UNIT - V - HIGH TECH E-BANKING

New Information technology has taken important place in the future development of financial
services, especially banking sector transition are affected more than any other financial provider
groups. Increased use of mobile services and use of internet as a new distribution channel for
banking transactions and international trading requires more attention towards e-banking
security against fraudulent activities. The development and the increasing progress that is being
experienced in the Information and Communication Technology have brought about a lot of
changes in almost all facets of life. In the Banking Industry, it has been in the form of online
banking, which is now replacing the traditional banking practice. Online banking has a lot of
benefits which add value to customers’ satisfaction in terms of better quality of

Service offerings and at the same time enable the banks gain more competitive advantage over
other competitors. This Chapter discusses some challenges in an emerging economy.

 Payment system in India – Paper based

 E-payments – Electronic banking – advantages
 Plastic money
 E-money
 Forecasting of cash demand at ATMs
 Security threats in e-banking and RBI’s initiatives

The central bank of any country is usually the driving force in the development of national
payment systems. The Reserve Bank of India as the central bank of India has been playing this
developmental role and has taken several initiatives for Safe, Secure, Sound, Efficient,
Accessible and Authorised payment systems in the country. Security threats in e-banking and
RBI’s initiatives.

The Board for Regulation and Supervision of Payment and Settlement Systems (BPSS), a sub-
committee of the Central Board of the Reserve Bank of India is the highest policy making body
on payment systems in the country. The BPSS is empowered for authorising, prescribing
policies and setting standards for regulating and supervising all the payment and settlement
systems in the country. The Department of Payment and Settlement Systems of the Reserve
Bank of India serves as the Secretariat to the Board and executes its directions.

In India, the payment and settlement systems are regulated by the Payment and Settlement
Systems Act, 2007 (PSS Act) which was legislated in December 2007. The PSS Act as well as
the Payment and Settlement System Regulations, 2008 fRaguled thereunder came into effect
from August 12, 2008. In terms of Section 4 of the PSS Act, no person other than the Reserve
Bank of India (RBI) can commence or operate a payment system in India unless authorised by
RBI. Reserve Bank has since authorised payment system operators of pre-paid payment
instruments, card schemes, cross-border in-bound money transfers, Automated Teller Machine
(ATM) networks and centralised clearing arrangements.

The Reserve Bank has taken many initiatives towards introducing and upgrading safe and
efficient modes of payment systems in the country to meet the requirements of the public at
large. The dominant features of large geographic spread of the country and the vast network of
branches of the Indian banking system require the logistics of collection and delivery of paper
instruments. These aspects of the banking structure in the country have always been kept in
mind while developing the payment systems. Following are the broad classification of the
Payment System in India.

Clearing Houses
MICR codes
Speed Clearing
Paper Based Clearing

Electronic Clearing Services

for NEFT and RTGS

Real Time Gross Settlement

Customer Facilitation Centres

National Electronic Funds

National Electronic Clearing

(RTGS)

(ECS)

Service (NECS)
Transfer (NEFT)

Cheque Truncation
System
Uniform Regulations
and Rules for Bankers'
Clearing Houses
Procedural Guideline
for Cheque Truncation
System

Figure 1 Payment System in India

The Reserve Bank encouraged the setting up of National Payments Corporation of India (NPCI)
to act as an umbrella organisation for operating various Retail Payment Systems (RPS) in India.
NPCI became functional in early 2009. NPCI has taken over National Financial Switch (NFS)
from Institute for Development and Research in Banking Technology (IDRBT). NPCI is
expected to bring greater efficiency by way of uniformity and standardization in retail payments
and expanding and extending the reach of both existing and innovative payment products for
greater customer convenience.

The banking sector is considered to be the back-bone of Indian economy. In India, the use of
paper-based instruments like cheques, drafts accounts for shared nearly 60% of the volume of
total non-cash transactions. In value terms, the share is presently around 11%. Since paper based
payments occupy an important place in the country, Reserve Bank had introduced Magnetic Ink
Character Recognition (MICR) technology for speeding up and bringing in efficiency in
processing of cheques.

Cheque is like a written instruction to the bank asking it to pay the person’s whose name is
written on cheque the sum of money. Cheque is just a piece of paper, to get the money it has to
be cleared. The person who writes the Cheque is called drawer and to whom it is paid is called
as payee. Cheque is just a piece of paper, to get the money it has to be cleared. Let’s check out
the steps in processing the cheque, also called as clearing.

Let’s say Rahul gave an A/C payee cheque to Sachin. Let us see the sequence of events how
Sachin gets the money to his account:

1. Sachin deposits cheque to his bank.

2. Sachin’s bank processes the cheque and sends a request to Rahul’s bank for payment
3. If Rahul’s bank has funds in his account, his bank will process the payment and release
the funds to Sachin’s Bank
4. Sachin’s Bank will processes the payment and credits the funds into his bank account.

Clearing process for non CTC 2010 cheques

The Payee would deposit the cheque is his/her bank. If the payee or beneficiary of cheque has
an account in the same bank in the same city the funds are credited into his account through
internal arrangement of the bank

If the beneficiary has an account with any other bank in the same or in any other city, then his
banker would ensure that funds are collected from the payer’s banker through a clearing house.

A Clearing House is an association of banks that facilitates

payments through cheques between different bank branches
within a city / place.
There are more than 1000 clearing houses operating all over the country facilitating cheque
payments. These clearing houses are managed by the RBI, State Bank of India and other public
sector banks. To identify the paying bank, the clearing house looks at cheque’s routing

number, MICR, the nine-digit number at the bottom of your cheque, to

the right of your account number. It identifies postal code/city and state of the origin of the
cheque.

The clearing house presents paying bank with the cheque along with a payment request to
drawee’s bank, which checks if there are sufficient funds in the account of drawer to pay money.

If the drawer’s bank decides to pay then the clearing bank proceeds to settle the check, debiting
drawer’s bank and crediting the payee’s bank for the value of the check. The paying bank debits
the amount from the drawer’s account. The clearing process is shown in following picture:
Time taken to clear the cheque: How fast the money would be deposited into Sachin’s account
depends on whether the whether bank of Rahul and Sachin cheques are of same city. Based on
this cheques are of two kinds:

 - These are cheques whereby the cheque issuer bank branch and
the receiver bank branch are in the same city
 - These are cheques whereby the cheque issuer bank branch
and the receiver bank branch are in different cities

All Local Cheques must be cleared on a T+1 basis. i.e., If I Deposit a local cheque into my bank
account today (irrespective of which bank the cheque is drawn or deposited) the funds must
reach my account by End-Of-Day Tomorrow. Of course, this is only if the deposit happened
before the cut-off time for today. For example: Let’s say ICICI Bank has a cut of time of 1:00
PM. So, all cheques deposited after 1:00 PM the previous day and those deposited before 1:00
PM today are processed in one batch and sent for payment. If you deposit your cheque after 1:00
PM, it will be processed only tomorrow and funds will be available one day after that. Outstation
Cheques – Processing of Outstation Cheques depends on location of drawee’s bank.

 Banks in State Capitals – Max 7 days

 Banks in Major Cities – Max 10 days
 Banks in Other Locations – Max 14 days

Cheque Truncation System CTS 2010

Cheque Truncation System (CTS) or Image-based Clearing System (ICS), in India, is a project
undertaken by the Reserve Bank of India – RBI, for faster clearing of cheques. CTS is basically
an online image-based cheque clearing system where cheque images are captured at the
collecting bank branch and transmitted electronically. Truncation means, stopping the flow of
the physical cheques issued by a drawer to the drawee branch. The physical instrument is
truncated at some point en-route to the drawee branch and an electronic image of the cheque is
sent to the drawee branch along with the relevant information like the MICR fields, date
of presentation, presenting banks etc. So the process now becomes:

1. In CTS, the presenting bank (or its branch) captures the data (on the MICR band) and the
images of a cheque using their Capture System (comprising of a scanner, core banking
or other application.
2. The collecting bank (presenting bank) sends the data and captured images duly signed
and encrypted to the central processing location (Clearing House) for onward
transmission to the paying bank (destination or drawee bank). For the purpose of
participation the presenting and drawee banks are provided with an interface / gateway
 called the Clearing House Interface (CHI) that enables them to connect and transmit data
and images in a secure and safe manner to the Clearing House (CH).
3. The Clearing House processes the data, arrives at the settlement figure and routes the
images and requisite data to the drawee banks. This is called the presentation clearing.
The drawee banks through their CHIs receive the images and data from the Clearing
House for payment processing. The drawee CHIs also generate the return file for unpaid
instruments.

For customers clearing process of CTS 2010 is no different from the use of traditional clearing
infrastructure for clearing paper cheques. Customers continue to use cheques as at present,
except to:

1. Use image-friendly-coloured-inks while writing the cheques

2. Avoid any alterations or corrections thereon. For any change in the payee’s name,
amount in figures or in words, fresh cheque leaves should be used by customers, as this
will facilitate smooth passage through image based clearing system.

As images of cheques (and not the physical cheques) alone need to move in CTS:

3. It is possible for the removal of the restriction of geographical jurisdiction normally

associated with the paper cheque clearing. Hence cheques would be multi-city.
4. This would result in effective reduction in the time required for payment of cheques, the
associated cost of transit and delays in processing, etc.

Cheque truncation eliminates the need to move the physical instruments across branches, except
in exceptional circumstances, thus speeding up the process of collection or realization of
cheques. The Reserve Bank had implemented CTS in the National Capital Region (NCR), New
Delhi and Chennai with effect from February 1, 2008 and September 24, 2011. After migration
of the entire cheque volume from MICR system to CTS, the traditional MICR-based cheque
processing has been discontinued in these two locations. Based on the advantages realised by
the stakeholders and the experienced gained from the roll-out in these centres, it was decided to
operationalise CTS across the country by Jan 1 2013.

1. Branch address with IFSC code printed top of the cheque

2. Date in dd/mm/yyyy format with boxes
3. Printers name with CTS-2010 in left side of cheque
4. A pantograph which shows VOID/COPY while taking photocopy of the cheque below
the account number
5. New rupee symbol instead of bilingual format
6. “Please sign above” is mentioned on bottom right of the cheque
7. Watermark “CTS INDIA” to be visible cheque is held against any light.
8. Ultra Violet logo of Bank printed at upper left corner of cheque to be visible in UV lamps

Service Charges on Cheque Clearing:

1. The service / processing / maintenance charges levied from other
member banks by the bank managing a Clearing House are as follows –
a. MICR Cheque Processing Centres (MICR CPCs): The processing charges for the
instruments processed at MICR-CPCs shall be recovered on a monthly basis by debit
to the accounts of the member banks maintained with the bank managing the
Clearing House, or by any other method, at the rate prescribed by the Reserve Bank
of India from time to time. The bank managing a MICR Cheque Processing Centre
shall not levy any other extra charges, for a service / facility relating to the clearing
process other than the rate prescribed by Reserve Bank of India towards processing
charges. Currently the charges prescribed are @ ` 2.50 per cheque (` 1/- from the
presenting bank and `1.50 from the drawee bank).
 b. Cheques processed through Cheque Truncation System (CTS): Presently Cheque
Truncation System has been put in place in the National Capital Region of New
Delhi and recently launched in Chennai. The entities managing a CTS Centre shall
not levy any other extra charges, for a service / facility relating to the clearing
process other than the rate prescribed by Reserve Bank of India towards processing
charges. Currently the charges prescribed are @ Rs. 1.50 per cheque (`0.50 from the
presenting bank and `1.00 from the drawee bank).
c. Other Clearing Houses: Clearing Houses other than MICR CPCs collect
maintenance charges from the member banks towards various expenses incurred for
operating the clearing house. These maintenance charges are calculated based on the
actual expenditure incurred by the bank managing the clearing house for clearing
operations and the same is equally shared by all the member banks on a no-profit
basis.
d. Charges for banks managing back-up clearing centres (MICR and non-MICR
centres): Banks managing back-up clearing centres (primary or alternate) shall get
themselves compensated by the member banks of the Clearing House for the relative
investment made by them on computer hardware / software and other operating
expenses on equal sharing basis. Additionally, the back-up banks may also recover
expenses incurred by them during contingencies / disruptions / contingency drills
from the member banks of the Clearing House. The expenses recovered must be
reasonable and should be approved by the President of the Clearing House.
2. Charges for clearing cheques, both
local and outstation, are levied by banks based on their collection policies and will be
disclosed in the individual Cheque Collection Policies framed and placed on their website.

E-banking refers to electronic banking. It is like e-business in banking industry. E-banking is

also called as "Virtual Banking" or "Online Banking". For many people, electronic banking
means 24-hour access to cash through an automated teller machine (ATM) or Direct Deposit of
pay checks into checking or savings accounts. But electronic banking involves many different
types of transactions, rights, responsibilities — and sometimes, fees.

Electronic banking is the use of computers to carry out banking

transactions such as withdrawals through cash dispensers or
transfer of funds at point of sale.
E-banking involves information technology based banking. Under this I.T system, the banking
services are delivered by way of a Computer-Controlled System. This system does involve
direct interface with the customers. The customers do not have to visit the bank's premises.
The effect of technology in banking has been dramatic. Let us understand the role of technology
as an enabler for improved transaction efficiency through the categorization provided in the
following figure.

The bank-to-customer relationship has changed up significantly, with open standards replacing
proprietary front ends, and many-to-many networks substituting for single-line links.

Benefits of Electronic Banking

The benefits of electronic banking for banks are as follows:

 Price- In the long run a bank can save on money by not paying for tellers or for
managing branches. Plus, it's cheaper to make transactions over the Internet.
 Customer Base- the Internet allows banks to reach a whole new market- and a well
off one too, because there are no geographic boundaries with the Internet. The Internet
also provides a level playing field for small banks who want to add to their customer
base.
 Efficiency- Banks can become more efficient than they already are by providing
Internet access for their customers. The Internet provides the bank with an almost paper
less system.
 Customer Service and Satisfaction- Banking on the Internet not only allow the

customer to have a full range of services available to them but it also allows them some
services not offered at any of the branches. The person does not have to go to a branch
where that service may or may not be offer. A person can print of information, forms,
and applications via the Internet and be able to search for information efficiently instead
of waiting in line and asking a teller. With more better and faster options a bank will
surely be able to create better customer relations and satisfaction.
  Image- A bank seems more state of the art to a customer if they offer Internet access.
A person may not want to use Internet banking but having the service available gives a
person the feeling that their bank is on the cutting image.

The benefits of electronic banking for customers are as follows

 Bill Pay- Bill Pay is a service offered through Internet banking that allows the
customer to set up bill payments to just about anyone. Customer can select the person or
company whom he wants to make a payment and Bill Pay will withdraw the money from
his account and send the payee a paper check or an electronic payment.
 Other Important Facilities- E- banking gives customer the control over nearly
every aspect of managing his bank accounts. Besides the Customers can, Buy and Sell
Securities, Check Stock Market Information, Check Currency Rates, Check Balances,
See which checks are cleared, Transfer Money, View Transaction History and avoid
going to an actual bank. The best benefit is that Internet banking is free. At many banks
the customer doesn't have to maintain a required minimum balance. The second big
benefit is better interest rates for the customer.

The importance of payment and settlement systems

Almost all economic transactions involve some form of payment. Money, in the form of either
cash or bank deposits, is commonly the preferred means of payment for the purchase of goods
and services and for the repayment of debts. While many smaller-value payments are made with
cash, larger payments usually involve the transfer of bank deposits. Modern financial systems
also involve substantial trade in financial instruments such as bonds, equities and derivatives.
Payment and settlement systems enable these transfers of deposit money and financial
instruments to take place. A developed market economy typically has various payment and
settlement systems, including large value and retail payment systems as well as securities
settlement systems. Important roles may also fall to various other institutions that provide
payment and settlement services - for example, central counterparties, large correspondent
banks and custodians.

For large-value payment systems and securities settlement systems, the total value of
transactions is often such that the equivalent of annual GDP is turned over in just a few days.
Interbank lending, the settlement of foreign exchange trades and securities transfers account for
the major portion of the turnover in these large-value systems. The largest volumes of
transactions are handled in the retail payment systems, such as the automated clearing houses,
card schemes and cheque clearings, which are used to pay the bulk of salaries, utility bills, taxes
and corporate invoices and to settle the range of transactions in goods and services that are
necessary for a market economy to function.

Because payment and settlement systems are essential for financial markets and the economy
as a whole, central banks have always had an intrinsic interest in their safe and efficient
functioning.

E payment is a subset of an e-commerce transaction to include electronic payment for buying

and selling goods or services offered through the Internet. Generally we think of electronic
payments as referring to online transactions on the internet, there are actually many forms of
electronic payments. As technology developing, the range of devices and processes to transact
electronically continues to increase while the percentage of cash and check transactions
continues to decrease.

Current e-payment technologies depend on using traditional methods that are common to non-
electronic systems. Due to the nature of Internet, security and authenticity of payments and
participants cannot be guaranteed with technologies that are not specifically designed for
electronic commerce. The following are the various type of electronic payment system followed
at present.

Customer
National Facilitation
Electronic Centres for
Electronic Clearing NEFT and
Clearing Service (NECS) RTGS
Services (ECS)
National
Electronic
Funds
Real Time Transfer
Gross (NEFT)
Settlement
(RTGS)
Real Time Gross Settlement (RTGS)
The expansion of RTGS is "Real Time Gross Settlement". It is maintained by reserve bank of
India. RTGS is a money transfer technique where transfer of money occurs from one bank to
another on a ‘real time’ and on ‘gross’ basis. RTGS can be described as continuous (real-time)
settlement of funds transfers independently on an order by order basis. This technique is known
as fastest money transfer technique.

‘Real Time Gross Settlement (RTGS)’ system means system

which facilitates on-line real time settlement of payments either
on gross basis or through Multilateral Settlement Batches,
received from the members.

The word ‘real time’ means that transaction is executed at the time they are received, there is no
waiting period. Conversely ‘Gross settlement’ means the settlement of fund occurs one to one
basis without bunching with other transactions. Once the money transfer take place in the book
of RBI, the payment is considered as final and irreversible.

RTGS is a large value funds transfer technique. In RTGS System the minimum value of
transaction is RS 2 lakh. There is no upper limit for transaction. Customers can use the facility
of RTGS between 9 am to 4:30 pm on Monday to Friday and 9 am to 1:30 pm on Saturdays.
National Electronic Funds Transfer (NEFT)
The expansion of NEFT is National Electronic Fund Transfer. By using this system individual,
firm or corporate can transfer the funds electronically from any bank branch to any other
individual, firm or corporate having account in other bank branch in the country.

National Electronic Fund Transfer (NEFT) is a system of

transfer between two banks on net settlement basis. Which means
that each individual transfer from one account to another account
is not settled or processed at that same moment, it’s done in
batches.

This payment network is kept by RBI. NEFT system is a funds transfer technique where transfer
of fund occurs from one bank to another on a deferred net settlement basis. To provide the
facility of NEFT to the customer the bank branch has to be NEFT enabled. To perform any
transaction by using NEFT, IFSC (Indian Financial System Code) code is required. This code
specifies the branch of a bank.

Some important points about NEFT are as follow:

 In NEFT the transaction can be take place between two NEFT enabled bank branches.
It can also be employed to transfer funds from or to NRE/NRO accounts in India.
Remittance is not permitted to a foreign country, apart from Nepal.
 In NEFT transactions are bunched up and executed in a bunch at specified time slot. In
weekday there are 12 settlements that take place from 8 am to 7 pm, and on Saturday
there are only 6 settlements that take place from 8 am to 1 pm. If a transaction is started
after a batch settlement time, it is postponed to the next batch.
 There is no lower or upper limit on the amount that can be transferred under NEFT.
  There are some charges are applied on outward transaction while inward transaction are
free. This ranges from a minimum of ` 2.50 for amounts up to ` 10,000 to a maximum of
` 25 for transfer amounts above ` 2 lakh.

NEFT versus RTGS

National Electronic Fund Transfer (NEFT) and Real Time Gross Settlement (RTGS) allow
individuals, companies and firms to transfer funds from one bank to another. You can check the
RBI website for a list of NEFT and RTGS-enabled branches of your bank. These facilities can
only be used for transferring money within the country. To opt for these, you need to fill a form
providing your or the beneficiary’s details — name, bank branch where the account is held, the
Indian Financial System Code, a unique code for identifying the branch, and the account number
and type. You have to submit a cheque while opting for this facility. You can also transfer funds
through net banking.

There is no ceiling on the minimum or maximum amount that can be transferred through NEFT.
You can even transfer ` 1. However, a minimum of ` 2 lakh must be transferred through the
RTGS service. There is no cap on the maximum amount, though. However, banks may restrict
the amount you can transfer in one day. For example, HDFC Bank allows a maximum of ` 10
lakh to be transferred in a day.

According to RBI, banks cannot levy any charge for inward remittances or on receipt of funds.
However, it has capped the charges on outward transfers through NEFT and RTGS. For
transfers through the former, you need to pay around ` 5-25, depending on the amount. Banks
cannot charge more than ` 5 for any transfer up to ` 1 lakh, ` 15 for ` 1-2 lakh and ` 25 for those
above ` 2 lakh. Under RTGS, you have to pay ` 25 for ` 2-5 lakh and ` 50 for anything above `
5 lakh.

NEFT operates on a deferred net settlement (DNS) basis and settles transactions in batches. The
settlement takes place with all transactions received till a particular cut-off time. It operates in
hourly batches — there are 11 settlements from 9 am to 7 pm on weekdays and five between 9
am and 1 pm on Saturdays. Any transaction initiated after the designated time would have to
wait till the next settlement time. In RTGS, transactions are processed continuously, all through
the business hours. RBI’s settlement time is 9 am to 4:30 pm on weekdays and 9 am to 1:30 pm
on Saturdays. Banks can function within this time frame or change it. Here, transfers made are
quick and can be helpful in emergencies.

If the transaction fails, the beneficiary’s bank must return the amount to your bank within two
hours and the transaction must be reversed. Also, the bank must transfer the amount to your
account within 30 minutes of receiving the same. The process can work quickly for RTGS. But,
in case of NEFT the entire process could take an additional three-four hours.

Electronic Clearing Services (ECS)

ECS is an electronic mode of funds transfer from one bank account to another. It can be used by
institutions for making payments such as distribution of dividend interest, salary, and pension,
among others.

The Electronic Clearing Service (ECS) is an online

transmission system which permits the electronic transmission of
payment information by the banks/branches to the Automated
Clearing House (ACH) via a communication network.
It can also be used to pay bills and other charges such as telephone, electricity, water or for
making equated monthly installments payments on loans as well as SIP investments. ECS can
be used for both credit and debit purposes.

You need to inform your bank and provide a mandate that authorises the institution, who can
then debit or credit the payments through the bank. The mandate contains details of your bank
branch and account particulars. It is the responsibility of the institution to communicate the
details of the amount being credited or debited to their account, indicating the date of credit and
other relative particulars of the payment. You will know the money has been debited from your
account through mobile alerts or messages from the bank. The ECS user can set the maximum
amount one can debit from the account, specify the purpose of debit, as well as set a validity
period for every mandate given.

The Reserve Bank of India has deregulated the charges to be levied by sponsor banks from
institutions. Destination bank branches have been directed to afford ECS credit free of charge
to the beneficiary account holders. So, it costs you nothing.
There are two steps you have to follow to ensure appropriate closure. Firstly, the service
provider, which is the beneficiary of the payment, will have to be given a written communication
in the way stipulated by them, in order to discontinue the services. And next, the bank, which is
the channel of payment, will also have to be given a written application stating you would like
to discontinue.

National Electronic Clearing Service (NECS)

NECS stands for National Electronic Clearing Service. It is an initiative launched by Reserve
Bank of India, as an improvement over the ECS –Electronic Clearing Service, currently in
vogue.

ECS was launched more than two decades back, and the growth has been extraordinary. Both
the ECS Credits and Debit Products have delivered their mandates. The major drawback of the
ECS is that the Sponsor Institution has to submit the Processing Files to each Clearing House
separately and also reconcile the entries Clearing House wise.

Presently, ECS system functions in a decentralized manner requiring users to prepare separate
set of ECS data centre-wise. Users are required to have tie-up with local sponsor banks for
presenting ECS file to each ECS Centre.

There is no mechanism for the Sponsor Institution to centrally submit the Processing Files or to
receive the Return Files. This was hampering the growth of ECS and the transactions were at a
stagnant level. To overcome the drawbacks associated with ECS, Reserve Bank of India,
decided to launch the NECS

NECS was launched on 29th September 2008 by Shri V. Leeladhar, Deputy Governor, Reserve
Bank of India. He inaugurated the National Electronic Clearing Service (NECS) at a function at
the Reserve Bank's National Clearing Centre (NCC), Mumbai.

The service aims to centralize the Electronic Clearing Service (ECS) operation and bring in
uniformity and efficiency to the system. NECS (Credit) would facilitate multiple credits to
beneficiary accounts destination branch at participating centre against a single debit of the
account of a user with the sponsor bank. NECS (Debit) would facilitate multiple debits to
destination account holders against single credit to user account.

The system has a pan-India characteristic leveraging on Core Banking Solutions (CBS) of
member banks. This would facilitate all CBS bank branches to participate in the system,
irrespective of their locations.

In the new set-up, users have to prepare one consolidated NECS file and submit it centrally to
the NCC, Nariman Point, Mumbai, through their sponsor banks. The sponsor banks would make
use of the web-server provided for the purpose. The web-server also has the facility to get on-
line data validation so that error free data could be uploaded for processing.

The files can be uploaded up to the cut-off time one day prior to the settlement day by sponsor
banks thus bringing down further the lead time required for processing. The returns also would
get processed on the settlement day itself thus on the third day the users would have the status
of the transactions. As on date 26,000+ bank branches are participating in NECS operations and
other bank branches are expected to join in course of time.

In the first phase, the NECS (Credit) was introduced. In May 2009, more than 2 million
transactions were executed through NECS (Credit). Given the benefits offered by NECS, the
need for local-ECS at various locations becomes redundant. Accordingly, local-ECS-Credit at
Mumbai has been merged with NECS-Credit. The NECS (Debit) would be introduced
subsequently, based on the experience and feedback received from member banks. As the
process flow for NECS (Debit) is different from NECS (Credit), i.e. Validation of Mandates is
required for a NECS (Debit) Transaction, the NECS (Debit), was not launched in the first phase.
As Banks have seen the benefits accruing from a NECS (Credits), they have requested Reserve
Bank of India, to introduce NECS (Debit) too.

Customer Facilitation Centres for NEFT and RTGS

Some banks with internet banking facility provide this service. Once the funds are credited to
the account of the beneficiary bank, the remitting customer gets a confirmation from his bank
either by an e-mail or SMS. Customer may also contact RTGS / NEFT Customer Facilitation
Centres of the banks, for tracking a transaction.

Plastic money is a term that is used predominantly in reference to the hard plastic cards we use
every day in place of actual bank notes.

Plastic money refers to the substitutions of currency at the

time when a payment is taking place by using a card normally
made of plastic representing such substitutions.
They can come in many different forms such as cash cards, credit cards, debit cards, pre-paid
cash cards and store cards.

 Cash Cards - A card that will allow you to withdraw money directly from your bank
via an Authorised Teller Machine (ATM) but it will not allow the holder to purchase
anything directly with it.
 Credit Cards - Again this card will permit the card holder to withdraw cash from an
ATM, and a credit card will allow the user to purchase goods and services directly, but
unlike a Cash Card the money is basically a high interest loan to the card holder,
although the card holder can avoid any interest charges by paying the balance off in full
each month.
 Debit Cards - This type of card will directly debit money from your bank account, and
can directly be used to purchase goods and services. While there is no official credit
facility with debit cards per se, as it is linked to the bank account the limit is the limit of
what is in the account, for instance if an overdraft facility is available then the limit will
be the extent of the overdraft.
  Pre-paid Cash Cards - As the name suggests the user will add credit to the card
themselves, and will not exceed that amount. These are usually re-useable in that they
can be 'topped up' however some cards, usually marketed as Gift Cards are not re-
useable and once the credit has been spent they are disposed of.

Cash Cards Credit Cards Debit Cards

Pre-paid Cash Store Cards

Cards

 Store Cards - These are similar in concept to the Credit Card model, in that the idea is
to purchase something in store and be billed for it at the end of the month. These cards
can be charged at a very high interest rate and can are limited in the places they can be
used, sometimes as far as only the store brand that issued it.

A credit card is a plastic card issued by a financial institution that allows its user to borrow pre-
approved funds at the point of sale in order to complete a purchase. Credit cards have higher
interest rates (around 19% per year) than most consumer loans or lines of credit. Almost every
store allows for payment of goods and services through credit cards.

Credit Card is a card issued by a financial company giving the

holder an option to borrow funds, usually at point of sale. Credit
cards charge interest and are primarily used for short-term
financing. Interest usually begins one month after a purchase is
 made and borrowing limits are pre-set according to the
individual's credit rating.

History of Credit Cards

Many people think of credit cards as a modern day convenience, but the history of the earliest
credit cards actually dates back to the early 1900s. Today, major companies like Discover, Visa,
MasterCard, and American Express are a common sight. The concept of using credit to purchase
goods and services, however, is something that is not new. Millions of Americans currently hold
some form of credit card debt. While credit cards can create more debt for many households,
they are also a convenient way to make purchases, and can serve people well in the event of an
emergency. A long time ago, people knew that the use of credit was a helpful tool for those who
needed something immediately, and the history of credit cards shows how far the industry has
come.

Before major companies and banks issued actual credit cards, individual retailers, merchants,
and other providers would offer lines of credit to their customers. While the first credit card
invented would not come along until the 1940s, this method of using credit is often attributed as
the grandfather of credit cards. Originally, this was saved for the oil producers in order to
provide credit to shareholders and those interested in obtaining land to pursue oil, or to retrieve
and produce oil for consumption. Smaller grocers and department stores followed suit, and
offered lines of credit to customers who could prove somehow that the debt could be repaid. In
most cases, collateral was taken as a guarantee that the credit would be paid back.

The first credit card invented was dreamed up by a man named John Biggins, and was called the
"Charge-It" card. This card was created in 1946. Biggins was a banker living in Brooklyn, New
York, and he came up with an easier more direct system of credit. When a customer used the
Charge-It card, a bill for that person's purchase was also sent to his bank for review. Instead of
the customer paying the merchant directly, the bank would pay them. There were some terms
even then back in the history of credit cards. For example, all purchases had to be made locally
and anyone with the Charge-It card had to be an actual customer of Biggin's bank. Regardless
of these terms, the whole process was a success.

Another early credit card was the Diners Club card, which was invented in 1949. The idea for
this credit card came about when a businessman by the name of Frank McNamara went out for
an important dinner. While he was out, he realized he had left his wallet at home and was unable
to pay for the dinner. Somehow he managed to be able to pay, but had the idea that there had to
be other ways to pay for things other than cold, hard cash. Soon he was working with his
business partner and they developed the Diners Club Card, which was originally on a piece of
cardboard. Just two years later, over 20,000 people had a Diners Club Card. It was used mostly
for eating and entertainment and was known as a charge card, meaning that the balance had to
be paid completely off each month.

American Express had been in existence since the 1850s, but it was not until 1958 that the
company introduced their first credit card on a small piece of purple plastic. In all of the history
of credit cards, AMEX was the first to use plastic in their material instead of paper or cardboard.
Soon, American Express had taken off and became the most widely used credit card in the
country, and could claim one million cardholders within the first five years of originating.
Today, banks and corporations across the globe issue credit cards to people, and they are perhaps
the most common form of payment in the world. Everything from airplane tickets to cosmetics
and groceries can be purchased with a credit card. The Internet has expanded the use of credit
cards, making them the number one preferred method of payment next to cash.

Types of Credit Cards

Credit cards have come to the rescue of people with hot pockets. They, nowadays, put their trust
in the innovation of credit cards where they need not carry large sums of money with them;
instead simply carry a credit card which is linked up with their bank account enabling them to
make payments without batting an eye.

It is a trend, now, to make payments at a hotel, restaurant or a departmental store/ mall using a
credit card. Because of the fear of one's bank account details being swiped and stolen, more and
more credit cards are made secure so that even if a credit card is stolen, the money in one's bank
account stays safe.

Today, credit cards come in multiple levels with ranging interest rates, fees and reward
programs, so before you fill out an application, it's important to know which will best suit your
financial situation and lifestyle. The following is a brief description of the most common types
of credit cards available.

1. This is the most commonly used. One is allowed to use money

up to a certain limit. The account holder has to top up the amount once the level of the
balance goes down. An outstanding balance gets a penalty charge.
2. This has a much higher bank account and fees. Incentives are
offered in this over and above that in a standard card. Credit card holders are offered travel
incentives, reward points, cask back and other rewards on the use of this card. This is also
called the Reward Credit Card. Some examples are: airlines’ frequent flier credit card, cash
back credit card, automobile manufacturers' rewards credit card. Platinum and Gold,
MasterCard and Visa card fall into this category.
3. People without credit history or with tarnished credit can avail
this card. A security deposit is required amounting to the same as the credit limit. Revolving
balance is required according to the 'buying and selling' done.
4. There is limitation to its use and is to be used only for
particular applications. This is used for establishing small credits such as gas credits and
credit at departmental stores. Minimal charges are levied.
5. This requires the card holder to make full payment of the balance
every month and therefore there is no limit to credit. Because of the spending flexibility, the
card holder is expected to have a higher income level and high credit score. Penalty is
incurred if full payment of the balance is not done in time.
6. This is used for business purposes enabling businessmen to keep
their businesses transactions separately in a convenient way. Charge cards and standard
cards are available for this. Also, students enrolled in an accredited 4-year college/university
course can avail this benefit.
7. Here, money is loaded by the card holder on to the card. It is like
a debit card except that it is not tied up with a bank account.

The Parties to Credit Card Transaction

A credit card is a small plastic card issued to users as a system of payment. It allows its holder
to buy goods and services based on the holder's promise to pay for these goods and services.
The issuer of the card creates a revolving account and grants a line of credit to the consumer
from which the user can borrow money for payment to a merchant or as a cash advance to the
user. The following are the principal players in credit card transactions:

The holder of the card used to make a purchase; the consumer.

The financial institution or other organization that issued the credit
card to the cardholder. This bank bills the consumer for repayment and bears the risk that
the card is used fraudulently. American Express and Discover were previously the only
card-issuing banks for their respective brands, but as of 2007, this is no longer the case. Cards
issued by banks to cardholders in a different country are known as offshore credit cards.
The individual or business accepting credit card payments for products or
services sold to the cardholder.
The financial institution accepting payment for the products or services
on behalf of the merchant.
Resellers (to merchants) of the services of the
acquiring bank.
This could refer to the acquiring bank or the independent sales
organization, but in general is the organization that the merchant deals with.
 An association of card-issuing banks such as Discover, Visa,
MasterCard, American Express, etc. that set transaction terms for merchants, card-issuing
banks, and acquiring banks.
The system that implements the mechanics of the electronic
transactions. May be operated by an independent company, and one company may operate
multiple networks.
Some institutions lend their names to an issuer to attract customers that
have a strong relationship with that institution, and get paid a fee or a percentage of the
balance for each card issued using their name. Examples of typical affinity partners are
sports teams, universities, charities, professional organizations, and major retailers.

Settlement Process through Credit Card Networks

The use of a card involves an exchange of value between a consumer and a business. The card
represents an offer for payment in exchange for the merchant’s goods or services. The sales
draft itself is the cardholder’s promise to pay. When an acquirer accepts a draft from merchants,
the bank is buying the value represented by the draft and paying the merchant the face value of
that sales draft. Collecting payment through the interchange systems is a three-part process:

1.
Authorisation is the first step in processing a credit card. After a Cardholder enters their card
details onto the Merchant's website or Card Payment Gateway, the data is submitted to the
Merchant's bank, called an Acquirer, to request authorisation for the sale. The Acquirer then
routes the request to the card-issuing bank, where it is authorised or denied, and the
Merchant is allowed to process the sale.

i. The Cardholder provides account details to the Merchant.

ii. Acquirer asks MasterCard/ Visa to determine the Issuer.
iii. MasterCard/ Visa checks card security features and sends to the Issuer for approval.
iv. Issuer approves purchase.
 v. MasterCard/ Visa sends approval to the Acquirer.
vi. Acquirer sends approval the Merchant.
vii. Cardholder completes the purchase and receives confirmation of their order on
screen and by email receipt.
2.
The second step in clearing, which is the process of transmitting, reconciling and, in some
cases, confirming transfer orders prior to settlement, potentially including the netting of
orders and the establishment of final positions for settlement.

i. Acquirer sends the purchase information to MasterCard/ Visa Card Network.

ii. The Card Network clearing system validates information and sends purchase
information to the Issuer, which prepares data for the Cardholder's statement.
iii. The Card Network clearing system provides reconciliation to both the Acquirer and
Issuer.
3.
The final stage is settlement, whereby the funds are transferred into the Merchant's account
and the cardholder is billed for the payment.

i. Issuer sends payment to the Card Network counter-party to settlement.

ii. The Card Network counter-party to settlement sends payment to the Acquirer.
iii. Acquirer pays the Merchant for the Cardholder's purchase
iv. Issuer bills the Cardholder.
Benefits of Credit Cards
Personal finance experts spend a lot of energy trying to prevent us from using credit cards - and
with good reason. Many of us abuse them and end up in debt. But, contrary to popular belief, if
you can use a credit card responsibly, you're actually much better off paying with credit than
with debit. The following benefits acquire to customer form the usage of credit cards:

 The standard debit card offers zero rewards or very small rewards.
Many credit cards, however, offer significant rewards when used responsibly. For example,
applicants with good credit can get approved for credit cards that offer signup bonuses worth
anywhere from $50 to $250 (and sometimes even more). Other cards offer up a large number
of points that can be redeemed for rewards like gift cards or air travel.
 If you sign up for the right credit card, you can earn anywhere from 1-5% back
on your purchases.
 Some cards, like the Fidelity Investment Rewards card, offer a
higher rate of cash back; in exchange you must deposit your cash back directly into an
investment account.
 It seems like every airline these days has at least one credit card
available. Cardholders rack up miles at a rate of one mile per dollar spent, or sometimes one
mile per two dollars spent. The price of the plane ticket you ultimately end up redeeming
your miles for will determine how valuable this credit card reward is, but many frequent
flyer cards are made immensely more valuable by their mileage signup bonuses - these are
often enough to put you 50-100% of the way toward a free flight within a month or two.
 Many card rewards work on a point system where you earn up to five points per
dollar spent. When you reach a certain point threshold, you can redeem your points for gift
cards at some stores. You can also use the gift cards as gifts, making holiday and birthday
shopping simpler and less expensive.
 Paying with a credit card makes it easier to avoid losses from fraud. When your
debit card is used fraudulently, the money is missing from your account instantly.
Legitimate payments for which you've scheduled online payments or mailed checks may
bounce, triggering insufficient funds fees and making your creditors unhappy. Late
payments can also lower your credit score. It can take a while for the fraudulent transactions
to be reversed and the money restored to your account while the bank investigates.
 When you make a debit card purchase, your money is gone instantly. When
you make a credit card purchase, your money remains in your checking account until a
couple of weeks later when you pay your credit card bill. Hanging on to your money for this
extra time can be helpful in two ways. First, if you pay your credit card from a high-interest
checking account and earn interest on your money during the grace period, the extra interest
 will eventually add up to a meaningful amount. Second, when you always pay with a credit
card, you don't have to watch your bank account balance like crazy to make sure you stay in
the black.
 Most credit cards automatically come with a plethora of consumer protections
that people don't even realize they have, such as rental car insurance, travel insurance and
product warranties that may exceed the manufacturer's warranty.
 Certain purchases are difficult to make with a debit card. When
you want to rent a car or stay in a hotel room, you'll almost certainly have an easier time if
you have a credit card. Rental car companies and hotels want customers to pay with credit
cards because it can be easier to charge customers for any damage they cause to a room or a
car this way. So if you want to pay for one of these items with a debit card, the company
may insist on putting a hold of several hundred dollars on your account. Also, when you're
traveling in a foreign country, merchants won't always accept your debit card as payment,
even when it has a major bank logo on it.
 If you have no credit or are trying to improve your credit score, using a
credit card responsibly will help your credit score because credit card companies will report
your payment activity to the credit bureaus. Debit card use doesn't appear anywhere on your
credit report, however, so it can't help you build or improve your credit.

Debit cards offer the convenience of a credit but work in a different way. Debit cards draw
money directly from your checking account when you make the purchase. They do this by
placing a hold on the amount of the purchase. Then the merchant sends in the transaction to their
bank and it is transferred to the merchants account. It can take a few days for this to happen, and
the hold may drop off before the transaction goes through.

Debit Card is an electronic card issued by a bank which allows

bank clients access to their account to withdraw cash or pay for
goods and services.
This removes the need for bank clients to go to the bank to remove cash from their account as
they can now just go to an ATM or pay electronically at merchant locations. This type of card,
as a form of payment, also removes the need for checks as the debit card immediately transfers
money from the client's account to the business account.
Settlement Process through Debit Card Networks
When someone swipes a debit card through a merchant's terminal, the terminal reads the
magnetic strip on the back of the card and transmits the data to a card-processing network.

1. The cardholder pays merchant for purchase and the merchant runs the card through the
terminal.
2. The terminal submits the transaction through merchant account to the acquiring bank.
3. The transaction flows through the corresponding card brand to cardholder’s issuing bank.
4. The issuing bank verifies the card number, the transaction type, and the amount. It then
reserves that amount of the cardholder’s credit limit for the merchant.
5. An authorization will then generate an approval code. This code is then passed back through
the system and stored within the transaction file inside the terminal.

Benefits of Debit Card

Consumers are increasingly using their debit cards for everyday purchases instead of cash and
checks, because they’re convenient, easy to use, can be an effective budgeting tool, and provide
benefits that cash and checks don’t offer. Following are the benefits of debit cards:

 Debit card acts as a type of prepaid card. It is so, since it already has a
sufficient amount of cash balance in its holder’s bank account. It permits to carry on the
value of the transaction (i.e. purchases) to the extent of available balance in its holder’s bank
account.
 Bank issuing a debit card charges an annual fee for the issuance and
maintenance of card. This fee charged is very nominal in nature. Generally, bank charges
the fee on a per annum or yearly basis. Such a fee gets automatically debited (deducted) from
the debit-cardholder’s bank account.
 Debit card acts as an alternative mode of payment for executing
various cash-related financial transactions. It can be used for the purchases of goods and
 receipt of services. In its presence, there is no need to carry a large amount of cash. Thus, it
helps to avoid carrying huge amount of cash while traveling and minimize risk of loss due
to theft, damage, etc.
 Debit card ensures immediate transfer of funds in the
merchant’s or dealer’s bank account. Such a transfer of funds takes place almost instantly at
the moment of purchases of goods and receipts of services. With its use, there is no need to
visit bank’s office premise and do a manual transfer of cash in the merchant’s or dealer’s
bank account.
 The debit card facilitates instant withdrawal of cash
from any nearest ATM. This helps its holder to avoid a personal visit to bank’s office
premise and wait in a long time-consuming queue. In short, it also acts as an ATM card to
meet its holder’s cash-related needs, anytime and anywhere.
 Debit card is very easy to carry, handle and manage while traveling to
outstations or overseas. Being small, thin, flat and having a negligible weight it easily fits in
any pocket. It can be handled very freely even with just two fingers. Managing it is also not
a big problem. A cardholder must just take enough care to see to it that:
 Debit card is always covered with a thick plastic cover to avoid scratching of its
sensitive surface.
 It doesn’t come in contact with contaminated water and heat.
 It doesn’t get folded accidentally; this helps to prevent its breakage.
 It is placed safely in a convenient location which one remembers. This helps to avoid
it getting misplaced and lost due to negligence.
 Now-a-days, the competition among debit card providers (banks)
is challenging. Today, most banks offer bonus points to encourage their cardholders
(customers) to make purchases using their debit cards. Banks are able to offer such points to
their cardholders as its merchants and not them who actually run the reward program.
After every successful sale, a merchant gives the bank a small cut-off or percentage as a
commission. This commission is further shared or divided by the bank with its holder (as a
reward) who did the original purchase. Thus, in return, it finally also helps the cardholder
earn bonus points on selected financial transactions executed by him or her via a debit card.
In this cycle, all, viz., bank, merchant, and cardholder are directly benefited. Bank offers an
incentive like this to improve the sale of the products in the ordinary course of business and
contribute in the economic growth.
 As we have seen above, debit card helps to accumulate
bonus points through a reward program. These points can be redeemed by the cardholder
(within card’s expiration date) at any merchant website and/or outlet that bank has already
authorised. While redeeming accrued points, cardholder gets an idea of its worthiness in
terms of amount, and so he/she proceeds to claim gifts nearly equal to that amount.
 In a cash back, cardholder gets a percentage of the total amount spent on
purchases made using his card. In other words, when a holder use his debit card to buy
something then a percentage of entire money he spent usually in a month is credited-back to
his account once every following month.
Consider for an example, a debit-cardholder spends 100 dollars three times a month on
shopping and the cash-back offer on shopping is 10 percent. In such a case, cardholder will
get back $30, which is 10% of $300 ($100 × 3) returned to his account in the coming month.
However, to avail this offer some minimal amount must be spent on some minimum number
of transactions at least once a month in a specific currency by eligible cardholders only.
For an instance, a cash back debit card provider may say in his terms as,
“To get 10% cash back you must do a minimum of three transactions in any calendar month.
A minimum of $100 must be spent per transaction. All legit spending must be in US $.”
 Debit-cardholders also gets free insurance coverage. The
bankers provide such insurance facilities to attract new customers and to maintain their
current customer strength. They provide various types of insurances for free to their
cardholders:
 Insurance on loss of debit card,
 Purchase insurance,
 Personal insurance,
 Accidental insurance,
 Travel insurance, and so on.
However, these types of insurances are given freely to cardholders depending on which type
of debit card they have possessed. The cost of insurance premium is borne by the bankers
who provide debit cards to their customers.
 Miscellaneous advantages of debit card are as follows:
 Debit card acts as an alternative to a traditional cheque payment.
 It helps to budget one’s expenses and do a responsible spending of own money
within account limits.
 Its holder uses his own money and not any borrowed (loaned) money. Unlike a credit
card, here, no interest is charged. Hence, its transactions are interest free.
 It is accepted internationally, by e-commerce websites, and almost everywhere by
merchants who display the logo of payment processing companies like VISA,
Master Card, American Express, etc. This ensures making successful payments
anywhere in the world with ease.
 It offers optimum levels of security. This greatly minimizes the chances of fraud,
misuse and theft of money.
 Overall, it enhances the banking experience of a cardholder
Electronic money (also known as e-currency, e-money, electronic cash, electronic currency,
digital money, digital cash, digital currency, cyber currency) refers to money or scrip which is
only exchanged electronically. Typically, this involves the use of computer networks, the
internet and digital stored value systems. Electronic Funds Transfer (EFT) and direct deposit are
all examples of electronic money. Also, it is a collective term for financial cryptography and
technologies enabling it.

Electronic money is money which exists only in banking

computer systems and is not held in any physical form. The need
for physical currency has declined as more and more citizens use
electronic alternatives to physical currency.
Electronic money is recently developed phenomenon, and its technical, legal, economic and
cultural components are not completely developed yet. In both aspects a great number of
attempts are being developed and tested in different stages, in different legislations.

Types of Electronic Money

An electronic payment is any kind of non-cash payment that doesn't involve a paper check.
Methods of electronic payments include credit cards, debit cards and the ACH (Automated
Clearing House) network. The ACH system comprises direct deposit, direct debit and electronic
checks (e-checks). For all these methods of electronic payment, there are three main types of
transactions:

1. A is commonly used when you shop online

at an e-commerce site, such as Amazon. You click on the shopping cart icon, type in your
credit card information and click on the checkout button. The site processes your credit card
information and sends you an e-mail notifying you that your payment was received. On
some Web sites, you can use an e-check instead of a credit card. To pay by e-check, you type
in your account number and your bank's routing number. The vendor authorizes payment
through the customer's bank, which then either initiates an electronic funds transfer (EFT)
or prints a check and mails it to the vendor.
2. You make a when you pay a bill through
a regularly scheduled direct debit from your checking account or an automatic charge to
your credit card. This type of payment plan is commonly offered by car insurance
companies, phone companies and loan management companies. Some long-term contracts
(like those at gyms or fitness centres) require this type of automated payment schedule.
3. To use , your bank must offer a service called
online bill pay. You log on to your bank's Web site, enter the vendor's information and
authorize your bank to electronically transfer money from your account to pay your bill. In
most cases, you can choose whether to do this manually for each billing cycle or have your
bills automatically paid on the same day each month.

All retail banks including leaders such as ICICI, HDFC, UTI, and SBI are competing for a larger
share of the customers’ financial transactions. Their efforts are directed to attract and retain
customers by offering them a basket of tailor made schemes supported by a state of the art
distribution system (the ATMs). The whole exercise is helping banks to serve their customers
fast and avoid human intervention totally. And for the customers, ATMs offer hassle-free cash
withdrawal. No more fighting with the bank's teller for change and fresh notes. The total cash
movement through ATMs in India is already between Millions of Rupees (local currency) every
year. In future, things are going to be even more different and challenging. The ATM has
become a medium for non-cash transactions such as payment of bills, insurance payments,
printing of statements or even accessing the Internet.

The product in this chain is cash. The objective of this paper is primarily to study the information
flow and the fund flow in the supply chain of the retail banks in the country. The supply chain
in retail banks needs to be more responsive to the needs of the customers in comparison to the
traditional FMCG industry. All the intermediaries in the supply chain play an important role in
making the supply chain more efficient. The various aspects involved are the logistics involved
in ATM operations, role of forecasting in retail outlets and ATMs and the parameters that are
taken into consideration, scope of network sharing, issue of having the right mix of currency
denomination to be able to satisfy the demand. The chronic problem faced in such a scenario is
cash stock outs and banks are increasingly trying to synergize their supply chain with that of the
external agents (ATM vendors, outsourcing agents, and VISA network) involved in this process.

The players in a retail bank’s supply chain are the RBI, Corporate Branch of the Bank in the
city, the Retail Branches, the Delivery Channel Coordinators, Outsourced agents who take care
of physical cash movement, ATMs and ATM vendors.

The key elements in the supply chain are Cash flow, Information flow and IT infrastructure,
Lead time of cash replenishment, Payments and Receipts, different denominations of
currencies, Geographical locations and Status of accounts (corporate accounts, salary accounts
etc).
In case of financial services and banks, it is presumed that the demand drivers for cash are those
factors, which increases the propensity of cash withdrawal (retail as well as ATMs) and cash
deposits. Certain demand drivers having substantial effect on the final level of demand are the
following:

Number of current accounts.

Resident accounts and their age profile (for example, some banks have a captive
audience of pension holders) etc.
Number of salary accounts.
Seasonal factors including weekends, festivities etc.

A financial institution’s board and management should understand the risks associated with E-
banking services and evaluate the resulting risk management costs against the potential return
on investment prior to offering E-banking services. Poor E-banking planning and investment
decisions can increase a financial institution’s strategic risk.

Security is one of the most discussed issues around E-banking. E-banking increases security
risks, potentially exposing hitherto isolated systems to open and risky environments. Security
breaches essentially fall into three categories; breaches with serious criminal intent (fraud, theft
of commercially sensitive or financial information), breaches by ‘casual hackers’ (defacement
of web sites or ‘denial of service’ - causing web sites to crash), and flaws in systems design
and/or set up leading to security breaches (genuine users seeing / being able to transact on other
users’ accounts). All of these threats have potentially serious financial, legal and reputational
implications.

The most prevalent types of Internet frauds are discussed as below:

Identity Theft
This has become a major problem with people using the Internet
for cash transactions and banking services. In this cyber-crime, a
criminal accesses data about a person’s bank account, credit cards,
Social Security, debit card and other sensitive information to
siphon money or to buy things online in the victim’s name. It can
result in major financial losses for the victim and even spoil the
victim’s credit history.
For identity theft, fraudsters make use of the personal data they have accessed via phishing,
malware or another type of social engineering.

Fraudsters can get our information in a variety of ways, and not just via the internet or our
computer: they can also request a replacement authentication code from our bank because “we
lost the old one”. The bank sends this to our home address, where the fraudster steals this from
our mailbox. This can be especially dangerous in apartment buildings because all the mailboxes
hang next to one another and the lock is more easily broken.

Some information is more easily gained by fraudsters via social networks. This is why we
should always be careful with what our post on these sites.

Carding/ Skimming
‘Card skimming’ is the illegal copying of information from the
magnetic strip of a credit or ATM card. It is a more direct version of
a phishing scam.

The scammers try to steal your details so they can access your
accounts. Once scammers have skimmed your card, they can create
a fake or ‘cloned’ card with your details on it. The scammer is then
able to run up charges on your account.

Card skimming is also a way for scammers to steal your identity

(your personal details) and use it to commit identity fraud. By
stealing your personal details and account numbers the scammer may be able to borrow money
or take out loans in your name.

Phishing
Very high is the number of phishing attacks against financial institutions, especially banks.
What cyber criminals are after are, of course, all types of sensitive information such as account
credentials, transfer history etc.

A classic phishing attack consists in tricking the user into divulging personal banking data
through fake emails. Attackers direct the recipient to a replicated website looking like the real
bank site and encourage them to “login” or submit their information via ad hoc forms.

In a typical phishing scheme, spoofed emails lead users to visit infected websites designed to
appear as legitimate ones. The websites are designed to coax customers to divulge financial
data, such as account credentials, social security numbers and credit card numbers.
In the classic attack scheme, fraudsters send e-mails or advertisements to the victims with
content that looks like they were sent by a bank or by a credit card company. The emails request
victims to click on a link to go to a website that replicates a bank’s website.

The malicious email could contain a link to the fake website or could include an attachment that
once opened, involves exactly the same task. Phishing attacks use social engineering techniques
mixed with technical tricks to fool the user and steal sensitive information and banking account
credentials. Phishing messages usually take the form of fake notifications from banks,
providers, e-payment systems and other organizations. They request the user to submit sensitive
information such as passwords, credit card numbers and bank account details

In literature, there are several variants of phishing, many of them involve the use of malware
specifically designed to steal credentials from victims while hiding evidence of an attack.

 Phishing email will direct the user to visit a website where they are
asked to update personal information, such as a password, credit card, social security, or
bank account numbers, that the legitimate organization already has.
 Experts say it’s one of the most difficult and advanced cyber-crime
techniques, but still possible via:
 DNS Cache Poisoning
 Hosts File Modification
Pharming is a scamming practice in which malicious code is installed on a personal
computer or server, misdirecting users to fraudulent Web sites without their knowledge
or consent. Pharming has been called "phishing without a lure."
In phishing, the perpetrator sends out legitimate-looking e-mails, appearing to come
from some of the Web's most popular sites, in an effort to obtain personal and financial
information from individual recipients. But in pharming, larger numbers of computer
 users can be victimized because it is not necessary to target individuals one by one and
no conscious action is required on the part of the victim. In one form of pharming attack,
code sent in an e-mail modifies local host files on a personal computer. The host files
convert URLs into the number strings that the computer uses to access Web sites. A
computer with a compromised host file will go to the fake Web site even if a user types
in the correct Internet address or clicks on an affected bookmark entry. Some spyware
removal programs can correct the corruption, but it frequently recurs unless the user
changes browsing habits.

A particularly ominous pharming tactic is known as domain name system poisoning

(DNS poisoning), in which the domain name system table in a server is modified so that
someone who thinks they are accessing legitimate Web sites is actually directed toward
fraudulent ones. In this method of pharming, individual personal computer host files
need not be corrupted. Instead, the problem occurs in the DNS server, which handles
thousands or millions of Internet users' requests for URLs. Victims end up at the bogus
site without any visible indicator of a discrepancy. Spyware removal programs cannot
deal with this type of pharming because nothing need be technically wrong with the end
users' computers.
 Spear phishing is an email that appears to be from an individual or
business that you know. But it isn't. It's from the same criminal hackers who want your
credit card and bank account numbers, passwords, and the financial information on your
PC.
 This uses macromedia flash to build an entire website. The uses of
flash is intended to make it more difficult to determine whether or not the page is
malicious, and could bypass anti-phishing toolbars.
  Vishing is the act of using the telephone in an attempt to scam the user into
surrendering private information that will be used for identity theft. The scammer
usually pretends to be a legitimate business, and fools the victim into thinking he or she
will profit.
 A man in the middle attack is one in which the attacker
intercepts messages in a public key exchange and then retransmits them, substituting his
own public key for the requested one, so that the two original parties still appear to be
communicating with each other.
Man in the middle attacks are sometimes known as fire brigade attacks. The term derives
from the bucket brigade method of putting out a fire by handing buckets of water from
one person to another between a water source and the fire.
 A man in the browser attack is similar to the man in
the middle tactic, in which an attacker intercepts messages in a public key exchange.
The attacker then retransmits them, substituting bogus public keys for the requested
ones. A man in the browser attack is more difficult to prevent and disinfect, however,
because instead of occurring in a public exchange, the activity takes place between the
user and the security mechanisms within that user's browser.

Money Mule
Money mules are people who serve as intermediaries for criminals and criminal organisations.
Whether or not they are aware of it, they transport fraudulently gained money to fraudsters. The
use of intermediaries makes it difficult to figure out the identity of the fraudster.

Money mules, just like fraudsters, are guilty of illegally transporting fraudulently gained money
and can be prosecuted for this.

Watering Hole
Watering hole cyber-crime is an evolution of phishing. Instead of trying to convince users to
visit a certain website, this technique involves injecting malicious code onto specific web pages,
and waiting for visitors to be “infected”. Exploit kits to compromise websites are available in
the black market.
“Targeting a specific website is much more difficult than merely locating websites that contain
a vulnerability. The attacker has to research and probe for a weakness on the chosen website.
Indeed, in watering hole attacks, the attackers may compromise. Once compromised, the
attackers periodically connect to the website to ensure that they still have access”