E-banking increasingly becoming a “need to have” and

E-banking servicesE-bankingor Internet banking is changing the banking industry. Banking services now areno longer confined to bank branches. E-banking is increasingly becoming a “needto have” and “nice to have” service. It provides customers with enormousbenefits in terms of ease and cost of transactions.

Apayment system is a system of transferring money. It is referred to as a systembecause it employs cash substitutes. The payments can either be throughphysical or electronic mode; each has its own procedures and protocols.Theinitiatives were taken by RBI in the mid-eighties and the early-nineties tofocus on the technology based solutions for the improvement of payment andsettlement systems infrastructure coupled with the introduction of new paymentproducts which led to the technological advancements in banks. The continuedincrease in the volume of cheques added pressure on the existing setup thusnecessitating an alternative cost effective system. E-commercepayments refer to buying and/or selling goods and/or services using internet.It facilitates the acceptance of electronic payments for online transactions.E-banking transactions are cheaper than branch or phone transaction, it givescustomers with a lot of services which they can access online.

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Itallows you to access real time balance information and summary of day’stransaction, make a banking request online without visiting the bank branch,downloading of account statements, allows fund transfer through IMPS (ImmediatePayment Services) and NEFT, bill payments, investments etc.SMART CARDSAcrossa city, a state or a nation, various governmental agencies and departments needsecure, rapid and efficient ways to identify the citizens and theirbackgrounds. In order to provide benefits, services and information. Until therecent years, conventional plastic/paper identification cards have served thepurpose. However with the widespread fraudulent activities, illegalimmigration, terrorism and the lack of control which resulted from the use ofunprotected cards has prompted for the need of a more reliable and secureidentification technology. Smart cards fulfill the needs of having an authenticand secure transaction in and e-Governance environment.Withthe low technological intensive environment existing in India, smart cards haveserved as a right tool for the government to take the technology to the ruralareas through assimilation of data and disbursement of benefits to theauthorized individuals and bringing them into the main stream. The governmentwill thus be able to track the data against any monetary implication leading toreduced corruption and less pilferage.

Developedwith latest technology and innovation to overcome all limitations of adebit/credit card  a Smart Card  contains a micro-processor and a storage unit.It is embedded with a chip and was first introduced in Europe; it is apocket-sized plastic card. It is featured with characteristics of providingsecurity, convenience and data portability services. Turning out to be a vitalpiece of transformation of retailing into e-commerce. Smart cards could be thefundamental building block of widespread use of e-commerce as credit cards orchecks are expensive for micro-payments. Also they are an instrument to pay ata low cost of transactions. They offer unparalleled flexibility in secure datatransfer.

It’s dynamic ability expedites lengthy identification processesvirtually eliminating manual data entry and paperwork.Anotherbig advantage of smart cards is that they are used for the customization ofservices. It can contain a non-encrypted profile of the bearer for the accessto customized services. They are also considered to be a key technology enablerfor financial institutions. As a relationship between consumers and banks, theprocessing power, portability and interactive properties smart cardsconstitutes the basis for revolution.

Smartcards are categorized as memory smart cards and intelligent smart cards. Memorysmart cards are cards which contains less information and processingcapabilities , they are used to record monetary or unit value for a specificamount; whereas Intelligent smart cards stores more information and processwide variety information than a memory smart card. The smart cardmicroprocessors are loaded with an electronic purse which is used to refer tomonetary value and which can be used by consumers to make purchases.

Themerchants accepting smart card payments must have a smart card reader. It canbe used either in offline or online mode.Functioning of anoffline smart card is as follows-:1)      Holderinserts card into the machine and downloads cash from the bank as tomicroprocessor on the card.

2)      Consumerspay for the goods and/or services by inserting the card into the merchant’ssmart card reader.3)      Thesmart card reader records the transaction.4)      Atthe end of the day, the merchant inserts a smart card and downloads all theday’s sales received.5)      Creditthe day’s cash sales to the bank. Smartcards have the advantage of providing electronic record for purchases and theability to printout receipts which can serve as transaction data over physicalcash.Aroundthe globe, the banks have rolled out smart cards under the EuroPay, MasterCard,and VISA (EMV) standard. Smart cards have proven to be used for secure transactionswith regularity so much so that the EMV standard has become a norm. With banksentering into competition in newly opened markets, they are securingtransactions via smart cards at an increasing rate.

Smartcards through its improved security increases trust. Protection of data andvalue across the internet is insured by the two-factor authentication. Threatslike Trojan horses are eliminated. Customers can use secure smart cards forfast 24 hours electronic fund transfers over the internet and thus they arelikely to improve customer service. Transactions that would normally require abanker’s time and paperwork can now be managed electronically by the customerand therefore cost of transactions is reduced.

Smartcards are also issued to residents travelling on private/business visit abroadwhich can be used for payments at overseas merchant establishments also forwithdrawing cash from ATM terminals. Prior permission from RBI is not requiredfor the issue of such cards.Current Applications ofSmart Card-Smartcard as already stated is a portable computational device with the ability tostore data. They are highly reliable form of tamper-proof and secure personalidentification repository. The following are some of its application-:1)      Thereis a widespread use of payphone globally which is equipped with card readers inaddition to coin recognition and storage. The major advantage is that the phone companies do not have to collectcoins and even the users need not have to have coins or remember long access numbersor PIN codes. Smart cards are reloadable and are allowing advanced featureslike phone banking and on-line services.

2)      Smartbanking cards offers counterfeit and tamper proof services and thus can be usedas a credit, debit or stored value cards. The card readers use mutualauthentication procedures to protect its users, banks and merchants fromfraudulent activities. Other services provided by smart cards are electroniccoupons and advanced loyalty programs.3)      Itcan be used to store monetary value for small purchases like groceries,transportation tickets, parking, cafeterias, taxis etc.4)      Italso allows the information of a patient’s history to be safely and reliablystored.

 Finally,the phone banking and the internet banking will give way to card banking-with aphone equipped with a smart card reader which will be all that is needed forany kind of transaction. Smartcards and credit cards have become the most common form for e-commercepayments. Almost 90%of the online B2C transactions in North America and madeusing this payment type.

In order to mitigate the fraudulent activities moreand more security measures are being taken by the government and banks toincrease use of plastic money. A popular smart card initiative is the VISASmart Card using which you can transfer electronic cash from your bank accountto your card and then use the card to make on-line purchases. Electronic ClearingServicesInorder to review the mechanization in the banks and also to review theelectronic clearing service RBI appointed a committee in 1994.

It wasrecommended by the committee in a report that electronic clearingservice-credit clearing facility should be made available to all governmentinstitutions as well as corporate bodies for making repetitive low value paymentslike interest, refund, salary, pension, dividends or commissions. It was alsorecommended that electronic clearing service- debit clearing facility may beintroduced for pre-authorized payments of utility bills, insurance premiums andinstallments to leasing. These schemes were initially introduced in Chennai,Mumbai, Calcutta and New Delhi.Itsand electronic mode of fund transfer from one bank account to another and canbe used for both credit and debit purposes. It’s used by institutions for makingbulk payments or bulk collection of amounts.Thereare two variants of ECS-ECS Debit andECS Credit.ECS Debit-it is used to raise debits to a large number of accounts that are maintainedwith the bank branches at various locations under the jurisdiction of the ECSCenters. It is used for the payment of electricity/telephone/water bills, taxcollections, periodic investments in mutual funds, insurance premium etc.

thatare repetitive and periodic and are payable to the user institution by largenumber of customers. Under this scheme multiple accounts are debited against asingle credit of the account.How it works?TheECS Debit user who is intended to collect the receivables has to submit thedetails of the respective customers like name of the customer, bank and branch,MICR Code, date on which the customer’s account is to debited through itssponsor bank to the ECS Center.Thebank managing the ECS Center then passes on the debits to the destinationbranches for the onward debit of the customer’s account and the credit of thesponsor bank’s account.Benefits of ECS Debit-1)      Thereis no need for customers to keep track of due dates for payments2)      Thedebits to the accounts are monitored by the ECS Users and the customers arealerted accordingly.3)      Itis cost effective.

ECS Credit-It is used by large number of institutions for affording credit facility to alarge number of beneficiaries having bank accounts at various locations whichfall under the jurisdiction of the ECS centers. It enables payments towards dividends,salary, pension, interest etc. of the user institutions. It was duringSeptember 2008, when RBI launched a new service known as National ElectronicClearing Service (NECS), at the National Clearing Cell (NCC) in Mumbai. NECS(Credit) facilitated multiple credits to beneficiary accounts with branchesacross the country against a single debit of the account of the sponsor bank.How it works?Theuser who is intended to make payments through ECS Credit has to submit thedetails of the beneficiaries which includes the name of the beneficiary, thebank and its branch, MICR code of the destination bank branch, date on whichthe credit is to be processed to the beneficiaries through its sponsor bankthrough one of the ECS Centers where it is registered as a user.Thebank managing the ECS center then debits the sponsor’s bank account on thescheduled settlement date and credits the accounts of the beneficiaries.Benefits of ECS Credit-1)      Thebeneficiary need not visit the bank branch.

2)      Thebeneficiary need not be apprehensive of theft or loss of physical instrument orany fraudulent encashment thereof.3)      Thefunds are received right on the due date.4)      Itis cost effective.What is MICR Code?MICRstands for Magnetic Ink Character Recognition. It is a numeric code thatuniquely identifies a bank-branch participating in the ECS Credit scheme. It isa 9 digit code which identifies the location of the bank branch; the first 3characters represent the city, the next 3 the bank and the last 3 representsthe branch of the bank.Thereare three broad categories of ECS schemes depending on the geographicallocations at which the branches are located. These schemes rare either operatedby designated commercial banks or RBI.

1)      Local ECS-It’s been operated at 81 centers or locations across at the country. At eachcenter the branch coverage is limited to the geographical coverage of theclearing house. 2)      Regional ECS (RECS) -It’s been operated at 9 centers or locations across various parts of thecountry. It facilitates the coverage of all core-banking enabled branches in astate or group of states. It takes advantage of core banking system in banks;the actual customers might have their accounts at various bank branches acrossthe length and breadth of the state. RECS was launched during the year 2009 andis a miniature of the National Electronic Clearing System.

3)      National ECS-It was launched in 2008 and is the centralized version of ECS Credit. It isoperated in Mumbai and facilitates the coverage of all core-banking enabledbranches located anywhere in the country. Although the inter-bank settlementtakes places centrally at one location i.e.

Mumbai, the actual customers underthe scheme may have their accounts at various locations across the country.Partiesinvolved in the ECS payment system-:1)      Payee-one who is going to receive the payment.2)      Payer-one who is going to make the payment.3)      Payee’sbank4)      Payer’sbank5)      Clearinghouse- which facilitates the interaction between the two banks.

Pre-requisites to makethe payment-·        Both parties should have a bank account.·        Banks involved should be member of thelocal clearing house.ECSgives an option to fix the amount of ECS, alternatively also allow setting amaximum limit and the auto debit amount will be as per the bill i.e. forinstance if an ECS is set for the credit card bill with a maximum limit of ECSto be Rs. 10,000 and the credit card amount due for the month is Rs.

8000, thenan ECS for Rs. 8000 will run. In fact, an ECS for minimum amount due as well asa fixed amount of choice can also be set.Inorder to start an ECS for utility bill purpose like phone bill, one needs tofill a mandate of ECS debit with the mobile service provider and get itendorsed by the bank. The bank might charge a small fee to set an ECS mandate,whereas to stop an ECS, the bank has to be informed in advance so that they getenough time to take the necessary steps.ECSdebit mandate is just like a cheque issued. This means the bank account shouldhave enough funds so that the ECS gets cleared. If an ECS gets bounced, one hasto bear the same fine as that in case of a bounced cheque which could be asmuch as Rs.

750. It works well as they take away the pains of writing a chequefor recurring payments.TheReserve bank of India has deregulated the charges to be levied by sponsor banksfrom the user institutions. With effect from 1st July 2011, theoriginating banks are required to pay nominal charge of 25 paise and 50 paiseper transaction to the clearing house and the destination banks respectively.

The bank branches do not generally levy any processing or service charges fordebiting the accounts of customers which are maintained with them.Electronic Cheques-Recentyears have seen tremendous increase in the use of e-commerce transactions, thesuccess of which relies on developing adequate payment technologies. E-chequesare one such technology.

It is an electronic document which serves as asubstitute for the paper check for online transaction. It is the result ofcooperation among government entities and technological companies as well ase-commerce organization. It’s a new payment instrument that combines speed,high-security, processing efficiencies and convenience for online transactions.Itis a form of payment via the use of internet that is designed to perform thesame function as that of a conventional paper cheque. Because it’s inelectronic form it has more security features than a standard cheque. It isdesigned with a message integrity, non-repudiation features, authentication andis strong enough to prevent fraud against the banks and their customers.

Minimumsecurity requirements that are taken care by e-cheques are as follows-:1)      Confidentiality-keeping the information as secret.2)      Authentication-verificationof the origin and/or destination of the information.3)      Integrity-Verifying that the data has not been tampered.4)      Non-Repudiation-the data once sent cannot be retracted or denied.

Theyare highly compatible with the interactive web services and are not dependenton the real-time interactions or third-party authorization. The payer writesthe cheque by structuring electronic document with the information which islegally required to be in cheque and digitally signs it. The payee receives thecheque over e-mails or web, verifies the digital signature, writes out adeposit and digitally signs it.Thebank of the payee then verifies the digital signatures of both the payer andthe payee and then forwards the e-cheque for clearing and settlement. Thepayer’s bank on verifying the payer’s signature debits the payer’s account.E-cheques like paper cheques can bounce or be returned for stop paymentsinstructions or insufficient funds or account closure.Thee-cheque system consisted of two components- the e-cheque server and thee-cheque clients. The server component is used by the financial institutionslike banks to manage the e-cheque user’s account whereas the e-cheque clientcomponent is used by e-cheque clients for different operations likeregistration, e-cheque withdrawals and deposits, sending and receiving cheque.

Benefits of E-cheque tothe banks-1)      Paperclearing risk is reduced.2)      Norestrictions based on geography.3)      Nophysical movement of the cheques which saves the cost and time.

4)      Thereis no chance of cheque dishonor as the risk is taken care by the accountingserver which makes sure that the cheque is honored.Benefits to thecustomer-1)      Nofear of cheque loss while in transit has there is no physical movement of thecheque.2)      Itoffers quicker clearance which is within 3 to 4 days.3)      E-chequesreduced the potentials of errors and frauds as only a few people handle it.

4)      Moresecured than physical cheques.InIndia the e-cheques are replaced by the cheque truncation system where therewill be a physical cheque which will be converted to the e-cheque by scanning andwill then be transferred for clearance which happens in just 24 hours.Itis a cheque clearing system undertaken by RBI for faster clearing of thecheques. It is the process to stop the flow of physical cheques in its way of clearingand allow an electronic image of the cheque to be transmitted in its place withall the key important data.WhyCTS?InIndia still cheques remains a prominent mode of payment.

Physical chequesaccounts for 75 to 80% of the transactions. So it was decided by the centralbank to focus on the efficiency of cheque clearing, thus offering CTS as analternative. It reduced operational risk in the banking operations as clearingof cheques is a highly fraud-prone activity.Benefits of CTS-1)      Theclearing cycle is shorter.2)      Itsoffers operational effectiveness to the banks as well as to the customers.3)      Reducesoperational risk and also the risk associated with paper clearing.Payments BankRBItook advanced step by providing the guidelines for licensing differentiating banksas Payments bank or small finance banks. It was on November 27, 2014 when RBIreleased the final guidelines for the payments bank which allowed mobile firmsand other valid entities to enter the banking sector to service the smallbusinesses and individuals.

Themain objective of a payments bank is to provide small saving accounts and remittancesand payments services to the small businesses, unorganized sectors, low incomehouseholds. These banks are not allowed to provide loan services to the publicand thereby reducing the credit risk and the increasing NPA’s, they are onlymeant for payment purposes.Thereare two biggest challenges for the emerging payment banks within India. Firstis the young population residing in the urban areas that are technologicalsavvy and are aware of the banking channels and prefer moving towards the moresophisticated banking solutions like the E-wallets and he card based monetarybenefits of anytime and anywhere banking? Second is the low income populationwhich is residing in the rural areas which are still without bank accounts andhave very little or no awareness about how to use the banking channels.Theyhave a great scope of growth in the future as it is the need of the hour todayto bank the unbanked population of India which is mostly residing in the ruralareas to mobilize their savings and for contributing towards the economicgrowth of the country.