Bank A bank is a financial institution and a financial intermediary that accepts deposits and channels those deposits into

lending activities, either directly by loaning or indirectly through capital markets. A bank is the connection between customers that have capital deficits and customers with capital surpluses. Due to their influence within a financial system and an economy, banks are generally highly regulated in most countries. Most banks operate under a system known as fractional reserve banking where they hold only a small reserve of the funds deposited and lend out the rest for profit. They are generally subject to minimum capital requirements which are based on an international set of capital standards, known as the Basel Accords. The oldest bank still in existence is Monte dei Paschi di Siena, headquartered in Siena, Italy, which has been operating continuously since 1472. (1668). Banking in its modern sense evolved in rich cities of Renaissance Italy, such as Florence, Veniceand Genoa. In the history of banking, a number of banking dynastiesamong them notablyMedici, Fugger, centuries. ]History Banking in the modern sense of the word can be traced to medieval and early Renaissance Italy, to the rich cities in the north like Florence, Lucca, Siena, Venice and Genoa. The Bardi and Peruzzi families dominated banking in 14th century Florence, establishing branches in many other parts of Europe. One of the most famous Italian banks was the Medici Bank, set up by Giovanni di Bicci de' Medici in 1397.
[10] [9] [3] [4] [5] [6] [7] [8] [1]

It is followed by Berenberg Bank of Hamburg (1590)

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and Sveriges Riksbank of Sweden

Welser,

Berenberg,

Baring and Rothschild have played a central role over many

The earliest known state deposit bank, Banco di San

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Giorgio (Bank of St. George), was founded in 1407 at Genoa, Italy. [edit]Origin of the word

The word bank was borrowed in Middle English from Middle French banque, from Old Italian banca, fromOld High German banc, bank "bench, counter". Benches were used as desks or exchange counters during the Renaissance by Florentine bankers, who used to make their transactions atop desks covered by green tablecloths.
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One of the oldest items found showing money-changing activity is a silver Greek drachm coin from ancient Hellenic colony Trapezus on the Black Sea, modern Trabzon, c. 350325 BC, presented in theBritish Museum in London. The coin shows a banker's table (trapeza) laden with coins, a pun on the name of the city. In fact, even today in Modern Greek the word Trapeza () means both a table and a bank. Another possible origin of the word is from the Sanskrit words ( ) 'byaya' (expense) and 'onka' (calculation) = byaya+ = . Such expense

onka. This word still survives in Bangla, which is one of Sanskrit's child languages.

calculations were the biggest part of mathematical treatises written by Indian mathematicians as early as 500 B.C. Definition The definition of a bank varies from country to country. See the relevant country page (below) for more information. Under English common law, a banker is defined as a person who carries on the business of banking, which is specified as:
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conducting current accounts for his customers, paying cheques drawn on him/her, and collecting cheques for his/her customers.

In most common law jurisdictions there is a Bills of Exchange Act that codifies the law in relation tonegotiable instruments, including cheques, and this Act contains a statutory definition of the term banker: banker includes a body of persons, whether incorporated or not, who carry on the business of banking' (Section 2, Interpretation). Although this definition seems circular, it is actually functional, because it ensures that the legal basis for bank transactions such as cheques does not depend on how the bank is organized or regulated. The business of banking is in many English common law countries not defined by statute but by common law, the definition above. In other English common law jurisdictions there are statutory definitions of the business of banking orbanking business. When looking at these definitions it is important to keep in mind that they are defining the business of banking for the purposes of the legislation, and not necessarily in general. In particular, most of the definitions are from legislation that has the purposes of entry regulating and supervising banks rather than regulating the actual business of banking. However, in many cases the statutory definition closely mirrors the common law one. Examples of statutory definitions: "banking business" means the business of receiving money on current or deposit account, paying and collecting cheques drawn by or paid in by customers, the making of advances to customers, and includes such other business as the Authority may prescribe for the purposes of this Act; (Banking Act (Singapore), Section 2, Interpretation). "banking business" means the business of either or both of the following: 1. receiving from the general public money on current, deposit, savings or other similar account repayable on demand or within less than [3 months] ... or with a period of call or notice of less than that period; 2. paying or collecting checks drawn by or paid in by customers.
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Since the advent of EFTPOS (Electronic Funds Transfer at Point Of Sale), direct credit, direct debit and internet banking, the cheque has lost its primacy in most banking systems as a payment instrument. This has led legal theorists to suggest that the cheque based definition should be broadened to include financial institutions that conduct current accounts for customers and enable customers to pay and be paid by third parties, even if they do not pay and collect checks. [edit]Banking Standard activities
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Banks act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customers on the bank, and collecting cheques deposited to customers' current accounts. Banks also enable customer payments via other payment methods such as Automated Clearing House (ACH), Wire transfers ortelegraphic transfer, EFTPOS, and automated teller machine (ATM).

Banks borrow money by accepting funds deposited on current accounts, by acceptingterm deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to customers on current accounts, by makinginstallment loans, and by investing in marketable debt securities and other forms of money lending. Banks provide different payment services, and a bank account is considered indispensable by most businesses and individuals. Non-banks that provide payment services such as remittance companies are normally not considered as an adequate substitute for a bank account. Channels Banks offer many different channels to access their banking and other services: Automated Teller Machines A branch is a retail location Call center Mail: most banks accept cheque deposits via mail and use mail to communicate to their customers, e.g. by sending out statements Mobile banking is a method of using one's mobile phone to conduct banking transactions Online banking is a term used for performing multiple transactions, payments etc. over the Internet Relationship Managers, mostly for private banking or business banking, often visiting customers at their homes or businesses Telephone banking is a service which allows its customers to perform transactions over the telephone with automated attendant or when requested with telephone operator Video banking is a term used for performing banking transactions or professional banking consultations via a remote video and audio connection. Video banking can be performed via purpose built banking transaction machines (similar to an Automated teller machine), or via a video conference enabled bank branch clarification Business model A bank can generate revenue in a variety of different ways including interest, transaction fees and financial advice. The main method is via charging interest on the capital it lends out to customers.
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The bank profits from the

difference between the level of interest it pays for deposits and other sources of funds, and the level of interest it charges in its lending activities. This difference is referred to as the spread between the cost of funds and the loan interest rate. Historically, profitability from lending activities has been cyclical and dependent on the needs and strengths of loan customers and the stage of the economic cycle. Fees and financial advice constitute a more stable revenue stream and banks have therefore placed more emphasis on these revenue lines to smooth their financial performance. In the past 20 years American banks have taken many measures to ensure that they remain profitable while responding to increasingly changing market conditions. First, this includes the Gramm-Leach-Bliley Act, which allows banks again to merge with investment and insurance houses. Merging banking, investment, and insurance functions allows traditional banks to respond to increasing consumer demands for "one-stop shopping" by enabling cross-selling of products (which, the banks hope, will also increase profitability).

Second, they have expanded the use of risk-based pricing from business lending to consumer lending, which means charging higher interest rates to those customers that are considered to be a higher credit risk and thus increased chance of default on loans. This helps to offset the losses from bad loans, lowers the price of loans to those who have better credit histories, and offers credit products to high risk customers who would otherwise be denied credit. Third, they have sought to increase the methods of payment processing available to the general public and business clients. These products include debit cards, prepaid cards, smart cards, and credit cards. They make it easier for consumers to conveniently make transactions and smooth their consumption over time (in some countries with underdeveloped financial systems, it is still common to deal strictly in cash, including carrying suitcases filled with cash to purchase a home). However, with convenience of easy credit, there is also increased risk that consumers will mismanage their financial resources and accumulate excessive debt. Banks make money from card products through interest payments and fees charged to consumers andtransaction fees to companies that accept the credit- debit - cards. This helps in making profit and facilitates economic development as a whole. Products
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Retail banking Checking account Savings account Money market account Certificate of deposit (CD) Individual retirement account (IRA) Credit card Debit card Mortgage Home equity loan Mutual fund Personal loan Time deposits ATM card Current Accounts

Business (or commercial/investment) banking Business loan Capital raising (Equity / Debt / Hybrids) Mezzanine finance Project finance Revolving credit Risk management (FX, interest rates, commodities, derivatives)

Term loan Cash Management Services (Lock box, Remote Deposit Capture, Merchant Processing)

Risk and capital Banks face a number of risks in order to conduct their business, and how well these risks are managed and understood is a key driver behind profitability, and how much capital a bank is required to hold. Some of the main risks faced by banks include: Credit risk: risk of loss
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arising from a borrower who does not make payments as promised.

Liquidity risk: risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss (or make the required profit). Market risk: risk that the value of a portfolio, either an investment portfolio or a trading portfolio, will decrease due to the change in value of the market risk factors. Operational risk: risk arising from execution of a company's business functions. Reputational risk: a type of risk related to the trustworthiness of business. Macroeconomic risk: risks related to the aggregate economy the bank is operating in.
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The capital requirement is a bank regulation, which sets a framework on how banks and depository institutions must handle their capital. The categorization of assets and capital is highly standardized so that it can be risk weighted (see risk-weighted asset). Banks in the economy Economic functions The economic functions of banks include: 1. Issue of money, in the form of banknotes and current accounts subject to check or payment at the customer's order. These claims on banks can act as money because they are negotiable or repayable on demand, and hence valued at par. They are effectively transferable by mere delivery, in the case of banknotes, or by drawing a check that the payee may bank or cash. 2. Netting and settlement of payments banks act as both collection and paying agents for customers, participating in interbank clearing and settlement systems to collect, present, be presented with, and pay payment instruments. This enables banks to economize on reserves held for settlement of payments, since inward and outward payments offset each other. It also enables the offsetting of payment flows between geographical areas, reducing the cost of settlement between them. 3. Credit intermediation banks borrow and lend back-to-back on their own account as middle men. 4. Credit quality improvement banks lend money to ordinary commercial and personal borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes from diversification of the bank's assets and capital which provides a buffer to absorb losses without defaulting on its obligations. However, banknotes and deposits are generally unsecured; if the bank gets into difficulty and pledges assets as security, to raise the funding it needs to continue to operate, this puts the note holders and depositors in an economically subordinated position.

5. Asset liability mismatch/Maturity transformation banks borrow more on demand debt and short term debt, but provide more long term loans. In other words, they borrow short and lend long. With a stronger credit quality than most other borrowers, banks can do this by aggregating issues (e.g. accepting deposits and issuing banknotes) and redemptions (e.g. withdrawals and redemption of banknotes), maintaining reserves of cash, investing in marketable securities that can be readily converted to cash if needed, and raising replacement funding as needed from various sources (e.g. wholesale cash markets and securities markets). 6. Money creation whenever a bank gives out a loan in a fractional-reserve banking system, a new sum of virtual money is created. [edit]Bank crisis Banks are susceptible to many forms of risk which have triggered occasional systemic crises. These include liquidity risk (where many depositors may request withdrawals in excess of available funds), credit risk (the chance that those who owe money to the bank will not repay it), and interest rate risk (the possibility that the bank will become unprofitable, if rising interest rates force it to pay relatively more on its deposits than it receives on its loans). Banking crises have developed many times throughout history, when one or more risks have materialized for a banking sector as a whole. Prominent examples include the bank run that occurred during the Great Depression, the U.S. Savings and Loan crisis in the 1980s and early 1990s, the Japanese banking crisis during the 1990s, and the sub-prime mortgage crisis in the 2000s. [edit]Size of global banking industry Assets of the largest 1,000 banks in the world grew by 6.8% in the 2008/2009 financial year to a record US$96.4 trillion while profits declined by 85% to US$115 billion. Growth in assets in adverse market conditions was largely a result of recapitalization. EU banks held the largest share of the total, 56% in 2008/2009, down from 61% in the previous year. Asian banks' share increased from 12% to 14% during the year, while the share of US banks increased from 11% to 13%. Fee revenue generated by global investment banking totaled US$66.3 billion in 2009, up 12% on the previous year. The United States has the most banks in the world in terms of institutions (7,085 at the end of 2008) and possibly branches (82,000).
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This is an indicator of the geography and regulatory structure of the USA, resulting in a

large number of small to medium-sized institutions in its banking system. As of Nov 2009, China's top 4 banks have in excess of 67,000 branches (ICBC:18000+, BOC:12000+, CCB:13000+, ABC:24000+) with an additional 140 smaller banks with an undetermined number of branches. Japan had 129 banks and 12,000 branches. In 2004, Germany, France, and Italy each had more than 30,000 branchesmore than double the 15,000 branches in the UK. Regulation Main article: Banking regulation See also: Basel II Currently commercial banks are regulated in most jurisdictions by government entities and require a special bank license to operate. Usually the definition of the business of banking for the purposes of regulation is extended to include acceptance of deposits, even if they are not repayable to the customer's order although money lending, by itself, is generally not included in the definition.
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Unlike most other regulated industries, the regulator is typically also a participant in the market, being either a publicly or privately governed central bank. Central banks also typically have a monopoly on the business of issuing banknotes. However, in some countries this is not the case. In the UK, for example, the Financial Services Authority licenses banks, and some commercial banks (such as theBank of Scotland) issue their own banknotes in addition to those issued by the Bank of England, the UK government's central bank. Banking law is based on a contractual analysis of the relationship between the bank (defined above) and the customer defined as any entity for which the bank agrees to conduct an account. The law implies rights and obligations into this relationship as follows: 1. The bank account balance is the financial position between the bank and the customer: when the account is in credit, the bank owes the balance to the customer; when the account is overdrawn, the customer owes the balance to the bank. 2. The bank agrees to pay the customer's checks up to the amount standing to the credit of the customer's account, plus any agreed overdraft limit. 3. The bank may not pay from the customer's account without a mandate from the customer, e.g. a check drawn by the customer. 4. The bank agrees to promptly collect the checks deposited to the customer's account as the customer's agent, and to credit the proceeds to the customer's account. 5. The bank has a right to combine the customer's accounts, since each account is just an aspect of the same credit relationship. 6. The bank has a lien on checks deposited to the customer's account, to the extent that the customer is indebted to the bank. 7. The bank must not disclose details of transactions through the customer's account unless the customer consents, there is a public duty to disclose, the bank's interests require it, or the law demands it. 8. The bank must not close a customer's account without reasonable notice, since checks are outstanding in the ordinary course of business for several days. These implied contractual terms may be modified by express agreement between the customer and the bank. The statutes and regulations in force within a particular jurisdiction may also modify the above terms and/or create new rights, obligations or limitations relevant to the bank-customer relationship. Some types of financial institution, such as building societies and credit unions, may be partly or wholly exempt from bank license requirements, and therefore regulated under separate rules. The requirements for the issue of a bank license vary between jurisdictions but typically include: 1. Minimum capital 2. Minimum capital ratio 3. 'Fit and Proper' requirements for the bank's controllers, owners, directors, or senior officers 4. Approval of the bank's business plan as being sufficiently prudent and plausible. Types of banks

Banks' activities can be divided into retail banking, dealing directly with individuals and small businesses; business banking, providing services to mid-market business; corporate banking, directed at large business entities; private banking, providing wealth management services to high net worth individuals and families; and investment banking, relating to activities on the financial markets. Most banks are profit-making, private enterprises. However, some are owned by government, or are non-profit organizations. Types of retail banks National Copper Bank, Salt Lake City 1911 Commercial bank: the term used for a normal bank to distinguish it from an investment bank. After the Great Depression, the U.S. Congress required that banks only engage in banking activities, whereas investment banks were limited to capital market activities. Since the two no longer have to be under separate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses. Community banks: locally operated financial institutions that empower employees to make local decisions to serve their customers and the partners. Community development banks: regulated banks that provide financial services and credit to under-served markets or populations. Credit unions: not-for-profit cooperatives owned by the depositors and often offering rates more favorable than forprofit banks. Typically, membership is restricted to employees of a particular company, residents of a defined neighborhood, members of a certain labor union or religious organizations, and their immediate families. Postal savings banks: savings banks associated with national postal systems. Private banks: banks that manage the assets of high net worth individuals. Historically a minimum of USD 1 million was required to open an account, however, over the last years many private banks have lowered their entry hurdles to USD 250,000 for private investors.
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Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks. Savings bank: in Europe, savings banks took their roots in the 19th or sometimes even in the 18th century. Their original objective was to provide easily accessible savings products to all strata of the population. In some countries, savings banks were created on public initiative; in others, socially committed individuals created foundations to put in place the necessary infrastructure. Nowadays, European savings banks have kept their focus on retail banking: payments, savings products, credits and insurances for individuals or small and medium-sized enterprises. Apart from this retail focus, they also differ from commercial banks by their broadly decentralized distribution network, providing local and regional outreachand by their socially responsible approach to business and society.

Building societies and Landesbanks: institutions that conduct retail banking. Ethical banks: banks that prioritize the transparency of all operations and make only what they consider to be sociallyresponsible investments. A Direct or Internet-Only bank is a banking operation without any physical bank branches, conceived and implemented wholly with networked computers.

Types of investment banks

Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for their own accounts, make markets, provide investment management, and advise corporations on capital market activities such as mergers and acquisitions.

Merchant banks were traditionally banks which engaged in trade finance. The modern definition, however, refers to banks which provide capital to firms in the form of shares rather than loans. Unlike venture capital firms, they tend not to invest in new companies.

Both combined Universal banks, more commonly known as financial services companies, engage in several of these activities. These big banks are very diversified groups that, among other services, also distribute insurance hence the term bancassurance, a portmanteau wordcombining "banque or bank" and "assurance", signifying that both banking and insurance are provided by the same corporate entity. [edit]Other types of banks Central banks are normally government-owned and charged with quasi-regulatory responsibilities, such as supervising commercial banks, or controlling the cash interest rate. They generally provide liquidity to the banking system and act as the lender of last resortin event of a crisis. Islamic banks adhere to the concepts of Islamic law. This form of banking revolves around several well-established principles based on Islamic canons. All banking activities must avoid interest, a concept that is forbidden in Islam. Instead, the bank earns profit (markup) and fees on the financing facilities that it extends to customers. Challenges within the banking industry United States Main article: Banking in the United States The United States banking industry is one of the most heavily regulated in the world,
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with multiple specialized and

focused regulators. All banks with FDIC-insured deposits have the Federal Deposit Insurance Corporation (FDIC) as a regulator. However, for soundness examinations (i.e., whether a bank is operating in a sound manner), the Federal Reserve is the primary federal regulator for Fed-member state banks; the Office of the Comptroller of the Currency (OCC) is the primary federal regulator for national banks; and theOffice of Thrift Supervision, or OTS, is the primary federal regulator for thrifts. State non-member banks are examined by the state agencies as well as the FDIC. National banks have one primary regulatorthe OCC. Qualified Intermediaries & Exchange Accommodators are regulated by MAIC. Each regulatory agency has their own set of rules and regulations to which banks and thrifts must adhere. The Federal Financial Institutions Examination Council (FFIEC) was established in 1979 as a formal inter-agency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions. Although the FFIEC has resulted in a greater degree of regulatory consistency between the agencies, the rules and regulations are constantly changing. In addition to changing regulations, changes in the industry have led to consolidations within the Federal Reserve, FDIC, OTS, MAIC and OCC. Offices have been closed, supervisory regions have been merged, staff levels have been reduced and budgets have been cut. The remaining regulators face an increased burden with increased workload and more banks per regulator. While banks struggle to keep up with the changes in the regulatory environment, regulators struggle to

manage their workload and effectively regulate their banks. The impact of these changes is that banks are receiving less hands-on assessment by the regulators, less time spent with each institution, and the potential for more problems slipping through the cracks, potentially resulting in an overall increase in bank failures across the United States. The changing economic environment has a significant impact on banks and thrifts as they struggle to effectively manage their interest rate spread in the face of low rates on loans, rate competition for deposits and the general market changes, industry trends and economic fluctuations. It has been a challenge for banks to effectively set their growth strategies with the recent economic market. A rising interest rate environment may seem to help financial institutions, but the effect of the changes on consumers and businesses is not predictable and the challenge remains for banks to grow and effectively manage the spread to generate a return to their shareholders. The management of the banks asset portfolios also remains a challenge in todays economic environment. Loans are a banks primary asset category and when loan quality becomes suspect, the foundation of a bank is shaken to the core. While always an issue for banks, declining asset quality has become a big problem for financial institutions. There are several reasons for this, one of which is the lax attitude some banks have adopted because of the years of good times. The potential for this is exacerbated by the reduction in the regulatory oversight of banks and in some cases depth of management. Problems are more likely to go undetected, resulting in a significant impact on the bank when they are recognized. In addition, banks, like any business, struggle to cut costs and have consequently eliminated certain expenses, such as adequate employee training programs. Banks also face a host of other challenges such as aging ownership groups. Across the country, many banks management teams and board of directors are aging. Banks also face ongoing pressure by shareholders, both public and private, to achieve earnings and growth projections. Regulators place added pressure on banks to manage the various categories of risk. Banking is also an extremely competitive industry. Competing in the financial services industry has become tougher with the entrance of such players as insurance agencies, credit unions, check cashing services, credit card companies, etc. As a reaction, banks have developed their activities in financial instruments, through financial market operations such as brokerage and MAIC trust & Securities Clearing services trading and become big players in such activities. Competition for loanable funds To be able to provide home buyers and builders with the funds needed, banks must compete for deposits. The phenomenon ofdisintermediation had to dollars moving from savings accounts and into direct market instruments such as U.S. Department of Treasuryobligations, agency securities, and corporate debt. One of the greatest factors in recent years in the movement of deposits was the tremendous growth of money market funds whose higher interest rates attracted consumer deposits.
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To compete for deposits, US savings institutions offer many different types of plans:

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Passbook or ordinary deposit accounts permit any amount to be added to or withdrawn from the account at any time. NOW and Super NOW accounts function like checking accounts but earn interest. A minimum balance may be required on Super NOW accounts.

Money market accounts carry a monthly limit of preauthorized transfers to other accounts or persons and may require a minimum or average balance. Certificate accounts subject to loss of some or all interest on withdrawals before maturity. Notice accounts the equivalent of certificate accounts with an indefinite term. Savers agree to notify the institution a specified time before withdrawal. Individual retirement accounts (IRAs) and Keogh plans a form of retirement savings in which the funds deposited and interest earned are exempt from income tax until after withdrawal. Checking accounts offered by some institutions under definite restrictions. All withdrawals and deposits are completely the sole decision and responsibility of the account owner unless the parent or guardian is required to do otherwise for legal reasons. Club accounts and other savings accounts designed to help people save regularly to meet certain goals.

[edit]Accounting for bank accounts Bank statements are accounting records produced by banks under the various accounting standards of the world. Under GAAP and MAIC there are two kinds of accounts: debit and credit. Credit accounts are Revenue, Equity and Liabilities. Debit Accounts are Assets and Expenses. This means you credit a credit account to increase its balance, and you debit acredit account to decrease its balance.
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This also means you credit your savings account every time you deposit money into it (and the account is normally in credit), while you debit your credit card account every time you spend money from it (and the account is normally in debit). However, if you read your bank statement, it will say the oppositethat you credit your account when you deposit money, and you debit it when you withdraw funds. If you have cash in your account, you have a positive (or credit) balance; if you are overdrawn, you have a negative (or deficit) balance. Where bank transactions, balances, credits and debits are discussed below, they are done so from the viewpoint of the account holderwhich is traditionally what most people are used to seeing. [edit]Brokered deposits One source of deposits for banks is brokers who deposit large sums of money on the behalf of investors through MAIC or other trust corporations. This money will generally go to the banks which offer the most favorable terms, often better than those offered local depositors. It is possible for a bank to engage in business with no local deposits at all, all funds being brokered deposits. Accepting a significant quantity of such deposits, or "hot money" as it is sometimes called, puts a bank in a difficult and sometimes risky position, as the funds must be lent or invested in a way that yields a return sufficient to pay the high interest being paid on the brokered deposits. This may result in risky decisions and even in eventual failure of the bank. Banks which failed during 2008 and 2009 in the United States during the global financial crisis had, on average, four times more brokered deposits as a percent of their deposits than the average bank. Such deposits, combined with risky real estate investments, factored into the savings and loan crisis of the 1980s. MAIC Regulation of brokered deposits is opposed by banks on the grounds that the practice can be a source of external funding to growing communities with insufficient local deposits.
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[edit]Globalization in the Banking Industry In modern time there has been huge reductions to the barriers of global competition in the banking industry. Increases in telecommunications and other financial technologies, such as Bloomberg, have allowed banks to extend their reach all

over the world, since they no longer have to be near customers to manage both their finances and their risk. The growth in cross-border activities has also increased the demand for banks that can provide various services across borders to different nationalities. However, despite these reductions in barriers and growth in cross-border activities, the banking industry is nowhere near as globalized as some other industries. In the USA, for instance, very few banks even worry about the Riegle-Neal Act, which promotes more efficient interstate banking. In the vast majority of nations around globe the market share for foreign owned banks is currently less than a tenth of all market shares for banks in a particular nation. One reason the banking industry has not been fully globalized is that it is more convenient to have local banks provide loans to small business and individuals. On the other hand for large corporations, it is not as important in what nation the bank is in, since the corporation's financial information is available around the globe.

Cooperative banking Cooperative banking is retail and commercial banking organized on a cooperative basis. Cooperative banking institutions take deposits and lend money in most parts of the world. Cooperative banking, as discussed here, includes retail banking carried out by credit unions,mutual savings banks, building societies and cooperatives, as well as commercial banking services provided by mutual organizations (such as cooperative federations) to cooperative businesses. [edit]Institutions [edit]Credit unions Main article: Credit union Credit unions have the purpose of promoting thrift, providing credit at reasonable rates, and providing other financial services to its members.[1] Its members are usually required to share a common bond, such as locality, employer, religion or profession, and credit unions are usually funded entirely by member deposits, and avoid outside borrowing. They are typically (though not exclusively) the smaller form of cooperative banking institution. In some countries they are restricted to providing only unsecured personal loans, whereas in others, they can provide business loans to farmers, and mortgages. [edit]Cooperative banks Larger institutions are often called cooperative banks. Some are tightly integrated federations of credit unions, though those member credit unions may not subscribe to all nine of the strict principles of the World Council of Credit Unions (WOCCU). Like credit unions, cooperative banks are owned by their customers and follow the cooperative principle of one person, one vote. Unlike credit unions, however, cooperative banks are often regulated under both banking and cooperative legislation. They provide services such as savings and loans to non-members as well as to members, and some participate in the wholesale markets for bonds, money and even equities.[2] Many cooperative banks are traded on public stock markets, with the result that they are partly owned by non-members. Member control is diluted by these outside stakes, so they may be regarded as semi-cooperative. Cooperative banking systems are also usually more integrated than credit union systems. Local branches of cooperative banks elect their own boards of directors and manage their own operations, but most strategic decisions require approval from a central office. Credit unions usually retain strategic decision-making at a local level, though they share back-office functions, such as access to the global payments system, by federating.

Some cooperative banks are criticized for diluting their cooperative principles. Principles 2-4 of the "Statement on the Co-operative Identity" can be interpreted to require that members must control both the governance systems and capital of their cooperatives. A cooperative bank that raises capital on public stock markets creates a second class of shareholders who compete with the members for control. In some circumstances, the members may lose control. This effectively means that the bank ceases to be a cooperative. Accepting deposits from non-members may also lead to a dilution of member control. [edit]Building societies Main article: Building society Building societies exist in Britain, Ireland and several Commonwealth countries. They are similar to credit unions in organisation, though few enforce a common bond. However, rather than promoting thrift and offering unsecured and business loans, their purpose is to provide home mortgages for members. Borrowers and depositors are society members, setting policy and appointing directors on a one-member, one-vote basis. Building societies often provide other retail banking services, such as current accounts, credit cards and personal loans. In the United Kingdom, regulations permit up to half of their lending to be funded by debt to non-members, allowing societies to access wholesale bond and money markets to fund mortgages. The world's largest building society is Britain's Nationwide Building Society. [edit]Others Mutual savings banks and mutual savings and loan associations were very common in the 19th and 20th centuries, but declined in number and market share in the late 20th century, becoming globally less significant than cooperative banks, building societies and credit unions. Trustee savings banks are similar to other savings banks, but they are not cooperatives, as they are controlled by trustees, rather than their depositors. [edit]International associations The most important international associations of cooperative banks, both based in Brussels, are the International Association of Cooperative Banks (CIBP), which has member institutions from around the world, and the European Association of Co-operative Banks. [edit]By region [edit]Quebec The caisse populaire movement started by Alphonse Desjardins in Quebec, Canada, pioneered credit unions. Desjardins opened the first credit union in North AmericaiIn 1900, from his home in Lvis, Quebec, marking the beginning of the Mouvement Desjardins. He was interested in bringing desperately needed financial protection to working people. [edit]United Kingdom British building societies developed into general-purpose savings and banking institutions with one member, one vote ownership and can be seen as a form of financial cooperative (although some de-mutualised into conventionally owned banks in the 1980s and 1990s). The UK Co-operative Group includes both an insurance provider, the CIS, and the Co-operative Bank, both noted for promoting ethical investment. [edit]Continental Europe Important continental cooperative banking systems include the Crdit Agricole, Crdit Mutuel, Banque Populaire and Caisse d'pargnein France, Rabobank in the Netherlands, BVR/DZ Bank in Germany, Banco Popolare, UBI Banca and Banca Popolare di

Milano in Italy,Migros and Coop Bank in Switzerland, and the Raiffeisen system in several countries in central and eastern Europe. The cooperative banks that are members of the European Association of Co-operative Banks have 130 million customers, 4 trillion euros in assets, and 17% of Europe's deposits. The International Confederation of Cooperative Banks (CIBP) is the oldest association of cooperative banks at international level. In Scandinavia, there is a clear distinction between mutual savings banks (Sparbank) and true credit unions (Andelsbank). [edit]United States [edit]India The origins of the cooperative banking movement in India can be traced to the close of 19th century when, inspired by the success of the experiments related to the cooperative movement in Britain and the cooperative credit movement in Germany, such societies were set up in India. Cooperative banks are an important constituent of the Indian financial system. They are the primary financiers of agricultural activities, some small-scale industries and self-employed workers. The Anyonya Co-operative Bank in India is considered to have been the first cooperative bank in Asia. [edit]Microcredit and microfinance The more recent phenomena of microcredit and microfinance are often based on a cooperative model They focus on small businesslending. In 2006, Muhammad Yunus, founder of the Grameen Bank in Bangladesh, won the Nobel Peace Prize for his ideas regarding development and his pursuit of the microcredit concept.. [edit]List of cooperative banking institutions Cooperative banking institutions Member s (2010)[3] Assets (2010 US$ millions)[
3] [4]

Name

Countr y

Type

Alternative name

Notes

Crdit Agricole

France

Joint stock CASA bank

Majority owned by federation of credit unions

DZ Bank

Germany

Bank

Deutsche Zentralgenossenschaftba Owned by three quarters of nk allVolksbank andRaiffeisenbank(cooperati German Central ve banks) in Germany and Austria Cooperative Bank literally savings bank Credit union federation Credit union federation

Caisse d'Epargne Rabobank

France Netherland 1,500,000+ s Building society

Nationwide Building UK Society Groupe Banque Populaire France 3,400,000

World's largest building society

Desjardins Canada Group Raiffeisen Zentralban Austria k

5,795,277[5]

Credit union federation Bank RZB sterreich

Leading bank in Quebec

Credit union federation

Cooperative banking institutions Member s (2010)[3] Assets (2010 US$ millions)[

3]

Name

Countr y

Type

Alternative name

Notes

Nonghyup

South Korea

Banking National Agricultural division of Cooperative Federation agricultural (NACF) cooperative Bank Istituto Centrale del Credito Cooperativo

Approx US$230 billion in loans

Iccrea Banca

Italy

Cassa Centrale Banca Credito Italy Cooperativ o del Nord Est Raiffeisen Landesban Italy k Sdtirol Raiffeisen Schweiz Switzerlan d

Bank

CCB

Bank

Cassa Centrale Raiffeisen dell'Alto Adige Credit union federation

Banco Cooperativ o Espaol Spain and Caja Rural OP-Pohjola Group and Finland Pohjola Bank bankmecu Bank Persatuan Cooperative Bank Navy Federal Credit Union Shared Interest GLS Bank Australia Malaysia 125,000+ 46,135 Not applicable[7] $3b bank 31% share of Finnish credit market, and 32% share of savings and deposit market[6] Australia's first customer owned bank Koperasi Bank Persatuan 2nd national cooperative bank in Malaysia Berhad Malaysia Subsidiary of consumer cooperative

86,375,542.9 Bank 7
[8]

UK

Bank

US

3,004,352

33012

Credit union Cooperativ e lending society

UK Germany

[9]

Finance for fair trade

Bank regulation Bank regulations are a form of government regulation which subject banks to certain requirements, restrictions and guidelines. This regulatory structure creates transparency between banking institutions and the individuals and corporations with whom they conductbusiness, among other things.

Given the interconnectedness of the banking industry and the reliance that the national (and global) economy hold on banks, it is important for regulatory agencies to maintain control over the standardized practices of these institutions. Supporters of such regulation often hinge their arguments on the "too big to fail" notion. This holds that many financial institutions (particularly investment banks with a commercial arm) hold too much control over the economy to fail without enormous consequences. This is the premise for governmentbailouts, in which government financial assistance is provided to banks or other financial institutions who appear to be on the brink of collapse. The belief is that without this aid, the crippled banks would not only become bankrupt, but would create rippling effects throughout the economy leading to systemic failure. [edit]Objectives of bank regulation The objectives of bank regulation, and the emphasis, vary between jurisdictions. The most common objectives are: 1. Prudentialto reduce the level of risk to which bank creditors are exposed (i.e. to protect depositors)
[2] [1]

2. Systemic risk reductionto reduce the risk of disruption resulting from adverse trading conditions for banks causing multiple or major bank failures 3. Avoid misuse of banksto reduce the risk of banks being used for criminal purposes, e.g. laundering the proceeds of crime 4. To protect banking confidentiality 5. Credit allocationto direct credit to favored sectors 6. It may also include rules about treating customers fairly and having corporate social responsibility (CSR) [edit]General principles of bank regulation Banking regulations can vary widely across nations and jurisdictions. This section of the article describes general principles of bank regulation throughout the world. [edit]Minimum requirements Requirements are imposed on banks in order to promote the objectives of the regulator. Often, these requirements are closely tied to the level of risk exposure for a certain sector of the bank. The most important minimum requirement in banking regulation is maintainingminimum capital ratios. [edit]Supervisory review Banks are required to be issued with a bank license by the regulator in order to carry on business as a bank, and the regulator supervises licensed banks for compliance with the requirements and responds to breaches of the requirements through obtaining undertakings, giving directions, imposing penalties or revoking the bank's license. [edit]Market discipline The regulator requires banks to publicly disclose financial and other information, and depositors and other creditors are able to use this information to assess the level of risk and to make investment decisions. As a result of this, the bank is subject to market discipline and the regulator can also use market pricing information as an indicator of the bank's financial health. [edit]Instruments and requirements of bank regulation [edit]Capital requirement Main article: Capital requirement
[3]

The capital requirement sets a framework on how banks must handle their capital in relation to their assets. Internationally, the Bank for International Settlements' Basel Committee on Banking Supervision influences each country's capital requirements. In 1988, the Committee decided to introduce a capital measurement system commonly referred to as the Basel Capital Accords. The latest capital adequacy framework is commonly known as Basel III. framework is intended to be more risk sensitive than the original one, but is also a lot more complex. [edit]Reserve requirement Main article: Reserve requirement The reserve requirement sets the minimum reserves each bank must hold to demand deposits and banknotes. This type of regulation has lost the role it once had, as the emphasis has moved toward capital adequacy, and in many countries there is no minimum reserve ratio. The purpose of minimum reserve ratios is liquidity rather than safety. An example of a country with a contemporary minimum reserve ratio is Hong Kong, where banks are required to maintain 25% of their liabilities that are due on demand or within 1 month as qualifying liquefiable assets. Reserve requirements have also been used in the past to control the stock of banknotes and/or bank deposits. Required reserves have at times been gold coin, central bank banknotes or deposits, and foreign currency. [edit]Corporate governance Corporate governance requirements are intended to encourage the bank to be well managed, and is an indirect way of achieving other objectives. As many banks are relatively large, with many divisions, it is important for management to maintain a close watch on all operations. Investors and clients will often hold higher management accountable for missteps, as these individuals are expected to be aware of all activities of the institution. Some of these requirements may include: 1. To be a body corporate (i.e. not an individual, a partnership, trust or other unincorporated entity) 2. To be incorporated locally, and/or to be incorporated under as a particular type of body corporate, rather than being incorporated in a foreign jurisdiction. 3. To have a minimum number of directors 4. To have an organisational structure that includes various offices and officers, e.g. corporate secretary, treasurer/CFO, auditor, Asset Liability Management Committee, Privacy Officer, Compliance Officer etc. Also the officers for those offices may need to be approved persons, or from an approved class of persons. 5. To have a constitution or articles of association that is approved, or contains or does not contain particular clauses, e.g. clauses that enable directors to act other than in the best interests of the company (e.g. in the interests of a parent company) may not be allowed. [edit]Financial reporting and disclosure requirements Among the most important regulations that are placed on banking institutions is the requirement for disclosure of the bank's finances. Particularly for banks that trade on the public market, in the US for example the Securities and Exchange Commission (SEC) requires management to prepare annual financial statements according to a financial reporting standard, have them audited, and to register or publish them. Often, these banks are even required to prepare more frequent financial disclosures, such as Quarterly Disclosure Statements. The Sarbanes-Oxley Act of 2002 outlines in detail the exact structure of the reports that the SEC requires.
[4]

This updated

In addition to preparing these statements, the SEC also stipulates that directors of the bank must attest to the accuracy of such financial disclosures. Thus, included in their annual reports must be a report of management on the company's internal control over financial reporting. The internal control report must include: a statement of management's responsibility for establishing and maintaining adequate internal control over financial reporting for the company; management's assessment of the effectiveness of the company's internal control over financial reporting as of the end of the company's most recent fiscal year; a statement identifying the framework used by management to evaluate the effectiveness of the company's internal control over financial reporting; and a statement that the registered public accounting firm that audited the company's financial statements included in the annual report has issued an attestation report on management's assessment of the company's internal control over financial reporting. Under the new rules, a company is required to file the registered public accounting firm's attestation report as part of the annual report. Furthermore, the SEC added a requirement that management evaluate any change in the company's internal control over financial reporting that occurred during a fiscal quarter that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting. [edit]Credit rating requirement Banks may be required to obtain and maintain a current credit rating from an approved credit rating agency, and to disclose it to investors and prospective investors. Also, banks may be required to maintain a minimum credit rating. These ratings are designed to provide color for prospective clients or investors regarding the relative risk that one assumes when engaging in business with the bank. The ratings reflect the tendencies of the bank to take on high risk endeavors, in addition to the likelihood of succeeding in such deals or initiatives. The rating agencies that banks are most strictly governed by, referred to as the "Big Three" are the Fitch Group, Standard and Poor's and Moody's. These agencies hold the most influence over how banks (and all public companies) are viewed by those engaged in the public market. In recent years, following the Great Recession, many economists have argued that these agencies face a serious conflict of interest in their core business model.
[6] [5]

Clients pay these agencies to rate their company based on their relative riskiness

in the market. The question then is, to whom is the agency providing its service: the company or the market? European financial economics experts- notably the World Pensions Council (WPC) have argued that European powers such as France and Germany pushed dogmatically and naively for the adoption of the Basel II recommendations, adopted in 2005, transposed in European Union law through the Capital Requirements Directive (CRD). In essence, they forced European banks, and, more importantly, the European Central Bank itself, to rely more than ever on the standardized assessments of credit risk marketed aggressively by two US credit rating agencies - Moodys and S&P, thus using public policy and ultimately taxpayers money to strengthen anti-competitive duopolistic practices akin to exclusive dealing. Ironically, European governments have abdicated most of their regulatory authority in favor of a nonEuropean, highly deregulated, private cartel. [edit]Large exposures restrictions Banks may be restricted from having imprudently large exposures to individual counterparties or groups of connected counterparties. Such limitation may be expressed as a proportion of the bank's assets or equity, and different limits may apply based on the security held and/or the credit rating of the counterparty. Restricting disproportionate exposure to highrisk investment prevents financial institutions from placing equity holders' (as well as the firm's) capital at an unnecessary risk. [edit]Activity and affiliation restrictions
[7]

In the US in response to the Great depression of the 1930s, President Franklin D. Roosevelts under the New Deal enacted theSecurities Act of 1933 and the Glass-Steagall Act (GSA), setting up a pervasive regulatory scheme for the public offering of securities and generally prohibiting commercial banks from underwriting and dealing in those securities. GSA prohibited affiliations between banks (which means bank-chartered depository institutions, that is, financial institutions that hold federally insured consumer deposits) and securities firms (which are commonly referred to as investment banks even though they are not technically banks and do not hold federally insured consumer deposits); further restrictions on bank affiliations with non- banking firms were enacted in Bank Holding Company Act of 1956 (BHCA) and its subsequent amendments, eliminating the possibility that companies owning banks would be permitted to take ownership or controlling interest in insurance companies, manufacturing companies, real estate companies, securities firms, or any other non-banking company. As a result, distinct regulatory systems developed in the United States for regulating banks, on the one hand, and securities firms on the other. [edit]Too Big To Fail and Moral Hazard Among the reasons for maintaining close regulation of banking institutions is the aforementioned concern over the global repercussions that could result from a bank's failure; the idea that these bulge bracket banks are "too big to fail". The objective of federal agencies is to avoid situations in which the government must decide whether to support a struggling bank or to let it fail. The issue, as many argue, is that providing aid to crippled banks creates a situation of moral hazard. The general premise is that while the government may have prevented a financial catastrophe for the time being, they have reinforced confidence for high risk taking and provided an invisible safety net. This can lead to a vicious cycle, wherein banks take risks, fail, receive a bailout and then continue to take risks once again. [edit]By country
[8]

Cheque From Wikipedia, the free encyclopedia

An English cheque from 1956 having a bank clerk's red mark verifying the signature, a two-pence stamp duty, and holes punched by hand to cancel it. This is a "crossed cheque" disallowing transfer of payment to another account. A cheque (or check in American English) is a document
[nb 1]

that orders a payment ofmoney from a bank account. The

person writing the cheque, the drawer, usually has acurrent account (most English speaking countries) or checking account (US) where their money was previously deposited. The drawer writes the various details including the monetary amount, date, and a payee on the cheque, and signs it, ordering theirbank, known as the drawee, to pay that person or company the amount of money stated.

Cheques are a type of bill of exchange and were developed as a way to make payments without the need to carry large amounts of money. While paper moneyevolved from promissory notes, another form of negotiable instrument, similar to cheques in that they were originally a written order to pay the given amount to whoever had it in their possession (the "bearer"). Technically, a cheque is a negotiable instrument
[nb 2]

instructing a financial institution to pay a specific amount of a

specific currencyfrom a specified transactional account held in the drawer's name with that institution. Both the drawer and payee may be natural persons or legal entities. Specifically, cheques are order instruments, and are not in general payable simply to the bearer (as bearer instruments are) but must be paid to the payee. In some countries, such as the US, the payee may endorse the cheque, allowing them to specify a third party to whom it should be paid. Although forms of cheques have been in use since ancient times and at least since the 9th century, it was during the 20th century that cheques became a highly popular non-cash method for making payments and the usage of cheques peaked. By the second half of the 20th century, as cheque processing became automated, billions of cheques were issued annually; these volumes peaked in or around the early 1990s.
[1]

Since then cheque usage has fallen, being partly replaced

by electronic payment systems. In some countries like Poland cheques have become a marginal payment system or have been phased out completely. Spelling and etymology The spellings check, checque, and cheque were used interchangeably from the 17th century until the 20th century.
[2]

However, since the 19th century, the spelling cheque(from the French word chque) has become standard for
[nb 3]

the financial instrument in theCommonwealth and Ireland, while check is used only for other meanings, thus distinguishing the two definitions in writing.

In American English, the usual spelling for both is check.

[4]

There have been suggestions that the word chek comes from ancient Pahlavi languagewhich was used in the Achaemenid Empire in Persia.
[5]

It may have spread from there toArabic where saqq means a promise to pay a certain
[6]

amount of money for delivered goods. [edit]History See also: History of banking

The cheque had its origins in the ancient banking system, in which bankers would issue orders at the request of their customers, to pay money to identified payees. Such an order was referred to as a bill of exchange. The use of bills of exchange facilitated trade by eliminating the need for merchants to carry large quantities of currency (for example, gold) to purchase goods and services. [edit]Early years There are early evidences of using cheques (called chek in Middle Persian language) during Achaemenid Empire.
[5]

In India, during the Mauryan period (from 321 to 185 BC), a commercial instrument called adesha was in use, which was an order on a banker desiring him to pay the money of the note to a third person, which corresponds to the definition of a bill of exchange as we understand it today. During the Buddhist period, there was considerable use of these instruments. Merchants in large towns gave letters of credit to one another. There are also numerous references to promissory notes. The ancient Romans are believed
[8] [7]

to have used an early form of cheque known as praescriptiones in the 1st century BC.

Muslim traders are known to have used the cheque or akk system since the time of Harun al-Rashid (9th century) of the Abbasid Caliphate. Transporting a paper saqq was more secure than transporting money. In the 9th century, a merchant in country A could cash a saqq drawn on his bank in country B.
[6] [9]

Between 1118 and 1307, it is believed the Knights Templar introduced a cheque system for pilgrims travelling to the Holy Land or across Europe.
[10]

Pilgrims would deposit funds at one chapter house, then withdraw them from another chapter

at their destination by showing a draft of their claim. These drafts were written in a complex code only the Templars could decipher. In the 13th century in Venice the bill of exchange was developed as a legal device to allow international trade without the need to carry large amounts of gold and silver. Their use subsequently spread to other European countries. In the early 1500s in the Dutch Republic, to protect large accumulations of cash, people began depositing their money with "cashiers". These cashiers held the money for a fee. Competition drove cashiers to offer additional services including paying money to any person bearing a written order from a depositor to do so. They kept the note as proof of payment. This concepts went on and spread to England and elsewhere. [edit]Modern era By the 17th century, bills of exchange were being used for domestic payments in England. Cheques, a type of bill of exchange, then began to evolve. Initially they were called drawn notes, because they enabled a customer to draw on the funds that he or she had in the account with a bank and required immediate payment.
[12] [11]

These were handwritten, and

one of the earliest known still to be in existence was drawn on Messrs Morris and Clayton, scriveners and bankers based in the City of London, and dated 16 February 1659. In 1717, the Bank of England pioneered the first use of a pre-printed form. These forms were printed on "cheque paper" to prevent fraud, and customers had to attend in person and obtain a numbered form from the cashier. Once written, the cheque was brought back to the bank for settlement. The suppression of banknotes in eighteenth-century England further promoted the use of cheques.
[13]

Until about 1770, an informal exchange of cheques took place between London banks. Clerks of each bank visited all the other banks to exchange cheques, whilst keeping a tally of balances between them until they settled with each other. Daily cheque clearing began around 1770 when the bank clerks met at the Five Bells, a tavern in Lombard Street in the City of London, to exchange all their cheques in one place and settle the balances in cash. See bankers' clearing house for further historical developments. In 1811, the Commercial Bank of Scotland, it is thought, was the first bank to personalise its customers' cheques, by printing the name of the account holder vertically along the left-hand edge.
[14]

In 1830 the Bank of England introduced

books of 50, 100, and 200 forms and counterparts, bound or stitched. These cheque books became a common format for the distribution of cheques to bank customers. In the late 19th century, several countries formalised laws regarding cheques. The UK passed the Bills of Exchange Act in 1882, and India passed the Negotiable Instruments Act (NI Act) 1881;
[7]

which both covered cheques.

In 1931 an attempt was made to simplify the international use of cheques by the Geneva Convention on the Unification of the Law Relating to Cheques.
[15]

Many European and South American states as well as Japan joined the convention.

However, countries including the U.S. and members of the British Commonwealth, did not participate and so it remained very difficult for cheques to be used across country borders. In 1959 a standard for machine-readable characters (MICR) was agreed and patented in the U.S. for use with cheques. This opened the way for the first automated reader/sorting machines for clearing cheques. As automation increased, the following years saw a dramatic change in the way in which cheques were handled and processed. Cheque volumes continued to grow; in the late 20th century, cheques were the most popular non-cash method for making payments, with billions of them processed each year. Most countries saw cheque volumes peak in the late 1980s or early 1990s, after which electronic payment methods became more popular and the use of cheques declined. In 1969 cheque guarantee cards were introduced in several countries, allowing a retailer to confirm that a cheque would be honoured when used at a point of sale. The drawer would sign the cheque in front of the retailer, who would compare the signature to the signature on the card and then write the cheque-guarantee-card number on the back of the cheque. Such cards were generally phased out and replaced by debit cards, starting in the mid 1990s. From the mid 1990s, many countries enacted laws to allow for cheque truncation, in which a physical cheque is converted into electronic form for transmission to the paying bank or clearing-house. This eliminates the cumbersome physical presentation and saves time and processing costs. In 2002, the Eurocheque system was phased out and replaced with domestic checking systems as of 1 January 2002. Old eurocheques could still be used, however they were now processed by national checking systems. As of 2010, many countries have either phased out the use of cheques altogether or signaled that they would do so in the future. [edit]Parts of a cheque

Parts of a cheque based on a UK example 1. drawee, the financial institution where the cheque can be presented for payment 2. payee 3. date of issue 4. amount of currency 5. drawer, the person or entity making the cheque 6. signature of drawer 7. Machine readable routing and account information The four main items on a cheque are Drawer, the person or entity who makes the cheque Payee, the recipient of the money

Drawee, the bank or other financial institution where the cheque can be presented for payment Amount, the currency amount

As cheque usage increased during the 19th and 20th centuries additional items were added to increase security or to make processing easier for the bank or financial institution. A signature of the drawer was required to authorise the cheque and this is the main way to authenticate the cheque. Second it became customary to write the amount in words as well as in numbers to avoid mistakes and make it harder to fraudulently alter the amount after the cheque had been written. It is not a legal requirement to write down the amount in words, although some banks will refuse to accept cheques that do not have the amount in both numbers and words. An issue date was added, and cheques may not be valid a certain amount of time after issue. In the US Canada
[17] [18] [16]

and

a cheque is typically valid for six months after the date of issue, after which it is a stale-dated cheque, but this A cheque that has an issue date in

depends on where the cheque is drawn; in Australia this is typically fifteen months.

the future, a post-dated cheque, may not be able to be presented until that date has passed, writing a post dated cheque may simply be ignored or is illegal in some countries. Conversely, an antedated cheque has an issue date in the past. A cheque number was added and cheque books were issued so that cheque numbers were sequential. This allowed for some basic fraud detection by banks and made sure one cheque was not presented twice. In some countries such as the US, cheques contain a memo line where the purpose of the cheque can be indicated as a convenience without affecting the official parts of the cheque. In the United Kingdom this is not available and such notes are sometimes written on the reverse side of the cheque. In the US, at the top (when cheque oriented vertically) of the reverse side of the cheque, there are usually one or more blank lines labelled something like "Endorse here". Starting in the 1960s machine readable routing and account information was added to the bottom of cheques in MICR format. This allowed automated sorting and routing of cheques between banks and led to automated central clearing facilities. The information provided at the bottom of the cheque is country specific and is driven by each country's cheque clearing system. This meant that the payee no longer had to go to the bank that issued the cheque, instead they could deposit it at their own bank or any other banks and the cheque would be routed back to the originating bank and funds transferred to their own bank account. For additional protection, a cheque can be crossed so that funds must be paid into a bank account in the name of the payee. The format and wording varies from country to country, but generally two parallel lines and/or the words 'Account Payee' or similar may be placed either vertically across the cheque or in the top left hand corner. In addition the words 'or bearer' must be not be used or crossed out on the payee line. [edit]Attached documents Cheques sometimes include additional documents. A page in a chequebook may consist of both the cheque itself and a stub or counterfoil when the cheque is written, only the cheque itself is detached, and the stub is retained in the chequebook as a record of the cheque. Alternatively, cheques may be recorded in a separate ledger, such as at the back of a chequebook.

When a cheque is mailed, a separate letter or "remittance advice" may be attached to inform the recipient of the purpose of the cheque formally, which account receivable to credit the funds to. This is frequently done formally using a provided slip when paying a bill, or informally via a letter when sending an ad hoc cheque. [edit]Usage Parties to regular cheques generally include a drawer, the depositor writing a cheque; adrawee, the financial institution where the cheque can be presented for payment; and a payee, the entity to whom the drawer issues the cheque. The drawer drafts or draws a cheque, which is also called cutting a cheque, especially in the US. There may also be abeneficiaryfor example, in depositing a cheque with a custodian of a brokerage account, the payee will be the custodian, but the cheque may be marked "F/B/O" ("for the benefit of") the beneficiary. Ultimately, there is also at least one endorsee which would typically be the financial institution servicing the payee's account, or in some circumstances may be a third party to whom the payee owes or wishes to give money. Cheques may be valid regardless of denomination and are used within numerous scenarios in place of cash. A payee that accepts a cheque will typically deposit it in an account at the payee's bank, and have the bank process the cheque. In some cases, the payee will take the cheque to a branch of the drawee bank, and cash the cheque there. If a cheque is refused at the drawee bank (or the drawee bank returns the cheque to the bank that it was deposited at) because there are insufficient funds for the cheque to clear, it is said that the cheque has bounced. Once a cheque is approved and all appropriate accounts involved have been credited, the cheque is stamped with some kind of cancellation mark, such as a "paid" stamp. The cheque is now a cancelled cheque. Cancelled cheques are placed in the account holder's file. The account holder can request a copy of a cancelled cheque as proof of a payment. This is known as the cheque clearing cycle. Cheques can be lost or go astray within the cycle, or be delayed if further verification is needed in the case of suspected fraud. A cheque may thus bounce some time after it has been deposited. Following concerns about the amount of time it took banks to clear cheques, the United Kingdom Office of Fair Trading set up a working group in 2006 to look at the cheque clearing cycle. Their report
[19]

acknowledged that clearing

times could be improved, but that the costs associated with speeding up the cheque clearing cycle could not be justified considering the use of cheques was declining. However, they concluded the biggest problem was the unlimited time a bank could take to dishonor a cheque. To address this, changes were implemented so that the maximum time after a cheque was deposited that it could be dishonoured was six days, what was known as the "certainty of fate" principle; see Cheque and Credit Clearing Company and "2-4-6". An advantage to the drawer of using cheques instead of debit card transactions, is that they know the drawer's bank will not release the money until several days later. Paying with a cheque and making a deposit before it clears the drawer's bank is called "kiting" or "floating" and is generally illegal in the US, but rarely enforced unless the drawer uses multiple chequing accounts with multiple institutions to increase the delay or to steal the funds. [edit]Declining use Cheques have been in decline for some years, both for point of sale transactions (for which credit cards and debit cards are increasingly preferred) and for third party payments (for example, bill payments), where the decline has been accelerated by the emergence of telephone banking and online banking. Being paper-based, cheques are costly for banks

to process in comparison to electronic payments, so banks in many countries now discourage the use of cheques, either by charging for cheques or by making the alternatives more attractive to customers. Cheques are also more costly for the issuer and receiver of a cheque.
[citation needed]

In particular the handling of money transfer requires more effort and is time

consuming. The cheque has to be handed over on a personal meeting or has to be sent by mail. The rise of automated teller machines (ATMs) means that small amounts of cash are often easily accessible, so that it is sometimes unnecessary to write a cheque for such amounts instead. [edit]Alternatives to cheques In addition to cash there are number of other payment systems that have emerged to compete against cheques; 1. Debit card payments 2. Credit card payments 3. Direct debit (initiated by payee) 4. Direct credit (initiated by payer), ACH in US, giro in Europe, Direct Entry in Australia 5. Wire transfer (local and international) 6. Electronic bill payments using Internet banking 7. Online payment services (for example PayPal and WorldPay) [edit]Europe In most European countries, cheques are now rarely used, even for third party payments. In these countries, it is standard practice for businesses to publish their bank details on invoices, to facilitate the receipt of payments by giro. Even before the introduction of online banking, it has been possible in some countries to make payments to third parties using ATMs, which may accurately and rapidly capture invoice amounts, due dates, and payee bank details via a bar code reader to reduce keying. In some countries, entering the bank account number results in the bank revealing the name of the payee as an added safeguard against fraud. In using a cheque, the onus is on the payee to initiate the payment, whereas with a giro transfer, the onus is on the payer to effect the payment.
[clarification needed]

The process is also procedurally more simple,

as no cheques are ever posted, can claim to have been posted, or need banking or clearance. In Germany, Austria, the Netherlands, Belgium, and Scandinavia, cheques have almost completely vanished in favour of direct bank transfers and electronic payments. Direct bank transfers, using so-called giro transfers, have been standard procedure since the 1950s to send and receive regular payments like rent and wages and even mail-order invoices. In the Netherlands, Austria, and Germany, all kinds of invoices are commonly accompanied by socalled acceptgiro's (Netherlands) or berweisungen (German), which are essentially standardised bank transfer order forms preprinted with the payee's account details and the amount payable. The payer fills in his account details and hands the form to a clerk at his bank, which will then transfer the money. It is also very common to allow the payee to automatically withdraw the requested amount from the payer's account ( Lastschrifteinzug (German) or Incasso (machtiging)(Netherlands)). Though similar to paying by cheque, the payee only needs the payer's bank and account number. Since the early 1990s, this method of payment has also been available to merchants. Due to this, credit cards are rather uncommon in Germany, Austria and the Netherlands, and are mostly used to give access to credit rather than as a payment mechanism. However, debit cards are widespread in these countries, since virtually all Austrian, German and Dutch banks issue debit cards instead of simple ATM cardsfor use on current accounts. Acceptance of cheques has

been further diminished since the late 1990s, because of the abolition of theEurocheque. Cashing a foreign bank cheque is possible, but usually very expensive. In Finland, banks stopped issuing personal cheques in about 1993 in favour of giro systems, which are now almost exclusively electronically initiated either via internet banking or payment machines located at banks and shopping malls. All Nordic countries have used an interconnected international giro system since the 1950s, and in Sweden, cheques are now almost totally abandoned. Electronic payments across the European Union are now fast and inexpensive usually free for consumers. In Poland cheques were withdrawn from use in 2006, mainly because of lack of popularity due to the widespread adoption of credit anddebit cards. In the United Kingdom, Ireland, and France, some people still use cheques, partly because cheques remain free of charge to personal customers; however, bank-to-bank transfers are increasing in popularity. Since 2001, businesses in the United Kingdom have made more electronic payments than cheque payments.
[20]

Most utilities in the United Kingdom charge

lower prices to customers who pay bydirect debit than for other payment methods, including electronic methods. The vast majority of retailers in the United Kingdom and many in France no longer accept cheques as a means of payment. For example Shell announced in September 2005 that it would no longer accept cheques in its UK petrol stations.
[22] [21]

More

recently, this has been followed by other major fuel retailers, such as Texaco,BP, and Total. Asda announced in April 2006 that it would stop accepting cheques, initially as a trial in the London area, and Bootsannounced in September
[23]

2006 that it would stop accepting cheques, initially as a trial in Sussex and Surrey.

Currys (and other stores in the DSGi

group) and WH Smith also no longer accept cheques. Cheques are now widely predicted to become a thing of the past, or at most, a niche product used to pay private individuals or for the very large number of small service providers who are not used to providing their bank details to customers to allow electronic payments to be made to them, and/or do not wish to be burdened with checking their bank account frequently and reconciling their contents with amounts due (for example, music teachers, driving instructors, children's sports lessons, small shops, schools).
[24]

The UK Payments

Council announced in December 2009 that cheques would be phased out by October 2018, but only if adequate alternatives are developed. They intended to perform annual checks on the progress of other payments systems and a final review of the decision would have been held in 2016.
[25]

Concerns were expressed, however, by charities and older

[26]

people, who are still heavy users of cheques, and replacement plans have been criticised as open to fraud.
[27]

However it

was announced by the UK Payment's Council in July 2011 that the cheque will not be eliminated as a paper-initiated payment.

[edit]North America The US still relies heavily on cheques, due to the convenience it affords payers, and due to the absence of a high volume system for low value electronic payments.
[28]

About 70 billion cheques were written annually in the US by 2001,

[29]

[28]

though

around 17 million adult Americans do not have bank accounts at all.

[citation needed]

When sending a payment by online banking in the

US at some banks, the sending bank mails a cheque to the payee's bank or to the payee rather than sending the funds electronically. Certain companies whom a person pays with a cheque will turn it into an Automated Clearing

House (ACH) or electronic transaction. Banks try to save time processing cheques by sending them electronically between banks. Cheque clearing is usually done through an electronic cheque broker, such as The Clearing House, Viewpointe LLC or the Federal Reserve Banks. Copies of the cheques are stored at a bank or the broker, for periods up to

99 years, and this is why some cheque archives have grown to 20 petabytes. The access to these archives is now world wide, as most bank programming is now done offshore. Many utilities and most credit cards will also allow customers to pay by providing bank information and having the payee draw payment from the customer's account (direct debit). Many people in the US still use paper money orders to pay bills or transfer money which is a unique type of cheque. They have security advantages over mailing cash, and do not require access to a bank account.
[28]

Canada's usage of cheques is slightly less than that of the US. The Interac system, which allows instant fund transfers via chip ormagnetic strip and PIN, is widely used by merchants to the point that few brick and mortar merchants accept cheques. Many merchants accept Interac debit payments but not credit card payments, even though most Interac terminals can support credit card payments. Financial institutions also facilitate transfers between accounts within different institutions with the Email Money Transfer(EMT) service. Cheques are still widely used for government cheques, payroll, rent, and utility bill payments, though direct deposits and online/telephone bill payments are also widely offered. [edit]Asia In many Asian countries cheques were never widely used and generally only used by the wealthy, with cash being used for the majority of payments. Where cheques were used they have been declining rapidly, by 2009 there was negligible consumer cheque usage in Japan, South Korea and Taiwan. This declining trend was accelerated by these developed markets advanced financial services infrastructure. Many of the developing markets have seen an increasing use of electronic payment systems, 'leap-frogging' the less efficient chequing system altogether.
[30]

India had a long tradition of using cheques, it passed laws to formalise cheque usage in 1881, and was one of the Asian countries that did have significant cheque usage. As of 2009 there was wide usage of cheques as payment method in trade, and also by individuals as preferred option to pay other individuals or to pay utility bills. One of the reasons was that banks usually provided cheques for free to their individual account holders. However cheques are now rarely accepted at point of sale in retail stores where cash and cards are payment methods of choice. Electronic payment transfer continued to gain popularity in India and like other countries this has caused a subsequent reduction in volumes of cheques issued each year. [edit]Oceania In Australia, following global trends, the use of cheques continues to decline. In 1994 the value of daily cheque transactions was A$25 billion; by 2004 this had dropped to only A$5 billion, almost all of this for B2B transactions. Personal cheque use is practically non-existent thanks to the longstanding use of the EFTPOS system, BPay, Electronic transfers and debit cards. In New Zealand, payments by cheque have declined since the mid-1990s in favour of electronic payment methods. In 1993, cheques accounted for over half of transactions through the national banking system, with an annual average of 130 cheques per capita. Cheques now lag behind of EFTPOS (debit card) transaction and electronic credits, in 2006 making up only nine percent of transactions, with an annual average of 41 cheque transaction per capita.
[32] [31]

Most retail

stores no longer accept cheques, and those that do often require government-issued identification or a store-issued "cheque identification card" before they can be accepted as payment. [edit]Variations on regular cheques

In addition to regular cheques, a number of variations were developed to address specific needs or to address issues when using a regular cheque. [edit]Cashiers cheques and bank drafts Main article: Cashier's check Cashier's cheques and banker's drafts also known as a bank cheque, treasurer's cheque or banker's cheque, are cheques issued against the funds of a financial institution rather than an individual account holder. Typically, the term cashier's cheques are used in the US and banker's drafts are used in the UK. The mechanism differs slightly from country to country but in general the bank issuing the cashiers cheque or bankers draft will allocate the funds at the point the cheque is drawn. This provides a guarantee, save for a failure of the bank, that it will be honoured. Cashier's cheques are perceived to be as good as cash but they are still a cheque, a misconception sometimes exploited by scam artists. A lost or stolen cheque can still be stopped like any other cheque, so payment is not completely guaranteed. [edit]Certified cheque Main article: Certified cheque When a certified cheque is drawn, the bank operating the account verifies there are currently sufficient funds in the drawer's account to honour the cheque. Those funds are then set aside in the bank's internal account until the cheque is cashed or returned by the payee. Thus, a certified cheque cannot "bounce", and its liquidity is similar to cash, absent failure of the bank. The bank indicates this fact by making a notation on the face of the cheque (technically called an acceptance). [edit]Payroll cheque Main article: Paycheck A cheque used to pay wages may be referred to as a payroll cheque. Even when the use of cheques for paying wages and salaries became rare, the vocabulary "pay cheque" still remained commonly used to describe the payment of wages and salaries. Payroll cheques issued by the military to soldiers, or by some other government entities to their employees, beneficiants, and creditors, are referred to as warrants. [edit]Warrants Main article: Warrant of payment Warrants look like cheques and clear through the banking system like cheques, but are not drawn against cleared funds in a deposit account. A cheque differs from a warrant in that the warrant is not necessarily payable on demand and may not be negotiable.
[33]

They are often issued by government entities such as the military to pay wages or suppliers. In this

case they are an instruction to the entity's treasurer department to pay the warrant holder on demand or after a specified maturity date. [edit]Travellers cheque Main article: Traveller's cheque A traveller's cheque is designed to allow the person signing it to make an unconditional payment to someone else as a result of paying the account holder for that privilege. Traveller's cheques can usually be replaced if lost or stolen, and people often used to use them on vacation instead of cash as many businesses used to accept traveller's cheques as currency. The use of credit or debit cards has begun to replace the traveller's cheque as the standard for vacation money

due to their convenience and additional security for the retailer. This has resulted in many businesses no longer accepting traveller's cheques. [edit]Money or postal order Main articles: Money order and Postal order A cheque sold by a post office or merchant such as a grocery store for payment by a third party for a customer is referred to as amoney order or postal order. These are paid for in advance when the order is drawn and are guaranteed by the institution that issues them and can only be paid to the named third party. This was a common way to send low value payments to third parties, avoiding the risks associated with sending cash via the mail, prior to the advent of electronic payment methods. [edit]Oversized cheques Oversized cheques are often used in public events such as donating money to charity or giving out prizes such as Publishers Clearing House. The cheques are commonly 18 by 36 inches (46 cm 91 cm) in size,
[34] [35]

however, Regardless of the

according to the Guinness Book of World Records, the largest ever is 12 by 25 metres (39 ft 82 ft).
[36]

size, such cheques can still be redeemed for their cash value as long as they have the same parts as a normal cheque, although usually the oversized cheque is kept as a souvenir and a normal cheque is provided. additional charges for clearing an oversized cheque. [edit]Payment vouchers In the US some public assistance programs such as the Special Supplemental Nutrition Program for Women, Infants and Children, or Aid to Families with Dependent Children makevouchers available to their beneficiaries, which are good up to a certain monetary amount for purchase of grocery items deemed eligible under the particular programme. The voucher can be deposited like any other cheque by a participating supermarket or other approved business. [edit]Cheques around the world [edit]Australia The Cheques Act 1986 is the body of law governing the issuance of cheques and payment orders in Australia. Procedural and practical issues governing the clearance of cheques and payment orders are handled by Australian Payments Clearing Association (APCA). In 1999, banks adopted a system to allow faster clearance of cheques by electronically transmitting information about cheques, this brought clearance times down from five to three days. Prior to that cheques had to be physically transported to the paying bank before processing began. If it was dishonoured, it was physically returned. All licensed banks in Australia may issue cheques in their own name. Non-banks are not permitted to issue cheques in their own name but may issue, and have drawn on them, payment orders (which functionally are no different from cheques). [edit]Canada In Canada, cheque sizes and typesas well as endorsements requirements and MICR tolerances are overseen by the Canadian Payments Association (CPA) It is possible to write cheques in currencies (using the standardised ISO currency names) that are not in Canadian Dollars. A bank may levy

Canadian cheques can legally be written in English or French or EskimoAleut languages. Personal cheques in Canada are sold directly from financial institutions through commercial suppliers. Business cheques in Canada are also sold directly through financial institutions at the branch or online through commercial suppliers. A tele-cheque is a paper payment item that resembles a cheque except that it is neither created nor signed by the payerinstead it is created (and may be signed) by a third party on behalf of the payer. Under CPA Rules these are prohibited in the clearing system effective 27 January 2004.

[edit]India The Cheque was introduced in India by the Bank of Hindustan, the first joint stock bank established in 1770. In 1881, the Negotiable Instruments Act (NI Act) was enacted in India, formalising the usage and characteristics of instruments like the cheque the bill of exchange and promissory note. The NI Act provided a legal framework for non-cash paper payment instruments in India.
[7]

In 1938, the Calcutta Clearing Banks' Association, which was the largest bankers' association at
[7]

that time, adopted clearing house.

Until the 1st of April 2012, cheques in India were valid for a period of six months from the date of their issue, before the Reserve Bank of India issued a notification reducing their validity to three months from the date of issue. [edit]New Zealand Instrument-specific legislation includes the Cheques Act 1960, part of the Bills of Exchange Act 1908, which codifies aspects related to the cheque payment instrument, notably the procedures for the endorsement, presentment and payment of cheques. A 1995 amendment provided for the electronic presentment of cheques and removed the previous requirement to deliver cheques physically to the paying bank, opening the way for cheque truncation and imaging. Truncation allows for the transmission of an electronic image of all or part of the cheque to the paying banks branch, instead of the cumbersome physical presentment. This reduced the total cheque clearance time, as well as eliminating the costs of physically moving the cheque. The registered banks under supervision of Reserve Bank of New Zealand provide the cheque payment services. Once banked, cheques are processed electronically together with other retail payment instrument. [edit]United Kingdom In the UK all cheques must now conform to "Cheque and Credit Clearing Company (C&CCC) Standard 3", the industry standard detailing layout and font, be printed on a specific weight of paper (CBS1), and contain explicitly defined security features. Since 1995, all cheque printers must be members of the Cheque Printer Accreditation Scheme (CPAS). The scheme is managed by the Cheque and Credit Clearing Company and requires that all cheques for use in the British clearing process are produced by accredited printers who have adopted stringent security standards. The rules concerning crossed cheques are set out in Section 1 of the Cheques Act 1992 and prevent cheques being cashed by or paid into the accounts of third parties. On a crossed cheque the words account payee only (or similar) are printed between two parallel vertical lines in the centre of the cheque. This makes the cheque non-transferable and is to avoid cheques being endorsed and paid into an account other than that of the named payee. Crossing cheques basically ensures that the money is paid into an account of the intended beneficiary of the cheque.
[37]

Following concerns about the amount of time it took banks to clear cheques, the United Kingdom Office of Fair Trading set up a working group in 2006 to look at the cheque clearing cycle. They produced a report maximum times for the cheque clearing which were introduced in UK from November 2007.
[38] [19]

recommending

In the report the date the

credit appeared on the recipient's account (usually the day of deposit) was designated "T". At "T + 2" (two business days afterwards) the value would count for calculation of credit interest or overdraft interest on the recipient's account. At "T + 4" clients would be able to withdraw funds on current accounts or at "T + 6" on savings accounts (though this will often happen earlier, at the bank's discretion). "T + 6" is the last day that a cheque can bounce without the recipient's permissionthis is known as "certainty of fate". Before the introduction of this standard (also known as 2-4-6 for current accounts and 2-6-6 for savings accounts), the only way to know the "fate" of a cheque has been "Special Presentation", which would normally involve a fee, where the drawee bank contacts the payee bank to see if the payee has that money at that time. "Special Presentation" needed to be stated at the time of depositing in the cheque. Cheque volumes peaked in 1990 when four billion cheque payments were made. Of these, 2.5 billion were cleared through the inter-bank clearing managed by the C&CCC, the remaining 1.5 billion being in-house cheques which were either paid into the branch on which they were drawn or processed intra-bank without going through the clearings. As volumes started to fall, the challenges faced by the clearing banks were then of a different nature: how to benefit from technology improvements in a declining business environment. Although the UK did not adopt the euro as its national currency when other European countries did in 1999, many banks began offering euro denominated accounts with chequebooks, principally to business customers. The cheques can be used to pay for certain goods and services in the UK. The same year, the C&CCC set up the euro cheque clearing system to process euro denominated cheques separately from sterling cheques in Great Britain. The UK Payments Council from 30 June 2011 withdrew the existing Cheque Guarantee Card Scheme in the UK.
[39]

This

service allowed cheques to be guaranteed at point of sales up to a certain value, normally 50 or 100, when signed in front of the retailer with the additional cheque guarantee card. This was after a long period of decline in their use in favour of debit cards. The Payments Council proposed to close the centralised cheque clearing altogether in the UK and had set a target date for this of 31 October 2018.
[40]

However, on 12 July 2011, the Payments Council announced that after opposition from
[27]

MPs, charity groups and public opinion, the cheque will remain in use and there would no longer be a reason to seek an alternative paper-initiated payment. [edit]United States In the US, cheques (spelled "checks") are governed by Article 3 of the Uniform Commercial Code, under the rubric of negotiable instruments.
[41]

An order check the most common form in the US is payable only to the named payee or his or her endorsee, as it usually contains the language "Pay to the order of (name)." A bearer check is payable to anyone who is in possession of the document: this would be the case if the cheque does not state a payee, or is payable to "bearer" or to "cash" or "to the order of cash", or if the cheque is payable to someone who is not a person or legal entity, for example if the payee line is marked "Happy Birthday".

A counter check is a bank cheque given to customers who have run out of cheques or whose cheques are not yet available. It is often left blank hence sometimes called a "blank check", though this term has other uses and is used for purposes of withdrawal.

In the US, the terminology for a cheque historically varied with the type of financial institution on which it is drawn. In the case of asavings and loan association it was a negotiable order of withdrawal (compare Negotiable Order of Withdrawal account); if a credit unionit was a share draft. Checks were associated with chartered commercial banks. However, common usage has increasingly conformed to more recent versions of Article 3, where check means any or all of these negotiable instruments. Certain types of cheques drawn on a government agency, especially payroll cheques, may be called a payroll warrant. At the bottom of each cheque there is the routing / account number in MICR format. The routing transit number is a ninedigit number in which the first four digits identifies the US Federal Reserve Bank's cheque-processing center. This is followed by digits 5 through 8, identifying the specific bank served by that cheque-processing center. Digit 9 is a verification check digit, computed using a complex algorithm of the previous eight digits.
[42]

Typically the routing number is followed by a group of eight or nine MICR digits that indicates the particular account number at that bank. The account number is assigned independently by the various banks. Typically the account number is followed by a group of three or four MICR digits that indicates a particular cheque number from that account. fractional routing number (U.S. only)also known as the transit number, consists of a denominator mirroring the first four digits of the routing number. And a hyphenated numerator, also known as the ABA number, in which the first part is a city code (149), if the account is in one of 49 specific cities, or a state code (5099) if it is not in one of those specific cities; the second part of the hyphenated numerator mirrors the 5th through 8th digits of the routing number with leading zeros removed.
[42]

A draft is a bill of exchange which is not payable on demand of the payee. (However, draft in the US Uniform Commercial Code today means any bill of exchange, whether payable on demand or at a later date; if payable on demand it is a "demand draft", or if drawn on a financial institution, a cheque.) The electronic check or substitute check was formally adopted in the US in 2004 with the passing of the "Check Clearing for the 21st Century Act" (or Check 21 Act). This allowed the creation of electronic checks and translation ( truncation) of paper checks into electronic replacements, reducing cost and processing time. [edit]Turkey Within the frame of the liberal economy, trade and commercial relations between merchants are carried out by means of post-dated cheques in Turkey. According to Article 38/8 of the Turkish Constitution, as amended in 2001 taking into regard the European Convention on Human Rights, "no one can be detained from his/her freedom due to only his/her failure to fulfill a contractual liability. As such, prohibition of detainment of freedom due to only failure to fulfill a contractual liability (i.e., provi sion for no imprisonment for debt) has been added to the Turkish constitution. This provision, taken from the Article 1 of the Protocol constituting the 4th Annex to European Human Rights Convention, underlines that imprisonment due to failure to perform a contractual relation will be contrary to the human freedom and honour.

According to the current laws in Turkey, the businessmen who are unable to pay their cheques are sentenced to imprisonment. If this is their first incident, the person who gives out a kite cheque is punished with a Judicial Fine equal to the amount written on each kite cheque and is sentenced to imprisonment only if he/she is unable to pay such Judicial Fine. To be more specific, the Judicial Fines in Turkey are fines that are paid to the Treasury of the State. In case a person indebted to the Treasury of the State because of a Judicial Fine is unable to make this payment within 30 days, he/she is punished by imprisonment for such number of days, which cannot exceed 730, equal to any unpaid amount divided by a figure varying between TL 20,- and 100,- to be determined by the judge based on the financial and other conditions of the debtor.

However, if the incident repeats, the person is then directly sentenced to imprisonment from 1 to 5 years. (linking related: Victims of Cheque (ek Madurlar): protest the actions of civil society organizations. ) Some of the merchants facing these conditions as a result of a penalty contrary to both the European Convention on Human Rights and the human honour commit suicide. [edit]Japan In Japan, cheques are called Kogitte ( ), and are governed by Kogitte Law. Bounced cheques are called Fuwatari Kogitte ( ). If an account owner bounces two cheques in six months, the bank will suspend the account for two years. If the account belongs to a public company, their stock will also be suspended from trading on the stock exchange, which can lead to bankruptcy. [edit]Cheque fraud Main article: Cheque fraud Cheques have been a tempting target for criminals to steal money or goods from the drawer, payee or the banks. A number of measures have been introduced to combat fraud over the years. These range from things like writing a cheque so it is difficult to alter after it is drawn, to mechanisms like crossing a cheque so that it can only be paid into another bank's account providing some traceability. However, the inherent security weaknesses of cheques as a payment method, such as having only the signature as the mainauthentication method and not knowing if funds will be received until the clearing cycle to complete, have made them vulnerable to a number of different types of fraud; [edit]Embezzlement Taking advantage of the float period (cheque kiting) to delay the notice of non-existent funds. This often involves trying to convince a merchant or other recipient, hoping the recipient will not suspect that the cheque will not clear, giving time for the fraudster to disappear. [edit]Forgery Sometimes, forgery is the method of choice in defrauding a bank. One form of forgery involves the use of a victim's legitimate cheques, that have either been stolen and then cashed, or altering a cheque that has been legitimately written to the perpetrator, by adding words and/or digits to inflate the amount. [edit]Identity theft Since cheques include significant personal information (name, account number, signature and in some countries driver's license number, the address and/or phone number of the account holder), they can be used for fraud, specifically identity
? ?

theft. In the US and Canada until recent years the social security number was sometimes included on cheques. The practice was discontinued as identity theft became widespread. [edit]Dishonoured cheques A dishonoured cheque cannot be redeemed for its value and is worthless; they are also known as an RDI (returned deposit item), orNSF (non-sufficient funds) cheque. Cheques are usually dishonoured because the drawer's account has been frozen or limited, or because there are insufficient funds in the drawer's account when the cheque was redeemed. A cheque drawn on an account with insufficient funds is said to have bounced and may be called a rubber cheque.
[43]

Banks

will typically charge customers for issuing a dishonoured cheque, and in some jurisdictions such an act is a criminal action. A drawer may also issue a stop on a cheque, instructing the financial institution not to honour a particular cheque. In England and Wales, they are typically returned marked "Refer to Drawer"an instruction to contact the person issuing the cheque for an explanation as to why the cheque was not honoured. This wording was brought in after a bank was successfully sued for libel after returning a cheque with the phrase "Insufficient Funds" after making an error the court ruled that as there were sufficient funds the statement was demonstrably false and damaging to the reputation of the person issuing the cheque. Despite the use of this revised phrase, successful libel lawsuits brought against banks by individuals remained for similar errors.
[44]

In Scotland, a cheque acts as an assignment of the amount of money to the payee. As such, if a cheque is dishonoured in Scotland, what funds are present in the bank account are "attached" and frozen, until either sufficient funds are credited to the account to pay the cheque, the drawer recovers the cheque and hands it into the bank, or the drawer obtains a letter from the payee stating that they have no further interest in the cheque. A cheque may also be dishonored because it is stale or not cashed within a "void after date". Many cheques have an explicit notice printed on the cheque that it is void after some period of days. In the US, banks are not required by the Uniform Commercial Code to honour a stale-dated cheque, which is a cheque presented six months after it is dated.
[16]

[edit]Lock box Main article: Lock box Typically when customers pay bills with cheques (like gas or water bills), the mail will go to a "lock box" at the post office. There a bank will pick up all the mail, sort it, open it, take the cheques and remittance advice out, process it all through electronic machinery, and post the funds to the proper accounts. In modern systems, taking advantage of the Check 21 Act, as in the US, many cheques are transformed into electronic objects and the paper is destroyed. [edit]See also

Online banking From Wikipedia, the free encyclopedia (Redirected from Internet banking) Online banking (or Internet banking or E-banking) allows customers of a financial institution to conduct financial transactions on a secure website operated by the institution, which can be a retail or virtual bank, credit union or building society.

To access a financial institution's online banking facility, a customer having personal Internet access must register with the institution for the service, and set up some password (under various names) for customer verification. The password for online banking is normally not the same as for telephone banking. Financial institutions now routinely allocate customer numbers (also under various names), whether or not customers intend to access their online banking facility. Customer numbers are normally not the same as account numbers, because a number of accounts can be linked to the one customer number. The customer will link to the customer number any of those accounts which the customer controls, which may be cheque, savings, loan, credit card and other accounts. Customer numbers will also not be the same as any debit or credit card issued by the financial institution to the customer. To access online banking, the customer would go to the financial institution's website, and enter the online banking facility using the customer number and password. Some financial institutions have set up additional security steps for access, but there is no consistency to the approach adopted. [edit]Features Online banking facilities offered by various financial institutions have many features and capabilities in common, but also have some that are application specific. The common features fall broadly into several categories A bank customer can perform some non-transactional tasks through online banking, including viewing account balances viewing recent transactions downloading bank statements, for example in PDF format viewing images of paid cheques ordering cheque books download periodic account statements Downloading applications for M-banking, E-banking etc.

Bank customers can transact banking tasks through online banking, including Funds transfers between the customer's linked accounts Paying third parties, including bill payments (see, e.g., BPAY) and telegraphic/wire transfers Investment purchase or sale Loan applications and transactions, such as repayments of enrollments Register utility billers and make bill payments

Financial institution administration Management of multiple users having varying levels of authority Transaction approval process

Some financial institutions offer unique Internet banking services, for example Personal financial management support, such as importing data into personal accounting software. Some online banking platforms support account aggregation to allow the customers to monitor all of their accounts in one place whether they are with their main bank or with other institutions.

[edit]History The precursor for the modern home online banking services were the distance banking services over electronic media from the early 1980s. The term online became popular in the late '80s and referred to the use of a terminal, keyboard and TV (or monitor) to access the banking system using a phone line. Home banking can also refer to the use of a numeric keypad to send tones down a phone line with instructions to the bank. Online services started in New York in 1981 when four of the citys major banks (Citibank, Chase Manhattan,Chemical and Manufacturers Hanover) offered home banking services
[1][2][3]

using the videotex system. Because of the commercial failure of videotex these banking services never

became popular except in France where the use of videotex (Minitel) was subsidised by the telecom provider and the UK, where the Prestel system was used. The UK's first home online banking services was set up by Bank of Scotland for customers of the Nottingham Building Society (NBS) in 1983. The system used was based on the UK's Prestel system and used a computer, such as the BBC Micro, or keyboard (Tandata Td1400) connected to the telephone system and television set. The system (known as 'Homelink') allowed on-line viewing of statements, bank transfers and bill payments. In order to make bank transfers and bill payments, a written instruction giving details of the intended recipient had to be sent to the NBS who set the details up on the Homelink system. Typical recipients were gas, electricity and telephone companies and accounts with other banks. Details of payments to be made were input into the NBS system by the account holder via Prestel. A cheque was then sent by NBS to the payee and an advice giving details of the payment was sent to the account holder. BACS was later used to transfer the payment directly. Stanford Federal Credit Union was the first financial institution to offer online internet banking services to all of its members in October 1994.
[citation needed]

Today, many banks are internet only banks. Unlike their predecessors, these internet only banks do not maintain brick and mortar bank branches. Instead, they typically differentiate themselves by offering better interest rates and more extensive online banking features. Security Security of a customer's financial information is very important, without which online banking could not operate. Financial institutions have set up various security processes to reduce the risk of unauthorised online access to a customer's records, but there is no consistency to the various approaches adopted. The use of a secure website has become almost universally adopted. Though single password authentication is still in use, it by itself is not considered secure enough for online banking in some countries. Basically there are two different security methods in use for online banking. The PIN/TAN system where the PIN represents a password, used for the login and TANs representing one-time passwords to authenticate transactions. TANs can be distributed in different ways, the most popular one is to send a list of TANs to the online banking user by postal letter. The most secure way of using TANs is to generate them by need using a security token.
[citation needed]

These token generated TANs depend on the time and a unique secret, stored

in the security token (two-factor authentication or 2FA). Usually online banking with PIN/TAN is done via a web browser using SSL secured connections, so that there is no additional encryption needed.

Another way to provide TANs to an online banking user is to send the TAN of the current bank transaction to the user's (GSM) mobile phone via SMS. The SMS text usually quotes the transaction amount and details, the TAN is only valid for a short period of time. Especially in Germany, Austria and The Netherlands, many banks have adopted this "SMS TAN" service as it is considered very secure. Signature based online banking where all transactions are signed and encrypted digitally. The Keys for the signature generation and encryption can be stored on smartcards or any memory medium, depending on the concrete implementation. [edit]Attacks Most of the attacks on online banking used today are based on deceiving the user to steal login data and valid TANs. Two well known examples for those attacks are phishing and pharming. Cross-site scripting and keylogger/Trojan horses can also be used to steal login information. A method to attack signature based online banking methods is to manipulate the used software in a way, that correct transactions are shown on the screen and faked transactions are signed in the background. A 2008 U.S. Federal Deposit Insurance Corporation Technology Incident Report, compiled from suspicious activity reports banks file quarterly, lists 536 cases of computer intrusion, with an average loss per incident of $30,000. That adds up to a nearly $16-million loss in the second quarter of 2007. Computer intrusions increased by 150 percent between the first quarter of 2007 and the second. In 80 percent of the cases, the source of the intrusion is unknown but it occurred during online banking, the report states.
[4]

The most recent kind of attack is the so-called Man in the Browser attack, where a Trojan horse permits a remote attacker to modify the destination account number and also the amount. [edit]Countermeasures There exist several countermeasures which try to avoid attacks. Digital certificates are used against phishing and pharming, the use of class-3 card readers is a measure to avoid manipulation of transactions by the software in signature based online banking variants. To protect their systems against Trojan horses, users should use virus scanners and be careful with downloaded software or e-mail attachments. In 2001 the U.S. Federal Financial Institutions Examination Council issued guidance for multifactor authentication (MFA) and then required to be in place by the end of 2006. [edit]See also
[5]

Pigmy Deposit Scheme Pigmy Deposit Scheme is a monetary deposit scheme introduced by Syndicate Bank, India. Money can be deposited into an account on daily basis. The amount may be as small as Rupees Ten. It can be called a recurring deposit scheme, as the money is deposited almost daily. The unique characteristic of this scheme is that a bank agent collects the money daily, from the account holder's doorstep. This scheme was introduced by Syndicate Bank headquartered at Manipal, Udupi district of India. The scheme was introduced to help daily wage earners, small traders and farmers to inculcate a saving habits and also as a means to fund

their bigger capital requirements, such as a wedding, home buying, vehicle purchase etc. The scheme is now offered by several other banks in India. They were treated as part and parcel of the banking and trading system often carrying legitimate and confidential market and trading information within the network and contributed to the development of stock exchanges. The trading system is not complete without recognising them as the pillars of funds deposit system, in India; especially. As they were enjoying high level of confidence amongst the business community they even took part in personal affairs of traders-big and small and also took part in various social activities again within the network. Many a competition were held to recognise the efforts of these tiny soldiers armed with highly noticeable market or marketing skills that led to the popularity of Pigmy Deposit Collection system in India. It is learned from reliable sources that the Pigmy System is being introduced overseas and U.A.E has given it a modern name "mobile banking". It will be not a surprise if Western Bankers gave a serious thought in introducing this as it will generate revenue, market enthusiasm and works as a defense mechanism should a bank be in need of one.... This also generated huge deposits over a period and also created long-term and sustainable employment to youth who like freedom and also enjoy mingling with market enthusiasts as well as in creating market sensation (sometimes). "A day or evening is not complete without the visit of these Pigmy collectors on the premises of a trader or the depositor". Mobile banking Mobile banking is a system that allows customers of a financial institution to conduct a number of financial transactions through a mobile device such as a mobile phone orpersonal digital assistant. Mobile banking differs to mobile payments which involves the use of a mobile device to pay for goods or services either at the point of sale or remotely,
[1]

analogously to the use of a debit or credit card to effect an EFTPOS payment.

The earliest mobile banking services were offered over SMS, a service known as SMS banking. With the introduction of smart phones with WAP support enabling the use of themobile web in 1999, the first European banks started to offer mobile banking on this platform to their customers.
[2]

Mobile banking has until recently (2010) most often been performed via SMS or the mobile web. Apple's initial success with iPhone and the rapid growth of phones based on Google'sAndroid (operating system) have led to increasing use of special client programs, called apps, downloaded to the mobile device. With that said, advancements in web technologies such as HTML5, CSS3 and JavaScript have seen more banks launching mobile web based services to complement native applications. A recent study (May 2012) by Mapa Research suggests that over a third of banks
[3]

have mobile

device detection upon visiting the banks' main website. A number of things can happen on mobile detection such as redirecting to an app store, redirection to a mobile banking specific website or providing a menu of mobile banking options for the user to choose from. [edit]A mobile banking conceptual model In one academic model,
[4]

mobile banking is defined as:

Mobile Banking refers to provision and availment of banking- and financial services with the help of mobile telecommunication devices.The scope of offered services may include facilities to conduct bank and stock market transactions, to administer accounts and to access customised information." According to this model mobile banking can be said to consist of three inter-related concepts: Mobile accounting Mobile brokerage Mobile financial information services

Most services in the categories designated accounting and brokerage are transaction-based. The non-transaction-based services of an informational nature are however essential for conducting transactions - for instance, balance inquiries might be needed before committing a money remittance. The accounting and brokerage services are therefore offered invariably in combination with information services. Information services, on the other hand, may be offered as an independent module. Mobile banking may also be used to help in business situations as well as financial [edit]Mobile banking services Typical mobile banking services may include: [edit]Account information 1. Mini-statements and checking of account history 2. Alerts on account activity or passing of set thresholds 3. Monitoring of term deposits 4. Access to loan statements 5. Access to card statements 6. Mutual funds / equity statements 7. Insurance policy management 8. Pension plan management 9. Status on cheque, stop payment on cheque 10. Ordering cheque books 11. Balance checking in the account 12. Recent transactions 13. Due date of payment (functionality for stop, change and deleting of payments) 14. PIN provision, Change of PIN and reminder over the Internet 15. Blocking of (lost, stolen) cards 16. Locating nearest bank branch,ATMs [edit]Payments, deposits, withdrawals, and transfers 1. Cash-in, cash-out transactions on an ATM 2. Domestic and international fund transfers 3. Micro-payment handling

4. Mobile & Direct to Home package recharging 5. Purchasing tickets for travel and entertainment 6. Commercial payment processing 7. Bill payment processing 8. Peer to Peer payments (e.g., Popmoney, Isis) 9. Withdrawal at banking agent 10. Deposit at banking agent A specific sequence of SMS messages will enable the system to verify if the client has sufficient funds in his or her wallet and authorize a deposit or withdrawal transaction at the agent. When depositing money, the merchant receives cash and the system credits the client's bank account or mobile wallet. In the same way the client can also withdraw money at the merchant: through exchanging sms to provide authorization, the merchant hands the client cash and debits the merchant's account. Kenya's M-PESA mobile banking service, for example, allows customers of the mobile phone operator Safaricom to hold cash balances which are recorded on their SIM cards. Cash may be deposited or withdrawn from M-PESA accounts at Safaricom retail outlets located throughout the country, and may be transferred electronically from person to person as well as used to pay bills to companies. One of the most innovative applications of mobile banking technology is Zidisha, a US-based nonprofit microlending platform that allows residents of developing countries to raise small business loans from web users worldwide. Zidisha uses mobile banking for loan disbursements and repayments, transferring funds from lenders in the United States to the borrowers in rural Africa using nothing but the internet and mobile phones.
[5]

In Cte d'Ivoire, Orange has a commercial offer which allows subscribers to use ATMs to top up their mobile wallet account. Due to very flexible and modular sicap software, it is easy to add future options such as the payment of utility bills or insurance premium. [edit]Investments 1. Portfolio management services 2. Real-time stock quotes 3. Personalized alerts and notifications on security prices [edit]Support 1. Status of requests for credit, including mortgage approval, and insurance coverage 2. Check (cheque) book and card requests 3. Exchange of data messages and email, including complaint submission and tracking 4. ATM Location [edit]Content services 1. General information such as weather updates, news 2. Loyalty-related offers 3. Location-based services

A report by the US Federal Reserve (March 2012) found that 21 percent of mobile phone owners had used mobile banking in the past 12 months.
[6]

Based on a survey conducted by Forrester, mobile banking will be attractive mainly to

the younger, more "tech-savvy" customer segment. A third of mobile phone users say that they may consider performing some kind of financial transaction through their mobile phone. But most of the users are interested in performing basic transactions such as querying for account balance and making bill payment. [edit]Future functionalities in mobile banking Based on the 'International Review of Business Research Papers' from World business Institute, Australia, following are the key functional trends possible in world of Mobile Banking. With the advent of technology and increasing use of smartphone and tablet based devices, the use of Mobile Banking functionality would enable customer connect across entire customer life cycle much comprehensively than before. With this scenario, current mobile banking objectives of say building relationships, reducing cost, achieving new revenue stream will transform to enable new objectives targeting higher level goals such as building brand of the banking organization. Emerging technology and functionalities would enable to create new ways of lead generation, prospecting as well as developing deep customer relationship and mobile banking world would achieve superior customer experience with bi-directional communications. Illustration of objective based functionality enrichment In Mobile Banking Communication enrichment: - Video Interaction with agents, advisors. Pervasive Transactions capabilities: - Comprehensive Mobile wallet Customer Education: - Test drive for demos of banking services Connect with new customer segment: - Connect with Gen Y Gen Z using games and social network ambushed to surrogate banks offerings Content monetization: - Micro level revenue themes such as music, e-book download Vertical positioning: - Positioning offerings over mobile banking specific industries Horizontal positioning: - Positioning offerings over mobile banking across all the industries Personalization of corporate banking services: - Personalization experience for multiple roles and hierarchies in corporate banking as against the vanilla based segment based enhancements in the current context. Build Brand: - Built the banks brand while enhancing the Mobile real estate.

[edit]Challenges for a mobile banking solution Key challenges in developing a sophisticated mobile banking application are : [edit]Handset operability There are a large number of different mobile phone devices and it is a big challenge for banks to offer mobile banking solution on any type of device. Some of these devices support Java ME and others support SIM Application Toolkit, a WAP browser, or only SMS. Initial interoperability issues however have been localized, with countries like India using portals like R-World to enable the limitations of low end java based phones, while focus on areas such as South Africa have defaulted to the USSD as a basis of communication achievable with any phone.

The desire for interoperability is largely dependent on the banks themselves, where installed applications(Java based or native) provide better security, are easier to use and allow development of more complex capabilities similar to those of internet banking while SMS can provide the basics but becomes difficult to operate with more complex transactions. There is a myth that there is a challenge of interoperability between mobile banking applications due to perceived lack of common technology standards for mobile banking. In practice it is too early in the service lifecycle for interoperability to be addressed within an individual country, as very few countries have more than one mobile banking service provider. In practice, banking interfaces are well defined and money movements between banks follow the IS0-8583 standard. As mobile banking matures, money movements between service providers will naturally adopt the same standards as in the banking world. On January 2009, Mobile Marketing Association (MMA) Banking Sub-Committee, chaired by CellTrust and VeriSign Inc., published the Mobile Banking Overview for financial institutions in which it discussed the advantages and disadvantages of Mobile Channel Platforms such as Short Message Services (SMS), Mobile Web, Mobile Client Applications, SMS with Mobile Web and Secure SMS. [edit]Security See also: Mobile security Security of financial transactions, being executed from some remote location and transmission of financial information over the air, are the most complicated challenges that need to be addressed jointly by mobile application developers, wireless network service providers and the banks' IT departments. The following aspects need to be addressed to offer a secure infrastructure for financial transaction over wireless network : 1. Physical part of the hand-held device. If the bank is offering smart-card based security, the physical security of the device is more important. 2. Security of any thick-client application running on the device. In case the device is stolen, the hacker should require at least an ID/Password to access the application. 3. Authentication of the device with service provider before initiating a transaction. This would ensure that unauthorized devices are not connected to perform financial transactions. 4. User ID / Password authentication of banks customer. 5. Encryption of the data being transmitted over the air. 6. Encryption of the data that will be stored in device for later / off-line analysis by the customer. One-time password (OTPs) are the latest tool used by financial and banking service providers in the fight against cyber fraud.
[8] [7]

Instead of relying on traditional memorized passwords, OTPs are requested by consumers each time they want to

perform transactions using the online or mobile banking interface. When the request is received the password is sent to the consumers phone via SMS. The password is expired once it has been used or once its scheduled life -cycle has expired. Because of the concerns made explicit above, it is extremely important that SMS gateway providers can provide a decent quality of service for banks and financial institutions in regards to SMS services. Therefore, the provision of service level agreements (SLAs) is a requirement for this industry; it is necessary to give the bank customer delivery guarantees of all

messages, as well as measurements on the speed of delivery, throughput, etc. SLAs give the service parameters in which a messaging solution is guaranteed to perform. [edit]Scalability and reliability Another challenge for the CIOs and CTOs of the banks is to scale-up the mobile banking infrastructure to handle exponential growth of the customer base. With mobile banking, the customer may be sitting in any part of the world (true anytime, anywhere banking) and hence banks need to ensure that the systems are up and running in a true 24 x 7 fashion. As customers will find mobile banking more and more useful, their expectations from the solution will increase. Banks unable to meet the performance and reliability expectations may lose customer confidence. There are systems such as Mobile Transaction Platform which allow quick and secure mobile enabling of various banking services. Recently in India there has been a phenomenal growth in the use of Mobile Banking applications, with leading banks adopting Mobile Transaction Platform and the Central Bank publishing guidelines for mobile banking operations. [edit]Application distribution Due to the nature of the connectivity between bank and its customers, it would be impractical to expect customers to regularly visit banks or connect to a web site for regular upgrade of their mobile banking application. It will be expected that the mobile application itself check the upgrades and updates and download necessary patches (so called "Over The Air" updates). However, there could be many issues to implement this approach such as upgrade / synchronization of other dependent components. [edit]Personalization It would be expected from the mobile application to support personalization such as : 1. Preferred Language 2. Date / Time format 3. Amount format 4. Default transactions 5. Standard Beneficiary list 6. Alerts [edit]Mobile banking in the world Mobile banking is used in many parts of the world with little or no infrastructure, especially remote and rural areas. This aspect of mobile commerce is also popular in countries where most of their population is unbanked. In most of these places, banks can only be found in big cities, and customers have to travel hundreds of miles to the nearest bank. In Iran, banks such as Parsian, Tejarat, Mellat, Saderat, Sepah, Edbi, and Bankmelli offer the service. Banco Industrial provides the service in Guatemala. Citizens of Mexico can access mobile banking with Omnilife, Bancomer and MPower Venture. Kenya's Safaricom(part of the Vodafone Group) has the M-Pesa Service, which is mainly used to transfer limited amounts of money, but increasingly used to pay utility bills as well. In 2009, Zain launched their own mobile money transfer business, known as ZAP, in Kenya and other African countries. In Somalia, the many telecom companies provide mobile banking, the most prominent being Hormuud Telecom and its ZAADservice. Telenor Pakistan has also launched a mobile banking solution, in coordination with Taameer Bank, under the label Easy Paisa, which was begun in Q4 2009. Eko India Financial Services, the business correspondent of State Bank of

India (SBI) and ICICI Bank, provides bank accounts, deposit, withdrawal and remittance services, micro-insurance, and micro-finance facilities to its customers (nearly 80% of whom are migrants or the unbanked section of the population) through mobile banking.
[9]

In a year of 2010, mobile banking users soared over 100 percent in Kenya, China, Brazil and USA with 200 percent, 150 percent, 110 percent and 100 percent respectively.
[10]

Dutch Bangla Bank launched the very first mobile banking service in Bangladesh on 31 March 2011. This service is launched with Agent and Network support from mobile operators, Banglalink and Citycell. Sybase 365, a subsidiary of Sybase, Inc. has provided software solution with their local partner Neurosoft Technologies Ltd. There are around 160 million people in Bangladesh, of which, only 13 per cent have bank accounts. With this solution, Dutch-Bangla Bank can now reach out to the rural and unbanked population, of which, 45 per cent are mobile phone users. Under the service, any mobile handset with subscription to any of the six existing mobile operators of Bangladesh would be able to utilize the service. Under the mobile banking services, bank-nominated Agents perform banking activities on behalf of the banks, like opening mobile banking account, providing cash services (receipts and payments) and dealing with small credits. Cash withdrawal from a mobile account can also be done from an ATM val idating each transaction by mobile phone & PIN instead of card & PIN. Other services that are being delivered through mobile banking system are person -to-person (e.g. fund transfer), person-to-business (e.g. merchant payment, utility bill payment), business-to-person (e.g. salary/commission disbursement), government-to-person (disbursement of government allowance) transactions

Banking in India From Wikipedia, the free encyclopedia

Structure of the organised banking sector in India. Number of banks are in brackets. Banking in India in the modern sense originated in the last decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1770; both are now defunct. The oldest bank still in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being

the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India in 1955. [edit]History In ancient India there is evidence of loans from the Vedic period (beginning 1750 BC).
[1][2]

Later during the Maurya

dynasty (321 to 185 BC), an instrument called adesha was in use, which was an order on a banker desiring him to pay the money of the note to a third person, which corresponds to the definition of a bill of exchange as we understand it today. During the Buddhist period, there was considerable use of these instruments. Merchants in large towns gave letters of credit to one another. [edit]Colonial era During the colonial era merchants in Calcutta established the Union Bank in 1839, but it failed in 1840 as a consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India, it was not the first though. That honor belongs to the Bank of Upper India, which was established in 1863, and which survived until 1913, when it failed, with some of its assets and liabilities being transferred to the Alliance Bank of Simla. Foreign banks too started to appear, particularly in Calcutta, in the 1860s. The Comptoir d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches in Madras and Pondicherry, then a French possession, followed. HSBCestablished itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center. The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in 1895, which has survived to the present and is now one of the largest banks in India. Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial and other infrastructure had improved. Indians had established small banks, most of which served particular ethnic and religious communities. The presidency banks dominated banking in India but there were also some exchange banks and a number of Indian joint stock banks. All these banks operated in different segments of the economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign trade. Indian joint stock banks were generally under capitalized and lacked the experience and maturity to compete with the presidency and exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it seems we are behind the times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments." The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community. A number of banks established then have survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India.
[3]

The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina Kannada and Udupi district which were unified earlier and known by the name South Canara ( South Kanara ) district. Four nationalised banks started in this district and also a leading private sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of Indian Banking". During the First World War (19141918) through the end of the Second World War (19391945), and two years thereafter until theindependence of India were challenging for Indian banking. The years of the First World War were turbulent, and it took its toll with banks simply collapsing despite the Indian economy gaining indirect boost due to war-related economic activities. At least 94 banks in India failed between 1913 and 1918 as indicated in the following table: Number of banks Authorised capital Paid-up Capital Years that failed (Rs. Lakhs) (Rs. Lakhs) 1913 12 1914 42 1915 11 1916 13 1917 9 1918 7 274 710 56 231 76 209 35 109 5 4 25 1

[edit]Post-Independence The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal, paralyzing banking activities for months. India's independence marked the end of a regime of the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The major steps to regulate banking included: The Reserve Bank of India, India's central banking authority, was established in April 1935, but was nationalized on January 1, 1949 under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b).
[4]

In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India". The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors.

[edit]Nationalisation in the 1960s Despite the provisions, control and regulations of Reserve Bank of India, banks in India except the State Bank of India or SBI, continued to be owned and operated by private persons. By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it had emerged as a large employer, and a debate had ensued about the nationalization of the banking industry. Indira Gandhi, then Prime Minister of India, expressed the intention of the Government of India in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation."
[5]

The meeting received the paper with enthusiasm.

Thereafter, her move was swift and sudden. The Government of India issued an ordinance ('Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969')) andnationalised the 14 largest commercial banks with effect

from the midnight of July 19, 1969. These banks contained 85 percent of bank deposits in the country.

[5]

Jayaprakash

Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, theParliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received the presidential approval on 9 August 1969. A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the Government of India controlled around 91% of the banking business of India. Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It was the only merger between nationalized banks and resulted in the reduction of the number of nationalised banks from 20 to 19. After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy. [edit]Liberalisation in the 1990s In the early 1990s, the then Narasimha Rao government embarked on a policy of liberalization, licensing a small number of private banks. These came to be known as New Generation tech-savvy banks, and included Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, UTI Bank (since renamed Axis Bank), ICICI Bank andHDFC Bank. This move, along with the rapid growth in the economy of India, revitalized the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. The next stage for the Indian banking has been set up with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%,at present it has gone up to 74% with some restrictions. The new policy shook the Banking sector in India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks.All this led to the retail boom in India. People not just demanded more from their banks but also received more. [edit]Current period By 2010, banking in India was generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true. With the growth in the Indian economy expected to be strong for quite some time-especially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect M&As, takeovers, and asset sales. In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them.

In recent years critics have charged that the non-government owned banks are too aggressive in their loan recovery efforts in connection with housing, vehicle and personal loans. There are press reports that the banks' loan recovery efforts have driven defaulting borrowers to suicide. [edit]Adoption of banking technology The IT revolution had a great impact in the Indian banking system. The use of computers had led to introduction of online banking in India. The use of the modern innovation and computerisation of the banking sector of India has increased many fold after the economic liberalisation of 1991 as the country's banking sector has been exposed to the world's market. The Indian banks were finding it difficult to compete with the international banks in terms of the customer service without the use of the information technology and computers. The RBI set up a number of committees to define and coordinate banking technology. These have included: In 1984 formed the Committee on Mechanisation in the Banking Industry (1984)
[10] [9] [6][7][8]

whose chairman was Dr C

Rangarajan, Deputy Governor, Reserve Bank of India. The major recommendations of this committee was introducing MICR technology in all the banks in the metropolis in India. forms and encoders. In 1988, the RBI set up the Committee on Computerisation in Banks (1988)
[11]

This provided use of standardized cheque

headed by Dr. C.R. Rangarajan which

emphasized that settlement operation must be computerized in the clearing houses of RBI in Bhubaneshwar, Guwahati, Jaipur, Patna and Thiruvananthapuram. It further stated that there should be National Clearing of intercitycheques at Kolkata, Mumbai, Delhi, Chennai and MICR should be made Operational. It also focused on computerisation of branches and increasing connectivity among branches through computers. It also suggested modalities for implementing on-line banking. The committee submitted its reports in 1989 and computerisation began from 1993 with the settlement between IBA and bank employees' association.
[12]

In 1994, Committee on Technology Issues relating to Payment systems, Cheque Clearing and Securities Settlement in the Banking Industry (1994)
[13]

was set up under chairman Shri WS Saraf. It emphasized Electronic

Funds Transfer (EFT) system, with the BANKNET communications network as its carrier. It also said that MICR clearing should be set up in all branches of all banks with more than 100 branches. In 1995, Committee for proposing Legislation On Electronic Funds Transfer and other Electronic Payments (1995)
[14]

again emphasized EFT system.

[12]

Number of ATMs of different Scheduled Commercial Banks Of India as on end March 2005

Total numbers of ATMs installed in India by various banks as on end June 2012 is 99,218.

[15]

The New Private Sector

Banks in India is having the largest numbers of ATMs which is followed by off-site ATMs belonging to SBI and its subsidiaries and then it is followed by New Private Banks, Nationalised banks and Foreign banks. While on site is highest for the Nationalised banks of India. Branches and ATMs of Scheduled Commercial Banks as on end March 2005[12] Bank type Nationalised banks States bank of India Old private sector banks New private sector banks Foreign banks Number of branches On-site ATMs Off-site ATMs Total ATMs 33627 13661 4511 1685 242 3205 1548 800 1883 218 1567 3672 441 3729 582 4772 5220 1241 5612 800
[12]

Private banking is banking, investment and other financial services provided by banks to private individuals who invest sizable assets. The term "private" refers to customer service rendered on a more personal basis than in massmarket retail banking, usually via dedicated bank advisers. It does not refer to a private bank, which is a non-incorporated banking institution. Private banking forms an important, more exclusive, subset of wealth management. At least until recently, it largely consisted of banking services (deposit taking and payments), discretionary asset management, brokerage, limited tax advisory services and some basic concierge-type services, offered by a single designated relationship manager. On the whole, many clients trust their private banking relationship manager to get on with it, and take a largely passive approach to financial decision making. [edit]Overview Historically, private banking has been viewed as a very exclusive niche that only caters to High-net-worth individuals (HNWIs) with liquidity over $2 million, though it is now possible to open private banking accounts with as little as $250,000 for private investors.
[1]

An institution's private banking division provides services such as wealth

management, savings, inheritance, and tax planning for their clients. A high-level form of private banking (for the especially affluent) is often referred to as wealth management. For private banking services clients pay either based on the number of transactions, the annual portfolio performance or a "flat-fee", usually calculated as a yearly percentage of the total investment amount.
[2]

"Private" also alludes to bank secrecy and minimizing taxes through careful allocation of assets, or by hiding assets from the taxing authorities. Swiss and certain offshore banks have been criticized for such cooperation with individuals practicing tax evasion. Althoughtax fraud is a criminal offense in Switzerland, tax evasion is only a civil offence, not requiring banks to notify taxing authorities.
[3]

Historically, private banking has developed in Europe (see the List of private banks). Some banks in Europe are known for managing assets of some royal families. The assets of Princely Family of Liechtenstein is managed by LGT Bank (founded in 1920). The assets ofDutch royal family is managed by MeesPierson (founded in 1720). The assets of British Royal Family is managed by Coutts (founded in 1692). In Switzerland, there are many banks providing private banking service.
[4]

From Congress of Vienna in 1815 Switzerland

has remained neutral including the time of two World Wars. After World War I, the former nobles of Austro-Hungarian

Empire moved their assets to Switzerland for fear of confiscation by new governments.

[5]

During World War II, many

wealthy people, including Jewish families and institutions, moved their assets into Switzerland to protect them from Nazi Germany. However, this transfer of wealth into Switzerland had mixed and controversial results, as beneficiaries had difficulties retrieving their assets after the war.
[6]

After World War II, in east Europe, assets were again moved into
[7]

Switzerland for fear of confiscation by communistic governments. Today, Switzerland remains the largest offshore center, with about 27 percent ($2.0 trillion) of global offshore wealth in 2009, according to Boston Consulting Group. (Offshore wealth is defined as assets booked in a country where the investor has no legal residence or tax domicile) In England private banks were established in 17th century, in parallel with the development of agriculture, managing the assets of the royal family, nobility and the landed gentry. The United States has one of the largest scale private banking systems in part due to the 3.1 million HNWIs accounting for 28.6% of the global HNWIs population in 2010, according to the co-research of Capgemini and Merrill Lynch. Some American banks that specialize in private banking date back to 19th century, such as U.S. Trust (founded in 1812) and Northern Trust (founded in 1889). [edit]Scale The twenty largest global private banking branch in 2012 (listed by assets under management): Rank Bank Country AUM ($bn) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Bank of America UBS Wells Fargo Morgan Stanley Credit Suisse Royal Bank of Canada HSBC Deutsche Bank BNP Paribas JPMorgan Chase Pictet USA Switzerland USA USA Switzerland Canada UK Germany France USA Switzerland USA USA Netherlands UK Switzerland USA USA France Switzerland $1,671.00 $1,554.53 $1,300.00 $1,219.00 $843.32 $573.32 $377.00 $348.60 $316.20 $291.00 $262.11 $227.00 $208.00 $189.98 $182.71 $178.79 $173.70 $168.00 $163.67 $151.30
[9] [8]

12 . Goldman Sachs 13 . Citigroup 14 . ABN AMRO 15 . Barclays 16 . Julius Baer 17 . Northern Trust 18 . Bank of New York Mellon 19. Crdit Agricole

20 . Lombard Odier & Cie [edit]Value proposition

Most Private Banks define their value proposition along one or two dimensions, and meet the basic needs across others. Some of the dimensions of value proposition of a private bank are parent brand, one-bank approach, unbiased advice,

strong research and advisory team and unified platform. Many banks leverage the parent brand to gain a clients trust and confidence. These Banks have a strong presence across the globe and present private bank offerings as a part of the parent group. One Bank approach is where private banks offer an integrated proposition to meet clients personal and business needs. Since Private Banking concerns understanding a clients need and risk appetite, and tailoring the solution accordingly, few banks define their value proposition along this dimension. Most modern private banks follow an open product platform, and hence claim their advice is unbiased. They believe there is no incentive to push proprietary products, and the client gets the best of what they offer. A few banks claim to have a strong advisory team that reflects in the products they offer the client. A couple of banks also define their value proposition on their unified platform, their ability to comply with all regulations, yet serve the client without restrictions. [edit]Product platform Open architecture product platform is where a private bank distributes all the third party products and is not restricted to selling only its proprietary products. Closed architecture product platform is where the bank sells only its propriety products and does not entertain any third party product. These days the needs of the clients are so diverse that it is practically impossible for a bank to cater to those needs by its proprietary products alone. Clients today demand the best of breed products and most banks have to follow an open architecture product platform where they distribute products of other banks to their clients in return for commission. [edit]Fee structure Different Banks charge their clients in different ways. There are banks that follow the transactional model where the client is not charged any advisory fee at all. The banks thrive totally on the commissions they get by distributing third party products. There are other private banks that follow a hybrid model. In this model, the bank charges a fixed fee for certain products and advisory fee for the rest. Some of the other banks are totally advisory driven and charge the clients a percentage of AUM (e.g. 0.75% of entire AUM). A few banks offer both a transactional model and an advisory model. The clients choose what suits them. A recent industry trend is towards the advisory fee model, because margins on commissions may go down in the future. [edit]Lead generation Lead Generation is a vital part in the Private banking business. Various banks go about in different ways to acquire new clients. While some banks rely heavily on their wholesale banking referrals there are a few other that have strong tie ups with their Retail and Corporate banking divisions. Most banks do have a revenue sharing mechanism in place within divisions. It is either a onetime charge to the division or an annuity that the division gets for a client referral. Many Banks believe that the primary source of leads must be client referrals. A client would refer to his / her friends when he / she is satisfied with service provided by the private bank. Generating a good number of leads through client referrals shows the good health of the private bank.