Digital payment systems focus on getting a payment form a customer to a merchant. It
requires a higher level of activity and commitment from consumers and merchants. The
reward for providing such systems is very attractive. Digital payment system services
provider can earn profit on each sell. Main components of DPS are cyber cash, virtual
payments system and digicash.

14. Cyber Cash

Cyber cash offers a secure conduit to deliver payments between customers, merchants
and banks. Since it offers safe, efficient and inexpensive delivery of payments across the
Internet practically instantaneously, it has been described as the Federal Express of the
Internet payment business. The main goal of cyber cash is to work with financial
institutions and merchants to provide an accessible and acceptable payment system on the
internet.

15. Shared Payment Network System (SPNS)

SPNS has been established at the behest of the Indian Banks Association (IBA) by Indian
Switch Company Pvt. Ltd. The participation banks issue universal cards to the customers
for transacting on this network. SPNS is offering the services like cash transactions,
across the bank payments, extended hour’s services, utility payments, balance inquiry,
cheque deposit, point of sale facilities, etc.

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16. E-cheques
The e-cheque system uses the network services to issue and process payments that
emulate real world queuing. The payer issues a digital cheque to the payee and all the
transaction are done through the Internet. It consists of five primary facts, i.e. customers,
the merchant, consumer’s bank, the merchant’s bank and the clearing process. The
consumer accesses the merchant server and the merchant server presents its goods to the
customer. The consumer selects the goods and purchases them by sending an e-cheque to
the merchant. The merchant electronically forwards the cheque to its bank. The merchant
bank forwards the e-cheque to the clearing house for en-cash. The merchant’s bank
updates his account. The consumer’s bank updates the consumer’s account with the
withdrawal information.

17. Real Time Gross Settlement (RTGS)

RTGS is a centralized system in which inter-bank payment instructions are settled. “Real
time” what this means is that banks can settle their payments to one another immediately
and irrevocably. In this method, an electronic image of the cheque is transmitted and
based on this digitally encrypted image, the payment advice is made and the settlement
done. In addition to quicker realization of cheques for the banks customers; it is also
beneficial for banks since it lessens intra- settlement risks and volatility. It also cuts down
handling costs of cheques.